SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
FOR ANNUAL AND TRANSITION REPORTS TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ____________
Commission file number: 33-83894-NY
LOIS/USA INC.
(Name of Small Business Issuer 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)
Registrant's telephone number, including area code: (212)373-4700
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether 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 Registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [x]
The registrant had revenues of $28,284,000, in its most recent fiscal
year.
The aggregate market value of the voting stock held by non-affiliates
of the registrant on March 16, 1998, was $5,665,613 (based on the last trade on
January 22, 1998 at $9.0625 per share). As of March 16, 1998, there were
2,439,861 shares of common stock, $.01 par value per share ("Common Stock"),
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Lois/USA Inc. (the "Company") is a full service advertising and
marketing communications company operating on a national basis through
advertising agencies located in Austin, Chicago, Dallas, Detroit, Houston, Los
Angeles, New York and Salt Lake City. Through 1995, the Company operated
principally in New York, through its Lois/USA New York, Inc. agency, and in
Chicago, through its Lois/USA Chicago, Inc. agency. The Company also had less
significant operations on the West Coast through the Lois, Colby/LA Agency
("Lois/Colby"), which was owned by Lois/USA West, Inc. ("West"), a wholly owned
subsidiary of the Company. In 1996, the Company expanded its operations through
the acquisition of Eisaman, Johns, and Laws Advertising, Inc. ("EJL"), a full-
service advertising agency with offices in Chicago, Detroit, Houston and Los
Angeles. The acquisition of EJL was a part of the Company's ongoing strategy and
efforts to increase the size and economies of its operations, as well as to
establish operations in other strategically selected locations, through
acquisitions, internal expansion or other alliances. On December 31, 1997, the
Company added a significant southwestern United States presence through the
acquisition of Fogarty & Klein, Inc. ("F&K"), an advertising agency with offices
in Austin, Dallas and Houston. F&K will operate as an independent agency within
the Company's network.
In addition to pursuing its strategy of expanding its operations
through acquisitions in 1997, the Company continued the cost and operating
revisions initiated in 1996 with EJL when it acquired that agency. As a result
of these measures, the Company's operating results improved in 1997, to an
operating loss of $816,000 compared to an operating loss of $4,598,000 in 1996.
The Company initiated additional cost reduction measures in the last quarter of
1997 and plans further initiatives in 1998.
From 1991 to 1994, the Company's growth was constrained by the need to
pay interest on a $3.2 million subordinated note (the "Subordinated Note"). On
January 3, 1995 the Company received $1,363,000 in net proceeds from a public
offering by the Company of 300,000 shares of common stock (the "Offering").
Concurrent with consummation of the Offering, Chase Manhattan Bank, N.A. ("Chase
Bank") provided the Company with a secured three-year reducing revolving credit
facility (the "Reducing Revolving Credit Agreement") of $2.0 million and
increased its line of credit to the Company from $1.0 million to $2.0 million.
The Company used the proceeds of the Offering and the newly available bank
financing to repay the Subordinated Note, which reduced the Company's debt
burden and allowed management to begin to take steps to implement the Company's
expansion strategy. In May 1997, the Company replaced the Reducing Revolving
Credit Agreement with a one-year $2.5 million line of credit and raised
additional capital of approximately $2.2 million through the private placement
of shares of Series A Convertible Preferred Stock. In October 1997, the Company
replaced the Chase Bank borrowings with a new revolving credit facility from
Sanwa Business Credit Corporation ("Sanwa") which provides for borrowings of up
to $25 million based on a specific percentage of the Company's accounts
receivable balance. The additional capital available under the agreement with
Sanwa will allow the Company to continue to pursue it acquisition growth
strategy.
George Lois, the Company's Co-Chairman and Co-Chief Executive Officer,
is a widely respected creative innovator in the field of advertising with over
30 years of experience in the business. Among the successful slogans Mr. Lois
has created during his career in advertising are slogans used by the MTV cable
television network ("I want my MTV"), TIME magazine ("Make Time for Time") and
Reebok athletic footwear and clothing ("Pump up and Air out"). THE WALL STREET
JOURNAL has cited two advertising campaigns created by Mr. Lois-one for the Lean
Cuisine line of frozen foods (Mr. Lois also created the product name "Lean
Cuisine") and the other for the newspaper USA Today-among a list of thirteen
marketing "milestones" of the 1980's. Through Mr. Lois' influence, the Company
has established a reputation in the advertising industry for creative and
effective advertising. Mr. Lois is the only living person to have been named to
both the Art Directors Hall of Fame and the Creative Hall of Fame. The Art
Directors Hall of Fame, established in 1972 by the Art Directors Club of New
York, has 78 honorees. The Creative Hall of Fame, created by the One Club for
Art and Copy in 1982, has 700 members, including copywriters and art directors.
The Company was formed in 1978 when one of its operating subsidiaries,
Lois/USA New York, Inc., was founded as a New York-based advertising agency. In
the mid-1980s, the Company's management, led by Mr. Lois and Theodore Veru, the
Company's Co-Chairman, Co-Chief Executive Officer and President, established the
goal of building the Company into a national, full-service communications
company with broad-based management and creative capabilities. In late 1987, the
Company acquired the personnel, assets and accounts of the Chicago office of
Grey Advertising, Inc. and subsequently changed the name of that agency to
Lois/USA Chicago. Since that acquisition, the Chicago agency has grown by
expanding its business with its existing clients and acquiring new clients. In
1989, the Lois firm consolidated its media buying services in Chicago. The
Company believes it is currently the largest spot broadcast media buyer in the
Chicago regional area.
In addition to planning, creating and placing advertising, the Company
offers its clients a broad range of other marketing communication services,
including marketing consultation, consumer market research, direct-mail
advertising, merchandising design and corporate identification services. The
Company believes that creating a communications campaign that will effectively
deliver the client's advertising message begins with a thorough understanding of
the client's business and marketplace. The Company utilizes its research
capabilities, which it views as one of its strengths, to provide clients with a
marketing focus. The Company's research group performs such diversified services
as market forecasting, test market sharing, package testing, and product
testing. The Company attempts to differentiate its advertising services from
those of other advertising agencies by combining the efforts and input of its
research, creative, media planning and buying and marketing functions at the
earliest stages of an assignment. The Company believes that creative media
planning at the early stages of a project is often the key to a successful
advertising campaign. The Company further believes that its approach, therefore,
increases the chances of successful campaigns and sets the Company apart from
its competitors, that generally create advertising campaigns sequentially, first
by conducting research, then by creating the advertising, and thereafter by
planning the media placement. The Company is also developing new marketing
initiatives to better serve its existing clients and to create opportunities to
attract new clients.
ACQUISITION OF EISAMAN, JOHNS & LAWS ADVERTISING, INC.
On February 12, 1996, the Company acquired all of the outstanding
shares of capital stock of Eisaman, Johns & Laws Advertising, Inc., a California
corporation, pursuant to a Stock Purchase Agreement (the "Original Agreement")
between the Company and the shareholders of EJL. The Original Agreement provided
for the acquisition of all of the shares of the common stock of EJL for an
initial payment of $6.0 million, comprised of $4.0 million in cash and $2.0
million paid through the issuance of 333,333 shares of the Company's Common
Stock. The shares of the Company's Common Stock were issued from its existing
authorized capital stock, and the cash was paid out of working capital and
additional bank debt. In addition, the Company was to pay the EJL shareholders
5% of the revenue of the EJL operations over the next five years, subject to
certain adjustments. These payments were to be made partly in cash and partly
through the issuance of additional shares of the Company's Common Stock. The
total purchase price to be paid to EJL stockholders was to range from a minimum
of $12.75 million to a maximum of $18.75 million.
In May 1997, the Company and the former owners of EJL agreed to amend
the Original Agreement (the "Revised Agreement"). Under the Revised Agreement,
the total purchase price was reduced to $9.6 million, of which $5.9 million has
been paid through December 31, 1997, through cash payments of $4.8 million and
the issuance of 189,183 shares of the Company's Common Stock, and the remaining
$3.7 million will be paid in cash in varying monthly installments from June 1999
through March 2009. See Note 3 of Notes to the Consolidated Financial
Statements.
ACQUISITION OF FOGARTY & KLEIN, INC.
On December 31, 1997, the Company completed its purchase of all of the
outstanding shares of common stock of Fogarty & Klein, Inc. and its
subsidiaries, pursuant to a Stock Purchase Agreement between the Company and the
stockholders of F&K (the "F&K Agreement"). The aggregate purchase price was
$10.8 million. The Company made an initial payment of $4.036 million, comprised
of a cash payment of $3.5 million, and the issuance of 50,000 shares of the
Company's Common Stock and warrants for the purchase of 39,000 shares of the
Company's Common Stock, exercisable through December 31, 2000 at an exercise
price of $10.00 per share.
The F&K Agreement requires that the Company make additional purchase
price payments on the first, second and third anniversaries of the acquisition.
On December 31, 1998, the sellers will receive an additional cash payment of
$1.125 million, and warrants for the purchase of 50,000 shares of the Company's
Common Stock exercisable through December 31, 2001, at an exercise price of
$11.00 per share. On December 31, 1999, the Company is required to make a cash
payment of $1.125million and to issue an additional 50,000 warrants, exercisable
through December 31, 2002, at an exercise price of $12.25 per share. Finally, on
December 31, 2000, the Company must make a final cash payment of $3.25 million,
which may be increased or decreased by up to $450,000 for 15% of the difference
between $42 million and the actual commissions and fees of F&K for the three
years ending December 31, 2000, from clients existing at the time of the
acquisition. Concurrent with the acquisition of F&K the Company entered into
certain employment contracts with the three senior officers of F&K that provide
for aggregate compensation of $4,950,000 over the next five years. See Item 10-
Executive Compensation- Employment Contracts. Of that amount $1.2
million has been treated as a component of the purchase price.
EXPANSION STRATEGY
The Company's expansion program is intended to provide clients
throughout the United States with the advantages of national creative and
marketing resources coupled with the immediacy and responsiveness of direct
local access to service personnel. In addition, the Company believes that
acquisitions provide an efficient and effective method of acquiring both new
clients and established creative and media placement functions to service them.
An acquisition may also add particular research or creative talents, the
benefits of which the Company attempts to maximize by making the resources of
each of its agencies' research and creative departments available to projects
and clients of other Company agencies. As a result, personnel from the various
agencies will interact on client marketing and advertising projects.
The Company's expansion strategy was initially focused on Chicago, Los
Angeles and New York. The Company believes that these markets have significant
growth potential and that acquisitions in these locations would add both clients
and revenues while offering the Company an opportunity to realize economies of
scale through the combination of certain functions of the acquired operations
with the Company's existing operations. As the first step in this program, in
December 1993, the Company formed Lois/USA West (now operating as Lois/EJL Los
Angeles) to develop new clients in the western United States and to assist its
existing clients in the area. This unit now holds the assets of the Los Angeles
office acquired from EJL. EJL's Chicago office was combined with Lois/USA
Chicago, Inc. and operates as Lois/EJL Chicago. By consolidating these regional
offices, the Company is taking advantage of economies of scale through shared
infrastructure.
The Company continued to implement its expansion strategy in 1997 with
its acquisition of F&K. F&K will operate as a separate network within the
Company, and its offices in Austin, Dallas and Houston will provide the Company
with reentry to and a significant presence in the southwestern United States.
Management believes that the Company's expansion strategy will enable
the Company to realize greater creative and management depth, economies of
scale, and increased revenues and profitability. In addition, it believes that
the widely known "Lois" name will have significant value in seeking potential
acquisition candidates and that such candidates will be attracted to the
Company's reputation for creative and effective advertising, its entrepreneurial
management culture, the opportunities the Company offers for personal and
business growth and the absence of numerous levels of management. To maximize
the opportunities for economies of scale, the financial
and administrative management of the Company's agencies is centralized, to the
extent possible, at the Company's headquarters in New York, and a substantial
portion of the media buying function for all agencies' clients is conducted by
the media buying group in Chicago. The operations of each agency are overseen by
the Company's senior management, which sets specific performance goals for each
agency, and regularly monitors the agencies' performance through meetings with
local management and monthly reporting.
In investigating a potential acquisition, the Company, after
identifying the opportunity, will study the agency's business to determine if it
is complementary with the Company's existing business and creative philosophies.
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 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 of an acquired
company as a means of creating an incentive for future performance.
There can be no assurance that the Company will be able to successfully
complete additional acquisitions. Additionally, although the Company attempts to
study all potential acquisitions carefully and plan for their integration into
the Company's operations, there can be no assurance that unforeseen
circumstances or developments will not cause a particular acquisition to fail to
have the desired effects on the Company's financial condition and results of
operations.
THE ADVERTISING MARKET
Total United States advertising spending in 1997 increased by 6.7% over
the 1996 level. The 1997 increase in United States advertising expenditures has
been greater than the general rate of economic growth, indicating increased
emphasis on advertising. However, there can be no assurance that the economy, or
advertising expenditures, will continue to grow at similar rates, or at all. The
1997 increase came after increases of 7.6% in 1996 and 7.7% in 1995.
The Company experienced significant growth in 1994 and 1995 as the
result of the addition of several large clients and increased spending by
existing clients. Similar revenue growth was not experienced in 1996 due in
large part to the shift of the Company's focus to completion of the EJL
acquisition and the subsequent assimilation of its operations and implementation
of cost reduction steps. The Company has reemphasized client growth and has
acquired several new clients. During 1996, the Company's Chicago office was
named one of the agencies recommended by the Chevrolet division of General
Motors to provide marketing services to its dealer groups. New client growth
continued in 1997, including the addition of assignments for Orthodontics
Centers of America, Turtle Wax, Valvoline, Proscape and Decibel.
THE COMPANY'S CREATIVE STRATEGY
In its creative approach, the Company attempts to distinguish itself
from other full service advertising agencies by its relentless pursuit of the
"big idea." The Company's philosophy is that advertising for a client's products
or services should generate publicity as well as create product recognition.
Accordingly, the Company attempts to develop a selling message that reaches the
target audience for the client's product and at the same time becomes familiar
to the general public. Ideally, the "big idea" not only leads to an advertising
campaign, but creates various public relations opportunities for the client. For
example, on several occasions newspapers, magazines, and radio and television
stations have publicized the Company's advertising campaigns as news events. The
Company believes that public familiarity with an advertising campaign frequently
leads to increased sales of the product or service being advertised. Once it
identifies the "big idea" for a client's product, the Company's creative staff
works to support that idea with marketing, research, packaging and logo design
and media strategy, and to produce print and broadcast campaigns, sales
promotion and direct response advertising to achieve a dramatic response.
The Company believes that research plays an essential role in the
pursuit of the "big idea." Unlike other advertising agencies of similar size,
the Company maintains a research department, with a full-time research
librarian, and has the technical capability to conduct many types of research
projects, including market forecasting, test-market planning and package and
product testing. In addition, the Company has long-term relationships with many
well-known research firms. The Company believes that research should be
result-oriented, and its researchers work closely with the creative, marketing
and media departments in developing clients' campaigns.
CLIENTS
The Company serves a diversified clientele that includes a variety of
public and private companies, including clients in the retail, media,
pharmaceutical, restaurant, leisure and travel, automotive, packaged goods,
financial services, apparel, consulting and technology. Among the Company's
current clients are Cadillac Dealer Advertising Association, Chevrolet Dealer
Advertising Association, Alberto-Culver Corporation, American Drug Stores, Car-X
Muffler & Brake Shops, Orthodontics Centers of America, Pendleton Woolen Mills,
Price Pfister, Sandoz Crop Protection, Southern California Gas Company, Turtle
Wax, Valvoline and The Walt Disney Company. The Company's clients include both
businesses whose products and services are offered to consumers and those which
primarily serve the needs of other businesses.
The Company currently has more than 90 clients. In 1997 and 1996,
Alberto-Culver Corporation represented 16% and 11%, respectively, of the
Company's consolidated commissions and fees. During 1995, American Drug Stores
and Minolta, represented 13% and 12%, respectively, of the Company's
consolidated commissions and fees.
Typically, an advertising agency such as the Company will lose and gain
several client accounts in any given year as a result of competition with other
agencies. In general, the Company has been able to replace the business
represented by lost clients so that the loss of clients has not had a long-term
adverse effect upon the Company's financial condition or its competitive
position. In 1996, the Company lost a client of the acquired EJL operations
shortly after the completion of that acquisition. That client had been the
principal source of business for EJL's Houston office, and its loss led to the
Company closing that office.
SOLICITATION OF NEW BUSINESS
The Company generally obtains new clients through referrals, by
identifying prospects through researching companies whose products and services
do not conflict with those of present clients, and by identifying new business
opportunities through trade and business sources. The Company solicits
prospective accounts through personal contacts by members of the Company's
senior management as well as through the efforts of those Company personnel
responsible for business development. Each of the Company's agencies has a team
of approximately eight individuals responsible for the business development
activities of that agency.
A prospective client's initial step in the process of selecting an
advertising agency normally involves its review of credentials submitted by
several agencies, followed by meetings between the prospective client and one or
more of these agencies. In most cases, potential clients seek creative,
marketing and media presentations from a limited number of agencies which reach
the final review stage. In soliciting new clients, the Company often incurs
expenditures which generally are not reimbursed by the client, even if the
Company wins the account. The Company considers the potential revenue from a new
account when determining the appropriate level of expenditures for such
presentations. These costs are expensed as incurred as opposed to production
costs reported in the Company's financial statements as "expenditures billable
to clients" which represent external costs incurred in connection with
production jobs being billed to clients. The period of time required by the
Company to obtain a new client and generate revenues from services for the
client may range from two weeks to several months.
ACCOUNT AND PROJECT MANAGEMENT
In order to service a client's perceived creative and marketing needs
while remaining within the client's budget, the Company designates an account
team for each client, supervised by the executive in charge of client services
for the particular office. Depending upon the needs of the client, the account
team may consist of an account supervisor, one or more account managers and one
or more assistant account managers. The account team, working with personnel in
media, research, production and other areas, establishes a marketing strategy
and advertising campaign for the client. The account managers are responsible
for coordinating product and market research, media and other activities for the
client, including the preparation of budget estimates. In addition, the account
manager helps to develop effective advertising budgets for the client and acts
as a clearing house of information with regard to the client's competition and
its advertising needs. When necessary or beneficial, the account team may
include, or be assisted by, either members of the Company's senior management or
research or creative personnel from another of the Company's agencies.
PRODUCTION OF ADVERTISING
Generally, the Company does not itself produce television and radio
commercials. The Company may, in some circumstances, employ outside contractors
to perform photography necessary for a client's print advertisement. When the
Company directs the work of an outside producer or photographer the Company's
staff directs and supervises the work and the Company bills the client for the
actual outside costs, plus a commission. Presently the commission is 17.65% of
the outside costs, which represents a rate common in the industry.
MEDIA BUYING
The Company believes that effective media buying is an essential
component of a successful advertising campaign, and that the selection of media
for each promotional campaign must be strategically consistent with the client's
overall marketing objectives. The Company consistently attempts to achieve
cost-effective media buying to provide its clients with the optimal return on
their advertising investment. Unlike many of its competitors, the Company
involves the media department at the beginning of each advertising campaign. As
is typical in the advertising industry, the commission that the Company receives
for the media placement of its clients' advertisements represents the Company's
principal source of revenues.
In 1989, recognizing that the experienced media professionals in the
Company's Chicago agency were underutilized, the Company decided to consolidate
the majority of its media buying in Chicago. As a result, while the New York
agency continues to maintain a media director and media planners to buy print
advertising and to plan media advertising for that agency's clients, most media
buying for all of the Company's agencies is now performed by the Chicago media
buying department. The consolidation of media buying in Chicago has created a
media buying department with substantial experience and extensive knowledge of
advertising markets across the United States. Additionally, consolidation of
this function allows the Company to reduce overhead. The Company's clients also
benefit from this approach insofar as the single group purchases a higher volume
of media space than would be purchased through media buying functions in
individual agencies, as a result of which the Company may at times be in a
position to obtain more favorable space, time or rates from print or broadcast
media suppliers.
The media group has planning specialists who are assigned to individual
client accounts. After a thorough analysis of a client's business, the media
planners determine media objectives, develop media strategies to meet these
objectives and decide which media will best accomplish these objectives. Actual
media buying is performed by a national broadcast buyer, responsible for network
television, syndicated shows, cable television and national radio shows; local
broadcast buyers, each responsible for spot television, radio and print
advertising in individual markets throughout the country; and a support staff
with trained local broadcast buying assistants. The Company believes that by
having one buyer responsible for all purchases in a given market, the Company
generally is able to obtain highly sought-after advertising space and time for
its clients. The Company believes that its media buying service gives the
Company a competitive advantage over certain other advertising agencies which
may contract out media buying functions to an independent media buying service.
The Company's growth strategy includes the transformation of its media
buying department into a full- scale media-buying service, under the name
Lois/USA Media. This service will continue to perform the majority of the media
buying for the Company's advertising clients and will seek to develop its own
clients, which may include businesses (including advertising agencies that do
not have internal media buying functions) that otherwise are not clients of the
Company.
NEW INITIATIVES
The Company continuously attempts to develop new and innovative
services to offer to its existing clients and to appeal to new clients. Many of
these services are interactive in nature and are designed to appeal to a broad
range of actual and potential clients. The following paragraphs describe
services which the Company has introduced since 1993.
Year 2K Communications
In March 1997, the Company launched Year 2K Communications ("Year 2K").
Year 2K is the full-service marketing communications division of Lois/USA West
which specializes in innovative strategies, "new media" and ongoing creative
solutions. Year 2K's services include consumer product, destination and
image/brand marketing consultation and program development, sales promotions,
presence and event marketing, full public relations services, direct mail,
on-line/interactive site development and marketing, collateral and point-of-sale
development, plus a full art design and copy writing staff.
Year 2K is establishing strategic alliances with entertainment industry
participants that will be used to generate attention for its clients' products
and services. Current Year 2K clients include the Rio Suite Hotel & Casino -Las
Vegas, The Gas Company in L.A., Kahlua -Allied Domecq, the Disney Company and
the Academy of Motion Picture Arts & Sciences. Revenue for Year 2K was
$1,962,000 for 1997.
Lois/USA Direct!
In 1993, Lois/USA Direct! was formed as a division of the Company's New
York agency to design and implement the Company's direct marketing activities.
Such campaigns are undertaken for the dual purposes of generating sales and
increasing consumer awareness of a client's name or products. To date, direct
response advertising campaigns have been successfully performed for clients in
the financial, hotel, publishing and wine industries.
AdArt
In 1993, the Company established AdArt in its New York and Chicago
agencies. AdArt is a computer graphics center specializing in digital imaging of
art and advertising composition. The Company is in the process of expanding this
service in its Los Angeles office.
AdArt has enabled the Company to reduce its use of outside vendors
substantially for these composition services, thereby saving the Company's
clients as much as 50% of the cost of outside vendors while contributing to the
Company's revenues. AdArt has also reduced costs incurred by the Company in the
preparation of materials for presentations to prospective clients. The Company
intends to keep the AdArt facility current by maintaining state-of-the-art
digital imaging equipment which may require expenditures up to $100,000 each
year. The Company is also exploring the possibility of offering AdArt's services
to third party customers.
Lois/USA Ventures
The Company has developed a concept known as Lois/USA Ventures
("Ventures"). Ventures is made available to certain carefully selected clients
that are at an early development stage, during which advertising would be
strategically advantageous, but which lack sufficient cash resources to support
the desired level of advertising. Through Ventures, the Company provides its
creative services to such clients and receives an equity interest in the client
as a component of its fee arrangement. The Company's senior management,
including Messrs. Lois and Veru, determine whether a candidate qualifies under
the Ventures program, looking primarily at the client's potential for success.
