SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission File Number 0-25364
ANICOM, INC.
(Name of registrant as specified in its charter)
Delaware 36-3885212
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6133 North River Road, Suite 1000, Rosemont, Illinois 60018-5171
(Address of principal executive offices) (Zip Code)
(847) 518-8700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The number of shares outstanding of the registrant's Common Stock, par value
$.001 per share as of October 31, 1998: 25,026,855.
<PAGE>
PART I. -- FINANCIAL INFORMATION
Item 1. Financial Statements
ANICOM, INC.
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
September 30, December 31,
1998 1997
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 60 $ 687
Accounts receivable, less allowance
for doubtful accounts of
$3,384 and $2,442, respectively 120,086 65,125
Inventory, primarily finished goods 94,779 57,099
Other current assets 7,211 7,344
-------- --------
Total current assets 222,136 130,255
Property and equipment, net 8,652 5,771
Goodwill, net of accumulated amortization
of $3,103 and $1,605, respectively 123,457 76,869
Other assets 2,129 2,562
-------- --------
Total assets $356,374 $215,457
======== ========
See Notes to Condensed Consolidated Financial Statements
1
<PAGE>
ANICOM, INC.
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
September 30, December 31,
1998 1997
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 64,984 $ 47,740
Accrued expenses and acquisition liabilities 14,990 13,246
Long-term debt, current portion 1,760 1,773
-------- --------
Total current liabilities 81,734 62,759
Long-term debt, net of current portion 86,025 6,267
Other liabilities 4,423 2,282
-------- --------
Total liabilities 172,182 71,308
-------- --------
Commitments and Contingencies
Convertible redeemable preferred stock,
series B, par value $.01 per share,
liquidation value $1,000 per share;
20 and 0 shares authorized,
issued and outstanding, respectively 20,000 __
Stockholders' Equity:
Common stock, par value $.001 per share;
60,000 shares authorized,
25,027 and 23,293 shares
issued and outstanding, respectively 17 15
Preferred stock, undesignated,
par value $.01 per share;
953 and 973 shares authorized, respectively;
no shares issued and outstanding __ __
Additional paid-in capital 155,367 140,743
Retained earnings 8,783 3,391
Cumulative translation adjustment 25 __
-------- --------
Total stockholders' equity
164,192 144,149
-------- --------
Total liabilities and stockholders' equity $356,374 $215,457
======== ========
See Notes to Condensed Consolidated Financial Statements
2
<PAGE>
ANICOM, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
(unaudited) (unaudited)
----------------------- -----------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 124,071 $ 75,340 $ 339,420 $ 172,831
Cost of sales 97,165 57,205 264,647 132,161
--------- --------- --------- ---------
Gross profit 26,906 18,135 74,773 40,670
--------- --------- --------- ---------
Operating expenses and other:
Selling 11,311 8,024 30,861 18,213
General and administrative 9,607 6,951 28,123 16,098
Acquisition integration charge (See Note 7) 5,158 __ 5,158 __
--------- --------- --------- ---------
Total operating expenses and other 26,076 14,975 64,142 34,311
--------- --------- --------- ---------
Income from operations 830 3,160 10,631 6,359
--------- --------- --------- ---------
Other income (expense):
Interest income 14 45 60 214
Interest expense (790) (245) (1,503) (440)
--------- --------- --------- ---------
Total other income (expense) (776) (200) (1,443) (226)
--------- --------- --------- ---------
Income before income taxes 54 2,960 9,188 6,133
Provision for income taxes 142 1,124 3,796 2,331
--------- --------- --------- ---------
Net income (loss) (See Note 7) (88) 1,836 5,392 3,802
Less: dividend on preferred stock (16) (173) (16) (297)
--------- --------- --------- ---------
Net income (loss) available to common
stockholders (See Note 7) $ (104) $ 1,663 $ 5,376 $ 3,505
========= ========= ========= =========
Earnings per common share
and share equivalent:
Basic $ __ $ .09 $ .23 $ .21
========= ========= ========= =========
Diluted $ __ $ .09 $ .22 $ .21
========= ========= ========= =========
Weighted average common shares
and share equivalents outstanding:
Basic 23,760 17,647 23,669 16,417
========= ========= ========= =========
Diluted 24,335 19,795 24,246 17,818
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
ANICOM, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
(unaudited)
-----------------------------
1998 1997
Cash flows from operating activities:
<S> <C> <C>
Net income $ 5,392 $ 3,802
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,206 1,544
Amortization 1,498 719
Gain on sale of product line __ (483)
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Marketable securities __ 4,345
Accounts receivable (35,673) (13,116)
Inventory (12,782) (12,060)
Other assets 1,296 (86)
Accounts payable 7,568 15,622
Accrued expenses (5,643) (3,319)
--------- ---------
Net cash used in operating activities (37,138) (3,032)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (1,655) (2,736)
Cash paid for acquired companies (29,152) (28,732)
Other __ 200
--------- ---------
Net cash used in investing activities (30,807) (31,268)
--------- ---------
Cash flows from financing activities:
Payment of long-term debt and assumed bank debt (58,203) (27,749)
Proceeds from long-term debt 125,521 36,824
Proceeds from equity offerings, net of related costs __ 26,155
--------- ---------
Net cash provided by financing activities 67,318 35,230
--------- ---------
Net (decrease) increase in cash and cash equivalents (627) 930
Cash and cash equivalents, beginning of period 687 195
--------- ---------
Cash and cash equivalents, end of period $ 60 $ 1,125
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
4
<PAGE>
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(Unaudited)
1. Basis of Presentation and Accounting Policies
The accompanying condensed consolidated unaudited financial statements
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, the accompanying unaudited
financial statements contain all adjustments necessary to present
fairly the financial position of Anicom, Inc. (the "Company" or
"Anicom") as of September 30, 1998 and December 31, 1997, the results
of its operations for the three and nine months ended September 30,
1998 and 1997 and its cash flows for the nine months ended September
30, 1998 and 1997. Reported interim results of operations are based, in
part, on estimates that may be subject to year-end adjustment. In
addition, these interim results of operations are not necessarily
indicative of those expected for the year.
These financial statements should be read in conjunction with the
Company's audited consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1997 (the "1997 Form 10-K").
Certain reclassifications have been made to the 1997 financial
statements to conform to the 1998 presentation.
Foreign currency translation adjustments are generally excluded from
the Condensed Consolidated Statement of Income and are included in
cumulative translation adjustments in the Condensed Consolidated
Balance Sheet. Gains and losses resulting from foreign currency
transactions are included in Other income (expense).
2. Nature of Business
Anicom is a North American leader that specializes in the distribution
of multimedia wiring products for the transmission of voice, video,
data and power.
The Company sells to a wide array of customers, including contractors,
systems integrators, security/fire alarm companies, regional Bell
operating companies, distributors, utilities, telecommunications and
sound contractors, wireless specialists, construction companies,
universities, governmental agencies and companies involved in the
automotive, cable television, mining, marine, petro-chemical, paper and
pulp and other natural resource industries. The Company's customers are
principally located throughout North America.
5
<PAGE>
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(Unaudited)
3. Earnings Per Common Share
The Company has adopted Financial Accounting Standards Board Statement
of Financial Standards No. 128, "Earnings Per Share" ("SFAS No. 128"),
effective December 31, 1997. SFAS No. 128 specifies the computation,
presentation, and disclosure requirements for earnings per share. The
computation of basic earnings per common share is computed based on net
income available to common stockholders divided by the weighted average
common shares outstanding. The computation of diluted earnings per
common share is based on net income divided by weighted average common
shares and potentially dilutive securities such as stock options and
warrants and further assumes the conversion of the Company's
convertible preferred stock to common stock as of the date of issuance.
Earnings per common share for the three and nine months ended September
30, 1997 have been restated to conform to SFAS No. 128.
The following tables present a reconciliation of the numerators and
denominators of basic and diluted earnings per share for the periods
specified:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ (88)* $ 1,836 $ 5,392* $ 3,802
Less: dividend on preferred stock (16) (173) (16) (297)
-------- -------- -------- --------
Net income (loss) available to common stockholders $ (104)* $ 1,663 $ 5,376* $ 3,505
======== ======== ======== ========
Denominator:
Denominator for basic earnings per share - weighted
average common shares outstanding 23,760 17,647 23,669 16,417
Plus:
Effect of assumed conversion of
convertible preferred stock 137 1,591 47 1,010
Effect of employee stock options and warrants 438 557 530 391
-------- -------- -------- --------
24,335 19,795 24,246 17,818
======== ======== ======== ========
Earnings per share:
Basic $ __* $ .09 $ .23* $ .21
======== ======== ======== ========
Diluted $ __* $ .09 $ .22* $ .21
======== ======== ======== ========
</TABLE>
* Amount includes the $5,158 one-time acquisition integration charge discussed
in Note 7.
6
<PAGE>
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(Unaudited)
4. Long-Term Debt
On November 6, 1998 the Company reached an agreement with its lenders
to increase its $100,000 revolving credit facility (the "Facility") to
$120,000 effective November 19, 1998. The Facility will provide for
borrowings of up to $15,000 in currencies other than U.S. dollars. It
also provides for various interest rate options, determined from time
to time, based upon the Company's interest coverage and leverage
ratios, as defined, and either the agent's Domestic Rate less .25% to
.50% or LIBOR plus .5% to 1.0%. The Facility expires in June 2001 with
extensions available at the Company's option through June 2003. The
Facility contains customary financial covenants, including minimum
tangible net worth, current, interest coverage and debt to earnings
ratios.
In connection with the acquisition of Texcan Cables Limited, Texcan
Cables, Inc. and Texcan Cables International, Inc. (collectively
referred to as "Texcan") described in Note 6, the Company entered into
a new $35,000 term facility as of September 21, 1998, with a Canadian
bank ("Canadian Bank Loan"). In consenting to the Canadian Bank Loan,
the Company's U.S. lenders agreed that the Canadian Bank Loan would be
treated as outstanding borrowings for purposes of the Facility. On
November 5, 1998, the Canadian Bank Loan was acquired with proceeds
from the Facility.
5. Preferred Stock
On September 21, 1998, in connection with the Texcan acquisition
discussed in Note 6, the Company issued 20 shares of Series B
convertible redeemable preferred stock, par value $.01 per share, which
are convertible, in the aggregate, into an additional 1,404 shares of
common stock (the "Series B Preferred Stock"). The Series B Preferred
Stock, contains a liquidation preference of $1,000 per share and earns
dividends at the rate of 3% of the liquidation preference per annum,
payable semi-annually. Series B Preferred Stockholders are not entitled
to any voting rights. The Series B Preferred Stock is redeemable at the
holder's or the Company's option after 3 years from the date of issue
for the liquidation preference value plus accrued and unpaid interest.
Mandatory redemption occurs on the fifth anniversary from the date of
issue. Conversion of the Series B Preferred Stock to common stock may
occur at anytime, in whole or in part, at the option of the holder. The
number of common shares to be issued upon conversion will be computed
by dividing the liquidation preference for each share of Series B
Preferred Stock by $14.25 ("Conversion Price"), rounded to the nearest
whole share. In addition, mandatory conversion may occur based on the
future trading price of the Company's common stock as follows:
Trading Price as a Number of Series B
Percentage of Preferred Shares to be
Conversion Price Converted*
130% 6.667
160% 13.333
190% 20
* Number of shares less shares previously converted.
7
<PAGE>
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(Unaudited)
6. Acquisitions
In September 1998, the Company purchased substantially all of the
assets and assumed certain liabilities of Texcan. Headquartered in
Vancouver, British Columbia, Texcan is a specialist in the distribution
of wire, cable, fiber optics and connectivity products. Texcan has 13
locations throughout Canada and seven locations in the United States.
The aggregate purchase price was approximately $56,900 and consisted of
1,404 shares of common stock; 20 shares of Series B Preferred Stock;
and approximately $27,000 in cash. In addition, Anicom repaid
approximately $12,000 of Texcan bank indebtedness upon closing.
