SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 33-83894-NY
LOIS/USA INC.
(Exact name of the Registrant as specified in its charter)
Delaware 13-3441962
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
40 West 57th Street, New York, New York 10019
(Address of principal executive offices) (Zip Code)
N/A
(Former name, former address and former fiscal year, if changed from last
report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes_X_ No___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distributions of securities under a
plan confirmed by a court.
Yes___ No___.
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date: 2,379,861
Transitional Small Business Disclosure Format (check one): Yes____ No_X_.
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PART I-FINANCIAL INFORMATION Page
Number
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1996 and
September 30, 1997...........................................F-1
Consolidated Statements of Operations for the
Three Months Ended September 30, 1996
and 1997.....................................................F-2
Consolidated Statements of Operations for the
Nine Months Ended September 30, 1996
and 1997.....................................................F-3
Consolidated Statements of Changes In
Stockholder's (Deficit) For the Nine Months
Ended September 30, 1997.....................................F-4
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1996
and 1997.....................................................F-5
Notes to Consolidated Financial Statements.....................F-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................................F-12
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................F-16
SIGNATURE................................................................F-17
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LOIS/USA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000's omitted)
DECEMBER 31, SEPT. 30,
1996 1997
ASSETS ----- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 567 $ 359
Accounts receivable, net 21,788 22,834
Expenditures billable to clients 1,702 1,072
Other current assets 470 704
----- -------
Total current assets 24,527 24,969
PROPERTY AND EQUIPMENT, at cost 2,948 3,151
Less-Accumulated depreciation and (2,112) (2,456)
amortization ----- -----
Net property and equipment 836 695
----- -----
OTHER ASSETS:
Deferred financing costs 350 550
Goodwill 1,118 13,133
Other assets 165 156
----- ------
Total other assets 18,633 13,839
------ ------
Total assets $43,996 $39,503
======= =======
December 31, Sept. 30,
LIABILITIES AND STOCKHOLDERS 1996 1997
EQUITY (DEFICIT)
<S> <C> <C>
CURRENT LIABILITIES:
Bank overdraft $2,865 $ -
Accounts payable 29,285 30,705
Accrued expenses and
other current liabilities 1,423 900
Bank loans 1,580 2,500
Advanced billings 2,362 1,033
Rent payable - Current 1,333 1,077
------ ------
Total current liabilities 38,848 36,215
------ ------
OTHER LIABILITIES:
Lease related reserves 4,834 4,025
Equity subject to put rights 270 -
Deferred purchase price 5,939 2,724
------ -----
Total other liabilities 11,043 6,749
------ ------
Total liabilities 49,891 42,964
------ -----
REDEEMABLE PREFERRED STOCK - 2,160
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, par value
$.01 per share:
1,000,000 shares authorized;
no shares issued and
outstanding
Common stock, par value $.01 per
share: 20,000,000 shares
authorized; 2,555,875 and
2,367,090 issued and
outstanding 26 24
Additional paid-in capital 5,757 4,897
Accumulated deficit (11,678) (10,542)
------ ------
Total stockholder's
equity (deficit) (5,895) (5,621)
Total liabilities and
stockholders'
equity (deficity) $43,996 $39,503
======= =======
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
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LOIS/USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
(000's omitted, except for per share and share data)
INCOME: 1996 1997
---- ----
<S> <C> <C>
Commissions and fees $7,942 $6,844
------- ------
OPERATING EXPENSES:
Salaries and related costs, net 4,553 4,652
Other operating expenses 2,369 1,885
Amortization and depreciation 288 292
----- ----
Total operating expenses 7,210 6,829
----- -----
OPERATING INCOME 732 15
NONOPERATING EXPENSES:
Interest, net 119 20
Amortization of deferred financing costs 36 106
--- ---
Total nonoperating expenses 155 126
--- ---
INCOME BEFORE PROVISION FOR
INCOME TAXES 577 (111)
PROVISION FOR INCOME TAXES 312 3
--- ----
NET INCOME (LOSS) 265 (114)
PREFERRED STOCK
DIVIDEND REQUIREMENT - 54
---- ----
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCK $265 ($168)
==== ====
NET INCOME (LOSS) PER COMMON
SHARE $.10 ($.07)
==== ======
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 2,536,836 2,366,683
========= =========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
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LOIS/USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
(000's omitted, except for per share and share data)
REVENUE: 1996 1997
--- ----
<S> <C> <C>
Commissions and fees $21,630 $22,746
OPERATING EXPENSES:
Salaries and related costs, net 13,675 14,324
Other operating expenses 6,167 6,022
Amortization and depreciation 612 979
------ ------
Total operating expenses 20,454 21,325
------ ------
OPERATING INCOME 1,176 1,421
NONOPERATING EXPENSES:
Interest, net 113 66
Amortization of deferred financing costs 64 178
-- ---
Total nonoperating expenses 177 244
--- ---
INCOME BEFORE PROVISION FOR 999 1,177
INCOME TAXES
PROVISION FOR INCOME TAXES 481 37
--- --
NET INCOME (LOSS) 518 1,140
PREFERRED STOCK
DIVIDEND REQUIREMENT - 58
---- ----
NET INCOME APPLICABLE
TO COMMON STOCK $518 $1,082
==== ======
NET INCOME PER COMMON $.21 $.44
SHARE ==== ====
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 2,522,093 2,450,770
========= =========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
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LOIS/USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited 000's omitted)
Common Common Additional
Stock Stock Paid-in Accumulated
Shares Par Value Capital Deficit Total
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 2,556 $ 26 $ 5,757 $(11,678) $ (5,895)
EJL Settlement - return of shares (189) (2) (863) (865)
(Note 2)
Preferred stock dividend 3 (4) (1)
Net income -- -- -- 1,140 1,140
BALANCE, Sept. 30, 1997 2,367 $ 24 $ 4,897 $(10,542) $ (5,621)
===== ======== ======= ======== =========
The accompanying notes are an integral part of these consolidated statements
</TABLE>
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LOIS/USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
(000's omitted)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1997
---- ----
Net income $518 $1,140
Adjustments to reconcile net income to net cash
used in operating activities:
Present value interest on deferred purchase price - 57
Depreciation and amortization 612 979
Amortization of deferred financing costs 64 178
Decrease in deferred tax asset 117 -
Loss on sale of asset - 16
Increase in accounts receivable (2,387) (1,046)
Decrease in expenditures billable to clients 1,583 630
Increase in prepaid income taxes (76) -
Increase decrease in other current assets 517 (234)
Decrease in other assets 9
Decrease in bank overdraft - (2,865)
Increase (decrease) in accounts payable (3,233) 355
Decrease in accrued expenses - (523)
Decrease in advanced billings - (1,329)
NET CASH USED IN ------ ------
OPERATING ACTIVITIES (2,285) (2,633)
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (114) (158)
Cash paid for acquisition, net of cash acquired (3,138) -
Cash paid for acquisition (592) (118)
NET CASH USED IN INVESTING
ACTIVITIES (3,844) (276)
----- ---
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid for preferred dividends (1)
Proceeds from redeemable preferred stock - 2,160
Net Proceeds of credit facility 5,300 920
Increase in deferred financing costs (225) (378)
--- ---
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,075 2,701
----- -----
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,054) (208)
CASH AND CASH EQUIVALENTS, beginning of period 1,729 567
----- ---
CASH AND CASH EQUIVALENTS, end of period $675 $359
==== ===
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period for:
Interest $ 213 $ 53
Income taxes $ 91 $ 37
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
LOIS/USA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosure normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from this report, as is permitted by such rules and regulations; however, the
Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and the notes thereto included in
the Company's Annual Report on Form 10-KSB, for the year ended December 31,
1996.
In the opinion of management, the information furnished reflects all
adjustments, all of which are of normal recurring nature, necessary for a fair
presentation of the results for the reported interim periods. Results of
operations for interim periods are not necessarily indicative of results for
the full year.
In May 1997, the Company issued 2,160 shares of Series A Convertible Preferred
Stock. The Series A Convertible Preferred Stock has a cumulative dividend.
Accordingly, net income per common share is computed on the basis of net income
reduced by the dividend requirement accumulating during the period ("net income
applicable to common stock").
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 130, Reporting Comprehensive Income ("SFAS
130"), which establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity, except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS 130 requires that all items that are required to be recognized under
current accounting standards as components of comprehensive income be reported
in a financial statement that is displayed with the same prominence as other
financial statements.
SFAS 130 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. Because of the recent issuance of this standard, management has been
unable to fully evaluate the impact, if any, the standard may have on future
financial statement disclosures. Results of operations and financial position,
however, will be unaffected by implementation of this standard.
In June 1997, the Financial Standards Board issued Statement of Financial
Accounting Standard No. 131, Disclosures about Segments of an Enterprise and
Related Information ("SFAS 131"), which supersedes Statement of Financial
Accounting Standard No. 14, Financial Reporting for Segments of Business
Enterprise. SFAS 131 establishes standards for the manner in which public
companies report information
<PAGE>
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosure
regarding products and services, geographic areas and major customers. SFAS
131 defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the
operating decision maker in deciding how to allocate resources and in
assessing performance.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997 and requires comparative information for earlier years to be
restated. The Company operates in a single business segment and, accordingly,
the implementation of SFAS 131 is not presently expected to have an impact on
the Company's consolidated financial statements.
2. ACQUISITION OF EISAMAN, JOHNS & LAWS ADVERTISING, INC.
On February 12, 1996, Lois/USA acquired all of the outstanding shares of
Eisaman, Johns & Laws Advertising, Inc. ("EJL"), a national advertising agency
established in 1959, with its principal advertising offices in Los Angeles,
Chicago, Houston and Detroit. For its fiscal years February 28, 1993, 1994 and
1995, EJL had unaudited commission and fee revenues of $19,087,000,
$18,151,000 and $17,011,000, respectively, and unaudited net income (loss) of
$18,000, ($5,000) and ($788,000), respectively.
Pursuant to the original Stock Purchase Agreement (the "Original Agreement"),
between the Company and the shareholders of EJL (the "Sellers"), the Company
made an initial cash payment of $4,000,000 and issued to the Sellers 333,333
shares of the Company's common stock, par value $.01 per share ("Common
Stock"), which were valued at $6.00 per share.
The Original Agreement provided that the Sellers were to receive as additional
purchase price, an amount equal to the lesser of: (i) 5% of the combined revenue
of Lois/USA and EJL, as defined in the Original Agreement, or (ii) $12,000,000
(the "Additional Purchase Price") over a period of five years from the date of
the acquisition. Payments were to be made in the ratio of 75% cash and 25% in
Common Stock, valued at $6.00 per share for the first four quarters and
thereafter valued at the fair market value of the Common Stock as defined in the
Original Agreement. At least $1,750,000 of Additional Purchase Price was payable
for the year ending December 31, 1996. Additionally, the Original Agreement
provided that the Sellers would receive minimum Additional Purchase Price cash
payments of $6,000,000. If, by December 31, 1999, the Sellers had not received
such cash payments, the difference between the $6,000,000 amount and the cash
paid through that date was to be paid to the Sellers by (i) first, allowing the
Sellers to require the Company to repurchase, or "put" to the Company, shares of
Common Stock issued to them as Additional Purchase Price (but not the 333,333
shares of Common Stock issued at the initial closing), on a last issued, first
repurchased basis, at the per share values at which the shares were issued, and
(ii) second, if such repurchases did not cause the total cash Additional
Purchase Price payments to equal $6,000,000, making a cash payment to the
Sellers of the remaining difference. In 2001, the Sellers were also to receive a
final payment of $750,000, payable in shares of Common Stock. The final $750,000
payment is not a component of the calculations above.
The Company accounted for the acquisition using the purchase method of
accounting, and since February 12, 1996, the Company's consolidated financial
statements have included EJL's assets, liabilities and results of operations.
At the date of acquisition the minimum guaranteed Additional Purchase Price of
$6,750,000 was recorded as a liability on the Company's consolidated balance
sheet (which was reduced to $5,939,000 as of December 31, 1996 as the result
of payments made through that date) and the excess of the minimum guaranteed
purchase price of $12,750,000 over the fair market value of the net assets
acquired and liabilities assumed was reflected in the Company's consolidated
financial statements as goodwill. This purchase resulted in recording goodwill
in the amount of $18,825,064. The goodwill is being amortized on a
straight-line basis over a period of 20 years. None of the recorded goodwill
will be deductible for income tax purposes. As a result of the
non-deductibility of goodwill, the Company's effective tax rate will be
adversely impacted.
In May 1997, the Company and the Sellers agreed to revise the terms of the
Original Agreement (the "Revised Agreement".) Under the Revised Agreement, the
Sellers will receive a total of $9,646,000, comprised of (i) the $4,000,000 cash
paid at the closing, (ii) cash payments of $811,000 made during 1996,
(iii) $1,135,000 through the retention of 189,183 shares (of the total of
378,366 shares) of Common Stock issued to the Sellers through December 31, 1996
under the Original Agreement (the remaining 189,183 shares to be returned to the
Company), and (iv) future cash payments totaling $3,700,000, payable $135,000
quarterly commencing June 1999 through March 2004 and then $50,000 quarterly
commencing June 2004 through March 2009. The adjusted purchase price pursuant to
the Revised Agreement, with the future payments discounted at a rate of 6.5% per
annum, is $8,612,000, which is $4,408,000 less than the purchase price recorded
under the Original Agreement. The recording of the effects of the terms of the
acquisition, was reflected in the Company's consolidated financial statements in
the second quarter of fiscal 1997, had the effect, relative to December 31, 1996
amounts, of (i) reducing goodwill by $4,408,000, (ii) reducing the liability for
future payments by $3,273,000, (iii) eliminating the $270,000 for redeemable
common stock, and (iv) reducing stockholders' equity by $865,000. The reduction
in goodwill will reduce the annual amortization by $220,000.
The following unaudited pro forma consolidated results of operations for the
nine months ended September 30, 1996 is presented as if the EJL acquisition had
been made on the terms in the Original Agreement at the beginning of the period
presented. The unaudited pro forma information is not necessarily indicative of
either the results of operations that would have occurred had the purchase been
made during the periods presented or the future results of the combined
operations under the ownership and management of the Company.
(In thousands except per share amounts) 1996
Commissions and fees $21,959
Operating income (385)
Net (loss) (12)
Net loss per common share $(.01)
3. REDUCING REVOLVING CREDIT FACILITY
Concurrent with the Company's January, 1995 registered direct placement of
shares of its common stock (the "Offering") and the repayment of a
subordinated loan, the Company entered into a $2 million reducing revolving
credit facility (the "Reducing Revolving Credit Agreement") with The Chase
Manhattan Bank ("Chase"). Upon consummation of the Company's Offering, the
Company borrowed $2 million under the Reducing Revolving Credit Agreement
which, when added to the net proceeds of the Company's Offering, enabled the
Company to repay the subordinated loan. Amounts outstanding under the Reducing
Revolving Credit Agreement bear interest at the highest rate determined with
reference to one of several fluctuating rate bases. The 1995 and 1996 interest
rates under the credit facility were 10% and 9.7%, respectively. The Reducing
Revolving Credit Agreement contains certain affirmative and negative covenants
customary in an agreement of this nature. The terms of the Reducing Revolving
Credit Agreement prohibit the Company from paying dividends on its common
stock.
Borrowings under the Reducing Revolving Credit Agreement are secured by (a)
all of the assets of the Company's operating subsidiaries, (b) a pledge of all
shares of capital stock of the Company's operating subsidiaries held by the
Company, (c) a pledge of all shares of the Company's capital stock held by
Messrs. Lois and Veru, and (d) an assignment in favor of Chase of the key-man
life insurance policies on Mr. Lois (in an amount not less than $2 million)
and Mr. Veru (in an amount not less than $1 million).
Concurrent with the acquisition of EJL in February 1996, Chase amended the
Reducing Revolving Credit Agreement to increase the amount available under the
facility to $3,833,000, extend the maturity date through June 30, 1999 and
require quarterly amortization of $250,000 commencing March 31, 1996. The
Company will be required to prepay amounts outstanding under the Reducing
Revolving Credit Agreement equal to 100% of Excess Cash Flow (as defined in the
Reducing Revolving Credit Agreement) up to $300,000 for any year and 50% of
Excess Cash Flow above $300,000 for any year. Excess Cash Flow is defined as
actual cash flow of the Company less 110% of debt amortization. For the year
ended December 31, 1995, this requirement was waived. At December 31, 1996, the
balance outstanding under this agreement was $1,580,000 and an additional
$1,253,000 was available. However, as a result of defaults with respect to other
covenants in the agreement, at December 31, 1996 Chase had suspended the
Company's right to obtain additional borrowings. Subsequent to year end the
Company repaid all amounts outstanding under the Reducing Revolving Credit
Agreement. In May 1997, Chase extended to the Company a new $2.5 million line of
credit, to replace the Reducing Revolving Credit Agreement, having collateral
terms essentially the same as those of the Reducing Revolving Credit Agreement.
The replacement line of credit bears interest at the rate of 2% above the Chase
prime rate and expires in June 1998.
In 1996, the Company had a $2 million uncommitted line of credit. There were
no borrowings outstanding as of December 31,1996. Of this facility, $150,000
has been set aside for a contingent letter of credit in favor of the landlord
of the office space leased in New York would be payable in an event of
default. Amounts borrowed will bear interest at a rate to be negotiated upon
borrowing.
There were approximately $268,000 in fees and expenses incurred in connection
with the initial Reducing Revolving Credit Agreement. These costs were being
amortized over the initial three-year period of the loan. Costs to extend the
facility of approximately $175,000 were being amortized over the period from
1996 through 1999. Concurrent with the new credit facility from Chase in May
1997, all deferred financing fees are being amortized over a 13 month period
ending June 30, 1998.
In October 1997, the Company entered into a revolving credit facility with Sanwa
Business Credit Corporation ("Sanwa") which provides for borrowings up to $25
million based on a specified percentage of eligible accounts receivable. The
Sanwa credit facility has a term of three years, with borrowings bearing
interest at 2.5% above the London Interbank Offered Rate ("LIBOR"). Borrowings
are secured by essentially all of the assets of the Company, including the
common shares and assets of the Company's subsidiaries. Upon the execution of
the new facility the Company initially borrowed approximately $2.5 million,
which was used to repay amounts outstanding under the Chase Reducing Revolving
Credit Facility and the Chase Reducing Revolving Credit Facility was terminated.
The $2.5 million initially borrowed under the Sanwa facility was subsequently
repaid.
4. REDEEMABLE PREFERRED STOCK
In May 1997, the Company privately offered and sold 2,160 shares of 10% Series A
Convertible Preferred Stock (the "Series A Convertible Preferred Stock") at
$1,000 per share. Net proceeds to the Company, after the payment of placement
agent fees and offering costs, were approximately $2 million.
<PAGE>
The Series A Preferred Stock is convertible by the holders thereof into shares
of the Company's common stock, at a conversion price of $6.50 per share
beginning September 16, 1997. The Company is required to redeem the Series A
Preferred Stock, if not earlier converted or redeemed, for $1,000 per share on
May 19, 2002.
Dividends on the Series A Preferred Stock are payable quarterly at a rate of
$25 per share. Holders were given the right to elect to receive the first four
dividend payments in the form of shares of the Company's common stock, valued
at $6.50 per share, and the holders of 1,375 shares of the Series A Preferred
Stock have so elected. The Company issued 398 shares of common stock in July
1997 for the dividend payable at that time.
<PAGE>
MANAGEMENT'S DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 compared to Three Months Ended September
30, 1997.
Revenues from commissions and fees for the three months ended September 30, 1997
decreased by $1,098,000 or 13.8% to $6,844,000 from $7,942,000 for the third
quarter of 1996. The decline in revenues in the third quarter was primarily the
result of lower revenues for the Company's Los Angeles agency, which experienced
a loss of clients and a reduction in revenues during the third quarter of 1997.
The Company cannot predict when, or if, the Los Angeles agency will obtain new
clients or assignments to replace the lost business; however, in October 1997
the staffing of the Los Angeles agency was reduced to bring it into line with
its reduced volume of revenue.
Operating expenses decreased from $7,210,000 for the three months ended
September 30, 1996 to $6,829,000 for the three months ended September 30, 1997,
but increased from 90.8% of revenues in the 1996 period to 99.8% of revenues in
the 1997 period due to the decline in revenues. Personnel expenses were 57.3% of
revenues in the three months ended September 30, 1996, as compared to 68.0% of
revenues in the three months ended September 30, 1997, due to the decline in Los
Angeles revenues. As discussed above, the staffing of the Los Angeles agency was
reduced subsequent to September 30, 1997. Other operating expenses decreased
from $2,369,000 for the three months ended September 30, 1996 to $1,885,000 for
the three months ended September 30, 1997, a decline of $484,000 from 29.8% of
revenues to 27.5% of revenues. The decrease reflects both the effects of the
cost reduction and control measures initiated in the last half of 1996, and the
effect of the decline in revenues on expenses, which fluctuate with the volume
of client assignments. Operating expenses, exclusive of depreciation and
amortization, increased from 85.5% of revenues for the three months ended
September 30, 1996 to 95.5% of revenues for the three months ended September 30,
1997 due to the decline in revenues.
Interest expense, net of interest income, declined from $119,000 for the three
months ended September 30, 1996 to $20,000 for the three months ended September
30, 1997 due to lower average borrowings. The amortization of deferred financing
costs increased by $70,000 as a result of the amortization of all remaining
costs related to the Chase Reducing Revolving Credit facility's replacement by
the Sanwa facility.
Due principally to the decline in revenues, the Company incurred a net loss of
$114,000 for the third quarter of 1997, as compared to net income of
$265,000 for the third quarter of 1996.
Nine months ended September 30, 1996 compared to Nine Months ended September
30, 1997
Revenues from commissions and fees increased to $22,746,000 for the nine months
ended September 30, 1997 from $21,630,000 for the nine months ended September
30, 1996. The net increase of $1,116,000 or 5.2% for the year to date period
reflects the offsetting effects of the 13.8% decline in third quarter revenues
discussed above and a 16.2% increase in revenues experienced in the first half
of 1997, which resulted from both assignments from new clients and increased
assignments from existing clients. The Company's revenues will fluctuate from
period to period as the result of the effects of the timing of client
advertising expenditures. As a result, the rate of growth or decline in the
Company's revenues in any one quarter may not be indicative of future trends.
Operating expenses increased from $20,454,000 for the nine months ended
September 30, 1996 to $21,325,000 for the nine months ended September 30, 1997,
but decreased from 94.6 of revenues in the nine months ended September 30, 1996
to 93.8% of revenues for the nine months ended September 30, 1997. Operating
expenses decreased to 63.0% of revenues for the nine months ended September 30,
1997 from 63.2% of revenues for the nine months ended September 30, 1996 as a
result of reducing salaries and related costs. Other operating expenses
decreased to 26.5% of revenues for the 1997 year to date period from 28.5% for
the comparable period in fiscal 1996. Salaries and related costs had been
reduced to 60.8% of revenues through June 30, 1997, but the third quarter
decline in revenues in the Los Angeles agency had an adverse effect of this
percentage. As discussed above, subsequent to September 30, 1997 the Company
reduced staffing levels in Los Angeles.
Operating expenses, exclusive of depreciation and amortization, decreased from
91.7% of revenues in the nine months ended September 30, 1996 to 89.4% of
revenues for the nine months ended September 30, 1997. Depreciation and
amortization increased by $367,000, reflecting nine months of amortization of
the EJL assets and goodwill in the current year.
Interest expenses, net of interest income, decreased by $47,000, from net
interest expense of $113,000 in the nine months ended September 30, 1996 to net
interest expense of $66,000 for the nine months ended September 30, 1997 due to
lower borrowings, while the amortization of deferred financing costs increased
by $114,000 principally as the result of the amortization of all remaining costs
related to the Chase Reducing Revolving Credit facility's replacement by the
Sanwa facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company's 1996 net loss and its acquisition of EJL were primarily
responsible for its negative working capital at December 31, 1996 of
$14,321,000. The Company's working capital deficit was reduced to $11,246,000 at
September 30, 1997 as a result of cash flow from operations of $232,000, net of
the elimination of the Company's bank overdraft of $2,865,000 at December 31,
1996 and additional capital of $2,160,000 raised through the issuance of the
Series A Convertible Preferred Stock.
At December 31, 1996, $1,580,000 was outstanding under the Chase Reducing
Revolving Credit Facility. An additional $2 million, of which $150,000 is being
used to support a contingent letter of credit securing the Company's New York
lease, was available under a separate line of credit obtained from Chase.
However, as the result of certain defaults with respect to covenants in the
agreements, Chase had, at December 31, 1996, suspended the Company's right to
obtain additional borrowings under the agreements. Subsequent to December 31,
1996, the Company repaid all amounts outstanding, and in May 1997, Chase
extended a new $2.5 million one-year line of credit to the Company. The
collateral terms are essentially the same as those of the Reducing Revolving
Credit Agreement. The replacement line of credit bears interest at the rate of
2% above Chase's prime rate and expires in June 1998.
The Company acquired EJL in February 1996. Under the Original Agreement, the
Company was required to make annual additional purchase price payments through
February 2001 to the Sellers equal to 5% of the revenues of the acquired
operations, subject to certain adjustments, up to a maximum of $12,000,000.
Payments were to be made 75% in cash and 25% through the issuance of shares of
the Company's common stock. A minimum payment of $1,750,000 was required, and
made, in 1996, the cash portion of which ($811,000) was financed with the bank
overdraft. In May 1997, the Company and the former owners of EJL agreed to a
revision to the Original Agreement. Under the Revised Agreement, the total
purchase price has been reduced to $9.6 million, of which $5.9 million has been
paid through December 31, 1996 through cash payments of $4.8 million and the
issuance of 189,183 shares of common stock, and the remaining $3.7 million will
be paid in cash in varying monthly installments from June 1999 through March
2009. Accordingly, the acquisition of EJL will not place demands on the
Company's capital resources until 1999.
In May 1997, the Company raised additional capital of approximately $2 million
through the private placement of 2,160 shares of Series A Convertible Preferred
Stock (the "Series A Convertible Preferred Stock"). The Series A Convertible
Preferred Stock accrues annual dividends of $100 per share, payable quarterly,
which will reduce the net income attributable to the Company's common stock, and
related earnings per share. However, the holders of 1,375 shares of the Series A
Convertible Preferred Stock have elected to receive dividends for the first year
in the form of shares of the Company's common stock, valued at the rate of $6.50
per share. Therefore, assuming no conversions, the Series A Convertible
Preferred Stock will only require cash dividends of approximately $39,000 in
1997. The Series A Convertible Preferred Stock may be converted, at the
Company's option, into shares of the Company's common stock, at a conversion
price of $6.50 per share, beginning September 16, 1997.
The Company's growth strategy includes the acquisition of existing advertising
agencies. Although the Company currently has no specific acquisition plans or
commitments, any future acquisitions may require material capital expenditures
or commitments that could place significant constraints on future working
capital. As a result, and to reduce both the immediate cash needs and the risk
that the Company will significantly overpay for an acquisition, the Company has,
and will, generally attempt to negotiate acquisitions that involve the payment
of a portion of the total purchase price on a deferred basis based on the
post-acquisition performance of the acquired operations. Additionally, the
Company attempts to negotiate the payment of a portion of the acquisition price
in the form of the issuance of shares of the Company's common stock, and will
offer various forms of participation in the Company's Stock Option Plan to key
employees as a means of incentivizing future performance.
In October 1997 the Company obtained a new revolving credit facility from Sanwa
Business Credit Corporation ("Sanwa") which provides for borrowings up to $25
million based on a specified percentage of eligible accounts receivable. The
Company will use the funds available under this credit facility both to finance
its periodic operating requirements and to fund cash portions of the costs of
future acquisitions. Amounts available under the facility are limited for the
first 30 days. The Sanwa credit facility has a term of three years, with
borrowings bearing interest at 2.5% above the LIBOR rate. Borrowings are secured
by essentially all of the assets of the Company, including the common shares and
assets of the Company's subsidiaries. Upon the execution of the new facility the
Company initially borrowed $2.5 million, which was used to repay amounts
outstanding under the Chase Reducing Revolving Credit Facility. The $2.5 million
initially borrowed under the Sanwa facility was subsequently repaid.
The Company believes that cash flows from operations, together with funds
available under the Company's credit facility with Sanwa, and the working
capital obtained from the issuance of the Series A Stock will be sufficient to
meet the Company's cash needs for its existing business and any potential
acquisitions over the next twelve months.
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Loan and Security Agreement by and among
LOIS/USA West, Inc., LOIS/USA Chicago, Inc. and LOIS/USA New
York, Inc., as Borrowers, The Lenders named therein, and
Sanwa Business Credit Corporation, as Agent and Lender dated
as of October 28, 1997
(b) Reports on Form 8-K
(i) Current Report on Form 8-K dated October 29, 1997.
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
LOIS/USA INC.
Date: November 14, 1997 By /s/ ROBERT K. STEWART
-----------------------
ROBERT K. STEWART
Executive Vice President
Chief Financial and
Accounting Officer
LOAN AND SECURITY AGREEMENT
BY AND AMONG
LOIS/USA WEST, INC.
LOIS/USA CHICAGO, INC.
LOIS/USA NEW YORK, INC.
as Borrowers,
THE LENDERS NAMED HEREIN
as Lenders,
AND
SANWA BUSINESS CREDIT CORPORATION,
as Agent and Lender
Dated as of
October 28, 1997
<PAGE>
Table of Contents
1. DEFINITIONS 1
1.1 General Terms 1
1.2 Accounting Terms 23
1.3 Other Terms Defined in Illinois Uniform Commercial Code 24
1.4 Effective Date 24
1.5 References 24
2. CREDIT 24
2.1 Revolving Credit Facility 24
2.2 Maximum Principal Balance of Revolving Loan 27
2.3 Evidence of Revolving Loan Indebtedness 28
2.4 Notification of Advances, Interest Rates and Prepayment 28
2.5 Interest and Applicable Margins 28
2.6 Method of Borrowing; Manner and Method of Making
Interest and Other Payments 31
2.7 Term of this Agreement 32
2.8 Audit Fee 33
2.9 Closing Fee 33
2.10 Prepayments 33
2.11 Facility Fee 34
2.12 Unused Line Fee 34
2.13 Other Fees, Costs and Expenses 34
2.14 Loan Account 35
2.15 Statements 35
2.16 Payment Dates 36
2.17 Lender Guaranty Fees 36
2.18 Other Lender Guaranty Provisions 36
2.19 Taxes; Changes in Law 38
2.20 Changes in Capital Adequacy Regulations 40
2.21 Special Provisions Governing LIBOR Rate Loans 41
3. REPORTING AND ELIGIBILITY REQUIREMENTS 42
3.1 Monthly Reports and Borrowing Base Certificates 42
3.2 Eligible Accounts 43
3.3 Account Warranties 44
3.4 Verification of Accounts 45
3.5 Collection of Accounts and Payments 45
3.6 Appointment of the Agent as Borrower's Attorney-in-Fact 46
3.7 Account Records 46
3.8 Instruments and Chattel Paper 46
3.9 Notice to Account Debtors 47
3.10 Equipment Warranties. 47
3.11 Equipment Records 47
3.12 Maintenance of Equipment 47
3.13 Real Estate 47
3.14 Maintenance of Real Estate 48
3.15 Intellectual Property and General Intangibles 48
4. CONDITIONS TO ADVANCES 48
4.1 Conditions to All Advances 48
4.2 Conditions to Initial Advance. 49
5. COLLATERAL 52
5.1 Security Interest 52
5.2 Preservation of Collateral and Perfection of Liens Thereon 52
6. REPRESENTATIONS AND WARRANTIES 53
6.1 Existence 53
6.2 Authority 53
6.3 Binding Effect 54
6.4 Financial Data 54
6.5 Collateral 55
6.6 Solvency 55
6.7 Places of Business 55
6.8 Other Names 55
6.9 Tax Obligations 55
6.10 Indebtedness and Liabilities 56
6.11 Use of Proceeds and Margin Security 56
6.12 Government Contracts 56
6.13 Investments 56
6.14 Litigation and Proceedings 56
6.15 Other Agreements and Deliveries 57
6.16 Labor Matters 58
6.17 Compliance with Laws and Regulations 58
6.18 Patents, Trademarks and Licenses 58
6.19 ERISA 59
6.20 Property 59
6.21 Adverse Contracts 60
6.22 Purchase or Other Commitments and Outstanding Bids 60
6.23 Investment Company Act; Public Utility Holding Company Act 60
6.24 Broker's Fees 60
6.25 Licenses and Permits 60
6.26 Environmental Compliance 60
6.27 Full Disclosure 62
6.28 Insurance Policies 62
6.29 Corporate and Contractual Restrictions 62
6.30 Subsidiaries 62
6.31 Deposit and Disbursement Accounts 63
6.32 Subordinated Debt 63
7. AFFIRMATIVE COVENANTS. 63
7.1 Financial Statements 63
7.2 Inspections and Audits 66
7.3 Conduct of Business; Compliance With Laws 66
7.4 Claims and Taxes 66
7.5 Borrower's Liability Insurance 67
7.6 Borrower's Property Insurance 67
7.7 Pension Plans 68
7.8 Notice of Certain Matters 69
7.9 Landlord Agreements 69
7.10 Indemnity 69
7.11 Interest Coverage Ratio 70
7.12 Fixed Charge Coverage Ratio 70
7.13 EBITDA 70
7.14 Accounting Systems Plan 71
8. NEGATIVE COVENANTS 71
8.1 Encumbrances 71
8.2 Indebtedness and Liabilities 72
8.3 Consolidations, Acquisitions 72
8.4 Investments 72
8.5 Guaranties 72
8.6 Collateral Locations 73
8.7 Disposal of Property 73
8.8 Capital Expenditures Limitations 73
8.9 Employee Loans 73
8.10 Plans 74
8.11 Restricted Payments 74
8.12 Securities 75
8.13 Changes in Charter, Bylaws or Fiscal Year 75
8.14 Lease Limitations 75
8.15 Transactions with Affiliates 75
8.16 Capital Structure; Other Business 75
8.17 Sale and Leaseback 76
8.18 Impairment Agreements 76
8.19 Corporate Accounts 76
8.20 Intercompany Loans 76
8.21 Subordinated Debt 80
9. DEFAULT, RIGHTS AND REMEDIES OF THE AGENT AND THE LENDERS 81
9.1 Obligations 81
9.2 Rights and Remedies Generally 81
9.3 Entry Upon Premises and Access to Information 81
9.4 Sale or Other Disposition of Collateral by the Agent 82
9.5 Grant of License 82
9.6 Waiver of Demand 82
9.7 Waiver of Notice 83
10. OTHER RIGHTS AND OBLIGATIONS 83
10.1 Waiver 83
10.2 Several Obligations; Nature of Lender's Rights 83
10.3 Expenditures by the Agent and the Lenders 83
10.4 Custody and Preservation of Collateral 84
10.5 Reliance by the Agent and Lenders 84
10.6 Parties and Assignment 84
10.7 Applicable Law; Severability 84
10.8 Submission to Jurisdiction; Waiver of Jury and Bond 84
10.9 Marshalling 85
10.10 Section Titles 86
10.11 Incorporation by Reference 86
10.12 Notices 86
10.13 Waivers With Respect to Other Instruments 87
10.14 Retention of the Borrowers' Documents 87
10.15 Entire Agreement 87
10.16 Equitable Relief 87
10.17 Survival of Warranties 87
10.18 Counterparts 88
10.19 Several Obligations; Nature of Lenders' Rights 88
10.20 Exceptions to Covenants 88
10.21 Construction 88
10.22 Reinstatement 88
10.23 ACKNOWLEDGMENT 88
11. ASSIGNMENT AND PARTICIPATION 89
11.1 Assignments 89
11.2 Participations 89
12. AGENT 90
12.1 Appointment 90
12.2 Powers 90
12.3 General Immunity 90
12.4 No Responsibility for Loans, Recitals, etc. 90
12.5 Action on Instructions of Lenders 90
12.6 Employment of Agents and Counsel 90
12.7 Reliance on Documents; Counsel 91
12.8 Agent's Reimbursement and Indemnification 91
12.9 Rights as a Lender 91
12.10 Lender Credit Decision 91
12.11 Successor Agent 91
12.12 Notice of Default 92
13. AMENDMENTS AND WAIVERS 92
14. SET OFF AND SHARING OF PAYMENTS 93
14.1 Setoff 93
14.2 Ratable Payments 93
15. CROSS-GUARANTY 94
15.1 Cross-Guaranty 94
15.2 Contribution with Respect to Guaranty Obligations 94
15.3 Obligations Absolute 95
15.4 Waiver 96
15.5 Recovery 96
15.6 Liability Cumulative 96
INDEX OF EXHIBITS AND SCHEDULES
EXHIBITS
Exhibit 1.1 Form of Assignment and Acceptance
Exhibit 1.2 Form of Borrowing Base Certificate
Exhibit 2.3 Form of Revolving Loan Note
Exhibit 2.5-1 Form of Borrowing Notice
Exhibit 2.5-2 Form of Conversion/Continuation Notice
Exhibit 3.1 Form of Monthly Report Certificate
Exhibit 3.1-1 Initial Monthly Report
Exhibit 3.10 Equipment Locations and Leased Equipment
Exhibit 3.13 Real Estate
Exhibit 4.2(n) Form of Power of Attorney
Exhibit 6.1-1 Jurisdictions of Qualification
Exhibit 6.1-2 Stock of Borrowers and Subsidiaries
Exhibit 6.4 Projections
Exhibit 6.7 Places of Business
Exhibit 6.8 Trade Names
Exhibit 6.12 Government Contracts
Exhibit 6.14 Pending or Threatened Litigation
Exhibit 6.15 Existing Defaults
Exhibit 6.16 Labor Matters
Exhibit 6.18 Patents, Trademarks and Licenses
Exhibit 6.19(a) ERISA Obligations
Exhibit 6.20 Property
Exhibit 6.26 Environmental Matters
Exhibit 6.30 Subsidiaries
Exhibit 6.31 Bank Accounts
Exhibit 7.5 Insurance
Exhibit 7.6 Form of Insurance Endorsement
Exhibit 8.1 Liens
Exhibit 8.2 Indebtedness
Exhibit 8.4 Investments
Exhibit 8.5 Guaranties
Exhibit 8.6 Collateral Locations
Exhibit 8.15 Transactions with Affiliates
SCHEDULES
Schedule 1 Commitments of Lenders
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT dated as of October __, 1997, is
among LOIS/USA West, Inc., a Delaware corporation ("West"), LOIS/USA Chicago,
Inc., a Delaware corporation ("Chicago"), LOIS/USA New York, Inc., a Delaware
corporation ("New York") (West, Chicago and New York are collectively referred
to herein as the "Borrowers" and individually as a "Borrower") and SANWA
BUSINESS CREDIT CORPORATION, for itself, as Lender, and as Agent for the
Lenders, and the other Lenders signatory hereto from time to time.