The program requires clients to pay the Company in cash for all out-of-pocket
costs, including media and production costs. As the result of Ventures projects,
in 1996 the Company received approximately $15,000 in stock in a publicly traded
entity.
The National Basketball Retired Players Association
The Company has entered into an agreement with the National Basketball
Retired Players Association (the "Association") to represent the interests of
the Association in pursuing marketing and advertising opportunities. The
organization was founded by retired National Basketball Association players to
generate resources to help former professional basketball players in need of
financial or medical assistance, and to help promote basketball around the
world. Under this agreement, the Company is entitled to a percentage of the
revenues received by each licensing agreement or other agreement entered into by
the Association's members. The exact percentage of revenues to be received by
the Company is currently being negotiated with the Association. During 1996, the
Association provided members to be used in a promotional campaign for a major
pharmaceutical manufacturer.
COMPETITION
The advertising and marketing communications businesses in which the
Company is active are highly competitive. Clients may change advertising
agencies, generally on 90 days' notice, and may elect to reduce their
advertising expenditures at any time for any reason. Advertising agencies of all
sizes strive to attract new clients or additional assignments or accounts from
existing clients. As a result, the Company must compete with numerous
full-service and specialty advertising agencies to maintain existing client
relationships and to obtain new clients. In addition, many companies have
in-house departments that may handle all or a portion of their advertising
requirements.
Competition in the advertising industry depends to a large extent on
the client's perception of the quality of an agency's creative product and media
buying capabilities. The Company seeks to develop new clients by presenting
examples of advertising campaigns created by the Company and by describing the
range of services offered by the Company.
The expansion of the Company's operations has increased, and will
continue to increase, the frequency with which the Company must compete with the
larger, national advertising agencies to obtain client assignments. The Company
competes against most of the 50 largest advertising agencies in the United
States, including WPP Group, The Interpublic Group, Omnicom Group Inc., True
North and Saatchi & Saatchi. Such larger agencies generally have substantially
greater financial resources, more personnel and more extensive facilities than
the Company. In addition, many of the agencies with which the Company competes
are affiliated with multi-national communications firms, enabling them to offer
their clients a diverse portfolio of communications services around the world.
The Company believes that it has been able to compete effectively on the basis
of the quality of its creative product and media buying services, service,
personal relationships with clients and reputation. The Company also believes it
can compete effectively with larger agencies due in part to the strength of the
Company's research and media buying departments. However, there can be no
assurance that the Company will be able to maintain its competitive position in
the industry as it continues to expand its operations to new markets.
In some cases, an advertising agency's ability to compete for new
clients is affected by the industry policy, which many advertisers follow, of
prohibiting their agencies from representing competitors in the same business.
As a result, future growth of the Company's client base may have the effect of
limiting the Company's potential for securing certain new clients.
EMPLOYEES
As of March 16, 1998, the Company had 408 employees, including 385
full-time and 23 part-time employees. In addition, the Company hires consultants
or independent contractors on an as-needed basis. None of the Company's
employees is covered by a collective bargaining agreement. The Company believes
its relations with its employees are good.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company does not own any real property. All of the Company's existing
offices are located in leased premises. The Company considers its offices
adequate for its present needs. The following table provides data on the leased
offices of the Company:
<TABLE>
<CAPTION>
Annual
OFFICE LOCATION BASE Approx.
RENT SQ.FT. EXPIRATION DATE
<S> <C> <C> <C> <C>
New York 40 West 57th St. $665,000(1) 22,000 April 30, 2001
Chicago 2200 Merchandise Mart $461,000(1) 32,600 March 31, 1998
Chicago 401 N. Michigan Avenue $554,000 21,400 November 30, 2000
Chicago 111 East Wacker Dr. $930,000 41,923 February 28, 2010
Los Angeles 5700 Wilshire Blvd. $1,247,000(2) 43,300 August 31, 2007
Houston 7155 Old Katy Road $606,000 41,813 July 15, 2001
Austin Tejas/Conti Bldg $42,000 3,000 March 31, 1999
Dallas 3232 McKinney Ave. $53,252 3,042 October 31, 2001
- - ---------------
(1) Subject to escalation based upon the Company's proportionate share of
increases in property taxes and operating costs.
(2) At the Company's option, the lease may be canceled August 1, 2000 for a
cancellation fee of $2,059,306.
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently engaged in any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the year ended December 31, 1997, the Company's Board of
Directors did not submit any matters to a vote of securityholders. A
stockholders meeting was held on March 22, 1998.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no current public trading market for the Company's Common
Stock. The Company's Common Stock has, from time to time, been traded in the
over-the-counter market, under the symbol "LSUS," and, according to the OTC
Bulletin Board, the total volume of such trades for the year ended was 656,000
shares. The last reported trade, to the Company's knowledge, was on January 22,
1998 at a price of $9.0625 per share.
The Company believes that there are approximately 50 holders of record
of its Common Stock as of March 16, 1998.
The Company has never paid a dividend on its Common Stock and does not
expect to pay dividends in the near future. In addition, the terms of the
Company's bank credit facility with Sanwa prohibit the Company from paying
dividends on its Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
THE FOLLOWING DISCUSSION OF THE COMPANY'S HISTORICAL FINANCIAL
CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO AND THE OTHER
FINANCIAL INFORMATION APPEARING ELSEWHERE HEREIN.
GENERAL
The level of an advertising agency's business depends not only on the
number of its client accounts but also on the volume of spending by each client.
During periods of economic difficulty, advertisers will tend to reduce their
advertising and marketing budgets, creating fewer revenue opportunities for
advertising agencies such as the Company.
Total United States advertising spending in 1997 increased by 6.7% over
the 1996 level. The 1997 increase comes after increases of 7.6% in 1996 and 7.7%
in 1995. The 1997 increase in United States advertising expenditures was greater
than the general rate of economic growth, indicating increased emphasis on
advertising. However, there can be no assurance that the economy, or advertising
expenditures, will continue to grow at similar rates, or at all.
Commissions charged on media purchases for clients are the primary
source of revenues for the Company. Commission rates are not uniform and are
negotiated with each client. In accordance with industry practice, the media
source typically bills the Company for the time or space purchased and the
Company bills its client for this amount plus a commission. The Company then
remits the net media charge to the media source and retains the balance as its
commission. Some clients, however, prefer to compensate the Company on a fee
basis, under which the Company bills its clients for the actual charge billed by
the media source plus an agreed upon fee. The Company generally requires that
payment for media charges be received from the client before the Company will
make payments to the media. Occasionally the Company, like other advertising
agencies, is at risk in the event that its client is unable to pay the media
charges, as the Company may remain liable to the media source. To date, the
Company has not experienced any material losses due to failure of clients to pay
media charges.
The Company currently has approximately 90 clients. In 1997 and 1996,
the Company's largest client represented 16% and 11% of the Company's
consolidated commissions and fees, respectively. During 1995, two clients
represented 13% and 12%, respectively, of the Company's consolidated fees and
commissions. See "Description of Business-Clients" herein.
The Company also receives fees from clients for research and for
planning, placing and supervising work done by outside contractors in the
preparation of finished print advertising and the production of television and
radio commercials. In these instances, the Company generally bills its clients
for the cost of production plus a fee. In addition, the Company derives income
from the creation and publication of brochures and similar collateral materials
for clients.
The Company's business operations are not seasonal; however, based upon
individual client expenditures, significant quarter to quarter fluctuations in
billings and operating results may occur.
The Company's growth strategy includes the acquisition of existing
advertising agencies. See Item 1- Description of Business- Expansion Strategy.
Prior to 1995, the Company's growth had been constrained by the need to pay
interest on its $3.2 million Subordinated Note. Concurrent with the 1995 public
offering, the Company secured from Chase Bank a new three-year reducing
revolving credit facility, and an increase in its line of credit. The $1,363,000
net proceeds of the Company's 1995 public offering, together with the newly
available bank borrowings were used to repay the Subordinated Note, which
reduced the Company's debt service burden and allowed management to begin to
take steps to implement the Company's expansion strategy.
In 1996, the Company obtained approximately $2.2 million of additional
capital through the private placement of shares of Series A Convertible
Preferred Stock. The additional capital was used to offset the working capital
absorbed by the Company's 1996 net loss. In October 1997, the Company replaced
the Chase Bank borrowings with a new revolving credit facility from Sanwa
Business Credit Corporation which provides for borrowings up to $25 million
based on a specific percentage of accounts receivable. The additional capital
available under the agreement with Sanwa will allow the Company to pursue its
acquisition growth strategy.
In February 1996, the Company acquired EJL, an advertising agency with
offices in Chicago, Detroit, Houston and Los Angeles. Cost savings from the
combination of the EJL agencies are being implemented, particularly in the areas
of real estate leasing and agency administration costs. However, the Company
incurred non-recurring charges of $3,583,000 in 1996, including costs resulting
from closing of EJL's Houston office due to the loss of a significant client,
and salary expenses related to excess staffing.
The Company experienced a significant net loss in 1996, in part due to
the charges related to the EJL acquisition. In 1997, the Company continued the
cost and operating revisions at EJL initiated with the 1996 acquisition. As a
result of these measures, the Company's operating results improved in 1997, to
an operating loss of $816,000 compared to an operating loss of $4,598,000 in
1996. The Company was profitable during the first half of 1997, and net loss for
the year results principally from losses in the Company's EJL/Los Angeles
operation, and to a lesser extent, fourth quarter declines in revenues
elsewhere. The Company initiated additional cost reduction measures in Los
Angeles during the last quarter of 1997, and plans further initiatives in 1998.
On December 31, 1997 the Company acquired F&K for a total purchase
price of $10.8 million. The purchase price includes an initial cash payment of
$3.5 million, the issuance of 50,000 shares of the Company's Common Stock and
warrants to purchase an additional 39,000 shares of the Company's Common Stock,
obligations to issue on each of December 31, 1998, 1999 and 2000 an aggregate of
100,000 additional warrants to purchase shares of the Company's Common Stock and
cash payments totaling $5.5 million, subject to adjustment, and a portion of the
salaries to be paid to the three senior officers of F&K over the next five years
under employment contracts entered into in connection with the acquisition. See
Item 1- Description of Business- Acquisition of Fogarty & Klein, Inc. and Note 2
of Notes to Consolidated Financial Statements. The acquisition of F&K was
accounted for as a purchase, with the portions of the purchase price to
be paid at December 31, 1998, 1999 and 2000 by cash payments, delivery of
additional shares of common stock and warrants to purchase additional shares of
Common Stock, or through employment agreements recorded at their present value
(the "Deferred Purchase Price"). As a result, the assets and liabilities of F&K
are included in the consolidated balance sheet as of December 31, 1997, but its
results of operations are not included in the statement of operations for 1997.
The recording of the acquisition of F&K on December 31, 1997 causes the
consolidated balance sheet as of the end of 1997 to lack comparability to the
consolidated balance sheet as of December 31, 1996 and to the results of
operations and cash flows for 1997.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
The Company incurred a net loss of $1,381,000 for the year ended 1997
compared to a loss of $5,224,000 for the prior year. The improvement in earnings
was primarily the result of increased fees and commissions from new and existing
clients, as well as the result of its cost consolidation efforts from the
acquisition of EJL.
Revenues from commissions and fees increased $5,217,000, or 22.6%, to
$28,284,000 in 1997 from revenues of $23,067,000 for 1996. Consolidated revenues
increased in each quarter in 1997 compared to 1996, except for the third
quarter, when the loss of several clients in the Company's Los Angeles office
caused revenues to decline compared to 1996. The overall increase in revenues
results both from assignments from new clients, including Valvoline, Turtle Wax,
Orthodontics Centers of America, Proscape Technologies and Decibel, and from
increases in advertising projects and spending by existing clients. Although
consolidated revenues increased in the fourth quarter of 1997, as compared to
1996, the Company's Los Angeles office continued to operate at a significant
loss due to continuing declines in revenues. The Company cannot predict when, or
if, the Los Angeles office will obtain new clients or assignments to replace the
lost revenues. In October 1997, the Company began staffing reductions in Los
Angeles to bring costs in line with revenues with additional reductions, and
other cost restructuring initiatives planned for 1998.
Total operating expenses increased from $27,665,000 in 1996 to
$29,100,000 and represented 102.9% of revenues in 1997 compared to 119.9% of
revenues in 1996. The increase of $1,435,000 was primarily in salaries and
related costs, representing a higher level of other operating expenses and
staffing (primarily in the Chicago office) needed for the maintenance of greater
revenue. The previously discussed decline in revenues in the third quarter, and
slower than anticipated revenue growth in the fourth quarter, caused operating
expenses to be above the desired levels relative to revenues. In particular, the
levels of occupancy costs (rent, etc.) and administrative expenses were higher
than supportable at the current level of revenue, and the Company is examining
these costs in relation to its revised projections of revenues and growth.
Amortization of financing costs increased to $398,000 as a result of
the write-off of the unamortized costs related to the Chase Bank facilities,
which were charged to expense when those facilities were replaced by the Sanwa
facility. Interest expense declined from $232,000 in 1996 to $170,000 in 1997 as
average outstanding borrowings were reduced during the first six months of 1997.
The provision for income taxes decreased from $307,000 for the year
ended 1996 to a benefit of $3,000. No benefit was recorded for the Company's
loss in 1997. Approximately $7,000,000 of net operating loss carry forwards are
available to offset future taxable income.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
The Company incurred a net loss of $5,224,000 for the year ended 1996
compared to income of $718,000 for 1995. This net loss is primarily attributable
to the effects of the EJL acquisition.
Revenues from commissions and fees were $23,067,000 in 1996 compared to
$16,035,000 during 1995. The $7,032,000 increase in revenues was principally
attributable to the inclusion of EJL's revenues from February 16, 1996. EJL's
revenues for that period were $9,251,000. In 1995, EJL earned revenues of $16.4
million during the same period; the decline in 1996 was attributable to the loss
of clients, mainly the principal client of EJL's Houston office.
Total operating expenses increased from $14.7 million in 1995 to $27.7
million in 1996, and represented 119.9% of revenues in 1996 compared to 91.9% of
revenues in 1995. The principal reasons for the increase, in both dollars and as
a percentage of revenues, were the non-recurring EJL related charges of
$3,583,000 in 1996, and increases in depreciation and amortization (including
the amortization of goodwill) in 1996 totaling $1,170,000. The higher
depreciation and amortization in 1996 was a direct result of the acquisition of
EJL.
Exclusive of non-recurring charges and the non-cash depreciation and
amortization, operating expenses were 98.0% of revenues in 1996 compared to
90.0% of revenues in 1995. The increase is primarily attributable to an increase
in salaries and related costs, from 62.3% of revenues in 1995 to 70.3% of
revenues in 1996. This increase reflects certain excess staffing levels which
existed until the acquired EJL operations were fully assimilated and cost
restructured.
Interest expense increased from $138,000 in 1995 to $232,000 in 1996 as
the result of higher levels of outstanding debt. The Company's total borrowing
increased in 1996 principally from the Company's use of bank borrowings to
obtain the cash needed to complete the EJL acquisition.
The provision for income taxes fell to $307,000 for the year ended 1996
compared to $390,000 for the year ended 1995. The 1996 income tax provision is
comprised of state and local taxes. No tax benefit was recorded for the
Company's loss in 1996.
LIQUIDITY AND CAPITAL RESOURCES
On January 3, 1995, the Company consummated a public offering of
300,000 shares of Common Stock at a price of $6.00 per share. The gross proceeds
of $1,800,000 were reduced by seller's commissions of $108,000 and other
professional fees and expenses of $329,000. In connection with the Company's
1995 public offering, the Company established a $2.0 million reducing revolving
credit facility under the Reducing Revolving Credit Agreement with Chase Bank.
Upon consummation of the Offering, the Company borrowed $2,000,000 under the
Reducing Revolving Credit Agreement. These funds, together with the net proceeds
of the Offering, were used to repay the Subordinated Note. Amounts outstanding
under the Reducing Revolving Credit Agreement bore interest at the highest rate
determined with reference to one of several fluctuating rate bases. In addition
to quarterly amortization required under the Reducing Revolving Credit
Agreement, the Company was 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.
Borrowings under the Reducing Revolving Credit Agreement were secured
by all of the assets of the Company's operating subsidiaries, a pledge of all
shares of capital stock of the Company's operating subsidiaries held by the
Company, a pledge of all shares of the Company's capital stock held by Messrs.
Lois and Veru, and an assignment in favor of Chase Bank of the key man life
insurance policies on Mr. Lois (in an amount not less than $2.0 million) and Mr.
Veru (in an amount not less than $1.0 million).
The Company acquired EJL in February 1996. Under the Original
Agreement, the Company was required through February 2001 to make annual
additional purchase price payments to the sellers equal to 5% of the revenues of
the acquired operations, subject to certain adjustments, up to a maximum of $12
million. 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 a bank overdraft. In May 1997, the Company and the former owners of EJL
agreed to amend 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, 1997 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.
Concurrent with the acquisition of EJL in February 1996, the Company
entered into an amendment to the Reducing Revolving Credit Agreement with Chase
Bank. Under the Reducing Revolving Credit Agreement, as amended, the loans which
originally matured on December 31, 1997, were extended to March 31, 1999. The
February 1996 amendment required amortization payments to reduce the principal
balance outstanding and the amount available to be borrowed by approximately
$250,000 each quarter, commencing in the second quarter of 1996.
The Company's 1996 net loss and its acquisition of EJL caused an
increase in the Company's negative working capital from $3,560,000 at December
31, 1995 to $14,321,000 at December 31, 1996. The increase in the working
capital deficit resulted principally from an increase in accounts payable,
accrued expenses, and advance billings, which resulted from the Company's
operations, a bank overdraft which was used to finance a portion of the 1996 net
loss and the EJL acquisition cash payments, and increases in the short-term
borrowings and lease related accruals which resulted from the financing or
recording of the EJL acquisition.
In May 1997, the Company raised additional capital of approximately
$2.2 million through the private placement of 2,160 shares of Series A
Convertible Preferred Stock. The Series A Convertible Preferred Stock requires
annual dividends of $100 per share ($216,000 in the aggregate), which dividends
will reduce the net income attributable to common stock, and related earnings
per share, beginning in the second quarter of 1997. However, the holders of
1,375 shares of the Series A Convertible Preferred Stock have elected to receive
the dividends for the first year in the form of shares of the Company's Common
Stock, valued at $6.50 per share. Therefore, assuming no conversions, the Series
A Convertible Preferred Stock will only require cash dividends of $78,500 in
1998. The Series A Convertible Preferred Stock may be converted into shares of
the Company's Common Stock at a conversion price of $6.50 per share.
In October 1997, the Company entered into a revolving credit facility
with 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 stock 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 Bank Reducing Revolving Credit Agreement, which was
terminated. As of December 31, 1997, borrowings of $4,642,000 were outstanding
under the Sanwa facility and additional borrowings of $5,358,000 were available.
On December 31, 1997, the Company acquired all of the outstanding
common stock of F&K. The aggregate purchase price was $10.8 million. The Company
made an initial payment of $4,103,000, comprised of a cash payment of
$3,500,000, and the issuance of 50,000 shares of the Company's common stock and
warrants for the purchase of 39,000 shares of the Company's Common Stock,
exercisable through December 31, 2000 at an exercise price of $10.00 per share.
The F&K Agreement requires that the Company make additional purchase
price payments on the first, second and third anniversaries of the acquisition.
On December 31, 1998 the sellers will receive an additional cash payment of
$1,125,000, and warrants for the purchase of 50,000 shares of the Company's
common stock exercisable through December 31, 2001 at an exercise price of
$11.00 per share. On December 31, 1999, the Company is required to make a cash
payment of $1,125,000 and to issue an additional 50,000 warrants, exercisable
through December 31, 2002 at an exercise price of $12.25 per share. Finally, on
December 31, 2000, the Company must make a final cash payment of $3,250,000,
which may be increased or decreased by up to $450,000 for 15% of the difference
between $42 million and the actual commissions and fees of F&K for the three
years ending December 31, 2000, from clients existing at the time of the
acquisition. Concurrent with the acquisition of F&K, the Company entered into
certain employment contracts with the three senior officers of F&K that provide
for aggregate compensation of $4,950,000 over the next three years. See Item 10-
Executive Compensation- Employment Contracts. Of that amount, $1,200,000 has
been treated as a component of the purchase price. The Company currently
anticipates that the cash payments required at December 31, 1998, 1999 and 2000
will be funded from the Sanwa credit facility.
At December 31, 1997, the Company had a working capital deficit of
$18,338,000, reflecting an increase in the working capital deficit of $4,017,000
caused principally by $3,500,000 borrowed under the Sanwa line of credit to fund
the cash portion of the initial payment for the acquisition of F&K. Current
assets and current liabilities increased by $18.7 million and $22.7 million from
December 31, 1996 to December 31, 1997, due mostly to increases in accounts
receivable, accounts payable and accrued expenses. The increases in those
working capital items is in large part due to the inclusion of the assets and
liabilities of F&K at December 31, 1997, which accounted for $16.6 million,
$15.6 million and $2.8 million of the increases in accounts receivable, accounts
payable and accrued expenses, respectively.
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 creating an incentive for future performance.
The Company believes that cash flows from operations, together with
funds available under the Company's credit facility with Sanwa will be
sufficient to meet the Company's cash needs for its existing business and any
potential acquisitions over the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes a requirement to display the
components and total of comprehensive income in a financial statement with equal
prominence as the other financial statements included in a full set of general
purpose financial statements. Comprehensive income includes net income and items
of gain or loss that, under generally accepted accounting principles, are
excluded from net income and charged or credited directly to stockholders'
equity. SFAS No. 130 is effective for years beginning after December 15, 1997.
The Company has not yet completed its analysis of the requirements of SFAS No.
130. The implementation of the requirements of this statement, however, will not
affect the Company's net income, cash flows or financial position.
In June 1997 the FASB also issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS No. 131 is effective
for years beginning after December 15, 1997 and replaces the requirements of
SFAS No. 14 concerning the manner in which an enterprise defines its reportable
business segments and the nature of the information about business and
geographic segments disclosed in the annual and interim financial statements of
public companies. The Company has not yet completed its analysis of the
requirements of SFAS No. 131. The implementation of the requirements of this
statement, however, will not affect the Company's net income, cash flows or
financial position.
YEAR 2000
A significant portion of the Company's data processing is performed
through the use of hardware and software supplied by an independent data
processing service. The Company has been informed by the independent service
that its systems are Year 2000 compliant. The Company has reviewed its remaining
data processing functions and has determined that they are either Year 2000
compliant, or that the costs to make them Year 2000 compliant will not be
material.
OTHER
Inflation has not had any material impact on the commissions and fees
of the Company for the years ended December 31, 1995, 1996, or 1997.
The Company does not utilize futures, options or other derivative
financial instruments.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained under "Item 1. Description of Business"
and "Item 6. Management's Discussion and Analysis or Plan of Operation," and
other statements contained herein regarding matters that are not historical
facts, are forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995). Because such forward-looking
statements include risks and uncertainties, actual results may differ materially
from those expressed or implied by such forward-looking statements.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements are submitted in Item 13 of this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following set forth the executive officers and directors of the
company:
NAME Age Title
George Lois 66 Co-Chairman of the Board, Co-Chief
Executive Officer and Director
Theodore Veru 70 Co-Chairman of the Board, Co-Chief
Executive Officer, President and
Director
Dennis Coe 50 Executive Vice President
Mike de Maio 44 Executive Vice President and Chief
Operating Officer
Edwin Holzer 64 Chairman and Chief Executive
Officer of Lois/EJL Chicago
Dean Laws 53 Executive Vice President
Robert Stewart 42 Chief Financial Officer, Treasurer
and Secretary
John Hatsopoulos (1)(2) 63 Director
David DeBusschere (1)2) 57 Director
Dennison Veru 37 Director
- - -------------------------
(1) Member of Board of Directors' Audit Committee.