In June 1998, the Company acquired substantially all of the assets and
assumed certain liabilities of Superior Cable & Supply, Inc.
("Superior"). Superior is a specialty distributor of multimedia wire
and cable products and has locations in Oklahoma, Arkansas, Louisiana
and Texas. The purchase price consisted of $ 3,044 in cash and common
stock. In addition, the Company assumed and repaid approximately $ 686
of bank indebtedness.
In March 1998, the Company acquired substantially all of the assets and
assumed certain liabilities of Yankee Electronics Inc. ("Yankee") and
Optical Fiber Components Inc. ("OFCI"). Yankee and OFCI are specialty
distributors of multimedia wire and cable located in New Hampshire and
Virginia, respectively. The purchase price for these acquisitions
consisted of $3,800 in cash and common stock. In addition, the Company
assumed approximately $255 of Yankee and OFCI debt that was paid at
closing.
In December 1997, the Company acquired TW Communication Corporation
("TW"). TW is a distributor of wire, cable, fiber optics and
installation supplies predominantly to the telecommunications, data and
cable television industries in the United States. The purchase price
for this acquisition consisted of $16,000 in cash and common stock. In
connection with the acquisition, the Company paid in full approximately
$13,600 of TW bank indebtedness.
In October 1997, the Company acquired certain assets and assumed
certain liabilities of Zack-DataCom, the voice and data division of
Zack Electronics, Inc. of San Jose, California, a leader in the sale
and distribution of multimedia low voltage products. The purchase price
was $4,700 payable in cash and common stock.
In July 1997, the Company acquired Energy Electric Cable, a division
of Connectivity Products, Inc. ("Energy"). Energy is a national
specialist in the sale and distribution of multimedia wiring products
based in Auburn Hills, Michigan. The purchase price consisted of
$12,000 in cash and common stock and the pay down of $17,000 of
Connectivity Products, Inc. ("Connectivity") bank debt by Anicom.
8
<PAGE>
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(Unaudited)
6. Acquisitions, continued
Anicom purchased all of the issued and outstanding common stock of
Security Supply, Inc. ("Security Supply") of New Orleans, Louisiana, in
March 1997. Security Supply is a distributor of alarm, security and
life safety products in Louisiana and surrounding states. The purchase
price was approximately $2,000 in cash and common stock.
In February 1997, the Company acquired substantially all of the assets
and assumed certain liabilities of Carolina Cable & Connector, Inc.
("Carolina Cable") of Raleigh, North Carolina. Carolina Cable is a
specialist in the sale and distribution of wire and cable, fiber optics
and computer network and connectivity products. Carolina Cable has
locations in the Carolinas and Tennessee. The purchase price consisted
of $3,500 in cash and common stock. In addition, the Company assumed
approximately $3,500 of Carolina Cable indebtedness, which was paid in
full at closing.
All of the foregoing acquisitions have been recorded under the purchase
method of accounting. Accordingly, the results of operations of the
acquired businesses are included in the Company's consolidated results
of operations from the effective date of the acquisition. The purchase
price is allocated to assets acquired and liabilities assumed based on
the estimated fair market value on the date of the acquisition.
9
<PAGE>
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(Unaudited)
6. Acquisitions, continued
The following pro forma condensed consolidated quarterly financial
information assumes that significant acquisitions and the May 1997 and
December 1997 issuance's of equity discussed in Notes 4 and 11,
respectively in the 1997 Form 10-K, and borrowings under the Facility,
discussed above, occurred on January 1, 1997. It further assumes that
the equity transaction discussed in Note 11 of the 1997 Form 10-K
resulted in the issuance of Common Stock, based on the conversion of
the Series A Preferred Stock to Common Stock approximately four months
after its issuance.
The results do not purport to be indicative of what would have occurred
had the acquisitions been made on January 1, 1997 nor are they
indicative of the results that may occur in the future.
Nine Months Ended
September 30,
1998 1997
Net sales $410,623 $363,535
======== ========
Operating income $ 13,182* $ 12,362
======== ========
Net income $ 6,531* $ 6,531
======== ========
Net income available to common stockholders $ 6,081* $ 7,286
======== ========
Earnings per common share:
Basic $ .25* $ .32
======== ========
Diluted $ .24* $ .32
======== ========
Weighted average common shares outstanding:
Basic 24,765 22,845
======== ========
Diluted 26,734 22,845
======== ========
* Amount includes the $5,158 one-time acquisition integration charge
discussed in Note 7.
10
<PAGE>
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(Unaudited)
7. Acquisition Integration Charge
The Company incurred a one-time acquisition integration charge during
the third quarter of 1998 of approximately $5,158. This charge includes
$2,800 for settlement of real estate obligations, the write-off of
leasehold improvements, and facility relocation costs; $1,350 one-time
acquisition incentive bonuses; and $1,008 related to severance and
other costs.
As of September 30, 1998, approximately $1,400 has been paid; the
remainder is accrued. The majority of the accrual remaining relates to
lease abandonment costs that are expected to be paid over the next
several quarters. All other amounts will be paid within the next few
months.
8. Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). This statement, effective for the
Company's year ending December 31, 1998, requires the Company to report
components of comprehensive income in a financial statement that is
displayed with the same prominence as other financial statements. The
Company will adopt the provisions of SFAS 130 in the fourth quarter of
1998.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes
standards for the way companies are to report information about
operating segments. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. Based on the Company's current operations, management does
not anticipate any additional disclosure being required by SFAS 131.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." This statement revises employers' disclosures
about pension and other postretirement benefit plans, and will govern
the Company's disclosures related to its benefit plans beginning with
our December 31, 1998 annual financial statements.
During the second quarter of 1998, the FASB issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which will be
effective for the Company's fiscal year 2000. This statement
establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments
imbedded in other contracts, be recorded in the balance sheet as either
an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. Management
is currently assessing the impact of SFAS 133.
11
<PAGE>
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(Unaudited)
9. Supplemental Cash Flow Information
The following summarizes non-cash investing and financing activities for
the period noted. Non-cash activity related to acquisitions includes
initial amounts estimated and any subsequent changes to those initial
estimates.
Nine Months Ended
September 30,
----------------------
1998 1997
Acquisitions:
Fair value of assets acquired $ 84,875 $ 54,113
Acquisition liabilities and costs (4,779) (4,274)
Liabilities assumed (16,117) (15,781)
Convertible preferred stock issued (20,000) -
Common stock issued (14,722) (5,058)
-------- --------
Cash paid 29,257 29,000
Less: cash acquired (105) (268)
-------- --------
Net cash paid for acquisitions $ 29,152 $ 28,732
======== ========
Dispositions:
Value of assets sold, net of transaction costs $ 117
========
Notes receivable accepted $ 400
========
Convertible Preferred Stock:
Conversion to common stock $ 27,000
========
Payment of convertible preferred
dividends in common stock $ 297
========
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table sets forth selected income statement data of Anicom
expressed as a percentage of net sales for the periods indicated:
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
--------------- ---------------
1998 1997 1998 1997
Income Statement Data:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 78.3 75.9 78.0 76.5
----- ----- ----- -----
Gross profit 21.7 24.1 22.0 23.5
----- ----- ----- -----
Operating expenses and other:
Selling expenses 9.1 10.7 9.1 10.5
General and administrative expenses 7.7 9.2 8.3 9.3
Acquisition integration charge 4.2 -- 1.5 --
----- ----- ----- -----
Operating income .7 4.2 3.1 3.7
Interest (expense) (.6) (.3) (.4) (.3)
Interest income -- .1 -- .1
----- ----- ----- -----
Income before income taxes -- 3.9 2.7 3.5
Income taxes .1 1.5 1.1 1.3
----- ----- ----- -----
Net income (loss) (.1) 2.4 1.6 2.2
Less: Dividend on preferred stock -- (.2) -- (.2)
----- ----- ----- -----
Net income (loss) available to
common shareholders (.1)% 2.2% 1.6% 2.0%
===== ===== ===== =====
- -----------------
Note: Percentages may not sum due to rounding.
Results of Operations for the Three and Nine Months Ended September 30, 1998
Compared to the Three and Nine Months Ended September 30, 1997
Net sales for the third quarter of 1998 increased to a record $124.1 million, a
65% increase over net sales of $75.3 million in the third quarter of 1997. Net
sales for the first nine months of 1998 rose by 96% to a record $339.4 million
when compared to net sales of $173 million for the first nine months of 1997.
The significant increase occurred despite the impact of hurricanes Bonnie, Earl
and Georges on Anicom's 21 locations in the Southeast. This increase is
attributed to new customers, new products, expanded market penetration and
increased volume with existing customers, all of which have resulted from the
Company's acquisitions and internal growth.
13
<PAGE>
Results of Operations for the Three and Nine Months Ended September 30, 1998
Compared to the Three and Nine Months Ended September 30, 1997, continued
Anicom's gross profit for the quarter ended September 30, 1998 increased by $8.8
million or approximately 48.4% to $26.9 million versus $18.1 million for the
same period of 1997. For the first nine months of 1998, gross profit increased
to $74.8 million from $40.7 million during the first nine months of 1997, an
increase of 84%. These increases resulted from Anicom's acquired sales volume
and internal growth.
As a percentage of net sales, gross profit for the three and nine month periods
ended September 30 declined from approximately 24.1% and 23.5%, respectively, in
1997 to approximately 21.7% and 22.0%, respectively, in 1998. The gross margin
improvements that resulted from the economic efficiencies created by Anicom's
increased purchasing volume were offset by the impact of lower historical gross
profit margins of certain of the Company's recent acquisitions which have
historically had lower margin product offerings. Consequently, management
anticipates that gross margins reported for the remainder of 1998 will continue
to reflect the results of these acquisitions. Management believes that it will
partially mitigate the impact of these historically lower gross margins by
increasing the depth and breadth of product offerings maintained in stock at
these locations and by continuing to leverage our purchasing volume with
vendors.
Selling expenses for the third quarter improved from 10.7% of net sales in 1997
to 9.1% of net sales in 1998. For the first nine months of 1998, selling
expenses as a percentage of net sales were reduced to 9.1% from 10.5% for the
same period in 1997, as the Company began to realize operating leverage
resulting from its growth and acquisitions and conforming the selling incentive
programs of acquired companies with those of Anicom. Selling expenses increased
by $3.3 million and $12.6 million, respectively, for the three and nine months
ended September 30, 1998 in conjunction with the Company's increase in net sales
and the increase in sales headcount that resulted from the Company's
acquisitions in the fourth quarter of 1997 and the first nine months of 1998.
General and administrative expenses increased from $7.0 million and $16.1
million in the third quarter and first nine months of 1997, respectively, to
$9.6 million and $28.1 million, respectively, for the same periods in 1998. The
Company's acquisitions in the fourth quarter of 1997 and the first nine months
of 1998, led to these increases. As a percentage of net sales, general and
administrative expenses improved to 7.7% in the third quarter of 1998 from 9.2%
in the third quarter of 1997. For the first nine months of 1998, general and
administrative expenses as a percentage of net sales were reduced to 8.3% from
9.3% in 1997. This change is attributed to increases in net sales outpacing
required expenses for general and administrative costs as the Company further
realized operating leverage from its acquisition-based integrated growth
strategy.
The Company incurred a one-time acquisition integration charge during the third
quarter of approximately $5.2 million. This charge includes $2.8 million for
settlement of real estate obligations, the write-off of leasehold improvements,
and facility relocation costs; $1.4 million for one-time acquisition incentive
bonuses; and $1.0 million related to severance and other costs.
14
<PAGE>
Results of Operations for the Three and Nine Months Ended September 30, 1998
Compared to the Three and Nine Months Ended September 30, 1997, continued
In the third quarter of 1998, interest expense increased to $790,000 from
$245,000 for the third quarter of 1997. For the nine months ended September 30,
1998, interest expense rose to $1.5 million from $440,000 for the same period in
1997. This is primarily a result of the Company's increased borrowings under the
Facility during the first nine months of 1998 to fund the cash consideration and
debt payoff of acquired companies and to meet the increased working capital
requirements associated with the sales growth experienced during this period.