W I T N E S S E T H:
WHEREAS, Borrowers desire that Lenders extend a revolving credit
facility to Borrowers of up to Twenty Five Million Dollars ($25,000,000) in the
aggregate for the purpose of (a) refinancing existing Indebtedness, (b)
Permitted Acquisitions, (c) working capital financing for Borrowers, and (d)
providing funds for other general business purposes of Borrowers; and for these
purposes, Lenders are willing to make certain loans and other extensions of
credit to Borrowers of up to such amount upon the terms and conditions set forth
herein; and
WHEREAS, Borrowers desire to secure all of their obligations under the
Financing Agreements by granting to Agent, for the benefit of Agent and Lenders,
a security interest in and lien upon all of their existing and after-acquired
personal property; and
WHEREAS, the Parent is willing to guaranty all of the obligations of
Borrowers to Lenders under the Financing Agreements and to pledge to Agent, for
the benefit of Agent and Lenders, all of the Stock of the Borrowers to secure
such guaranty.
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and of any loans or extensions of credit heretofore, now or hereafter
made to or for the benefit of the Borrowers by the Agent and the Lenders, the
parties hereto hereby agree as follows:
1. DEFINITIONS.
1.1 General Terms. When used herein, the following terms shall have
the following meanings:
"Account Debtor" shall mean any Person who is or may become obligated
on or under an Account.
"Accounting Changes" shall mean (a) changes in accounting principles
required by the promulgation of any rule, regulation, pronouncement or opinion
by the Financial Accounting Standards Board of the American Institute of
Certified Public Accountants (or successor thereto or any agency with similar
functions) or (b) changes in accounting principles concurred in by the
Borrowers' certified public accountants.
"Accounts" shall mean all presently existing and hereafter arising or
acquired accounts, accounts receivable, margin accounts, futures positions, book
debts, contracts, notes, drafts, acceptances, and other forms of obligations
(other than forms of obligations evidenced by Chattel Paper, Documents or
Instruments) now or hereafter owned or held by or payable to any Borrower
relating in any way to Inventory or arising from the sale of Inventory or the
rendering of services by any Borrower or howsoever otherwise arising, including
the right to payment of any interest or finance charges with respect thereto,
together with all merchandise represented by any of the Accounts; all such
merchandise that may be reclaimed or repossessed or returned to any Borrower;
all of any Borrower's rights as an unpaid vendor, including, without limitation,
stoppage in transit, reclamation, rescission, replevin, and sequestration; all
pledged assets and all letters of credit, guaranty claims, Liens held by or
granted to any Borrower to secure payment of any Accounts; all proceeds and
products of all of the foregoing described properties and interests in
properties; and all proceeds of insurance with respect thereto, including,
without limitation, the proceeds of any applicable casualty or credit insurance
or fidelity bond, whether payable in cash or in kind; and all customer lists,
ledgers, books of account, records, computer programs, computer disks or tape
files (including, without limitation, all microfilm), computer printouts,
computer runs, and other computer prepared information relating to any of the
foregoing.
"Accounts Trial Balance" shall have the meaning ascribed thereto in
subsection 3.1.
"Acquisition" shall mean any transaction, or any series of related
transactions, consummated after the Closing Date by which any Borrower or any
Subsidiary (a) acquires, directly or indirectly, any business or all or
substantially all of the assets of any Person or portion thereof, whether
through purchase of assets, merger, licensing arrangement or otherwise or (b)
directly or indirectly acquires at least (i) a majority (in number of votes of
the securities or warrants, options or other rights to acquire such securities)
of a Person which have ordinary voting power for the election of directors or
(ii) a majority (by percentage of voting power) of the outstanding partnership
or other interests of a Person or (c) makes any Person a Subsidiary, or causes
any assets of such Person to be merged into any Borrower or such Subsidiary
pursuant to a merger, purchase of assets or other reorganization providing for
the delivery or issuance to the holders of such Person's then outstanding
securities or capital interests, in exchange for such securities, of cash or
securities of any Borrower or such Subsidiary, or any combination thereof.
"Adjusted EBITDA" shall mean, for any fiscal period, determined for
the Parent and its Subsidiaries on a consolidated basis, EBITDA for such period,
minus (i) the unfinanced portion of Capital Expenditures for such period, minus
(ii) amounts paid in cash pursuant to clause (iii) of subsection 8.11 for such
period, minus (iii) income and franchise taxes paid in cash for such period, all
as determined in accordance with GAAP and in a manner consistent with the
Financial Statements.
"Affiliate" shall mean any Person (including any member of the
immediate family of any such natural person) (a) that directly or indirectly,
through one or more intermediaries, controls or is controlled by, or is under
common control with any Borrower or any Subsidiary, including, without
limitation, the officers and directors of any Borrower or such Subsidiary, (b)
that directly or beneficially owns or holds ten percent (10%) or more of any
equity interest in any Borrower or any Subsidiary, or (c) ten percent (10%) or
more of whose voting stock (or in the case of a Person which is not a
corporation, ten percent (10%) or more of any equity interest) is owned directly
or beneficially or held by any Borrower or any Subsidiary. Affiliate shall not
be deemed to include the Agent or any Lender. As used herein, the term "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with") shall mean possession, directly or indirectly,
of the power to direct the management or policies of a Person, whether through
ownership of securities, by contract or otherwise.
"Agent" shall mean Sanwa Business Credit Corporation, a Delaware
corporation, in its capacity as agent for the Lenders and not in its individual
capacity as a Lender, and any successor in such capacity appointed pursuant to
subsection 12.11.
"Agreement" shall mean this Loan and Security Agreement, as the same
may hereafter be restated, amended, modified or supplemented from time to time.
"Aggregate Borrowing Base" shall mean, as of any date of
determination, an amount equal to the sum of the West Borrowing Base, the
Chicago Borrowing Base and the New York Borrowing Base and, following
consummation of any Permitted Acquisition in which the Target acquired therein
becomes a Borrower in accordance with the terms of this Agreement, the borrowing
base of such Person.
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an Eligible Assignee and accepted by the Agent in
accordance with subsection 11.1 and in substantially the form of Exhibit 1.1.
"Bankruptcy Code" shall mean Title 11, United States Code, as amended
from time to time.
"Base Rate" shall mean the fluctuating interest rate equal to one
percent (1%) per annum in excess of the Prime Rate from time to time in effect.
"Base Rate Loans" shall mean the Revolving Loan or portion thereof
bearing interest at the Base Rate.
"Blocked Account Agreements" shall have the meaning ascribed thereto
in subsection 3.5.
"Blocked Accounts" shall have the meaning ascribed thereto in
subsection 3.5.
"Borrower Representative" shall mean LOIS/USA, Inc. in its capacity as
Borrower Representative pursuant to the terms of subsection 2.1(b).
"Borrower's Account" shall mean (i) as to West, Account No. 615-772781
maintained with Chase Manhattan Bank, (ii) as to Chicago, Account No. 615-541925
maintained with Chase Manhattan Bank and (iii) as to New York, Account No.
615-541917 maintained with Chase Manhattan Bank, or such other account as a
Borrower and the Agent may from time to time hereafter designate in writing.
"Borrowing Availability" shall have the meaning ascribed thereto in
subsection 2.1(a). "Borrowing Base" shall mean, as the context may require, the
West Borrowing Base, the Chicago Borrowing Base and the New York Borrowing Base
or any such Borrowing Base.
"Borrowing Base Certificate" shall mean a certificate in substantially
the form of Exhibit 1.2, duly certified by the Borrower Representative.
"Borrowing Notice" shall have the meaning ascribed thereto in
subsection 2.5(e).
"Business Day" shall mean (i) for all purposes other than as described
in clause (ii) below, any day other than a Saturday, Sunday or other day on
which banks in Chicago, Illinois and New York, New York are authorized or
required to be closed and (ii) with respect to all notices, determinations,
borrowings, rate selections and payments in connection with LIBOR Rate Loans,
any day that is a Business Day described in clause (i) above and that is also a
day on which dealings in U.S. dollar deposits are carried on in the London
interbank LIBOR market.
"Capital Expenditures" shall mean, for any fiscal period, without
duplication, all expenditures (whether made in the form of cash including,
without limitation, deposits or other Property) by any Borrower or any
Subsidiary during such period for, or contracts for expenditures with respect
to, any fixed assets or improvements, or for renewals, replacements,
substitutions or additions thereto, which have a useful life of more than one
(1) year including, without limitation, the direct or indirect acquisition of
such assets by way of increased product or service charges, offset items or
otherwise, and shall include capitalized lease payments.
"Cash Equivalents" shall mean (i) certificates of deposit with banks
organized under the laws of the United States or of any State thereof (x) which
do not have set-off rights against the foregoing, other than set-offs for
nominal service charges and similar fees incurred in the ordinary course of
business, and (y) which have combined capital and surplus in excess of
$1,000,000,000 (ii) commercial paper maturing within one (1) year from the date
issued and rated at least A-2 or the equivalent thereof by Standard & Poors
Corporation, or P-2 or the equivalent thereof by Moody's Investors Service,
Inc., (iii) obligations issued or directly and fully guaranteed by the United
States government or any agency thereof, and (iv) investments in money market
funds substantially all the assets of which are comprised of securities of the
types described in clauses (i) through (iii) above.
"Change" means (a) any change after the date of this Agreement in the
Risk-Based Capital Guidelines, or (b) any adoption of or change in any other
law, governmental or quasi-governmental rule, regulation, policy, guideline,
interpretation, or directive (whether or not having the force of law) after the
date of this Agreement which affects the amount of capital required or expected
to be maintained by any Lender or any corporation controlling any Lender.
"Change of Control" shall mean (i) the failure of the Parent to own,
free and clear of all Liens (other than Liens in favor of the Agent for the
benefit of the Lenders), 100% of the outstanding capital stock of each Borrower
on a fully diluted basis, (ii) the failure of Lois and Veru (or, in the event of
the death of Lois or Veru, such Person's estate) or any trusts established and
controlled by Lois or Veru for the exclusive benefit of himself, his spouse or
lineal descendants to own in the aggregate, free and clear of all Liens, at all
times at least 69% of the outstanding capital stock of the Parent on a fully
diluted basis or the failure of such Persons to own at all times a sufficient
number of shares of capital stock of the Parent on a fully diluted basis to
elect a majority of the Parent's board of directors or (iii) the failure to
employ any Key Employee or any replacement reasonably acceptable to the Agent by
the Parent or any Borrower.
"Charges" shall mean all federal, state, county, city, municipal,
local, foreign or other governmental taxes (including, without limitation, taxes
owed to the PBGC at the time due and payable), duties, levies, assessments,
charges, liens, claims or encumbrances upon or relating to (i) the Collateral,
(ii) the Obligations, (iii) the employees, payroll, income or gross receipts of
any Borrower, (iv) the ownership or use of any Property of Parent or any
Borrower, or (v) any other aspect of Parent's or any Borrower's business.
"Chase Letter of Credit" shall mean the letter of credit issued on
behalf of one or more of the Borrowers by Chase Manhattan Bank in the face
amount of One Hundred Fifty Thousand Dollars ($150,000).
"Chattel Paper" shall mean any "chattel paper," as such term is
defined in the Code, now owned or hereafter acquired by any Borrower, wherever
located.
"Chicago Borrowing Base" shall mean, as of any date of determination
by the Agent, an amount equal to eighty five percent (85%) of the face amount
(less maximum discounts, credits and allowances which may have been taken by or
granted to Account Debtors in connection therewith) then outstanding of existing
Eligible Accounts of Chicago.
"Closing Date" shall mean October 28, 1997.
"Closing Fee" shall have the meaning ascribed thereto in subsection
2.9.
"Code" shall have the meaning ascribed thereto in subsection 1.3.
"Collateral" shall mean all property and interests in property now
owned or hereafter acquired by any Borrower in or upon which a Lien is granted
to the Agent, for the benefit of the Lenders, by any Borrower, whether under
this Agreement or the other Financing Agreements or under any other documents,
instruments or writings executed by such Borrower and delivered to the Agent,
including, without limitation, Accounts, Chattel Paper Documents, General
Intangibles, Fixtures, Instruments, Inventory, Intellectual Property, Investment
Property and Equipment.
"Collecting Banks" shall have the meaning ascribed thereto in
subsection 3.5.
"Commitment" shall mean, with respect to each Lender, the commitment
of each Lender to make the Revolving Loan to the Borrowers as of the Closing
Date in the amounts set forth on Schedule 1. Schedule 1 shall be amended from
time to time to give effect to the addition of any new Lenders pursuant to
subsection 11.1 or any modification or reduction from time to time to any such
amount pursuant to the terms of this Agreement.
"Conversion/Continuation Notice" shall have the meaning ascribed
thereto in subsection 2.5(f).
"Default" shall mean an event which through the passage of time or the
service of notice, or both, would mature into an Event of Default.
"Default Rate" shall mean (a) in the case of principal or interest on
the Revolving Loan, two percent (2%) per annum above the rates of interest
otherwise applicable hereunder, (b) in the case of all other Obligations (other
than Lender Guaranty Fees), two percent (2%) per annum above the rate of
interest otherwise applicable to Base Rate Loans hereunder and (c) in the case
of Lender Guaranty Fees, two percent (2%) above the Lender Guaranty Fee
otherwise applicable hereunder.
"Depository Account" shall have the meaning ascribed thereto in
subsection 3.5.
"Documents" shall mean any "documents" as such term is defined in the
Code, now owned or hereafter acquired by any Borrower, wherever located.
"EBITDA" shall mean, without duplication, for any fiscal period,
determined for the Parent and its Subsidiaries on a consolidated basis, Net
Income for such period, plus to the extent deducted in determining Net Income,
interest expense and income and franchise taxes paid, plus to the extent
deducted in determining Net Income, amortization, depreciation and other similar
non-cash charges, plus to the extent deducted in determining Net Income,
extraordinary losses, minus to the extent added in determining Net Income,
extraordinary gains, all as determined in accordance with GAAP and in a manner
consistent with the Financial Statements.
"EJL Sellers" shall mean Dennis Robert Coe, in his individual capacity
and as Trustee of The Coe Living Trust, and Phyllis Thalman Coe, as Trustee of
The Coe Living Trust, Michele de Maio, Bear Ferguson, Andrea Giambrone, Consuelo
Gomez, Anna S. Laws, as trustee of the Laws Family Trust, Dean Laws, Ric Militi,
Adrienne Powell, Anne Stuzin, Lisa Tucker, Paul Vernon and Michael Waterkotte.
"Eligible Accounts" shall have the meaning ascribed thereto in
subsection 3.2.
"Eligible Assignee" means: (i) a Lender; (ii) an affiliate of a
Lender; (iii) a commercial bank organized under the laws of the United States,
or any State thereof, and having a combined capital and surplus of at least
$500,000,000; (iv) a savings and loan association or savings bank organized
under the laws of the United States, or any State thereof, and having a combined
capital and surplus of at least $500,000,000; (v) a commercial bank organized
under the laws of any other country that is a member of the OECD or has
concluded special lending arrangements with the International Monetary Fund
associated with its General Arrangements to Borrow or a political subdivision of
any such country, and having a combined capital and surplus of at least
$500,000,000, so long as such bank is acting through a branch or agency located
in the United States; (vi) a finance company, insurance company or other
financial institution, investment company or fund (whether a corporation,
partnership, trust or other entity) that is engaged in making, purchasing or
otherwise investing in commercial loans in the ordinary course of its business
and having a combined capital and surplus of at least $50,000,000; (vii) any
"accredited investor" as defined in the regulations promulgated under the
Securities Act; and (viii) any other Person approved by the Agent and the
Borrower Representative; provided that neither a Borrower nor any Affiliate of a
Borrower shall qualify as an Eligible Assignee under this definition.
"Environmental Laws" shall mean and includes the following as now in effect or
hereafter amended: the Comprehensive Environmental Response Compensation and
Liability Act, ("CERCLA"), 42 U.S.C. Section 9601 et. seq.; the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act ("RCRA"),
42 U.S.C. Section 6901 et. seq.; the Toxic Substances Control Act ("TSCA"), 15
U.S.C. Section 2601, et. seq.; the Clean Air Act, 42 U.S.C. Section 7401 et.
seq.; the Federal Water Pollution Control Act ("Clean Water Act"), 33 U.S.C.
Section 1251 et. seq.; the Emergency Planning and Community Right-to-Know Act,
42 U.S.C. Section 11001 et. seq.; the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801 et. seq.; the Atomic Energy Act, 42 U.S.C. Section 2011 et.
seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f et. seq. and the state
law equivalents; any so-called "Superfund" or "Superlien" law; and any statute,
ordinance, code, rule, regulation, order, decree or requirement under
international, federal, state, regional, provincial or local law (including,
without limitation, administrative orders and consent decrees) in effect and as
amended regulating, relating to or imposing liability or standards of conduct
concerning public health and safety, protection of the environment, or any
pollutant or contaminant or hazardous, toxic or dangerous substance, waste,
chemical or material, as now or any time hereafter may be existing.
"Environmental Matters" shall have the meaning ascribed thereto in
subsection 6.26(b).
"Equipment" shall mean all of any Borrower's machinery and equipment,
including, without limitation, processing equipment, data processing and
computer equipment with software and peripheral equipment (other than software
constituting part of the Accounts), and all engineering, processing and
manufacturing equipment, office machinery, furniture, materials handling
equipment, attachments, accessories and other equipment of every kind and
nature, trade fixtures and fixtures not forming a part of real property, all
whether now owned or hereafter acquired, and wherever situated, together with
all appurtenances, additions and accessions thereto, replacements therefor, all
parts therefor, all substitutes for any of the foregoing, fuel therefor, and all
manuals, drawings, instructions, warranties and rights with respect thereto, and
all products and proceeds thereof and condemnation awards and insurance proceeds
with respect thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and all rules and regulations promulgated
thereunder.
"ERISA Affiliate" shall mean any Subsidiary or any Person, trade or
business (whether or not incorporated) that, along with Parent, the Borrower or
any Subsidiary, are treated as a single employer for any purpose under Section
414 of the IRC.
"Event of Default" shall mean the occurrence or existence of any one
or more of the following conditions or events:
(a) any Borrower (i) fails to pay any principal on the
Revolving Loan or any reimbursement obligation with respect to
any Lender Guaranty Liabilities or any other Obligations (other
than interest on the Revolving Loan) when due or declared due,
whether at the due date thereof or at a date fixed for prepayment
thereof or by acceleration thereof or otherwise, (ii) fails to
pay any interest on the Revolving Loan when due or declared due
and such default in payment shall continue for three (3) Business
Days or (iii) fails to deliver any Borrowing Base Certificate or
Monthly Report as required by Section 3.1;
(b) any Borrower fails or neglects to perform, keep or
observe any of the covenants, conditions or agreements contained
in any of the subsections of this Agreement or in any of the
other Financing Agreements to which it is a party (other than
occurrences referred to or embodied in other provisions of this
definition constituting Events of Default) for a period of twenty
(20) days after the earlier of (i) such Borrower's receipt of
notice from the Agent or (ii) actual knowledge of such breach by
any Borrower;
(c) any warranty or representation now or hereafter made by
Parent or any Borrower or any Subsidiary in connection with this
Agreement or any of the other Financing Agreements to which it is
a party shall be untrue or incorrect in any material respect, or
any schedule, certificate, statement, report, financial data,
notice or other writing furnished at any time by Parent or any
Borrower or any Subsidiary to the Agent or any Lender is untrue
or incorrect in any material respect, as of the date on which the
warranty, representation or the facts set forth therein are
stated, certified or deemed made;
(d) any Borrower fails to perform, keep or observe any of
the covenants contained in clause (iii) of subsection 7.8, in
subsections 3.5, 7.5, 7.6, 7.11, 7.12, 7.13 or in Section 8;
(e) any of the Collateral or other Property of Parent or any
Borrower or any Subsidiary having a fair market value of more
than $50,000 in the aggregate is attached, seized, subjected to a
writ or distress warrant, or levied upon, or come within the
possession or control of any judgment creditor and on or before
the thirtieth (30th) day thereafter such Collateral or Property
is not returned to such Person or such writ, distress warrant or
levy is not dismissed, vacated, stayed or lifted; provided that
any such action taken by the Borrowers will prevent the
forfeiture or sale of any such Collateral or other Property;
(f) Parent or any Borrower or any Subsidiary makes a general
assignment for the benefit of creditors; convenes a meeting of
its creditors, or any class thereof, for purposes of effecting a
moratorium upon or extension or composition of its debts; applies
for, seeks, consents to, or acquiesces in the appointment of a
receiver, trustee or custodian to take possession of all or any
substantial portion of its Property; commences any bankruptcy,
reorganization or insolvency case or proceeding or other
proceeding under any federal, state or other law for relief of
debtors; or Parent or such Borrower or such Subsidiary proposes,
authorizes or consents to the taking of any of the foregoing
actions;
(g) Parent or any Borrower or any Subsidiary fails to obtain
the dismissal, within forty-five (45) days after the commencement
thereof, of any bankruptcy, reorganization or insolvency
proceeding, or other proceeding under any law for the relief of
debtors instituted against it; fails actively to oppose any such
proceeding; or in any such proceeding, defaults or files an
answer admitting the material allegations upon which the
proceeding was based or states in any filing in such proceeding
its willingness to have an order for relief entered or its desire
to seek liquidation, reorganization or adjustment of any of its
debts;
(h) without the application, approval or consent of Parent
or any Borrower or any Subsidiary, any receiver, trustee,
examiner, liquidator, custodian or similar official is appointed
to take possession of all or any substantial portion of the
Property of Parent or such Borrower or such Subsidiary;
(i) Parent or any Borrower or any Subsidiary voluntarily or
involuntarily dissolves or is dissolved, liquidates or is
liquidated;
(j) Parent or any Borrower or any Subsidiary ceases to be
Solvent or admits in writing that it is not Solvent or fails to
pay all or any material portion (measured in numbers of debts or
dollar amounts) of its debts as they become due or admits in
writing its present or prospective inability to pay its debts as
they become due;
(k) any Borrower or any Subsidiary is enjoined, restrained,
or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any
material part of its business representing fifteen percent (15%)
or more of Parent and its Subsidiaries' business taken as a whole
(based upon gross revenues for the most recent twelve months
ending on the date of such occurrence);
(l) any default or breach under any agreement(s) evidencing
Indebtedness of Parent or any Borrower or any Subsidiary in an
aggregate amount in excess of Two Hundred Fifty Thousand Dollars
($250,000) shall occur and shall continue after any applicable
grace period specified in any such document if the effect of such
default or breach is to accelerate, or to permit the acceleration
of, the maturity of all or any part of any such Indebtedness,
whether or not such default or breach shall be waived by the
holders or trustees (if any) for such Indebtedness, or any such
Indebtedness shall be declared to be due and payable, or be
required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof;
(m) a breach by Parent or any Borrower or any Subsidiary
that could reasonably be expected to have a Material Adverse
Effect occurs under any agreement, document or instrument (other
than an agreement, document or instrument evidencing
Indebtedness), whether heretofore, now or hereafter existing
between Parent or such Borrower or such Subsidiary and any other
Person, and such breach continues for more than thirty (30) days
after such breach first occurs; provided that such grace period
shall not apply, and such breach shall constitute an Event of
Default, if such breach may not, in the determination of the
Required Lenders, be cured by Parent or such Borrower or such
Subsidiary during such thirty (30) day grace period, and the
failure to have cured such breach could reasonably be expected to
have a Material Adverse Effect;
(n) the occurrence or existence of an event or condition
which results in a Material Adverse Effect;
(o) any material damage to, or loss, theft, or destruction
of, any of the Collateral, whether or not insured, or any strike,
lockout, labor dispute, embargo, condemnation, act of God or
public enemy, or other casualty which results in or causes
cessation or substantial curtailment of production or other
revenue producing activities at any Facility generating more than
fifteen percent (15%) of any Borrowers' gross revenues for more
than fifteen (15) consecutive days; provided that such occurrence
shall not constitute an Event of Default if such occurrence is
covered by any Borrower's business interruption insurance in an
amount which, in the judgment of the Required Lenders, is
reasonably expected to cover the period during which such
revenue-producing activities have ceased or are substantially
curtailed;
(p) entry of a judgment or judgments in an aggregate amount
in excess of Two Hundred Fifty Thousand Dollars ($250,000)
against Parent or any Borrower or any Subsidiary which are not
(i) stayed, bonded, vacated, paid or discharged within thirty
(30) days after entry or (ii) fully covered by insurance (other
than any amount constituting the deductible portion under the
applicable policy of such insurance carrier as permitted under
subsection 7.5) as to which the insurance carrier has
acknowledged coverage to such Person in writing;
(q) the loss, suspension, revocation or failure to obtain or
renew any license or permit now held or hereafter acquired by
Parent or any Borrower or any of its Subsidiaries, which loss,
suspension, revocation or failure to renew could reasonably be
expected to have a Material Adverse Effect;
(r) any civil or criminal action, suit or proceeding is
initiated against Parent or any Borrower or any Subsidiary under
any federal or state racketeering statute (including, without
limitation, the Racketeer Influenced and Corrupt Organization Act
of 1970, as amended) and is not dismissed within thirty (30)
days;
(s) a Change in Control occurs;
(t) any security interest created under any Financing
Agreement shall cease to be a valid and perfected first priority
security interest or Lien (subject to Permitted Liens) in any of
the Collateral purported to be covered thereby for any reason
other than the failure of the Agent to take any action within its
control;
(u) any of the Financing Agreements shall cease for any
reason to be in full force and effect or is declared null and
void or Parent or any Borrower or any Subsidiary or any other
Person (other than the Agent or any Lender) shall disavow its
respective obligations thereunder or shall deny that it has any
further obligations thereunder or shall contest or challenge the
validity or enforceability of any thereof, the legality or
enforceability of any of the Obligations or the perfection or
priority of any Lien granted to the Agent, or gives notice to
such effect; or
(v) Parent or any Subsidiary fails or neglects to perform,
keep or observe any of the covenants, conditions or agreements
contained in any Financing Agreement to which it is a party,
which breach continues after any applicable grace period
specified in such Financing Agreement.
The occurrence or existence of any of the foregoing events shall
constitute an immediate Event of Default unless notice by the Agent or a cure
period is specifically required by the description of such event before such
event matures into an Event of Default.
"Excess Interest" shall have the meaning ascribed thereto in
subsection 2.5(d).
"Facility" shall mean each of the facilities located at 40 West 57th
Street, New York, New York (LOIS/USA New York, Inc.), 2200 Merchandise Mart,
Chicago, Illinois, and 401 Michigan Avenue, Chicago, Illinois (LOIS/USA Chicago,
Inc.) and 5700 Wilshire Boulevard, Los Angeles, California (LOIS/USA West, Inc.)
and any other facility established by a Borrower hereafter in accordance with
the terms of this Agreement.
"Facility Fee" shall have the meaning ascribed thereto in subsection
2.11.
"Federal Funds Rate" shall mean, for any day, the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System only arranged by Federal Funds brokers as published as of such
day by the Federal Reserve Bank of New York, or if such rate is not so
published, the rate then used by first class banks in extending overnight loans
to other first class banks.
"Financial Statements" shall mean the consolidated and consolidating
income statements, statements of cash flow and balance sheets of the Borrowers
delivered in accordance with subsection 7.1.
"Financing Agreements" shall mean, collectively, this Agreement, the
Revolving Notes, Parent Guaranty, the Intellectual Property Security Agreements,
the Parent Pledge Agreement, the Blocked Account Agreements and all other
agreements, instruments and documents, including, without limitation, security
agreements, loan agreements, notes, guaranties, mortgages, deeds of trust,
agreements, documents, instruments, pledges, powers of attorney, consents,
assignments, contracts, notices, leases, financing statements and all other
written matter whether heretofore, now, or hereafter executed by or on behalf of
Parent or any Borrower, any Subsidiary or any other Person and delivered to the
Agent or any Lender in connection with this Agreement, together with all
agreements and documents between Parent or any Borrower or any Subsidiary and
the Agent or any Lender referred to therein or contemplated thereby, as the same
may hereafter be amended, modified or supplemented from time to time.
"Fiscal Month" shall mean any of the twelve fiscal accounting periods
of a Fiscal Year of the Borrowers.
"Fiscal Quarter" shall mean any of the quarterly fiscal periods of the
Borrowers.
"Fiscal Year" shall mean the fiscal year of the Borrowers ending on
December 31 of each calendar year. "Fixed Charge Coverage Ratio" shall mean, for
any fiscal period, the ratio of Adjusted EBITDA to Fixed Charges.
"Fixed Charges" shall mean, for any fiscal period, determined for the
Parent and its Subsidiaries on a consolidated basis, the aggregate sum of (i)
Interest Expense for the twelve month period ending on the date of determination
of Fixed Charges, plus (ii) scheduled current maturities of long-term
Indebtedness (including, without limitation, Subordinated Debt and capitalized
lease payments) for the next twelve months beginning on the date of
determination of Fixed Charges, plus (iii) Restricted Payments paid in cash
pursuant to clause (v) of subsection 8.11, all as determined in accordance with
GAAP and in a manner consistent with the Financial Statements.
"Fixtures" shall mean all "fixtures" as such term is defined in the
Code, now owned or hereafter acquired by any Borrower, wherever located.
"FKP Acquisition" shall mean the acquisition by the Parent pursuant to
subsection 8.20(b) of all of the Stock or all or substantially all of the assets
of Fogarty Klein & Partners pursuant to a purchase agreement in form and
substance satisfactory to the Agent.
"Funding Date" shall mean the date of each funding under the Revolving
Loan and each continuation or conversion of Base Rate Loans and LIBOR Rate Loans
or issuance of a Lender Guaranty, which date in all cases shall be a Business
Day.
"General Intangibles" shall mean all of any Borrower's presently owned
or hereafter acquired general intangibles, including, without limitation,
goodwill, choses in action, causes of action, franchises, methods, sales
literature, drawings, specifications, descriptions, name plates, catalogs,
dealer contracts, supplier contracts, distributor agreements, customer lists,
contract rights, confidential information, consulting agreements, employment
agreements, engineering contracts, leasehold interests in real and personal
property, insurance policies (including business interruption insurance),
licenses, permits, and such other Property which uniquely reflect the goodwill
of the business of any Borrower; deposit accounts, letters of credit, and
General Intangibles relating to other items of Collateral, including, without
limitation, rights to refunds or indemnification; reversionary or other rights
of any Borrower to excess Plan assets upon termination or amendment thereof; and
proceeds of all of the foregoing, including without limitation, insurance
proceeds, including proceeds of business interruption insurance, income tax
refunds, and claims for tax or other refunds against any Governmental Authority.
"Generally Accepted Accounting Principles" or "GAAP" shall mean, as of
the date of any determination with respect thereto, generally accepted
accounting principles as used by the Financial Accounting Standards Board and/or
the American Institute of Certified Public Accountants, consistently applied and
maintained throughout the periods indicated.
"Governmental Authority" shall mean any nation or government or any
other political subdivision thereof, any state or other political subdivision
thereof, and any agency, authority, court, central bank, instrumentality,
department or other law, regulation or rulemaking entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government. "Guaranty" of a Person shall mean any agreement by
which such Person guarantees, endorses or otherwise in any way becomes or is
responsible for any obligations of any other Person, or otherwise assures any
creditor of such other Person against loss, whether directly or indirectly, by
agreement to purchase the indebtedness of any other Person or commitments to
purchase of goods, supplies or services, to maintain working capital or other
balance sheet covenants or conditions, or by way of commitments to purchase
securities, make capital contributions, advances or loans for the purpose of
paying or discharging any indebtedness or obligation of such other Person. The
amount of any Guaranty shall be deemed to be an amount equal to the stated
maximum of the Guaranty or, if none, the stated or determinable amount of the
primary obligation in respect of which such Guaranty is made or, if there is no
stated or determinable amount of the primary obligation, the maximum reasonably
anticipated liability in respect thereof (assuming such Person is required to
perform thereunder) as determined in good faith by the Agent.
"Hazardous Materials" shall mean the following: hazardous substances;
hazardous wastes; polychlorinated biphenyls ("PCB"'s") or any substance or
compound containing PCB's; asbestos or any asbestos-containing materials in any
form or condition; radon; any other radioactive materials including any source,
special nuclear or by-product material; petroleum, crude oil or any fraction
thereof which is liquid at standard conditions of temperature and pressure (60
degrees Fahrenheit and 14.7 pounds per square inch absolute); and any other
pollutant or contaminant or hazardous, toxic or dangerous chemicals, materials
or substances, as all such terms are used in their broadest sense and defined by
Environmental Laws.
"Indebtedness" of a Person shall mean at a particular time (i)
indebtedness for borrowed money or for the deferred purchase price of property
or services (other than current accounts payable arising in the ordinary course
of business on terms customary in the trade) in respect of which such Person is
liable, contingently or otherwise, as guarantor, obligor or otherwise or any
commitment by which such Person assures a creditor against loss, including
contingent reimbursement obligations with respect to letters of credit, (ii)
indebtedness guaranteed in any manner by such Person, including guaranties in
the form of an agreement to repurchase or reimburse; provided that the amount of
indebtedness represented by any guaranty of limited recourse shall be the lesser
of the amount of indebtedness so guaranteed or the value of the asset to which
the recourse of such indebtedness is limited, (iii) obligations under leases
which shall have been or should be, in accordance with Generally Accepted
Accounting Principles, recorded as capital leases in respect of which
obligations such Person is liable, contingently or otherwise, as obligor,
guarantor or otherwise, or in respect of which obligations such Person assures a
creditor against loss, (iv) obligations under any synthetic lease, tax retention
operating lease, off-balance sheet loan or similar off-balance sheet financing
product where such transaction is considered borrowed money indebtedness for tax
purposes but is classified as an operating lease in accordance with Generally
Accepted Accounting Principles, (v) any unfunded obligation of, or withdrawal
liability incurred but not paid by, such Person with respect to a Multiemployer
Plan, (vi) net liabilities under Rate Hedging Obligations and (vii) all accounts
payable of such Person, which are not being contested in good faith by
appropriate proceedings and which are more than one hundred twenty (120) days
past due.
"Instrument" shall mean any "instrument," as such term is defined in
the Code, now owned or hereafter acquired by any Borrower, wherever located,
other than instruments that constitute, or are a part of a group of writings
that constitute, Chattel Paper.
"Intellectual Property" of a Person shall mean all of such Person's
present and future designs, patents, patent rights and applications therefor,
technology, trademarks and registrations or applications therefor, trade names,
inventions, copyrights and all applications and registrations therefor,
advertising matter, software or computer programs, license rights, trade
secrets, methods, processes, knowhow, drawings, specifications, descriptions,
and all memoranda, notes, and records with respect to any research and
development, whether now owned or hereafter acquired by such Person, and
proceeds of all of the foregoing, including, without limitation, proceeds of
insurance policies thereon.
"Intellectual Property Security Agreements" shall mean those certain
Continuing Security Interest and Conditional Assignment of Patents, Trademarks,
Copyrights and Licenses, dated as of the Closing Date, duly executed and
delivered by the Borrowers in favor of the Agent, for the benefit of the
Lenders, with respect to Intellectual Property, as the same may hereafter be
amended, modified or supplemented from time to time.
"Intercompany Notes" shall have the meaning ascribed thereto in
subsection 8.20.
"Interest Coverage Ratio" shall mean, for any fiscal period, the ratio
of EBITDA to Interest Expense.
"Interest Expense" shall mean, for any fiscal period, determined for
the Parent and its Subsidiaries on a consolidated basis, the aggregate of all
interest paid in cash or accrued during such period including, without
limitation, interest payable with respect to the Obligations and the interest
portion of any capitalized lease obligations but excluding interest on any
intercompany Indebtedness permitted by subsection 8.20, all as determined in
accordance with GAAP and in a manner consistent with the Financial Statements.
"Interest Payment Date" shall have the meaning ascribed thereto in
subsection 2.16.
"Interest Period" shall mean, with respect to a LIBOR Rate Loan, a
period of one, two or three months, as available, commencing on a Business Day,
selected by the Borrower Representative pursuant to subsection 2.6. Such
Interest Period shall end on the day in the relevant succeeding calendar month
which corresponds numerically to the beginning day of such Interest Period;
provided that if there is no such numerically corresponding day in such next,
second or third succeeding month, such Interest Period shall end on the last
Business Day of such next, second or third succeeding month. If an Interest
Period would otherwise end on a day which is not a Business Day, such Interest
Period shall end on the next succeeding Business Day; provided that if such next
succeeding Business Day falls in a new month, such Interest Period shall end on
the immediately preceding Business Day. In the case of immediately succeeding
Interest Periods, each successive Interest Period shall commence on the day on
which the immediately preceding Interest Period expires. Notwithstanding any of
the foregoing, no Interest Period shall extend beyond the Revolving Loan
Maturity Date.
"Inventory" shall mean all of the inventory of any Borrower of every
kind and description, now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of any Borrower, wherever located,
including, without limitation, all merchandise, raw materials, parts, supplies,
work-in-process and finished goods intended for sale, together with all the
containers, packing, packaging, shipping and similar materials related thereto,
and including such inventory as is temporarily out of any Borrower's custody or
possession, including inventory on the premises of other Persons and items in
transit, and including any goods reclaimed, returned or repossessed upon any
Accounts, Documents, Instruments or Chattel Paper relating to or arising from
the sale of inventory, and all substitutions and replacements therefor, and all
additions and accessions thereto, and all ledgers, books of account, records,
computer printouts, computer runs, microfilm, microfiche and other
computer-prepared information relating to any of the foregoing, and any and all
proceeds of any of the foregoing, including, without limitation, proceeds of
insurance policies thereon.
"Investment" of a Person shall mean any loan, advance, extension of
credit (other than accounts receivable arising in the ordinary course of
business on terms customary in the trade), deposit account or contribution of
capital by such Person to any other Person or any investment in, or purchase or
other acquisition of, the Stock, notes or debentures of any other Person made by
such Person. The amount of any Investment shall be the original cost of such
Investment plus the costs of all additions thereto.
"Investment Property" of a Person shall have the meaning ascribed
thereto in Section 9-115 of the Uniform Commercial Code in those jurisdictions
in which such definition has been adopted and shall include (i) all securities,
whether certificated or uncertificated, including stocks, bonds, interests in
limited liability companies, partnership interests, treasuries, certificates of
deposit, and mutual fund shares; (ii) all securities entitlements of such
Person, including the rights of such Person to any securities account and the
financial assets held by a securities intermediary in such securities account
and any free credit balance or other money owing by any securities intermediary
with respect to that account; (iii) all securities accounts held by such Person;
(iv) all commodity contracts held by such Person; and (v) all commodity accounts
held by such Person.
"IRC" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and all rules and regulations promulgated thereunder.