(2) Member Board of Directors' Compensation Committee.
The Company's Amended and Restated By-laws provide that directors are
to be elected to serve until the next annual meeting of stockholders and until
their respective successors have been elected and qualified. The Board currently
consists of five members. The Company has established an Audit Committee and a
Compensation Committee. A majority of the directors on each such committee are
disinterested persons.
GEORGE LOIS is Co-Chairman of the Board of Directors, Co-Chief
Executive Officer and Worldwide Creative Director of Lois/USA Inc. and holds
similar positions in all of the Company's agencies. Mr. Lois is regarded as one
of the premier art directors in the United States. He is the founder of the
Company and a member of the Art Directors Hall of Fame and Creative Hall of
Fame. Prior to forming the Company in 1978, he was a principal of the Lois
Holland Calloway agency for ten years. He has authored several books, one of
which, THE ART OF ADVERTISING, has been frequently cited as an authoritative
text on the subject of mass communication. Mr. Lois has been a Director of the
Company since 1991.
THEODORE (TED) VERU is Co-Chairman of the Board of Directors and
Co-Chief Executive Officer and is charged with overseeing all business aspects
of the Company and its subsidiaries. Mr. Veru has been associated with the
Company since 1985 and has been a Director of the Company since 1991. He holds
similar positions in all of the Company's agencies. Prior to joining the
Company, he held various executive positions with Publicker International,
Schenley and Lever Brothers.
DAVID DEBUSSCHERE became a Director of the Company in August 1994. Mr.
DeBusschere is currently Executive Vice President, Corporate Development of
Williamson, Picket, Gross, Inc., a real estate company. Mr. DeBusschere is the
former Executive Vice President of the New York Knicks and former Commissioner
of the American Basketball Association. As a professional basketball player, Mr.
DeBusschere was voted to the NBA's All-Defensive Team for six years and to the
NBA's All-Star Team for eight years.
JOHN HATSOPOULOS became a Director of the Company in August 1994. Mr.
Hatsopoulos has been Chief Financial Officer and Executive Vice President of
Thermo Electron Corporation since 1988. He is also Vice President and Chief
Financial Officer of the following of Thermo Electron Corporation's public
subsidiaries: Thermedics Inc., Thermo Fibertek Inc., Thermo Instrument Systems
Inc., Thermo Power Corp., Thermo Process Systems, Inc., ThermoTrex Corp., Thermo
Remediation Inc., and Thermo Cardiosystems Inc. Mr. Hatsopoulos is also a member
of the board of directors for Thermo Instrument Systems Inc., Thermo Power
Corp., ThermoTrex Corp., Thermo Process Systems Inc., and Thermo Fibertek Inc.
In addition, Mr. Hatsopoulos is a director of Lehman Brothers Fund, Inc., a
member of the Board of Directors of the American Stock Exchange, Inc. and a
member of the Board of Governors of the Regency Whist Club in New York.
DENNISON VERU became a Director of the Company in August 1994. Since
November 1992, Mr. Veru has been associated with Awad & Associates, an
investment management firm, and was recently appointed President of Awad &
Associates. Prior to that time, he was Executive Vice President with Smith
Barney Harris Upham from February 1990 to November 1992. From December 1984 to
February 1990 he held various positions with Drexel Burnham Lambert, including
Vice President. Dennison Veru is the son of Theodore Veru.
DENNIS R. COE is an Executive Vice President of Lois/USA Inc. and is
President and Chief Executive Officer of Lois/EJL Los Angeles. Mr. Coe joined
EJL's marketing department in 1974 and served as a Divisional President from
1985 to 1990. Mr. Coe became a member of EJL's Board of Directors in 1987. Mr.
Coe was elected Corporate Co-President of EJL in May 1990. He received his BA
degree in Operations Research and Statistics from California State University,
Long Beach in 1970 and an MA in Marketing from Pepperdine University in 1974.
MIKE DE MAIO is an Executive Vice President and Chief Operating
Officer of Lois/USA Inc. and is President of Lois/EJL Chicago. Mr. de Maio
joined EJL as an account executive in the Chicago office and has been General
Manager of EJL Chicago since 1984. He received his BA degree from Yale
University in 1975 and a J.D. degree from DePaul University in 1978.
EDWIN HOLZER is Chairman and Chief Executive Officer of Lois/EJL
Chicago. He has served as President and Managing Director of Lois/USA Chicago
since 1987 when the Company acquired the agency, and had held the same position
with the agency under its control by Grey Advertising since 1971.
DEAN R. LAWS is an Executive Vice President and Director of Lois/USA
Inc. and Chairman of Lois/EJL Los Angeles. Mr. Laws joined EJL in 1973 and
became Corporate Co-President in 1990. He has been a member of the EJL Board of
Directors since 1987. Mr. Laws earned his BA degree in English literature from
the University of Redland in 1967 and an MBA from the University of Southern
California in 1969.
ROBERT K. STEWART is an Executive Vice President and the Chief
Financial Officer, Treasurer and Secretary of the Company, positions he has held
since he joined the Company in 1992. He is a Certified Public Accountant and
received his Masters of Business Administration degree from New York University.
PART III
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth certain information for the years ended
December 31 in each of 1995, 1996 and 1997 concerning compensation paid or
accrued for the Co-Chief Executive Officers and to each of the other four most
highly compensated executive officers of the Company serving at December 31,
1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
All Other
Name and Principal Year Salary ($) Bonus ($) Compensation
Position
<S> <C> <C> <C> <C>
George Lois 1997 $347,917 - $30,580(1)
Co-Chief Executive 1996 325,000 - 26,233(1)
Officer 1995 295,000 - 26,233(1)
Theodore Veru 1997 $347,917 - $71,600(1)
Co-Chief Executive 1996 325,000 - 45,005(1)
Officer and 1995 275,000 - 45,005(1)
President
Edwin Holzer 1997 $300,000 $75,000 8,501(1)
Chief Executive 1996 300,000 50,000 54,923(1)(2)
Officer 1995 275,000 50,000 54,923(1)(2)
Lois/EJL Chicago,
Inc.
Dean Laws 1997 $322,465 - $18,525(4)
Executive Vice 1996(3) $325,000 - 62,745(4)
President
Dennis Coe 1997 $322,864 - $34,009(4)
Executive Vice 1996(3) $325,000 - 58,545(4)
President
Mike de Maio 1997 $300,000 $10,000 $7,528(4)
Executive Vice 1996(3) $300,000 - 8,255(4)
President
Chief Operating
Officer
(1) Includes in 1996 and 1995, $21,233, $40,005, and $3,501, respectively, of insurance premiums paid by
the Company on behalf of Messrs. Lois, Veru and Holzer, respectively, and $5,000 in medical expenses
paid by the Company on behalf of each of Messrs. Lois, Veru and Holzer in 1997, 1996 and 1995. During 1997,
insurance premiums paid on behalf of Messrs. Lois, Veru and Holzer were $25,580, $66,600 and $3,501, respectively.
(2) Includes payments of $46,422 in each of 1996 and 1995 pursuant to a plan created for Mr. Holzer.
(3) Messrs. Laws, Coe and de Maio joined the Company in February 1996, prior to which both were principals of EJL.
Each has a five year employment agreement at a salary of $325,000, $325,000 and $300,000, respectively, per annum.
(4) Other compensation consists of medical expenses, life insurance, matching contributions to 401(k) plans and
car allowances paid on behalf of each individual.
</TABLE>
Prior to 1997, the Company did not pay cash compensation to its
non-employee directors. However, such directors were entitled to reimbursement
of expenses for attending Board meetings. Effective April 1997, each
non-employee director received $1,000 for each Board meeting attended, as well
as $500 for each committee meeting (Compensation and Audit Committees).
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Mr.
Lois and Mr. Veru. Each of the employment agreements expires on December 31,
1999 and provides for an option to renew the employment agreement for an
additional five years at the discretion of the Board of Directors. Each
employment agreement provides that upon termination of the agreement, other than
for cause, the Company will enter into a consulting arrangement with Mr. Lois
and Mr. Veru, as applicable, for a period of five years, pursuant to which each
of Mr. Lois and Mr. Veru will be paid 50% of his previous base salary.
As compensation for the services to be rendered under their employment
agreements, Mr. Lois and Mr. Veru are each currently paid an annual base salary
of $350,000. Under each agreement the Board of Directors is to review the
employee's salary at least annually and the salary amounts may be increased at
its discretion. Each of Messrs. Lois and Veru may receive an annual bonus to be
determined by the Board of Directors based upon financial objectives set by the
Board. Each employment agreement (i) includes a three-year non-competition
provision and (ii) provides that, in the event of the employee's death, in
addition to all compensation earned by the employee, the employee's beneficiary
will receive monthly payments for one year thereafter totaling the employee's
annual compensation at the rate in effect at the time of death. In addition, Mr.
Lois is provided with limousine service or other ground transportation and Mr.
Veru is provided with a car. The Board of Directors of the Company recently
voted to extend the Company's employment agreements with Messrs. Veru and Lois
to December 31, 2001. Effective January 1, 1998, the base salaries have been
increased to $450,000.
Edwin Holzer has entered into an employment agreement with Lois/USA
Chicago effective as of January 1, 1995. The employment agreement currently
expires on December 31, 1999. Lois/USA Chicago has the right to renew the
agreement for additional one-year terms by giving Mr. Holzer written notice of
its intention to renew not later than 120 days prior to the end of the initial
term or any renewal term. Mr. Holzer is paid an annual base salary of $300,000.
In addition, Mr. Holzer received compensation of $150,000 earned in three equal
annual installments beginning January 1, 1995. Mr. Holzer may request an
advancement of such $150,000 prior to it being earned. In the first year of the
agreement, Mr. Holzer received an option to purchase a minimum of 5,000 shares
of the Company's Common Stock at $6.00 per share, the initial offering price in
the Company's 1995 offering. Mr. Holzer is entitled to receive an annual car
allowance of $10,000, annual club membership dues of $3,000 and the annual cost
of the Company's executive medical plan not to exceed $4,000 per annum. The
employment agreement includes a two-year non-competition provision.
In addition, as part of Mr. Holzer's compensation the Company created a
plan only for Mr. Holzer's benefit under which payments totaling $185,686 vested
in Mr. Holzer as of December 31, 1992. Under the plan, the Company paid Mr.
Holzer four payments of $46,422 each, with the final annual installment under
this plan paid in March 1996.
Concurrent with the acquisition of EJL, the Company entered into
five-year employment agreements with four of the senior EJL executives. These
agreements provide for compensation of $325,000 per year, for Dean Laws and
Dennis Coe, $300,000 per year for Mike de Maio, and $225,000 per year for Mike
Waterkotte. The agreements are renewable upon the mutual agreement of the
parties. Bonuses are discretionary and upon termination of the employment
agreements with Messrs. Laws, Coe and de Maio each will enter into consulting
agreements, which require minimum service to be provided, for a five year term,
with compensation to each executive of $100,000 per year.
Concurrent with the December 31, 1997 purchase of all the outstanding
shares of F&K, the Company entered into employment agreements with three of
F&K's senior executives. These agreements provide base compensation of $450,000
per year for each William H. Fogarty, Richard E. Klein and Thomas Monroe. The
term of the agreements for each of Messrs. Fogarty and Klein is for a period of
three years and the term of Mr. Monroe's agreement is for a period of five
years. In addition to the base compensation, each of Messrs. Fogarty, Klein and
Monroe are also eligible to participate in an annual bonus pool.
401(K) PLAN
The Company has established the Lois/USA Inc. 401(k) Profit Sharing
Plan (the "401(k) Plan"). The 401(k) Plan is a qualified profit sharing plan and
salary deferral program under the Federal tax laws and is administered by the
Company. Individuals who were employed by the Company on the effective date of
the 401(k) Plan and who had attained age 21 were immediately eligible to
participate; other employees of the Company and its participating subsidiary
corporations are eligible to participate in the 401(k) Plan on the first January
1 or July 1 following completion of one year of service and attainment of age
21. Participants may defer from 1% to 12% of their total salary (including
bonuses and commissions) each pay period through contributions to the 401(k)
Plan. The Company may, at its discretion make contributions to the 401(k) Plan
each year which match in whole or in part the salary deferral contributions of
the participants for such year. To date, the Company has made no contributions
to the 401(k) Plan. All salary deferral and Company matching contributions are
credited to separate accounts maintained in trust for each participant and are
invested, at the participant's directive, in one or more of the investment funds
available under the 401(k) Plan. All account balances are adjusted at least
annually to reflect the investment earnings and losses of the trust fund.
Each participant is fully vested in his or her accounts under the
401(k) Plan. Distributions may be made from a participant's account upon
termination of employment, retirement, disability, death or in the event of
financial hardship (with a 10% penalty) or attainment of age 591/2. Participants
may also obtain loans from the 401(k) Plan secured by their account balances.
Distribution of accounts are in the form of a lump-sum payment.
The Company also maintains the 401(k) Plan and a non-contributory
profit sharing plan for the benefit of the former EJL employees. The Company,
under the terms of the 401(k) Plan, is required to match 25% of employee
contributions. These amounts vest over a six-year period. During 1996 and 1997,
the amount of Company contributions were $98,737 and $76,502, respectively.
Management of the Company is currently in the process of combining the Lois and
EJL plans.
STOCK OPTION PLAN FOR EXECUTIVE OFFICERS AND DIRECTORS
The Company's 1994 Stock Option Plan for Executive Officers and
Directors of Lois/USA Inc. (the "Stock Option Plan") was adopted by the
Company's Board of Directors in December 1994. Initially, a total of 200,000
shares of Common Stock have been reserved for issuance under the Stock Option
Plan. The amount has been increased to 500,000 effective March 20, 1998 through
a shareholders' vote. Options may be granted under the Stock Option Plan to
executive officers of the Company or a subsidiary. As of March 16, 1998, 182,000
options are outstanding under the Stock Option Plan.
The Stock Option Plan is administered by the Compensation Committee,
which consists of at least two disinterested directors. The Stock Option Plan
requires the members of the Compensation Committee to be "disinterested persons"
within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as from
time to time amended. The Compensation Committee has the authority, within
limitations as set forth in the Stock Option Plan, to establish rules and
regulations concerning the Stock Option Plan, to determine the persons to whom
options may be granted, the number of shares of Common Stock to be covered by
each option, and the terms and provisions of the option to be granted. In
addition, the Compensation Committee has the authority, subject to the terms of
the Stock Option Plan, to determine the appropriate adjustments in the terms of
each outstanding option in the event of a change in the Common Stock or the
Company's capital structure.
Options granted under the Stock Option Plan may be either incentive
stock options ("ISO's") within the meaning of Section 422 of the Internal
Revenue Code, or non-qualified stock options ("NQSO's"), as the Stock Option
Committee may determine. The exercise price of an option will be fixed by the
Compensation Committee on the date of grant, except that (i) the exercise price
of an ISO granted to any individual who owns (directly or by attribution) shares
of Common Stock possessing more than 10% of the total combined voting power of
all classes of outstanding stock of the Company (a "10% Owner") must be at least
equal to 110% of the fair market value of the Common Stock on the date of grant
and (ii) the exercise price of an ISO granted to any individual other than a 10%
Owner must be at least equal to the fair market value of the Common Stock on the
date of the grant. Any options granted must expire within ten years from the
date of grant (five years in the case of an ISO granted to a 10% Owner). Shares
subject to options granted under the Stock Option Plan which expire, terminate
or are canceled without having been exercised in full become available again for
option grants. No options shall be granted under the Stock Option Plan more than
ten years after the adoption of the Stock Option Plan.
Options are exercisable by the holder subject to terms fixed by the
Compensation Committee. No option can be exercised until at least six months
after the date of grant. However, an option will be exercisable immediately upon
the happening of any of the following (but in no event during the six-month
period following the date of grant or subsequent to the expiration of the term
of an option): (i) the holder's retirement on or after attainment of age 65;
(ii) the holder's disability or death; (iii) the occurrence of such special
circumstances or events as the Compensation Committee determines merits special
consideration. Under the Stock Option Plan, a holder may pay the exercise price
in cash, by check, by delivery to the Company of shares of Common Stock already
owned by the holders or with respect to NQSOs and, subject to approval of the
Compensation Committee, in shares issuable in connection with the options, or by
such other method as the Compensation Committee may permit from time to time.
Options granted under the Stock Option Plan will be non-transferable
and non-assignable; provided, however, that the estate of a deceased holder may
exercise any options held by the decedent. If an option holder terminates
employment with the Company or service as a director of the Company while
holding an unexercised option, the option will terminate immediately, but the
option holder will have until the end of the tenth business day following his or
her termination of employment or service to exercise the option. However, all
options held by an option holder will terminate immediately if the termination
is for cause.
The Stock Option Plan may be terminated, modified or amended by the
Compensation Committee or the Board of Directors at any time; provided, however,
that (i) no modification or amendment either increasing the aggregate number of
shares which may be issued under options, increasing materially the benefits
accruing to participants under the Stock Option Plan, or materially modifying
the requirements as to eligibility to receive options will be effective without
stockholder approval within one year of the adoption of such amendment and (ii)
no such termination, modification or amendment of the Stock Option Plan will
alter or affect the terms of any then outstanding options without the consent of
the holders thereof. The Compensation Committee may cancel or terminate an
outstanding option with the consent of the holder and grant an option for the
same number of shares to the individual based on the then fair market value of
the Common Stock, which may be higher or lower than the exercise price of the
canceled option.
DIRECTORS' PLAN
The Company's Non-Qualified Stock Option Plan for Non-Employee
Directors (the "Directors' Plan") was adopted in December 1994. A total of
100,000 shares of Common Stock has been reserved for issuance under the
Directors' Plan. The Directors' Plan provides for the automatic one-time grant
of non-qualified options to non-employee directors. Under the Directors' Plan, a
non-qualified stock option to purchase 10,000 shares of Common Stock is
automatically granted to each non-employee director of the Company, in a single
grant effective as of January 3, 1995 (the date of consummation of the Company's
Offering) or, if later, the time the director first joins the Board of
Directors. The Directors' Plan authorizes grants of options up to an aggregate
of 100,000 shares of Common Stock. The exercise price per share is the fair
market value of the Company's Common Stock on the date on which the option is
granted (the "Grant Date"), which equals $6.00 per share in the case of the
initial grants to Mr. Hatsopoulos, Mr. DeBusschere and Mr. Dennison Veru. The
options granted pursuant to the Directors' Plan vest at the rate of one-third
each year from the date elected to the Board. Options granted pursuant to the
Directors' Plan expire ten years from their Grant Date. The Directors' Plan is
administered by the Compensation Committee. The Compensation Committee has the
authority, subject to the terms of the Directors' Plan, to determine the
appropriate adjustments in the event of a change in the Common Stock or the
Company's capital structure, and to perform other administrative functions. The
Director's Plan permits the exercise of options upon the occurrence of certain
events and upon termination of a director's service as a director (other than
for cause), without regard to the three year schedule described above, under
circumstances similar to those provided in the Stock Option Plan. The Directors'
Plan may be terminated, under circumstances similar to those provided in the
Stock Option Plan.
The following table shows the number of shares as to which options were
granted in 1997 to each director or executive officer under the Stock Option
Plan and the Directors' Plan:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR FROM 1994 STOCK OPTION PLAN
Potential
Individual Grants Realizable Value
at Assumed
Appreciation for
Option Term
Number of Percent of Total
Securities Options/SARs Exercise OR
Name Underlying Granted to Base Price EXPIRATION 5% ($) 10%($)
Options/SARs Employees in ($/SH) DATE
GRANTED FISCAL YEAR
(#)
<S> <C> <C> <C> <C> <C> <C>
Edwin 5,000 42.55% $9.00 August24, 2007 $33,400 $79,800
HOLZER
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR FROM DIRECTORS PLAN
Potential
Individual Grants Realizable Value
at Assumed
Appreciation for
Option Term
Number of Percent of Total
Securities Options/SARs Exercise OR
Name Underlying Granted to Base Price EXPIRATION 5% ($) 10%($)
Options/SARs Employees in ($/SH) DATE
GRANTED FISCAL YEAR
(#)
<S> <C> <C> <C> <C> <C> <C>
Dennison Veru 5,000 33.33% $10.00 August 24, 2007 $28,400 $74,800
John 5,000 33.33% $10.00 August 24, 2007 $28,400 $74,800
Hatsopolous
Dave 5,000 33.33% $10.00 August 24, 2007 $28,400 $74,800
DeBusschere
</TABLE>
The following table illustrates stock option awards exercised or
exercisable by the named executive officers during 1997 and the aggregate
amounts realized by each such officer. The table also shows the aggregate number
of unexercised options that were exercisable and unexercisable at December 31,
1997 which represents the positive difference between the market price of the
Company's Common Stock and the exercise price of such options.
<TABLE>
<CAPTION>
AGGREGATED OPTION FISCAL YEAR /SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Value of
Securities Unexercised
Underlying in-the-
Shares Unexercised Money
NAME Acquired VALUE Options at Options at
ON EXERCISE REALIZED ($) Fiscal Fiscal
(#) Year-End (#) Year-End ($)
Exercisable/ Exercisable/
UNEXERCISABLE UNEXERCISABLE(1)
<S> <C> <C> <C> <C>
George Lois 0 $ 0 50,000/0 182,250/0
Theodore D. Veru 0 0 50,000/0 182,250/0
Robert Stewart 0 0 6,667/3,333 24,168/12,082
Edwin Holzer 0 0 5,000/5,000 18,125/3,125
- - ----------------------------
(1) Value at December 31, 1997 based upon the last reported trade of $9 5/8 per
share.
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to
beneficial ownership of the Company's common stock as of March 16, 1998, (i) by
each person who is known by the Company to own beneficially more than five
percent of the Company's common stock, (ii) by each of the Company's current
directors, (iii) by each of the executive officers named in the Summary
Compensation Table above and (iv) by all current directors and executive
officers as a group. Unless otherwise indicated, the address of each beneficial
owner is 40 West 57th Street, New York, New York.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
NAME Amount and PERCENT
Nature of OF CLASS
Beneficial
Ownership
<S> <C> <C>
George Lois 875,413(1)(2) 32.90%
Theodore Veru 885,000(1) 33.26%
Dean Laws 55,816 2.10%
Dennis Coe 55,816 2.10%
Mike de Maio 31,819 (2) 1.20%
Robert Stewart 10,310(2)(4) *
David DeBusschere 15,103(2)(3) *
John Hatsopoulos 15,000(2)(3) *
Dennison Veru 25,413(2)(3) *
Edwin Holzer 10,000(4) *
All directors
and executive 1,979,690 74.40%
officers as
group (10 persons)
- - ------------------------------
*Less than 1%
(1) Includes 50,000 shares issuable upon exercise of options to purchase
shares of Common Stock granted under the Stock Option Plan.
(2) In addition, Messrs. Lois, de Maio, Stewart, DeBusschere and Dennison
Veru own Series A Convertible Preferred Stock in the amount of 100, 50,
75, 25, and 100 shares, respectively. Each share of Series A
Convertible Preferred Stock is convertible into approximately 154
shares of Common Stock.
(3) Includes shares issuable upon exercise of options to purchase 15,000
shares of Common Stock granted under the Director's Plan.
(4) Includes shares issuable upon exercise of options to purchase 10,000
Shares of Common Stock granted under the Stock Option Plan.
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements. The financial statements required to be filed
by Item 8 herewith are as follows:
INDEX PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-1
CONSOLIDATED BALANCE SHEETS F-2 - F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIT) F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6 - F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 - F-22
(a)(2) Exhibits. Reference is made to the Exhibit Index, which is found on
pages of this form 10K.
(b) Reports on Form 8-K.