For the three months ended September 30, 1998, the provision for income taxes as
a percentage of income before income taxes, increased when compared to the same
period in 1997. The increase is primarily attributable to the impact of
non-deductible meals and entertainment expenses and non-deductible goodwill
amortization on a lower income before tax amount. For the nine months ended
September 30, 1998, the provision for income taxes as a percentage of income
before income taxes, increased to 41% from 38% for the same period in 1997. The
increase is primarily attributable to the impact of non-deductible goodwill
related to certain acquisitions.
The following reported results for the three and nine months ended September 30,
1998 were despite the impact of hurricanes Bonnie, Earl and Georges in the third
quarter of 1998 on Anicom's 21 locations in the Southeast. Net Income for the
three months ended September 30, 1998, exclusive of the $5.2 million acquisition
integration charge, increased 87% to an all time high of $3.1 million, compared
to $1.7 million in the third quarter of 1997. For the three months ended
September 30, 1998, exclusive of the acquisition integration charge, basic and
diluted earnings per common share increased by more than 44% to $.13 per share,
up from $.09 per share for the same period in 1997. These increases were
reported despite an increase in diluted weighted average shares of approximately
23% from the same period in 1997. For the nine months ended September 30, 1998,
net income available to common stockholders, exclusive of the acquisition
integration charge, increased 145.1% to $8.6 million, up from $3.5 million
reported for same period in 1997. Net income, exclusive of the acquisition
integration charge, increased 126.4% to $8.6 million for the nine months ended
September 30, 1998 from $3.8 million for the same period in 1997.
Liquidity and Capital Resources
Management believes that cash flows from operations and borrowings under the
Facility will be sufficient to fund current operations, and its planned
integrated growth strategy. The Company does not currently have any significant
long-term capital requirements that it believes cannot be funded from the
sources discussed below. However, in connection with its acquisition and
integrated growth strategy, the Company's capital requirements may change based
upon various factors, primarily related to the timing of acquisitions and the
consideration to be used as purchase price. The Company continues to examine
opportunities to raise funds through the issuance of additional equity or debt
securities through private placements or public offerings and to increase its
available lines of credit.
15
<PAGE>
Liquidity and Capital Resources, continued
On November 6, 1998 the Company reached an agreement with its lenders to
increase the Facility from $100 million to $120 million effective November 19,
1998. The Facility will provide for borrowings of up to $15 million in
currencies other than U.S. dollars. It also provides for various interest rate
options, determined from time to time, based upon the Company's interest
coverage and leverage ratios, as defined, and either the agent's Domestic Rate
less .25% to .50% or LIBOR plus .5% to 1.0%. The Facility expires in June 2001
with extensions available at the Company's option through June 2003. The
Facility contains customary financial covenants, including minimum tangible net
worth, current, interest coverage and debt to earnings ratios.
In connection with the acquisition of Texcan, the Company entered into a new $35
million term facility as of September 21, 1998, with a Canadian bank ("Canadian
Bank Loan"). In consenting to the Canadian Bank Loan, the Company's U.S. lenders
agreed that the Canadian Bank Loan would be treated as outstanding borrowings
for purposes of the Facility. On November 5, 1998, the Canadian Bank Loan was
acquired with proceeds from the Facility.
As of September 30, 1998, Anicom had working capital of approximately $140
million as compared to $67.5 million as of December 31, 1997. At September 30,
1998, amounts outstanding under the Facility and the Canadian Bank Loan were
approximately $88.0 million.
For the nine months ended September 30, 1998, operating activities used $37.1
million of cash compared to $3.0 million used during the same period in 1997.
This increase has resulted from the increase in sales and the investment in
receivables attributable to contractor business. Operating cash flow was also
used to fund acquisition-related activities, including expanding product
offerings to accommodate acquired locations, funding business integration
liabilities and working capital deficiencies of acquired companies. The
Company's investments in receivables and inventory were primarily funded by
borrowings under the Facility.
Investing activities utilized approximately $30.8 million in the nine months
ended September 30, 1998. During the first nine months of 1998, Anicom completed
the acquisitions of Texcan, Yankee, OFCI and Superior. Cash paid for these
acquisitions accounted for the majority of cash used for investing activities.
Cash flows from financing activities in the first nine months of 1998 totaled
$67.3 million compared to $35.2 million during the same period in 1997. During
the first nine months of 1998 the Company borrowed under the Facility to fund
increased working capital requirements and acquisition activity. The Company
also repaid approximately $13 million of debt assumed in acquisitions.
16
<PAGE>
Year 2000 Readiness and Related Risks
The Year 2000 issue is the result of computer programs being unable to interpret
dates beyond the year 1999, which could cause a system failure or other computer
errors, leading to disruptions in operations. A task force has been established
by the Company that includes information systems, accounting and legal personnel
of the Company to assess the Company's state of readiness and to implement an
action plan to correct any deficiencies of the Company. To date, the Company has
identified the following areas to assess as to Year 2000 readiness: (1)
distribution and financial information systems, (2) vendor, third-party
relationships and customers, and (3) physical facility systems. For each of
these areas, the Company has established the following procedures to assess its
Year 2000 readiness: (a) identifying systems potentially susceptible to Year
2000 compliance issues, (b) developing and implementing corrective actions and
(c) testing to ensure compliance. Management believes that the Company is
devoting the necessary resources to identify and resolve any significant Year
2000 issues in a timely manner.
DISTRIBUTION AND FINANCIAL INFORMATION SYSTEMS: As part of its integrated growth
strategy, Anicom completed the implementation of a new information technology
system in the fourth quarter of 1997. This customized information technology
system builds upon the strengths inherent in Anicom's previous system while
allowing for the reengineering of certain business processes that were necessary
to accommodate the explosive growth Anicom has experienced. The new information
system integrates sales, inventory control and purchasing, warehouse management,
financial control and internal communications while providing real-time
monitoring of inventory levels, shipping status and other key operational and
financial benchmarks at all of Anicom's sales and distribution locations. In
implementing this new system, management received written confirmation from
vendors that the enterprise system software, hardware and network operating
systems included in this information system are Year 2000 compliant.
Total costs incurred to purchase the necessary hardware, software, licenses,
consulting services and training associated with the installation, modification
and implementation of the new system were approximately $3.6 million. Of this
amount, approximately $2.7 million was expensed with the remainder being
capitalized and depreciated over future periods. The Company does not anticipate
incurring any material additional costs with respect to Year 2000 readiness of
this information technology system.
Since implementing the Company's new information technology system, the Company
has completed certain acquisitions that are in various stages of conversion to
the Company's current system. Management estimates that, with the exception of
Texcan, which was acquired in September 1998, all operations will be converted
to the Company's new information technology system no later than the first
quarter of 1999. Management believes the portion of the costs for this
conversion related to Year 2000 readiness is not material.
Texcan's financial and distribution systems are currently in the process of
being upgraded to become Year 2000 compliant and management estimates this will
be completed during the first quarter of 1999 at a cost of $30,000 to $50,000.
Texcan's systems will be converted to the Company's new information technology
system subsequent to the first quarter of 1999.
17
<PAGE>
Year 2000 Readiness and Related Risks, continued
SUPPLIERS, THIRD-PARTY RELATIONSHIPS AND CUSTOMERS: The Company relies on third
party suppliers for inventory, utilities, transportation and other key supplies
and services. Interruption of supplier operations due to Year 2000 issues could
adversely affect the Company's operations. The Company's payroll outsourcing
service has confirmed that the systems used to process the Company's payroll are
year 2000 compliant. The Company has begun evaluating the Year 2000 readiness of
its other suppliers through a survey distributed in the fourth quarter of 1998.
Responses will be evaluated and second requests will be mailed for
non-responses. Unsatisfactory responses or non-responses from critical suppliers
will be evaluated on a case by case basis in an attempt to mitigate risk to the
Company. These activities are intended to provide a reasonable means of managing
risk, but cannot eliminate the potential for disruption due to third-party
failure.
The Company does not currently have any formal information concerning the Year
2000 readiness of its customers, and given the breadth and diversity of its
customer base, the Company is assessing whether a formal inquiry of its
customers is warranted. The Company believes that the impact of isolated
occurrences resulting from any of its customers failing to be Year 2000
compliant would not be materially adverse to the Company. However, widespread
interruptions to customers serviced by the Company could result in reduced
sales, increased inventory or receivable levels and cash flow reductions.
The Company has not incurred, and does not believe it will incur, material costs
related to any inquiry as to the Year 2000 readiness of its suppliers, other
third party relationships and customers.
PHYSICAL FACILITY SYSTEMS: The Company is continuing to evaluate the Year 2000
readiness of its physical facility systems, such as phone systems, power,
security systems, heating, ventilation and air conditioning systems, etc. The
Company expects to complete the assessment phase of its physical facility
systems during the first quarter of 1999 with remedial action planned for the
second and third quarter of 1999.
While the Company and many other Companies believe their efforts to address the
Year 2000 issues will be successful in avoiding any material adverse effect on
the Company's results of operations or financial condition, it recognizes that a
most reasonably likely worst case Year 2000 scenario would involve the failure
of a third party or a component of the infrastructure, including national
banking systems, electrical power, transportation facilities, communication
systems and governmental activities, to conduct their respective operations
after 1999 such that the Company's ability to obtain and distribute its products
and services would be limited for a period of time. If this were to occur, it
would likely cause temporary financial losses and an inability to provide
products and services to customers, and there may be no practical alternative to
some of these resources available to the Company.
The foregoing assessment of the impact of the Year 2000 issue on the Company is
based on management's estimates at the present time. The assessment is based
upon numerous assumptions as to future events. There can be no assurance that
these estimates and assumptions will provide accurate, and the actual results
could differ materially. To the extent that Year 2000 issues cause significant
delays in sales, increased inventory or receivable levels or cash flow
reductions, the Company's results of operations and financial condition could be
materially adversely affected.
18
<PAGE>
Forward Looking Statements
In compliance with the Safe Harbor Provision of the Private Securities
Litigation Reform Act of 1995, the Company notes the statements contained in
this quarterly report that are not historical facts may be forward-looking
statements that are subject to a variety of risks and uncertainties more fully
described in Anicom's filings with the Securities and Exchange Commission
including, without limitation, those described under "Risk Factors" in Anicom's
Resale Prospectus dated August 21, 1998, in Anicom's Annual Report on Form 10-K
for the year ended December 31, 1997, and in this quarterly report. Whenever
possible, the Company has identified these forward looking statements by words
such as "believe," "feel," "anticipate," "expect" and similar expressions used
in this quarterly report as they relate to Anicom or its management. Anicom
wishes to caution readers of this quarterly report that these risks and
uncertainties could cause Anicom's actual results in 1998 and beyond to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, Anicom. These risks and uncertainties include, without limitation,
general economic and business conditions affecting the industries of Anicom's
customers in existing and new geographical markets, competition from national
and regional distributors, the availability of sufficient capital, Anicom's
ability to identify the right product mix and to maintain sufficient inventory
to meet customer demand, Anicom's ability to operate effectively in geographical
areas in which it has no prior experience, political, economic and other factors
affecting Canada, the exchange rate between Canadian and U.S. currencies and the
factors described above under the caption "Year 2000 Readiness and Related
Risks."
19
<PAGE>
Recent Accounting Pronouncements
Reference is made to Note 8 of the Consolidated Condensed Financial Statements.
PART II -- OTHER INFORMATION
Item 2. Changes in Securities
Pursuant to an Asset Purchase Agreement dated September 21,
1998 (the "Agreement"), the Company purchased certain assets
and assumed certain liabilities of Texcan Cables Limited,
Texcan Cables Inc., and Texcan Cables International, Inc. As
part of the purchase price, under the Agreement, the Company
issued 1,403,509 shares of common stock to Texcan Cables
Limited and 20,000 shares of Series B Convertible Redeemable
Preferred Stock to Texcan Cables Inc., which are convertible
into another 1,403,509 shares of common stock. The shares
issued pursuant to the Agreement were issued in reliance upon
Section 4(2) of the Securities Act of 1933, as amended, and
the rules promulgated thereunder, as a transaction by an
issuer not involving any public offering. An appropriate
legend was affixed to each of the share certificates issued.