"Issuing Bank" shall mean any bank or financial institution which is
approved by the Borrower Representative and the Agent and which issues Letters
of Credit for the account of any Borrower pursuant to subsection 2.1.
"Key Employee" shall mean each of Lois and Veru.
"Lender Guaranties" and "Lender Guaranty" shall have the respective
meanings ascribed thereto in subsection 2.1(c).
"Lender Guaranty Fees" shall have the meaning ascribed thereto in
subsection 2.17.
"Lender Guaranty Liability" means, as to each Lender Guaranty, all
liabilities of the Lenders with respect to the transaction for which such Lender
Guaranty was issued, whether contingent or otherwise, including: (a) the amount
available to be drawn or which may become available to be drawn; (b) all amounts
which have been paid or made available by the Issuing Bank or the Lenders to the
extent not reimbursed by any Borrower; and (c) all unpaid interest, fees and
expenses with respect thereto.
"Lender Guaranty Reserve" means, at any date of determination, a
reserve in an amount equal to (a) the aggregate amount of Lender Guaranty
Liability with respect to Lender Guaranties outstanding at such time, plus (b)
the aggregate amount theretofore paid by the Lenders under the Lender Guaranties
for which the Lenders have not been reimbursed by any Borrower or which has not
been debited to the Loan Account pursuant to subsection 2.1(c)(iii).
"Lenders" shall mean the financial institutions signatory hereto and,
subject to the terms and conditions hereof, their respective successors and
assigns.
"Letter of Credit" shall mean a standby letter of credit or bankers
acceptance issued by an Issuing Bank at the request and for the account of any
Borrower and for which the Lenders incur Lender Guaranties.
"Liabilities" shall mean liabilities (including, without limitation,
Indebtedness) of any Borrower and its Subsidiaries on a consolidated basis which
are or should be reflected on a balance sheet of such Person, all as determined
in accordance with GAAP and in a manner consistent with the Financial
Statements.
"LIBOR Rate" shall mean, for each Interest Period, a rate of interest
equal to the sum of:
(a) the quotient of (i) the rate of interest determined by
Agent to be the rate at which deposits in U.S. Dollars for the
relevant Interest Period are offered based on information
presented on the Telerate Screen as of 11:00 a.m. (London time)
on the applicable LIBOR Rate Determination Date in the
approximate amount of the LIBOR Rate Loan and having a maturity
approximately equal to such Interest Period; provided that if at
least two such offered rates appear on the Telerate Screen in
respect of such Interest Period, the arithmetic mean of all such
rates (as determined by Agent) will be the rate used; provided
further, that if the Telerate System ceases to provide LIBOR
quotations, such rate shall be the average rate of interest
determined by Agent at which deposits in U.S. Dollars are offered
for the relevant Interest Period by The Sanwa Bank, Limited (or
its successor) to banks with combined capital and surplus in
excess of $500,000,000 in the London interbank market as of 11:00
a.m. (London time) on the applicable LIBOR Rate Determination
Date in the approximate amount of the LIBOR Rate Loan and having
a maturity approximately equal to such Interest Period, divided
by
(ii) one minus the rate (expressed as a decimal) of reserve
requirements in effect on the LIBOR Rate Determination Date
(including, without limitation, all basic, supplemental, marginal
and emergency reserves under any regulations of the Board of
Governors of the Federal Reserve System or other governmental
authority having jurisdiction with respect thereto, as now and
from time to time in effect) for Eurocurrency funding (currently
referred to as "Eurocurrency liabilities" in Regulation D) which
are required to be maintained by a member bank of the Federal
Reserve System; plus
(b) two and one-half percent (2.5%) per annum.
The LIBOR Rate shall be adjusted to the nearest one-sixteenth percent (1/16%)
or, if there is no nearest one-sixteenth percent (1/16%), to the next higher
one-sixteenth percent (1/16%).
"LIBOR Rate Determination Date" shall mean each date for calculating
the LIBOR Rate for purposes of determining the interest rate applicable to any
LIBOR Rate Loan made pursuant to subsection 2.6. The LIBOR Rate Determination
Date shall be the second Business Day prior to the first day of the related
Interest Period for a LIBOR Rate Loan.
"LIBOR Rate Loans" shall mean the Revolving Loan or portion thereof
bearing interest at to the LIBOR Rate.
"Lien" shall mean, with respect to the Property of any Person, any
statutory or contractual lien, security interest, mortgage, pledge, claim,
encumbrance, charge, hypothecation, assignment, deposit arrangement, filing of,
or agreement to give, any financing statement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever, whether voluntary or involuntary (including, without
limitation, the interest of a vendor or lessor under any conditional sale,
capitalized lease or other title retention agreement), in, of or on any of the
Property of such Person in favor of any other Person.
"Litigation" shall have the meaning ascribed thereto in subsection
6.14.
"Loan Account" shall have the meaning ascribed thereto in subsection
2.14.
"Loan Year" shall mean the period of twelve (12) consecutive months
commencing on the Closing Date and each succeeding period of twelve (12)
consecutive months commencing on each anniversary of the Closing Date during the
term of this Agreement.
"Lois" shall mean George Lois, an individual.
"Material Adverse Effect" shall mean, as determined by the Agent in
its reasonable business judgment, a material adverse effect upon (a) the Agent's
Lien priority in, or the value of, the Collateral, or (b) the business,
properties, operations or condition (financial or otherwise) or business
prospects of any Borrower or the Parent and its Subsidiaries taken as a whole as
a result of the occurrence or existence of any single event or condition or
series of events or conditions in the aggregate, or (c) the ability of any
Borrower or the Parent to perform its obligations under the Financing
Agreements, or (d) the validity or enforceability of any of the Financing
Agreements or the rights, powers and remedies of the Agent or any Lender to
enforce or collect the Obligations. In determining whether any individual event
would result in a Material Adverse Effect, notwithstanding that such event does
not of itself have such effect, a Material Adverse Effect shall be deemed to
have occurred if the cumulative effect of such event and all other then existing
events would result in a Material Adverse Effect.
"Monthly Report" shall have the meaning ascribed thereto in subsection
3.1.
"Multiemployer Plan" shall mean any multiemployer plan within the
meaning of Section 4001(a)(3) of ERISA to which any Borrower or any ERISA
Affiliate contributes, is obligated to contribute or was required to contribute
within the immediately preceding six (6) years.
"Net Income" shall mean, for any fiscal period, determined for the
Parent and its Subsidiaries on a consolidated basis, the audited consolidated
net income after income and franchise taxes for such period; provided that there
shall be specifically excluded therefrom tax-adjusted (i) gains or losses from
the sale of capital assets, (ii) net income of any Person in which Parent or any
Subsidiary has an ownership interest, unless received by Parent or such
Subsidiary in a cash distribution, and (iii) any gains or losses arising from
extraordinary items, as defined by Generally Accepted Accounting Principles.
"New York Borrowing Base" shall mean, as of any date of determination
by the Agent, an amount equal to eighty five percent (85%) of the face amount
(less maximum discounts, credits and allowances which may have been taken by or
granted to Account Debtors in connection therewith) then outstanding of existing
Eligible Accounts of New York.
"Note" or "Notes" shall mean one or more of the Revolving Loan Notes.
"Obligations" shall mean all of the Borrowers' obligations,
liabilities, indemnities and indebtedness for the performance of covenants and
the payment of monetary amounts to the Agent and the Lenders and/or to any
affiliate of the Agent or the Lenders of any and every kind and nature, whether
heretofore, now or hereafter owing, arising, due or payable and howsoever
evidenced, created, incurred, acquired, or owing, whether primary, secondary,
direct, indirect, contingent, fixed or otherwise (including, without limitation,
obligations of performance) and whether arising or existing under written
agreement, oral agreement or operation of law including, without limitation, all
of the Borrowers' indebtedness, liabilities, indemnities and obligations to the
Agent and the Lenders or any Participant under this Agreement and the other
Financing Agreements.
"Parent" shall mean LOIS/USA, Inc., a Delaware corporation.
"Parent Guaranty" shall mean that certain Guaranty, dated as of the
Closing Date, by the Parent in favor of the Agent, for the benefit of the
Lenders, as the same may hereafter be amended, restated, modified or
supplemented from time to time.
"Parent Pledge Agreement" shall mean the Pledge Agreement, dated as of
the Closing Date, executed by the Parent in favor of the Agent, as the same may
be amended, restated, modified or otherwise supplemented from time to time.
"Participant" shall mean any Person now or from time to time hereafter
participating with any Lender in the Revolving Loan made by such Lender pursuant
to subsection 11.2 of this Agreement.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.
"Pension Plan" shall mean any Plan that is or was a defined benefit
plan (other than a Multiemployer Plan) defined in Section 3(35) of ERISA.
"Pension Acquisition" shall have the meaning ascribed thereto in
subsection 8.20.
"Permitted Investments" shall have the meaning ascribed thereto in
subsection 8.4.
"Permitted Liens" shall have the meaning ascribed thereto in
subsection 8.1.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, limited liability company, limited liability partnership,
unincorporated organization, association, corporation, institution, entity,
party, or government (whether national, federal, state, provincial, county,
city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Plan" shall mean any employee benefit plan within the meaning of
Section 3(3) of ERISA (other than any Multiemployer Plan) under which any
Borrower or any ERISA Affiliate contributes, is obligated to contribute or was
required to contribute within the immediately preceding six (6) years.
"Prebilled Accounts" shall mean an Account for which an invoice has
been issued but the underlying advertisement (e.g., commercial or print
advertisement) has not yet run or been issued in the applicable media.
"Preferred Stock" shall mean the Class A Preferred Stock of Parent
issued and outstanding on the Closing Date.
"Prime Rate" shall mean the highest "prime rate" of interest reported,
from time to time, by The Wall Street Journal; provided, however, that in the
event that The Wall Street Journal ceases reporting a "prime rate", "Prime Rate"
shall mean the per annum rate of interest reported as the "Bank Prime Loan" rate
for the most recent weekday for which such rate is reported in Statistical
Release H.15 (519) published from time to time by the Board of Governors of the
Federal Reserve System; provided further that in the event that both of the
aforesaid indices cease to be published or to report rates of the aforesaid
types, the "Prime Rate" shall be determined from a comparable index chosen by
the Agent in good faith. The "Prime Rate" shall change effective on the date of
the publication of any change in the applicable index by which such "Prime Rate"
is determined.
"Pro Rata Share" shall mean the percentage obtained by dividing (a)
the Commitments of a Lender by (b) the aggregate Commitments of all Lenders. The
Commitments of each Lender with respect to the Revolving Loan as of the Closing
Date are set forth on Schedule 1. The sum of the Pro Rata Shares of all Lenders
at any date of determination shall equal one hundred percent (100%).
"Pro Forma" shall have the meaning ascribed thereto in subsection
6.4(a).
"Projections" shall mean the projected balance sheets, profit and loss
statements, and cash flow statements of the Borrowers and their Subsidiaries on
a consolidated and consolidating basis, prepared in accordance with Generally
Accepted Accounting Principles, together with appropriate supporting details and
a statement of underlying assumptions, which have been and will be delivered to
the Agent and the Lenders in accordance with the terms hereof by each Borrower.
"Property" of a Person shall mean any and all assets or property,
whether real, personal, tangible, intangible, or mixed, of such Person, or other
assets or property leased or operated by such Person.
"Rate Hedging Obligations" of a Person shall mean any and all
obligations of such Person, whether absolute or contingent and howsoever and
whensoever created, arising, evidenced or acquired (including all renewals,
extensions and modifications thereof and substitutions therefor), under (i) any
and all agreements, devices or arrangements designed to protect at least one of
the parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's Property, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"Rate Option" shall mean the Base Rate or the LIBOR Rate, as
applicable.
"Real Estate" of a Person shall mean the real property, mineral
rights, leasehold or other interests in real property together with any purchase
options and other rights related to such leaseholds or other interests owned,
leased, used or operated now or hereafter by such Person, all Fixtures and
personal property used in conjunction therewith and such Person's rights to
leases, rents and profits with respect thereto.
"Required Lenders" shall mean (i) Lenders having in the aggregate at
least sixty-six and two-thirds percent (66 2/3%) of the Revolving Loan Facility,
or (ii) if the Revolving Loan Facility has been terminated, Lenders having in
the aggregate at least sixty-six and two-thirds percent (66 2/3%) of the
aggregate outstanding amount of the Revolving Loan.
"Restricted Payment" of a Person shall mean: (a) the declaration or
payment of any dividend or other distribution, direct or indirect, on account of
any shares of any class of Stock of such Person now or hereafter outstanding;
(b) any redemption, conversion, exchange, retirement, sinking fund or similar
payment, purchase or other acquisition for value direct or indirect of any
shares of any class of Stock of such Person now or hereafter outstanding; (c)
any payment or prepayment of principal of, premium, if any, or interest, fees or
other charges on or with respect to, any redemption, conversion, exchange,
purchase, retirement, defeasance, sinking fund or similar payment with respect
to Subordinated Debt of such Person; (d) any payment made to retire, redeem,
purchase, repurchase or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire shares of any class of Stock of such Person
now or hereafter outstanding; (e) any payment of a claim for the rescission of
the purchase or sale of, or for material damages arising from the purchase or
sale of, any shares of such Person's Stock or of a claim for reimbursement,
indemnification or contribution arising out of or related to any such claim for
damages or rescission; (f) any payment, loan, contribution or other transfer of
funds or other property to any holder of Stock of such Person; or (g) any
payment by such Person of any management fees, advisor fees or similar fees
whether pursuant to a management agreement or otherwise to any Affiliate of such
Person.
"Revolving Loan" shall have the meaning ascribed thereto in subsection
2.1.
"Revolving Loan Facility" shall mean Twenty Five Million Dollars
($25,000,000), as such amount may be reduced, if at all, from time to time in
accordance with the terms of this Agreement.
"Revolving Loan Maturity Date" shall mean October 28, 2000.
"Revolving Loan Notes" shall have the meaning ascribed thereto in
subsection 2.3.
"Risk-Based Capital Guidelines" means (a) the risk-based capital
guidelines in effect in the United States on the date of this Agreement and (b)
the corresponding capital regulations promulgated by regulatory authorities
outside the United States implementing the July 1988 report of the Basle
Committee on Banking Regulation and Supervisory Practices entitled
"International Convergence of Capital Measurements and Capital Standards" and
any amendments to such regulations adopted prior to the date of this Agreement.
"SBCC" shall mean Sanwa Business Credit Corporation, a Delaware
corporation, in its individual capacity, and its successors.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller Obligations" shall mean, collectively, those certain unsecured
contractual obligations of Parent in favor of the EJL Sellers in an aggregate
principal amount of $3,700,000, which obligations shall be subordinated to the
Obligations in form and substance satisfactory to the Agent in its sole
discretion.
"Service" shall mean the Internal Revenue Service and any successor
thereof.
"Solvency Affidavit" shall mean the Affidavit of Solvency dated as of
the Closing Date executed and delivered by the Borrower Representative on behalf
of each Borrower in favor of the Agent, for the benefit of the Lenders.
"Solvent" shall mean, when used with respect to any Person on any date
of determination, that (i) the fair saleable value of such Person's Property is
in excess of the total amount of the present value of its Liabilities (including
for purposes of this definition all liabilities, whether or not reflected on a
balance sheet prepared in accordance with Generally Accepted Accounting
Principles, and whether direct or indirect, fixed or contingent, liquidated or
unliquidated, secured or unsecured, disputed or undisputed), (ii) such Person is
able to pay its debts or obligations in the ordinary course as they mature, and
(iii) such Person has capital sufficient to carry on its business as conducted
and as proposed to be conducted. In computing the amount of contingent,
unliquidated or disputed liabilities at any time, such liabilities will be
computed at the amount which, in light of all of the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability. "Solvency" shall have a correlative
meaning.
"Stock" shall mean (a) in the case of a corporation, capital stock,
(b) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
capital stock, (c) in the case of a partnership, partnership interests (whether
general or limited), (d) in the case of a limited liability company, membership
interests, (e) any other interest or participation that confers on a Person the
right to receive a share of the profits or losses of, or distribution of assets
of, the issuing Person (other than payments or distributions under employment
agreements), and (f) all warrants, options, convertible debentures, other debt
or equity security, and all other agreements, instruments and documents
exchangeable or exercisable for or convertible into, in whole or in part, any
one or more of the foregoing, in each case whether voting or non-voting.
"Subordinated Debt" shall mean (a) the Seller Obligations and (b) any
other Indebtedness owed to any Person by the Parent or any Borrower (i) the
payment of which is subordinated to the payment of the Obligations and (ii)
which is incurred pursuant to terms, conditions and documentation in form and
substance satisfactory to the Required Lenders.
"Subordination Agreement" shall mean (a) that certain Subordination
and Intercreditor Agreement dated as of the Closing Date between the Agent and
the EJL Sellers, and (b) any subordination agreement between the Agent and any
other Person executed in connection with a Permitted Acquisition, in each case
as the same may be amended, restated, modified or otherwise supplemented from
time to time.
"Subsidiary" of a Person shall mean (i) any corporation of which more
than fifty percent (50%) of the outstanding securities having ordinary voting
power to elect a majority of the board of directors or other Persons performing
similar functions is at any time of determination, directly or indirectly, owned
or controlled by such Person or by one or more of its Subsidiaries or by such
Person and one or more of its Subsidiaries, or (ii) any partnership, limited
liability company, association, trust, grantor trust, joint venture or similar
business organization more than fifty percent (50%) of the equity or interests
having ordinary voting power or power of direction of which shall at any time of
determination be so owned or controlled. Unless otherwise expressly provided or
the context requires otherwise, all references herein to a "Subsidiary" shall
mean a Subsidiary of a Borrower.
"Target" shall have the meaning ascribed thereto in subsection 8.20.
"Taxes" shall mean taxes, liens, imposts, deductions, Charges or
withholdings, and all liabilities with respect thereto imposed by any
Governmental Authority (together with any fines, interest, penalties or other
additions thereto), excluding (i) income taxes and franchise taxes imposed on or
measured by the overall net income of the Agent or any Lender by the United
States of America or by any Governmental Authority of the jurisdiction where the
Agent or such Lender is incorporate or has its principal office and (ii) any
transfer taxes imposed as a results of the transfer of any Notes.
"Telerate Screen" shall mean the display designated as Screen 3750 on
the Telerate System or such other screen on the Telerate System as shall display
the London interbank offered rates for deposits in U.S. dollars quoted by
selected banks.
"Termination Date" shall mean the earliest of (i) the Revolving Loan
Maturity Date then in effect, (ii) the date of termination of the Lenders'
obligation to make advances under the Revolving Loan and/or incur Lender
Guaranty Liabilities or permit the existing Revolving Loan to remain outstanding
pursuant to subsection 9.1, and (iii) the date of indefeasible payment in full
in cash by the Borrowers of the Revolving Loan and the cancellation or cash
collateralization of all Lender Guaranty Liabilities pursuant to subsection
2.10(a) and the termination in whole of the Commitments.
"Termination Event" shall mean: (a) the tax disqualification of a Plan
under Section 401(a) of the IRC; (b) a "Reportable Event" described in Section
4043 of ERISA and the regulations issued thereunder unless the thirty (30) day
notice to the PBGC has been waived for the event; (c) the withdrawal of any
Borrower or any ERISA Affiliate from a Pension Plan during a plan year in which
it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or was
deemed such under Section 4062(e) of ERISA; (d) the termination of a Pension
Plan, the filing of a notice of intent to terminate a Pension Plan or the
treatment of a Pension Plan amendment as a termination under Section 4041(e) of
ERISA; (e) the institution of proceedings to terminate a Pension Plan by the
PBGC; (f) any other event or condition which would constitute grounds under
Section 4042(a) of ERISA for the termination of, or the appointment of a trustee
to administer, any Pension Plan; (g) the partial or complete withdrawal of any
Borrower or any ERISA Affiliate from a Multiemployer Plan; (h) the imposition of
a Lien pursuant to Section 412 of the IRC or Section 302 of ERISA; (i) any event
or condition which results in the reorganization or insolvency of a
Multiemployer Plan under Section 4241 or Section 4245 of ERISA, respectively; or
(j) any event or condition which results in the termination of a Multiemployer
Plan under Section 4041A of ERISA or the institution by the PBGC of proceedings
to terminate a Multiemployer Plan under Section 4042 of ERISA.
"Unused Line Fee" shall have the meaning ascribed thereto in
subsection 2.12.
"Veru" shall mean Theodore Veru, an individual.
"West Borrowing Base" shall mean, as of any date of determination by
the Agent, an amount equal to eighty-five percent (85%) of the face amount (less
maximum discounts, credits and allowances which may have been taken by or
granted to Account Debtors in connection therewith) then outstanding of existing
Eligible Accounts of West.
1.2 Accounting Terms. Any accounting terms used in this Agreement
which are not specifically defined herein shall have the meanings customarily
given them in accordance with Generally Accepted Accounting Principles. All
determinations of the book value of Inventory contemplated hereby shall be at
the lower of cost (on an average cost basis) or market.
1.3 Other Terms Defined in Illinois Uniform Commercial Code. All other
terms contained in this Agreement (and which are not otherwise specifically
defined herein) shall have the meanings provided in the Uniform Commercial Code
of the State of Illinois or the laws of any other state which are required to be
applied in connection with the issue of perfection or non-perfection of Liens on
the Collateral (the "Code") to the extent the same are used or defined therein.
1.4 Effective Date. All references to "the date hereof," "the date of
this Agreement," "the effective date hereof," "effective as of the date hereof"
or "of even date herewith" contained herein or in the other Financing Agreements
shall be deemed to refer to the Closing Date of this Agreement.
1.5 References. The foregoing definitions shall be equally applicable
to both the singular and plural forms of the defined terms. Unless otherwise
expressly provided or unless the context requires otherwise, all references in
this Agreement to Sections, subsections, Schedules and Exhibits shall mean and
refer to Sections, subsections, Schedules and Exhibits of this Agreement.
References to Persons include their respective permitted successors and assigns
or, in the case of a governmental authority, Persons succeeding to the relevant
functions of such Persons. All references to statutes shall include all related
rules and regulations and shall include all amendments of same and any successor
or replacement statutes and regulations. The words "including", "includes" and
"include" shall be deemed to be followed by the words "without limitation".
Whenever any provision in any Financing Agreement refers to the knowledge of the
Borrower or any of its Affiliates, such word is intended to signify that such
Person has actual knowledge or awareness of a particular fact or circumstance or
that such Person, if it had exercised reasonable diligence, would have known or
been aware of such fact or circumstance.
2. CREDIT.
2.1 Revolving Credit Facility.
(a) Revolving Loan. Provided there does not then exist a Default or an
Event of Default, and subject to the terms and conditions herein set forth, each
Lender agrees severally (and not jointly) to make available from time to time
until the Termination Date its Pro Rata Share of advances to the Borrowers, on a
revolving credit basis (the "Revolving Loan"), in an aggregate amount
outstanding at any one time not in excess of the lesser of (i) the Revolving
Loan Facility or (ii) the Aggregate Borrowing Base, in each case less the Lender
Guaranty Reserve outstanding at such time ("Borrowing Availability"). Although
the Borrower Representative may request advances under the Revolving Loan or the
incurrence of Lender Guaranty Liabilities pursuant to the terms of this
Agreement, the aggregate advances under the Revolving Loan and Lender Guaranty
Liabilities outstanding to each Borrower shall not exceed at any time the
Borrowing Base of such Borrower.
The Agent reserves the right in its credit judgment, upon ten (10)
days' prior written notice to the Borrower Representative (i) to adjust any
eligibility criteria or establish new eligibility criteria, (ii) modify the
advance rates against Eligible Accounts, and (iii) establish reserves against
Borrowing Availability; provided that upon the occurrence and during the
continuance of a Default or an Event of Default no prior notice shall be
required to be given to the Borrower Representative.
(b) Advances. Until all amounts outstanding in respect of the
Revolving Loan shall become due and payable on the Termination Date, within the
foregoing limits and subject to the terms, provisions and limitations set forth
herein, the Borrowers may from time to time borrow, repay and reborrow under
this subsection 2.1. Each Borrower hereby designates the Borrower Representative
as its representative and agent on its behalf for the purposes of issuing
Borrowing Notices and Conversion/Continuation Notices giving instructions with
respect to the disbursement of the proceeds of the Revolving Loan, selecting
interest rate options, requesting Letters of Credit, giving and receiving all
other notices and consents hereunder or under any of the other Financing
Agreements and taking all other actions on behalf of any Borrower or Borrowers
under the Financing Agreements. Borrower Representative hereby accepts such
appointment. The Agent and each Lender may regard any notice or other
communication pursuant to any Financing Agreements from the Borrower
Representative as a notice or communication from all Borrowers, and may give any
notice or communication required or permitted to be given to any Borrower or
Borrowers hereunder to the Borrower Representative on behalf of such Borrower or
Borrowers. Each Borrower agrees that each notice, election, representation and
warranty, covenant, agreement and undertaking made on its behalf by the Borrower
Representative shall be deemed for all purposes to have been made by such
Borrower and shall be binding upon and enforceable against such Borrower to the
same extent as if the same had been made directly by such Borrower. The Agent
shall be entitled to rely upon, and shall be fully protected under this
Agreement from any liability to any Person in relying upon, any such notice
believed by the Agent to be genuine and to assume that each Person executing and
delivering the same was duly authorized by any Borrower. Each advance to a
Borrower shall, on the day of such advance, be deposited, in immediately
available funds, into the applicable Borrower's Account, unless otherwise
requested by the Borrower Representative in writing.
(c) Lender Guaranty.
(i) Subject to the terms and conditions of this Agreement, as part of
the Revolving Loan Facility and in addition to advances under the Revolving
Loan, upon the request of the Borrower Representative, SBCC, on behalf of each
Lender according to such Lender's Pro Rata Share, may issue or arrange for the
issuance of Letters of Credit for the account of any Borrower and/or guaranty
payment to the Issuing Banks which issue Letters of Credit for the account of
any Borrower (all such Letters of Credit issued by SBCC are collectively
referred to herein as "Lender Guaranties" and individually as a "Lender
Guaranty"); provided that SBCC shall not be under any obligation to issue any
Lender Guaranty if any order, judgment or decree of any government authority or
other regulatory body shall purport by its terms to enjoin or restrain SBCC or
any Lender from issuing such Lender Guaranty, or any law or governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law) from any governmental authority or other regulatory body with jurisdiction
over SBCC or any Lender shall prohibit, or request that SBCC or such Lender
refrain from, the issuance of Lender Guaranties in particular or shall impose
upon SBCC or any Lender with respect to such Lender Guaranties any restriction
or reserve or capital requirement (for which SBCC or such Lender is not
otherwise compensated) or any unreimbursed loss, cost or expense which SBCC or
any Lender in good faith deems material to it. In no event shall SBCC issue or
otherwise become obligated with respect to a Letter of Credit (including,
without limitation, Letters of Credit issued with an automatic "evergreen"
provision) having an expiration date, or a date for payment of any draft
presented thereunder (as originally issued or extended), later than the earlier
of (x) twelve (12) months from the date of issuance or (y) thirty (30) days
prior to the Revolving Loan Maturity Date. Such issuance and obligations with
respect to a Letter of Credit pursuant to this subsection 2.1(c) shall be deemed
to be a Revolving Loan for purposes of requiring the satisfaction of the
applicable conditions set forth in Section 4. Additions to the Lender Guaranty
Reserve shall be established concurrently with the issuance of each Lender
Guaranty. Immediately upon the issuance of any Lender Guaranty in accordance
with this subsection 2.1(c), each Lender shall be deemed to have irrevocably and
unconditionally purchased and received from SBCC, without recourse,
representation or warranty, an individual participation interest equal to its
Pro Rata Share of the principal amount of such Lender Guaranty and each draw
paid by the Issuing Bank under the Letter of Credit issued in connection
therewith. Each Lender's obligation to pay its Pro Rata Share of all draws under
the Letters of Credit issued in connection with such Lender Guaranties shall be
absolute, unconditional and irrevocable and in each case shall be made without
counterclaim or set-off by such Lender.
(ii) The aggregate face amount of Letters of Credit with respect to
Lender Guaranties outstanding at any one time shall not exceed $1,500,000.
(iii) Each Borrower shall be irrevocably and unconditionally obligated
forthwith upon demand without presentment, demand, protest or other formalities
of any kind, to reimburse the Agent, on behalf of the Lenders, for any amounts
paid by the Lenders with respect to each Lender Guaranty including, without
limitation, all amounts paid by the Lenders upon any draw with respect to a
Letter of Credit, any guaranty or reimbursement obligation paid by the Lenders
to any Person upon any draw upon a Letter of Credit and all fees, costs and
expenses paid by the Lenders to any Issuing Bank. All such reimbursement
obligations shall be due and payable on demand. If not paid within one (1)
Business Day following demand, or, if an Event of Default shall have occurred
and be continuing, on the date such reimbursement obligations arise, each
Borrower hereby authorizes and directs the Agent, at the Agent's option, to
debit the Loan Account (by increasing the principal balance of the Revolving
Loan), in the amount of any payment made by the Lenders with respect to any
Lender Guaranty and, in connection therewith, the Lender Guaranty Reserve then
in effect shall be reduced by the amount of such debit. All amounts paid by the
Lenders with respect to any Lender Guaranty that are not immediately repaid by
any Borrower with the proceeds of the Revolving Loan or otherwise shall bear
interest at the interest rate applicable to Base Rate Loans under the Revolving
Loan. If SBCC makes a payment on account of any Lender Guaranty and is not
concurrently reimbursed therefor by the Borrowers and if for any reason an
advance under the Revolving Loan may not be made as stated in this subsection
2.1(c), then as promptly as practical during normal banking hours on the date of
its receipt of such notice or, if not practicable on such date, not later than
12:00 noon (Chicago time) on the Business Day immediately succeeding such date
of notification, each Lender shall deliver to the Agent for the account of the
Issuing Bank, in immediately available funds, the purchase price for such
Lender's interest in such unreimbursed Lender Guaranty, which shall be an amount
equal to such Lender's Pro Rata Share of such payment. Each Lender acknowledges
and agrees that its obligation to reimburse the Agent pursuant to this
subsection 2.1(c)(iii) with respect to Lender Guaranty Liabilities is absolute
and unconditional and shall not be affected by any circumstance whatsoever
including, without limitation, the occurrence or continuance of a Default or an
Event of Default, and further acknowledges and agrees that each such payment
shall be made without any offset, abatement, withholding or reduction
whatsoever.
(iv) In addition to all other terms and conditions set forth in this
Agreement, the issuance by the Lenders of any Lender Guaranty shall be subject
to the conditions precedent that the Issuing Bank be satisfactory to the Agent
and that the Letter of Credit for which any Borrower requests a Lender Guaranty
be in such form as is reasonably satisfactory to the Agent. Each Borrower shall
comply with all such terms and conditions imposed on any Borrower by any Issuing
Bank or by the Agent with respect to the issuance of any Letter of Credit,
whether such terms and conditions are imposed in the application for such Letter
of Credit, the Lenders' guaranty of such letter of credit or otherwise.
(v) Prior to the issuance of a Lender Guaranty and as a condition to
such issuance, any Borrower Representative shall give the Agent prior written
notice specifying the date a Lender Guaranty is to be issued, identifying the
beneficiary of the guaranty and describing the nature of the transactions
proposed to be supported thereby and specifying whether the Borrower
Representative is requesting a Lender Guaranty in the form of a Letter of Credit
issued by a Lender acting as the Issuing Bank or a guaranty of a Letter of
Credit issued by another Issuing Bank. In the case of a Letter of Credit to be
issued by an Issuing Bank other than a Lender, the notice shall be accompanied
by the form of the Letter of Credit. Subject to the terms hereof, the Agent
shall issue the requested Lender Guaranty as soon as practicable and not more
than five (5) Business Days following the date of the applicable notice;
provided that the Lender Guaranty shall not be issued until the Agent and the
Issuing Bank have mutually agreed upon the form of such Lender Guaranty.
(vi) Each Borrower hereby agrees to indemnify, pay and hold the Agent
and each Lender harmless from and against any and all pending or threatened
claims, litigation, damages, losses and liabilities incurred by the Agent or any
Lender (or which may be claimed against the Agent or any Lender by any Person
whatsoever) and costs and expenses incurred in defending or responding to
pending or threatened claims or litigation by reason of or in connection with
the execution, delivery or transfer of, or payment or failure to pay under, any
Lender Guaranty including, without limitation, any action taken or omitted by
any Issuing Bank; provided that the Borrowers shall not be required to indemnify
or hold harmless the Agent or any Lender for any such claims, litigation, losses
or liabilities arising solely from such Person's willful misconduct or gross
negligence. Each Borrower's unconditional obligations to the Agent and the
Lenders hereunder shall not be modified or diminished for any reason or in any
manner whatsoever. Each Borrower agrees that any charges made to the Agent or
the Lenders for any Borrower's account by any Issuing Bank shall be conclusive
as between such Persons and the Borrowers and may be charged to the Loan Account
hereunder.
2.2 Maximum Principal Balance of Revolving Loan. (a) Except as
provided in subsection 2.2(b), if at any time the principal balance of the
Revolving Loan advances and Lender Guaranty Liabilities shall exceed the
Borrowing Availability, the Borrowers shall immediately (a) repay the
outstanding advances under the Revolving Loan to the extent necessary to
eliminate such excess and (b) if any excess remains after payment in full of the
outstanding advances under the Revolving Loan, cash collateralize the Lender
Guaranty Liabilities in accordance with subsection 2.10(a) to the extent
necessary to eliminate such remaining excess.
(b) Notwithstanding anything contained in this Agreement to the
contrary, until the FKP Acquisition is consummated in accordance with subsection
8.20(b) (x) the aggregate outstanding principal balance of the advances under
the Revolving Loan (excluding Lender Guaranty Liabilities) shall not exceed
$2,500,000 and (y) the aggregate amount of outstanding Lender Guaranty
Liabilities shall not exceed $1,500,000; provided that, regardless of any
consummation of the FKP Acquisition, the aggregate outstanding principal amount
of the Revolving Loan (including Lender Guaranty Liabilities) shall not exceed
$10,000,000 during the first thirty (30) days of the term of this Agreement.
2.3 Evidence of Revolving Loan Indebtedness. The advances by each
Lender constituting the Revolving Loan shall be evidenced by a promissory note
executed by each Borrower and payable to the order of such Lender (collectively,
the "Revolving Loan Notes") in the amount of its Revolving Loan Commitment dated
the Closing Date in the form attached as Exhibit 2.3. All of Revolving Loan
Obligations to the Lenders hereunder shall be payable by the Borrowers by
application of the proceeds of all Accounts and other Collateral in accordance
with subsection 3.5, and shall be payable in full upon the Termination Date, and
the principal amount of such Revolving Loan Obligations shall bear interest as
hereinafter provided. Each advance by the Lenders and each repayment of
principal applicable to such advance shall be reflected in the Borrower's Loan
Account.
2.4 Notification of Advances, Interest Rates and Prepayment. The Agent
will notify each Lender of the contents of each Borrowing Notice,
Conversion/Continuation Notice and prepayment notice received by it hereunder.
The Agent will notify each Lender of the interest rate applicable to each LIBOR
Rate Loan promptly upon determination of such interest rate and will give each
Lender prompt notice of each change in the Base Rate.
2.5 Interest and Applicable Margins.
(a) Subject to the terms and conditions of this Agreement, advances
under the Revolving Loan may be divided into Base Rate Loans or LIBOR Rate
Loans, or a combination thereof, selected by the Borrower Representative in
accordance with subsections 2.5(e) and 2.5(f); provided that the Revolving Loan
shall not have more than three (3) Interest Periods outstanding at any one time.
So long as no Event of Default has occurred and is continuing, the Borrower
shall pay to the Agent, for the benefit of the Lenders, interest on the
outstanding principal balance of the Revolving Loan at the Base Rate or the
LIBOR Rate, as applicable, in accordance with Section 2.16.
(b) Interest and all fees (other than prepayment fees) shall be
computed (on a daily basis) on the basis of a 360-day year for the actual number
of days elapsed. In computing interest on the Revolving Loan, the date of
funding an advance under the Revolving Loan or the first day of an Interest
Period applicable to an advance under the Revolving Loan or, with respect to a
Base Rate Loan being converted from a LIBOR Rate Loan, the date of conversion of
such LIBOR Rate Loan to such Base Rate Loan, shall be included and the date of
payment of the Revolving Loan or the expiration date of an Interest Period
applicable to the Revolving Loan or, with respect to a Base Rate Loan being
converted to a LIBOR Rate Loan, the date of conversion of such Base Rate Loan to
such LIBOR Rate Loan, shall be excluded; provided that if an advance under the
Revolving Loan is repaid on the same day on which it is made, one day's interest
shall be paid on such advance. Each determination by the Agent of an interest
rate hereunder shall be conclusive and binding for all purposes, absent manifest
error.
(c) So long as an Event of Default shall have occurred and be
continuing, the Borrowers shall pay to the Lenders interest from the date of
such Event of Default to and including the date of cure of such Event of Default
on the Obligations at the Default Rate applicable to such Obligations; provided
that in the case of LIBOR Rate Loans, upon the expiration of the Interest Period
in effect at the time any Event of Default shall have occurred and be
continuing, such LIBOR Rate Loans shall automatically become Base Rate Loans and
thereafter bear interest at the Default Rate applicable to Base Rate Loans.
(d) (i) Interest shall be due at the Base Rate, the LIBOR Rate or the
Default Rate, as provided herein, after as well as before demand, default and
judgment notwithstanding any judgment rate of interest provided for in any
statute. If any interest payment or other charge or fee payable hereunder
exceeds the maximum amount then permitted by applicable law, then to the extent
permitted by law and subject to the provisions of subparagraph (ii) of this
subsection 2.5(d), the Borrowers shall be obligated to pay the maximum amount
then permitted by applicable law and the Borrowers shall continue to pay the
maximum amount from time to time permitted by applicable law until all such
interest payments and other charges and fees otherwise due hereunder (in the
absence of such restraint imposed by applicable law) have been paid in full.
(ii) It is the intention of the Agent, the Lenders and the Borrowers
to comply with the laws of the State of Illinois, and notwithstanding any
provision to the contrary contained herein or in the other Financing Agreements,
the Borrowers shall not be required to pay and the Lenders shall not be
permitted to collect any amount in excess of the maximum amount of interest
permitted by law ("Excess Interest"). If any Excess Interest is provided for or
determined to have been provided for by a court of competent jurisdiction in
this Agreement or in any of the other Financing Agreements, then in such event:
(A) the provisions of this subsection 2.5(d)(ii) shall govern and control; (B)
neither any Borrower nor any guarantor or endorser shall be obligated to pay any
Excess Interest; (C) any Excess Interest that any Lender may have received
hereunder shall be, at such Lender's option (1) applied as a credit against the
outstanding principal balance of the Obligations or accrued and unpaid interest
(not to exceed the maximum amount permitted by law), (2) refunded to the payor
thereof, or (3) any combination of the foregoing; (D) the interest rate(s)
provided for herein shall be automatically reduced to the maximum lawful rate
allowed under applicable law, and this Agreement and the other Financing
Agreements shall be deemed to have been, and shall be, reformed and modified to
reflect such reduction; and (E) neither any Borrower nor any guarantor or
endorser shall have any action against any Lender for any damages arising out of
the payment or collection of any Excess Interest.