1. Current Report on Form 8-K dated November 7, 1997, filed November 7, 1997,
reporting that the Company had entered into the Loan and Security Agreement
dated as of October 29, 1997 with Sanwa Business Credit Corporation, as agent
and lender, and various other lenders.
2. Current Report on Form 8-K dated December 17, 1997, filed December 24, 1997,
reporting that the Company had entered into a definitive Stock Purchase
Agreement with the stockholders of F&K.
3. Current Report on Form 8-K dated December 31, 1997, filed January 15, 1998,
reporting that the Company had acquired all of the outstanding shares of F&K.
4. Current Report on Form 8-K dated December 31, 1997, filed March 16, 1998,
reporting that the Company had acquired all outstanding shares of F&K, including
pro forma consolidated financial statements as of December 31, 1997 and for the
year ended December 31, 1997 giving effect to the acquisition by the Company of
all outstanding shares of F&K and Audited combined and consolidated financial
statements of F&K for the years ended December 31, 1995, 1996 and 1997.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Lois/USA Inc.:
We have audited the accompanying consolidated balance sheets of Lois/USA Inc. (a
Delaware corporation) and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, changes in stockholders' deficit
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lois/USA Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
New York, New York
March 12, 1998
<PAGE>
LOIS/USA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(000'S OMITTED, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
ASSETS December 31, December 31,
1996 1997
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 567 $ 3,218
Accounts receivable, net 21,788 38,475
Expenditures billable to clients 1,702 764
Other current assets 470 758
----------- ----------
TOTAL CURRENT ASSETS 24,527 43,215
----------- ----------
PROPERTY AND EQUIPMENT, AT COST: 2,948 4,503
Less-accumulated depreciation and amortization (2,112) (2,470)
----------- -----------
NET PROPERTY AND EQUIPMENT 836 2,033
----------- -----------
OTHER ASSETS:
Deferred financing costs, net 350 747
Goodwill, net 18,118 23,816
Other assets 165 451
------------ ------------
TOTAL OTHER ASSETS 18,633 25,014
---------- ----------
Total assets $ 43,996 $ 70,262
========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $ 2,865 $ -
Accounts payable 29,285 48,789
Accrued expenses 1,423 4,713
Bank loan 1,580 4,642
Advance billings 2,362 1,787
Lease related reserves - current 1,333 1,622
--------------------------------
TOTAL CURRENT LIABILITIES 38,848 61,553
-------- --------
OTHER LIABILITIES:
Lease related reserves 4,834 4,854
Equity subject to put rights 270 -
Deferred purchase price 5,939 9,250
---------- ---------
TOTAL LIABILITIES 49,891 75,657
- - --------- --------- --------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK - 2,160
STOCKHOLDERS' 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: 26 24
20,000,000 shares authorized; 2,555,875 and 2,439,861 issued
and outstanding in 1996 and 1997, respectively.
Additional paid-in capital 5,757 5,537
Accumulated deficit (11,678) (13,116)
--------- --------
TOTAL STOCKHOLDERS' DEFICIT (5,895) (7,555)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 43,996 $ 70,262
======== =========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<TABLE>
<CAPTION>
LOIS/USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(000'S OMITTED, EXCEPT FOR SHARE DATA)
1995 1996 1997
------ ------ ----
REVENUE:
<S> <C> <C> <C>
Commissions and fees $ 16,035 $ 23,067 $ 28,284
----------- ------
OPERATING EXPENSES:
Salaries and related costs 9,986 16,218 19,143
Unusual costs - 3,583 -
Client services 1,387 1,934 2,578
Rent and related charges 1,334 1,702 1,686
Amortization of goodwill 88 1,032 1,044
Depreciation and amortization 215 441 350
Other operating expenses 1,723 2,755 4,299
---------- ----------- -----------
TOTAL OPERATING EXPENSES 14,733 27,665 29,100
----------- -----------
OPERATING INCOME (LOSS) 1,302 (4,598) (816)
NONOPERATING EXPENSES:
Interest, net 138 232 170
Amortization of deferred
Financing costs 56 87 398
------------ ------------ ------------
TOTAL NONOPERATING EXPENSES 194 319 568
----------- ----------- ------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES 1,108 (4,917) (1,384)
PROVISION(BENEFIT) FOR INCOME TAXES 390 307 (3)
----------- ------------ ------------
NET INCOME (LOSS) $ 718 $ (5,224) $ (1,381)
=============== ================ ============
EARNINGS (LOSS) PER SHARE - BASIC AND DILUTED $ .33 $ (2.09) $ (.57)
=============== ================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 2,175,000 2,496,928 2,439,259
OUTSTANDING ============== ================ ===========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOIS/USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(000'S OMITTED)
Common Common Additional
Stock Stock Paid-in Accumulated
Shares Par Value CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C>
LANCE, DECEMBER 31, 1994 1,775 $ 18 $ 1,029 $ (7,172) $ (6,125)
Conversion of Redeemable Warrants 81 1 1,357 - 1,358
Issuance of common shares 300 3 1,360 - 1,363
Net income - - - 718 718
------ --------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1995 2,156 22 3,746 (6,454) (2,686)
Issuance of common shares 400 4 2,011 - 2,015
Net loss - - - (5,224) (5,224)
-------- ----------- ---------- -------- --------
BALANCE, DECEMBER 31, 1996 2,556 26 5,757 (11,678) (5,895)
EJL settlement - return of shares (189) (2) (863) - (865)
Acquisition of Fogarty & Klein, Inc.
Issuance of shares 50 - 481 - 481
Issuance of warrants - - 122 - 122
Shares issued for acquisition costs 23 - 164 - 164
Stock dividends on redeemable preferred stock - - 37 - 37
Net issuance costs - - (161) - (161)
Dividends on redeemable preferred stock - - - (57) (57)
Net loss - - - (1,381) (1,381)
--------- ---------- ---------- ------- ----------
BALANCE, DECEMBER 31, 1997 2,440 $ 24 $5,537 $(13,116) $(7,555)
======= ======== ========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
<TABLE>
<CAPTION>
LOIS/USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(000'S OMITTED)
1995 1996 1997
---- ---- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 718 $ (5,224) $(1,381)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Present value interest on Deferred Purchase Price - - 140
Depreciation and amortization 215 441 350
Loss on disposals of fixed assets - 254 41
Amortization of deferred financing costs 56 87 398
Bad debt expense 72 60 127
Amortization of goodwill 88 1,032 1,044
Deferred taxes 390 76 -
Decrease in lease related reserves - (1,278) (1,611)
Other - - 100
(Increase) decrease in accounts receivable (5,635) 7,653 (267)
(Increase) decrease in expenditures billable to clients (514) 196 1,372
(Increase) decrease in other current assets (450) 528 (293)
Decrease in other assets - (89) -
Increase (decrease) in bank overdraft - 2,865 (2,865)
Increase (decrease) in accounts payable 7,198 (7,362) 3,879
Increase (decrease) in accrued expenses - (1,174) 366
Increase (decrease) in advanced billings - 1,884 (1,459)
Decrease in deferred payouts (47) (46) (250)
----------- ----------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,091 (97) (309)
---------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (72) (185) (268)
Cash paid for acquisitions, net of cash acquired of $3,101 in 1997 - (1,888) (399)
Acquisition costs - (347) (618)
------------ ------------ -------
NET CASH (USED IN) INVESTING ACTIVITIES (72) (2,420) (1,285)
----------- -------------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred dividends - - (21)
Cash paid for fees on secured credit agreement - - (161)
Proceeds from redeemable preferred stock - - 2,160
Proceeds from borrowings under credit facility - 1,580 3,062
Net proceeds of public offering 1,665 - -
Subordinated debt redemption (3,200) - -
Increase in deferred financing costs (212) (225) (795)
----------- -------------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (1,747) 1,355 4,245
---------- --------------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 272 (1,162) (2,651)
------------- -------------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,457 1,729 567
------------ ------------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,729 $ 567 $3,218
=============== ============= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: 1995 1996 1997
---- ---- ----
CASH PAID DURING THE PERIOD FOR:
Interest $ 138 $ 297 $ 110
Income taxes 270 140 37
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
<PAGE>
LOIS/USA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Lois/USA Inc. ("Lois/USA" or the "Company") is a holding company established in
1991 to acquire certain predecessor companies controlled by Lois/USA
stockholders. Lois/USA conducts its operations through subsidiaries. All
significant intercompany balances and transactions have been eliminated.
The Company is a full service advertising and marketing communications company
operating on a national basis through its four advertising agencies located in
New York, Chicago, Los Angeles, Houston, Austin and Dallas. In addition to the
planning, creating and placement of advertising, the Company offers its clients
a broad range of other marketing communication services, including marketing
consultation, consumer market research, direct mail advertising, merchandising
design and corporate identification services.
The Company's business operations are not seasonal; however, based upon
individual client expenditures, significant quarter-to-quarter fluctuations in
billings and net income may occur.
A key element of the Company's strategic plan is to evaluate, for acquisition,
advertising agencies which would be complementary to the Company's current
business activities. Financing for acquisitions will vary upon the economics of
each situation, however, the Company's acquisition financing strategy is likely
to include issuances of securities and deferred contingent payments as part of
the purchase price. The ability to consummate future acquisitions may require
material capital expenditures or commitments that could place significant
constraints on future working capital. In addition, the bank credit agreement
discussed in Note 6 contains covenants restricting the Company from making
capital expenditures in excess of specified amounts. Furthermore, issuances of
securities, either to consummate acquisitions or to obtain operating working
capital, could dilute existing shareholders.
RECOGNITION OF COMMISSIONS AND FEES
Commissions and fees represent the principal source of income and are derived
from placing client advertising with various forms of media. Commissions on
media placements and production and fee billings are recognized at the time such
services are rendered to clients in the normal course of business.
<PAGE>
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE
The Company arranges for the placement of media with various providers. These
providers bill the Company and the Company bills its clients. Accordingly,
balances of accounts receivable and accounts payable will be disproportionate to
the Company's revenue, which only includes commissions and fees derived from
clients. Included in accounts receivable at December 31, 1996 and 1997 are
allowances for uncollectible accounts of $823,000 and $1,087,000, respectively.
CASH AND CASH EQUIVALENTS
Cash includes cash on hand and in banks. The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
EXPENDITURES BILLABLE TO CLIENTS
Expenditures billable to clients represent unbilled external production costs on
work in progress. Revenue is recognized when the project is completed and
subsequently billed. Amounts will be realized during the normal operating cycle
of the Company through billing and collection.
INVESTMENTS
The Company has developed a concept known as Lois/USA Ventures which is made
available to certain carefully selected clients that are at an early development
stage, during which advertising would be strategically advantageous, but which
lack sufficient cash resources to support the desired level of advertising and
creative talent. The Company provides its creative services to such clients and
receives an equity interest in the client as a component of its fee arrangement;
clients are required to pay the Company cash for all out-of-pocket costs,
including media and production costs. Equity investments are carried at their
cost, which approximates market value, and are included in other current assets
on the accompanying consolidated balance sheet. During 1997, the Company
received options in two companies under this program. Such options were valued
at $118,000, representing the value of the underlying stock over the exercise
price at the date of grant.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation for both book and tax
purposes is computed using the straight-line method over the estimated useful
lives of the related assets ranging from 5 to 7 years. Leasehold improvements
are amortized over the lives of the respective leases. At the time of retirement
or other disposition of properties, the cost and accumulated depreciation are
removed from the accounts and gains and losses are reflected in income.
GOODWILL
Goodwill represents the excess of the acquisition costs over the fair value of
the net tangible assets acquired. Goodwill recorded in connection with the
acquisition of the Chicago office, EJL (see Note 3) and Fogarty & Klein, Inc.
(see Note 2) is being amortized on a straight-line basis over 10 years, 20 years
and 20 years, respectively. At December 31, 1996 and 1997, accumulated
amortization of goodwill amounted to $1,618,000 and $2,662,000, respectively.
Management periodically evaluates goodwill for impairment on the basis of a
comparison of the future estimated undiscounted cash flows arising from the
acquired business to the related unamortized goodwill.
<PAGE>
DEFERRED FINANCING COSTS
Deferred financing costs at December 31, 1997 represent financing costs incurred
in connection with a new credit facility obtained in October 1997, as discussed
in Note 6. These costs are being amortized on a straight-line basis over three
years. Prior to 1997, deferred financing costs represented financing costs
incurred in connection with the acquisition of EJL. These costs were written off
in 1997 when the new credit facility was obtained.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted the requirements of Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This
statement establishes financial accounting and reporting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets, and for assets to be disposed of. The adoption of this
statement had no effect on the consolidated financial statements.
STOCK-BASED COMPENSATION
The Company measures compensation expense related to the grant of stock options
and stock-based awards to employees in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25, under which compensation
expense, if any, is based on the difference between the exercise price of an
option, or the amount paid for an award, and the market price or fair value of
the underlying common stock at the date of the award or at the measurement date
for variable awards. Stock-based compensation arrangements involving
non-employees are accounted for under SFAS No. 123, under which such
arrangements are accounted for based on the fair value of the option or award.
As required by SFAS No. 123, the Company discloses pro forma net income and net
income per share information reflecting what the effect of applying SFAS No. 123
fair measurement to employee arrangements would be. See Note 9.
INCOME TAXES
The Company provides for taxes at the federal, state and local levels. Deferred
taxes are provided for differences between the financial accounting and income
tax basis of assets and liabilities in accordance with SFAS No. 109.
SEVERANCE AGREEMENTS
Arrangements with certain employees provide for continuing payments for periods
after cessation of their full time employment in consideration of agreements by
the employees not to compete and to render consulting services in the
post-employment period. Such payments, which are determined, subject to certain
conditions and limitations, by earnings in subsequent periods, are expensed in
such periods.
<PAGE>
CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company had one client from whom revenues exceeded 10% of consolidated
revenues in the years ending December 31, 1997 and 1996. Two other clients
accounted for revenues in excess of 10% of consolidated revenues for the year
ended December 31, 1995. The following table sets forth the revenues by client
and the percentage of consolidated revenue which this represents.
Client 1 Client 2 Client 3
-------------------------------------------------------------
1997:
REVENUE 4,407,000
% Revenue 16.00%
1996:
Revenue $2,654,000
% REVENUE 11.00%
1995:
Revenue $2,107,000 $2,030,000
% REVENUE 13.00 12.00%
As of December 31, 1997, 1996, and 1995, the aggregate amounts due from clients
which accounted for 10% or more of revenues in each applicable year and included
in accounts receivable were $1,454,320, $1,831,064 and $6,004,865, respectively.
Substantially all of these receivables have since been collected.
Financial instruments that subject the Company to concentrations of credit risk
include cash and accounts receivable. The Company maintains its cash in bank
accounts and short-term overnight investments which, at times, may exceed
federally insured limits. Other than accounts receivable due from significant
customers as discussed above, the majority of the Company's receivables are due
from geographically dispersed clientele, principally in the consumer products
industry.
The Company's debt obligations bear interest at floating interest rates.
Accordingly, recorded amounts are substantially equivalent to fair market value.
EARNINGS PER SHARE
The Company adopted the provisions of SFAS No. 128, "Earnings Per Share",
effective December 31, 1997. As required by SFAS No. 128, earnings per share
amounts for prior years have been restated; the restatement did not have a
material effect on the previously reported amounts.
Basic earnings per share excludes any dilution for common stock equivalents and
is computed on the basis of net income or loss, adjusted for the dividend
requirement on the Company's Series A Convertible Preferred Stock , divided by
the weighted average number of common shares outstanding during the relevant
period.
Diluted earnings per share reflects the potential dilution that could occur if
options or other securities or contracts entitling the holder to acquire shares
of common stock were exercised or converted, resulting in the issuance of
additional shares of common stock that would then share in earnings. Diluted
earnings per share is also computed on the basis of the weighted average number
of common shares outstanding during the relevant periods as the consideration of
stock options and warrants would be anti-dilutive.
<PAGE>
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires the use of certain estimates
made by management in determining the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Although these estimates are based on management's knowledge of current
events and actions it may undertake in the future, they may ultimately differ
from actual results.
CASH FLOWS
The following supplemental schedule summarizes the fair value of non-cash assets
acquired, cash paid, common shares issued and the liabilities assumed in
conjunction with the acquisition of equity interests in subsidiaries for each of
the three years ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
---- ----- -----
<S> <C> <C> <C>
Fair value of non-cash assets acquired $ - $30,794 $ 18,681
Cash paid, net of cash acquired - (2,235) (399)
Common shares - (2,015) (2,500)
---------------- ---------------- ---------------
Liabilities assumed $ - $ 26,544 $ 15,782
============== ================ ==================
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997 the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income". SFAS No. 130 establishes a requirement
for the display of the components and total of comprehensive income in a
financial statement having equal prominence to the other financial statements
included in a full set of general purpose financial statements. Comprehensive
income includes net income and items of gain or loss that, under generally
accepted accounting principles, are excluded from net income and charged or
credited directly to stockholders' equity. SFAS No. 130 is effective for years
beginning after December 15, 1997. The Company has not yet completed its
analysis of the requirements of SFAS No. 130; however, the implementation of the
requirements of this statement will not affect the Company's net income, cash
flows or financial position.
In June 1997 the FASB also issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information". SFAS No.131 is effective for years
beginning after December 15, 1997 and replaces the requirements of SFAS No. 14
concerning the manner in which an enterprise defines its reportable business
segments and the nature of the information about business and geographic
segments disclosed in the annual and interim financial statements of public
companies. The Company has not yet completed its analysis of the requirements of
SFAS No. 131; however, the implementation of the requirements of this statement
will not affect the Company's net income, cash flows or financial position.
2. ACQUISITION OF FOGARTY & KLEIN, INC.
On December 31, 1997, the Company acquired all of the outstanding common stock
of Fogarty & Klein, Inc. and its subsidiaries ("F&K"). The Company made an
initial payment comprised of cash of $3,500,000, and the issuance of 50,000
shares of the Company's common stock and warrants for the purchase of 39,000
shares of the Company's common stock, exercisable through December 31, 2000 at
an exercise price of $10.00 per share.
The F&K Agreement requires the Company to make additional purchase price
payments on the first, second and third anniversaries of the acquisition. On
December 31, 1998 the sellers will receive an additional cash payment of
$1,125,000 and warrants for the purchase of 50,000 shares of the Company's
common stock exercisable through December 31, 2001 and an exercise price of
$11.00 per share. On December 31, 1999, the Company is required to make a cash
payment of $1,125,000 and to issue an additional 50,000 warrants, exercisable
through December 31, 2002 at an exercise price of $12.25 per share. Finally, on
December 31, 2000, the Company must make a final cash payment of $3,250,000,
which may be increased or decreased by up to $450,000 for 15% of the difference
between the actual commissions and fees of F&K for the three years ending
December 31, 2000, from clients existing at the time of the acquisition and $42
million. Concurrent with the acquisition of F&K, the Company entered into
certain employment contracts with the three senior officers of F&K that provide
for aggregate compensation of $4,950,000 over the next five years. Of that
amount, $1,200,000 has been treated as a component of the purchase price. The
Company also incurred transaction costs of $665,000 in connection with the
transaction.
The acquisition has been accounted for as a purchase, with the amounts payable
during 1998, 1999 and 2000 included in the determination of the purchase price
at their present value (aggregating $5,827,000) and included in the consolidated
balance sheet as Deferred Purchase Price. The aggregate purchase price, at its
present value of $5,594,000 was allocated to the assets acquired and liabilities
assumed based on their fair values, with the remainder of $8,244,000 recorded as
goodwill. The goodwill recorded as a result of the acquisition of F&K is being
amortized over 20 years. None of the goodwill recorded will be deductible for
tax purposes; as a result, the Company's effective tax rate will be adversely
impacted.
The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1996 and 1997 are presented as if the acquisition of
F&K had been made on January 1, 1996. 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 operations under the ownership and management of the Company.
(In thousands except per share amounts) 1996 1997
---------------- ---------------
Commissions and fees 35,176 43,459
Net (loss) income (3,745) 576
Net (loss) income per common share $ (1.47) $ .60
3. 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 ended 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 5% of the combined revenue of
Lois/USA and EJL, as defined in the Original Agreement, or $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 do 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. The Sellers were also to receive a final payment, payable
in shares of Common Stock, of $750,000, in 2001; that $750,000 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 a 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. Under the revised terms, 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 fiscal 1996, (iii) $1,135,000 through the
retention of 189,183 shares (of the total of 378,366 shares) of common stock
issued to them 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 revised purchase price, with the future payments discounted at a rate
of 6.5% per annum, is $8,612,000, which is $4,480,000 less than the purchase
price recorded under the Original Agreement. The recording of the effects of the
revisions of the terms of the acquisition, which is reflected in the Company's
consolidated financial statements in the second quarter of fiscal 1997, had the
effects, relative to December 31, 1996 amounts, of (i) reducing goodwill by
$4,480,000, (ii) reducing the liability for the future payments by $3,345,000,
(iii) eliminating the $270,000 for redeemable common stock, and (iv) reducing
stockholders' equity by $865,000. In connection with the revision of the terms
of and the accounting for the acquisition, the Company accrued as a portion of
the purchase price approximately $900,000 of future compensation payable under
employment contracts with the former EJL shareholders, and a liability of $1.9
million for unfavorable lease terms.
<PAGE>
The following unaudited pro forma consolidated results of operations for the
years ended December 31, 1995 and 1996 are presented as if the EJL acquisition
had been made on the terms in the Original Agreement at the beginning of each
period presented. As the acquisition occurred on February 12, 1996, the results
for 1996 are not materially different from the Company's consolidated results
and as such have not been adjusted. 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) 1995 1996
-------------- -------------
Commissions and fees 32,474 23,067
Net loss (191) (5,224)
Net loss per common share $(.09) $(2.09)
4. PROPERTY AND EQUIPMENT
Fixed assets as of December 31, 1996 and 1997 are summarized as follows (000's
omitted):
1996 1997
---- ----
Equipment $1,342 $2,161
Furniture and fixtures 759 917
Leasehold improvements 474 869
Autos 55 47
Computers 318 509
-------- -----------
2,948 4,503
Less- Accumulated depreciation and
Amortization 2,112 2,470
------- -----
$ 836 $2,033
======= =========
5. THE COMPANY'S OFFERING
On January 3, 1995, the Company consummated a registered direct placement of
300,000 shares of common stock at a price of $6.00 per share (the "Offering").
The gross proceeds of $1,800,000 were reduced by seller's commissions of
$108,000 and other professional fees and expenses of approximately $329,000.
These net proceeds, together with the borrowings discussed in Note 6, were used
to repay, in full, the Company's outstanding $3,200,000 subordinated loan
payable which was due on December 31, 1994 (Note 8).
Concurrent with the Offering, the Company and Messrs. Lois and Veru (the
Company's then principal stockholders and chief executive and chief operating
officers) entered into an agreement with the holders of the Company's then
outstanding warrants, as discussed in Note 8, whereby the Company agreed to
issue the warrant holders 100,000 newly issued common shares and Messrs. Lois
and Veru each agreed to transfer 62,500 common shares owned by them to the
warrant holders. The 225,000 shares, valued at $6.00 per share, for a total of
$1,350,000, was reflected as additional paid-in capital upon completion of the
Offering. The full $1,350,000 value of the warrants was charged to expense
during 1991 through 1994.
<PAGE>
6. CREDIT FACILITIES
Concurrent with the Company's Offering in January 1995 and the repayment of the
subordinated loan discussed in Note 8, the Company entered into a $2 million
reducing revolving credit facility (the "Reducing Revolving Credit Agreement")
with 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 (see Note 8). Amounts
outstanding under the Reducing Revolving Credit Agreement bore 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 contained certain
affirmative and negative covenants customary in an agreement of this nature. The
terms of the Reducing Revolving Credit Agreement prohibited the Company from
paying dividends on its common stock, and borrowings under the Reducing
Revolving Credit Agreement were 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
January 1995 Reducing Revolving Credit Agreement to increase 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 was also
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. 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.