Conversion of the Series B Preferred Stock to common stock may
occur at anytime, in whole or in part, at the option of the
holder. The number of common shares to be issued upon
conversion will be computed by dividing the liquidation
preference for each share of Series B Preferred Stock by
$14.25 ("Conversion Price"), rounded to the nearest whole
share. In addition, mandatory conversion may occur based on
the future trading price of the Company's common stock as
follows:
Trading Price as a Number of Series B
Percentage of Preferred Shares to be
Conversion Price Converted*
130% 6,667
160% 13,333
190% 20,000
* Number of shares less shares previously converted.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are filed with this report:
Exhibit No.
-----------
2.1* Asset Purchase Agreement by and among Anicom, Inc., Anicom
Multimedia Wiring Systems Incorporated, Texcan Cables
Inc., Texcan Cables International, Inc., and Texcan Cables
Limited, dated as of September 21, 1998.
3 Amended and Restated Certificate of Incorporation
4.1* Certificate of Designations, Preferences and Rights of
Series B convertible preferred stock of Anicom, Inc.
4.2* Registration Rights Agreement by and between Anicom, Inc.,
Texcan Cables Inc. and Texcan Cables Limited, dated
September 21, 1998.
10 Term Credit Agreement, dated as of September 21, 1998,
between Anicom Multimedia Wiring Systems Incorporated and
Bank of Montreal.
27 Financial data schedule
* Incorporated by reference to Form 8-K filed on September 29, 1998.
(b) Reports on Form 8-K.
The following reports were filed on Form 8-K during the third quarter
of 1998:
Form 8-K, dated September 22, 1998 (Press Release)
Form 8-K, dated September 29, 1998 (Acquisition of Texcan Cables)
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ANICOM, INC.
--------------------------------------
Registrant
Dated: November 16, 1998 By:/S/ DONALD C. WELCHKO
-----------------------------------
Donald C. Welchko
Vice President and Chief Financial Officer
21
<PAGE>
ANICOM, INC.
INDEX TO EXHIBITS
Exhibit No.
-----------
2.1* Asset Purchase Agreement by and among Anicom, Inc., Anicom
Multimedia Wiring Systems Incorporated, Texcan Cables
Inc., Texcan Cables International, Inc., and Texcan Cables
Limited, dated as of September 21, 1998.
3 Amended and Restated Certificate of Incorporation
4.1* Certificate of Designations, Preferences and Rights of
Series B convertible preferred stock of Anicom, Inc.
4.2 * Registration Rights Agreement by and between Anicom, Inc.,
Texcan Cables Inc. and Texcan Cables Limited, dated
September 21, 1998.
10 Term Credit Agreement, dated as of September 21, 1998,
between Anicom Multimedia Wiring Systems Incorporated and
Bank of Montreal.
27 Financial data schedule
Exhibit 3
RESTATED CERTIFICATE OF INCORPORATION
OF
ANICOM, INC.
(Original Certificate of Incorporation filed December 28, 1994)
Anicom, Inc. (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"DGCL") does hereby certify that the Restated Certificate of Incorporation of
the Corporation set forth below has been duly adopted in accordance with
Sections 242 and 245 of the DGCL:
ARTICLE I
The name of the corporation is Anicom, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Corporation Trust Center, Wilmington, County of
New Castle, Delaware 19801. The name of its registered agent at such address is
The Corporation Trust Company.
ARTICLE III
The nature of the business to be conducted or promoted is to engage in
any lawful act or activity for which corporations may be organized under the
DGCL.
ARTICLE IV
A. The Corporation shall have authority to issue the following classes
of stock, in the number of shares and at the par value as indicated opposite the
name of the class:
SHARES PAR VALUE
CLASS AUTHORIZED PER SHARE
------------------- ------------ -----------
Common Stock 10,000,000 $.001
Preferred Stock 1,000,000 $.01
B. The designations and the powers, preferences and relative,
participating, optional or other rights of the capital stock and the
qualifications, limitations or restrictions thereof are as follows:
<PAGE>
1. Common Stock.
a. Voting Rights: Except as otherwise required by law or
expressly provided herein, the holders of shares of Common Stock shall
be entitled to one vote per share on each matter submitted to a vote of
the stockholders of the Corporation.
b. Dividends: Subject to the rights of the holders, if any, of
preferred stock, the holders of Common Stock shall be entitled to
receive dividends at such times and in such amounts as may be
determined by the Board of Directors of the Corporation.
c. Liquidation Rights: In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, after payment or provision for payment of the debts and
other liabilities of the Corporation and the preferential amounts to
which the holders of any outstanding shares of Preferred Stock shall be
entitled upon dissolution, liquidation of winding up, the assets of the
Corporation available for distribution to stockholders shall be
distributed ratably among the holders of the shares of Common Stock.
2. Preferred Stock.
Preferred Stock may be issued from time to time in one or more
series. Subject to the other provisions of this Certificate of
Incorporation, the Board of Directors is authorized, subject to any
limitations prescribed by law, to provide for the issuance of and issue
shares of the Preferred Stock in series, and by filing a certificate
pursuant to the laws of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to
fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions
thereof. The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of
the Common Stock, without a vote of the holders of any Preferred Stock,
or of any series thereof, unless a vote of any such holders is required
pursuant to the certificate or certificates establishing such series of
Preferred Stock.
ARTICLE V
The business and affairs of the Corporation shall be managed by or
under the direction of a board of directors consisting of not less than six (6)
nor more than fifteen (15) directors. The exact number shall be determined from
time to time by resolution adopted by the affirmative vote of a majority of the
directors in office at the time of adoption of such resolution. Initially, the
number of directors shall be eight (8) and shall consist of the following
persons: Alan B. Anixter, Scott C. Anixter, Carl E. Putnam, Donald C. Welchko,
William R. Anixter, Ira J. Kaufman, Michael Segal and Lee B. Stern.
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<PAGE>
The directors shall be divided into three classes, Class I, Class II
and Class III; with Class I having three members, Class II having three members,
and Class III having two members. Class I shall initially consist of the
following directors: Scott C. Anixter, Carl E. Putnam and Lee B. Stern. Class II
shall initially consist of the following directors: Alan B. Anixter, Michael
Segal and Donald C. Welchko. Class III shall initially consist of the following
directors: William R. Anixter and Ira J. Kaufman. The initial term of office of
the Class I, Class II and Class III directors shall expire at the annual meeting
of stockholders in 1996, 1997 and 1998, respectively. Beginning in 1996, at each
annual meeting of stockholders, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes by the Board of Directors so as to maintain the number of
directors in each class as nearly equal as reasonably possible, and any
additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining term of that class. In no case will a decrease in the number of
directors shorten the term of any incumbent director even though such decrease
may result in an inequality of the classes until the expiration of such term. A
director shall hold office until the annual meeting of the year in which his or
her term expires and until his or her successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement or removal
from office. Any director may be removed, with or without cause, by the holders
of a majority of the shares entitled to vote at an election of directors. Except
as required by law or the provisions of this Certificate of Incorporation, all
vacancies on the board of directors and newly-created directorships shall be
filled by the board of directors. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of his or her predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorship shall be governed by the terms
of this Certificate of Incorporation and any resolutions of the Board of
Directors applicable thereto, and such directors so elected shall not be divided
into classes pursuant to this Article V. Notwithstanding anything to the
contrary contained in this Certificate of Incorporation, the affirmative vote of
the holders of at least two-thirds of the voting power of the shares entitled to
vote generally in the election of directors shall be required to amend, alter or
repeal, or to adopt any provision inconsistent with, this Article V.
ARTICLE VI
(a) Written Consent. Any action required or permitted to be taken by
the stockholders of the Corporation shall be effected at a duly called annual or
special meeting of stockholders of the Corporation and shall not be effected by
consent in writing by the holders of outstanding stock pursuant to Section 228
of the DGCL or any other provision of the DGCL.
(b) Special Meetings. Special meetings of stockholders of the
Corporation may be called upon not less than ten nor more than 60 days' written
notice by the Board of Directors pursuant to a resolution approved by a majority
of the Board of Directors or at the request in writing of the stockholders
owning at least ten percent (10%) of the entire capital stock of the corporation
issued and outstanding and entitled to vote.
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<PAGE>
(c) Amendment. Notwithstanding anything contained in this Certificate
of Incorporation to the contrary, the affirmative vote of the holders of at
least two-thirds of the shares entitled to vote generally in the election of
directors shall be required to amend, alter or repeal, or to adopt any provision
inconsistent with this Article VI.
ARTICLE VII
In furtherance and not in limitation of the power conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the By-Laws of the Corporation. The By-Laws of the Corporation may be altered,
amended, or repealed, or new By-Laws may be adopted, by the Board of Directors
in accordance with the preceding sentence or by the vote of the holders of at
least two-thirds of the voting power of the shares of the Corporation entitled
to be cast generally in the election of directors at an annual or special
meeting of stockholders, provided that if such alteration, amendment, repeal or
adoption of new By-Laws is effected at a duly called special meeting, notice of
such alteration, amendment, repeal or adoption of new By-Laws is contained in
the notice of such special meeting.
ARTICLE VIII
No stockholder of the Corporation shall by reason of holding shares of
any class of stock have any cumulative voting right. At all elections of
directors of the corporation, or at elections held under specified
circumstances, each holder of stock or of any class or classes or of a series or
series thereof shall only be entitled to one vote for each share of capital
stock held by such stockholder.
ARTICLE IX
A director of the Corporation shall not in the absence of fraud be
disqualified by his office from dealing or contracting with the Corporation
either as a vendor, purchaser or otherwise, nor in the absence of fraud shall a
director of the Corporation be liable to account to the Corporation for any
profit realized by him from or through any transaction or contract of the
Corporation by reason of the fact that he, or any firm of which he is a member
or any corporation of which he is an officer, director or stockholder, was
interested in such transaction or contract if such transaction or contract has
been authorized, approved or ratified in a manner provided in the DGCL for
authorization, approval or ratification of transactions or contracts between the
Corporation and one or more of its directors or officers or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest.
ARTICLE X
Meetings of stockholders may be held within or without the State of
Delaware as the ByLaws may provide. The books of the Corporation may be kept
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors of the Corporation or in the By-Laws of
the Corporation. Election of directors need not be by written ballot unless the
By-Laws of the Corporation so provide.