(e) Subject to the terms of this Agreement, the Borrower
Representative shall select Rate Options and, in the case of LIBOR Rate Loans,
the Interest Period applicable to each LIBOR Rate Loan from time to time by
giving the Agent irrevocable notice (a "Borrowing Notice") in the form of
Exhibit 2.5-1 hereto not later than 12:00 noon (Chicago time) (i) on the Funding
Date of any Base Rate Loan, and (ii) three (3) Business Days before the Funding
Date for each LIBOR Rate Loan, specifying:
(i) the Funding Date;
(ii) the aggregate amount of such advance under the
Revolving Loan (and, if such Borrowing Notice refers to more than
one Rate Option, the amount of each Base Rate Loan and LIBOR Rate
Loan which will become part of the Revolving Loan);
(iii) the Rate Option(s) selected for such advance under the
Revolving Loan; and
(iv) in the case of each LIBOR Rate Loan, the Interest
Period applicable thereto;
provided that no advance under the Revolving Loan may be made as a LIBOR Rate
Loan if any Default or Event of Default has occurred and is continuing.
The Borrower Representative shall select Interest Periods so that it
is not necessary to repay any portion of a LIBOR Rate Loan prior to the last day
of the applicable Interest Period in order to make a payment or prepayment of
principal on the Revolving Loan required by the terms hereof including, without
limitation, prepayments pursuant to subsection 2.10.
(f) Base Rate Loans shall continue as Base Rate Loans unless and until
such Base Rate Loans are converted by the Borrower Representative into LIBOR
Rate Loans in accordance with this subsection 2.5(f). Each LIBOR Rate Loan shall
continue as a LIBOR Rate Loan until the end of the then applicable Interest
Period, at which time such LIBOR Rate Loan shall be automatically converted into
a Base Rate Loan unless the Borrower Representative shall have given the Agent
an irrevocable notice (a "Conversion/Continuation Notice") in the form of
Exhibit 2.5-2 requesting that, at the end of such Interest Period, such LIBOR
Rate Loan continue as a LIBOR Rate Loan for the same or another Interest Period;
provided that no outstanding advance under the Revolving Loan may be continued
as, or be converted into, a LIBOR Rate Loan if any Default or Event of Default
has occurred and is continuing. Subject to the terms of this Agreement, the
Borrower Representative may elect from time to time to convert all or any part
of the Revolving Loan of any Rate Option into any other Rate Option; provided
that any conversion of a LIBOR Rate Loan shall be made on, and only on, the last
day of the Interest Period applicable thereto. The Borrower Representative shall
give the Agent a Conversion/Continuation Notice of each conversion or
continuation of a Base Rate Loan or LIBOR Rate Loan, as the case may be, not
later than 12:00 noon (Chicago time) (i) on the Funding Date, in the case of a
conversion into a Base Rate Loan, and (ii) at least three (3) Business Days
before the Funding Date of the requested conversion or continuation of a LIBOR
Rate Loan, specifying:
(i) the Funding Date of such conversion or continuation;
(ii) the aggregate amount and Rate Option(s) of the advance
under the Revolving Loan which is to be converted or continued;
and
(iii) the amount of the LIBOR Rate Loans into which such
advance under the Revolving Loan is to be converted or continued
and the duration of the Interest Period applicable thereto.
(g) In lieu of delivering a Borrowing Notice or a
Conversion/Continuation Notice, the Borrower Representative may give the Agent
notice by telephone or telecopy by the required time of any proposed borrowing
or conversion/continuation under this subsection 2.5; provided that such notice
shall be promptly confirmed in writing by delivery of a Borrowing Notice or a
Conversion/Continuation Notice, as the case may be, to the Agent on or before
the proposed Funding Date. Neither the Agent nor any Lender shall incur any
liability to any Borrower in acting upon any such notice by telephone that the
Agent believes in good faith to have been given by the Borrower Representative
or for otherwise acting in good faith under this subsection 2.5 and, upon the
funding or conversion/continuation, as the case may be, by the Agent in
accordance with this Agreement pursuant to any such notice, any Borrower shall
have effected such funding, conversion or continuation, as the case may be,
hereunder. A Borrowing Notice or a Conversion/Continuation Notice for the
funding of, or conversion to, or continuation of, a LIBOR Rate Loan (or notice
by telephone or telecopy in lieu thereof) shall be irrevocable once given, and
the Borrowers shall be bound to convert or continue in accordance therewith.
(h) Each LIBOR Rate Loan (whether resulting from a Borrowing Notice or
a Conversion/Continuation Notice) shall be in the minimum amount of Five Hundred
Thousand Dollars ($500,000) and in integral multiples of One Hundred Thousand
Dollars ($100,000) if in excess thereof.
2.6 Method of Borrowing; Manner and Method of Making Interest and
Other Payments. (a) Not later than 12:00 noon (Chicago time) on each Funding
Date, each Lender shall make available its Pro Rata Share of the advances under
the Revolving Loan (except for advances made pursuant to a
Conversion/Continuation Notice, in which case each Lender shall be deemed to
have made its advances) in funds immediately available in Chicago, Illinois to
the Agent at its address specified pursuant to subsection 10.12. The Agent will
make the funds so received from the Lenders available to the Borrower
Representative in accordance with subsection 2.1(b). Notwithstanding the
foregoing provisions of this subsection 2.6(a), to the extent that an advance
under the Revolving Loan or portion thereof made by a Lender matures or is to be
repaid on the Funding Date of a requested advance under the Revolving Loan, such
Lender shall first apply the proceeds of the advance it is then making to the
repayment of the maturing advance under the Revolving Loan or portion thereof.
(b) All payments by the Borrowers of the Obligations shall be made
without deduction, defense, setoff or counterclaim and in same day funds. In its
sole discretion, the Agent may deem interest to be paid and other payments
(other than the principal balance of the Revolving Loan) to be paid by causing
such amounts to be added to the principal balance of the Revolving Loan, all as
set forth on the Agent's books and records. Each Borrower hereby authorizes and
directs the Lenders, at the option of the Required Lenders, to make advances in
the Revolving Loan by appropriate debits to the Loan Account for all such
payments under the Financing Agreements. Unless otherwise directed by the Agent,
all payments to the Lenders hereunder shall be made by delivery thereof to the
Agent at its address set forth in subsection 10.12 or by delivery to the Agent
for deposit in the Blocked Accounts of all proceeds of Accounts or other
Collateral in accordance with subsection 3.5. If the Agent elects to bill the
Borrowers for any amount due hereunder, such amount shall be immediately due and
payable with interest thereon as provided herein. Solely for the purpose of
calculating interest earned by each Lender with respect to the Revolving Loan,
any check, draft or similar item of payment by or for the account of any
Borrower delivered to the Agent or deposited in a Blocked Account in accordance
with subsection 3.5 shall be applied by the Agent on account of such Borrower's
Revolving Loan Obligations on the Business Day the Agent has received
immediately available funds as a result of the deposit thereof in accordance
with subsection 3.5. Immediately available funds received by the Agent after
2:00 p.m., (Chicago time), shall be deemed to have been received on the
following Business Day.
(c) (i) Unless the Borrower Representative or a Lender, as the case
may be, notifies the Agent prior to the date on which it is scheduled to make
payment to the Agent of (A) in the case of a Lender, such Lender's Pro Rata
Share of the proceeds of an advance under the Revolving Loan or (B) in the case
of the Borrowers, a payment of principal, interest, fees or other Obligations to
the Agent for the account of the Lenders, that it does not intend to make such
payment, the Agent may assume that such payment has been made. The Agent may,
but shall not be obligated to, make the amount of such payment available to the
intended recipient in reliance upon such assumption. If the Borrowers or such
Lender, as the case may be, have not in fact made such payment to the Agent, the
recipient of such payment shall, on demand by the Agent, repay to the Agent the
amount so made available together with interest thereon in respect of each day
during the period commencing on the date such amount was so made available by
the Agent until the date the Agent recovers such amount at a rate per annum
equal to (x) in the case of payment by a Lender, the Federal Funds Rate for such
day (as determined by the Agent) or (y) in the case of payment by the Borrowers,
the interest rate applicable to the relevant advance under the Revolving Loan.
(ii) Nothing contained in this subsection 2.6(c) will be
deemed to relieve a Lender of its obligation to fulfill its
Commitments or to prejudice any rights the Agent or the Borrowers
may have against such Lender as a result of any default by such
Lender under this Agreement.
(iii) If the Agent determines at any time that any amount
received by the Agent under this Agreement must be returned to
the Borrowers or paid to any other Person pursuant to any
insolvency law or otherwise, then, notwithstanding any other term
or condition of this Agreement, the Agent will not be required to
distribute any portion thereof to any Lender. In addition, each
Lender will repay to the Agent on demand any portion of such
amount that the Agent has distributed to such Lender.
(iv) Without limiting the generality of the foregoing, each
Lender shall be obligated to fund its Pro Rata Share of any
Revolving Loan made after any acceleration of the Revolving Loan
with respect to any draw on a Letter of Credit or Lender Guaranty
therefor.
2.7 Term of this Agreement. This Agreement shall be effective from the
Closing Date until the Termination Date. Upon the Termination Date, all of the
Obligations shall become immediately due and payable without notice or demand
notwithstanding any terms contained herein or in any Note to the contrary.
Notwithstanding any termination of this Agreement, until (i) all of the
Obligations except unmatured contingent Obligations (other than those
Obligations described in clauses (ii) and (iii) below) for which no claim has
been asserted shall have been paid in full in cash, (ii) the Lender Guaranties
shall have been terminated or payment thereof shall have been secured in
accordance with subsection 2.10(a) and (iii) the Borrowers shall have provided
to the Agent for the benefit of the Lenders security on terms satisfactory to
the Agent with respect to any pending or overtly threatened action against any
Person which could result in a claim against the Borrowers by any Indemnitee for
indemnification under subsection 7.10, the Borrowers shall remain bound by the
terms of this Agreement and the Lenders shall be entitled to retain their Liens
on the Collateral.
2.8 Audit Fee. The Borrowers shall pay to SBCC, individually in its
capacity as the Agent, a collateral audit fee (the "Audit Fee") in an amount
equal to the Agent's reasonable out-of-pocket costs, plus a fee of Seven Hundred
Fifty Dollars ($750.00) per day per individual for (i) each field audit of the
Borrowers conducted by the Agent after the Closing Date pursuant to subsection
7.2; provided that so long as no Default or Event of Default shall have occurred
and be continuing, the Borrowers shall not be liable for reimbursing the Agent
for the costs and expenses of more than four (4) such field audits (other than
in connection with any proposed Permitted Acquisition) in any Fiscal Year, plus
(ii) additional field audits after the Closing Date by the Agent or its agents
(x) in connection with any proposed Permitted Acquisition and (y) following the
occurrence and during the continuance of a Default or an Event of Default.
2.9 Closing Fee. On the Closing Date, the Borrowers shall pay to the
Agent, for the ratable benefit of the Lenders, a closing fee (the "Closing Fee")
in the amount of $100,000 less the remaining portion, if any, of the
underwriting deposit previously paid by Parent to SBCC.
2.10 Prepayments.
(a) Subject to the prepayment fee as set forth in subsection 2.10(b)
and the provisions of subsection 2.21 upon not less than thirty (30) days' prior
written notice to the Agent specifying the date of prepayment (which date shall
be a Business Day), the Borrowers may prepay in full, but not in part, all of
the Obligations (excluding outstanding Lender Guaranties) and terminate the
Commitments. Upon prepayment in full and termination of the Commitments, the
Borrowers (i) shall cause the Agent and each Lender to be released from all
liability under any Lender Guaranties or (ii) shall (x) cause to be issued to
and for the benefit of the Agent and the Lenders a letter of credit in form and
substance acceptable to the Agent issued by a bank or other financial
institution acceptable to the Agent to secure such Lender Guaranties, or (y)
deposit cash collateral with the Agent, for the benefit of the Agent and the
Lenders pursuant to a cash collateral agreement in form and substance
satisfactory to the Agent, in either case, in an amount equal to one hundred ten
percent (110%) of the aggregate Lender Guaranty Liability with respect to the
Lender Guaranties that will remain outstanding after prepayment in full of all
other Obligations.
(b) If the Borrowers shall prepay all or any portion of the
Obligations pursuant to subsection 2.10(a) the Borrowers shall pay to the Agent,
for the ratable benefit of the Lenders, as liquidated damages and compensation
for the costs of being prepared to make funds available to the Borrowers
hereunder an amount determined as follows: two percent (2%) of the Revolving
Loan Facility for any repayment in the first Loan Year and one percent (1%) of
the Revolving Loan Facility for any repayment during the second Loan Year.
2.11 Facility Fee. For each advance under the Revolving Loan for which
the proceeds are used for a Permitted Acquisition, the Borrowers shall pay to
the Agent, for the ratable benefit of the Lenders, a fee (the "Facility Fee") in
an amount equal to three-quarters of one percent (.75%) of the principal amount
of such advance, such Facility Fee to be payable on the Funding Date of such
advance; provided that the aggregate amount of Facility Fees payable during the
term of this Agreement shall not exceed $157,000.
2.12 Unused Line Fee. From and after the Closing Date, the Borrowers
shall pay to the Agent, for the ratable benefit of the Lenders, a fee (the
"Unused Line Fee") in an amount equal to the Revolving Loan Facility less the
average daily closing balance of the Revolving Loan plus Lender Guaranty
Liabilities outstanding during the preceding month (or shorter period with
respect to the period commencing with the Closing Date or the period ending with
the Termination Date) multiplied by one-half of one percent (.50%) per annum.
The Unused Line Fee shall be payable quarterly in arrears on the first day of
each February, May, August and November following the Closing Date, commencing
November 1, 1997, and on the Termination Date.
2.13 Other Fees, Costs and Expenses. Each Borrower shall pay to the
Agent on demand all fees, costs and expenses incurred by the Agent in connection
with any matters contemplated by or arising out of this Agreement or any other
Financing Agreement (which fees, costs and expenses shall be part of the
Obligations and secured by the Collateral) including, without limitation: (i)
following the occurrence of an Event of Default in verifying or inspecting the
Accounts or the Inventory or the Borrower's records with respect thereto; (ii)
in connection with opening and maintaining the Blocked Accounts and depositing
for collection any check or item of payment received by and/or delivered to any
Collecting Bank or the Agent or any Lender on account of the Obligations; (iii)
arising out of the Agent's indemnification of any Collecting Bank against
damages incurred by such Collecting Bank in the operation of a Blocked Account;
(iv) in connection with the Agent's forwarding to any Borrower the proceeds of
loans or advances hereunder including, without limitation, transfer fees; (v)
arising from photocopying and other mechanical or electronic reproduction in
connection with the rights of inspection under subsection 7.2; (vi) in
connection with the negotiation, preparation, review, execution, delivery and
ongoing administration of the Financing Agreements and all amendments,
modifications and waivers with respect hereto or with respect to the other
Financing Agreements including, without limitation, search fees, appraisal fees
and expenses, title insurance policy fees, costs and expenses; filing and
recording fees; reasonable fees, costs and expenses of the Agent's attorneys and
paralegals and all Taxes payable in connection with this Agreement or the other
Financing Agreements, whether such fees, costs and expenses are incurred prior
to, on or after the Closing Date; (vii) in connection with any documentation,
negotiation, review or closing with respect to any Subordinated Debt, including,
without limitation, the fees, costs and expenses of the Agent's attorneys and
paralegals; (viii) arising from the Agent's employment of counsel or otherwise
in connection with protecting, perfecting or preserving the Agent's Liens in the
Collateral and (ix) in connection with any refinancing or restructuring of the
credit arrangements provided under the Financing Agreements, whether in the
nature of a "workout" or in connection with any insolvency or bankruptcy
proceedings, or in connection with any other matters contemplated by or arising
out of this Agreement or the other Financing Agreements.
The Borrowers shall reimburse the Agent and the Lenders for all out of
pocket fees, costs and expenses incurred by the Agent or any Lender (which fees,
costs and expenses shall be part of the Obligations and secured by the
Collateral) in connection with (i) any litigation, contest, dispute, suit,
proceeding or action in any way relating to the Collateral, any of the Financing
Agreements or any other agreement to be executed or delivered in connection
therewith or herewith, whether as party, witness, or otherwise, including any
litigation, contest, dispute, suit, case, proceeding or action, and any appeal
or review thereof, in connection with a case commenced by or against Parent or
any Borrower or any Subsidiary that may be obligated to the Agent or any Lender
by virtue of the Financing Agreements (including any such litigation, contest,
dispute, suit, proceeding or action arising in connection with any work-out or
restructuring of the Loans during the pendency of one or more Events of Default
or in connection with any insolvency or bankruptcy case or proceeding; provided
that the Borrower shall have no obligation hereunder with respect to such fees,
costs and expenses to the extent that a court of competent jurisdiction shall
render a judgment, final and not subject to review on appeal, that such fees,
costs and expenses arise from the gross negligence or willful misconduct of such
Person; and (ii) the collection, lease, sale, taking of possession of, or
liquidation of any of the Collateral or the enforcement (or attempted
enforcement) of any Lien on any of the Collateral or the enforcement of any
rights of the Agent or any Lender to collect any of the Obligations, including
any such enforcement in the course of any work-out or restructuring of the
Obligations during the pendency of one or more Events of Default or in
connection with any insolvency or bankruptcy case or proceedings, in each case
including, without limitation, reasonable fees, costs and expenses of the
respective attorneys and paralegals of the Agent and the Lenders and the
out-of-pocket costs and per diem charges for the examiners and agents of such
Persons at their then applicable rates. Any portion of the foregoing fees, costs
and expenses which remains unpaid ten (10) days following the Agent's statement
and request for payment thereof shall bear interest from the date of such
statement and request for payment at the Default Rate applicable to Base Rate
Loans.
2.14 Loan Account. The Agent shall maintain a loan account ("Loan
Account") on its books in which shall be recorded (i) all advances under the
Revolving Loan and advances made to the Borrowers pursuant to this Agreement,
(ii) the issuance of all Lender Guaranties, (iii) all payments made by the
Borrower on the Revolving Loan and advances and (iv) all other appropriate
debits and credits as provided in this Agreement including, without limitation,
all fees, charges, expenses and interest. All entries in the Loan Account shall
be made in accordance with the Agent's customary accounting practices as in
effect from time to time. The Borrowers shall pay the Obligations reflected as
owing under the Loan Account and all other Obligations hereunder as such amounts
become due or are declared due pursuant to the terms of this Agreement. So long
as an Event of Default shall have occurred and be continuing, each Borrower
irrevocably waives the right to direct the application of any and all payments
at any time or times thereafter received by the Agent or any Lender from or on
behalf of each Borrower, and each Borrower does hereby irrevocably agree that
each Lender shall have the continuing exclusive right to apply and to reapply
any and all payments received at any time or times hereafter against the
Obligations in such manner as such Lender may deem advisable notwithstanding any
previous entry by the Agent upon the Loan Account or by the Agent or such Lender
on any other books and records.
2.15 Statements. All advances to the Borrowers, and all other debits
and credits provided for in this Agreement, shall be evidenced by entries made
by the Agent in the Loan Account and in the Agent's books and records showing
the date, amount and reason for each such debit or credit. Until such time as
the Agent shall have rendered to the Borrower Representative written statements
of account as provided herein, the balance in the Loan Account, as set forth on
the Agent's most recent printout or other written statement, shall be rebuttably
presumptive evidence of the amounts due and owing to each Lender by the
Borrowers; provided that any failure to so record or any error in so recording
shall not limit or otherwise affect the Borrower's obligations to pay the
Obligations. Not more than twenty (20) days after the last day of each calendar
month, the Agent shall render to the Borrower Representative a statement setting
forth the principal balance of the Loan Account and the calculation of interest
due thereon. Each such statement shall be subject to subsequent adjustment by
the Agent but shall, absent manifest errors or omissions, be presumed correct
and binding upon the Borrowers, and shall constitute an account stated unless,
within thirty (30) days after receipt of any statement from the Agent, the
Borrower Representative shall deliver to the Agent in accordance with subsection
10.12 written objection thereto specifying the error or errors, if any,
contained in such statement. In the absence of a written objection delivered to
the Agent as set forth in this subsection 2.15, the Agent's statement of the
Loan Account shall be conclusive evidence of the amount of the Obligations.
2.16 Payment Dates. Interest shall be payable (i) on Base Rate Loans
in arrears on the first day of each calendar quarter for all periods ending
prior to such month for which such Base Rate Loans are or, in the case of a Base
Rate Loan converted to a LIBOR Rate Loan during the prior month, were
outstanding, and (ii) on LIBOR Rate Loans on the last day of each Interest
Period relating to such Loan, commencing with the first of such dates to occur
after the date of such Loan (each such date herein referred to as an "Interest
Payment Date"); provided that, in addition to the foregoing, the Termination
Date shall be deemed to be an "Interest Payment Date" with respect to any
interest which is then accrued under this Agreement. After maturity, accrued
interest on the Revolving Loan shall be payable on demand. Subject to the
definition of Interest Period, any payment due hereunder on any day other than a
Business Day shall be due on the next succeeding Business Day, and if such
payment shall bear interest in accordance herewith, interest shall accrue to the
date of payment.
2.17 Lender Guaranty Fees. The Borrowers shall pay to the Agent, for
the benefit of the Lenders, fees for any Lender Guaranty ("Lender Guaranty
Fees") for the period from and including the date of issuance of such Lender
Guaranty to and excluding the date of expiration or termination of such Lender
Guaranty, equal to the daily average face amount of Letters of Credit with
respect to Lender Guaranties multiplied by two percent (2%) per annum. Lender
Guaranty Fees shall be payable monthly in arrears on the first day of the month
following the date of issuance of any such Lender Guaranty and the first day of
each month thereafter during which such Lender Guaranty shall remain outstanding
and on the Termination Date. The Borrowers shall also reimburse the Agent and
each Lender for any and all fees and expenses paid to the Issuing Bank.
2.18 Other Lender Guaranty Provisions.
(a) The obligation of the Borrowers to reimburse the Agent and each
Lender for payments made under any Lender Guaranty shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances including the following circumstances:
(i) any lack of validity or enforceability of any Lender
Guaranty or any other agreement;
(ii) the existence of any claim, set-off, defense or other
right which any Borrower, any of its Affiliates or the Agent or
any Lender may have at any time against a beneficiary or any
transferee of any Lender Guaranty (or any Persons for whom any
such transferee may be acting), the Agent, any Lender or any
other Person, whether in connection with this Agreement, the
transactions contemplated herein or any unrelated transaction
(including, without limitation, any underlying transaction
between any Borrower or any of their Affiliates and the
beneficiary for which such Lender Guaranty was procured);
(iii) any draft, demand, certificate or any other document
presented under any Lender Guaranty proving to be forged,
fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect;
(iv) payment by the Agent or any Lender under any Lender
Guaranty against presentation of a demand, draft or certificate
or other document which does not comply with the terms of such
Lender Guaranty; provided that, in the case of any payment by the
Agent or any Lender under such Lender Guaranty, such Person has
not acted with gross negligence or willful misconduct as
determined by a final judgment, not subject to review on appeal,
of a court of competent jurisdiction in determining that the
demand for payment under any Lender Guaranty complies on its face
with any applicable requirements for a demand for payment under
such Lender Guaranty;
(v) any other circumstance or happening whatsoever, which is
similar to any of the foregoing; or
(vi) the fact that a Default or an Event of Default shall
have occurred and be continuing.
(b) In addition to amounts payable as elsewhere provided in this
Agreement, each Borrower hereby agrees to protect, indemnify, pay and hold the
Agent and each Lender harmless from and against any and all claims, suits,
demands, liabilities, damages, losses, costs, charges and expenses (including,
without limitation, reasonable attorneys' fees) which the Agent or any Lender
may incur or be subject to as a consequence, direct or indirect, of (1) the
issuance of any Lender Guaranty other than as a result of the gross negligence
or willful misconduct of such Person as determined by a final order, not subject
to review on appeal, of a court of competent jurisdiction, or (2) the failure of
the Agent or any Lender to honor a demand for payment under any Lender Guaranty
as a result of any act or omission, whether rightful or wrongful, of any
Governmental Authority.
As among the Agent, the Lenders and the Borrowers, the Borrowers
assume all risks of the acts and omissions of, or misuse of any Lender Guaranty
by, beneficiaries thereof. In furtherance and not in limitation of the
foregoing, neither the Agent nor any Lender shall be responsible: (i) for the
form, validity, sufficiency, accuracy, genuineness or legal effect of any
document by any Person in connection with the application for and issuance of
any Lender Guaranty, even if it should in fact prove to be in any and all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Lender Guaranty or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of
any Lender Guaranty to comply fully with conditions required in order to demand
payment under such Lender Guaranty; provided that, in the case of any payment by
the Agent or any Lender under any Lender Guaranty, such Person has not acted
with gross negligence or willful misconduct, as determined by a final judgment,
not subject to review on appeal, of a court of competent jurisdiction, in
determining that the demand for payment under any Lender Guaranty complies on
its face with any applicable requirements for a demand for payment under such
Lender Guaranty; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph or
otherwise; (v) for errors in interpretation of technical terms; (vi) for any
loss or delay in the transmission or otherwise of any document required in order
to make a payment under any Lender Guaranty or of the proceeds thereof; (vii)
for the credit of the proceeds of any drawing under any Lender Guaranty; and
(viii) for any consequences arising from causes beyond the control of the Agent
or the Lenders, including, without limitation, any act or omission, whether
rightful or wrongful, of any Governmental Authority. None of the above shall
affect, impair, or prevent the vesting of any of the Agent's or any Lender's
rights or powers hereunder.
In furtherance and extension of, and not in limitation of, the
specific provisions hereinabove set forth, each Borrower hereby agrees that any
action taken or omitted by the Agent or any Lender under or in connection with
any Lender Guaranty or any related certificates, or the Collateral relating
thereto, if taken or omitted in good faith, or any action taken by any Issuing
Bank, shall be binding on the Borrowers and shall not impose any resulting
liability on the Agent or any Lender to the Borrowers or relieve the Borrowers
of any of their obligations hereunder to any such Person.
2.19 Taxes; Changes in Law.
(a) Any and all payments or reimbursements made hereunder or under the
Notes shall be made free and clear of and without deduction for any and all
present and future Taxes. Subject to subsection 2.19(d), if any Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Agent or any Lender, then (i) the sum payable hereunder shall
be increased as may be necessary so that, after making all required deductions,
the Agent or such Lender receives an amount equal to the sum it would have
received had no such deductions been made and (ii) such Borrower shall pay the
full amount deducted to the relevant taxing or other authority in accordance
with applicable law. Each Borrower hereby indemnifies and agrees to hold the
Agent and each Lender harmless from and against all Taxes imposed upon the Agent
or any Lender as a result of or arising in connection with the transactions
contemplated hereby.
(b) In the event that, subsequent to the Closing Date, or, in the case
of a Participant assigned an interest in or sold a participation in the
Revolving Loan pursuant to subsection 11.1, subsequent to the date of such
assignment or sale, (a) any change in any existing law, regulation, rule,
policy, guideline, treaty or directive or in the interpretation or application
thereof (whether or not having the force of law) including, without limitation,
any change resulting from the implementation of risk-based capital guidelines,
(b) any new law, regulation, rule, guideline, treaty or directive enacted or any
interpretation or application thereof or (c) compliance by any Lender with any
request or directive (whether or not having the force of law and including by
way of withdrawal or termination of any previously available exemption) from any
central bank, governmental authority, agency or instrumentality (including,
without limitation, any request or directive regarding capital adequacy)
(i) does or shall subject any Lender or such Participant to
any Taxes with respect to this Agreement, the other Financing
Agreements or any Loans made hereunder, or change the basis of
taxation of payments to any Lender or such Participant of
principal, commitment, fees, interest or any other amount payable
hereunder (except for changes in the rate of tax on the overall
net income or changes which do not increase the aggregate amount
of the overall net income of such Lender or such Participant
imposed by the jurisdiction in which such Lender is incorporated
or has its principal place of business); or
(ii) does or shall impose on any Lender or such Participant
any other condition or increased cost (other than Taxes) in
connection with the transactions contemplated hereby or
participation herein; or
(iii) affects the amount of any reserve, special deposit,
capital adequacy, assessment or similar charge (other than
reserves and assessments taken into account in determining the
LIBOR Rate) required or expected to be maintained by any Lender
or such Participant or any corporation controlling such Lender or
such Participant and such Lender or such Participant determines
that such amount required or expected is increased by or based
upon the existence of this Agreement or its advances under the
Revolving Loan hereunder,
and the result of any of the foregoing is to increase the cost to such Lender or
such Participant of making, funding, maintaining or continuing any advances
under the Revolving Loan hereunder or issuing Lender Guaranties or selling any
participation therein or assigning its Commitment to make the Revolving Loan
hereunder, as the case may be, or to reduce any amount receivable by such Lender
or such Participant in connection with any advances under the Revolving Loan or
Lender Guaranties, or to require any Lender or Participant to make any payment
calculated by reference to the amount of advances under the Revolving Loan or
Lender Guaranties issued or participated in or interest received by it, then, in
any such case, within five (5) days after written demand, the Borrowers shall
pay to such Lender or such Participant any additional amounts which are
necessary to compensate such Lender or such Participant for such additional cost
or reduced amount receivable which such Lender or such Participant reasonably
deems to be material as determined by such Lender or such Participant with
respect to this Agreement, the other Financing Agreements or the Loans made
hereunder. If such Lender or Participant becomes entitled to claim any
additional amounts pursuant to this subsection 2.19, it shall promptly notify
the Borrower Representative in writing of the event by reason of which such
Lender or Participant has become so entitled. A certificate as to any additional
amounts payable pursuant to this subsection 2.19 submitted by such Lender or
Participant to the Borrower Representative shall be presumed correct in the
absence of manifest error.
(c) Notwithstanding anything to the contrary contained in this
Agreement, if the introduction of or any change in or in the interpretation of
any law or regulation shall make it unlawful, or any central bank or other
Governmental Authority shall declare that it is unlawful, for any Lender to
agree to make or to make or to continue to fund or maintain any LIBOR Rate Loan,
then, on notice thereof and demand therefor by the Agent to the Borrower
Representative, (i) the obligation of such Lender to agree to make or to make or
to continue to fund or maintain LIBOR Rate Loans shall terminate and (ii) the
Borrowers shall forthwith prepay in full all outstanding LIBOR Rate Loans,
together with interest accrued thereon, of such Lender unless the Borrower
Representative, within five (5) Business Days after the delivery of such notice
and demand, converts all such LIBOR Rate Loans into Base Rate Loans.
(d) Each Lender organized under the laws of a jurisdiction outside the
United States shall, on or prior to the date of its execution and delivery of
this Agreement in the case of each Lender on the Closing Date, and on the date
of the Assignment and Acceptance pursuant to which it became a Lender in the
case of each other Lender, and from time to time thereafter if requested in
writing by the Borrower Representative or the Agent, provide the Agent and the
Borrower Representative with Internal Revenue Service form 1001 or 4224 or any
successor form, as appropriate, or other applicable form, certificate or
document, or any successor form prescribed by the Service properly completed and
duly executed by such Lender, certifying that such Lender is exempt from or is
entitled to a reduced rate of United States withholding tax on payments under
this Agreement or the Notes or certifying that the income receivable by such
Lender under this Agreement or the Notes is effectively connected with the
conduct of a trade or business of such Lender in the United States. If the form
provided by a Lender at the time such Lender first becomes a party to this
Agreement indicates a United States interest withholding tax rate in excess of
zero, withholding tax at such rate shall be considered excluded from Taxes
unless and until such Lender provides the appropriate form certifying that a
lesser rate applies, whereupon withholding tax at such lesser rate only shall be
considered excluded from Taxes for periods governed by such form; provided that,
if at the date of the Assignment and Acceptance pursuant to which a Lender
becomes a party to this Agreement, the Lender assignor was entitled to payments
or indemnification under subsection 2.19(a) in respect of United States
withholding tax with respect to interest paid at such date, then, to such
extent, the term Taxes shall include (in addition to withholding taxes that may
be imposed in the future or other amounts otherwise includable in Taxes) United
States withholding tax, if any, applicable with respect to the assignee on such
date. If any form or document referred to in this subsection 2.19(d) requires
the disclosure of information, other than information necessary to compute the
tax payable and information required on the date hereof by Internal Revenue
Service form 1001 or 4224 or any successor form, that the Lender reasonably
considers to be confidential, the Lender shall give notice thereof to the
Borrower Representative and shall not be obligated to include in such form or
document such confidential information.
2.20 Changes in Capital Adequacy Regulations. If a Lender determines
the amount of capital required or expected to be maintained by such Lender, or
any corporation controlling such Lender is increased as a result of a Change,
then, within five (5) days of demand by such Lender, the Borrowers shall pay
such Lender the amount necessary to compensate for any shortfall in the rate of
return on the portion of such increased capital which such Lender determines is
attributable to this Agreement, its advances under the Revolving Loan, its
interest in the Lender Guaranties or its obligation to make advances under the
Revolving Loan or participate in or issue Lender Guaranties hereunder (after
taking into account such Lender's policies as to capital adequacy). A
certificate as to any additional amounts payable pursuant to this subsection
2.20 submitted by such Lender to the Borrower Representative shall be presumed
correct in the absence of manifest error.
2.21 Special Provisions Governing LIBOR Rate Loans. Notwithstanding
any other provision of this Agreement to the contrary, the following provisions
shall govern with respect to LIBOR Rate Loans as to the matters covered:
(a) As soon as practicable after 11:00 a.m. (Chicago time) on each
LIBOR Rate Determination Date, the Agent shall determine (which determination
shall, absent manifest error, be final, conclusive and binding upon all parties)
the interest rate that shall apply to the LIBOR Rate Loans for which an interest
rate is then being determined for the applicable Interest Period and shall
promptly give notice thereof (in writing or by telephone confirmed in writing)
to the Borrower Representative and each Lender.
(b) If the Agent determines (which determination shall be final and
conclusive and binding upon all parties) that:
(i) adequate and fair means do not exist for ascertaining
the applicable interest rate by reference to the LIBOR Rate with
respect to the LIBOR Rate Loans as to which an interest rate
determination is then being made; or
(ii) the LIBOR Rate does not accurately or fairly reflect
the cost of making or maintaining LIBOR Rate Loans; or
(iii) deposits of a type and maturity appropriate to match
fund LIBOR Rate Loans are not available; or
(iv) maintenance of LIBOR Rate Loans would violate any
applicable law, rule, regulation or directive, whether or not
having the force of law;
then, and in any such event, promptly after being notified of a borrowing,
conversion or continuation, the Agent shall give notice (in writing or by
telephone confirmed in writing) to the Borrower Representative (which notice the
Agent shall promptly transmit to each other Lender) of such determination, and
the Agent shall suspend the availability of LIBOR Rate Loans until such
circumstance no longer exists and require any LIBOR Rate Loans to be repaid and
Borrower shall repay or prepay the LIBOR Rate Loans, together with all interest
accrued thereon.
(c) The Borrowers shall indemnify the Agent and each Lender, upon
written request (which request shall set forth in reasonable detail the basis
for requesting such amounts and which shall, absent manifest error, be presumed
correct and binding upon all parties hereto), for losses, expenses and
liabilities (including, without limitation, any loss (including interest paid)
sustained by it in connection with the liquidation or re-employment of funds
acquired to fund or maintain LIBOR Rate Loans), that such Person may sustain:
(i) if for any reason (other than a default by the Lenders) a borrowing of any
LIBOR Rate Loan does not occur on a date specified therefor in a Borrowing
Notice, a Conversion/Continuation Notice or a request by telephone or telecopy
for borrowing or conversion/continuation or a successive Interest Period does
not commence after notice therefor is given pursuant to subsection 2.5(e) or
2.5(f); (ii) if any prepayment of any of its LIBOR Rate Loans occurs on a date
that is not the last day of the Interest Period applicable to that Loan whether
because of acceleration, prepayment or otherwise (unless such prepayment is
required pursuant to the provisions of subsection 2.21(b)); (iii) if any of its
LIBOR Rate Loans are not paid on any date specified in a notice of prepayment
given by the Borrower Representative; or (iv) as a consequence of any other
default by the Borrowers to repay its LIBOR Rate Loans when required by the
terms of this Agreement; provided that during the period while any such amounts
have not been paid, the Lenders shall reserve an equal amount from amounts
otherwise available to be borrowed under the Revolving Loan. Unless otherwise
provided herein, the amount specified in the written statement of any Lender
shall be payable by the Borrowers on demand after receipt by the Borrower
representative thereof.
(d) Any Lender may make, carry or transfer LIBOR Rate Loans at, to, or
for the account of, any of its domestic or foreign branch offices or the office
of an affiliate of such Lender.
(e) Calculation of all amounts payable to a Lender under subsection
2.21(b) or 2.21(c) shall be made as though each Lender had actually funded its
relevant LIBOR Rate Loan through the purchase of a LIBOR deposit bearing
interest at the LIBOR Rate in an amount equal to the amount of such LIBOR Rate
Loan and having a maturity comparable to the relevant Interest Period and
through the transfer of such LIBOR deposit from an offshore office to a domestic
office in the United States of America; provided that each Lender may fund each
of its LIBOR Rate Loans in any manner it sees fit and the foregoing assumption
shall be utilized only for the calculation of amounts payable under this
subsection 2.21.