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 borrowed approximately $2.5 million, which was
used to repay amounts outstanding under the Reducing Revolving Credit Agreement,
as amended, which was then terminated. As of December 31, 1997, borrowings of
$4,642,000 were outstanding and additional borrowings of $5,358,000 were
available under the Sanwa facility.
In 1995 and 1996, the Company had a $2 million uncommitted line of credit. There
were no borrowings outstanding as of December 31, 1995 and 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 which 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 and the unamortized fees from the initial
loan were written off as of December 31, 1997.
<PAGE>
7. SERIES A PREFERRED STOCK
In May 1997, the Company raised additional capital of approximately $2.2 million
through the private placement of 2,160 shares of Series A Convertible Preferred
Stock. 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.
8. SUBORDINATED LOAN PAYABLE
In 1991, the Company borrowed $3,200,000, at an interest rate of 11% per annum,
payable semiannually. The subordinated loan was due on December 31, 1994 and was
collateralized by the Company's receivables. As discussed in Note 6, this loan
was repaid in January 1995.
Pursuant to the terms of the subordinated debt agreement, the Company issued
stock purchase warrants to the subordinated debt holder, and to the placement
agent for the subordinated debt (collectively "Warrant Holders"), which provided
for the purchase of an aggregate of 591,667 shares of the Company's common stock
to be exercised at an aggregate price of $2,500. The Warrant Holders had the
right to require the Company to purchase all of the warrants on December 31,
1996 for a purchase price of $2,439,000 and the Company had a right to require
the Warrant Holders to sell such warrants on December 31, 1998 for the same
amount and could have elected to pay for such warrants under an installment
agreement over 12 months with interest at the prevailing prime rate. The Company
was accreting the value of these redeemable warrants from their date of issuance
through December 31, 1996. In December 1994, the Company and Messrs. Lois and
Veru entered into an agreement with the Warrant Holders to purchase the
outstanding warrants, whereby the Company issued the Warrant Holders 100,000
shares of common stock and Messrs. Lois and Veru each agreed to transfer 62,500
shares of common stock owned by them to the Warrant Holders. The 225,000 shares,
valued at $6.00 per share for a total of $1,350,000, was reflected as Additional
Paid-in Capital upon completion of this transaction in January 1995 (see Note
5).
9. STOCK OPTION PLAN FOR EXECUTIVE OFFICERS AND DIRECTORS
The Company's 1994 Stock Option Plan for Executive Officers and Directors of
Lois/USA (the "Stock Option Plan") was adopted by the Company's Board of
Directors in December 1994. A total of 200,000 shares of common stock have been
reserved for issuance under the Stock Option Plan. Options may be granted under
the Stock Option Plan to executive officers of the Company or a subsidiary. To
date, 137,000 options have been granted under the Stock Option Plan.
The Company's Nonqualified Stock Option Plan for Nonemployee Directors (the
"Directors' Plan") was adopted in December 1994. The Directors' Plan provided
for the automatic one time grant of nonqualified options to nonemployee
directors. Under the Directors' Plan, a nonqualified stock option to purchase
10,000 shares of common stock was automatically granted to each nonemployee
director of the Company, in a single grant effective as of the date of the
Offering or, if later, the time the director first joins the Board of Directors.
The Directors' Plan authorizes grants of options up to an aggregate of 100,000
shares of common stock. The exercise price per share is the fair market value of
the Company's common stock on the date on which the option is granted (the
"Grant Date"), which was equal to the Offering price in the case of the initial
grants to outside Directors. The options granted pursuant to the Directors' Plan
vest at the rate of one-third each year from the date elected to the Board,
subject to certain holding periods required under rules of the Securities and
Exchange Commission. Options granted pursuant to the Directors' Plan expire ten
years from their Grant Date. The Directors' Plan is administered by the Stock
Option Committee of the Board of Directors. The Stock Option Committee has the
authority, subject to the terms of the Directors' Plan, to determine the
appropriate adjustments in the event of a change in the common stock or the
Company's capital structure, and to perform other administrative functions. The
Directors' Plan permits the exercise of options upon the occurrence of certain
events and upon termination of a director's service as a director (other than
for cause), without regard to the three-year schedule described above.
The following sets forth the activity for the Stock Option Plan and the
Directors' Plan for the years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
Weighted
Number Average
of Exercise
shares Price
----------------- -------------------
<S> <C> <C>
Outstanding at December 31, 1994 -
Granted 40,000 $6.00
Exercised -
Forfeited -
---------------- ------------------
Outstanding at December 31, 1995 40,000 6.00
Granted 120,250 6.00
Exercised -
Forfeited -
---------------- ------------------
Outstanding at December 31, 1996 160,250 $6.00
Granted 26,750 9.56
Exercised - -
Forfeited 5,000 6.00
---------------- ------------------
Outstanding at December 31, 1997 182,000 $6.52
================ ==================
Options exercisable at December 31, 1997 159,750 $6.38
================ ==================
</TABLE>
<PAGE>
The Company has adopted the disclosure only provisions of SFAS No. 123 (see Note
1) and is continuing to recognize compensation expense using the intrinsic value
method under APB No. 25. Had compensation expense for the Company's stock
options been recognized based on the fair market value at the grant date for
awards in 1995 and 1996, as determined consistent with the provisions of SFAS
No. 123, the Company's net income (loss) and net income (loss) per share would
have been as follows:
<TABLE>
(000's omitted, except for share data)
1997 1996 1995
---- ----
<S> <C> <C> <C>
Net (Loss) Income: as reported $(1,381) $ (5,224) $ 718
Net (Loss) Income: pro forma $(1,506) $ (5,625) $ 678
Net (Loss) Income
per Share: as reported $ (.57) $ (2.09) $ .33
Net (Loss) Income
per Share: pro forma $ (.62) $ (2.25) $ .31
</TABLE>
This pro forma impact only takes into account options granted since January 1,
1995. The SFAS No. 123 fair value of each option granted was estimated on the
date of grant using a number of factors that resulted in a net value of
approximately 50% of the stock price on the grant date.
10. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Mr. Lois and Mr. Veru to
serve as Co-Chairman of the Board/Chief Executive Officer and Co-Chairman of the
Board/President/Chief Operating Officer/ Secretary, respectively. Each of the
employment agreements, as amended in January 1996, expires on December 31, 2000
and provides for an option to renew the employment agreement for an additional
five years at the discretion of the Board of Directors. Each employment
agreement provides that upon termination of the agreement, other than for cause,
the Company will enter into a consulting arrangement with Mr. Lois and Mr. Veru,
as applicable, for a period of five years, pursuant to which each of Mr. Lois
and Mr. Veru, for specific services to be rendered, would be paid 50% of his
previous base salary. As compensation for services rendered under their
employment agreements, Mr. Lois was paid an annual base salary of $295,000,
$325,000 and $350,000 for 1995, 1996 and 1997, respectively, and Mr. Veru was
paid an annual base salary of $275,000, $325,000 and $350,000 for 1995, 1996 and
1997, respectively.
On January 1, 1995, Lois/USA Chicago entered into an employment agreement with
Edwin Holzer to serve as Managing Director. This agreement was amended March 1,
1996 to extend the expiration of this agreement to December 31, 1999. Lois/USA
Chicago has the right to renew the agreement for additional one-year terms by
giving Mr. Holzer written notice of its intention to renew not later than 120
days prior to the end of the initial term or any renewal term. Under this
agreement, Mr. Holzer's annual base salary was to be $275,000, for the first
three years, and $300,000, for the remaining two years. For 1996 and 1997 Mr.
Holzer received a base salary of $300,000. In addition, Mr. Holzer received
compensation in the amount of $150,000, which was originally recorded as a
prepaid and is amortized as it is earned in three equal annual installments
beginning January 1, 1995. Compensation expense relating to this additional
compensation was $50,000 in 1995, 1996 and 1997. In addition, the Company
created a deferred compensation plan for Mr. Holzer's benefit under which
payments totaling $185,686 vested in Mr. Holzer as of December 31, 1992. Under
the plan, the Company paid Mr. Holzer $46,422 on March 31, 1993, 1994, 1995 and
1996.
<PAGE>
On January 1, 1995 the Company entered into an employment agreement with Robert
Stewart to serve as Chief Financial Officer, Treasurer, Assistant Secretary and
Executive Vice President. The original agreement was for a term of three years
and, pursuant to provisions allowing the Company to renew the agreement for
three year periods, has been extended to December 31, 2000. This agreement
provides for an annual base salary of $150,000 per year
Concurrent with the acquisition of EJL, the Company entered into five year
employment agreements expiring February 13, 2001 with four senior executives of
EJL. Pursuant to these agreements, Mr. Laws and Mr. Coe will serve as Chairman
of Lois/EJL Los Angeles, and President and Chief Executive Officer of Lois/EJL
Los Angeles, respectively, and will each receive a base salary of $325,000 per
year. Michele de Maio will serve as President of Lois/EJL Chicago and will
receive an annual base salary of $300,000. Upon expiration of these employment
agreements, Mr. Laws, Mr. Coe, and Mr. de Maio shall enter into five year
consulting agreements providing for payment of $100,000 per year. The Company
entered into an employment agreement with Michael Waterkotte to serve as
Executive Vice President and Creative Director of Lois/EJL Chicago for an annual
base salary of $215,000. At the discretion of the Board of Directors, this
agreement may be extended for an additional agreed upon period if the Board
notifies Mr. Waterkotte within 60 days of the expiration of the initial term or
any renewal term.
Concurrent with the purchase of all the outstanding shares of Fogarty & Klein,
Inc. on December 31, 1997, the Company entered into employment agreements with
three of F&K's senior executives. These agreements provide for base compensation
of $450,000 per year for each of William H. Fogarty, Richard E. Klein and Thomas
Monroe. The term of the agreements for each of Messrs. Fogarty and Klein is for
a period of three years, and Mr. Monroe's agreement is for a period of five
years. In addition to the base compensation, each of the officers is eligible to
participate in an annual bonus pool. In connection with recording the
acquisition of F&K, the Company included as a component of the purchase price
and of the deferred purchase price liability, the present value of $1,200,000 of
the compensation due under these agreements (see Note 2).
LEASES
The Company has entered into noncancellable operating leases for office space in
New York, Chicago, Los Angeles, Houston, Austin, San Antonio and Dallas. The
following are the future minimum annual rental payments under those leases
(000's omitted):
Years ending December 31:
1998 $ 4,093
1999 4,270
2000 4,139
2001 2,680
2002 2,059
Thereafter 12,941
-----------
$ 30,182
In connection with the acquisition of EJL (see Note 3), the Company recognized
an acquisition date liability for excess space in Los Angeles and Chicago (net
of anticipated sub-lease income) and for the excess of the lease cost for the
Los Angeles lease over current fair market value. This reserve is included on
the accompanying consolidated balance sheets as lease related reserves.
<PAGE>
DEFINED CONTRIBUTION PLANS
The Company is the sponsor of a 401(k) Profit Sharing Plan for employees, who
were not associated with the EJL acquisition, which provides for deferred
contributions by plan participants. The Company may, at its discretion, make
contributions that match in whole or in part the participants' contributions. To
date, no Company contributions have been made under this plan. In connection
with the EJL acquisition, as discussed in Note 3, the Company also sponsors a
401(k) Defined Contribution Plan for former EJL employees which provides for
deferred contributions by plan participants. The Company will match 25% of the
employee contributions. This employer contribution, which vests over a six year
period, was $98,737 and $76,502 in 1996 and 1997, respectively.
ISSUANCE OF ADDITIONAL SHARES OF STOCK
The Company has the ability to issue shares of common stock, from time to time,
without stockholder approval and may elect to issue additional shares in one or
more public or private offerings. The Company's Certificate of Incorporation
also authorizes the Board of Directors to issue "blank check" preferred stock,
from time to time, in one or more series, without stockholder approval. The
issuance of such preferred stock could adversely affect the voting power,
dividend rights and other rights of holders of the common stock.
It is management's belief that it is unlikely the Company will declare any
dividends in the near future.
11. INCOME TAXES
The Company, organized under the laws of Delaware, is subject to state and local
taxes where it does business. The Company files a consolidated federal income
tax return with its subsidiaries and is able to offset income and losses of the
consolidated group to reduce federal taxable income. The individual
subsidiaries, however, are subject to state and local taxes based on their
respective incomes and minimum franchise taxes.
<PAGE>
<TABLE>
<CAPTION>
The components of provision for income taxes for the years ended December 31,
1995, 1996 and 1997 are as follows (000's omitted):
1995 1996 1997
---------------------------------------------------------------
Current:
<S> <C> <C> <C>
Federal $ - $ - $ -
State and local 89 231 (3)
---------------------------------------------------------------
Total current 89 231 (3)
---------------------------------------------------------------
Deferred:
Federal 256 - -
State and local 45 76 -
---------------------------------------------------------------
Total deferred 301 76 -
---------------------------------------------------------------
Total $ 390 $ 307 $ (3)
===============================================================
</TABLE>
The current provision for 1995 includes the effect of the utilization of the
Company's existing net operating loss carryforwards ("NOLs") to reduce taxes
currently payable by approximately $250,000. The future benefit of those NOLs
had previously been recorded, for financial reporting purposes, as a component
of the Company's deferred tax asset, and the 1995 deferred provision reflects
the elimination of that future benefit asset as the result of the current
utilization.
The net deferred tax asset as of December 31, 1996 and 1997 consists of the
following amounts (000's omitted):
1996 1997
----------------------------------
Net operating loss carryforwards $ 2,853 $ 2,932
Deferred compensation - -
Bad debt reserve 337 360
Lease related reserves 2,528 2,008
Severance accruals 62 41
Valuation allowance (5,780) (5,341)
-------- -------
Deferred tax asset $ - $ -
============= ============
The valuation allowance was increased in 1996 and 1997, to fully reserve for the
deferred tax assets, reflecting management's belief that the 1996 and 1997
losses and other factors made future realization of those assets not
sufficiently assured. Certain additions to the deferred tax assets, and the
valuation reserve, resulted from differences between the financial reporting and
income tax bases of the assets acquired and liabilities assumed in the
acquisition of EJL, and were recorded at the time of the acquisition.
Reconciliation of the differences between income taxes computed at the federal
statutory rate and consolidated provisions for income taxes are as follows
(000's omitted):
<TABLE>
<CAPTION>
1995 1996 1997
-----------------------------------------------------
<S> <C> <C> <C> <C>
Income taxes (benefit) computed at federal statutory $ 377 $(1,672) $( 471)
rate of 34%
State taxes, net of federal benefit 89 231 37
Non-deductible goodwill amortization - 387 392
Non-deductible costs 40 50 51
Adjustments of prior year accruals and other, including
changes in the valuation allowance (116) 1,311 ( 12)
------ --------- --------
Provision (benefit) for income taxes $ 390 $ 307 $ (3)
======== =========
</TABLE>
<PAGE>
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) 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.
By: /S/ THEODORE D. VERU
Theodore D. Veru
CO-CHAIRMAN OF THE BOARD,
CO-CHIEF EXECUTIVE OFFICER AND
PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE Title Date
<S> <C> <C>
/S/ GEORGE LOIS Co-Chairman of the Board, March 31, 1998
Co-Chief Executive Officer and
George Lois Director
/S/ THEODORE D. VERU Co-Chairman of the Board, March 31, 1998
Co-Chief Executive Officer
Theodore D. Veru President, and Director
Executive Vice President, March 31, 1998
/S/ ROBERT K. Chief Financial Officer,
STEWART Treasurer and Secretary
Robert K. Stewart (Principal Financial Officer
and Principal Accounting
Officer)
/S/ JOHN N. HATSOPOULOS March 31, 1998
Director
John N. Hatsopoulos
March 31, 1998
/S/ DAVID DEBUSSCHERE Director
David DeBusschere
March 31, 1998
/S/ DENNISON T. VERU Director
Dennison T. Veru
</TABLE>
<PAGE>
EXHIBIT INDEX
The following exhibits, unless otherwise indicated, were filed as part
of the Company's Registration Statement on Form SB-2 (33-83894-NY) declared
effective by the Commission on December 29, 1994 and herein incorporated by
reference.
*2.1 Stock Purchase Agreement dated as of February 12,
1996, by and among the shareholders of Eisaman, Johns
& Laws Advertising, Inc. and Lois/USA Inc.
+2.1 Stock Purchase Agreement dated as of December 17,
1997, by and among the shareholders of Fogarty &
Klein, Inc. and Lois/USA Inc.
3.1 Form of Amended and Restated Certificate of
Incorporation of Lois/USA to be filed with the
Delaware Secretary of State.
3.2 Form of Amended and Restated By-Laws of Lois/USA.
#9.1 Shareholders' Agreement dated as of February 14, 1996,
by and among each of Dennis Coe, Dean Laws, Michele
de Maio and Michael Waterkotte, selling shareholders
of Eisaman, Johns & Laws Advertising, Inc. and
Theodore Veru and George Lois, shareholders of the
Company.
10.1 Form of Employment Agreement between Lois/USA and
George Lois.
10.2 Form of Employment Agreement between Lois/USA and
Theodore Veru.
10.3 Form of Employment Agreement between Lois/USA and
Edwin Holzer.
10.4 Employment Agreement dated as of March 1, 1994 between
Lois/USA and Richard Colby.
10.5 Note and Warrant Purchase Agreement dated December 10, 1991
between Lois/USA and Trigger Associates, L.P.
10.7 Form of Stock Option Plan for Executive Officers.
10.8 Form of Non-qualified Stock Option Plan for
Non-Employee Directors.
10.10 Agreement dated December 18, 1991 between Sands
Brothers and the Company.
10.11 Warrants issued to Trigger Associates.
10.12 Warrants issued to Sands Brothers.
10.13 Promissory Note dated December 18, 1991 issued to
Trigger Associates.
10.14 Pledge and Security Agreement dated as of
December 18, 1991 among the Company, Lois/GGK Inc.,
Lois/GGK Chicago, Inc., Lois/GGK New York, Inc. and
Trigger.
10.15 Lease for Lois/USA New York, Inc.
10.16 Lease for Lois/USA Chicago, Inc.
10.17 Lease for Lois/USA West, Inc.
10.18 Letter to Edwin Holzer regarding the senior
management incentive plan for Edwin Holzer.
10.19 Letter dated July 22, 1993 to the Company from
the XNBA.
10.20 Employment Agreement dated December 18, 1991, between the
Company and George Lois.
10.21 Employment Agreement dated December 18, 1991,
between the Company and Theodore D. Veru.
10.22 Letter Agreement dated December 9, 1994 among Lois/USA, Sands
Brothers and Trigger Associates.
H10.23 Loan and Security Agreement dated as of October 28, 1997 by
and among Lois/USA West, Inc., Lois/USA Chicago, Inc.,
Lois/USA New York, Inc., the Lenders named therein and Sanwa
Business Credit Corporation (the "Loan and Security
Agreement").
H10.24 Pledge Agreement dated as of October 28, 1997 between Lois/USA
Inc., as pledgor, and Sanwa Business Credit Corporation, as
agent for the lenders under the Loan and Security Agreement.
H10.25 Guaranty dated as of October 28, 1997 by Lois/USA Inc. in
favor of Sanwa Business Credit Corporation, as agent for the
lenders under the Loan and Security Agreement.
H.10.26 First Amendment and Consent Agreement dated as of
December 31, 1997 by and among Lois/USA West, Inc.,
Lois/USA Chicago, Inc., Lois/USA New York, Inc., the
Lenders named therein and Sanwa Business Credit
Corporation, acknowledged and accepted by Fogarty &
Klein, Inc. and acknowledged and accepted by Lois/USA
Inc., as guarantor.
**16.0 Letter on change in certifying accountant.
21.1 List of subsidiaries.
H23.1 Consent of Independent Public Accountants.
- - -----------------------
* Incorporated by reference herein from the Company's Amended Current
Report on Form 8-K 1A, dated as of February 12, 1996.
** Incorporated by reference herein from the Company's Current
Report on Form 8-K, dated March 8, 1995.
+ Incorporated by reference herein from the Company's Current Report on
Form 8-K, dated December 31, 1997.
H Filed concurrently with this report.
# Incorporated by reference herein from the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995.
EXHIBIT 10.23
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
<PAGE>
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
<PAGE>
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT dated as of October 28, 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 incorporated 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.
<PAGE>
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:CFO / EVP
LOIS/USA CHICAGO, INC.
By:/S/ ROBERT K. STEWART
Title:CFO / EVP
LOIS/USA NEW YORK, INC.
By:/S/ ROBERT K. STEWART
Title:EVP / CFO
SANWA BUSINESS CREDIT
CORPORATION, as Agent and as a Lender
By:/S/ STANLEY KAMINSKY
Title:VICE PRESIDENT
EXHIBIT 10.24
PLEDGE AGREEMENT
This PLEDGE AGREEMENT ("Pledge Agreement") is made as of this 28th day
of October, 1997 between LOIS/USA, INC., a Delaware corporation (the "Pledgor"),
and SANWA BUSINESS CREDIT CORPORATION, as agent, for its benefit and the benefit
of the Lenders (in such capacity, "Agent").
WHEREAS, Pledgor is the legal and beneficial owner of all of the
issued and outstanding capital Stock described on EXHIBIT 1 hereto issued by the
corporations named therein; and
WHEREAS, Agent and the Persons from time to time designated as lenders
thereunder ("Lenders") have entered into that certain Loan and Security
Agreement dated as of the date hereof (as amended, supplemented, restated or
otherwise modified from time to time, the "Loan Agreement") with LOIS/USA West,
Inc., LOIS/USA Chicago, Inc. and LOIS/USA New York, Inc.; and
WHEREAS, Pledgor has executed the Parent Guaranty in favor of Agent,
for its benefit and the ratable benefit of Lenders, whereby Pledgor guarantees
all Obligations of the Borrowers under the Loan Agreement (the "Guaranty"); and
WHEREAS, in connection with the making of the loans and other
extensions of credit under the Loan Agreement and as security for the
obligations of Pledgor under the Guaranty, Lenders and Agent are requiring that
Pledgor shall have executed and delivered this Pledge Agreement and granted the
security interests contemplated hereby.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Pledgor hereby agrees with Agent as follows:
1. DEFINED TERMS. As used in this Pledge Agreement,
"Lien" shall mean, with respect to the property or assets 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 or assets of such Person in favor of any other Person.
"Pledged Collateral" means the Pledged Stock and the Stock Rights,
including the proceeds of each.
"Pledged Stock" means the respective shares of capital stock of the
Borrowers described on EXHIBIT 1 hereto, together with the certificates or other
instruments or securities representing such shares.
"Secured Obligations" shall have the meaning assigned to such term in
SECTION 2 hereof.
"Stock Rights" means any stock, any dividend or other distribution and
any other right or property which the Pledgor shall receive or shall become
entitled to receive for any reason whatsoever with respect to, in substitution
for or in exchange for any shares of the Pledged Stock and any stock, any right
to receive stock and any right to receive earnings, in which the Pledgor now has
or hereafter acquires any right, issued by the issuer of the Pledged Stock.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms. Unless otherwise defined herein,
all terms used herein and defined in the Code shall have the meanings ascribed
thereto in the Code. In addition, unless otherwise defined herein, all defined
terms herein shall have the respective meanings ascribed thereto in the Loan
Agreement as in effect on the date hereof.
2. PLEDGE. To secure all indebtedness, liabilities and obligations of
Pledgor now or hereafter existing under this Pledge Agreement and under the
Guaranty (collectively, the "Secured Obligations") the Pledgor hereby delivers
to Collateral Agent and hereby pledges, assigns, transfers and grants to Agent a
first Lien on the Pledged Collateral. All of the Pledged Stock, together with
undated stock powers duly executed in blank by the Pledgor, are being delivered
to Agent simultaneously herewith.