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<PAGE>
ARTICLE XI
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of the DGCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of the DGCL order a meeting of the creditors or
class of creditors and/or the stockholders or class of stock of the Corporation,
as the case may be, to be summoned in such manner as the said court directs. If
a majority in number representing two-thirds the value of the creditors or class
of creditors and/or the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement or to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement of the said reorganization
shall, if sanctioned by the Court to which the said application has been made,
be binding on all the creditors or class of creditors and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
ARTICLE XII
A. Indemnification of Officers and Directors: The Corporation
shall:
(a) indemnify, to the fullest extent permitted by the DGCL,
any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the Corporation) by reason of the fact
that such person is or was a director, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, or if such person has previously been designated for
indemnification by the resolution of the Board of Directors, an
officer, employee or agent of the Corporation, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in
good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith
and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that
such person's conduct was unlawful; and
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<PAGE>
(b) indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was
a director, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or if such
person has previously been designated for indemnification by the
resolution of the Board of Directors, an officer, employee or agent of
the Corporation, against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or
settlement of such action or suit if such person acted in good faith
and in a manner such person reasonably believed to be in or not opposed
to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper; and
(c) indemnify any director, or, if such person has previously
been designated for indemnification by the resolution of the Board of
Directors, an officer, employee or agent against expenses (including
attorneys' fees) actually and reasonably incurred by such person in
connection therewith, to the extent that such director, officer,
employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to
in Article XII.A. (a) and (b), or in defense of any claim, issue or
matter therein; and
(d) make any indemnification under Article XII.A. (a) and (b)
(unless ordered by a court) only as authorized in the specific case
upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because such director,
officer, employee or agent has met the applicable standard of conduct
set forth in Article XII.A. (a) and (b). Such determination shall be
made (1) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (3) by the
stockholders of the Corporation; and
(e) pay expenses incurred by a director or officer in
defending a civil or criminal action, suit or proceeding in advance of
the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that such director or
officer is not entitled to be indemnified by the Corporation as
authorized in this Article XII. Notwithstanding the foregoing, the
Corporation shall not be obligated to pay expenses incurred by a
director or officer with respect to any threatened, pending, or
completed claim, suit or action, whether civil, criminal,
administrative, investigative or otherwise
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<PAGE>
("Proceedings") initiated or brought voluntarily by a director or
officer and not by way of defense (other than Proceedings brought to
establish or enforce a right to indemnification under the provisions of
this Article XII unless a court of competent jurisdiction determines
that each of the material assertions made by the director or officer in
such proceeding were not made in good faith or were frivolous). The
Corporation shall not be obligated to indemnify the director or officer
for any amount paid in settlement of a Proceeding covered hereby
without the prior written consent of the Corporation to such
settlement; and
(f) not deem the indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of this
Article XII exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such director's or officer's official
capacity and as to action in another capacity while holding such
office; and
(g) have the right, authority and power to purchase and
maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under the
provisions of this Article XII; and
(h) deem the provisions of this Article XII to be a contract
between the Corporation and each director, or appropriately designated
officer, employee or agent who serves in such capacity at any time
while this Article XII is in effect and any repeal or modification of
this Article XII shall not affect any rights or obligations then
existing with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter
brought or threatened based in whole or in part upon such state of
facts. The provisions of this Article XII shall not be deemed to be a
contract between the Corporation and any directors, officers, employees
or agents of any other Corporation (the "Second Corporation") which
shall merge into or consolidate with this Corporation when this
Corporation shall be the surviving or resulting Corporation, and any
such directors, officers, employees or agents of the Second Corporation
shall be indemnified to the extent required under the DGCL only at the
discretion of the board of directors of this Corporation; and
(i) continue the indemnification and advancement of expenses
provided by, or granted pursuant to, this Article XII, unless otherwise
provided when authorized or ratified, as to a person who has ceased to
be a director, officer, employee or agent of the Corporation and shall
inure to the benefit of the heirs, executors and administrators of such
a person.
B. Elimination of Certain Liability of Directors: No director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
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<PAGE>
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, as the same exists or hereafter may be amended, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the DGCL is amended to authorize the further elimination or
limitation of liability of directors, then the liability of a director of the
Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended DGCL.
Any repeal or modification of this Article XII by the stockholders of the
Corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
ARTICLE XIII
The Board of Directors of the Corporation may adopt a resolution
proposing to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute.
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be signed by its President and Secretary, all on
February 16, 1995.
ANICOM, INC.
By: /s/ Carl E. Putnam
------------------
Carl E. Putnam
President
By: /s/ David R. Shevitz
--------------------
David R. Shevitz
Secretary
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<PAGE>
CERTIFICATE OF MERGER
OF
PINNACLE WIRE & CABLE, INC., an Ohio corporation
WITH AND INTO
ANICOM, INC., a Delaware corporation
* * * * * * * * *
The undersigned corporation DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger are as follows:
NAME STATE OF INCORPORATION
- ---------------------------------------------------- ----------------------
Pinnacle Wire & Cable, Inc. (the merged corporation) Ohio
Anicom, Inc. (the surviving corporation) Delaware
SECOND: That the agreement of merger between the parties to the merger
has been approved, adopted, certified, executed and acknowledged by each of the
constituent corporations in accordance with the requirements of Section 252 of
the General Corporation Law of the State of Delaware.
THIRD: The name of the surviving corporation of the merger is
Anicom, Inc.
FOURTH: That the Certificate of Incorporation of Anicom, Inc.
which is surviving the merger, shall be the Certificate of Incorporation of the
surviving corporation.
FIFTH: That the executed agreement of merger is on file at the
principal place of business of the surviving corporation. The address of said
principal place of business is 6133 N. River Road, Suite 410, Rosemont, IL
60018.
<PAGE>
SIXTH: That a copy of the Plan and Agreement of Merger will be
furnished on requested and without cost to any stockholder of any constituent
corporation.
SEVENTH: The authorized capital stock of each foreign
corporation which is a party to the merger is as follows:
Corporation Class Number of Shares Par Value Per Share
- --------------------------------------------------------------------------------
Pinnacle Wire &
Cable, Inc.
(Ohio) Common 100 $5.00
EIGHTH: This Certificate of Merger shall be effective at
5:00 p.m. (Delaware time) on July 31, 1995.
Dated: July 28, 1995 ANICOM, INC.
By: /s/ Donald C. Welchko
--------------------------------
Name: Donald C. Welchko
Title: Chief Financial Officer
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
ANICOM, INC.
ANICOM, INC., a corporation organized and existing under and by virtue
of the General Corporation law of the State of Delaware (the "Act"), DOES HEREBY
CERTIFY THAT:
1. In accordance with the provisions of Section 242 of the Act,
an amendment to the Certificate of Incorportion of this
Corporation has been duly adopted by the Board of Directors of
this Corporation and by the stockholders of this Corporation
at a Special Meeting of Stockholders.
2. Said amendment amends subparagraph A of Article 4 of the
Certificate of Incorporation so that, as amended, subparagraph
A of Article 4 shall read in its entirety as follows:
"A. The corporation shall have the authority to issue the
following classes of stock, in the number of shares and at the par
value as indicated opposite the name of the class:
No. Shares Par Value
Class Authorized Per Share
Common Stock 30,000,000 $.001
Preferred Stock 1,000,000 $.01"
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
duly executed this 25th day of September, 1996.
By /s/ Carl Putnam
--------------------------
Carl Putnam, President and
Chief Operating Officer
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
ANICOM, INC.
Anicom, Inc. (the "Company" or "Issuer"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company, and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company at a meeting duly held, adopted
resolutions providing for the designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, of Twenty-Seven Thousand (27,000) shares of Series A
Convertible Preferred Stock, of the Company, as follows:
RESOLVED, that the Company is authorized to issue 27,000
shares of Series A Convertible Preferred Stock, $.01 par value (the
"Series A Preferred Shares"), which shall have the following powers,
designations, preferences and other special rights:
(1) Dividends and Liquidation Preference.
(a) Generally. The holders of the Series A Preferred
Shares shall be entitled to receive on each share issued and
outstanding, out of assets legally available for such purpose,
cumulative preferential dividends which shall accrue and compound
annually, commencing to accrue on the date of issuance of such Series A
Preferred Share and receipt by the Company of all the full purchase
price due therefor (the "Issuance Date") at the rate of:
(i) 5% per annum during the first five (5)
years commencing on the Issuance Date; and
(ii) 15% per annum during the years
commencing on the fifth anniversary of the Issuance Date,
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<PAGE>
of the Liquidation Preference (as defined below); such dividends shall
be cumulative, and accrue daily, whether or not earned, declared, or
legally available for payment, from and after the Issuance Date up to
and including the date the Series A Preferred Shares shall no longer be
outstanding. Accrued dividends shall be payable, quarterly, in arrears,
in cash or in shares of the Company's common stock, par value $.001 per
share (the "Common Stock") at the Company's option, valued at the then
applicable Average Trading Price (as defined below) ending on the day
prior to the date of issuance of such shares; provided that such shares
have been registered under the Securities Act of 1933, as amended, and
listed for trading on the principal securities exchange or trading
market where the Company's Common Stock is then listed or traded (the
"Dividend Shares"). The liquidation preference of the Series A
Preferred Shares shall be $1,000.00 per share plus any accrued and
unpaid dividends (the "Liquidation Preference").
(b) Special Dividend Adjustment. Notwithstanding
Section 1(a)(i) above, the dividend payable by the Company shall be
subject to adjustment pursuant to Section 8.3(a) of that certain Series
A Convertible Preferred Stock Purchase Agreement dated May 21, 1997 by
and among the Company and certain investors set forth therein.
(2) Voting Rights. On matters subject to voting by holders of
the Common Stock, holders of Series A Preferred Shares shall vote
together with the holders of Common Stock, on an as converted basis at
the then applicable Conversion Ratio (as defined below) (as if such
shares of Series A Preferred Shares had been fully converted
immediately prior to the date on which a date of record is taken for
such vote, or, if no record is taken, the date as of which the record
holders of the Common Stock entitled to vote are to be determined) as
one class. The Series A Preferred Shares will not be entitled to any
voting rights as a separate class other than with respect to any
proposed amendments to the terms and conditions of the Series A
Preferred Shares that would be adverse to the holders of the Series A
Preferred Shares.
(3) Redemption. At any time after the fifth (5th) anniversary
of the Issuance Date, Issuer, at its option, may redeem all, but not
less than all, of the then outstanding Series A Preferred Shares for an
amount (the "Redemption Price") equal to the Liquidation Preference as
of the effective date of such redemption by giving notice (a
"Redemption Notice") to each holder of Series A Preferred Shares and
the Company's transfer agent not less than thirty (30) days nor more
than sixty (60) days prior to the date on which such shares are to be
redeemed. Such Notice of Redemption at the Company's election shall
indicate (A) the date that such redemption is to become effective, (B)
the applicable Redemption Price, (C) where and how payment of the
Redemption Price will be made, and (D) the then current Conversion
Price. The Redemption Price may be paid, at Issuer's option, either in
cash or shares of Common Stock valued at ninety percent (90%) of the
Average Trading Price (defined below) as of the effective date of such
redemption; provided, that (i) such
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<PAGE>
shares have been registered under the Securities Act of 1933, as
amended and listed for trading on the principal securities exchange or
trading market where the Company's Common Stock is then listed or
traded, and (ii) prior to giving such a Redemption Notice, if Issuer
elects to redeem with Common Stock, Issuer will first obtain
stockholder approval of the issuance to the extent then required by the
rules and regulations of the NASD or of such other national exchange
upon which Issuer's Common Stock is then traded. Notice of redemption
having been given as aforesaid, dividends on the Series A Preferred
Shares shall cease to accrue as of the effective date of such
redemption unless the Issuer defaults in the payment of the Redemption
Price.
(4) Conversion of Series A Preferred Shares. The Series A
Preferred Shares shall be convertible into shares of Common Stock on
the following terms and conditions:
(a) Conversion by Holder. Upon written notice to the
Company by the holder thereof, each Series A Preferred Share shall be
convertible at any time into a number of fully paid and nonassessable
shares (calculated to the nearest whole share) of Common Stock to be
determined by dividing the Liquidation Preference by the then current
Conversion Price (the "Conversion Ratio").
(b) Mandatory Conversion. The outstanding Series A
Preferred Shares will be deemed to have been converted into shares of
Common Stock at the Conversion Ratio automatically without further
action required of the Issuer or holders thereof, upon the following
terms and conditions:
(i) If, at any time during the first
twelve (12) months following the
Issuance Date, the Average Trading
Price of the Common Stock is at
least 130% of the Conversion Price,
then 33-1/3% of the then
outstanding Series A Preferred
Shares will convert into Common
Stock, such conversion to be
allocated among the holders
thereof, on a pro rata basis based
upon their respective holdings.
(ii) If, at any time during the first
twenty-four (24) months following
the Issuance Date, the Average
Trading Price of the Common Stock
is equal to or exceeds the
percentage of the Conversion Price
set forth below, then the
corresponding percentage of the
then outstanding Series A Preferred
Shares will convert into Common
Stock, such conversion to be
allocated among the holders
thereof, on a pro rata basis based
upon their respective holdings:
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<PAGE>
Average Trading Price as a Percentage of Series A Preferred
Percentage of Conversion Price Shares to be Converted
-------------------------------- --------------------------------
160% 662/3%
190% 100%
(iii) If, at any time after the second
anniversary of the Issuance Date,
the Average Trading Price of the
Common Stock is equal to or exceeds
the percentage of the Conversion
Price set forth below for each
corresponding year following the
Issuance Date, then 100% of the
then outstanding Series A Preferred
Shares will convert into Common
Stock:
Year Average Trading Price as a Percentage of
Conversion Price
---------- ----------------------------------------
3 140%
4 150%
5 175%
Notwithstanding the foregoing, no mandatory conversion shall occur
unless and until the shares of Common Stock to be issued have been registered
under the Securities Act of 1933, as amended, and listed for trading on the
principal securities exchange or trading market where the Company's Common Stock
is then listed or traded. Immediately upon the occurrence of a mandatory
conversion, the Company will notify all holders of Series A Preferred Shares of
the mandatory conversion.