3. REPORTING AND ELIGIBILITY REQUIREMENTS.
3.1 Monthly Reports and Borrowing Base Certificates. The Borrowers
shall submit to each Lender, not later than thirty (30) days after the end of
each Fiscal Month, a report ("Monthly Report"), accompanied by a certificate in
the form attached as Exhibit 3.1, which shall be signed by the chief executive
officer or the chief financial officer of the Borrower Representative. The
Monthly Report shall be in form and substance satisfactory to the Agent and
shall include, as of the last Business Day of such Fiscal Month (and with
respect to the initial Monthly Report attached as Exhibit 3.1-1, as of a date
not more than two (2) Business Days prior to the Closing Date): (i) copies of
all consolidated and consolidating operating statements for such Fiscal Month
prepared for each Borrower for its internal use and other similar data as the
Agent may reasonably request, (ii) an aged trial balance of Accounts of each
Borrower ("Accounts Trial Balance") indicating which Accounts are current, up to
30, 30 to 60, 60 to 90, 90 to 120 and 120 days or more past the original invoice
date and listing the names and addresses of all applicable Account Debtors, and
(iii) a summary of accounts payable of each Borrower showing which accounts
payable are current, up to 30, 30 to 60, 60 to 90 and 90 days or more past due
and listing the names and addresses of applicable creditors. In addition, each
Borrower shall deliver a Borrowing Base Certificate to the Agent and each Lender
not later than the 3rd Business Day of each week for the preceding week (or such
shorter period as the Agent may require). Each Borrower shall furnish copies of
any other reports or information, in a form and with such specificity as is
satisfactory to the Agent, concerning Accounts included, described or referred
to in its Borrowing Base Certificates and any other documents in connection
therewith requested by the Agent including, without limitation, but only if
specifically requested by the Required Lenders, copies of all invoices prepared
in connection with such Accounts and all credit memoranda issued by such
Borrower (each Borrower shall issue such credit memoranda in accordance with its
current practice and without delay, but in any event within three (3) Business
Days of receipt of notice of a dispute with respect to an Account).
3.2 Eligible Accounts. "Eligible Accounts" shall mean all Accounts of
each of the Borrowers other than the following: (i) except as provided in
subsection 3.2(vi), Accounts which remain unpaid as of ninety (90) days after
the date of the original invoice with respect thereto; (ii) all Accounts owing
by a single Account Debtor, including a currently scheduled Account, if fifty
percent (50%) or more of the balance owing by such Account Debtor is ineligible
by reason of the criterion set forth in clause (i) of this subsection 3.2; (iii)
Accounts with respect to which the Account Debtor is an Affiliate of any
Borrower or a director, officer or employee of any Borrower or its Affiliates;
(iv) Accounts with respect to which the Account Debtor is a Governmental
Authority or prime contractor thereof unless such Borrower has complied in a
manner satisfactory to the Agent with the Federal Assignment of Claims Act of
1940, as amended, or similar law or statute of the relevant state, province,
municipality or other jurisdiction and any amendments thereto, relative to the
assignment of such Accounts; (v) Accounts with respect to which the Account
Debtor is not a resident of the United States unless the Account is payable in
United States dollars and (A) the Account Debtor has supplied such Borrower with
an irrevocable letter of credit, issued by a financial institution satisfactory
to the Required Lenders in an amount sufficient to cover such Account and in
form and substance satisfactory to the Required Lenders and without right of
setoff or (B) the Agent in its reasonable discretion has approved in writing
such Account Debtor; (vi) Prebilled Accounts and other Accounts arising with
respect to goods which have not been shipped and delivered to and accepted as
satisfactory by the Account Debtor or arising with respect to services which
have not been fully performed and accepted as satisfactory by the Account
Debtor; (vii) Accounts for which the prospect of payment in full or performance
in a timely manner by the Account Debtor is or is likely to become impaired as
determined by the Agent in the reasonable exercise of its discretion; (viii)
Accounts which are not invoiced (and dated as of the date of such invoice) and
sent to the Account Debtor within thirty (30) days after delivery of the
underlying goods to or performance of the underlying services for the Account
Debtor; (ix) Accounts with respect to which the Agent, on behalf of the Lenders,
does not have a first and valid fully perfected Lien free and clear of any other
Lien whatsoever; (x) Accounts with respect to which the Account Debtor is the
subject of bankruptcy or a similar insolvency proceeding or has made an
assignment for the benefit of creditors or whose assets have been conveyed to a
receiver or trustee; (xi) Accounts with respect to which the Account Debtor's
obligation to pay the Account is conditional upon the Account Debtor's approval
or is otherwise subject to any repurchase obligation or return right, as with
sales made on a guaranteed sale, sale-or-return, demonstration, sale on approval
or other terms by reason of which the payment by the Account Debtor is or may be
conditional (except with respect to Accounts in connection with which Account
Debtors are entitled to return Inventory solely on the basis of the quality of
such Inventory) or consignment basis; (xii) Accounts to the extent that the
Account Debtor's indebtedness to the Borrowers exceeds a credit limit determined
by the Agent in the Agent's discretion following prior written notice of such
credit limit from the Agent to the Borrower Representative; (xiii) Accounts with
respect to which any disclosure is required in accordance with subsection 3.3;
(xiv) contra Accounts to the extent of the amount of the accounts payable owed
by the Borrowers to the Account Debtor; (xv) Accounts with respect to which the
Account Debtor is located in any state denying creditors access to its courts in
the absence of a Notice of Business Activities Report or other similar filing
unless such Borrower has either qualified as a foreign corporation authorized to
transact business in such state or has filed a Notice of Business Activities
Report or similar filing with the applicable Governmental Authority in such
state for the then current year; (xvi) Accounts evidenced by Chattel Paper or
any Instrument of any kind, to the extent possession of such Chattel Paper or
Instrument is not granted to the Agent, for the benefit of the Lenders; and
(xvii) Accounts which the Agent determines in good faith to be unacceptable. In
the event that a previously scheduled Eligible Account ceases to be an Eligible
Account under the above described criteria (other than any determination made by
the Agent), the Borrower Representative shall notify the Agent thereof as soon
as practicable.
3.3 Account Warranties. With respect to Accounts scheduled, listed or
referred to on the initial Accounts Trial Balance included in the initial
Monthly Report or on any subsequent Accounts Trial Balance or Borrowing Base
Certificate, each Borrower represents and warrants to the Agent and each Lender
that, except as disclosed in the applicable Accounts Trial Balance or Borrowing
Base Certificate: (i) the Accounts represent bona fide sales of Inventory or the
provision of services to customers in the ordinary course of business completed
in accordance with the terms and provisions contained in the documents available
to the Agent and each Lender with respect thereto and are not evidenced by a
judgment or by an Instrument or Chattel Paper; (ii) the amounts shown on the
applicable Accounts Trial Balance and on each Borrower's books and records and
all invoices and statements which may be delivered to the Agent or any Lender
with respect thereto are actually and absolutely owing to each Borrower and are
not in any way contingent; (iii) no payments have been or shall be made thereon
except payments immediately delivered to a Blocked Account pursuant to this
Agreement; (iv) there are no setoffs, claims or disputes existing or asserted
with respect thereto and any Borrower has made any agreement with any Account
Debtor for any deduction therefrom except a discount or allowance allowed by
such Borrower in the ordinary course of its business for prompt payment and
which discount and allowance is reflected in the calculation of the face amount
of each invoice related to such Account; (v) to the best of each Borrower's
knowledge, there are no facts, events or occurrences which in any way impair the
validity or enforcement thereof or tend to reduce the amount payable thereunder
as shown on the respective Accounts Trial Balances or Borrowing Base
Certificates, any Borrower's books and records and all invoices and statements
delivered to the Agent or any Lender with respect thereto; (vi) to the best of
each Borrower's knowledge, all Account Debtors have the capacity to contract and
are solvent; (vii) no Borrower has received any notice of proceedings or actions
which are threatened or pending against any Account Debtor which could
reasonably be expected to result in any material adverse change in such Account
Debtor's financial condition; (viii) no Borrower has any knowledge that any
Account Debtor is unable generally to pay its debts as they become due; (ix) the
Accounts do not arise from the sale of Inventory produced in violation of the
Fair Labor Standards Act so as to be subject to the so-called "hot goods"
provision contained in Title 29 U.S.C., Section 215(a)(1); (x) the services
furnished and/or Inventory sold giving rise to the Account are not, and will not
be at the time of sale thereof, subject to any Lien except that of the Agent,
for the benefit of the Lenders; (xi) the Accounts have not been pledged or sold
to any Person or otherwise encumbered and each Borrower is the owner of its
Accounts free and clear of any Lien except that of the Agent, for the benefit of
the Lenders; and (xii) with respect to Accounts for which its Account Debtor is
located in any state denying creditors access to its courts in the absence of a
Notice of Business Activities Report or other similar filing, such Borrower has
either qualified as a foreign corporation authorized to transact business in
such state or has filed all required Notice of Business Activities Reports or
comparable filings with the applicable Governmental Authority.
3.4 Verification of Accounts. The Agent shall have the right, at any
time or times hereafter, in the name of the applicable Borrower or a nominee of
the Agent, or during the pendency of an Event of Default, in the Agent's name,
to verify with Account Debtors the validity, amount or any other matter relating
to any Account, by mail, telephone, or in person.
3.5 Collection of Accounts and Payments. On or prior to the Closing
Date, the Borrowers shall establish lock box accounts (the "Blocked Accounts")
in the applicable Borrower's name with such banks as are acceptable to the Agent
("Collecting Banks") and enter into blocked account agreements among such
Borrower, the Agent and each Collecting Bank (the "Blocked Account Agreements").
All Account Debtors shall directly remit all payments on Accounts into a Blocked
Account and each Borrower will immediately deposit all cash payments made for
Inventory or the provision of services or other cash payments constituting
proceeds of Collateral received by it into a Blocked Account in the identical
form in which such payment was made, whether by cash or check. On or prior to
the Closing Date, each Borrower shall notify in writing each of its existing
Account Debtors of the name and address of the Blocked Account to which each
such Account Debtor shall be directed to remit all payments on its Accounts. In
addition, the Agent shall, on or prior to the Closing Date, establish a
depository account at each Collecting Bank or at a centrally located bank (the
"Depository Account"). Each Blocked Account Agreement shall provide, among other
things, that (i) all items of payment deposited in each Blocked Account are held
by such Collecting Bank as agent and bailee-in-possession for the Agent, (ii)
the Collecting Bank has no rights of setoff or recoupment or any other claim
against such Blocked Account, other than for payment of its service fees or
other charges directly related to the administration of such Blocked Account and
for returned checks or other items of payment, and (iii) such Collecting Bank
agrees to immediately forward all amounts received in such Blocked Account to
the Depository Account through daily sweeps from the Blocked Account into the
Depository Account in accordance with the terms of the applicable Blocked
Account Agreement. Each Borrower hereby agrees that all payments received by the
Agent, whether by cash, check, wire transfer or any other instrument, made to
such Blocked Accounts or otherwise received by the Agent and whether on the
Accounts or as proceeds of other Collateral or otherwise will be held as
Collateral by the Agent, for the benefit of the Lenders, for application to the
Obligations. Each Borrower shall irrevocably instruct each of its Collecting
Banks that such Collecting Bank shall promptly transfer all payments or deposits
to the Blocked Accounts into the Agent's Depository Account in accordance with
the terms of the applicable Blocked Account Agreement. Each Borrower, and any of
its Affiliates, employees, agents or other Persons acting for or in concert with
such Borrower, shall, acting as trustee for the Agent, receive, as the sole and
exclusive property of the Agent, for the benefit of the Lenders, any monies,
checks, notes, drafts or any other payments relating to and/or proceeds of
Accounts or other Collateral which come into the possession or under the control
of such Borrower or any Affiliates, employees, agents or other Persons acting
for or in concert with such Borrower, and immediately upon receipt thereof, such
Borrower or such Persons shall remit the same or cause the same to be deposited,
in kind, into a Blocked Account or, at the direction of the Agent, shall remit
the same, or cause the same to be remitted, in kind, to the Agent at the Agent's
address set forth in subsection 10.12. So long as no Default or Event of Default
has occurred and is continuing, a Borrower may amend Exhibit 3.5 to add or
replace a Blocked Account; provided that (i) the Agent shall have consented in
advance to the opening of such account with the relevant bank and (ii) prior to
the time of opening of such account (or such later dated as the Agent shall
consent to in writing), such Borrower and such bank shall have executed and
delivered to the Agent a Blocked Account Agreement in form and substance
satisfactory to the Agent. 3.6 Appointment of the Agent as Borrower's
Attorney-in-Fact. Each Borrower hereby irrevocably designates, makes,
constitutes and appoints the Agent (and all Persons designated by the Agent)
such Borrower's true and lawful agent and attorney-in-fact (which appointment
shall for all purposes be deemed to be coupled with an interest and shall be
irrevocable for so long as any Obligations are outstanding), and authorizes the
Agent, in any Borrower's or the Agent's name, without notice to any Borrower,
to: (A) upon the occurrence and during the continuance of an Event of Default
(i) demand payment of Accounts, (ii) enforce payment of Accounts by legal
proceedings or otherwise, (iii) exercise all of any Borrower's rights and
remedies with respect to the collection of the Collateral or any legal
proceedings brought to collect an Account, (iv) sell or assign any Collateral
upon such terms, for such amount and at such time or times as the Agent deems
advisable, (v) settle, adjust, compromise, extend or renew any Collateral, (vi)
discharge and release any Account, (vii) prepare, file and sign any Borrower's
name on any proof of claim in bankruptcy or other similar document against an
Account Debtor or on any notice of Lien, assignment or satisfaction of Lien or
similar document in connection with any of the Collateral, (viii) notify the
postal authorities of any change of the address for delivery of any Borrower's
mail to an address designated by the Agent, and receive, open and dispose of all
mail addressed to any Borrower and (ix) do all acts and things which are
necessary in the Agent's sole discretion to fulfill the Obligations under the
Financing Agreements; and (B) at any time, to (i) have access to any lockbox or
postal box into which any Borrower's mail is deposited, (ii) endorse any
Borrower's name upon any Chattel Paper, Document, Instrument, invoice, freight
bill, bill of lading or similar document or agreement relating to any Account or
any goods pertaining thereto, (iii) execute in any Borrower's name and on any
Borrower's behalf any financing statements or amendments thereto, (iv) endorse
any Borrower's name on any verification of Accounts and notices thereof to
Account Debtors, (v) use the information recorded or contained in any data
processing equipment and computer hardware and software relating to the Accounts
and any other Collateral, (vi) take control in any manner of any item of payment
or proceeds of any Account, (vii) endorse any Borrower's name upon any items of
payment or proceeds thereof and deposit the same in the Agent's account on
account of any Borrower's Obligations, and (viii) communicate with any
Borrower's independent certified public accountants (with a representative of
the Borrower Representative present unless an Event of Default shall have
occurred and be continuing).
3.7 Account Records. Each Borrower shall at all times hereafter
maintain a record of Accounts, keeping correct and accurate records itemizing
and describing the names and addresses of Account Debtors, relevant invoice
numbers, shipping dates and due dates, collection histories, and Accounts
agings, all of which records shall be available during such Borrower's usual
business hours at the request of any of the Agent's officers, employees or
agents. Each Borrower shall cooperate fully with the Agent and its agents who
shall have the right at any time or times to inspect its Accounts and the
records with respect thereto. Each Borrower shall conduct a review of its bad
debt reserves and collection histories at least one each year and promptly
following such review shall supply the Agent with a report in form and substance
reasonably satisfactory to the Agent concerning such review of the Accounts.
3.8 Instruments and Chattel Paper. All Chattel Paper shall be marked
with the following legend: "This writing and the obligations evidenced or
secured hereby are subject to the security interest of Sanwa Business Credit
Corporation, as agent." Upon the request of the Agent and at all times upon the
occurrence and during the continuance of a Default or Event of Default,
immediately upon any Borrower's receipt thereof, such Borrower shall deliver or
cause to be delivered to the Agent, with appropriate endorsement and assignment
to vest title, with full recourse to such Borrower, and possession in the Agent,
on behalf of the Lenders, all Instruments and Chattel Paper which such Borrower
now owns or may at any time or times hereafter acquire.
3.9 Notice to Account Debtors. The Agent may, in its sole discretion,
at any time or times, upon the occurrence and during the continuance of an Event
of Default and without prior notice to any Borrower, notify any or all Account
Debtors that the Accounts have been assigned to the Agent, for the benefit of
the Lenders, and that the Agent has a Lien therein. Upon the occurrence and
during the continuance of an Event of Default, the Agent may direct or, at the
request of the Agent, each Borrower shall direct, any or all of its Account
Debtors to make all payments upon the Accounts directly to the Agent. The Agent
shall furnish the Borrower Representative with a copy of any such notice.
3.10 Equipment Warranties. With respect to the Equipment, each
Borrower represents and warrants to the Agent and the Lenders that: (i) such
Borrower has good, indefeasible and merchantable title to its Equipment; (ii)
its Equipment is located only on the premises listed on Exhibit 8.6; (iii) its
Equipment is not subject to any Lien whatsoever except for Permitted Liens; (iv)
its Equipment is in good condition and repair (ordinary wear and tear excepted)
and is currently used or usable in such Borrower's business; and (v) except as
described in Exhibit 3.10, none of the Equipment used in the conduct of such
Borrower's business is leased.
3.11 Equipment Records. Each Borrower shall at all times hereafter
keep complete and accurate records itemizing and describing the kind, type, age
and condition of its Equipment, and such Borrower's cost therefor and
accumulated depreciation thereon and acquisitions, retirements, sales, or other
dispositions thereof, all of which records shall be available during such
Borrower's usual business hours on demand to any of the Agent's officers,
employees or agents.
3.12 Maintenance of Equipment. Each Borrower shall keep and maintain
its Equipment in good operating condition and repair (ordinary wear and tear
excepted) and shall make all necessary replacements thereof and renewals thereto
so that the value and operating efficiency thereof shall at all times be
maintained and preserved. Each Borrower shall not permit any item of its
Equipment to become a Fixture to real property or an accession to other personal
property. Each Borrower shall not permit the Equipment to be operated or
maintained in violation of any applicable law, statute, rule or regulation. In
addition, with respect to all items of leased equipment, each Borrower shall
keep, maintain, repair, replace and operate such leased equipment in accordance
with the terms of the applicable lease.
3.13 Real Estate. Exhibit 3.13 describes all Real Estate or interests
in Real Estate owned or leased or otherwise occupied by any Borrower. Each
Borrower represents and warrants to the Agent and the Lenders that each Borrower
has good and merchantable title to and ownership of, or a valid leasehold
interest in, each parcel of its Real Estate described in Exhibit 3.13, free and
clear of all Liens, except Liens in favor of the Agent, for the benefit of the
Lenders, and the Permitted Liens. Each Borrower further represents and warrants
to the Agent and the Lenders that no parcel of its Real Estate is subject to any
known boundary or encroachment dispute, special assessment, condemnation or
eminent domain proceeding, restrictive covenant, zoning or building code
violation or any other known dispute, assessment, claim or violation of law
which might restrict or interfere with such Borrower's use of such parcel of
Real Estate in the ordinary course of such Borrower's business or which could
reasonably be expected to have a Material Adverse Effect.
3.14 Maintenance of Real Estate. Each Borrower shall keep and maintain
its Real Estate and all improvements thereon in good condition and repair
(ordinary wear and tear excepted) and shall maintain the value and utility
thereof and shall maintain such Real Estate in conformity with all applicable
building and zoning codes and other applicable laws, statutes, rules and
regulations. Each Borrower shall maintain its leased real property in the same
manner as its owned Real Estate, and comply with the terms of its leases of Real
Estate, in accordance with the applicable leases.
3.15 Intellectual Property and General Intangibles. Each Borrower is
the owner of all the Intellectual Property and General Intangibles free and
clear of all Liens other than Liens in favor of the Agent, for the benefit of
the Lenders. Each Borrower shall maintain complete and accurate records with
respect to its Intellectual Property and General Intangibles and shall defend
such Intellectual Property and General Intangibles against infringement,
interference, opposition or similar actions or challenges and shall maintain and
preserve all of its rights with respect thereto.
4. CONDITIONS TO ADVANCES.
4.1 Conditions to All Advances. In addition to those conditions set
forth in subsection 4.2 regarding the initial advance of funds, the issuance of
a Lender Guaranty under the Revolving Loan and the funding of advances under the
Revolving Loan shall be conditioned upon the matters set forth in this
subsection 4.1:
(a) Representations and Warranties. All of the representations and
warranties of the Borrowers contained herein or in any other Financing Agreement
shall be true and correct in all material respects on and as of the date of such
advance as if made on such date, except to the extent that any such
representation or warranty expressly relates to an earlier date.
(b) Borrowers' Request. The Agent shall receive (i) Borrowing Notice
on or prior to the date required by subsection 2.5 of this Agreement with
respect to any advance under the Revolving Loan, (ii) at least five (5) Business
Days' prior notice of the issuance of a Lender Guaranty, (iii) a Monthly Report
from the Borrowers dated no more than thirty-one (31) days prior to the date of
such advance, and (iv) a Borrowing Base Certificate delivered in accordance with
subsection 3.1 and all other documents required by the terms of this Agreement
to have been delivered to the Agent hereunder prior to such date.
(c) Financial Condition. As determined by the Required Lenders in
their reasonable discretion, no Material Adverse Effect shall have occurred at
any time or times subsequent to the most recent annual financial statements
provided pursuant to subsection 7.1(iii).
(d) No Default. No Default or Event of Default shall have occurred and
be continuing or will result from such advance.
(e) No Litigation. (i) No Litigation shall be pending or threatened
against Parent or any Borrower or any officer, director, or executive of Parent
or any Borrower (A) in connection with this Agreement or the other Financing
Agreements or (B) which, if adversely determined, could reasonably be expected
to have a Material Adverse Effect; and (ii) no injunction, writ, restraining
order or other order of any nature materially adverse to Parent or any Borrower
shall have been issued or threatened by any Governmental Authority.
(f) Other Requirements. The Agent shall have received, in form and
substance satisfactory to the Agent, all certificates, orders, authorizations,
consents, affidavits, schedules, instruments, security agreements, financing
statements, mortgages and other documents which are provided for hereunder, or
which the Agent may at any time reasonably request.
Each request by the Borrower Representative and acceptance by the Borrowers of
the proceeds of any advance under the Revolving Loan and the request by the
Borrower Representative for the incurrence by the Lenders of any Lender Guaranty
Liability shall constitute a representation and warranty by the Borrowers that
the conditions contained in subsections 4.1(a), 4.1(d), and 4.1(e) have been
satisfied. All legal matters incident to the making of the advance of funds or
the issuance of the Lender Guaranty shall be satisfactory to the Agent and its
counsel.
4.2 Conditions to Initial Advance. In addition to those conditions set
forth in subsection 4.1, the obligations of the Lenders to make an advance under
the Revolving Loan or issue Lender Guaranties shall be conditioned upon the
satisfaction on or before the Closing Date of the conditions set forth in this
subsection 4.2 and the delivery on or before the Closing Date of the following
documents to each Lender, in form and substance satisfactory to each Lender, and
consummation of all of the transactions or the satisfaction of each condition
contemplated by each such document in a manner satisfactory to each Lender and
its counsel.
(a) Financing Agreements; Notes. Duly executed copies of this
Agreement, the other Financing Agreements and one (1) duly executed copy of each
of the Revolving Loan Notes conforming to the requirements hereof, together with
all Schedules, Exhibits, certificates, instruments, documents and financial
statements required to be delivered pursuant hereto and thereto.
(b) Legal Opinion. The legal opinion of Parent's counsel in form and
substance satisfactory to the Lenders and their counsel.
(c) UCC. Evidence of the proper filing of UCC financing statements
perfecting Liens in favor of the Agent in the Collateral and copies of searches
of financing statements filed under the Code, together with tax lien and
judgment searches with respect to the Property of the Parent and each Borrower,
in such jurisdictions as the Agent may request.
(d) Officer's Certificate. A certificate executed by the Borrower
Representative stating that (i) no Default or Event of Default has occurred and
is continuing, (ii) since July 1, 1997, no material and adverse change has
occurred in the business, prospects, assets, liabilities, operations or
condition (financial or other) of such Borrower or of such Borrower and its
Subsidiaries taken as a whole, (iii) no litigation, investigation or proceeding,
or injunction, writ or restraining order of the type described in subsection
4.1(e) is pending or threatened, (iv) each of the conditions precedent to the
consummation of the Loans contemplated hereby has been met or satisfied other
than any such conditions precedent requiring (i) the satisfaction of the Agent
or any Lender or (ii) any other action to be taken by the Agent or any Lender,
and (v) the representations and warranties of such Borrower contained in the
Financing Agreements are correct and complete in all material respects on and as
of the Closing Date.
(e) Insurance Policies and Endorsements. Copies of policies of
insurance required hereby together with lender loss payable and additional
insured endorsements in form and substance satisfactory to the Agent, duly
executed, and evidence of the payment of the first year's premium therefor and
an assignment of the keyman life insurance on Lois and Veru in form and
substance satisfactory to the Agent.
(f) Initial Monthly Report and Other Exhibits. Copies of the initial
Monthly Report, initial Borrowing Base Certificate, the Solvency Affidavit, the
initial Projections and other Exhibits and Schedules required hereby.
(g) Fees. The Closing Fee payable pursuant to subsection 2.9 has been
paid.
(h) Organization Documents. A copy of the Parent's and each Borrower's
articles of incorporation, certified by the appropriate Governmental Authority
in its respective jurisdiction of incorporation as of a date not more than
twenty (20) days prior to the Closing Date and a copy of the bylaws of the
Parent and each Borrower and any amendments thereto certified by the Secretary
or Assistant Secretary of such Person.
(i) Good Standing Certificates. Good Standing Certificates for the
Parent and each Borrower from the appropriate Governmental Authority in its
respective jurisdiction of incorporation and from each other state in which such
Person is required to be qualified to transact business as a foreign
corporation.
(j) Board Resolutions. Certified copies of resolutions of the board of
directors of the Parent and each Borrower authorizing the execution and delivery
of and the consummation of the transactions contemplated by this Agreement, the
other Financing Agreements to which it is a party and all other documents or
instruments to be executed and delivered in conjunction herewith and therewith
and the performance of its obligations hereunder and thereunder. Such
resolutions shall also authorize the Borrower Representative to act in its
capacity as set forth in this Agreement.
(k) Incumbency Certificates. Incumbency certificates with respect to
the officers of the Parent and each Borrower executing the documents referred to
in item (j) above, certified as of the Closing Date by such Person's Secretary
or Assistant Secretary as being true and correct.
(l) Waivers. Landlord waivers, bailee letters and mortgagee agreements
in form and substance satisfactory to Agent, in each case as required pursuant
to subsection 7.9.
(m) Accountants' Letters. A letter from the Borrowers authorizing the
Borrowers' independent certified public accountants to communicate with the
Agent and the Lenders in accordance with subsection 7.1 and a letter from such
accountants acknowledging the Agent's and each Lender's reliance on annual
audited financial statements delivered to the Agent and the Lenders pursuant to
subsection 7.1.
(n) Power of Attorney. A power of attorney in favor of the Agent with
respect to the matters set forth in subsections 3.6, 5.2 and 7.6 in the form
attached as Exhibit 4.2(n).
(o) Agent for Service. An acknowledgment by CT Corporation System that
it has been appointed as each Borrower's agent to accept service of process in
Illinois.
(p) Letter of Direction. A letter of direction from the Borrowers with
respect to the disbursement of the proceeds of the initial advance of funds
under the Revolving Loan.
(q) Subordination Documents. Four (4) executed copies of the
Subordination Agreement and a certified copy of the agreement evidencing the
Seller Obligations.
(r) No Material Adverse Change. No material and adverse change in the
business, operations or condition (financial or other) or prospects of any
Borrower or of Parent and its Subsidiaries taken as a whole shall have occurred
since September 1, 1997.
(s) No Material Transactions. Except as permitted by this Agreement,
neither the Parent nor any Borrower shall have entered into any material
commitment or material transaction since July 1, 1997 including, without
limitation, transactions for borrowings and capital expenditures, which are not
in the ordinary course of such Person's business.
(t) No Accounting Changes. Neither the Parent nor any Borrower shall
have made any material change in its accounting methods or principles since July
1, 1997.
(u) Blocked Account Agreements. Executed copies of each of the Blocked
Account Agreements.
(v) No Termination of Contracts. No materially advantageous agreement
now in effect between any Borrower and any other Person shall have been
terminated, modified or declared to be in default since July 1, 1997.
(w) Consents. On the Closing Date, the Agent shall have received
evidence satisfactory to the Agent that the Parent and the Borrowers have
obtained consents and acknowledgments of all Persons whose consent or
acknowledgment may be required including, without limitation, all requisite
Governmental Authorities to the execution and delivery of the Financing
Agreements and performance of the obligations thereunder.
(x) Termination Statements; Releases. A letter from Chase Manhattan
Bank in form and substance satisfactory to the Agent itemizing amounts of
principal, interest, fees and expenses or other amounts payable to it; UCC-3
termination statements, mortgage releases and all other instruments and
documents necessary to terminate all Liens on the Collateral except Permitted
Liens; and all releases and other instruments necessary to terminate all Liens
on any Borrower's and its Subsidiaries' Intellectual Property except Permitted
Liens.
(y) Environmental Matters. The Agent shall have received such
environmental review and audit reports with respect to the properties of the
Borrowers as the Agent shall have requested and the Agent shall be satisfied, in
its sole discretion, with the contents of all such environmental reports.
(z) Form W-9. A copy of IRS Form W-9, Taxpayer Identification Number
and Certification.
(aa) Other Documents. All corporate and legal proceedings,
organizational structure, capital structure, other debt instruments, material
contracts and licenses, governing documents, and all agreements in connection
with the transactions contemplated by this Agreement and the other Financing
Agreements shall be satisfactory to the Agent, and the Agent shall have received
all information and copies of all documents including, without limitation,
records of corporate existence, authority and proceedings and governmental
approvals, if any, which the Agent reasonably may have requested in connection
therewith, and such documents, where appropriate, shall be certified by proper
corporate or Governmental Authorities.
5. COLLATERAL.
5.1 Security Interest. All of the Borrowers' Obligations constitute
one (1) loan secured by the Agent's Liens on the Collateral now or from time to
time hereafter granted by any Borrower to the Agent. To secure timely payment
and performance in full of the Obligations, each Borrower hereby sells, assigns,
conveys, mortgages, pledges, hypothecates and transfers and hereby grants to the
Agent, for the benefit of the Lenders, a right of setoff against and a
continuing Lien upon all of such Borrower's right, title and interest in and to
the following property and interests in property, whether now owned or hereafter
acquired by such Borrower and wheresoever located: (i) Accounts; (ii) General
Intangibles; (iii) Fixtures; (iv) Inventory; (v) Equipment; (vi) Intellectual
Property; (vii) Investment Property; (viii) all of such Borrower's deposit
accounts (general or special) with any financial institution with which such
Borrower maintains deposits; (ix) all of such Borrower's now owned or hereafter
acquired monies, and any and all other property and interests in property of
such Borrower now or hereafter coming into the actual possession, custody or
control of the Agent or any Lender or any agent or affiliate of the Agent or any
Lender in any way or for any purpose (whether for safekeeping, deposit, custody,
pledge, transmission, collection or otherwise); (x) Documents, Instruments and
Chattel Paper of such Borrower; (xi) all insurance policies relating to any of
the foregoing, including without limitation business interruption insurance;
(xii) all of such Borrower's books and records relating to any of the foregoing;
(xiii) all accessions and additions to, substitutions for, and replacements of
any of the foregoing; and (xiv) all cash collections from, and all other cash
and non-cash proceeds of, any of the foregoing including, without limitation,
proceeds of and unearned premiums with respect to insurance policies insuring
any of the Collateral and claims against any Person for loss of, damage to, or
destruction of, any or all of the Collateral.
5.2 Preservation of Collateral and Perfection of Liens Thereon. Prior
to the execution of this Agreement, each Borrower shall have executed and
delivered to the Agent, and at any time or times hereafter at the request of the
Agent, each Borrower shall promptly and duly execute and deliver any and all
such further instruments and documents and take such further action as the Agent
may reasonably deem desirable to obtain the full benefits of this Agreement and
of the rights and powers herein granted including, without limitation, all
financing statements, security agreements, pledge agreements, bailee letters,
amendments thereto, or other documents (and pay the cost of filing or recording
the same in all public offices deemed necessary by the Agent), as the Agent may
request, in a form satisfactory to the Agent, to perfect and maintain the Liens
on the Collateral granted by any Borrower to the Agent or to otherwise protect
and preserve the Collateral and the Liens thereon or to enforce the Agent's
Liens on the Collateral. Should any Borrower fail to do so, the Agent is
authorized to sign any such financing statements or other documents as such
Borrower's agent. Each Borrower further agrees that a carbon, photocopy or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement.
6. REPRESENTATIONS AND WARRANTIES.
The Borrowers, jointly and severally, represent and warrant that as of
the Closing Date and continuing so long as any Obligations remain outstanding,
and (even if there shall be no Obligations outstanding) so long as this
Agreement remains in effect:
6.1 Existence. (a) Each Borrower and each Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation and is qualified to transact business
as a foreign corporation in, and is in good standing under the laws of, all
states in which such Person is required by applicable law to maintain such
qualification and good standing except where the failure to so qualify could not
reasonably be expected to have a Material Adverse Effect. All such jurisdictions
are listed on Exhibit 6.1-1.
(b) All shares of Stock of each Borrower and each Subsidiary have been
duly authorized and validly issued and are fully paid and non-assessable. Except
as disclosed on Exhibit 6.1-2 and as otherwise permitted by this Agreement (i)
no authorized but unissued Stock of any Borrower or any Subsidiary is subject to
any option, warrant, right to call or commitment of any kind or character, (ii)
no Borrower or any Subsidiary has any outstanding Stock or securities
convertible into or exchangeable for any Stock, or any rights issued to any
Person (either preemptive or other) to subscribe for or to purchase, or any
options or warrants for the purchase of, or any agreements providing for the
issuance (contingent or otherwise) of, or any calls, commitments or claims of
any character relating to any of its Stock or any Stock or securities
convertible into or exchangeable for any of its Stock, and (iii) no Borrower or
any Subsidiary is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any of its Stock or any convertible
securities, rights, warrants or options of the type described in the clause (ii)
above.
6.2 Authority. Each Borrower and each Subsidiary has full power,
authority and legal right to enter into this Agreement and the other Financing
Agreements to which such Person is a party. The execution and delivery by each
Borrower and each Subsidiary of the Financing Agreements to which it is a party:
(i) have been duly authorized by all necessary action on its part; (ii) are not
in contravention of the terms of its articles of incorporation or bylaws or of
any indenture, agreement or undertaking to which it is a party or by which it or
any of its Property is bound; (iii) do not and will not require any registration
with, or approval or the consent or approval of, any Governmental Authority or
of any other Person that has not been obtained; (iv) do not and will not
contravene any contractual or governmental restriction to which it or any of its
Property is subject; and (v) do not and will not, except as contemplated herein,
result in the imposition of any Lien upon any Property of it under any existing
indenture, mortgage, deed of trust, loan or credit agreement or other material
agreement or instrument to which it is a party or by which it or any of its
Property may be bound or affected. Each Borrower and each Subsidiary has the
full corporate power and authority and legal right to own, operate, pledge,
mortgage or otherwise encumber its Property, to lease the Property it now
operates under lease and conduct its business as now, heretofore and proposed to
be conducted, and has all material licenses, permits, consents and approvals
from or by, and has made all material filings with, and has given all notices
to, all Governmental Authorities having jurisdiction, to the extent required for
such ownership, operation and conduct.
6.3 Binding Effect. This Agreement and the other Financing Agreements
have been duly executed and delivered by the Borrowers, are the legal, valid and
binding obligations of the Borrowers and are enforceable against the Borrowers
in accordance with their terms, except as enforceability may be limited by
bankruptcy, insolvency or similar laws affecting the rights of creditors
generally or by application of general principles of equity.
6.4 Financial Data. (a) The Borrowers have provided to the Agent and
each Lender (i) audited statements of income and cash flow and balance sheets
for the Parent and its Subsidiaries on a consolidated and consolidating basis
for each of the three (3) most recent Fiscal Years and (ii) unaudited statements
of income and cash flow and balance sheets for the Parent and its Subsidiaries
on a consolidated and consolidating basis as of August 31, 1997 and for the
eight (8) months then ended (collectively the "Financial Statements"). The
Financial Statements fairly present the financial condition and results of
operations of the Parent and its Subsidiaries for the periods indicated therein,
in accordance with Generally Accepted Accounting Principles, consistently
applied (subject to normal year-end adjustment). As of the Closing Date, the
Financial Statements are complete and accurate and fairly represents the assets,
liabilities, financial condition and results of operations of Parent and its
Subsidiaries in accordance with Generally Accepted Accounting Principles,
consistently applied, but taking into account the transactions contemplated by
this Agreement. There are no omissions from the Financial Statements or other
facts and circumstances not reflected in the Financial Statements which are or
may be material. Except as contemplated hereby, since July 1, 1997, neither the
Parent nor any Borrower has: (i) incurred any debts, obligations, or liabilities
(absolute, accrued, or contingent and whether due or to become due) except
current liabilities incurred in the ordinary course of business which
(individually or in the aggregate) could not reasonably be expected to have a
Material Adverse Effect; (ii) paid any obligation or liability other than
current liabilities in the ordinary course of business, or discharged or
satisfied any Liens other than those securing current liabilities, in each case
in the ordinary course of business; (iii) declared or made any Restricted
Payment or obligated itself to do so; (iv) mortgaged, pledged, or subjected to
any Lien on any of its Property except Permitted Liens; (v) except as permitted
by subsection 8.7, sold, transferred, or leased any of its Property; (vi)
suffered any physical damage, destruction, or loss (whether or not covered by
insurance) which could reasonably be expected to have a Material Adverse Effect;
(vii) entered into any transaction other than in the usual and ordinary course
of business and other than as contemplated hereby; (viii) encountered any labor
difficulties or labor union organizing activities; (ix) issued or sold any
shares of capital stock or other securities or granted any options or similar
rights with respect thereto; or (x) agreed to do any of the foregoing other than
pursuant hereto. Since July 1, 1997, there has been no material adverse change
in the business, properties, operations or condition (financial or otherwise) or
business prospects of the Parent and its Subsidiaries taken as a whole.
(b) Each Borrower has also furnished to the Agent and each Lender
initial Projections dated as of the Closing Date and attached as Exhibit 6.4.
The initial Projections have been prepared, and all Projections hereafter
delivered in accordance with clause (iv) of subsection 7.1 shall be prepared on
the basis of the assumptions set forth therein and do represent, and in the
future will represent, the good faith estimate of the Borrowers' management
regarding the course of business of Borrowers and their Subsidiaries for the
periods covered thereby. The assumptions set forth in the initial Projections
are, and the assumptions set forth in the future Projections delivered hereafter
shall be, reasonable and realistic based on then current economic conditions.
The Projections represent the good faith belief of the Borrowers as to
reasonably achievable results and no Borrower has any knowledge of any reason
(other than unexpected adverse general economic conditions) that would cause the
Projections not to be achieved.
6.5 Collateral. Except for the Permitted Liens, all of the Collateral
is and will continue to be owned by the Borrowers free and clear of all Liens.