3. REPRESENTATIONS AND WARRANTIES OF THE PLEDGOR. Pledgor represents
and warrants to Agent that:
3.1 EXISTENCE AND STANDING. Pledgor is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and has all requisite authority to conduct its business in each jurisdiction in
which its business is conducted.
3.2 AUTHORIZATION, VALIDITY AND ENFORCEABILITY. Pledgor has full
power, authority and legal right to execute this Pledge Agreement and to pledge
the Pledged Collateral to Agent. The execution and delivery by Pledgor of this
Pledge Agreement have been duly authorized by all necessary action and this
Pledge Agreement constitutes a legal, valid and binding obligation of Pledgor
enforceable against Pledgor in accordance with its terms, creates a security
interest which is enforceable against Pledgor in the Pledged Collateral and will
create a security interest enforceable against Pledgor in the Stock Rights and
the proceeds of the Pledged Stock and the Stock Rights at the time Pledgor
acquires any right therein, in each such case subject to bankruptcy, insolvency,
liquidation, reorganization and other laws of general application affecting the
rights and remedies of creditors.
3.3 CONFLICTING LAWS AND CONTRACTS. Neither the execution and delivery
by the Pledgor of this Pledge Agreement, the creation and perfection of the Lien
on the Pledged Collateral granted hereunder, nor compliance with the terms and
provisions hereof violate or will violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Pledgor or Pledgor's
Certificate of Incorporation or Bylaws or, except as disclosed on EXHIBIT 3.3
hereto, the provisions of any indenture, instrument or agreement to which
Pledgor is a party or is subject, or by which it, or its property, is bound, or
conflict with or constitute a default thereunder, or result in the creation or
imposition of any Lien pursuant to the terms of any such indenture, instrument
or agreement.
3.4 OWNERSHIP OF PLEDGED STOCK. Pledgor is the direct legal and
beneficial owner of each share of each Borrower and such Pledged Stock
represents 100% of the issued and outstanding stock of its issuer. The Pledged
Stock represents all of the issued and outstanding shares of stock of such
issuer owned by Pledgor.
3.5 OTHER AGREEMENTS. Except as disclosed on EXHIBIT 3.3 hereto,
Pledgor has not performed any act or executed any instrument, agreement or other
document that might prevent or hinder Agent from obtaining and enjoying fully
and completely all of the benefits, rights and powers conferred, or sought to be
conferred, upon Agent by this Pledge Agreement.
3.6 ISSUANCE OF PLEDGED STOCK. Each share of the Pledged Stock has
been duly and validly issued, is fully paid and non-assessable and is owned by
the Pledgor free and clear of any Lien other than the Lien created by this
Pledge Agreement.
3.7 CONSENTS. No consent, approval or authorization of, notice to,
designation or filing with, or other action by, any Person is required in
connection with the execution, delivery and performance of the pledge and Lien
granted under this Pledge Agreement by the Pledgor, or in connection with the
exercise of remedies with respect to the Pledged Collateral pursuant to this
Pledge Agreement.
3.8 PRIORITY. The pledge, assignment and delivery of the Pledged
Collateral pursuant to this Pledge Agreement creates a valid first perfected
Lien on Pledgor's interest in such Pledged Collateral and the proceeds thereof
in favor of Agent, subject to no prior Lien of any other Person.
4. COVENANTS AND REPRESENTATIONS. From the date of this Pledge
Agreement until the Pledge Agreement is terminated pursuant to SECTION 7.13:
4.1 Pledgor shall:
4.1.1 DELIVERY OF CERTAIN ITEMS. Except as otherwise permitted by the
Loan Agreement, hold in trust for Agent and deliver forthwith (and without
any necessity for any request or demand by Agent) to Agent, in the exact
form received, with the endorsement of Pledgor when necessary and/or
appropriate instruments of transfer, assignment or endorsement as
applicable, duly executed in blank, any additional stock certificates,
cash, checks, draft, remittances, documents, promissory notes, instruments,
debt securities or other proceeds evidencing or constituting Pledged
Collateral, whether as an addition to, in substitution for, or in exchange
for any of the Pledged Collateral, or otherwise. In case any property shall
be distributed upon or with respect to any Pledged Collateral pursuant to
the recapitalization or reclassification of the capital of the issuer
thereof or pursuant to the reorganization thereof, except as otherwise
permitted by the Loan Agreement, the property so distributed shall be
delivered to Agent to be held by it as additional collateral security for
the Secured Obligations. All sums of money and property so paid or
distributed in respect of any Pledged Collateral which are received by
Pledgor shall, until paid or delivered to Agent in accordance with the
terms hereof, be held by Pledgor in trust as additional collateral security
for the Secured Obligations.
4.1.2 TAXES. Pay when due all taxes, assessments and governmental
charges and levies upon the Pledged Collateral, except those being
contested in good faith by appropriate proceedings and with respect to
which no Lien exists.
4.1.3 NOTICE OF DEFAULT. In accordance with the provisions of the Loan
Agreement, give prompt notice in writing to Agent of the occurrence of any
Default or Event of Default and of any other development, financial or
otherwise, which might materially adversely affect the value of the Pledged
Collateral or the ability of Pledgor to perform the Secured Obligations.
4.1.4 STOCK POWERS AND OTHER ACTIONS. Execute and deliver to Agent all
stock powers, assignments, financing statements, indorsements, instruments
and other documents and take all further action, at the expense of Pledgor,
from time to time requested by Agent in order to perfect or maintain a
first perfected Lien on the Pledged Collateral in favor of Agent or to
enable Agent to exercise and enforce its rights and remedies hereunder with
respect to the Pledged Collateral or to effect a transfer of the Pledged
Collateral, or any part thereof. All instruments representing or evidencing
the Pledged Collateral shall be delivered to and held by Agent pursuant
hereto and shall be in suitable form for transfer or assignment in blank,
all in form and substance satisfactory to Agent.
4.1.5 REPORTS. Furnish to Agent such reports relating to the Pledged
Collateral as Agent shall from time to time request.
4.1.6 DEFENSE OF COLLATERAL. Defend for the benefit of Agent, Agent's
right, title and Lien acquired by this Pledge Agreement in and to the
Pledged Collateral and the proceeds thereof against the claims and demands
of all other Persons.
4.2 Pledgor shall not:
4.2.1 LIENS. Create, incur, or suffer to exist any Lien on the Pledged
Collateral except the Lien created by this Pledge Agreement or waive or
forgive any indebtedness evidenced by any of the Pledged Collateral, or
amend the terms thereof or extend the maturity thereof, or perform any act
or execute any instrument that might prevent or hinder Agent from obtaining
and enjoying, fully and completely, all of the benefits, rights and
privileges conferred or sought to be conferred upon Agent by this Pledge
Agreement.
4.2.2 DISPOSITION OF COLLATERAL. Sell or otherwise dispose of all or
any part of the Pledged Collateral.
4.2.3 CHANGES IN CAPITAL STRUCTURE OF ISSUER. (a) Permit or suffer any
issuer of the Pledged Stock to dissolve, liquidate, retire any of its
capital stock, reduce its capital or merge or consolidate with any other
Person, or (b) vote any of the Pledged Stock or Stock Rights in favor of
any of the foregoing.
4.2.4 ISSUANCE OF ADDITIONAL STOCK. Permit or suffer the issuer of the
Pledged Stock to issue any stock, any right to receive stock or any right
to receive earnings, except to Pledgor.
5. REMEDIES.
5.1 ACCELERATION AND REMEDIES. If any Event of Default has occurred
and is continuing, then, upon the election of Agent, the Secured Obligations
shall immediately become due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, and Agent may (a)
exercise all rights set forth in SECTION 7.3 and (b) exercise any or all of the
rights and remedies provided (i) in this Pledge Agreement, (ii) in the Code to a
secured party when a debtor is in default under a security agreement and (iii)
by any other applicable law or agreement.
5.2 FORECLOSURE SALES. (a) Without limiting the provisions of SECTION
5.1, Agent may, following the occurrence and during the continuance of an Event
of Default, without notice except as specified below, and to the extent
permitted under applicable law, sell the Pledged Collateral or any part thereof
in one or more transactions at public or private sale, for cash or property and
at such price or prices and upon such other terms as Agent may deem commercially
reasonable, irrespective of the impact of any of such sales on the value of any
of the Pledged Collateral. To the extent permitted under applicable law, Agent
may be the purchaser of any or all of the Pledged Collateral at any such sale.
Each purchaser at any such sale shall hold the property sold absolutely free
from any claim or right on the part of Pledgor, and Pledgor hereby waives (to
the extent permitted by law) all rights of redemption, stay and/or appraisal
which it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Agent shall not be obligated to make
any sale with respect to the Pledged Collateral regardless of a notice of sale
having been given. Agent may adjourn any public or private sale from time to
time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
(b) Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws, Agent may be unable to effect a public sale or
disposition of any or all of the securities included within the Pledged
Collateral but may be compelled to resort to one or more private sales or
dispositions thereof to a restricted group of purchasers who will agree, among
other things, to acquire the Pledged Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. Pledgor
acknowledges that any sales under such restrictions may be at prices and on
terms less favorable than those obtainable through a sale without such
restrictions (including, without limitation, a public offering made pursuant to
a registration statement under the Securities Act), and notwithstanding such
circumstances, agrees that any sale under such restrictions shall be deemed to
have been made in a commercially reasonable manner and that Agent shall have no
obligation to engage in sales without such restrictions and no obligation to
delay the sale of any securities included within the Pledged Collateral for the
period of time necessary to permit the issuer thereof to register it for a form
of public sale requiring registration under the Securities Act or under
applicable state securities laws, even if Pledgor would agree to do so.
6. WAIVERS, AMENDMENTS AND REMEDIES. No course of dealing between
Agent and Pledgor and no delay or omission of Agent to exercise any right,
power, privilege or remedy granted under this Pledge Agreement, the Loan
Agreement or any other Financing Agreement or any collateral document or
guaranty related thereto shall impair such right or remedy or be construed to be
a waiver of any Event of Default or an acquiescence therein, and any single or
partial exercise of any such right or remedy shall not preclude other or further
exercise thereof or the exercise of any other right, power, privilege or remedy,
and no waiver, amendment or other variation of the terms, conditions or
provisions of this Pledge Agreement whatsoever shall be valid unless in writing
signed by Agent, and then only to the extent in such writing specifically set
forth. All rights, power, privilege and remedies contained in this Pledge
Agreement shall be cumulative, are in addition to such other rights, power,
privileges and remedies Agent may have by law or otherwise and shall be
available to Agent until the Secured Obligations have been paid in full.
7. GENERAL PROVISIONS.
7.1 SPECIAL COLLATERAL ACCOUNT. All cash received by Agent with
respect to the Pledged Collateral pursuant to SECTION 4.1.1 or upon the exercise
of the remedies provided for in SECTION 5.1, shall be deposited into a special
collateral account with Agent and shall be held by Agent as security for the
Secured Obligations. Pledgor shall have no control whatsoever over said special
collateral account. Agent shall apply any part of the credit balance in said
special collateral account to the payment of the Secured Obligations, whether or
not any of them shall be then due.
7.2 APPLICATION OF PROCEEDS. All cash, property or other proceeds
received by Agent pursuant to the enforcement of this Pledge Agreement, the Loan
Agreement or any other Financing Agreement or any collateral document or
guaranty related to any of the foregoing after acceleration of the Secured
Obligations shall be distributed in the manner set forth in the Loan Agreement.
7.3 EXERCISE OF RIGHTS IN PLEDGED COLLATERAL. After the occurrence and
during the continuance of an Event of Default, Agent or its nominee may, but
shall not be obligated to, at any time and from time to time, without notice to
the Pledgor, exercise all voting and corporate rights relating to the Pledged
Collateral including, without limitation, exchange, subscription or any other
rights, privileges, or options pertaining to any shares of the Pledged Stock and
the Stock Rights, as if it were the absolute owner thereof. Upon the occurrence
and during the continuance of an Event of Default, in the event that Pledgor, as
record and beneficial owner of the Pledged Stock, shall receive or shall become
entitled to receive, any cash dividends or other distributions, Pledgor shall
deliver to Agent, and Agent shall be entitled to receive and retain, all such
cash or other distributions. At all times when no Event of Default has occurred
and is continuing, Pledgor shall be entitled to vote its Pledged Stock and
otherwise exercise the incidents of ownership of the Pledged Stock.
7.4 NOTICE OF DISPOSITION OF COLLATERAL. Notice of the time and place
of any public sale or the time after which any private sale or other disposition
of all or any part of the Pledged Collateral may be made shall be reasonable if
sent to the Pledgor, addressed as set forth in SECTION 8, at least ten days
prior to any such public sale or the time after which any such private sale or
other disposition may be made.
7.5 POSSESSION OF COLLATERAL. Beyond the exercise of reasonable care
to assure the safe custody of the Pledged Collateral in the physical possession
of Agent pursuant hereto, neither Agent nor any nominee of Agent, shall have any
duty or liability to collect any sums due in respect thereof or to protect,
preserve or exercise any rights pertaining thereto, and shall be relieved of all
responsibility for the Pledged Collateral upon surrendering it to the Pledgor.
7.6 SPECIFIC PERFORMANCE OF CERTAIN COVENANTS. The Pledgor
acknowledges and agrees that a breach of any of the covenants contained in
SECTIONS 4.1.1, 4.1.4, 4.1.6, 4.2.2, 4.2.3 or 4.2.4 will cause irreparable
injury to Agent and that Agent has no adequate remedy at law in respect of such
breaches and therefore agrees, without limiting the right of Agent to seek and
obtain specific performance of other obligations of the Pledgor contained in
this Pledge Agreement, that the covenants of the Pledgor contained in the
Sections referred to in this SECTION 7.6 shall be specifically enforceable
against the Pledgor.
7.7 DEFINITION OF CERTAIN TERMS. Terms defined in the Code which are
not otherwise defined in this Pledge Agreement are used in this Pledge Agreement
as defined in the Code as in effect on the date hereof.
7.8 BENEFIT OF AGREEMENT. The terms and provisions of this Pledge
Agreement shall be binding upon and inure to the benefit of Agent and the
Pledgor and their respective successors and assigns, except that the Pledgor
shall not have the right to assign its rights or obligations under this Pledge
Agreement or any interest herein.
7.9 SURVIVAL OF REPRESENTATIONS. All representations and warranties of
the Pledgor contained in this Pledge Agreement shall survive the execution and
delivery of this Pledge Agreement.
7.10 TAXES AND EXPENSES. The Pledgor will upon demand pay to Agent (a)
any taxes (excluding income taxes, franchise taxes or other taxes levied on
gross earnings, profits or the like) payable or ruled payable by any Federal or
State authority in respect of this Pledge Agreement, together with interest and
penalties, if any, and (b) all reasonable expenses, including the reasonable
fees and expenses of counsel for Agent and of any experts and agents that Agent
may incur in connection with (i) the administration of this Pledge Agreement,
(ii) the custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of Agent hereunder, or (iv) the failure of the Pledgor to
perform or observe any of the provisions hereof.
7.11 CHOICE OF LAW. THIS PLEDGE AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS PROVISIONS)
OF THE STATE OF ILLINOIS.
7.12 HEADINGS. The title of and section headings in this Pledge
Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the terms and provisions of this Pledge Agreement.
7.13 TERMINATION. This Pledge Agreement shall continue in effect until
no Secured Obligations shall be outstanding.
7.14 SEVERABILITY. The provisions of this Pledge Agreement are
severable and if any clause or provision thereof shall be held invalid or
unenforceable in whole or in part, then such invalidity or unenforceability
shall attach only to such clause or provision, or part thereof, and shall not in
any manner affect such clause or provision in any other jurisdiction or any
other clause or provision in this Pledge Agreement or any jurisdiction.
7.15 ATTORNEY-IN-FACT. Pledgor hereby irrevocably appoints Agent as
Pledgor's attorney-in-fact, with full authority in the place and stead of
Pledgor and in the name of Pledgor or otherwise, from time to time in Collateral
Agent's discretion reasonably exercised, to take any action and to execute any
instrument that Agent deems reasonably necessary or advisable to accomplish the
purposes of this Pledge Agreement, including, without limitation, to receive,
endorse and collect all instruments made payable to Pledgor representing any
dividend, principal, interest payment or other proceeds or distribution in
respect of the Pledged Collateral or any part thereof and to give full discharge
for the same, when and to the extent permitted by this Pledge Agreement.
7.16 INCORPORATION BY REFERENCE. The security interests granted
hereunder are granted in conjunction with the security interests granted to
Agent, for the benefit of Lenders, pursuant to the Loan Agreement. Pledgor
hereby acknowledges and affirms that the rights and remedies of Agent with
respect to the Pledged Collateral made and granted hereunder are more fully set
forth in the Loan Agreement, the terms and provisions of which are incorporated
by reference herein as if fully set forth herein.
8. 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
three (3) days after deposit in the United States mails (by certified mail,
return receipt requested), with proper postage prepaid, or upon delivery by
courier or upon transmission by telex, telecopy or similar electronic medium to
the following addresses:
(i) If to Agent, at:
Sanwa Business Credit Corporation
One South Wacker Drive
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, Esq.
Telecopy No.: (312) 558-5700
(ii) If to Pledgor 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.
9. WAIVERS. The Pledgor waives presentment and demand for payment of
any of the Secured Obligations, protest and notice of dishonor or default with
respect to any of the Secured Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein.
10. COUNTERPARTS. This Pledge Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Pledge Agreement by
signing any such counterpart.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be duly executed and delivered by their duly authorized officers on
the date first above written.
LOIS/USA, INC.
By: /S/ ROBERT K. STEWART
Name:Robert K. Stewart
Title:EVP / CFO
ACCEPTED AS OF THE DATE
FIRST SET FORTH ABOVE:
SANWA BUSINESS CREDIT CORPORATION,
as Agent
By: /S/ STANLEY KAMINSKI
Name:Stanley Kaminski
Title: Vice President
EXHIBIT 10.25
GUARANTY
This Guaranty (this "Guaranty") is dated as of October 28, 1997, by
LOIS/USA, INC., a Delaware corporation ("Guarantor"), in favor of SANWA BUSINESS
CREDIT CORPORATION, for itself, as lender, and as agent (the "Agent") for the
Lenders (as hereinafter defined), having an office at One South Wacker Drive,
39th Floor, Chicago, Illinois 60606.
RECITALS
WHEREAS, 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"), the Agent and the lenders named therein (the "Lenders"), have
entered into that certain Loan and Security Agreement of even date herewith (as
amended, supplemented or otherwise modified from time to time, the "Loan
Agreement") providing for the extension of loans and other financial
accommodations from Lenders to Borrowers; and
WHEREAS, Borrowers will become liable for their Obligations including,
without limitation, loans and other financial accommodations from the Lenders
(including the Agent in its individual capacity) under the Loan Agreement (all
Obligations being referred to herein as the "Guaranty Indebtedness");
WHEREAS, Guarantor owns 100% of the outstanding shares of each
Borrower;
WHEREAS, Guarantor will derive substantial direct and indirect
economic benefit and advantage from the financial accommodations to Borrowers
set forth in the Loan Agreement, including, without limitation, the loans and
advances made to Borrowers thereunder, and it will be to Guarantor's direct and
indirect economic benefit to assist Borrowers in procuring such financial
accommodations from the Lenders; and
WHEREAS, a condition precedent to Agent and Lenders entering into the
Loan Agreement is that the Guarantor execute and deliver this Guaranty;
NOW, THEREFORE, for and in consideration of the premises and in order
to induce Agent and Lenders to enter into the Loan Agreement and Lenders to make
loans thereunder, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Guarantor hereby agrees as
follows:
SECTION 1. DEFINITIONS.
Unless otherwise defined herein, all capitalized terms used herein
shall have the respective meanings assigned to such terms in the Loan Agreement.
SECTION 2. GUARANTY OF PAYMENT.
(a) Guarantor, jointly and severally, hereby absolutely and
unconditionally guarantees the full and prompt payment to Agent, for its benefit
and the benefit of Lenders, when due, upon demand, at maturity or by reason of
acceleration or otherwise and at all times thereafter, of any and all existing
and future Guaranty Indebtedness.
(b) Guarantor acknowledges that valuable consideration supports this
Guaranty, including, without limitation, the consideration set forth in the
recitals above as well as any commitment to lend, extension of credit or other
financial accommodation, whether heretofore or hereafter made by Lenders to
Borrowers; any extension, renewal or replacement of any of the Guaranty
Indebtedness; any forbearance with respect to any of the Guaranty Indebtedness
or otherwise; any purchase of any assets of Borrowers by the Lenders; or any
other valuable consideration.
(c) Guarantor agrees that all payments under this Guaranty shall be
made in United States currency and in the same manner as provided for in the
Guaranty Indebtedness.
SECTION 3. COSTS AND EXPENSES.
Guarantor agrees, jointly and severally, to pay on demand, if not paid
by Borrowers, all costs and expenses of every kind incurred by Agent or Lenders:
(a) in enforcing this Guaranty, (b) in collecting any of the Guaranty
Indebtedness from the Borrowers or Guarantor, (c) in realizing upon or
protecting any collateral for this Guaranty or for payment of any of the
Guaranty Indebtedness, and (d) for any other purpose related to the Guaranty
Indebtedness or this Guaranty. "Costs and expenses" as used in the preceding
sentence shall include, without limitation, reasonable attorneys' fees incurred
by Agent or any Lender in retaining counsel for advice, suit, appeal, any
insolvency or other proceedings under Title 11 of the United States Code (the
"BANKRUPTCY CODE") or otherwise, or for any purpose specified in the preceding
sentence.
SECTION 4. NATURE OF GUARANTY: CONTINUING, ABSOLUTE AND UNCONDITIONAL.
(b) This Guaranty is and is intended to be a continuing guaranty of
payment of the Guaranty Indebtedness, independent of and in addition to any
other guaranty, indorsement, collateral or other agreement held by Agent or
Lenders therefor or with respect thereto, whether or not furnished by Guarantor.
The obligations of Guarantor to repay the Guaranty Indebtedness hereunder shall
be unconditional.
(c) Until the Guaranty Indebtedness has been paid in full in cash,
Guarantor shall have no right, claim or remedy of subrogation, reimbursement,
contribution or any similar rights against Borrowers or any other guarantor with
respect to the Guaranty Indebtedness and hereby waives all such rights
including, without limitation, any right to enforce any remedy which Agent or
any Lender now has or may hereafter have against Borrowers, any endorser or any
other guarantor of all or any part of the Guaranty Indebtedness, and Guarantor
hereby waives any benefit of, and any right to participate in, any security or
collateral given to Agent, on behalf of the Lenders, to secure payment of the
Guaranty Indebtedness or any part thereof or any other liability of the Borrower
to Agent or the Lenders. If any amount shall be paid to any Guarantor on account
of any payment made hereunder at any time when the Guaranty Indebtedness shall
not have been paid in full in cash, such amount shall be held in trust for the
benefit of Agent and Lenders and shall forthwith be paid to Agent to be credited
and applied, whether the Guaranty Indebtedness is matured or unmatured, in
accordance with the terms of the Loan Agreement. Guarantor authorizes Agent, on
behalf of itself and Lenders, to take any action or exercise any remedy with
respect to such collateral which Agent, on behalf of itself and Lenders, in its
sole discretion shall determine, without notice to Guarantor. Guarantor further
agrees that any and all claims of Guarantor against Borrowers, any endorser or
any other guarantor of all or any part of the Guaranty Indebtedness, or against
any of their respective properties, whether arising by reason of any payment by
Guarantor to Agent, on behalf of itself and Lenders, pursuant to the provisions
hereof, or otherwise, shall be subordinate and subject in right of payment to
the prior payment, in full, of any and all principal and interest, all fees, all
reasonable costs of collection (including reasonable attorneys' fees and time
charges) and any other liabilities or obligations owing to Agent and Lenders by
the Borrowers which may arise either with respect to or on any note, instrument,
document, item, agreement or other writing heretofore, now or hereafter
delivered to any Lender or Agent. In the event Agent, on behalf of itself and
Lenders, in its sole discretion elects to give notice of any action with respect
to the collateral securing the Guaranty Indebtedness or any part thereof, ten
(10) days' written notice mailed to Guarantor by ordinary mail at the address
shown hereon shall be deemed reasonable notice of any matters contained in such
notice. Guarantor consents and agrees that Agent, on behalf of itself and
Lenders, shall be under no obligation to marshall any assets in favor of
Guarantor or against or in payment of any or all of the Guaranty Indebtedness.