(c) Certain Definitions.
(i) "Conversion Price" means eight dollars
and sixty-two and one-half cents ($8.625); provided that, if the
Average Trading Price as of the second anniversary of the Issuance Date
is less than eight dollars and sixty-two and one-half cents ($8.625),
then the Conversion Price shall thereafter be adjusted downward but
never upward to equal the greater of the Average Trading Price or six
dollars ($6.00), subject to the terms and conditions of Section 4(d).
(ii) "Average Trading Price" means, as of a
given date, an amount equal to the arithmetic average of the last
closing sale price of the Common Stock on the Nasdaq National Market
(the "Nasdaq-NM") for the ten (10) day period ending one day prior to
the date of determination as reported by Bloomberg Financial Markets
("Bloomberg"), or, if the Nasdaq-NM is not the principal trading market
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<PAGE>
for such security, the last closing sale price of such security on the
principal securities exchange or trading market where such security is
listed or traded for the ten (10) day period ending one day prior to
the date of determination as reported by Bloomberg, or if the foregoing
do not apply, the last closing bid price of such security in the
over-the-counter market on the electronic bulletin board for such
security for the ten (10) day period ending one day prior to the date
of determination as reported by Bloomberg, or, if no closing bid price
is reported for such security by Bloomberg, the last closing trade
price of such security as reported by Bloomberg or, if no last closing
trade price is reported for such security by Bloomberg, the average of
the bid prices for the ten (10) day period ending one day prior to the
date of determination of any market makers for such security as
reported in the "pink sheets" by the National Quotation Bureau, Inc.
(d) Adjustment to Conversion Price. In order to
prevent dilution of the conversion rights granted to holders of Series
A Preferred Shares hereunder, the Conversion Price will be subject to
adjustment from time to time pursuant to this Section 4(d).
(i) Adjustment for Dilutive Events. If and
whenever on or after the original date of issuance of the Series A
Preferred Shares the Company issues or sells, or in accordance with
Section 4(d)(ii) below is deemed to have issued or sold, in one
transaction or a series of related transactions, any shares of Common
Stock for consideration per share less than the Conversion Price in
effect immediately prior to the time of such issue or sale (a "Dilutive
Event"), then forthwith upon the occurrence of any such Dilutive Event
the Conversion Price will be reduced so that the Conversion Price in
effect immediately following the Dilutive Event will equal the quotient
derived by dividing (i) the sum of (x) the product derived by
multiplying the Conversion Price in effect immediately prior to such
Dilutive Event times 27,000,000, plus (y) the product of (A) the Price
Per Share in the Dilutive Event, times (B) three times the
consideration received by the Company in such Dilutive Event, by (ii)
the sum of (x) 27,000,000, plus (y) three times the consideration
received by the Company in the Dilutive Event; provided that the
Conversion Price will not be reduced pursuant to this sentence if the
foregoing calculation results in a Conversion Price in excess of $8.15
(the "Threshold Price"). Notwithstanding the foregoing, the issuance by
the Company of any equity securities to management, directors or
employees of the Company pursuant to plans and options to purchase
equity securities issued in accordance with such plans approved by the
Board and in effect as of the date of the first issuance of the Series
A Preferred Shares shall not constitute a Dilutive Event.
(ii) Common Stock Deemed Outstanding. For
purposes of determining the adjusted Conversion Price pursuant to
Section 4(d)(i) above the following events shall be deemed to be an
issuance and sale of Common Stock by the Company:
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<PAGE>
(A) Issuance of Rights or Options. If (i) the
Company in any manner grants any rights or options to subscribe for or
to purchase shares of Common Stock or any securities convertible into
or exchangeable for shares of Common Stock (such rights or options
referred to herein as "Options" and such convertible or exchangeable
stock or securities referred to herein as "Convertible Securities") and
(ii) the Price Per Share of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of such
Convertible Securities is less than the Conversion Price in effect
immediately prior to the time of the granting of such Options, then (x)
the total maximum amount of such Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total
maximum number of Convertible Securities issuable upon the exercise of
such Options will be deemed to be Common Stock issued and sold by the
Company, and (y) the consideration received pursuant to the Dilutive
Event will equal the Price Per Share times the number of shares of
Common Stock so deemed issued and sold by the Company. For purposes of
this Section 4(d)(ii)(A), the "Price Per Share" will be determined by
dividing (i) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the
Company upon exercise of all such Options, plus in the case of such
Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Company upon
the issuance or sale of such Convertible Securities and the conversion
or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities issuable upon
the exercise of such Options. No further adjustment of the Conversion
Price will be made when Convertible Securities are actually issued upon
the exercise of such Options or when Common Stock is actually issued
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(B) Issuance of Convertible Securities. If
(i) the Company in any manner issues or sells any Convertible
Securities and (ii) the Price Per Share of shares of Common Stock
issuable upon such conversion or exchange is less than the Conversion
Price in effect immediately prior to the time of such issue or sale,
then (x) the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities will be deemed to
be Common Stock issued and sold by the Company, and (y) the
consideration received pursuant to the Dilutive Event will equal the
Price Per Share times the number of shares of Common Stock so deemed
issued and sold by the Company. For the purposes of this Section
4(d)(ii)(B), the "Price Per Share" will be determined by dividing (i)
the total amount received or receivable by the Company as consideration
for the issue or sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment
of the Conversion Price will be made when Common Stock is actually
issued upon
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<PAGE>
the conversion or exchange of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon exercise
of any Options for which adjustments to the Conversion Price had been
or are to be made pursuant to Section 4(d)(ii)(A) above, no further
adjustment of the Conversion Price will be made by reason of such issue
or sale.
(C) Change in Option Price or Conversion
Rate. If at any time there is a change in (i) the purchase price
provided for in any Options, (ii) the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities,
or (iii) the rate at which any Convertible Securities are convertible
into or exchangeable for Common Stock, then the Conversion Price in
effect at the time of such change will be readjusted to the Conversion
Price which would have been in effect had those Options or Convertible
Securities still outstanding at the time of such change provided for
such changed purchase price, additional consideration or changed
conversion rate, as the case may be, at the time such Options or
Convertible Securities were initially granted, issued or sold.
(D) Calculation of Consideration Received. If
any shares of Common Stock, Option or Convertible Security are issued
or sold or deemed to have been issued or sold for cash, the
consideration received therefor or the Price Per Share, as the case may
be, will be deemed to be the net amount received or to be received,
respectively, by the Company therefor. In case any shares of Common
Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Company or the non-cash portion of the Price
Per Share, as the case may be, will be the fair value of such
consideration received or to be received, respectively, by the Company;
except where such consideration consists of securities, in which case
the amount of consideration received or to be received, respectively,
by the Company will be the Average Trading Price thereof as of the date
of receipt. If any shares of Common Stock, Options or Convertible
Securities are issued in connection with any merger in which the
Company is the surviving corporation, the amount of consideration
therefor will be deemed to be the fair value of such portion of the net
assets and business of the non-surviving corporation as is attributable
to such shares of Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash
and securities will be determined jointly by the Company and the
holders of a majority of the outstanding Series A Preferred Shares. If
such parties are unable to reach agreement within a reasonable period
of time, the fair value of such consideration will be determined by an
independent appraiser jointly selected by the Company and the holders
of a majority of the outstanding Series A Preferred Shares.
(E) Integrated Transactions. In case any
Option is issued in connection with the issuance or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is
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<PAGE>
allocated to such Option by the parties thereto, the Option will be
deemed to have been issued for a consideration of $.01.
(F) Record Date. If the Company takes a
record of the holders of Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in shares of
Common Stock, Options or in Convertible Securities or (ii) to subscribe
for or purchase shares of Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the
issuance or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or upon the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(iii) Adjustment of Conversion Price upon
Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common
Stock into a greater number of shares, the Conversion Price, the
Threshold Price and the amounts set forth in Section 4(c)(i) in effect
immediately prior to such subdivision will be proportionately reduced,
and if the Company at any time combines (by combination, reverse stock
split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Conversion Price, the
Threshold Price and the amounts set forth in Section 4(c)(i) in effect
immediately prior to such combination will be proportionately
increased.
(iv) Reorganization, Reclassification,
Consolidation, Merger or Sale. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially
all of the Company's assets to another Person (as defined below) or
other transaction which is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Stock is referred to herein as "Organic Change."
Prior to the consummation of any Organic Change, the Company will make
appropriate provision to ensure that (I) each of the holders of the
Series A Preferred Shares will thereafter have the right to acquire and
receive in lieu of or addition to (as the case may be) the shares of
Common Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Series A Preferred Shares, such shares of
stock, securities or assets as may be issued or payable with respect to
or in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such
holder's Series A Preferred Shares had such Organic Change not taken
place and (II) each of the holders of Series A Preferred Shares will
continue to have the same rights and preferences, in any surviving
entity, as those which apply to the Series A Preferred Shares pursuant
to this Certificate. In any such case, the Company will make
appropriate provision with respect to such holders' rights and
interests to ensure that the provisions of this Section 4(d) will
thereafter be applicable
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<PAGE>
to the Series A Preferred Shares. The Company will not effect any such
consolidation, merger or sale, unless prior to the consummation
thereof, the successor entity (if other than the Company) resulting
from consolidation or merger or the entity purchasing such assets
assumes, by written instrument, the obligation to deliver to each
holder of Series A Preferred Shares such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may
be entitled to acquire. "Person" shall mean an individual, a limited
liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any
department or agency thereof.
(v) Notices.
(A) Immediately upon any adjustment of the
Conversion Price, the Company will give written notice thereof to each
holder of Series A Preferred Shares, setting forth in reasonable detail
and certifying the calculation of such adjustment.
(B) The Company will give written notice to
each holder of Series A Preferred Shares at least twenty (20) days
prior to the date on which the Company closes its books or takes a
record (I) with respect to any dividend or distribution upon the Common
Stock, (II) with respect to any pro rata subscription offer to holders
of Common Stock or (III) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation; provided that in no
event shall such notice be provided to such holder prior to such
information being made known to the public.
(C) The Company will also give written notice
to each holder of Series A Preferred Shares at least twenty (20) days
prior to the date on which any Organic Change, dissolution or
liquidation will take place.
(D) The Company shall give written notice to
the holders of the Series A Preferred Shares promptly after the
occurrence of the automatic conversion of the Series A Preferred Shares
into Common Stock as set forth in Section 4(b) hereof.
(e) Mechanics of Conversion. Subject to and in
compliance with all federal and state securities laws, the conversion
of Series A Preferred Shares pursuant to this Section 4 will be deemed
to have been effected (and the holder thereof will be deemed to be the
registered holder of the Conversion Shares), automatically if
conversion is pursuant to Section 4(b), or, if converted at the option
of the holder of Series A Preferred Shares pursuant to Section 4(a), by
and on the date of surrender of certificates representing the Series A
Preferred Shares being converted to the Company at its principal place
of business, together with the Notice of Conversion attached hereto as
Exhibit I. As soon as practicable, but in no event later than five (5)
business days after such conversion, the Company shall cause the
transfer agent
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to deliver to the registered holder thereof (a) a certificate
representing the shares of Common Stock to which the holder is entitled
as a result of such conversion, and (b) a new certificate for Series A
Preferred Shares for the unconverted shares of Series A Preferred
Shares, if any, represented by the surrendered certificate. The Company
shall at all times reserve for issuance a sufficient number of shares
of Common Stock to be issued as Conversion Shares, and upon issuance
thereof, the Conversion Shares shall be fully paid and nonassessable.