From and after the making of the first advance under the Revolving Loan and
after the making of all necessary filings, the provisions of Section 5 will be
effective to create and will give the Agent, for the benefit of the Lenders, as
security for the repayment of the Obligations, a legal, valid, perfected and
enforceable Lien (which priority is subject only to Permitted Liens) upon all
right, title and interest of the Borrowers in any and all of the Collateral
(including, without limitation, the Lien in the items and amounts deposited in
the Blocked Accounts). Upon the acknowledgment of the Agent's security interest
in the Blocked Accounts by the banks or other financial institutions at which
such Blocked Accounts are maintained, this Agreement will be effective to create
and will give the Agent, for the benefit of the Lenders, as security for the
repayment of the Obligations, a legal, valid, perfected and enforceable first
priority Lien on all deposits or other items in the Blocked Accounts.
6.6 Solvency. Each Borrower is Solvent and will continue to be Solvent
following the consummation of the transactions contemplated by this Agreement
and the payment of all fees, costs and expenses payable by the Borrowers with
respect thereto.
6.7 Places of Business. As of the Closing Date, the principal place of
business and chief executive office of each Borrower is set forth on Exhibit
6.7. The books and records of each Borrower and all Chattel Paper, Instruments
and all records of account are located and hereafter shall continue to be
located at the principal place of business and chief executive office of each
Borrower.
6.8 Other Names. The business conducted by any Borrower has not been
and will not be conducted under any corporate, limited liability company, trade
or fictitious name other than those names disclosed on Exhibit 6.8.
6.9 Tax Obligations. Each Borrower and each Subsidiary has filed
complete and correct federal, state and local tax reports and returns required
to be filed by it, prepared in accordance with applicable laws or regulations,
and, except for extensions duly obtained, has either duly paid all Charges owed
by it, or made adequate provision for the payment thereof. There are no material
unresolved questions or claims concerning any tax liability of any Borrower or
any Subsidiary except those for which the validity, amount or imposition of such
Charges are being contested in good faith by an appropriate proceeding promptly
initiated and diligently conducted and as to which (i) such proceeding, during
the pendency, will prevent the forfeiture or sale of any Property of any
Borrower or such Subsidiary and no Lien which will have priority over the
Agent's Liens granted hereunder with respect to the Collateral is filed of
record, (ii) adequate reserves have been provided in accordance with Generally
Accepted Accounting Principles and (iii) such proceeding could not reasonably be
expected to have a Material Adverse Effect. No tax Liens have been filed and no
claims are being asserted with respect to any such Charges which could
reasonably be expected to have a Material Adverse Effect. The charges, accruals
and reserves on the books of each Borrower and each Subsidiary are adequate for
all open years and for the current Fiscal Year. No Borrower or any Subsidiary
has consented to any extension of, or otherwise waived, any statute of
limitation with respect to any such Charges. No Borrower or any Subsidiary is a
party to any tax indemnity, tax sharing or tax allocation agreement with any
other Person. Proper and accurate amounts have been withheld by each Borrower
and each Subsidiary from its employees for all periods in full and complete
compliance with the tax, social security and unemployment withholding provisions
of applicable federal, state, local and foreign law and such withholdings have
been timely paid to the respective Governmental Authorities.
6.10 Indebtedness and Liabilities. Neither the Borrowers nor any
Subsidiary has Indebtedness other than Indebtedness reflected on the Financial
Statements and Indebtedness permitted hereunder. Except for the Indebtedness
referred to above, and Liabilities reflected on the Financial Statements neither
the Borrowers nor any Subsidiary has any Liabilities required to be reflected on
a balance sheet prepared in accordance with GAAP other than those Liabilities
incurred in the ordinary course of a Borrower's business.
6.11 Use of Proceeds and Margin Security. The Borrowers shall use the
proceeds of the Revolving Loan on the Closing Date solely for (i) refinancing of
existing Indebtedness and (ii) for the financing of Borrowers' ordinary working
capital and general company needs. The Borrowers shall use the proceeds of the
Revolving Loan after the Closing Date solely for (i) Permitted Acquisitions and
(ii) the ordinary working capital and general company requirements of the
Borrowers and shall use all advances and loans hereunder for proper business
purposes, consistent with all applicable laws, statutes, rules and regulations.
No Borrower owns any margin security and none of the proceeds of the Revolving
Loan advanced or funded hereunder will be used for the purpose of purchasing or
carrying any margin securities or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase any margin securities or
for any other purpose not permitted by Regulation G or U of the Board of
Governors of the Federal Reserve System.
6.12 Government Contracts. Except as disclosed on Exhibit 6.12, no
Borrower is a party to or bound by any supply agreements with the federal
government or any state or local government or any agency thereof.
6.13 Investments. Except as disclosed on Exhibit 8.4, as of the
Closing Date, no Borrower or any Subsidiary has any Investment in any Person
other than Permitted Investments and is not engaged in any joint venture or
partnership with any other Person.
6.14 Litigation and Proceedings. No judgments are outstanding against
any Borrower or any Subsidiary or binding upon any of its Property, nor, except
as disclosed on Exhibit 6.14, is there now pending or, to any Borrower's
knowledge, threatened, any litigation, claim, arbitration, investigation,
administrative proceeding or other governmental proceeding ("Litigation") by or
against any Borrower or any Subsidiary, and to the best of any Borrower's
knowledge, there are no presently existing facts or circumstances likely to give
rise to any such Litigation. There is no Litigation pending or threatened
against any Borrower or any Subsidiary, which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect. None of the Litigation
will prevent, enjoin or delay the consummation of the transactions contemplated
by the Financing Agreements.
6.15 Other Agreements and Deliveries. (a) Except as disclosed on
Exhibit 6.15, no Borrower or any Subsidiary is in default under any indenture,
loan agreement, mortgage, deed of trust or similar document relating to the
borrowing of monies or any other material contract, lease, or commitment to
which it is a party or by which it is bound. There is no dispute regarding any
contract, lease, or commitment which could reasonably be expected to have a
Material Adverse Effect.
(b) On or prior to the Closing Date, the Borrowers have provided or
made available to the Agent or its counsel accurate and complete copies of all
of the following agreements or documents to which any Borrower or, to any
Borrower's knowledge, the Seller (with respect to the Purchased Assets only) is
subject as of the Closing Date:
(i) each Plan and other compensation or nonqualified benefit
plan arrangement which any Borrower or any ERISA Affiliate or the
Seller (with respect to the Purchased Assets only) sponsors or is
committed to contribute to as of the Closing Date and, where
applicable, each Plan's most recent summary plan description,
actuarial report, determination letter from the Service and Forms
5500 for the previous five (5) years filed in respect of each
such Plan;
(ii) supply agreements not terminable within sixty (60) days
following written notice issued by any Borrower or the Seller
(with respect to the Purchased Assets only);
(iii) purchase agreements not terminable within ninety (90)
days following written notice issued by any Borrower or the
Seller (with respect to the Purchased Assets only);
(iv) leases of real property;
(v) leases of Equipment having a remaining term of two (2)
years or longer and requiring aggregate rental and other payments
in excess of Ten Thousand Dollars ($10,000) per annum;
(vi) licenses and permits with respect to Environmental
Matters;
(vii) licenses and permits necessary for the conduct of any
Borrower's business;
(viii) all management and employment agreements between any
Borrower and any other Person;
(ix) collective bargaining agreements or other labor
contracts;
(x) contracts or agreements between any Borrower and Parent
or its other Affiliates requiring or providing for payments in
excess of Ten Thousand Dollars ($10,000) per annum; and
(xi) instruments and agreements evidencing the issuance of
any Stock of any Borrower.
6.16 Labor Matters. Except as disclosed on Exhibit 6.16, there are no
strikes, work stoppages, labor disputes, decertification petitions, union
organizing efforts or grievances pending or, to the best of any Borrower's
knowledge threatened, between any Borrower or any Subsidiary and any of its
employees, other than employee grievances arising in the ordinary course of
business which, in the aggregate, could not reasonably be expected to have a
Material Adverse Effect. All collective bargaining agreements, labor agreements
or other contracts with or affecting any employee of any Borrower or any
Subsidiary necessary to continue to conduct the business operations of any
Borrower or such Subsidiary are in full force and effect. Except as disclosed on
Exhibit 6.16, no Borrower or any Subsidiary has any obligation under any
collective bargaining agreement or any employment agreement. Except as disclosed
on Exhibit 6.16, to the best of the Borrowers' knowledge, there is no organizing
activity pending or threatened by any labor union or group of employees that
could reasonably be expected to have a Material Adverse Effect. Except as
disclosed on Exhibit 6.16, there are no representation proceedings pending or,
to any Borrower's knowledge, threatened with the National Labor Relations Board
or other applicable Governmental Authority, and no labor organization or group
of employees has made a pending demand for recognition. Except as disclosed on
Exhibit 6.16, there are no complaints or charges pending or, to any Borrower's
knowledge, threatened to be filed with any Governmental Authority or arbitrator
based on, arising out of, in connection with, or otherwise relating to the
employment or termination of employment by any Borrower of any individual which
reasonably could be expected to have a Material Adverse Effect.
6.17 Compliance with Laws and Regulations. The execution and delivery
by each Borrower of this Agreement and the other Financing Agreements to which
it is a party and the performance of such Borrower's obligations hereunder and
thereunder are not in contravention of any order applicable to such Borrower or,
to such Borrower's best knowledge, any federal, foreign, state or local laws,
regulations or ordinances. Each Borrower and each Subsidiary are in compliance
with all laws, orders, regulations and ordinances of all federal, foreign, state
and local governmental authorities relating to the business operations and the
Property of such Borrower or any Subsidiary except for laws, orders, regulations
and ordinances the non-compliance or violation of which, in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
6.18 Patents, Trademarks and Licenses. Except as disclosed on Exhibit
6.18, each Borrower owns or possesses rights to use all licenses, patents,
patent applications, copyrights, service marks, logos, names, trademarks and
tradenames required to continue to conduct its business as heretofore conducted;
all such licenses, patents, patent applications, copyrights, service marks,
trademarks and tradenames are disclosed on Exhibit 6.18; and no such license,
patent or trademark has been declared invalid, been limited by order of any
Governmental Authority or by agreement, or is the subject of any infringement,
interference or similar proceeding or challenge.
6.19 ERISA. (a) No Borrower or any ERISA Affiliate has sponsored or
contributed to, or has had any obligation (contingent or otherwise) under, any
Plan or Multiemployer Plan other than those disclosed on Exhibit 6.19(a).
(b) With respect to all Plans, each Borrower and each ERISA Affiliate
is in compliance with the applicable provisions of ERISA and the IRC in all
material respects. Each Plan that is intended to be qualified under Section
401(a) of the IRC has been determined by the Service to be so qualified, and
each trust related to each such Plan has been determined to be exempt from
federal income tax under Section 501(a) of the IRC. No liability has been
incurred by any Borrower or any ERISA Affiliate which remains unsatisfied for
any taxes or penalties with respect to any Plan or any Multiemployer Plan.
(c) The present value of all benefit liabilities under each Pension
Plan does not exceed the present value of the assets of such Plan. No Pension
Plan has been terminated, nor has any accumulated funding deficiency (as defined
in Section 412 of the IRC) been incurred (without regard to any waiver granted
under Section 412 of the IRC), nor has any funding waiver from the Internal
Revenue Service been received or requested with respect to any Pension Plan, nor
has any Borrower or any ERISA Affiliate failed to make any contributions or to
pay any amounts due and owing as required by Section 412 of the IRC, Section 302
of ERISA or the terms of any Pension Plan by the applicable due dates, nor has
there been any event requiring any disclosure under Section 4041(c)(3)(C), or
4062(e) or 4063(a) of ERISA with respect to any Pension Plan.
(d) No Borrower or any ERISA Affiliate has: (i) engaged in a nonexempt
prohibited transaction described in Section 406 of ERISA or Section 4975 of the
IRC; (ii) incurred any liability to the PBGC which remains outstanding other
than the payment of premiums and there are no premium payments which are due and
unpaid; (iii) failed to make a required contribution or payment to a
Multiemployer Plan; or (iv) engaged in any transaction which could subject it to
liability under Section 4069 or 4212(c) of ERISA.
(e) No Termination Event has occurred and no Termination Event is
reasonably expected to occur which could result in a liability to any Borrower
or any ERISA Affiliate.
(f) No Borrower or any ERISA Affiliate has any contingent liability
with respect to any post-retirement benefit under any Plan which is a welfare
plan (as defined in Section 3(1) of ERISA), other than liability for health plan
continuation coverage described in Part 6 of Title I of ERISA.
6.20 Property. Each Borrower and each Subsidiary owns, possesses, or
has the unrestricted right to use all Property and exercise all rights necessary
for the conduct of such Borrower's business as heretofore conducted. Except as
disclosed on Exhibit 6.20, there are no actual, threatened or alleged defaults
with respect to any agreements relating to, or evidencing, any Property. Except
as disclosed on Exhibit 6.20, no consent, approval, license, authorization or
other action in respect of any Person is required, except as have been obtained,
in connection with the right to use any Property. None of the items disclosed on
Exhibit 6.20 could reasonably be expected to have a Material Adverse Effect.
6.21 Adverse Contracts. No Borrower or any Subsidiary is a party to,
nor is any Borrower or any of its Property subject to or bound by, any long term
lease, forward purchase contract or futures contract, covenant not to compete,
or other agreement which restricts its ability to conduct its business, or could
reasonably be expected to have a Material Adverse Effect.
6.22 Purchase or Other Commitments and Outstanding Bids. No material
purchase or other commitment of any Borrower or any Subsidiary is in excess of
the normal, ordinary, and usual requirements of its business, or was made at any
price in excess of the then current market price, or contains terms and
conditions more onerous than those usual and customary in the applicable
industry. There is no outstanding bid, sales proposal, contract, or unfilled
order of any Borrower or any Subsidiary which (i) will, or could if accepted,
require such Borrower to supply goods or services at a cost to such Borrower in
excess of the revenues to be received therefor, or (ii) quotes prices which do
not include a mark-up over reasonably estimated costs consistent with past
mark-ups on similar business or market conditions current at that time.
6.23 Investment Company Act; Public Utility Holding Company Act. No
Borrower is an "investment company" or a company "controlled" by an investment
company within the meaning of the Investment Company Act of 1940, as amended. No
Borrower is a "holding company" or a "subsidiary company" or a "holding company"
or an "affiliate" of a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
6.24 Broker's Fees. Neither the Agent or any Lender nor any Borrower
or any Subsidiary is or will become obligated to any Person with respect to any
finder's or brokerage or similar fee or commission in connection with the
transactions contemplated hereby.
6.25 Licenses and Permits. Each Borrower and each Subsidiary has been
and is current and in good standing with respect to all governmental approvals,
permits, certificates, licenses, inspections, consents and franchises
(collectively, the "Licenses") necessary to continue to conduct its business and
to own or lease and operate, its properties as heretofore conducted, owned,
leased or operated including any and all Licenses with respect to Environmental
Laws.
6.26 Environmental Compliance.
(a) The operations of each Borrower and each Subsidiary comply in all
material respects with all applicable Environmental Laws.
(b) Except as disclosed on Exhibit 6.26, there are no claims,
investigations, litigation, administrative proceedings, whether pending or, to
any Borrower's best knowledge, threatened, or judgments or orders, relating to
any Hazardous Materials or alleging the violation of any Environmental Laws
(collectively "Environmental Matters") relating in any way to any operations of
any Borrower or any Subsidiary on any real property leased or owned by any
Borrower or any Subsidiary or to the operations of any Borrower or any
Subsidiary.
(c) Except as disclosed on Exhibit 6.26, to Borrowers' knowledge, no
Hazardous Materials are presently stored or otherwise located on, in or under
any real property leased, owned or operated by any Borrower or any Subsidiary
except in material compliance with all applicable Environmental Laws, and, no
part of any real property leased, owned or operated by any Borrower or any
Subsidiary or to any Borrower's best knowledge, adjacent parcels, including the
groundwater located thereon, is presently contaminated by any such Hazardous
Material.
(d) Except as disclosed on Exhibit 6.26, no Borrower or any Subsidiary
has filed any notice under any international, federal, state, regional,
provincial or local law indicating past or present treatment, storage or
disposal of a Hazardous Material or reporting a spill or release of a Hazardous
Material into the environment.
(e) Except as disclosed on Exhibit 6.26, no Borrower or any Subsidiary
has any known material liability, contingent or otherwise, in connection with
any release of any Hazardous Material into the environment.
(f) So long as any Obligations are outstanding, no Hazardous Materials
may be used, generated, treated, stored or disposed of by any Person for any
purpose upon any real property leased, owned or operated by any Borrower or any
Subsidiary except in material compliance with all applicable Environmental Laws.
(g) Each Borrower hereby indemnifies the Agent and each Lender and
agrees to hold the Agent and each Lender harmless from and against any and all
losses, liabilities, damages, injuries, costs, expenses and claims of any and
every kind whatsoever (including, without limitation, court costs and reasonable
attorneys' fees and legal expenses) which at any time or from time to time may
be paid, incurred or suffered by, or asserted against, the Agent or any Lender
arising directly or indirectly from the violation of any Environmental Law with
respect to any Real Estate of any Borrower; or with respect to, or as a direct
or indirect result of the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission or release from, properties utilized, owned or
operated by any Borrower or any Subsidiary in the conduct of its business into
or upon any land, the atmosphere, or any watercourse, body of water or wetland,
of any Hazardous Material (including, without limitation, any losses,
liabilities, damages, injuries, costs, expenses or claims asserted or arising
under the Environmental Laws); provided that to the extent that any Borrower or
any Subsidiary is strictly liable under any Environmental Laws, the Borrowers'
obligations to indemnify the Agent and each Lender under this subsection 6.26(g)
shall likewise be without regard to fault on the part of such Borrower or any
Subsidiary and with respect to the violation of law which results in liability
to such Borrower or any Subsidiary; provided further that this subsection
6.26(g) shall not apply with respect to any liability, release, violation or
other matter that arises solely from the Agent's or any Lender's gross
negligence or wilful misconduct after any such Borrower or Subsidiary loses
possession of any property due to foreclosure or other exercises of remedies by
the Agent or any Lender. To the extent that the undertaking to indemnify, pay
and hold harmless set forth in this subsection 6.26(g) may be unenforceable
because it is violative of any law or public policy, each Borrower shall
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all indemnifications set forth
in this subsection 6.26(g).
(h) So long as any Obligations are outstanding, if the Agent or any
Lender, at any time, has a reasonable basis to believe that any Borrower may be
in violation of Environmental Law or that any real property leased or owned by
any Borrower or any Subsidiary, or real property adjacent to such real property,
has or may become contaminated or subject to a clean up order or decree by an
agency having jurisdiction over such Borrower or such Subsidiary; then the
Borrowers agree, upon request from the Agent, to provide the Agent and each
Lender with such reports, certificates, engineering studies or other written
material or data as the Agent or such Lender, in its reasonable discretion, may
require from them so as to satisfy the Agent or such Lender that such Borrower
is in compliance with all applicable Environmental Laws and that the
marketability and value of the real property is adequately maintained; provided
that with respect to real property adjacent to real property owned by or leased
to any Borrower or any Subsidiary, such reports, certificates, studies and other
material or data shall not be required to be provided by the Borrowers if (i)
they are not otherwise required to be created or provided pursuant to statute,
regulation, order or otherwise, and (ii) such contamination is not attributable
to the acts or omissions of any Borrower or any Subsidiary or any Affiliate or
predecessor of any of them or any previous owner, lessee, lessor or other user
of such real property.
(i) The materiality standard used in this subsection 6.26 shall be
exceeded if the facts giving rise to a breach or breaches of the representations
or warranties contained herein might result in liability or potential liability
in excess of Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate.
(j) None of the items disclosed on Exhibit 6.26 could reasonably be
expected to have a Material Adverse Effect.
6.27 Full Disclosure. This Agreement, the other Financing Agreements,
the financial statements delivered in connection herewith, the representations
and warranties of any Borrower contained in this Agreement, the other Financing
Agreements or in any other document, certificate or written statement by or on
behalf of any Borrower delivered or to be delivered to the Agent or any Lender,
do not and will not contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained therein or herein, in
light of the circumstances under which they were made, not misleading. There is
no material fact which any Borrower has not disclosed to the Agent in writing
which has had or, so far as any Borrower can now foresee, could reasonably be
expected to have a Material Adverse Effect.
6.28 Insurance Policies. Exhibit 7.5 lists all liability insurance,
property insurance and other insurance of any nature maintained for current
occurrences by each Borrower, as well as a summary of the terms of such
insurance.
6.29 Corporate and Contractual Restrictions. No Borrower is a party or
subject to any contract, agreement or charter or other corporate restriction
which materially and adversely affects its business or the use or ownership of
any of its Property. No Borrower has agreed or consented to cause or permit in
the future upon the happening of a contingency or otherwise any of its Property,
whether now owned or hereafter acquired, to be subject to a Lien that is not a
Permitted Lien. No Borrower is a party to or bound by any indenture, contract,
instrument, charter or other corporate restriction or other agreement which
prohibits the creation, incurrence or sufferance to exist of any Lien upon its
Property except the Financing Agreements.
6.30 Subsidiaries. Except as set forth on Exhibit 6.30, no Borrower
has any Subsidiaries. Exhibit 6.30 contains an accurate list of all Subsidiaries
of the Borrowers, setting forth their respective jurisdictions of incorporation
and the percentages of their Stock owned by the Borrowers or other Subsidiaries.
6.31 Deposit and Disbursement Accounts. As of the Closing Date,
Exhibit 6.31 lists all banks and other financial institutions at which any
Borrower maintains deposits and/or other accounts, including any disbursement
accounts. Exhibit 6.31 correctly identifies the name, address and telephone
number of each depository, the name in which the account is held, a description
of the purpose of the account, and the complete account number.
6.32 Subordinated Debt. The Borrowers have the corporate power and
authority to incur any Indebtedness evidenced by Subordinated Debt. No Borrower
has any knowledge that the subordination provisions of any Subordinated Debt and
the Subordination Agreement related thereto will not be enforceable against the
holders of such Subordinated Debt by the holder of the Obligations. All
Obligations constitute senior Indebtedness entitled to the benefits of
subordination created by any Subordinated Debt and the Subordination Agreement
related thereto. The principal of and interest on the Obligations and all other
Obligations will constitute "Senior Debt" as that or any similar term is or may
be used in any Subordination Agreement and in any other instrument or agreement
evidencing or applicable to any Subordinated Debt. Each Borrower acknowledges
that the Lender is entering into this Agreement and is extending credit
hereunder in reliance upon the subordination provisions of the Seller
Obligations and the Subordination Agreement related thereto and this subsection
6.32.
7. AFFIRMATIVE COVENANTS.
The Borrowers, jointly and severally, covenant and agree that, so long
as any Obligations remain outstanding, and (even if there shall be no
Obligations outstanding) so long as this Agreement remains in effect:
7.1 Financial Statements. Each Borrower shall keep proper books of
record and account with respect to its business activities in which full and
true entries will be made of all dealings or transactions in respect of or in
relation to the business and affairs of such Borrower, in accordance with
Generally Accepted Accounting Principles consistently applied, and the Borrowers
shall furnish or cause to be furnished to the Agent and each Lender: (i) as soon
as practicable and in any event within thirty (30) days after the end of each
Fiscal Month, statements of net income and cash flow of the Parent and its
Subsidiaries on a consolidated and consolidating basis for such Fiscal Month and
for the period from the beginning of the then current Fiscal Year to the end of
such Fiscal Month and a balance sheet of the Parent and its Subsidiaries on a
consolidated and consolidating basis as of the end of such Fiscal Month, setting
forth in each case, in comparative form, figures for the corresponding periods
in the preceding Fiscal Year and as of a date one (1) year earlier, all in
reasonable detail and certified as accurate by the Borrower Representative on
behalf of each Borrower (subject to normal year-end adjustments but excluding
footnotes); (ii) as soon as practicable and in any event within sixty (60) days
after the end of each Fiscal Quarter, statements of net income and cash flow of
the Parent and its Subsidiaries on a consolidated and consolidating basis for
such Fiscal Quarter and for the period from the beginning of the then current
Fiscal Year to the end of such Fiscal Quarter and a balance sheet of the Parent
and its Subsidiaries on a consolidated and consolidating basis as of the end of
such Fiscal Quarter, setting forth in each case, in comparative form, figures
for the corresponding periods in the preceding Fiscal Year and as of a date one
(1) year earlier, all in reasonable detail and certified as accurate by the
Borrower Representative (subject to changes resulting from normal year-end
adjustments); (iii) as soon as practicable and in any event within one hundred
twenty (120) days after the end of each Fiscal Year, statements of net income
and cash flow of Parent and its Subsidiaries on a consolidated and consolidating
basis for such Fiscal Year, and a balance sheet of Parent and its Subsidiaries,
on a consolidated and consolidating basis as of the end of such Fiscal Year
setting forth in each case, in comparative form, corresponding figures for the
period covered by the preceding annual audit and as of the end of the preceding
Fiscal Year, all in reasonable detail and satisfactory in scope to the Required
Lenders and examined and certified by Arthur Andersen & Co. or any other
independent public accountants of recognized national standing selected by
Parent and reasonably acceptable to the Agent, which certification shall be
unqualified; (iv) not later than thirty (30) days prior to the end of each
Fiscal Year, Projections approved by the board of directors of the Parent
prepared in the same manner as the Projections attached as Exhibit 6.4,
including projected balance sheets for the forthcoming Fiscal Year, Fiscal
Month-by-Fiscal Month-Accounting Period; projected cash flow statements
(including proposed Capital Expenditures and forecasted unused Borrowing
Availability under the Revolving Loan) for the forthcoming Fiscal Year, Fiscal
Month-by-Fiscal Month; projected profit and loss statements for the forthcoming
Fiscal Year, Fiscal Month-by-Fiscal Month, together with appropriate supporting
details as requested by the Agent, all for Parent and its Subsidiaries on a
consolidated and consolidating basis and within thirty (30) days after the close
of each Fiscal Month, a statement in which the actual results of such Fiscal
Month are compared with the most recent Projections for such Fiscal Month; (v)
concurrently with the preparation of the financial statements, the Borrowers
shall send a letter to such accountants with a copy to the Agent and each
Lender, notifying such accountants that one of the primary purposes for
retaining such accountants' services and having audited financial statements
prepared by them is for use by the Agent and the Lenders and such accountants
shall deliver a letter addressed to the Agent and the Lenders acknowledging the
Agent's and the Lenders' reliance thereon in form and substance satisfactory to
the Agent; (vi) as soon as practicable and in any event within ten (10) days of
delivery to any Borrower, a copy of any letter issued by such Borrower's
independent public accountants or other management consultants with respect to
such Borrower's financial or accounting systems or controls, including all
so-called "management letters"; (vii) in conjunction with the delivery of the
annual financial statements referred to in clause (iii) above, the Borrowers
shall deliver to the Lender a written report which shall describe and analyze,
in detail, all material trends, changes and developments reflected in such
financial statements; (viii) promptly following the filing or furnishing
thereof, copies of all regular and periodic reports, and other material filed by
Parent or any of its Subsidiaries with any securities exchange or with the
Securities and Exchange Commission or any other governmental or private
regulatory authority or distributed to the holders of Stock of any such Person
and all press releases and other statements made available by Parent or any of
its Subsidiaries to the public concerning material adverse changes or
developments in the business of any such Person; (ix) as soon as practicable and
in any event within ninety (90) days after the consummation of any Permitted
Acquisition, a balance sheet for the Parent and its Subsidiaries (including the
acquired Target) on a consolidated and consolidating basis, as of the date of
consummation of such Permitted Acquisition demonstrating the Solvency of the
Parent and each Borrower; and (x) with reasonable promptness, such other
business or financial data as the Required Lenders may reasonably request. Each
Borrower shall conduct a review of its bad debt reserves and collection
histories at least once each year and promptly following such review shall
supply the Agent with a report in a form and with such specificity as may be
satisfactory to the Agent concerning such review of the Accounts.
All financial statements delivered to the Agent or any Lender pursuant
to the requirements of this subsection (except where otherwise expressly
indicated) shall be prepared in accordance with Generally Accepted Accounting
Principles consistently applied on a consolidated and consolidating basis for
Parent and its Subsidiaries. All financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
consistently applied. That certain items or computations are explicitly modified
by the phrase "in accordance with GAAP" shall in no way be construed to limit
the foregoing. In the event that any Accounting Changes occur and such changes
result in a change in the calculation of the financial covenants, standards,
advance rates or terms used in this Agreement or any other Financing Agreement,
then Borrowers, the Agent and the Lenders agree to enter into negotiations in
order to amend such provisions of this Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating
Borrowers' financial condition shall be the same after such Accounting Changes
as if such Accounting Changes had not been made; provided that the agreement of
the Required Lenders to any required amendments of such provisions shall be
sufficient to bind all Lenders. In the event that the Agent, Borrowers and the
Required Lenders shall have agreed upon the required amendments, then after such
agreement has been evidenced in writing and the underlying Accounting Changes
with respect thereto has been implemented, any reference to GAAP contained in
this Agreement or in any other Financing Agreement shall, only to the extent of
such Accounting Changes, refer to GAAP, consistently applied after giving effect
to the implementation of such Accounting Changes. If the Agent, each Borrower
and the Required Lenders cannot agree upon the required amendments within thirty
(30) days following the date of implementation of any Accounting Change, then
all financial statements delivered and all calculations of financial covenants
and other standards, advance rates and terms in accordance with this Agreement
and the other Financing Agreements shall be prepared, delivered and made without
regard to any underlying Accounting Change. Together with each delivery of
financial statements required by subsection 7.1(i), the Borrowers shall deliver
to the Agent a current list of outstanding intercompany loans made pursuant to
subsection 8.20. Together with each delivery of financial statements required by
subsections 7.1(ii) and 7.1(iii), the Borrowers shall deliver to the Agent and
the Lenders a certificate of the Borrower Representative (i) certifying that no
Default or Event of Default exists, or, if any Default or Event of Default
exists, specifying the nature thereof, the period of existence thereof and what
action the Borrowers propose to take with respect thereto and (ii) setting forth
computations in reasonable detail satisfactory to the Agent demonstrating
compliance with the covenant contained in subsections 7.11 through 7.13 and
subsection 8.8. Together with each delivery of financial statements required by
subsection 7.1(iii), the Borrowers shall deliver to the Agent and the Lenders a
certificate of the accountants who performed the audit in connection with such
statements stating that in making the audit necessary to the issuance of a
report on such financial statements, they have obtained no knowledge of any
Default or Event of Default, or, if such accountants have obtained knowledge of
a Default or Event of Default, specifying the nature and period of existence
thereof. Such accountants shall not be liable by reason of any failure to obtain
knowledge of any Default or Event of Default which would not be disclosed in the
ordinary course of an audit. The Agent and each Lender shall exercise reasonable
efforts to keep such information, and all information acquired as a result of
any inspection conducted in accordance with subsection 7.2, confidential;
provided that the Agent or any Lender may communicate such information (a) to
any other Person in accordance with the customary practices of commercial
lenders relating to routine trade inquiries, (b) to any regulatory authority
having or claiming to have jurisdiction over the Agent or such Lender, (c) to
any other Person in connection with the Agent's or such Lender's proposed or
actual assignment of, or sale of any participations in, the Obligations, (d) to
any other Person in connection with the exercise of the Agent's or such Lender's
rights hereunder or under any of the other Financing Agreements, (e) as may be
required in response to any subpoena or in connection with any litigation, (f)
to the extent necessary to comply with any law, order or ruling of any
Governmental Authority applicable to such Person, and (g) as has become
generally available to the public. Each Borrower authorizes the Agent and each
Lender to discuss the financial condition of any Borrower with such Borrower's
independent public accountants and agrees that such discussion or communication
shall be without liability to either the Agent, the Lenders or such independent
public accountants. Borrower shall deliver a letter addressed to such
accountants authorizing them to comply with the provisions of this subsection
7.1.
7.2 Inspections and Audits. The Agent, or any Person designated by the
Agent in writing, shall have the right, from time to time hereafter, to call at
a Borrower's place or places of business (or any other place where the
Collateral or any information relating thereto is kept or located) during normal
business hours, and, without hindrance or delay (i) to inspect, audit, check and
make copies of and extracts from such Borrower's books, records, journals,
orders, receipts and any correspondence and other data relating to such
Borrower's or any Subsidiary's business or to any transactions between the
parties hereto, (ii) to make such verification concerning the Collateral as the
Agent may consider reasonable under the circumstances, (iii) to discuss the
affairs, finances and business of such Borrower with any officers, employees or
directors of such Borrower and (iv) to review all relevant books and records and
other information (financial or otherwise) necessary to enable the Lenders to
complete their business and legal due diligence with respect to any proposed
Permitted Acquisition. All out-of-pocket costs and expenses incurred by the
Agent in connection with the Agent's field audits permitted under this
subsection 7.2 shall be reimbursed by the Borrowers in accordance with
subsection 2.8.
7.3 Conduct of Business; Compliance With Laws. Each Borrower shall,
and shall cause each Subsidiary to (i) maintain its corporate existence and good
standing in its respective state of incorporation and qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is required, (ii) maintain in full force and effect all licenses,
bonds, franchises, leases, patents, contracts and other rights necessary or
desirable to the profitable conduct of its business, (iii) comply with all
applicable federal, state, local and foreign laws, rules, regulations and orders
of any Governmental Authority, except for such laws, rules and regulations the
violation of which, in the aggregate, could not reasonably be expected to have a
Material Adverse Effect, (iv) conduct its business substantially as now
conducted or as otherwise permitted herein and (v) transact business only in its
corporate name and such trade names as are set forth on Exhibit 6.8.
7.4 Claims and Taxes. (a) Each Borrower shall, and shall cause Parent
and each of such Borrower's Subsidiaries to, file all tax and information
returns and reports required by and prepared in accordance with applicable law
and shall pay or cause to be paid all license fees, bonding premiums and related
taxes and charges, and shall pay or cause to be paid all Charges assessed
against or payable by, such Borrower, Parent or such Subsidiary, at such times
and in such manner as to prevent any penalty from accruing or any Lien from
attaching to Property of such Borrower, Parent or such Subsidiary; provided that
such Borrower, Parent and such Subsidiary shall have the right to contest in
good faith, by an appropriate lawful proceeding promptly initiated and
diligently conducted, the validity, amount or imposition of any such Charge, and
upon such good faith contest to delay or refuse payment thereof so long as (i)
no Lien which will have priority over the Agent's Lien granted hereunder with
respect to any Collateral is filed or recorded with respect thereto, (ii) the
execution or other enforcement of such Lien is and continues to be effectively
stayed, (iii) such proceeding will prevent the forfeiture or sale of any
Property of such Borrower, Parent or such Subsidiary, (iv) adequate reserves
have been provided therefor in accordance with GAAP, (v) such contest could not
reasonably be expected to have a Material Adverse Effect and (vi) if such
contest is abandoned or determined adversely to such Borrower, Parent or such
Subsidiary, such Person pays, or causes to be paid, all such taxes and other
charges and any penalties and interest payable in connection therewith.
(b) Each Borrower shall notify the Agent and each Lender promptly (and
in no event later than ten (10) days) after becoming aware of the intent of the
Service to assert a deficiency with respect to of such Borrower or Parent or any
Subsidiary, and shall promptly (and in no event later than five (5) days after
receipt) send the Agent and each Lender copies of any notices of proposed
deficiency and any notices of deficiency received from the Service.
7.5 Borrower's Liability Insurance. The Borrowers shall, and shall
cause each Subsidiary to, maintain, at their expense, such product liability
insurance, general public liability and third party property damage insurance
with financially sound and reputable insurance companies reasonably satisfactory
to the Agent in such amounts and covering such risks and with such deductibles
as are acceptable to the Required Lenders naming the Agent as an additional
insured. The policy or policies shall further provide for thirty (30) days'
written notice to the Agent prior to cancellation or any material change in
coverage. The Borrowers shall deliver to the Agent evidence of insurance in the
form attached hereto as Exhibit 7.5 and, upon renewal thereof, a binder
evidencing such renewal, and evidence of payment of all premiums therefor.
7.6 Borrower's Property Insurance. The Borrowers shall, and shall
cause each Subsidiary to, at their expense, keep and maintain its assets insured
against loss or damage by fire, theft, explosion, spoilage and all other hazards
and risks ordinarily insured against by other owners or users of such properties
in similar businesses in an amount at least equal to the full replacement value
thereof (including at least six (6) months business interruption insurance in an
amount not less than $7,050,000). All such policies of insurance shall contain a
breach or violation of warranties, declarations or conditions endorsement in
favor of the Agent, shall provide that the Agent shall receive 30 days' written
notice prior to cancellation or any material change in coverage and shall
otherwise be in form and substance satisfactory to the Agent. The Borrowers
shall deliver to the Agent evidence of insurance in the form attached hereto as
Exhibit 7.5 and, upon the renewal thereof, a binder evidencing such renewal, and
evidence of payment of all premiums therefor. Such policies of insurance shall
contain an endorsement, substantially in the form of Exhibit 7.6, naming the
Agent, on behalf of the Lenders, as the lender loss payee and additional
insured. The Borrowers hereby direct all insurers under such policies of
insurance to pay all proceeds of such insurance policies directly to the Agent.
All proceeds paid to the Agent under this subsection 7.6 shall be applied to
Revolving Loan Obligations without premium or penalty, except as provided in
subsection 2.22, with such proceeds to be applied first to Base Rate Loans until
paid in full and thereafter to LIBOR Rate Loans. Upon the occurrence and during
the continuation of an Event of Default, each Borrower irrevocably makes,
constitutes and appoints the Agent (and all officers, employees or agents
designated by the Agent) as such Borrower's true and lawful attorney-in-fact for
the purpose of making, settling and adjusting claims under all such policies of
insurance, endorsing the name of such Borrower on any check, draft, instrument
or other item of payment received by such Borrower or the Agent pursuant to any
such policies of insurance and for making all determinations and decisions with
respect to such policies of insurance. If any Borrower or any Subsidiary, at any
time or times hereafter, shall fail to obtain or maintain any of the policies of
insurance required above or to pay any premium in whole or in part relating
thereto, then the Agent, without waiving or releasing any Obligation, Default or
Event of Default by the Borrowers hereunder, may at any time or times thereafter
(but shall be under no obligation to do so) obtain and maintain such policies of
insurance and pay such premiums and take any other action with respect thereto
which the Agent deems advisable.
7.7 Pension Plans. (a) Each Borrower shall (i) maintain all Plans
which are presently in existence or may, from time to time, come into existence,
in compliance with ERISA, the IRC and all other applicable laws in all material
respects and (ii) make or cause to be made contributions to all of the Pension
Plans in a timely manner and in a sufficient amount to comply with the
requirements of Section 302 of ERISA and Section 412 of the IRC.