(d) For the further security of Agent and Lenders and without in any
way diminishing the liability of Guarantor, following the occurrence of an Event
of Default and acceleration of the Guaranty Indebtedness of Borrowers, all debts
and liabilities, present or future of Borrowers to Guarantor and all monies
received from Borrowers or for its account by Guarantor in respect thereof shall
be received in trust for Lenders and forthwith upon receipt shall be paid over
to Agent, for the benefit of itself and Lenders, until all of such Guaranty
Indebtedness has been paid in full. The obligations of Guarantor in the
preceding sentence shall be independent of and severable from this Guaranty and
shall remain in full force and effect whether or not Guarantor is liable for any
amount under this Guaranty.
(e) This Guaranty and Guarantor's obligations hereunder are absolute
and unconditional and shall not be changed or affected by any representation,
oral agreement, act or thing whatsoever. This Guaranty is intended by Guarantor
to be the final, complete and exclusive expression of the guaranty agreement
between Guarantor and Agent, on behalf of Lenders. No modification or amendment
of any provision of this Guaranty shall be effective unless in writing and
signed by a duly authorized officer of Agent, on behalf of the Lenders.
SECTION 5. CERTAIN RIGHTS AND OBLIGATIONS.
(a) Guarantor authorizes Agent and Lenders, without notice, demand or
any reservation of rights against Guarantor and without impairing or affecting
the validity or enforceability of this Guaranty or Guarantor's obligations
hereunder, from time to time: (i) to renew, extend, increase, accelerate or
otherwise change the time for payment of, the terms of or the interest on the
Guaranty Indebtedness or any part thereof or grant other indulgences to any
Borrower or other Persons; (ii) to accept from any Person and hold collateral
for the payment of the Guaranty Indebtedness or any part thereof, and to modify,
exchange, enforce or refrain from enforcing, or release, compromise, settle,
waive, subordinate or surrender, with or without consideration, such collateral
or any part thereof; (iii) to accept and hold any endorsement or guaranty of
payment of the Guaranty Indebtedness or any part thereof, and to discharge,
release or substitute any such obligation of any such endorser or guarantor, or
any Person who has given any security interest in any collateral as security for
the payment of the Guaranty Indebtedness or any part thereof, or any other
Person in any way obligated to pay the Guaranty Indebtedness or any part
thereof, and to enforce or refrain from enforcing, or compromise or modify, the
terms of any obligation of any such indorser, guarantor, or Person; (iv) subject
to the notice provision set forth in SECTION 4 hereof, to dispose of any and all
collateral securing the Guaranty Indebtedness in any manner as Agent or Lenders,
in its or their sole discretion, may deem appropriate, and to direct the order
or manner of such disposition and the enforcement of any and all endorsements
and guaranties relating to the Guaranty Indebtedness or any part thereof as
Agent or Lenders, in its or their sole discretion, may determine; (v) except as
otherwise provided in the Loan Agreement, to determine the manner, amount and
time of application of payments and credits, if any, to be made on all or any
part of any component or components of the Guaranty Indebtedness (whether
principal, interest, fees, costs, and expenses, or otherwise) including, without
limitation, the application of payments received from any source to the payment
of indebtedness other than the Guaranty Indebtedness even though the Agent and
the Lenders might lawfully have elected to apply such payments to the Guaranty
Indebtedness or to amounts which are not covered by this Guaranty; and (vi) to
take advantage or refrain from taking advantage of any security or accept or
make or refrain from accepting or making any compositions or arrangements when
and in such manner as Agent or Lenders, in its or their sole discretion, may
deem appropriate and generally do or refrain from doing any act or thing which
might otherwise, at law or in equity, release the liability of Guarantor as a
guarantor or surety in whole or in part, and in no case shall Agent or Lenders
be responsible or shall Guarantor be released either in whole or in part for any
act or omission in connection with Agent or Lenders having sold any collateral
at less than fair market value.
(b) If any default shall be made in the payment of any of the Guaranty
Indebtedness and any grace period has expired with respect thereto, Guarantor
hereby agrees to pay the same in full to the extent hereinafter provided: (i)
without deduction by reason of any setoff, defense (other than payment) or
counterclaim of any Borrower; (ii) without requiring presentment, protest or
notice of nonpayment or notice of default to Guarantor, to any Borrower or to
any other Person; (iii) without demand for payment or proof of such demand or
filing of claims with a court in the event of receivership, bankruptcy or
reorganization of any Borrower; (iv) without requiring the Agent or the Lenders
to resort first to any Borrower (this being a guaranty of payment and not of
collection) or to any other guarantor or any other Person obligated with respect
to the Guaranty Indebtedness or any collateral which the Lenders may hold; (v)
without requiring notice of acceptance hereof or assent hereto by the Agent or
the Lenders; and (vi) without requiring notice that any of the Guaranty
Indebtedness has been incurred, extended or continued or of the reliance by the
Agent or the Lenders upon this Guaranty; all of which Guarantor hereby waives.
(c) This Guaranty and Guarantor's obligation hereunder shall at all
times be valid and enforceable and shall not be impaired or affected by any
other agreements or circumstances of any nature whatsoever which otherwise
constitute a defense to this Guaranty, including, without limitation, any of the
following, all of which Guarantor hereby waives to the extent permitted by law:
(i) any failure or omission to perfect or continue the perfection of any
security interest in or other lien on, or preserve rights to, any collateral
securing payment of any of the Guaranty Indebtedness or Guarantor's obligation
hereunder; (ii) the invalidity, unenforceability, propriety of manner of
enforcement of, or loss or change in priority of any such security interest or
other lien or guaranty of the Guaranty Indebtedness; (iii) any failure or
omission to protect, preserve or insure any such collateral; (iv) failure of
Guarantor to receive notice of any intended disposition of such collateral; (v)
any defense arising by reason of the cessation from any cause whatsoever of
liability of any Borrower including, without limitation, any failure, negligence
or omission by the Agent or the Lenders in enforcing their claims against any
Borrower; (vi) any waiver of any right, remedy or power or of any default with
respect to the Guaranty Indebtedness or any part thereof or any release,
settlement or compromise of any obligation of any Borrower; (vii) the invalidity
or unenforceability of any of the Guaranty Indebtedness or the invalidity or
unenforceability of any agreement relating thereto or with respect to any
collateral securing the Guaranty Indebtedness or any part thereof; (viii) any
change of ownership of any Borrower or the insolvency, bankruptcy or any other
change in the legal status of any Borrower; (ix) any change in, or the
imposition of, any law, decree, regulation or other governmental act which does
or might impair, delay or in any way affect the validity, enforceability or the
payment when due of the Guaranty Indebtedness; (x) the existence of any claim,
setoff or other right which Guarantor may have at any time against the Agent,
any Lender, any Borrower or any other guarantor in connection herewith or any
unrelated transaction; (xi) the failure of any Borrower or Guarantor to maintain
in full force, validity or effect or to obtain or renew when required all
governmental and other approvals, licenses or consents required in connection
with the Guaranty Indebtedness or this Guaranty, or to take any other action
required in connection with the performance of all obligations pursuant to the
Guaranty Indebtedness or this Guaranty; (xii) the Agent's election, on behalf of
the Lenders, in any case instituted under chapter 11 of the Bankruptcy Code, of
the application of section 1111(b)(2) of the Bankruptcy Code; (xiii) any
borrowing, use of cash collateral, or grant of a security interest by the
Borrower, as debtor in possession, under section 363 or 364 of the Bankruptcy
Code; (xiv) the disallowance of all or any portion of the Agent's or any of the
Lenders' claims for repayment of the Guaranty Indebtedness under section 502 or
506 of the Bankruptcy Code; or (xv) any other fact or circumstance which might
otherwise constitute grounds at law or in equity for the discharge or release of
Guarantor from its obligations hereunder, all whether or not Guarantor shall
have had notice or knowledge of any act or omission referred to in the foregoing
clauses (i) through (xiv) of this SUBSECTION 5(C). It is agreed that Guarantor's
liability hereunder is independent of any other guaranties or other obligations
at any time in effect with respect to the Guaranty Indebtedness or any part
thereof and that Guarantor's liability hereunder may be enforced regardless of
the existence, validity, enforcement or non-enforcement of any such other
guaranties or other obligations or any provision of any applicable law or
regulation purporting to prohibit payment by any Borrower of the Guaranty
Indebtedness in the manner agreed upon between the Agent and the Lenders and the
Borrower.
(d) Credit may be granted or continued from time to time by the Agent
and the Lenders to any Borrower without notice to or authorization from
Guarantor regardless of the Borrower's financial or other condition at the time
of any such grant or continuation. Neither the Agent nor any Lender shall have
an obligation to disclose or discuss with Guarantor its assessment of the
financial condition of any Borrower.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
Guarantor represents and warrants that:
(b) EXISTENCE. Guarantor (i) is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
or incorporation, as the case may be, and has been duly qualified to conduct
business and is in good standing in each other jurisdiction where its ownership
or lease of property or the conduct of its business requires such qualification;
(ii) has the requisite corporate authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the property
it operates under lease and to conduct its business as now, heretofore and
proposed to be conducted; (iii) has all licenses, permits, consents or approvals
from or by, and has made all filings with, and has given all notices to, all
Governmental Authorities having jurisdiction, to the extent required for such
ownership, operation and conduct; (iv) is in compliance with its organizational
documents; and (v) is in compliance with all applicable provisions of law.
(c) AUTHORITY. Guarantor has full power, authority and legal right to
enter into this Guaranty and the other Financing Agreements to which it is a
party. The execution, delivery and performance by Guarantor of this Guaranty and
such other Financing Agreements: (i) have been duly authorized by all necessary
action on the part of Guarantor; (ii) are not in contravention of the terms of
Guarantor's articles of incorporation or bylaws or of any indenture, agreement
or undertaking to which Guarantor is a party or by which it or any of its
property is bound; (iii) do not and will not require any governmental consent,
registration or approval or the consent of any other Person that has not been
obtained; (iv) do not and will not contravene any contractual or governmental
restriction to which Guarantor or any of its property may be subject; and (v) do
not and will not, except as contemplated herein, result in the imposition of any
Lien upon any property of Guarantor 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. Guarantor has the full corporate authority to own or lease and operate
its property and to conduct the business in which it is currently engaged and in
which it proposes to engage.
(d) BINDING EFFECT. This Guaranty and all of the other Financing
Agreements to which Guarantor is a party have been duly executed and delivered
by Guarantor, are the legal, valid and binding obligations of Guarantor and are
enforceable against Guarantor 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.
(e) SOLVENCY. Guarantor is Solvent and will continue to be Solvent
following the consummation of the transactions contemplated by this Guaranty and
the other Financing Agreements.
(f) TAX OBLIGATIONS. Guarantor and its Subsidiaries have filed
complete and correct federal, state and local tax reports and returns required
to be filed, prepared in accordance with applicable laws or regulations, and,
except for extensions duly obtained, have either duly paid all taxes, duties and
charges owed, or made adequate provisions for the payment thereof. There are no
material unresolved questions or claims concerning any tax liability of
Guarantor or any Subsidiary.
(g) LITIGATION AND PROCEEDINGS. Except as set forth on SCHEDULE 6(F)
hereto, no action, claim or proceeding is now pending or, to the best knowledge
of Guarantor, threatened against or affecting Guarantor or any of its
Subsidiaries, before any Governmental Authority, or before any arbitrator or
panel of arbitrators, nor, to the best knowledge of Guarantor, does a state of
facts exist which is reasonably likely to give rise to such proceedings. None of
the actions, claims or proceedings set forth on SCHEDULE 6(F) (i) challenges
Guarantor's or such Subsidiary's right or power to enter into or perform any of
its obligations under the Financing Agreements, or the validity or
enforceability of any Financing Agreement or any action taken thereunder or (ii)
if adversely determined, could reasonably be expected to have a Material Adverse
Effect.
(h) COMPLIANCE WITH LAWS AND REGULATIONS. The execution and delivery
by Guarantor of this Guaranty and all of the other Financing Agreements to which
it is a party and the performance of Guarantor's obligations hereunder and
thereunder are not in contravention of any order applicable to Guarantor or, to
Guarantor's best knowledge, any laws, regulations or ordinances applicable to
Guarantor. Guarantor is in compliance with all applicable laws, orders,
regulations and ordinances of all federal, foreign, state and local governmental
authorities relating to the business operations and the property of Guarantor or
any of its Subsidiaries.
(i) FULL DISCLOSURE. This Guaranty and the representations and
warranties of Guarantor in any other Financing Agreement delivered or to be
delivered by Guarantor, 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 Guarantor has not disclosed to the
Agent in writing which has had or, so far as Guarantor can now foresee, will
have a Material Adverse Effect.
(j) SUBSIDIARIES. SCHEDULE 6(I) hereto contains an accurate list of
all of the existing Subsidiaries of Guarantor as of the date of this Guaranty,
setting forth their respective jurisdictions of incorporation or organization
and the percentage of their capital stock or partnership interests owned by
Guarantor or other of its Subsidiaries.
(k) NEGATIVE PLEDGE. Guarantor is not a party to or bound by any
indenture, contract, instrument or other agreement which prohibits the creation,
incurrence or sufferance to exist of any Lien upon its property, except the
Financing Agreements.
(l) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained in this Guaranty or any of the other Financing
Agreements to which Guarantor is a party shall survive the execution and
delivery of this Guaranty and the termination hereof.
SECTION 7. COVENANTS
Guarantor covenants and agrees that until the Guaranty Indebtedness is
paid in full in cash and the Commitments are terminated:
(a) Guarantor shall: (i) do or cause to be done all things necessary
to preserve and keep in full force and effect its existence as a corporation and
its rights and franchises and (ii) continue to conduct its business as permitted
hereunder or under the Loan Agreement;
(b) Guarantor shall comply in all material respects with all federal,
state, local and foreign laws and regulations applicable to it, including,
without limitation, those relating to licensing, ERISA, Environmental Laws and
labor matters.
(c) Guarantor shall not (i) engage in any business activity other than
the ownership and management of the Borrowers and Persons with respect to
Permitted Acquisitions and the related activities incidental thereto; (ii)
directly or indirectly incur or assume or suffer to exist any Indebtedness other
than (x) the Seller Obligations and (y) Indebtedness to any Borrower in
connection with a Permitted Acquisition, Investments (other than its Investment
in the Borrowers and Persons with respect to Permitted Acquisitions and
Investments in cash and Cash Equivalents in an aggregate amount not to exceed
100,000 at any one time) or Guaranty (other than this Guaranty or guaranties of
Indebtedness of Borrowers permitted under the Loan Agreement); (iii) incur on
behalf of Guarantor or its Subsidiaries obligations with respect to management
or consulting or similar fees to non-affiliates in excess of $350,000 in the
aggregate in any Fiscal Year; (iv) create or permit to exist any Lien on its
assets, other than Permitted Liens; (v) merge or consolidate with, acquire any
assets or Stock of, or otherwise combine with any Person other than with respect
to Permitted Acquisitions; (vi) make any change in its capital structure; (vii)
amend its articles 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
the rights or interests of the Agent or the Lenders; (viii) except as otherwise
permitted by the Loan Agreement with respect to the Borrowers, sell, transfer,
convey, assign or otherwise dispose of any of its Property; (ix) execute any
agreements or contracts that would be prohibited by the Financing Agreements; or
(x) change its Fiscal Year. Notwithstanding the foregoing sentence, Guarantor
may engage in any activity incidental to the maintenance of the existence of
Guarantor and may enter into and perform the obligations of Guarantor under this
Agreement.
(d) Guarantor 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 the Subordination Agreement, (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 has occurred and is continuing or would result
therefrom, Guarantor may make regularly scheduled payments of principal and
interest on the Seller Obligations in accordance with the terms of the
Subordination Agreement.
(e) Guarantor shall not enter into any indenture, agreement,
instrument or other arrangement which, (i) directly or indirectly, prohibits or
restrains, or has the effect of prohibiting or restraining, or imposes
materially adverse conditions upon, the incurrence of the obligations of
Guarantor hereunder, or (ii) contains any provisions which would be violated or
breached by the performance by Guarantor of its obligations hereunder.
(f) Guarantor shall cause the Borrowers to comply with all covenants
set forth in the Loan Agreement.
(g) On or before the Closing Date, Guarantor shall obtain a letter
from Arthur Andersen & Co. on which Agent shall be designated as a recipient,
acknowledging that Lenders intend to rely upon the financial statements of
Guarantor and its Subsidiaries certified by such accountants and that the
Lenders may rely upon such certification.
SECTION 8. TERMINATION.
This Guaranty shall remain in full force and effect until all of the
Guaranty Indebtedness shall be finally and irrevocably paid in full in cash and
the Commitments under the Loan Agreement shall have been terminated. Payment of
all of the Guaranty Indebtedness from time to time shall not operate as a
discontinuance of this Guaranty. Guarantor further agrees that, to the extent
that any Borrower makes a payment or payments to the Agent or any of the Lenders
on the Guaranty Indebtedness, or the Agent or the Lenders receive any proceeds
of collateral securing the Guaranty Indebtedness, which payment or receipt of
proceeds or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be returned or repaid to
such Borrower, its estate, trustee, receiver, debtor in possession or any other
Person, including, without limitation, any guarantor, under any insolvency or
bankruptcy law, state, federal or foreign law, common law or equitable cause,
then to the extent of such payment, return or repayment, the Guaranty
Indebtedness or 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
when such initial payment, reduction or satisfaction occurred, and this Guaranty
shall continue in full force notwithstanding any contrary action which may have
been taken by the Agent or the Lenders in reliance upon such payment, and any
such contrary action so taken shall be without prejudice to the Agent's or the
Lenders' rights under this Guaranty and shall be deemed to have been conditioned
upon such payment having become final and irrevocable.
SECTION 9. GUARANTY OF PERFORMANCE.
Guarantor also guarantees the full, prompt and unconditional
performance of all obligations and agreements of every kind owed or hereafter to
be owed by the Guarantor or any Borrower to the Agent or the Lenders under or in
connection with the Financing Agreements. Every provision for the benefit of the
Agent or the Lenders contained in this Guaranty shall apply to the guaranty of
performance given in this SECTION 9.
SECTION 10. TAXES.
All payments hereunder shall be made without any counterclaim or
setoff, free and clear of, and without reduction by reason of, any taxes (except
income taxes of the Agent and the Lenders), levies, imposts, charges and
withholdings, restrictions or conditions of any nature ("TAXES"), which are now
or may hereafter be imposed, levied or assessed by any country, political
subdivision or taxing authority, all of which will be for the account of and
paid by Guarantor. If for any reason, any such reduction is made or any Taxes
are paid by the Agent or any Lender, Guarantor will pay to the Agent, for its
benefit and the benefit of the Lenders, such additional amounts as may be
necessary to ensure that the Agent and the Lenders receive the same net amount
which they would have received had no reduction been made or Taxes paid.
SECTION 11. SECURITY.
To secure payment of Guarantor's obligations under this Guaranty,
concurrently with the execution of this Guaranty, Guarantor is entering into the
Parent Pledge Agreement in favor of the Agent, for its benefit and the benefit
of the Lenders.
SECTION 12. MISCELLANEOUS.
(a) In addition to and without limiting any other right, power or
remedy of the Agent or any Lender, whenever the Agent or the Lenders have the
right to declare any of the Guaranty Indebtedness to be immediately due and
payable (whether or not it has been so declared), the Lenders at their sole
election without notice to Guarantor may appropriate and setoff against the
Guaranty Indebtedness: (i) any and all indebtedness or other monies due or to
become due to Guarantor by the Agent or the Lenders in any capacity; and (ii)
any monies, credits or other property belonging to Guarantor (including all
account balances, whether provisional or final and whether or not collected or
available) at any time held by or coming into the possession of the Agent or any
of the Lenders, or any affiliate of the Agent or any of the Lenders, whether for
deposit or otherwise, whether or not the Guaranty Indebtedness or the obligation
to pay such monies owed by the Agent or the Lenders is then due, and the Agent,
on its behalf and on behalf of the Lenders, is hereby granted a security
interest in and Lien upon such monies, credits and other property. The Agent or
the Lenders shall be deemed to have exercised such right of setoff immediately
at the time of such election even though any charge therefor is made or entered
on the Agent's or the Lenders' records subsequent thereto.
(b) In the event that acceleration of the time for payment of any of
the Guaranty Indebtedness is stayed, upon the insolvency, bankruptcy or
reorganization of the Borrower, or otherwise, all such amounts shall nonetheless
be payable by Guarantor forthwith upon demand by the Agent, on its behalf and on
behalf of the Lenders.
(c) No delay on the part of the Agent or any Lender in the exercise of
any right, power or remedy shall operate as a waiver thereof, and no single or
partial exercise by the Agent or any Lender of any right, power or remedy shall
preclude any further exercise thereof; nor shall any amendment, supplement,
modification or waiver of any of the terms or provisions of this Guaranty be
binding upon the Agent or the Lenders, except as expressly set forth in a
writing duly signed and delivered by the Agent. The failure by the Agent or any
Lender at any time or times hereafter to require strict performance by the
Borrower or any Guarantor of any of the provisions, warranties, terms and
conditions contained in any Financing Agreement or promissory note, security
agreement, agreement, indenture, guaranty, instrument or document now or at any
time or times hereafter executed by the Borrower or any Guarantor and delivered
to the Agent or any Lender shall not waive, affect or diminish any right of the
Agent or any Lender at any time or times hereafter to demand strict performance
thereof, and such right shall not be deemed to have been waived by any act or
knowledge of the Agent or any Lender, their agents, officers or employees,
unless such waiver is contained in an instrument in writing duly signed and
delivered by the Agent and/or the Lenders, as the case may be. No waiver by the
Agent or the Lenders of any default shall operate as a waiver of any other
default hereunder or the same default on a future occasion, and no action by the
Agent or the Lenders permitted hereunder shall in any way affect or impair the
Agent's or any Lender's rights, powers or remedies or the obligations of
Guarantor under this Guaranty. Any determination by a court of competent
jurisdiction of the amount of any Guaranty Indebtedness owing by the Borrower to
the Lenders shall be conclusive and binding on Guarantor irrespective of whether
the Borrower was a party to the suit or action in which such determination was
made. The rights and remedies of the Agent and the Lenders hereunder are
cumulative and may be exercised singly or concurrently, and are not exclusive of
any rights or remedies provided by law.
(d) This Guaranty shall bind Guarantor and the successors and assigns
of Guarantor and shall inure to the benefit of the Agent and the Lenders and
their successors and assigns. All references herein to any Lender shall for all
purposes also include all Participants. All references herein to the Borrower
shall be deemed to include its successors and assigns including, without
limitation, a receiver, trustee or debtor in possession of or for the Borrower.
(e) Section headings in this Guaranty are included herein for
convenience of reference only and shall not constitute a part of this Guaranty
for any other purpose or be given any substantive effect.
(f) Whenever possible, each provision of this Guaranty shall be
interpreted in such manner as to be effective and valid under applicable law.