(f) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Series
A Preferred Shares shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on the Conversion
Date.
(5) Change of Control. If at any time there is a Change of
Control (as defined below) of the Company, the Company shall,
immediately following the occurrence of any such event, send a notice
to each holder offering to repurchase the Series A Preferred Shares (or
at each holder's option, any portion thereof) for an amount equal to
the Liquidation Preference on the date of such repurchase. If any
holder desires to accept such offer in whole or in part, such holder
must advise the Company of such acceptance within thirty (30) days of
the date of receiving such notice. The Company shall then repurchase
the Series A Preferred Shares or portion thereof so tendered for
repurchase by such holder by paying the purchase price to the holder
(or any person or persons designated by such holder in such acceptance
notice), in immediately available funds, within ten (10) business days
of the Company's receipt of such holder's acceptance notice. If a
holder tenders only a portion of such holder's Series A Preferred
Shares, the holder shall deliver such certificate of Series A Preferred
Shares to the Company and the Company then shall issue to the holder a
new certificate of Series A Preferred Shares, representing the portion
of the Series A Preferred Shares not repurchased by the Company. For
purposes of this Section, "Change of Control" means any event or series
of events by which (i) any person or group (as defined in Rule 13d-1 of
the Exchange Act) obtains a majority (by voting or otherwise) of the
securities of the Company ordinarily having the right to vote in the
election of directors; (ii) during any two year period commencing at
any time on or after the Closing Date, individuals who at the beginning
of such period constituting the Board of Directors cease for any reason
to constitute a majority of the Board of Directors; (iii) any sale,
lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, the assets of the
Company; (iv) the merger or consolidation of the Company with or into
another corporation or the merger of another corporation into the
Company with the effect that immediately after such transaction any
beneficial owner shall have become the beneficial owner of securities
of the surviving corporation of such merger or consolidation
representing a majority of the combined voting power of the outstanding
securities of the surviving corporation ordinarily having the right to
vote in the election of directors; or (v) the adoption of a plan
leading to the liquidation or dissolution of the Company.
Notwithstanding the foregoing, the Company shall not
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<PAGE>
be obligated to repurchase the Series A Preferred Shares pursuant to
the terms of this Section 5 if such repurchase in the opinion of the
Company's then current auditors, would jeopardize the "pooling"
accounting treatment of the transaction giving rise to such Change of
Control.
(6) Taxes. The Company shall pay any and all taxes which may
be imposed upon it with respect to the issuance and delivery of Common
Stock upon the conversion of the Series A Preferred Shares as herein
provided. The Company shall not be required in any event to pay any
transfer or other taxes by reason of the issuance of such Common Stock
in names other than those in which the Series A Preferred Shares
surrendered for conversion are registered on the Company's records, and
no such conversion or issuance of Common Stock shall be made unless and
until the person requesting such issuance has paid to the Company the
amount of any such tax, or has established to the satisfaction of the
Company and its transfer agent, if any, that such tax has been paid.
(7) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Series A Preferred Shares shall be entitled
to receive in cash out of the assets of the Company, whether from
capital or from earnings available for distribution to its stockholders
(the "Preferred Funds"), before any amount shall be paid to the holders
of any of the capital stock of the Company of any class junior in rank
to the Series A Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and
winding up of the Company, an amount per Series A Preferred Share equal
to the Liquidation Preference; provided that, if the Preferred Funds
are insufficient to pay the full amount due to the holders of Series A
Preferred Shares, then each holder of Series A Preferred Shares shall
receive a percentage of the Preferred Funds equal to the full amount of
Preferred Funds payable to such holder as a percentage of the full
amount of Preferred Funds payable to all holders of Series A Preferred
Shares. The purchase or redemption by the Company of stock of any
class, in any manner permitted by law, shall not, for the purposes
hereof, be regarded as a liquidation, dissolution or winding up of the
Company. Neither the consolidation or merger of the Company with or
into any other Person, nor the sale or transfer by the Company of less
than substantially all of its assets, shall, for the purposes hereof,
be deemed to be a liquidation, dissolution or winding up of the
Company. No holder of Series A Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation,
dissolution or winding up of the Company other than the amounts
provided for herein.
(8) Repurchases of Series A Preferred Stock by the Issuer.
Neither the Issuer nor any of its subsidiaries shall repurchase any
outstanding shares of Series A Preferred Stock unless the Issuer on the
same terms either (i) offers to purchase all of the then outstanding
shares of Series A Preferred Stock or (ii) offers to purchase shares of
Series A Preferred Stock from the holders in proportion to the
respective number of shares of Series A Preferred Stock held by each
holder. In any such
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<PAGE>
repurchase by the Issuer or any of its subsidiaries, if all shares of
Series A Preferred Stock are not being repurchased, then the number of
shares of Series A Preferred Stock to be repurchased shall be allocated
among all shares of Series A Preferred Stock held by holders which
accept the Issuer's repurchase offer so that the shares of Series A
Preferred Stock are repurchased from such holders in proportion to the
respective number of shares of Series A Preferred Stock held by each
such holder which accepts the Issuer's offer (or in such other
proportion as agreed by all such holders who accept the Issuer's
offer).
(9) Shares to be Retired. Any share of Series A Preferred
Stock converted, redeemed, repurchased or otherwise acquired by the
Corporation shall be retired and canceled and may not be reissued.
(10) No Fractional Shares. In connection with any conversion,
liquidation, redemption, or otherwise, the Company shall only issue
Common Stock in denominations equal to the nearest, lower whole number;
fractional shares due holders will be allocated their cash value and
paid by the Company to the holder by check.
(11) Preferred Rank. All shares of Common Stock and all
additional shares of preferred stock of the Company shall be of junior
rank to all Series A Preferred Shares in respect to the preferences as
to dividends and distributions and payments upon the liquidation,
dissolution and winding up of the Company and the rights of the shares
of Common Stock and of any shares of preferred stock, other than the
Series A Preferred Stock shall be subject to the preferences and
relative rights of the Series A Preferred Shares.
(12) Vote to Change the Terms of Series A Preferred Shares.
The affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting of the holders of not less than
two-thirds (2/3) of the then outstanding Series A Preferred Shares
(excluding any Series A Preferred Shares held by the Company or
affiliates of the Company) shall be required for the Company to amend,
alter, change or repeal any of the powers, designations, preferences
and rights of the Series A Preferred Shares.
(13) Lost or Stolen Certificates. Upon receipt by the Company
of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any preferred stock certificates representing the
Series A Preferred Shares, and (in the case of loss, theft or
destruction) of any indemnification undertaking by the holder to the
Company that is reasonably satisfactory to the Company, and upon
surrender and cancellation of the preferred stock certificate(s), if
mutilated, the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date. However, the Company shall not
be obligated to re-issue such lost or stolen preferred stock
certificates if holder contemporaneously requests the Company to
convert such Series A Preferred Shares into Common Stock.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this certificate to be
signed by Donald C. Welchko , its Chief Financial Officer and Vice President as
of the 21st day of May 1997.
ANICOM, INC.
By: /s/ Donald C. Welchko
--------------------------
Title: Vice President and CFO
-----------------------
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<PAGE>
EXHIBIT I
ANICOM, INC.
NOTICE OF CONVERSION
Reference is made to the Certificate of Designations, Preferences and Rights of
Convertible Preferred Stock, Series A, of Anicom, Inc. (the "Designation"). In
accordance with and pursuant to the Designation, the undersigned hereby elects
to convert the number of shares of Convertible Preferred Stock, Series A, par
value $.001 (the "Series A Preferred"), of Anicom, Inc., a Delaware corporation
(the "Company"), indicated below into shares of Common Stock, par value $.001
(the "Common Stock"), of the Company, by tendering the stock certificate(s)
representing the share(s) of Series A Preferred specified below as of the date
specified below:
Date of Conversion ________________________________________________
Number of shares of Series A
Preferred to be converted: ______________________________________
Stock certificates no(s). of Series A
Preferred to be converted: ______________________________________
Please confirm the following information:
Conversion Price: ___________________________________
Number of shares of Common Stock
to be issued: ___________________________________
Please issue the Common Stock into which the Series A Preferred shares are being
converted in the following name and to the following address:
Issue to: ___________________________________
___________________________________
___________________________________
Phone No. of converting holder: ___________________________________
Duly executed: By_________________________________
Name & Title: ___________________________________
Dated: ___________________________________
<PAGE>
CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
ANICOM, INC.
ANICOM, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Act"), DOES HEREBY
CERTIFY THAT:
1. In accordance with the provisions of Section 242 of the Act,
an amendment to the Amended and Restated Certificate of
Incorporation of this Corporation has been duly adopted by the
Board of Directors of this Corporation and by the stockholders
of this Corporation at the Annual Meeting of Stockholders.
2. Said amendment amends subparagraph A of Article 4 of the
Amended and Restated Certificate of Incorporation so that, as
amended, subparagraph A of Article 4 shall read in its
entirety as follows:
"Authorized Shares. The total number of shares of all classes
of stock which the Corporation shall have authority to issue
is sixty-one million (61,000,000) shares, consisting of sixty
million (60,000,000) shares of Common Stock, $.001 par value
per share (the "Common Stock"), and one million (1,000,000)
shares of Preferred Stock, $.01 par value per share (the
"Preferred Stock")."
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
duly executed this 2nd day of June, 1997.
By /s/ Carl E. Putnam
-----------------------------------
Carl E. Putnam, President and Chief
Operating Officer
<PAGE>
CERTIFICATE OF AMENDMENT OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
ANICOM, INC.
ANICOM, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Act"), DOES HEREBY
CERTIFY THAT:
1. In accordance with the provisions of Section 242 of the Act,
an amendment to the Amended and Restated Certificate of
Incorporation of this Corporation has been duly adopted by the
Board of Directors of this Corporation and by the stockholders
of this Corporation at the Annual Meeting of Stockholders.
2. Said amendment amends subparagraph A of Article Four of the
Amended and Restated Certificate of Incorporation so that, as
amended, subparagraph A of Article Four shall read in its
entirety as follows:
"Authorized Shares. The total number of shares of all classes
of stock which the Corporation shall have authority to issue
is one hundred one million (101,000,000) shares, consisting of
one hundred million (100,000,000) shares of Common Stock,
$.001 par value per share (the "Common Stock"), and one
million (1,000,000) shares of Preferred Stock, $.01 par value
per share (the "Preferred Stock")."
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
duly executed this 17th day of July, 1998.
ANICOM, INC.
By /s/ Carl E. Putnam
-----------------------------------
Carl E. Putnam, President and Chief
Operating Officer
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B CONVERTIBLE PREFERRED STOCK
OF
ANICOM, INC.
Anicom, Inc. (the "Company"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
that, pursuant to authority conferred upon the Board of Directors of the Company
by the Certificate of Incorporation, as amended, of the Company, and pursuant to
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Company at a meeting duly held, adopted resolutions
providing for the designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions
thereof, of Twenty Thousand (20,000) shares of Series B Convertible Preferred
Stock, of the Company, as follows:
RESOLVED, that the Company is authorized to issue 20,000
shares of Series B Convertible Preferred Stock (the "Series B Preferred
Stock"), $.01 par value (the "Series B Preferred Shares"), which shall
have the following powers, designations, preferences and other special
rights:
(1) Dividends and Liquidation Preference. The holders of the
Series B Preferred Shares shall be entitled to receive on each share
issued and outstanding, out of assets legally available for such
purpose, cumulative preferential dividends which shall accrue and
compound quarterly on each March 1, June 1, September 1 and December 1
(each, a "Dividend Reference Date"), commencing to accrue on the date
of issuance of such Series B Preferred Share (the "Issuance Date") at
the rate of three percent (3%) per annum of the Liquidation Preference
(as defined below); such dividends shall be cumulative, and accrue
daily, whether or not earned, declared, or legally available for
payment, from and after the Issuance Date up to and including the date
the Series B Preferred Shares shall no longer be outstanding. Accrued
dividends shall be payable, in arrears, in cash on each March 1 and
September 1, beginning March 1, 1999 (each, a "Dividend Payment Date").