(b) Each Borrower shall promptly deliver written notice of any of the
following to the Agent and each Lender, but in no event later than thirty (30)
days after such event or occurrence:
(1) such Borrower or any ERISA Affiliate knows or has reason to
know that a Termination Event has occurred, with such notice
setting forth the details of such event;
(2) the filing of a request for a funding waiver by such
Borrower or any ERISA Affiliate with respect to any Pension
Plan, a copy of such request and all correspondence received
by Borrower or any ERISA Affiliate with respect to such
request;
(3) such Borrower or any ERISA Affiliate fails to make a
required installment or payment under Section 302 of ERISA
or Section 412 of the IRC by the applicable due date;
(4) such Borrower or any ERISA Affiliate knows or has reason to
know that a prohibited transaction (as defined in Section
406 of ERISA or Section 4975 of the IRC) which could
reasonably be expected to have a Material Adverse Effect has
occurred with respect to any Plan with a statement
describing such transaction and the action or response taken
with respect thereto;
(5) any increase in the benefits of any existing Pension Plan or
contribution rate to a Multiemployer Plan or the
establishment of any new Pension Plan or the commencement of
contributions to any Pension Plan or Multiemployer Plan to
which any Borrower or any ERISA Affiliate had not been
contributing;
(6) receipt by such Borrower or any ERISA Affiliate of any
adverse ruling from the Service regarding the qualification
of a Pension Plan under Section 401(a) of the IRC, with a
copy of such ruling; and
(7) any other report such as an annual report on Form 5500 or
actuarial report which any Lender may request from time to
time.
7.8 Notice of Certain Matters. Each Borrower shall, as soon as
possible, and in any event within five (5) days after such Borrower learns of
the following, give written notice to the Agent and each Lender of (i) any
material Litigation being instituted or threatened to be instituted by or
against such Borrower or any Subsidiary of such Borrower in any federal, state,
local or foreign court or before any Governmental Authority including, without
limitation, any and all material pending or threatened proceedings with respect
to Environmental Matters, (ii) any labor dispute to which such Borrower or any
Subsidiary of such Borrower may become a party and which has had or could
reasonably be expected to have a Material Adverse Effect, any strikes or
walkouts relating to any of its Facilities, the expiration of any labor contract
to which it is a party or by which it is bound or any organizing activity
pending or, to any Borrower's knowledge, threatened by any labor union or group
of employees, (iii) any Default or Event of Default, (iv) any judgment rendered
against such Borrower or any Subsidiary of such Borrower and (v) any other event
or occurrence which could reasonably be expected to have a Material Adverse
Effect. The Borrowers shall supplement in writing and deliver to the Agent each
Exhibit required in accordance with this Agreement and any representation herein
with respect to any matter hereafter arising which, if existing or occurring on
the Closing Date, would have been required to be set forth or described on such
Exhibit or as an exception to such representation so that the representations
and warranties subject to such supplemental disclosure shall continue to be true
and accurate in all material respects; provided that the furnishing of such
supplemental disclosure shall not constitute a cure or waiver of any Default or
Event of Default resulting from the matters disclosed therein or otherwise then
existing, except as consented to by the Required Lenders in writing.
7.9 Landlord Agreements. The Borrowers shall provide the Agent and
each Lender with copies of all agreements between any Borrower and any landlord
or bailee which owns any premises at which any Collateral may, from time to
time, be located. The Borrowers shall deliver to the Agent on or before fifteen
(15) Business Days after the Closing Date a landlord's waiver in form and
substance reasonably acceptable to the Agent from the lessor of each leased
property currently being used by any Borrower or any Subsidiary where Collateral
is located. The Borrowers shall deliver to the Agent a bailee letter in form and
substance acceptable to the Agent with respect to any location leased after the
Closing Date where Collateral is located. With respect to leased locations
leased on the Closing Date, if the Borrowers are unable to deliver such a
landlord waiver on bailee letter within the timeframe set forth in this
subsection 7.9, the Collateral at such location shall be subject to a reserve
determined by the Agent in the exercise of its credit judgment for purposes of
calculating Borrowing Availability. Each Borrower shall timely and fully pay and
perform its obligations under all leases and other agreements with respect to
each leased location or warehouse where any Collateral is or may be located.
Each Borrower shall promptly deliver to the Agent copies of (i) any and all
default notices received by it under or with respect to any of its leased
location or other locations, and (ii) such other notices or documents as the
Agent may request in its reasonable discretion.
7.10 Indemnity. (a) Each Borrower shall jointly and severally
indemnify, pay and hold harmless the Agent and each Lender and the officers,
directors, employees, agents, affiliates, representatives and attorneys of the
Agent and such Lender (collectively called the "Indemnitees") from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
proceedings, judgments, suits, claims, demands, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
all reasonable fees and disbursements of counsel for such Indemnitees in
connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not such Indemnitee shall be designated a
party thereto) that may be imposed on, incurred by, or instituted or asserted
against any Indemnitee in any manner in connection with or relating to or
arising out of this Agreement or the other Financing Agreements or any other
transaction contemplated hereby or thereby, the statements contained in the
commitment letters delivered by the Agent, the Agent and the Lenders' agreement
to make the Revolving Loan hereunder, the direct or indirect application or
proposed application of the proceeds of the Revolving Loan or the exercise of
any right, power or remedy hereunder or under any other Financing Agreement or
relating to or arising out of the possession, use, operation or control of any
Borrower's or any Subsidiary's Property (the "Indemnified Liabilities");
provided that the Borrowers shall have no obligation to an Indemnitee hereunder
with respect to Indemnified Liabilities if a court of competent jurisdiction
shall render a judgment, final and not subject to review on appeal, that such
Indemnified Liabilities arise solely from the gross negligence or willful
misconduct of that Indemnitee. To the extent that the undertaking to indemnify,
pay and hold harmless set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, the Borrowers shall
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all Indemnified Liabilities
incurred by the Indemnitees or any of them.
(b) In any suit, proceeding or action brought against any Person by
the Agent relating to any Account, Chattel Paper, contract, General Intangible,
Instrument or Document for any sum owing thereunder, or to enforce any provision
of any Account, Chattel Paper, Instrument or Document, the Borrowers shall
jointly and severally save, indemnify and keep the Agent and the Lenders
harmless from and against all expense, loss or damage suffered by reason of any
defense, setoff, counterclaim, recoupment or reduction of liability by the
Borrowers of any obligation thereunder arising out of a breach by any Borrower
of any obligation thereunder or arising out of any other agreement, indebtedness
or liability at any time owing to, or in favor of, such obligor or its
successors from any Borrower. All such obligations of the Borrowers shall be and
remain enforceable against, and only against, the Borrowers and shall not be
enforceable against the Agent or any Lender.
7.11 Interest Coverage Ratio. The Borrowers shall maintain an Interest
Coverage Ratio as of the end of each Fiscal Quarter calculated for the twelve
Fiscal Months then ending of not less than 2.5 to 1.0.
7.12 Fixed Charge Coverage Ratio. The Borrowers shall maintain a Fixed
Charge Coverage Ratio as of the end of each Fiscal Quarter calculated for the
twelve Fiscal Months then ending of not less than 1.5 to 1.0.
7.13 EBITDA. As of the end of each Fiscal Quarter of each Fiscal Year
calculated for the twelve Fiscal Months then ended (or with respect to the
Fiscal Quarters ending on or before June 30, 1998, the period commencing October
1, 1997 and ending on the last day of such Fiscal Quarter), EBITDA shall not be
less than the amount set forth below opposite such period:
Fiscal Quarter Amount
Fourth Fiscal Quarter $1,250,000
of Fiscal Year 1997
First Fiscal Quarter $2,500,000
of Fiscal Year 1998
Second Fiscal Quarter $3,750,000
of Fiscal Year 1998
Third Fiscal Quarter $5,000,000
of Fiscal Year 1998
and each Fiscal Quarter
thereafter
7.14 Accounting Systems Plan. Within ninety (90) days after the
Closing Date, the Borrower Representative shall provide to the Agent a written
plan setting forth the methods and procedures to be implemented to improve the
accounting systems of the respective Borrowers, which plan shall be in form,
scope and substance satisfactory to the Agent.
8. NEGATIVE COVENANTS.
Any Borrower covenants and agrees that so long as any of the
Obligations remain outstanding and (even if there shall be no Obligations
outstanding) so long as this Agreement remains in effect (unless the Required
Lenders shall give their prior written consent thereto):
8.1 Encumbrances. No Borrower shall, nor shall it permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien of any nature
whatsoever on any of its Property, including, without limitation, the
Collateral, other than the following "Permitted Liens": (i) Liens (other than
Liens relating to Environmental Laws or ERISA) securing the payment of Charges
not yet due and payable; (ii) pledges or deposits under workmen's compensation,
unemployment insurance, old age pensions, social security and other similar
laws, or to secure the performance of bids, tenders or contracts (other than for
the repayment of borrowed money) or to secure statutory obligations or surety or
appeal bonds, or to secure indemnity, performance or other similar bonds in the
ordinary course of business; (iii) statutory Liens of landlords, carriers,
warehousemen, mechanics, materialmen or other similar Liens imposed by law,
which are incurred in the ordinary course of business for sums not more than 30
days delinquent; (iv) the Liens in favor of the Agent, for the benefit of the
Lenders; (v) purchase money Liens (including capitalized leases and other forms
of installment purchase financing) granted to the Person financing a purchase of
Equipment so long as the Lien granted is limited to the specific Equipment so
acquired, the debt secured by the Lien is not more than the lesser of the
acquisition cost or the fair market value of the specific item of Equipment on
which the Lien is granted, the aggregate amount of Indebtedness secured by such
Liens as a result of purchases shall not exceed One Million Dollars ($1,000,000)
at any time during the term hereof, and the transaction does not violate any
other provision of this Agreement (notification of such purchase money Lien to
be provided to the Agent and each Lender within ten (10) days of acquisition of
such Equipment); (vi) Liens permitted in accordance with subsection 7.4(a);
(vii) other Liens on Real Estate, which do not, in the Agent's sole
determination, (a) materially impair the use of such property, or (b) materially
lessen the value of such property for the purposes for which the same is held by
a Borrower or such Subsidiary, (vii) a pledge of cash or Cash Equivalents in the
aggregate amount of $150,000 to secure the Chase Letter of Credit and (viii)
Liens existing on the Closing Date and disclosed on Exhibit 8.1.
8.2 Indebtedness and Liabilities. No Borrower shall, nor shall it
permit any of its Subsidiaries to, incur, create, assume, become or be liable in
any manner with respect to, or suffer to exist, any Indebtedness, except for (i)
the Obligations, (ii) Indebtedness existing on the Closing Date and disclosed on
Exhibit 8.2, (iii) Indebtedness secured by purchase money Liens permitted by
subsection 8.1(iv), (iv) Indebtedness permitted by subsection 8.5 and subsection
8.20 and (v) the Chase Letter of Credit. Except for the Indebtedness permitted
in the preceding sentence, no Borrower shall, nor shall it permit any of its
Subsidiaries to, incur any Liabilities except for trade obligations and normal
accruals in the ordinary course of business not yet due and payable, or with
respect to which a Borrower or such Subsidiary is contesting in good faith the
amount or validity thereof by appropriate proceedings, and then only to the
extent that such Borrower or such Subsidiary has set aside on its books adequate
reserves therefor, if appropriate under Generally Accepted Accounting
Principles. No Borrower shall, nor shall it permit any of its Subsidiaries to,
voluntarily prepay, defease, purchase, redeem, retire or otherwise acquire any
Indebtedness other than the Obligations.
8.3 Consolidations, Acquisitions. No Borrower shall, nor shall it
permit any of its Subsidiaries to, make an Acquisition; provided that any
Subsidiary may merge or consolidate with or into any other Subsidiary or with or
into any Borrower (provided that such Borrower is the surviving entity). The
Borrowers shall not, and shall not permit any Subsidiary to, dissolve,
terminate, enter into any joint venture or become a partner in any partnership.
The Borrowers shall not sell, assign, encumber, pledge, transfer or otherwise
dispose of any interest in the Borrowers or any Subsidiary or transfer any
Property to any Affiliate except as otherwise expressly permitted hereby.
8.4 Investments. No Borrower shall, nor shall it permit any of its
Subsidiaries to, make or permit to exist Investments in, or commitments
therefor, or create any Subsidiary other than the following "Permitted
Investments": (i) loans made in accordance with subsections 8.9 and 8.20, (ii)
Investments in Subsidiaries, (iii) Investments existing on the Closing Date and
disclosed on Exhibit 8.4, (iv) so long as no Default or Event of Default shall
have occurred and is continuing, Investments in Cash Equivalents; provided that
if any Obligations shall be outstanding, Investments in Cash Equivalents shall
not exceed $100,000 in the aggregate, (v) Investments in the Stock of any other
Person as payment for any trade receivables, the value of which shall not exceed
in the aggregate at any time one percent (1%) of the consolidated revenues of
the Parent and its Subsidiaries for the most recent Fiscal Year, (vi) so long as
no Default or Event of Default shall have occurred and is continuing at the time
of making such Investment, additional Investments in other Persons not to exceed
$100,000 in the aggregate at any one time, and (vii) demand deposit accounts
maintained in the ordinary course of business.
8.5 Guaranties. No Borrower shall, nor shall it permit any of its
Subsidiaries to, make or suffer to exist any Guaranty, except (i) endorsements
of negotiable instruments or items of payment for collection in the ordinary
course of business and (ii) Guaranties existing on the Closing Date and
disclosed on Exhibit 8.5.
8.6 Collateral Locations. Neither the location of the principal place
of business and chief executive office of any Borrower as set forth on Exhibit
6.7, the locations of Collateral as set forth on Exhibit 8.6 nor the corporate
name or mailing address of any Borrower shall be changed, nor shall there be
established additional places of business or additional locations at which
Collateral is stored, kept or processed unless (i) the applicable Borrower shall
have given the Agent not less than 30 days prior written notice thereof, (ii)
the Agent shall have determined that, after giving effect to any such change of
name, address or location, the Agent shall have a first perfected Lien in the
Collateral except for Permitted Liens, (iii) in the case of Collateral
locations, the applicable Borrower shall have delivered a landlord waiver or
bailee letter, as applicable, in form and substance satisfactory to the Agent
with respect to such location, and (iv) all negotiable documents and receipts in
respect of any Collateral maintained at such premises are promptly delivered to
the Agent. Prior to making any such change or establishing such new location,
the Borrowers shall execute any additional financing statements or other
documents or notices required by the Agent. All Collateral located at any such
new location shall automatically be deemed ineligible without further action by
the Agent or any Lender to constitute Eligible Accounts until the Borrowers
shall have complied with the requirements of this subsection 8.6 and subsection
7.9.
8.7 Disposal of Property. No Borrower shall, nor shall it permit any
of its Subsidiaries to, sell, lease, assign, transfer or otherwise dispose of
any of their Property, assets and rights to any Person except for (i) bona fide
sales of Inventory to customers for fair value in the ordinary course of
business and (ii) sales of Equipment which is obsolete, worn-out or otherwise
not useable in the applicable Borrower's business in an aggregate amount in any
Fiscal Year not to exceed One Hundred Thousand Dollars ($100,000). In the event
any Equipment of any Borrower is sold, transferred or otherwise disposed of as
permitted by this subsection 8.7 or with the Required Lenders' consent, and (i)
such sale, transfer or disposition is effected without replacement of the
Equipment so sold, transferred or disposed of or such Equipment is replaced by
Equipment leased by such Borrower, such Borrower shall promptly (but in any
event within three (3) Business Days of the receipt thereof) deliver all of the
cash proceeds of any such sale, transfer or disposition to the Agent, or (ii)
such sale, transfer or disposition is made in connection with the purchase by
such Borrower of replacement Equipment, such Borrower shall use the proceeds of
such sale, transfer or disposition to finance the purchase by such Borrower of
replacement Equipment and shall deliver to the Agent written evidence of the use
of the proceeds for such purchase. Except as permitted by subsection 8.1, all
replacement Equipment purchased by any Borrower shall be free and clear of all
Liens, except for Liens in favor the Agent, for the benefit of the Lenders. All
proceeds delivered to the Agent under this subsection 8.7 shall be applied to
the Revolving Loan Obligations (without permanent reduction of the Revolving
Loan Facility), without premium or penalty, except as provided in subsection
2.21, with such proceeds to be applied first to Base Rate Loans until paid in
full and thereafter to LIBOR Rate Loans.
8.8 Capital Expenditures Limitations. The Borrowers and their
Subsidiaries on a consolidated basis shall not make or commit to make Capital
Expenditures in any Fiscal Year in the aggregate in excess of Five Hundred
Thousand Dollars ($500,000).
8.9 Employee Loans. Except for (i) advances for travel and related
expenses by the Borrowers or their Subsidiaries to their respective employees in
the ordinary course of business in an amount not to exceed One Hundred Thousand
Dollars ($100,000) in the aggregate at any one time and (ii) commission advances
by the Borrowers or their Subsidiaries to their respective employees in an
amount not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate at
any one time, the Borrowers shall not, and shall not permit any Subsidiary to,
make any loans or other advances to any Person.
8.10 Plans. No Borrower shall, nor shall it permit any ERISA Affiliate
to:
(i) assume or incur or be subject to any Liability under any
Plan other than those Plans existing on the Closing Date and
disclosed on Exhibit 6.19(a);
(ii) permit the amendment of any Pension Plan which could
reasonably be expected to have a Material Adverse Effect;
(iii) commence participation or permit an ERISA Affiliate to
participate in a Multiemployer Plan which could reasonably be
expected to have a Material Adverse Effect;
(iv) permit the termination of any Pension Plan if such
termination might result in liability to any Borrower or any
ERISA Affiliate;
(v) permit the occurrence of an accumulated funding
deficiency (as defined in Section 302 of ERISA or Section 412 of
the IRC) as to any Plan;
(vi) engage, or permit any ERISA Affiliate to engage, in any
non-exempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the IRC which could reasonably be expected to
have a Material Adverse Effect;
(vii) permit the amendment of any existing Plan or the
establishment, adoption, or assumption of any additional Plan to
provide for post-retirement welfare benefits; or
(viii) permit the occurrence of a Termination Event if such
occurrence could reasonably be expected to have a Material
Adverse Effect.
8.11 Restricted Payments. No Borrower shall, nor shall it permit any
of its Subsidiaries to, directly or indirectly declare, pay, order, make or set
apart any Restricted Payment; provided that (i) any Subsidiary may declare and
pay dividends to any Subsidiary owning its capital stock, (ii) the Borrowers may
make Restricted Payments consisting of Stock of any class to the holders of that
class, (iii) the Borrowers may make Restricted Payments to Parent to satisfy the
aggregate amount of Federal, state and local income tax obligations payable by
Parent to the extent such obligations are the result of the net consolidated
income of the Borrowers and their Subsidiaries; provided further, that each
Borrower's contribution shall not be greater than or paid sooner than its
ratable share of such income taxes then due and payable by the Parent; provided
further, that if any Borrower pays more to the Parent than its ratable share of
income taxes paid in cash by the Parent for any Fiscal Year, as finally
determined, it shall either demand and obtain reimbursement from the Parent or
set off the amount of such overpayment against other amounts owing by such
Borrower to the Parent, (iv) so long as no Default or Event of Default shall
have occurred and be continuing (or will result therefrom), the Borrowers may
make Restricted Payments to Parent (x) to pay the necessary fees and expenses to
maintain its corporate existence and good standing and to pay the reasonable
costs of its directors' and officers' insurance and (y) to pay third party
legal, management, consulting and accounting fees, insurance premiums, audit
fees, salaries and employee benefits of employees of the Parent (subject to
subsection 8.9) and other customary business expenses of the Parent incurred in
the ordinary course of its business, in each case to the extent such fees,
salaries, expenses or other amounts relate to services provided by entities
which are not the Affiliates of the Borrowers (other than salaries and
employment costs of the Parent) and which services are directly related to the
Borrowers or their Subsidiaries, (v) so long as no Default or Event of Default
shall have occurred and be continuing (or will result therefrom), the Borrowers
may make Restricted Payments consisting of cash to Parent in an amount not to
exceed $216,000 in any Fiscal Year with respect to dividends payable on the
Preferred Stock and (vi) the Borrowers may make the Restricted Payments
permitted by subsections 8.9 and 8.21.
8.12 Securities. Except as permitted by subsection 8.11, no Borrower
shall, nor shall it permit any of its Subsidiaries to, issue or distribute or
redeem, prepay, repurchase or acquire any of its capital Stock of any
description for consideration or otherwise except (i) for replacements of then
outstanding shares of Stock, (ii) for stock splits, stock dividends and similar
issuances and (iii) to qualify directors to the extent required by applicable
law.
8.13 Changes in Charter, Bylaws or Fiscal Year. No Borrower shall, nor
shall it permit any of its Subsidiaries to, (i) amend its certificate of
incorporation or bylaws other than any amendment that is not, in the reasonable
judgment of the Agent, adverse in any material respect to the value of the
interests or rights of the Agent or the Lenders thereunder or to the rights or
interests of the Agent or the Lenders or (ii) change its Fiscal Year.
8.14 Lease Limitations. The annual financial obligations of the Parent
and its Subsidiaries, whether for rental payments, principal payments, interest
payments, service charges or otherwise, under all operating leases and other
similar agreements shall not exceed in any Fiscal Year an amount equal to the
sum of (a) Four Million Dollars ($4,000,000) plus (b) twenty percent (20%) of
the aggregate gross revenues of the Parent and its Subsidiaries for such Fiscal
Year in excess of Thirty Million Dollars ($30,000,000).
8.15 Transactions with Affiliates. Except (i) as set forth on Exhibit
8.15, (ii) as permitted by subsections 8.9 and 8.20, (iii) employment
arrangements entered into in the ordinary course of business with its officers
and (iv) customary fees paid to members of its board of directors, no Borrower
shall, nor shall it permit any of its Subsidiaries to, enter into any
transaction including, without limitation, the purchase, sale, lease or exchange
of property or the rendering or purchase of any service to or from any Affiliate
except in the ordinary course of and pursuant to the reasonable requirements of
such Borrower's or such Subsidiary's business and upon fair and reasonable terms
that are fully disclosed to the Agent and the Lenders in advance and are no less
favorable to such Borrower or such Subsidiary than such Borrower or such
Subsidiary would obtain in a comparable arm's length transaction with an
unaffiliated Person.
8.16 Capital Structure; Other Business. No Borrower shall, nor shall
it permit any of its Subsidiaries to (i) change its capital structure, (ii)
engage in any business unrelated to its current businesses, (iii) engage in any
transaction out of the ordinary course of business, or (iv) engage in any other
transaction which could reasonably be expected to have a Material Adverse
Effect.
8.17 Sale and Leaseback. No Borrower shall, nor shall it permit any of
its Subsidiaries to, sell or transfer any of its Property in order to
concurrently or subsequently lease as lessee such or similar Property unless (i)
any such sale is made for the fair market value of the Property, (ii) the sale
consideration received is cash, (iii) the sale is upon fair and reasonable terms
in an arm's length transaction, and (iv) all proceeds of any sale are used to
prepay the Obligations in the priority set forth in subsection 8.7.
8.18 Impairment Agreements. No Borrower shall, nor shall it permit any
of its Subsidiaries to, enter into or assume any agreement, instrument,
indenture or other obligation (other than the Financing Agreements) which (i)
contains a negative pledge provision which would require a sharing of any
interest in the Collateral, (ii) prohibits or limits the creation or assumption
of any Lien upon its Property, whether now owned or hereafter acquired, or (iii)
restricts, prohibits or requires the consent of any Person with respect to the
payment of Restricted Payments.
8.19 Corporate Accounts. No Borrower shall maintain corporate deposit
accounts jointly with any Affiliate or other Borrower or commingle any of its
funds with funds of any Affiliate or other Borrower.
8.20 Intercompany Loans. (a) Each Borrower may make loans to the other
Borrower (and such Borrower may incur the Indebtedness related thereto and repay
such Indebtedness) subject to the following terms and conditions:
(i) such loans shall be unsecured and be payable on demand;
(ii) at the time any such intercompany loan is made by any
Borrower to any other Borrower and after giving effect to such
loan, both the Borrower making the loan and the Borrower
receiving the loan shall be Solvent;
(iii) the obligor of such loan shall use the proceeds
thereof solely for its own working capital requirements arising
in the ordinary course of business;
(iv) each Borrower shall have executed and delivered to each
other Borrower, on the Closing Date, a demand promissory note (an
"Intercompany Note") to evidence any such intercompany
Indebtedness owing at any time by such Borrower to such other
Borrowers which Intercompany Notes shall be in form and substance
satisfactory to the Agent and pledged to the Agent for the
benefit of the Lenders;
(v) each Borrower shall record all intercompany transactions
on its books and records in a manner satisfactory to the Agent;
(vi) the obligations of each Borrower under any such
Intercompany Notes shall be subordinated to the Obligations of
such Borrower hereunder in a manner satisfactory to the Agent;
(vii) no Default or Event of Default would occur and be
continuing after giving effect to the incurrence of any such
proposed intercompany loan; and
(viii) after giving effect to each such loan, the Borrower
making the loan shall have cash (including, without limitation,
unused Borrowing Availability) in an amount equal to or greater
than its working capital requirements for the next succeeding
ninety (90) days, based upon such Borrower's historical cash
needs and taking into account all of its payment obligations
under the Financing Agreements and under any of its other
Indebtedness.
Each Borrower hereby agrees that, until all of the Obligations have been
indefeasibly repaid in full in cash, all loans made by it to the other Borrower
shall be subordinated in all respects to the Obligations of such Borrower and
subject in right of payment to the prior payment of the Obligations of such
Borrower in full in cash.
(b) Each Borrower may make loans to the Parent to permit the
Parent to acquire all of the Stock or all or substantially all of the assets of
any Person (the "Target") (in each case, a "Permitted Acquisition") subject to
satisfaction of the following conditions:
(ii) such loans shall be unsecured and be payable on demand;
(iii) at the time any such loan is made by any Borrower to
the Parent and after giving effect to such loan, both the
Borrower and the Parent shall be Solvent;
(iv) the Parent shall use the proceeds thereof solely for a
Permitted Acquisition;
(v) the Parent shall have executed and delivered to such
Borrower a demand promissory note to evidence any such
Indebtedness, which promissory note shall be in form and
substance satisfactory to the Agent and pledged to the Agent for
the benefit of the Lenders;
(vi) such Borrower shall record such loan transaction on its
books and records in a manner satisfactory to the Agent;
(vii) the obligations of the Parent under any such
promissory note shall be subordinated in a manner satisfactory to
the Agent;
(viii) after giving effect to each such loan, such Borrower
shall have cash (including, without limitation, unused Borrowing
Availability) in an amount equal to or greater than its working
capital requirements for the next succeeding ninety (90) days,
based upon such Borrower's historical cash needs and taking into
account all of its payment obligations under the Financing
Agreements and under any of its other Indebtedness;
(ix) the Agent shall receive at least thirty (30) Business
Days' prior written notice of such proposed Permitted
Acquisition, which notice shall include a reasonably detailed
description of such proposed Permitted Acquisition;
(x) such Permitted Acquisition shall only involve assets or
stock of a domestic Target comprising a business, or those assets
of a business, of the type engaged in by Borrowers as of the
Closing Date or a similar related business, and which business
would not subject the Agent or any Lender to regulatory or third
party approvals in connection with the exercise of its rights and
remedies under this Agreement or any other Financing Agreement
other than approvals applicable to the exercise of such rights
and remedies with respect to Borrowers prior to such Permitted
Acquisition;
(xi) such Permitted Acquisition shall be consensual and
shall have been approved by the Target's board of directors;
(xii) no additional Indebtedness, Guaranties, contingent
obligations or other liabilities shall be incurred, assumed or
otherwise be reflected on a consolidated balance sheet of the
Parent and its Subsidiaries (including the Target) after giving
effect to such Permitted Acquisition, except (A) the advance
under the Revolving Loan to fund such Permitted Acquisition, (B)
ordinary course trade payables and accrued expenses of the Target
to the extent no Default or Event of Default shall have occurred
and be continuing or would result after giving effect to such
Permitted Acquisition and (C) Subordinated Debt;
(xiii) such Permitted Acquisition shall be structured as an
acquisition of one hundred percent (100%) of the capital stock of
the Target directly by the Parent or as an asset acquisition by a
Subsidiary of the Parent; provided that such Subsidiary shall
become a guarantor of the Obligations of the Borrowers;
(xiv) the business and assets acquired in such Permitted
Acquisition shall be free and clear of all Liens (other than
Permitted Liens);
(xv) at or prior to the closing of any Permitted
Acquisition, the Agent, for the benefit of the Lenders, will be
granted a first priority perfected Lien (subject to Permitted
Liens) on (x) in the case of an asset acquisition, all assets of
the Target acquired pursuant thereto, or (y) in the case of an
acquisition of the capital stock of the Target, the assets of the
Target and one hundred percent (100%) of the capital stock of the
Target acquired by the Parent, and the Parent, the Borrowers and
the Target shall have executed such documents and taken such
other actions as may be required by the Agent in connection
therewith including, in the case of a Permitted Acquisition in
which the Target becomes a Subsidiary of the Parent, such
documents and actions as may be required by the Agent to make the
Target a party under the Financing Agreements (as a Borrower or
Guarantor, as applicable);
(xvi) the Lenders shall have completed all business and
legal due diligence with respect to the Target and the proposed
acquisition with results satisfactory to the Lenders including
the capital structure, corporate structure, governing documents
and material agreements of the Parent, the Borrowers and the
Target and their respective Subsidiaries after giving effect to
the proposed acquisition, and the legal and tax effects resulting
from such proposed acquisition;
(xvii) the Agent shall have received satisfactory evidence
that the Parent and the Borrowers have obtained all required
consents, waivers, acknowledgments, orders, authorizations and
approvals of all Persons including all requisite Governmental
Authorities, to the consummation of the proposed acquisition;
(xviii) as soon as possible after delivery of the notice
referred to in clause (viii) above but in no event later than ten
(10) Business Days after delivery of such notice, Borrowers shall
have delivered to the Agent, in form and substance satisfactory
to Lender:
(A) the most recent audited annual and unaudited
quarterly financial statements of the Target;
(B) a pro forma consolidated balance sheet of the
Parent and its Subsidiaries (the "Acquisition Pro Forma"),
based on recent financial data, which shall be complete and
shall accurately and fairly represent the assets,
liabilities, financial condition and results of operations
of the Parent and its Subsidiaries in accordance with GAAP
consistently applied, but taking into account such Permitted
Acquisition and the funding of the Revolving Loan, and the
assumption of liabilities permitted to be assumed pursuant
to clause (xi) above in connection therewith, and such
Acquisition Pro Forma shall reflect that on a pro forma
basis, (x) the financial covenants set forth in Section 7
(or financial covenants revised by the Agent in its
reasonable credit judgment to reflect the proposed Permitted
Acquisition) will be met, and (y) no Event of Default shall
have occurred and be continuing or would result after giving
effect to such Permitted Acquisition;
(C) updated versions of the most recently delivered
Projections covering the one (1) year period commencing on
the date of such Permitted Acquisition and otherwise
prepared in accordance with the Projections (the
"Acquisition Projections") and based upon historical
financial data of a recent date satisfactory to the Agent,
taking into account such Permitted Acquisition; and
(D) a certificate of the Chief Financial Officer of the
Parent and each Borrower to the effect that: (w) each
Borrower will be Solvent upon the consummation of the
Permitted Acquisition; (x) the Acquisition Pro Forma fairly
presents the financial condition of the Parent and its
Subsidiaries on a consolidated basis as of the date thereof
after giving effect to the Permitted Acquisition; (y) the
Acquisition Projections are reasonable estimates of the
future financial performance of the Borrowers subsequent to
the date thereof based upon the historical performance of
the Borrowers and the Target; and (z) the Parent has
substantially completed its due diligence investigation with
respect to the Target and such Permitted Acquisition, which
investigation was conducted in a manner similar to that
which would have been conducted by a prudent purchaser of a
comparable business and the results of which investigation
were delivered to the Agent;
(xix) the Target shall have had a thirteen percent (13%)
EBITDA on revenues for the trailing twelve (12) month period
immediately prior to the proposed acquisition date; provided that
the Lenders in their reasonable discretion may exclude
nonrecurring items in determining compliance with this condition;
(xx) the aggregate advance under the Revolving Loan made to
fund the Permitted Acquisition shall not exceed four (4) times
the Target's EBITDA for the trailing twelve (12) month period
immediately prior to the proposed acquisition date;
(xxi) if requested by the Agent, the Agent shall have
received such environmental review and audit reports with respect
to the real property of the Target as the Agent shall have
requested and the Agent shall be satisfied, in its sole
discretion, with the contents and scope of all such environmental
reports;
(xxii) on or prior to the date of such Permitted
Acquisition, the Agent shall have received, in form and substance
satisfactory to the Agent, all acquisition documents related
thereto, legal opinions, evidence of solvency, certificates, lien
search results, amendments to the Financing Agreements and
execution of additional Financing Agreements and other
documentation as may be requested by the Agent to reflect the
Permitted Acquisition, and other matters related to the Permitted
Acquisition, which collectively shall confirm to the Lenders'
satisfaction that the conditions set forth herein have been
satisfied; and
(xxiii) at the time of such Permitted Acquisition and after
giving effect thereto, no Default or Event of Default shall have
occurred and be continuing.
Notwithstanding the foregoing, the Accounts of the Target shall not be included
in Eligible Accounts without the prior written consent of the Lenders and shall
not be included in the Borrowing Base in any event until completion by the Agent
of its audit examination of the Target. If the Accounts of the Target which is
to become a Subsidiary of the Parent are included in Eligible Accounts pursuant
to the preceding sentence, then, at the option of the Lenders, such Person shall
become a Borrower under this Agreement.
8.21 Subordinated Debt. The Borrowers shall not (i) make any payment
of principal or premium, if any, or interest on, fees with respect to,
redemption, prepayment, conversion, exchange, purchase, repurchase, retirement,
defeasance, sinking fund or other similar payment with respect to any
Subordinated Debt, (ii) violate any of the subordination provisions of any
Subordination Agreement or (iii) amend, waive or otherwise modify any provision
of any Subordinated Debt or waive any cause of action arising therefrom or
related thereto; provided that, so long as no Default or Event of Default shall
have occurred and be continuing or would result after giving effect thereto, the
Borrowers may make payments to the Parent to enable the Parent to make regularly
scheduled payments of Subordinated Debt in accordance with the terms thereof and
the related Subordination Agreement.
9. DEFAULT, RIGHTS AND REMEDIES OF THE AGENT AND THE LENDERS.
9.1 Obligations. If a Default or an Event of Default shall have
occurred and be continuing, the Required Lenders (or the Agent with the consent
of the Required Lenders) may elect to do one or more of the following at any
time or times and in any order: (i) reduce the Revolving Loan Facility, (ii)
restrict the amount of, or suspend its obligations to make, Revolving Loans,
(iii) restrict or suspend the issuance of Lender Guaranties or (iv) demand that
the Borrowers immediately deposit with the Agent an amount equal to one hundred
ten percent (110%) of the Lender Guaranty Liabilities to enable the Agent to
make payments under the Lender Guaranties when required and such amount shall
become immediately due and payable. If an Event of Default shall have occurred
and be continuing, in addition to the actions described in the preceding
sentence, the Required Lenders (or the Agent with the consent of the Required
Lenders) may elect to do one or more of the following at any time or times: (a)
terminate this Agreement whereupon the Commitments to make the Revolving Loan
shall terminate immediately and any Unused Line Fee shall become due and payable
without any other notice of any kind, (b) declare any or all Obligations to be
immediately due and payable; provided that upon the occurrence of any Event of
Default referred to in clauses (f), (g) or (h) within the definition of "Event
of Default," the Commitments shall automatically and immediately terminate and
all Obligations shall automatically become immediately due and payable without
notice, demand or other actions of any kind by any Person, or (c) pursue its
other rights and remedies under the Financing Agreements and applicable law. In
the case of any Event of Default occurring by reason of any willful action or
inaction by or on behalf of the Borrowers in order to avoid payment of the
prepayment fee pursuant to subsection 2.10 which the Borrowers would have to pay
if the Obligations were paid in full, an equivalent fee shall also be
immediately due and payable to the extent permitted by law.
9.2 Rights and Remedies Generally. Upon acceleration of the
Obligations, the Agent, on behalf of the Lenders, shall have, in addition to any
other rights and remedies contained in this Agreement or in any of the other
Financing Agreements, all of the rights and remedies of a secured party under
the Code or other applicable laws, all of which rights and remedies shall be
cumulative and non-exclusive, to the extent permitted by law. In addition to all
such rights and remedies, the Agent shall have the right to sell, lease or
otherwise dispose of all or any part of the Collateral and the sale, lease or
other disposition of the Collateral, or any part thereof, by the Agent after an
Event of Default may be for cash, credit or any combination thereof, and the
Agent or any Lender may purchase all or any part of the Collateral at public or,
if permitted by law, private sale, and in lieu of actual payment of such
purchase price, may set-off the amount of such purchase price against the
Obligations then owing. Any sales of the Collateral may be adjourned from time
to time with or without notice. The Agent shall have the right to conduct such
sales on the Borrowers' premises, at the Borrowers' expense, or elsewhere, on
such occasion or occasions as the Agent may see fit.
9.3 Entry Upon Premises and Access to Information. Upon acceleration
of the Obligations, the Agent shall have the right (i) to cause the Collateral
to remain on any Borrower's premises, without any obligation to pay rent, (ii)
to enter upon the premises of any Borrower where the Collateral is located or
any other place or places where the Collateral is believed to be located and
kept, without any obligation to pay rent, to render the Collateral useable or
saleable, or to remove the Collateral therefrom to the premises of the Agent or
any agent of the Agent, at the Borrowers' expense, for such time as the Agent
may desire in order effectively to collect or liquidate the Collateral, and
(iii) to require the Borrowers to assemble the Collateral and make it available
to the Agent at a place or places to be designated by the Agent. Upon
acceleration of the Obligations, the Agent shall have the right to take
possession of each Borrower's original books and records, to obtain access to
Borrower's data processing equipment, computer hardware and software relating to
the Collateral and to use all of the foregoing and the information contained
therein in any manner the Agent deems appropriate; and the Agent shall have the
right to notify postal authorities to change the address for delivery of each
Borrower's mail to an address designated by the Agent and to receive, open and
dispose of all mail addressed to the Borrowers and to take possession of all
checks or other original remittances contained in such mail.
9.4 Sale or Other Disposition of Collateral by the Agent. Any notice
required to be given by the Agent of a sale, lease or other disposition or other
intended action by the Agent with respect to any of the Collateral which is
given to the Borrower Representative as specified in subsection 10.12, at least
ten (10) days prior to such proposed action, shall constitute fair and
reasonable notice to the Borrowers of any such action. The net proceeds realized
by the Agent upon any such sale or other disposition, after deduction for the
expenses of retaking, holding, storing, transporting, preparing for sale,
selling or otherwise disposing of the Collateral incurred by the Agent in
connection therewith, shall be applied as provided herein toward satisfaction of
the Obligations. The Agent shall account to the Borrowers for any surplus
realized upon such sale or other disposition, and the Borrowers shall remain
liable for any deficiency. The commencement of any action, legal or equitable,
or the rendering of any judgment or decree for any deficiency shall not affect
the Agent's Liens on the Collateral until the Obligations are fully paid.