Any provision of this Guaranty which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remainder of such
provision or the remaining provisions of this Guaranty, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(g) It is understood that while the amount of the Guaranty
Indebtedness is not limited, if, in any action or proceeding involving any state
or federal bankruptcy, insolvency or other law affecting the rights of creditors
generally, this Guaranty would be held or determined to be void, invalid or
unenforceable on account of the amount of the aggregate liability under this
Guaranty, then, notwithstanding any other provision of this Guaranty to the
contrary, the aggregate amount of such liability shall, without any further
action of Guarantor, the Lenders, the Agent or any other Person, be
automatically limited and reduced to the highest amount which is valid and
enforceable as determined in such action or proceeding.
(h) This Guaranty sets forth the entire understanding and agreement of
Guarantor and the Agent with respect to the subject matter hereof and supersedes
all other understandings, oral or written, with respect to the subject matter
hereof.
(i) Guarantor, jointly and severally, agrees to pay all costs, fees
and expenses (including reasonable attorneys' fees) incurred by the Agent or the
Lenders after a default by Guarantor under this Guaranty.
(J) GUARANTOR AND THE AGENT 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 GUARANTY OR THE OTHER FINANCING AGREEMENTS TO WHICH GUARANTOR
IS A PARTY SHALL BE LITIGATED IN SUCH COURTS, AND GUARANTOR AND THE AGENT 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 SECTION 13 HEREOF AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE
SUFFICIENT NOTICE. NOTHING CONTAINED IN THIS SECTION 12 SHALL AFFECT THE RIGHT
OF THE AGENT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
AFFECT THE RIGHT OF THE AGENT TO BRING ANY ACTION OR PROCEEDING AGAINST
GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION TO THE EXTENT NECESSARY TO
ENFORCE ITS LIENS AGAINST ASSETS LOCATED IN SUCH JURISDICTION.
(K) THIS GUARANTY SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED UNDER
AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF.
SECTION 13. 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 or similar electronic
medium, on the date of confirmed transmission, (c) if delivered by overnight
courier, one (1) Business 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:
Notices shall be addressed as follows:
(a) If to Guarantor:
LOIS/USA, Inc.
40 West 57th Street
New York, New York 10019
Attn: Chief Financial Officer
Telecopy No.: (212) 373-4783
(b) If to Agent:
Sanwa Business Credit Corporation
One South Wacker Drive, 39th Floor
Chicago, Illinois 60606
Attention: Commercial Finance Division
Telecopy: (312) 782-6035
With a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: Jim L. Blanco
Telecopy: (312) 558-5700
or in any case, to such other address as the party addressed shall have
previously designated by written notice to the serving party, given in
accordance with this SECTION 13. A notice not given as provided above shall, if
it is in writing, be deemed given if and when actually received by the party to
whom given.
SECTION 14. WAIVERS.
(B) GUARANTOR WAIVES THE BENEFIT OF ALL VALUATION, APPRAISAL AND
EXEMPTION LAWS.
(C) IN THE EVENT OF A DEFAULT UNDER THE LOAN AGREEMENT, GUARANTOR
HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE
BY THE AGENT OR THE LENDERS OF THEIR RIGHTS TO REPOSSESS ANY COLLATERAL WITHOUT
JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON ANY COLLATERAL WITHOUT PRIOR
NOTICE OR HEARING. GUARANTOR ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF
ITS CHOICE WITH RESPECT TO THIS TRANSACTION AND THIS GUARANTY.
(D) GUARANTOR AND THE AGENT 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, ANY
OBJECTION BASED ON FORUM NON CONVENIENS, ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER, AND WAIVE ANY BOND OR SURETY OR SECURITY UPON SUCH BOND
WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE AGENT OR THE LENDERS.
(E) TO THE EXTENT PERMITTED BY LAW, GUARANTOR ABSOLUTELY,
UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY RIGHT TO ASSERT ANY DEFENSE, SETOFF,
COUNTERCLAIM OR CROSSCLAIM OF ANY NATURE WHATSOEVER WITH RESPECT TO THIS
GUARANTY OR THE OBLIGATIONS OF GUARANTOR HEREUNDER OR THE OBLIGATIONS OF ANY
OTHER PERSON OR PARTY (INCLUDING THE BORROWER) RELATING TO THIS GUARANTY, THE
GUARANTY INDEBTEDNESS OR THE OBLIGATIONS OF GUARANTOR IN ANY ACTION OR
PROCEEDING BROUGHT BY THE AGENT OR THE LENDERS TO COLLECT THE GUARANTY
INDEBTEDNESS OR TO ENFORCE THE OBLIGATIONS OF GUARANTOR HEREUNDER.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been executed as of the date and
year first written above.
LOIS/USA, INC.
By: /S/ ROBERT K. STEWART
Title: EVP / CFO
EXHIBIT 10.26
FIRST AMENDMENT AND CONSENT AGREEMENT
This FIRST AMENDMENT AND CONSENT AGREEMENT (this Agreement") dated as
of December 31, 1997 is entered into by and 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 "Original
Borrowers" and individually as an "Original Borrower") , Fogarty & Klein, Inc.,
a Texas corporation ("FKP") (FKP and the Original Borrowers referred to herein
collectively as "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 to the Loan Agreement as defined below. Terms used
herein and not otherwise defined herein shall have the same meanings as
specified in the Loan Agreement.
RECITALS:
A. The Original Borrowers, the Lenders and the Agent have heretofore
entered into that certain Loan and Security Agreement dated as of October 28,
1997 (as amended, restated, supplemented or otherwise modified from time to
time, the "Loan Agreement").
B. Parent desires to enter into that certain Stock Purchase Agreement,
(the "FKP Acquisition Agreement"), dated December 17, 1997, by and among Parent
and William H. Fogarty, Richard E. Klein, Thomas F. Monroe, Roger Beckstead,
William P. Penczak and Larry Kelley, certain of which provisions are or may be
prohibited by the Loan Agreement and the Parent Guaranty.
C. Parent has executed the Parent Guaranty guarantying the Obligations
of the Original Borrowers under the Loan Agreement.
D. Parent has executed the Parent Pledge Agreement pursuant to which
Parent pledged to Agent all of the capital stock of each of its Subsidiaries.
E. Parent and the Original Borrowers deem it in their best interest
for FKP to become a Borrower under the Loan Agreement for the purpose, among
other things, of obtaining Revolving Loans and other financial accommodations
under the Loan Agreement to be used for, among other things, the consummation of
the FKP Acquisition Agreement.
F. Pursuant to the FKP Acquisition Agreement Parent has agreed to
incur monetary obligations as part of the purchase price under the FKP
Acquisition Agreement.
G. Original Borrowers have requested that Agent and Lenders consent to
the consummation of the FKP Acquisition Agreement and the transactions
contemplated thereby, and Agent and Lenders are willing to consent, subject to
the terms and conditions of this Agreement.
H. Original Borrowers and Parent wish, and Lenders and Agent are
willing, to amend the Loan Agreement, the Parent Guaranty and the Parent Pledge
Agreement, subject to the terms and conditions of this Agreement.
I. This Agreement constitutes a Financing Agreement and these Recitals
shall be construed as part of this Agreement.
NOW, THEREFORE, in consideration of the recitals herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
SECTION 1. AMENDMENT OF FINANCING AGREEMENTS
1.1 AMENDMENT OF LOAN AGREEMENT.
1.1(a) The definition of "Borrower" and "Borrowers" contained in the
preamble to the Loan Agreement is hereby amended to include FKP
therein. Each reference to "Borrower" or "Borrowers" contained in
any Financing Agreement shall be deemed to include FKP therein
for all purposes under the Financing Agreements; provided that
until the Accounts of FKP are included in the Borrowing Base
pursuant to the terms of Section 8.20, (x) FKP may not directly
incur advances under the Revolving Loan pursuant to Section
2.1(a) or obtain the benefits of any Lender Guaranty pursuant to
Section 2.1(c) and (y) no other Borrower shall make any
intercompany loan to FKP pursuant to Section 8.20(a). By its
execution of this Agreement, FKP agrees, from and after the date
hereof, to be a Borrower under the Loan Agreement, to assume all
of the obligations of a Borrower thereunder and to make and be
bound by all of the representations, warranties, covenants, terms
and conditions thereof as if it were a direct signatory thereto,
all of which representations, warranties, covenants, terms and
conditions are acknowledged. Each of the Original Borrowers and
the Parent acknowledges and agrees that FKP shall hereafter be a
Borrower and shall be bound by the terms and conditions of the
Loan Agreement.
1.1(b) Section 1.1 of the Loan Agreement is hereby amended by adding
the following definitions in their proper alphabetical order:
"FKP Acquisition Agreement" shall mean that certain Stock Purchase
Agreement, dated December 17, 1997, by and among the Parent and the FKP Sellers,
together with all schedules, exhibits, certificates, opinions of counsel, side
letters, bills of sale and other documents incorporated therein or delivered in
connection therewith.
"FKP Obligations" shall mean those certain unsecured contractual
monetary obligations of Parent in favor of the FKP Sellers incurred by Parent
under the FKP Acquisition Agreement including, without limitation, those arising
under Sections 2.3, 2.4, 2.6 and 10.4 thereof.
"FKP Sellers" shall mean William H. Fogarty, Richard E. Klein, Thomas
F. Monroe, Roger Beckstead, William Penczak and Larry Kelley.
1.1(c) The Loan Agreement is hereby amended by deleting the Revolving
Loan Note attached thereto as Exhibit 2.3 and replacing it with
the Amended and Restated Revolving Loan Note attached to this
Agreement as Exhibit 2.3. All references in the Financing
Agreements to "Revolving Loan Note," "Revolving Loan Notes,"
Note," or "Notes," shall be deemed references to the Amended and
Restated Revolving Loan Note.
1.2 AMENDMENT OF PARENT GUARANTY.
1.2(a) Section 6 of the Parent Guaranty hereby amended by adding the
following subsection at the end thereof:
(l) REPRESENTATIONS AND WARRANTIES INCORPORATED FROM FKP ACQUISITION
AGREEMENT. The Guarantor has delivered to Agent a complete and
correct copy of the FKP Acquisition Agreement and each of the
representations and warranties given by Guarantor therein is true
and correct in all material respects. Notwithstanding anything in
the FKP Acquisition Agreement to the contrary, the
representations and warranties incorporated into this Guaranty by
this SUBSECTION 6(L) shall for the purposes of this Guaranty and
the benefit of the Agent and the Lenders, survive both the
consummation of the transactions contemplated by the FKP
Acquisition Agreement and the termination of the FKP Acquisition
Agreement.
1.2(b) Section 7(c) of the Parent Guaranty is hereby amended by
deleting it in its entirety and replacing it with the following:
Guarantor shall not (i) engage in any business activity other
than the ownership and management of the Borrowers and Persons
with respect to Permitted Acquisitions and the related activities
incidental thereto; (ii) directly or indirectly incur or assume
or suffer to exist any Indebtedness other than (x) the Seller
Obligations, (y) the FKP Obligations and (z) Indebtedness to any
Borrower in connection with a Permitted Acquisition, Investments
(other than its Investment in the Borrowers and Persons with
respect to Permitted Acquisitions and Investments in cash and
Cash Equivalents in an aggregate amount not to exceed 100,000 at
any one time) or Guaranty (other than this Guaranty or guaranties
of Indebtedness of Borrowers permitted under the Loan Agreement);
(iii) incur on behalf of Guarantor or its Subsidiaries
obligations with respect to management or consulting or similar
fees to non-affiliates in excess of $350,000 in the aggregate in
any Fiscal Year; (iv) create or permit to exist any Lien on its
assets, other than Permitted Liens; (v) merge or consolidate
with, acquire any assets or Stock of, or otherwise combine with
any Person other than with respect to Permitted Acquisitions;
(vi) make any change in its capital structure (other than the
issuance of the Warrants, the Shares and the Underlying Shares
(as such terms are defined in the FKP Acquisition Agreement)
pursuant to the terms of the FKP Acquisition Agreement); (vii)
amend its articles 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 the rights or
interests of the Agent or the Lenders; (viii) except as otherwise
permitted by the Loan Agreement with respect to the Borrowers,
sell, transfer, convey, assign or otherwise dispose of any of its
Property; (ix) execute any agreements or contracts that would be
prohibited by the Financing Agreements; or (x) change its Fiscal
Year. Notwithstanding the foregoing sentence, Guarantor may
engage in any activity incidental to the maintenance of the
existence of Guarantor and may enter into and perform the
obligations of Guarantor under this Agreement.
1.2(c) Section 7 of the Parent Guaranty is hereby amended by adding
the following subsection at the end thereof:
(h) Guarantor shall not (i) make any payment of principal or interest
on, or any redemption, prepayment, conversion, exchange, purchase, retirement,
defeasance, sinking fund or similar payment with respect to, any of the FKP
Obligations or (ii) amend, waive, modify, restate or otherwise supplement any
provision of the FKP Acquisition Agreement or waive any cause of action arising
therefrom or related thereto without the consent of the Lenders; PROVIDED that
so long as no Default or Event of Default has occurred and is continuing or
would result therefrom, Guarantor may make regularly scheduled payments on the
FKP Obligations in accordance with the terms of the FKP Acquisition Agreement.
3. AMENDMENT TO PARENT PLEDGE AGREEMENT.
EXHIBIT 1 to the Parent Pledge Agreement is hereby deleted in its
entirely and replaced by EXHIBIT 1 attached to this Agreement.
SECTION 2. CONSENT. Subject to the terms and conditions of this
Agreement, Agent and Lenders hereby consent to the consummation of the FKP
Acquisition Agreement.
SECTION 3 REPRESENTATIONS AND WARRANTIES. To induce Agent and Lenders
to enter into this Agreement, Borrowers and Parent represent and warrant that:
3.1 NO DEFAULT. After giving effect to this Agreement and the consent
set forth in Section 2 hereof, no Default or Event of Default shall have
occurred or be continuing (which has not been waived or cured);
3.2 REPRESENTATIONS AND WARRANTIES. As of the date hereof and, after
giving effect to this Agreement and the transactions contemplated hereby, the
representations and warranties of the Borrowers and the Parent contained in the
Financing Agreements are true, accurate and complete in all respects on and as
of the date hereof to the same extent as though made on and as of such date
except to the extent such representations and warranties specifically relate to
an earlier date; and
3.3 CORPORATE AUTHORITY; ENFORCEABILITY. (i) The execution, delivery
and performance by the Borrowers and the Parent of this Agreement and each of
the documents and agreements described herein or contemplated hereby to which
such Person is a party, are within its corporate powers and have been duly
authorized by all necessary corporate action on the part of such Person, (ii)
this Agreement and such documents and agreements are the legal, valid and
binding obligation of the Borrowers and the Parent enforceable against such
Person in accordance with their terms and (iii) neither the execution, delivery
or performance by the Borrowers and the Parent of this Agreement or any such
other document or agreement nor by the Parent of the FKP Acquisition Agreement
(1) violates any law or regulation, or any order or decree of any Governmental
Authority, (2) conflicts with or results in the breach or termination of,
constitutes a default under or accelerates any performance required by, any
indenture, mortgage, deed of trust, lease, agreement or other instrument to
which such Person is a party or by which such Person or any of its property is
bound, (3) results in the creation or imposition of any Lien (other than
Permitted Liens) upon any of the Collateral, (4) violates or conflicts with the
articles of incorporation or bylaws of such Person, or (5) requires the consent,
approval or authorization of, or declaration or filing with, any other Person,
except for those already duly obtained.
SECTION 4. CONDITIONS PRECEDENT TO AMENDMENTS. The effectiveness of
this Agreement shall be conditioned upon the satisfaction of the conditions set
forth in this Section 4 and the delivery of the following documents to Agent on
or prior to the date hereof (unless another date shall be specified), in form
and substance satisfactory to Agent, and consummation of all of the transactions
or the satisfaction of each condition contemplated by each such document in a
manner satisfactory to Agent and its counsel.
4.1 DOCUMENTATION. Borrowers shall have delivered to Agent all of the
following documents:
4.1(a) This Agreement duly executed by all parties hereto and the
Parent, as Guarantor.
4.1(b) An original Revolving Loan Note in the form attached hereto
as EXHIBIT 2.3, duly executed by each Borrower.
4.1(c) All necessary UCC financing statements perfecting security
interests in favor of Agent in the Collateral of FKP and
copies of searches of financing statements filed under the
Code, together with tax lien and judgment searches with
respect to the assets of FKP in Texas.
4.1(d) Duly executed copies of Blocked Account Agreements necessary
with respect to additional Blocked Accounts, if any,
delivered to Agent on or prior to January 16, 1998.
4.1(e) To the extent necessary to reflect the FKP Acquisition, the
Borrowers shall have provided to Agent revised Exhibits to
the Financing Agreements on or prior to January 9, 1998.
4.1(f) A certified copy of the resolutions of each Borrower and the
Parent authorizing or ratifying the execution and delivery
of, and the consummation of the transactions contemplated
by, this Agreement and all other documents or instruments to
be executed and delivered in connection herewith and the
performance of its obligations hereunder, delivered to Agent
on or prior to January 9, 1998.
4.1(g) An incumbency certificate with respect to the officers of
each Borrower and the Parent executing this Agreement and
the other Financing Agreements contemplated hereby,
certified as of the date hereof by such Person's secretary
or assistant secretary as being accurate, delivered to Agent
on or prior to January 9, 1998.
4.1(h) An opinion of Stroock & Stroock & Lavan LLP, counsel to
Borrowers and Parent, addressed to the Agent and the
Lenders, delivered to Agent on or prior to January 9, 1998.
4.1(i) OTHER DOCUMENTS. All other documents, certificates and
agreements as Lender may reasonably request to accomplish
the purposes of this Agreement.
4.2 PERMITTED ACQUISITION REQUIREMENTS. Borrowers shall have delivered
to Agent evidence of consummation of the FKP Acquisition and compliance with
each of the requirements of Section 8.20(b) of the Loan Agreement; provided
that:
4.2(a) the intercompany note issued by Parent in favor of Chicago
referenced in Section 8.20(b)(iv) shall be delivered to
Agent on or prior to January 9, 1998, which Note shall not
be subordinated to the Obligations under the Loan Agreement;
4.2(b) notwithstanding the terms of Section 9.20(b)(xi), Parent may
incur the unsubordinated Indebtedness under the FKP
Obligations;
4.2(c) the stock certificate representing the capital stock of FKP
shall be delivered to the Agent on or prior to January 9,
1998;
4.2(d) the monthly Acquisition Projections required to be delivered
pursuant to Section 8.20(b)(xvii) shall be delivered on or
prior to January 30, 1998; and
4.2(e) a copy of the FKP Acquisition Agreement certified by the
secretary or assistant secretary of the Parent shall be
delivered to Agent on or prior to January 9, 1998.
4.3 NO DEFAULT. As of the date hereof after giving effect to this
Agreement and the consent set forth in Section 2 hereof, no Default or Event of
Default under any Financing Agreement shall have occurred and be continuing .
4.4 NO LITIGATION. No litigation, investigation, proceeding,
injunction, restraint or other action shall be pending or threatened against any
Borrower or the Parent or any Affiliate of any such Person, which restrains,
prevents or imposes adverse conditions upon, or which otherwise relates to, the
execution, delivery or performance of this Agreement or the FKP Acquisition
Agreement.
4.5 CONSENTS AND ACKNOWLEDGMENTS. Borrowers shall have obtained all
consents, approvals and acknowledgments which may be required with respect to
the execution, delivery and performance of this Agreement.
SECTION 5. FURTHER ASSURANCES. Borrowers and Parent hereby agree, at
their expense, to duly execute, acknowledge and deliver to Agent all agreements,
certificates, instruments, opinions and other documents, and take all such
actions, as Agent may request in order to further effectuate the purposes of
this Agreement and to carry out the terms hereof.
SECTION 6. REFERENCE TO AND EFFECT ON FINANCING AGREEMENTS.
6.1 RATIFICATION. Except as specifically amended above, the Loan
Agreement and the other Financing Agreements shall remain in full force and
effect. Notwithstanding anything contained herein, the terms of this Agreement
are not intended to and do not effect a novation of the Loan Agreement or any
other Financing Agreement. Each of the Borrowers and the Parent ratify and
reaffirm each of the terms and conditions of the Financing Documents to which it
is a party and all of its obligations thereunder.
6.2 NO WAIVER. The execution, delivery and effectiveness of this
Agreement shall not operate as a waiver of any right, power or remedy of Lenders
or Agent under the Loan Agreement or any of the other Financing Agreements, or,
except as set forth in Section 2 and 4.2 hereof, constitute a waiver of any
provision of the Loan Agreement or any of the other Financing Agreements.
6.3 REFERENCES. Upon the effectiveness of this Agreement each
reference in (a) the Loan Agreement to "this Agreement," "hereunder," "hereof,"
or words of similar import or to the "Parent Guaranty" or the "Parent Pledge
Agreement" and (b) any other Financing Agreement to "the Agreement" or "the Loan
Agreement" or to the "Parent Guaranty" or the "Parent Pledge Agreement" shall,
in each case and except as otherwise specifically stated therein, mean and be a
reference to the Loan Agreement, the Parent Guaranty and the Parent Pledge
Agreement as amended hereby.
SECTION 7. MISCELLANEOUS.
7.1 SUCCESSORS AND ASSIGNS. This Agreement shall be binding on and
shall inure to the benefit of Borrowers, Parent, Agent, Lenders and their
respective successors and assigns. The terms and provisions of this Agreement
are for the purpose of defining the relative rights and obligations of
Borrowers, Parent, Agent and Lenders with respect to the transactions
contemplated hereby and there shall be no third party beneficiaries of any of
the terms and provisions of this Agreement. Neither any Borrower nor the Parent
shall assign its rights and duties hereunder.
7.2 ENTIRE AGREEMENT. This Agreement and all schedules, exhibits and
other documents attached hereto or incorporated by reference herein constitute
the entire agreement of the parties hereto with respect to the subject matter
hereof and supersedes all other understandings, oral or written, with respect to
the subject matter hereof.
7.3 FEES AND EXPENSES. In accordance with Section 2.13 of the Loan
Agreement, Borrowers agree to pay on demand all fees, costs and expenses
incurred by Agent and Lenders in connection with the preparation, execution and
delivery of this Agreement.
7.4 HEADINGS. Section headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
7.5 SEVERABILITY. Wherever 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 to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
7.6 COUNTERPARTS. This Agreement may be executed in any number of
separate original counterparts (or telecopied counterparts with original
execution copy to follow) and by the different parties on separate counterparts,
each of which shall be deemed to be an original, but all such counterparts shall
together constitute one agreement. Delivery of an executed counterpart of a
signature page to this Agreement by telecopy shall be effective as delivery of a
manually executed counterpart of this Agreement.
7.7 CONFLICT OF TERMS. Except as otherwise provided in this Agreement,
if any provision contained in this Agreement is in conflict or is inconsistent
with any provision in any of the other Financing Agreements, the provision
contained in this Agreement shall govern and control.
7.8 INCORPORATION OF LOAN AGREEMENT. The provisions contained in
SECTIONS 10.7 and 10.8 of the Loan Agreement are incorporated herein by
reference to the same extent as if reproduced herein in their entirety.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
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: CFO / EVP
LOIS/USA CHICAGO, INC.
By: /s/ Robert K. Stewart
Title: CFO / EVP
LOIS/USA NEW YORK, INC.
By: /s/ Robert K. Stewart
Title: CFO / EVP
SANWA BUSINESS CREDIT
CORPORATION, as Agent and as a Lender
By: /s/ Robert K. Stewart
Title: CFO / EVP
Acknowledged and Accepted:
FOGARTY & KLEIN, INC.
By: /s/ Robert K. Stewart
Title: CFO / EVP
Acknowledged and Agreed:
LOIS/USA, INC., as Guarantor
By:/s/ Robert K. Stewart
Title: CFO / EVP