9.5 Grant of License. For the purpose of enabling the Agent to
exercise its rights, powers and remedies under this Section 9 (including,
without limitation, in order to take possession of, hold, preserve, process,
assemble, prepare for sale, market for sale, sell or otherwise dispose of the
Collateral) at such time as the Agent shall be entitled to exercise such rights
and remedies, each Borrower hereby grants to the Agent a license, lease and
right to use (exercisable without payment of royalty or other compensation) such
Borrower's General Intangibles, Intellectual Property, Equipment, Fixtures, Real
Estate, whether part of the Collateral or not including, without limitation, any
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks and advertising matter, or any other Property of a
similar nature, as it pertains to the Collateral, in completing production of,
advertising for sale or lease and selling or leasing any Inventory or other
Collateral and each Borrower's rights under all licenses, leases and franchise
agreements shall inure to the Agent's benefit until all Obligations are paid in
full.
9.6 Waiver of Demand. EXCEPT FOR DEMANDS EXPRESSLY PROVIDED FOR IN
THIS AGREEMENT, DEMAND, PRESENTMENT, PROTEST AND NOTICE OF DEMAND, PRESENTMENT,
PROTEST, NONPAYMENT, INTENT TO ACCELERATE AND ACCELERATION ARE HEREBY WAIVED BY
THE BORROWER. THE BORROWER ALSO WAIVES THE BENEFIT OF ALL VALUATION, APPRAISAL
AND EXEMPTION LAWS.
9.7 Waiver of Notice. EXCEPT AS PROVIDED IN SUBSECTION 9.4, UPON THE
OCCURRENCE AND DURING THE CONTINUANCE OF A DEFAULT OR AN EVENT OF DEFAULT, THE
BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE
EXERCISE BY THE AGENT OF ITS RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT JUDICIAL
PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE
OR HEARING. THE BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS
CHOICE WITH RESPECT TO THIS TRANSACTION AND THIS AGREEMENT.
10. OTHER RIGHTS AND OBLIGATIONS.
10.1 Waiver. The failure of the Agent or any Lender, at any time or
times hereafter, to require strict performance by any Borrower of any provision
of this Agreement shall not waive, affect or diminish any right of the any such
Person thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by the Lenders or Required Lenders, as applicable, of a
Default or an Event of Default under this Agreement or any of the other
Financing Agreements shall not suspend, waive or affect any other Default or
Event of Default under this Agreement or any of the other Financing Agreements,
whether the same is prior or subsequent thereto and whether of the same or of a
different kind or character. None of the undertakings, agreements, warranties,
covenants and representations of the Borrowers contained in this Agreement or
any of the other Financing Agreements and no Default or Event of Default by the
Borrowers under this Agreement or any of the other Financing Agreements shall be
deemed to have been suspended or waived by the Lenders or Required Lenders, as
applicable, unless such suspension or waiver is in writing and signed by an
officer of each of the Lenders or Required Lenders, as applicable, and directed
to the Borrowers specifying such suspension or waiver. Neither this Agreement
nor the other Financing Agreements may be modified or amended except in a
written agreement signed by the Borrowers, the Agent and the Lenders.
10.2 Several Obligations; Nature of Lender's Rights. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other Lender (except to the extent to which
the Agent is authorized to act as such). No provision contained herein or in any
other Financing Agreement and no course of dealing between the parties shall be
deemed to create any fiduciary relationship between the Agent or any Lender and
the Borrowers. The indebtedness of the Borrowers incurred under each of the
Notes shall be a separate obligation owing to the holder thereof; provided that
each Lender hereby agrees that it shall have no individual right to seek to
enforce its rights under its Revolving Note or this Agreement, or to realize
upon the Collateral, it being understood and agreed that such rights and
remedies may be exercised solely by the Agent for the benefit of the Lenders at
the direction of the Required Lenders in accordance with the terms of this
Agreement.
10.3 Expenditures by the Agent and the Lenders. In the event the
Borrowers shall fail to pay Charges, insurance, assessments, costs or expenses
which the Borrowers are, under any of the terms hereof, required to pay, or
shall fail to keep the Collateral free from Liens, except Permitted Liens, or
shall fail to maintain, replace or repair the Collateral as required hereby, the
Agent or any Lender may, in its sole discretion, make expenditures for any or
all of such purposes and acquire or accept an assignment of any Lien against the
Collateral, and the amount so expended (including, without limitation,
reasonable attorneys' fees and expenses, court costs, filing fees and other
charges), together with interest thereon at the Base Rate or the Default Rate
then applicable to the Revolving Loan shall be part of the Obligations, payable
on demand and secured by the Collateral.
10.4 Custody and Preservation of Collateral. Except as expressly
provided in the Code, the Agent shall have no duty with respect to any
Collateral in its possession or control (or in the possession or control of any
agent or bailee) or with respect to any income thereon. The Agent shall be
deemed to have exercised reasonable care in the custody and preservation of any
of the Collateral in its possession if it takes such action for that purpose as
any Borrower shall request in writing, and no failure by the Agent to comply
with any such request shall of itself be deemed a failure to exercise reasonable
care, but failure by the Agent to preserve or protect any right with respect to
such Collateral against prior parties, or to do any act with respect to the
preservation of such Collateral not so requested by the Borrowers, shall not of
itself be deemed a failure to exercise reasonable care in the custody or
preservation of such Collateral. The Agent shall not be liable or responsible
for any loss or damage to any of the Collateral, or for any diminution in the
value thereof, by reason of the act or omission of any warehouseman, carrier,
forwarding agency, consignee or other agent or bailee selected by the Agent in
good faith.
10.5 Reliance by the Agent and Lenders. All covenants, agreements,
representations and warranties made herein or in any of the other Financing
Agreements by the Borrowers shall, notwithstanding any investigation by the
Agent or any Lender, be deemed to be material to and to have been relied upon by
the Agent and each Lender.
10.6 Parties and Assignment. This Agreement and the other Financing
Agreements shall be binding upon and inure to the benefit of the Agent, the
Lenders, the Borrowers and their respective successors and assigns. Each
Borrower's successors and assigns shall include, without limitation, any
trustee, receiver or debtor in possession of or for such Borrower.
Notwithstanding the foregoing, no Borrower may sell, assign or transfer this
Agreement, or the other Financing Agreements or any portion thereof including,
without limitation, its rights, titles, interests, remedies, powers and/or
duties hereunder or thereunder.
10.7 Applicable Law; Severability. This Agreement and the other
Financing Agreements have been submitted to the Agent and SBCC at its office in
Illinois, and this Agreement and the other Financing Agreements, shall not be
binding upon the Agent or any Lender or effective until accepted by the Agent
and each Lender and shall be construed in all respects in accordance with, and
governed by, all of the provisions of the Code and by the other internal laws
(as opposed to conflicts of law provisions) of the State of Illinois, except for
the perfection and enforcement of Liens in other jurisdictions which shall be
governed by the laws of those jurisdictions. Whenever possible, each provision
of this Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Agreement.
10.8 Submission to Jurisdiction; Waiver of Jury and Bond. THE
BORROWERS, THE AGENT AND EACH LENDER HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION
OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK, STATE OF
ILLINOIS, AND IRREVOCABLY AGREE THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS
AGREEMENT OR THE OTHER FINANCING AGREEMENTS SHALL BE LITIGATED IN SUCH COURTS,
AND THE BORROWERS, THE AGENT AND EACH LENDER EACH WAIVE ANY OBJECTION WHICH IT
MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY
PROCEEDING IN ANY SUCH COURT AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY MAIL
OR MESSENGER DIRECTED TO IT AT THE ADDRESS SET FORTH IN SUBSECTION 10.12 AND
THAT SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL
RECEIPT OR FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN POSTED TO SUCH PERSON'S
ADDRESS. THE BORROWERS DESIGNATE AND APPOINT CT CORPORATION SYSTEM, 208 SOUTH
LASALLE STREET, CHICAGO, ILLINOIS 60604 AND SUCH OTHER PERSON AS MAY HEREAFTER
BE SELECTED BY THE BORROWERS WHICH IRREVOCABLY AGREES IN WRITING TO SO SERVE AS
THEIR AGENT TO RECEIVE ON THEIR BEHALF SERVICE OF ALL PROCESS IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY THE
BORROWERS TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY
SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE BORROWERS AT
THE ADDRESS PROVIDED IN SUBSECTION 10.12, EXCEPT THAT UNLESS OTHERWISE PROVIDED
BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY
OF SERVICES OF PROCESS. IF ANY AGENT APPOINTED BY THE BORROWERS REFUSE TO ACCEPT
SERVICE, THE BORROWERS HEREBY AGREE THAT SERVICE UPON IT BY MAIL OR OTHERWISE IN
ACCORDANCE WITH SUBSECTION 10.12 SHALL CONSTITUTE SUFFICIENT NOTICE. THE AGENT,
EACH LENDER AND THE BORROWERS ACKNOWLEDGE THAT THE TIME AND EXPENSE REQUIRED FOR
TRIAL BY JURY EXCEED THE TIME AND EXPENSE REQUIRED FOR A BENCH TRIAL AND HEREBY
WAIVE, TO THE EXTENT PERMITTED BY LAW, TRIAL BY JURY, AND WAIVE ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF THE AGENT OR ANY LENDER. NOTHING CONTAINED IN THIS SUBSECTION 10.8 SHALL
AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING
ANY ACTION OR PROCEEDING AGAINST THE BORROWERS OR THEIR RESPECTIVE PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTION TO THE EXTENT NECESSARY TO ENFORCE ITS
LIENS AGAINST PROPERTY LOCATED IN SUCH JURISDICTIONS. THE BORROWERS WAIVE ANY
RIGHT THEY MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO ABOVE ANY
SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN,
OR IN ADDITION TO, ACTUAL DAMAGES.
10.9 Marshalling. The Agent shall be under no obligation to marshall
any assets in favor of the Borrowers or any other Person or against or in
payment of any or all of the Obligations.
10.10 Section Titles. The section titles contained in this Agreement
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties.
10.11 Incorporation by Reference. The provisions of the other
Financing Agreements are incorporated in this Agreement by this reference.
Except as otherwise provided in this Agreement and except as otherwise provided
in the other Financing Agreements by specific reference to the applicable
provision of this Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provisions in the other Financing
Agreements, the provision contained in this Agreement shall govern and control.
10.12 Notices. Except as otherwise expressly provided herein, any
notice required or desired to be served, given or delivered hereunder shall be
in writing, and shall be deemed to have been validly served, given or delivered
(a) if delivered in person, when delivered, (b) if delivered by telecopy, telex
or similar electronic medium on the date of confirmed transmission, (c) if
delivered by overnight courier, one day after delivery to such courier properly
addressed or (d) if by U.S. Mail, three (3) days after deposit in the United
States mails (by certified mail, return receipt requested), with proper postage
prepaid to the following addresses:
(i) If to the Agent, at:
SANWA BUSINESS CREDIT CORPORATION
One South Wacker Drive, 39th Floor
Chicago, Illinois 60606
Attn: Commercial Finance Division
Telecopy No.: (312) 782-6035
With a copy to:
WINSTON & STRAWN
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Jim L. Blanco
Telecopy No.: (312) 558-5700
(ii) If to a Lender, at the address set forth opposite
its name on Schedule 1 hereto
(iii) If to the Borrowers, at:
LOIS/USA, Inc.
40 West 57th Street
New York, New York 10019
Attn: Chief Financial Officer
Telecopy No.: (212) 373-4783
With a copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attn: Hillel M. Bennett
Telecopy No.: (212) 806-6006
or to such other address as each Person designates to the other in the manner
herein prescribed.
Each of the Borrowers hereby acknowledges and agrees that,
notwithstanding any provision to the contrary contained in this Agreement, any
notice required to be delivered hereunder by the Agent or any Lender to any
Borrower shall be deemed binding on each Borrower upon delivery of such notice
pursuant to this subsection 10.12.
10.13 Waivers With Respect to Other Instruments. Each Borrower waives
presentment, demand and protest and notice of presentment, demand protest,
default, nonpayment, maturity, release, compromise, settlement, extension, or
renewal of any or all commercial paper, Accounts, contract rights, documents,
Instruments, Chattel Paper and guaranties at any time held by the Agent on which
such Borrower may in any way be liable and hereby ratifies and confirms whatever
the Agent may do regarding the enforcement, collection, compromise, or release
thereof.
10.14 Retention of the Borrowers' Documents. The Agent or any Lender
may destroy or otherwise dispose of all documents, schedules, invoices or other
papers delivered to such Person in accordance with its customary practices
unless the Borrowers request in writing that same be returned. Upon the
Borrowers' request and at the Borrowers' expense, such Person shall return such
papers when such Person's actual or anticipated need for same has terminated.
10.15 Entire Agreement. This Agreement, including all Exhibits,
Schedules and other documents attached hereto or incorporated by reference
herein, constitutes the entire agreement of the parties with respect to the
subject matter hereof and supersedes all other negotiations, understandings and
representations, oral or written, with respect to the subject matter hereof,
including, without limitation, that certain Commitment Letter dated as of
October 1, 1997 between the Parent and SBCC.
10.16 Equitable Relief. The Borrowers recognize that, in the event the
Borrowers fail to perform, observe or discharge any of its Obligations under
this Agreement, any remedy at law may prove to be inadequate relief to the Agent
or any Lender; therefore, the Borrowers agree that the Agent or any Lender, if
such Person so requests, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
10.17 Survival of Warranties. All representations and warranties of
Borrowers contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and the other
Financing Agreements and the making of the Revolving Loan. Notwithstanding
anything contained in this Agreement to the contrary, the provisions of, and the
undertakings, indemnifications and agreements of the Borrowers set forth in
subsections 2.1(c)(vi), 2.13, 2.18(b), 2.19, 2.20, 2.21(c), 6.26(g), 7.10 and
10.22 and the agreements of the Lenders set forth in subsections 12.8 and 14.2
shall survive payment of the Obligations and termination of this Agreement.
10.18 Counterparts. This Agreement and any amendments, waivers,
consents or supplements may be executed in any number of counterparts and by
different parties in separate counterparts, each of which when so executed and
delivered shall be deemed an original, but all of which counterparts together
shall constitute but one and the same agreement.
10.19 Several Obligations; Nature of Lenders' Rights. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other Lender (except to the extent to which
the Agent is authorized to act as such). No provision contained herein or in any
other Financing Agreement and no course of dealing between the parties shall be
deemed to create any fiduciary relationship between the Agent or any Lender and
any Borrower. The Indebtedness of the Borrowers incurred under each of the Notes
shall be a separate obligation owing to the holder thereof; provided that each
Lender hereby agrees that it shall have no individual right to seek to enforce
its rights under its Note, or to realize upon the Collateral, it being
understood and agreed that such rights and remedies may be exercised solely by
the Agent for the benefit of the Lenders at the direction of the Required
Lenders in accordance with the terms of this Agreement.
10.20 Exceptions to Covenants. No Borrower shall be deemed to be
permitted to take any action or omit to take any action which is permitted as an
exception to any of the terms, provisions or covenants contained in any of the
Financing Agreements if such action or omission would result in a Default or
Event of Default or the breach of any term, provision or covenant contained in
any Financing Agreement.
10.21 Construction. The Borrowers acknowledge that they and their
counsel have approved the Financing Agreements and that the usual rule of
construction to the effect that any ambiguities or inconsistencies are to be
resolved against the drafting Person shall not be applicable in the
interpretation of any of the Financing Agreements.
10.22 Reinstatement. This Agreement shall remain in full force and
effect and continue to be effective or to be reinstated, as the case may be, if
at any time payment and performance of the Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Obligations, whether as a "voidable
preference," "fraudulent conveyance," or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
10.23 ACKNOWLEDGMENT. THE BORROWERS ACKNOWLEDGE THAT THEY HAVE BEEN
ADVISED BY COUNSEL OF THEIR CHOICE WITH RESPECT TO THIS LOAN AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED HEREBY, AND THE BORROWERS ACKNOWLEDGE AND AGREE THAT
(i) EACH OF THE WAIVERS SET FORTH HEREIN, INCLUDING, WITHOUT LIMITATION, THOSE
WAIVERS SET FORTH IN SUBSECTIONS 9.5, 9.6 AND 10.8 WERE KNOWINGLY AND
VOLUNTARILY MADE, (ii) THE OBLIGATIONS OF THE AGENT AND EACH LENDER HEREUNDER,
INCLUDING THE OBLIGATION TO ADVANCE AND LEND FUNDS TO THE BORROWERS IN
ACCORDANCE HEREWITH, SHALL BE STRICTLY CONSTRUED AND SHALL BE EXPRESSLY SUBJECT
TO THE BORROWERS' COMPLIANCE IN ALL RESPECTS WITH THE TERMS AND CONDITIONS
HEREIN SET FORTH, AND (iii) NO REPRESENTATIVE OF THE AGENT OR ANY LENDER HAS
WAIVED OR MODIFIED ANY OF THE PROVISIONS OF THIS AGREEMENT AS OF THE DATE HEREOF
AND NO SUCH WAIVER OR MODIFICATION FOLLOWING THE DATE HEREOF SHALL BE EFFECTIVE
UNLESS MADE IN ACCORDANCE WITH SUBSECTION 10.1.
11. ASSIGNMENT AND PARTICIPATION.
11.1 Assignments. Each Lender may, in the ordinary course of its
business and in accordance with applicable law, assign all or any part of its
rights and obligations under the Financing Agreements (including, without
limitation, all or any part of its Commitment, the Revolving Loan owing to it
and the Revolving Note held by it); provided that (i) except in the case of an
assignment to a Person that, immediately prior to such assignment, was a Lender
or an affiliate of a Lender or an assignment of all of a Lender's rights and
obligations under this Agreement, the amount of any assignment shall in no event
be less than $5,000,000 and shall be in an integral multiple of $1,000,000 if in
excess thereof, (ii) each such assignment shall be to an Eligible Assignee,
(iii) the written consent of the Agent shall be required prior to an assignment
becoming effective with respect to an assignee that is not, immediately prior to
such assignment, a Lender or an affiliate thereof and (iv) the parties to each
such assignment shall execute and deliver to the Agent an Assignment and
Acceptance, together with its Revolving Note. Upon such execution, delivery and
acceptance, from and after the effective date specified in such Assignment and
Acceptance, (x) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, have the rights and obligations of a Lender
hereunder and (y) the assigning Lender thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto).
11.2 Participations. Each Lender shall have the right to sell or
assign to a Participant or Participants participating interests in the
Obligations hereunder in such amounts as such Lender shall determine; provided
that (i) such Lender's obligations under this Agreement (including, without
limitation, its Commitment) shall remain unchanged, (ii) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, (iii) such Lender shall remain the holder of its Revolving
Note for all purposes of this Agreement, (iv) the Borrowers, the Agent and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
(v) no Participant under any such participation shall become a "Lender" or,
except as specifically provided in this Agreement, have any rights of "Lender"
under this Agreement, or shall have any right to approve any amendment or waiver
of any provision of any Financing Agreement, or any consent to any departure
therefrom, except to the extent that any such amendment, waiver or consent would
(a) extend the Revolving Loan Maturity Date or the maturity date of any other
Loan, (b) reduce the principal amount of the Notes or reduce or extend the time
of payment of interest or fees thereon, (c) release all or substantially all of
the Collateral or (d) permit any assignment by the Borrowers of the Obligations
or its rights under this Agreement.
12. AGENT.
12.1 Appointment. SBCC is hereby appointed Agent hereunder and under
each other Financing Agreements, and each of the Lenders authorizes the Agent to
act as the Agent of such Lender. The Agent agrees to act as such upon the
express conditions contained in this Section 12. The Agent shall not have a
fiduciary relationship in respect of any Borrower or any Lender by reason of
this Agreement.
12.2 Powers. The Agent shall have and may exercise such powers under
the Financing Agreements as are specifically delegated to the Agent by the terms
of each thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder, except any action specifically provided
by the Financing Agreements to be taken by the Agent.
12.3 General Immunity. Neither the Agent nor any of its directors,
officers, Agents or employees shall be liable to any Borrower or any Lender for
any action taken or omitted to be taken by it or them hereunder or under any
other Financing Agreements or in connection herewith or therewith except for its
or their own gross negligence or willful misconduct as determined by a final
order, not subject to review, of a court of competent jurisdiction.
12.4 No Responsibility for Loans, Recitals, etc. Neither the Agent nor
any of its directors, officers, Agents or employees shall be responsible for or
have any duty to ascertain, inquire into, or verify (a) any statement, warranty
or representation made in connection with any Financing Agreements or any
borrowing hereunder, (b) the performance or observance of any of the covenants
or agreements of any obligor under any Financing Agreements, (c) the
satisfaction of any condition specified in Section 4, except receipt of items
required to be delivered to the Agent and not waived at closing, or (d) the
validity, effectiveness or genuineness of any Financing Agreements or any other
instrument or writing furnished in connection therewith.
12.5 Action on Instructions of Lenders. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder and under
any other Financing Agreements in accordance with written instructions signed by
the Required Lenders (or to the extent required by Section 13, all Lenders), and
such instructions and any action taken or failure to act pursuant thereto shall
be binding on all of the Lenders and on all holders of Notes. The Agent shall be
fully justified in failing or refusing to take any action hereunder and under
any other Financing Agreements unless it shall first be indemnified to its
satisfaction by the Lenders pro-rata against any and all liability, cost and
expense that it may incur by reason of taking or continuing to take any such
action.
12.6 Employment of Agents and Counsel. The Agent may execute any of
its duties as Agent hereunder and under any other Financing Agreements by or
through employees, agents and attorneys-in-fact and shall not be answerable to
the Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Financing Agreements.
12.7 Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper Person or Persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
12.8 Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (a) for any amounts not reimbursed by the Borrowers for which the
Agent is entitled to reimbursement by the Borrowers under the Financing
Agreements, (b) for any other expenses incurred by the Agent on behalf of the
Lenders, in connection with the preparation, execution, delivery, administration
and enforcement of the Financing Agreements, and (c) for any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be imposed
on, incurred by or asserted against the Agent in any way relating to or arising
out of the Financing Agreements or any other document delivered in connection
therewith or the transactions contemplated thereby, or the enforcement of any of
the terms thereof or of any such other documents; provided that no Lender shall
be liable for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Agent as determined by a final order,
not subject to appeal, of a court of competent jurisdiction. The obligations of
the Lenders under this subsection 12.8 shall survive payment of the Obligations
and termination of this Agreement.
12.9 Rights as a Lender. In the event the Agent is a Lender, the Agent
shall have the same rights and powers hereunder and under any other Financing
Agreements as any Lender and may exercise the same as though it were not the
Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a
Lender, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Financing
Agreements, with any Borrower or any of its Subsidiaries in which such Borrower
or such Subsidiary is not restricted hereby from engaging with any other Person.
12.10 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by Parent and the Borrowers and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Financing
Agreements. Each Lender also acknowledges that it will, independently and
without reliance upon the Agent or any other Lender and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement and the
other Financing Agreements.
12.11 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrowers. Upon any such
resignation, the Required Lenders shall have the right to appoint, on behalf of
the Borrowers and the Lenders, a successor Agent. If no successor Agent shall
have been so appointed and shall have accepted such appointment within thirty
days after the retiring Agent's giving notice of resignation or within thirty
days after the removal of such Agent, then the retiring Agent shall use
reasonable efforts to appoint, on behalf of the Borrowers and the Lenders, a
successor Agent. Such successor Agent shall be a financial institution having
capital and retained earnings of at least One Hundred Fifty Million Dollars
($150,000,000). Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder and under the other Financing Agreements. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Section 12
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent hereunder and under
the other Financing Agreements.
12.12 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender or a Borrower
referring to this Agreement describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall give prompt notice thereof to the
Lenders. Subject to the provisions of subsection 12.5, the Agent shall take any
action of the type specified in this Agreement with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders (or, if
so required by Section 13, by all Lenders); provided that unless and until the
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as the Agent shall determine is in the best
interests of the Lenders.
13. AMENDMENTS AND WAIVERS.
Subject to the provisions of this Section 13, the Required Lenders (or
the Agent with the consent in writing of the Required Lenders) and the Borrowers
may enter into agreements supplemental hereto for the purpose of adding,
terminating or modifying any provisions to the Financing Agreements or changing
in any manner the rights of the Lenders or the Borrowers hereunder or waiving
any Default or Event of Default hereunder; provided that no such supplemental
agreement shall, without the consent of each Lender:
(a) extend the final maturity of the Revolving Loan or
Revolving Note or reduce the principal amount thereof, or reduce
the rate or extend the time of payment of interest or fees
thereon;
(b) reduce the percentage specified in the definition of
Required Lenders;
(c) reduce the amount or extend the payment date for the
mandatory payments required hereunder, or increase the amount of
the Revolving Credit Commitment of any Lender hereunder (other
than an increase in the Revolving Credit Commitment of any Lender
as a result of an assignment consummated between such Lender and
another Lender pursuant to subsection 11.1);
(d) extend the Revolving Loan Maturity Date or permit any
Letter of Credit or Lender Guaranty to have an expiry date beyond
the Revolving Loan Maturity Date; (e) amend this Section 13;
(f) except as otherwise provided in the Financing
Agreements, release all or any substantial portion of the
Collateral;
(g) permit any assignment by any Borrower of its Obligations
or its rights hereunder; or
(h) amend the definition of the term "Commitment".
No amendment, modification, termination or waiver affecting the rights
or duties of the Agent under any Financing Agreement shall be effective without
the written consent of the Agent.
Each amendment, modification, termination or waiver shall be effective
only in the specific instance and for the specific purpose for which it was
given. No amendment, modification, termination or waiver shall be required for
the Agent to take additional Collateral pursuant to any Financing Agreement. No
notice to or demand on the Borrowers not required by the terms hereof in any
case shall entitle the Borrowers to any other or further notice or demand in
similar or other circumstances. Any amendment, modification, termination, waiver
or consent effected in accordance with this Section 13 shall be binding upon
each holder of the Notes at the time outstanding, each future holder of the
Notes and the Borrowers.
Notwithstanding anything to the contrary contained herein, the Agent
may, at its sole discretion, release or compromise Collateral and the proceeds
thereof to the extent of asset dispositions permitted by the terms hereof.
14. SET OFF AND SHARING OF PAYMENTS.
14.1 Setoff. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of any Event of Default, each Lender is
hereby authorized by the Borrowers at any time or from time to time, with
reasonably prompt subsequent notice to the Borrowers Representative or to any
other Person (any prior or contemporaneous notice being hereby expressly waived)
to set off and to appropriate and to apply any and all (a) balances (including,
without limitation, all account balances, whether provisional or final and
whether or not collected or available) held or owing by such Lender at any of
its offices to or for the credit or account of any Borrower (regardless of
whether such balances are then due to such Borrower) and (b) other property held
or owing by such Lender to or for the credit or the account of any Borrower,
toward the payment of the Obligations owing to such Lender, whether or not the
Obligations, or any part hereof, shall then be due.
14.2 Ratable Payments. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Loans (other than payments received pursuant to
subsections 2.19(b), 2.20 and 2.21) in a greater proportion than its Pro Rata
Share of such Loans, such Lender agrees, promptly upon demand, to purchase a
portion of the Loans held by the other Lenders so that after such purchase each
Lender will hold its ratable proportion of Loans. If any Lender, whether in
connection with setoff or amounts which might be subject to setoff or otherwise,
receives collateral or other protection for its Obligations or such amounts
which may be subject to setoff, such Lender agrees, promptly upon demand, to
take such action necessary such that all Lenders share in the benefits of such
collateral ratably in proportion to their Revolving Loan. In case any such
payment is disturbed by legal process, or otherwise, appropriate further
adjustments shall be made. If an amount to be setoff is to be applied to
Indebtedness of any Borrower to a Lender, other than Indebtedness evidenced by
any of the Notes held by such Lender, such amount shall be applied ratably to
such other Indebtedness and to the Indebtedness evidenced by such Notes. The
Borrower agrees, to the fullest extent permitted by law, that (x) any Lender may
exercise its right to set off with respect to amounts in excess of its Pro Rata
Share of the Obligations and may sell participation in such excess to other
Lenders, and (y) any Lender so purchasing a participation in the Loans made or
other Obligations held by other Lenders may exercise all rights of set-off,
bankers' lien, counterclaim or similar rights with respect to such participation
as fully as if such Lender were a direct holder of Loans and other Obligations
in the amount of such participation.
15. CROSS-GUARANTY
15.1 Cross-Guaranty. Each Borrower hereby acknowledges and agrees that
such Borrower is jointly and severally liable for, and hereby absolutely and
unconditionally guarantees to each other Borrower, and to the Agent and the
Lenders the full and prompt payment of, all Obligations owed or hereafter owing
to the Agent and the Lenders by each other Borrower. Each Borrower further
agrees to pay all costs and expenses including, without limitation, all court
costs and reasonable attorneys' and paralegals' fees and expenses, paid or
incurred by the Agent and the Lenders in endeavoring to collect all or any part
of the Obligations from, or in prosecuting any action against, such Borrower or
any other guarantor of all or any part of the Obligations.
15.2 Contribution with Respect to Guaranty Obligations.
(a) To the extent that any Borrower shall make a payment under this
Section 15 of all or any of the Obligations for which such Borrower is not
primarily liable (a "Guarantor Payment") which, taking into account all other
Guarantor Payments then previously or concurrently made by the other Borrower,
exceeds the amount which such Borrower would otherwise have paid if each
Borrower had paid the aggregate Obligations satisfied by such Guarantor Payment
in the same proportion that such Borrower's "Allocable Amount" (as defined
below) (in effect immediately prior to such Guarantor Payment) bore to the
aggregate Allocable Amounts of all of the Borrowers in effect immediately prior
to the making of such Guarantor Payment, then such Borrower shall be entitled to
receive contribution and indemnification payments from, and be reimbursed by,
the other Borrower for the amount of such excess, pro rata based upon their
respective Allocable Amounts in effect immediately prior to such Guarantor
Payment.
(b) As of any date of determination, the "Allocable Amount" of any
Borrower shall be equal to the maximum amount of the claim which could then be
recovered from such Borrower under this Section 15 without rendering such claim
voidable or avoidable under Section 548 of chapter 11 of the Bankruptcy Code or
under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law.
(c) This subsection 15.2 is intended only to define the relative
rights of the Borrowers and nothing set forth in this subsection 15.2 is
intended to or shall impair the obligations of the Borrowers, jointly and
severally, to pay any amounts as and when the same shall become due and payable
in accordance with the terms of this Agreement including, without limitation,
Section 1 hereof, and nothing contained in this subsection 15.2 shall limit the
liability of any Borrower to pay the Obligations for which it is primarily
liable.
(d) The parties hereto acknowledge that the rights of contribution and
indemnification hereunder shall constitute assets of any Borrower to which such
contribution and indemnification is owing.
15.3 Obligations Absolute. The liability of each Borrower to the Agent
and the Lenders hereunder shall not be affected or impaired by any of the
following: (i) the validity or enforceability of the Obligations or any part
thereof, or of any Note or other instrument or document evidencing all or any
part of the Obligations, (ii) the absence of any attempt to collect the
Obligations from a Borrower or any guarantor or other Person liable in respect
of any Obligations or other action to enforce the same, (iii) any acceptance of
collateral security, guarantors, accommodation parties or sureties for any or
all Obligations; (iv) one or more extensions or renewals of Obligations (whether
or not for longer than the original period) or any modification of the interest
rates, fees, maturities or principal amount of, or other contractual terms
applicable to any Obligations; (v) any waiver or indulgence granted to a
Borrower, any delay or lack of diligence in the enforcement of Obligations, or
any failure to institute proceedings, file a claim, give any required notices or
otherwise protect any Obligations; (vi) any full or partial release of,
compromise or settlement with, or agreement not to sue a Borrower or any
guarantor or other Person liable in respect of any Obligations; (vii) any
release, surrender, cancellation or other discharge of any evidence of any of
the Obligations or the acceptance of any instrument in renewal or substitution
therefore; (viii) any failure to obtain collateral security (including rights of
setoff) for any of the Obligations, or to obtain or maintain the proper or
sufficient creation and perfection thereof, or to establish the priority
thereof, or to preserve, protect, insure, care for, exercise or enforce any
collateral security; (ix) any collection, sale, lease or disposition of, or any
other foreclosure or enforcement of or realization on, any collateral security;
(x) any assignment, pledge or other transfer of any of the Obligations or any
evidence thereof; (xi) any manner, order or method of application of any
payments or credits upon any of the Obligations; (xii) the Lenders' election, in
any case or proceedings under the Bankruptcy Code of the application of Section
1111(b)(2) thereof, (xiii) any borrowing or grant of a Lien by a Borrower as
debtor in possession under Section 364 of the Bankruptcy Code and (xiv) the
disallowance under the Bankruptcy Code of all or any portion of the Agent's or
any Lender's claim for repayment of the Obligations. Each Borrower hereby waives
any and all legal and equitable defenses and discharges available to a surety,
guarantor, or accommodation co-obligor.
Each Borrower hereby assumes responsibility for keeping itself
informed of the financial condition of the other Borrower, and any and all
endorsers and other guarantors of any agreement, instrument or document
evidencing or securing all or any part of the Obligations and of all other
circumstances bearing upon the risk of nonpayment of the Obligations or any part
thereof that diligent inquiry would reveal, and each Borrower hereby agrees that
the Agent and the Lenders shall have no duty to advise such Borrower of
information known to such Person regarding such condition or any such
circumstances. Each Borrower hereby acknowledges familiarity with the other
Borrower's financial condition and has not relied on any statements by the Agent
or any Lender in obtaining such information. In the event the Agent or any
Lender, in its sole discretion, undertakes at any time or from time to time to
provide any such information to a Borrower, the Lender shall not be under any
obligation (i) to undertake any investigation with respect thereto, (ii) to
disclose any information which, pursuant to accepted or reasonable credit
practices, such Person wishes to maintain confidential or (iii) to make any
other or future disclosures of such information, or any other information, to
such Borrower.
15.4 Waiver. UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN
EVENT OF DEFAULT, THE LENDERS MAY, AT THEIR SOLE ELECTION, PROCEED DIRECTLY,
WITHOUT NOTICE, AGAINST A BORROWER TO COLLECT AND RECOVER ALL OR ANY PART OF THE
OBLIGATIONS WITHOUT FIRST PROCEEDING AGAINST ANY OTHER BORROWER, ANY OTHER
GUARANTOR, OR ANY COLLATERAL FOR THE OBLIGATIONS.
EACH BORROWER ALSO WAIVES ALL SETOFFS AND COUNTERCLAIMS AND ALL
PRESENTMENTS, DEMANDS FOR PERFORMANCE, NOTICES OF NONPERFORMANCE, PROTESTS,
NOTICES OF PROTEST, NOTICES OF DISHONOR, AND NOTICES OF ACCEPTANCE OF THIS
GUARANTY. EACH BORROWER FURTHER WAIVES ALL NOTICES OF THE EXISTENCE, CREATION OR
INCURRING OF NEW OR ADDITIONAL INDEBTEDNESS, ARISING EITHER FROM ADDITIONAL
LOANS EXTENDED TO THE OTHER BORROWER OR OTHERWISE, AND EXCEPT FOR NOTICES
EXPRESSLY REQUIRED HEREUNDER, ALSO WAIVES ALL NOTICES THAT THE PRINCIPAL AMOUNT,
OR ANY PORTION THEREOF, OR ANY INTEREST ON ANY AGREEMENT, INSTRUMENT OR DOCUMENT
EVIDENCING OR SECURING ALL OR ANY PART OF THE OBLIGATIONS IS DUE, NOTICES OF ANY
AND ALL PROCEEDINGS TO COLLECT FROM THE MAKER, ANY ENDORSER OR ANY GUARANTOR OF
ALL OR ANY PART OF THE OBLIGATIONS, OR FROM ANY OTHER PERSON, AND, TO THE EXTENT
PERMITTED BY LAW, NOTICES OF EXCHANGE, SALE, SURRENDER OR OTHER HANDLING OF ANY
COLLATERAL GIVEN TO THE AGENT ON BEHALF OF THE LENDERS TO SECURE PAYMENT OF THE
OBLIGATIONS.
15.5 Recovery. Each Borrower agrees that, to the extent that the other
Borrower makes a payment or payments to the Lender, or receives any proceeds of
Collateral, which payment or payments or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to such other Borrower, its estate, trustee, receiver or any other
party under any bankruptcy law, state or federal law, common law or equitable
cause, then to the extent of such payment or repayment, the Obligations or the
part thereof which has been paid, reduced or satisfied by such amount shall be
reinstated and continued in full force and effect as of the date such initial
payment, reduction or satisfaction occurred, and this cross guaranty shall
continue to be in existence and full force and effect, irrespective of whether
any evidence of the Obligations has been surrendered or canceled.
15.6 Liability Cumulative. The liability of the Borrowers under this
Section 15 is in addition to and shall be cumulative with all liabilities of
each Borrower to the Agent and the Lenders under this Agreement and the other
Financing Agreements to which such Borrower is a party or in respect of any
Obligations or obligation of the other Borrower, without any limitation as to
amount, unless the instrument or agreement evidencing or creating such other
liability specifically provides to the contrary.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year first above written.
LOIS/USA WEST, INC.
By:/s/ Robert K. Stewart
Title: Executive Vice President and
Chief Financial Officer
LOIS/USA CHICAGO, INC.
By:/s/ Robert K. Stewart
Title: Executive Vice President and
Chief Financial Officer
LOIS/USA NEW YORK, INC.
By: /s/ Robert K. Stewart
Title: Executive Vice President and
Chief Financial Officer
SANWA BUSINESS CREDIT
CORPORATION, as Agent and as a Lender
By:/s/ Stanley Kaminski
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1997, CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE
FOOTNOTES TEHRETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 359
<SECURITIES> 0
<RECEIVABLES> 22,834
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,969
<PP&E> 3,151
<DEPRECIATION> 2,456
<TOTAL-ASSETS> 39,503
<CURRENT-LIABILITIES> 36,215
<BONDS> 0
0
2,160
<COMMON> 24
<OTHER-SE> (5,645)
<TOTAL-LIABILITY-AND-EQUITY> 39,503
<SALES> 0
<TOTAL-REVENUES> 22,746
<CGS> 0
<TOTAL-COSTS> 21,325
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> 1,177
<INCOME-TAX> 37
<INCOME-CONTINUING> 1,140
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,082
<EPS-PRIMARY> .44
<EPS-DILUTED> 0
</TABLE>