The liquidation preference of the Series B Preferred Shares shall be
$1,000.00 per share plus any
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<PAGE>
accrued and unpaid dividends through the date of payment (in the case
of a redemption or Liquidation) or conversion, as the case may be (the
"Liquidation Preference").
(2) Voting Rights. The Series B Preferred Shares will not be
entitled to any voting rights of any kind, whether as a separate class
or together with other classes or series of securities, except that the
holders of the Series B Preferred Shares shall be entitled to the
following rights: (i) the Series B Preferred Shares shall vote as a
separate class with respect to any proposed amendments to the terms and
conditions of the Series B Preferred Shares that would be adverse to
the holders of the Series B Preferred Shares; (ii) so long as the
Initial Holder or its Permitted Transferees own any of the then
outstanding Series B Preferred Shares, following the occurrence of an
Event of Noncompliance and until such Event of Noncompliance is cured,
the Initial Holder or its Permitted Transferees shall, collectively, be
entitled to vote together with the holders of Common Stock, as one
class, on an as converted basis at the then applicable Conversion Ratio
(as defined below) all Series B Preferred Shares beneficially owned
thereby (as if such Series B Preferred Shares had been fully converted
immediately prior to the date on which a date of record is taken for
such vote, or, if no record is taken, the date as of which the record
holders of Common Stock entitled to vote are to be determined); (iii)
the right to elect the Series B Directors to the extent provided for in
Section 3(e) hereof; (iv) so long as the Initial Holder or its
Permitted Transferees own any of the then outstanding Series B
Preferred Shares, the affirmative vote of the holders of a majority of
the then outstanding Series B Preferred Shares, voting as a separate
class and as a single voting group, shall be necessary for authorizing,
effectuating or validating any Adverse Organic Change; (v) so long as
the Initial Holder or its Permitted Transferees own any of the then
outstanding Series B Preferred Shares, in the event that the Company
desires to purchase or redeem in excess of 5% of the outstanding shares
of any class of Junior Securities in one or more transactions during
any twelve (12) consecutive month period (the "5% Threshold"), before
purchasing or redeeming any Junior Securities in excess of such 5%
Threshold during any such calendar quarter, the Company shall first
offer to purchase or redeem from the Initial Holder and its Permitted
Transferees all of the outstanding Series B Preferred Shares owned by
the Initial Holder and its Permitted Transferees at a price equal to
the Liquidation Preference as of such date; and (vi) such other voting
rights as may be provided by law.
(3) Redemption.
(a) Mandatory Redemption. On the fifth anniversary of
the Issuance Date (the "Mandatory Redemption Date"), the Company shall
redeem all (but, subject to Section 3(e) hereof, not less than all) of
the then outstanding Series B Preferred Shares for a price per share
(the "Redemption Price") equal to the Liquidation Preference as of such
date. The Redemption Price shall be paid in cash to the holders of the
Series B Preferred Shares on the Mandatory Redemption Date,
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<PAGE>
provided that if any holder has not delivered to the Company
certificates representing the Series B Preferred Shares on or prior to
the Mandatory Redemption Date, the Company shall send written notice to
each such holder that the Mandatory Redemption Date has occurred and
shall pay the Redemption Price to each such holder within ten (10)
business days of receipt of its share certificate(s).
(b) Redemption at Company's Option. At any time after
the third anniversary of the Issuance Date, the Company, at its option,
may redeem all (but not less than all), of the then outstanding Series
B Preferred Shares for a price per share equal to the Redemption Price
as of the Company Redemption Date by giving notice (a "Call Notice") to
each holder of Series B Preferred Shares not less than sixty (60) days
prior to the Company Redemption Date. Such Call Notice shall indicate
(A) the date that such redemption is to become effective (the "Company
Redemption Date"), (B) the applicable Redemption Price, (C) where
payment of the Redemption Price will be made, and (D) the then current
Conversion Price. Notwithstanding the foregoing, the Series B Preferred
Shares may be converted in accordance with Section 4 hereof at any time
after a Call Notice has been given, but prior to the Company Redemption
Date. On and after the Company Redemption Date, the holder of any
Series B Preferred Shares shall have no further rights except to
receive, upon surrender of the certificate(s) representing the Series B
Preferred Shares, the Redemption Price; provided, however, that if the
holder of any Series B Preferred Shares delivers the certificate(s)
representing the Series B Preferred Shares held by such holder to the
Company on the Company Redemption Date or within three (3) business
days thereafter and the Company fails to pay to such holder the
Redemption Price with respect to such Series B Preferred Shares within
thirty (30) days after the Company Redemption Date, then such holder
will retain all of its rights as a shareholder with respect to such
Series B Preferred Shares, including the accrual of dividends from the
Redemption Date until such payment is made; provided further, however,
that if the holder of any Series B Preferred Shares delivers the
certificate(s) representing the Series B Preferred Shares held by such
holder to the Company after the third (3rd) business day after the
Company Redemption Date, except as set forth in the following clause,
then such holder shall not retain any of its rights as a shareholder
with respect to such Series B Preferred Shares, including the accrual
of dividends; provided further, however, that if the holder of any
Series B Preferred Shares delivers the certificate(s) representing the
Series B Preferred Shares held by such holder to the Company after the
third (3rd) business day after the Company Redemption Date and the
Company fails to pay to such holder the Redemption Price with respect
to such Series B Preferred Shares within thirty (30) days after the
date on which such certificate(s) have been delivered to the Company
(the "Tender Date"), then such holder will retain all of its rights as
a shareholder with respect to such Series B Preferred Shares from the
Tender Date until such payment is made, including the accrual of
dividends from the Tender Date until such payment is made.
(c) Scheduled Redemption at Holder's Option. Each
holder of Series B Preferred Shares, at its option, may require the
Company to redeem all (but
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<PAGE>
not less than all), of the then outstanding Series B Preferred Shares
beneficially owned by such holder for a price per share equal to the
Redemption Price as of the effective date of such redemption (i) at any
time after the third anniversary of the Issuance Date by giving notice
to the Company not less than fifty (50) days prior to the date on which
such shares are to be redeemed or (ii) at any time following the
occurrence of an Event of Noncompliance which has not been cured by the
Company by giving notice to the Company not less than one (1) business
day prior to the date on which such shares are to be redeemed.
(d) Special Redemption at Holder's Option. As a
condition to the issuance or sale by the Company of any Senior or Pari
Passu Securities (as defined below), the Company shall give notice (a
"Senior or Pari Passu Securities Issuance Notice") to the Initial
Holder and its Permitted Transferees, so long as the Initial Holder and
its Permitted Transferees own any of the then outstanding Series B
Preferred Shares, not less than ten (10) business days prior to the
date on which such Senior or Pari Passu Securities are to be issued or
sold, describing in reasonable detail the powers, designations,
preferences and other special rights of such Senior or Pari Passu
Securities. Following any such notice, the Initial Holder and its
Permitted Transferees, so long as the Initial Holder and its Permitted
Transferees own any of the then outstanding Series B Preferred Shares,
at their collective option, may require the Company to redeem all (but
not less than all) of the then outstanding Series B Preferred Shares
then held by the Initial Holder and its Permitted Transferees for a
price per share equal to the Redemption Price as of the effective date
of such redemption by giving notice (a "Special Put Notice") to the
Company within five (5) business days of the receipt by the Initial
Holder and its Permitted Transferees of the Senior or Pari Passu
Securities Issuance Notice. Upon receipt of such Special Put Notice,
the Company shall be obligated to redeem all (but not less than all) of
the then outstanding Series B Preferred Shares then held by the Initial
Holder and its Permitted Transferees on a date no later than sixty (60)
days after the date upon which the Senior or Pari Passu Securities
Issuance Notice was received by the Initial Holder and its Permitted
Transferees.
(e) Insufficient Funds; Failure to Redeem. If the
funds of the Company legally available for redemption of Series B
Preferred Shares are insufficient to redeem the total number of Series
B Preferred Shares to be redeemed, those funds which are legally
available will be used to redeem the maximum possible number of Series
B Preferred Shares ratably among the holders of such shares to be
redeemed based upon the aggregate Redemption Price of the Series B
Preferred Shares held by each such holder. Thereafter, when additional
funds of the Company are legally available for the redemption of Series
B Preferred Shares, such funds will be used to redeem the balance of
the Series B Preferred Shares which the Company became obligated to
redeem but which it has not redeemed (such redemptions to be made on a
monthly basis). In case fewer than the total number of Series B
Preferred Shares represented by any certificate are redeemed in any
installment, a new certificate representing the number of unredeemed
Series B Preferred Shares will be
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<PAGE>
issued to the holder without cost to such holder promptly after
surrender of the certificate representing the redeemed Series B
Preferred Shares. So long as the Initial Holder and its Permitted
Transferees are, collectively, the owners of at least 20% of the then
outstanding Series B Preferred Shares, if the Company fails to redeem
all of the then outstanding Series B Preferred Shares on or before any
redemption date, whether due to the lack of sufficient funds or
otherwise, and such failure to redeem is not cured in full on or before
the tenth (10th) business day following written notice from the Initial
Holder and its Permitted Transferee to the Company of such failure to
redeem, thereafter, the Initial Holder and its Permitted Transferees
shall, collectively, be entitled to elect two members of the Board of
Directors (the "Series B Directors") who shall be entitled to serve
until the earlier of (i) the redemption of all of the then outstanding
Series B Preferred Shares beneficially owned by the Initial Holder and
its Permitted Transferees, or (ii) the date as of which the Initial
Holder and its Permitted Transferees no longer are, collectively, the
owners of at least 20% of the then outstanding Series B Preferred
Shares. The Company covenants and agrees to amend its bylaws, if
necessary, and take such other actions as may be necessary to allow the
Initial Holder and its Permitted Transferees to, collectively, elect
the Series B Directors upon the occurrence of the circumstances
described in this Section 3(e).
(4) Conversion of Series B Preferred Shares. The Series B
Preferred Shares shall be convertible into shares of Common Stock on
the following terms and conditions:
(a) Conversion by Holder. Upon written notice to the
Company by the holder thereof, each Series B Preferred Share shall be
convertible at any time into a number of fully paid and nonassessable
shares (calculated to the nearest whole share) of Common Stock to be
determined by dividing the Liquidation Preference by the then current
Conversion Price (the "Conversion Ratio").
(b) Mandatory Conversion. If, at any time following
the Issuance Date, the Average Trading Price of the Common Stock
exceeds the percentage of the Conversion Price set forth below, then
the corresponding number of Series B Preferred Shares will convert into
Common Stock at the then applicable Conversion Ratio automatically,
without further action required of the Company or holders thereof, such
conversion to be allocated among the holders thereof on a pro rata
basis based upon their respective holdings:
Average Trading Price as a Number of Series B Preferred
Percentage of Conversion Price Shares to be Converted
-------------------------------- ---------------------------------
130% 6,667 (less any Series B Preferred
Shares previously converted)
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160% 13,333 (less any Series B Preferred
Shares previously converted)
190%
20,000 (less any Series B Preferred
Shares previously converted)
(c) Adjustment to Conversion Price. In order to
prevent dilution of the conversion rights granted to holders of Series
B Preferred Shares hereunder, the Conversion Price will be subject to
adjustment from time to time pursuant to this Section 4(c).
(i) Adjustment of Conversion Price upon
Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common
Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced,
and if the Company at any time combines (by combination, reverse stock
split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination will be proportionately
increased.
(ii) Reorganization, Reclassification,
Consolidation, Merger or Sale. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially
all of the Company's assets to another Person or other transaction
which is effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation)
stock, securities or assets with respect to or in exchange for Common
Stock is referred to herein as "Organic Change." Prior to the
consummation of any Organic Change, the Company will make appropriate
provision to ensure that each of the holders of the Series B Preferred
Shares will thereafter have the right to acquire and receive in lieu of
or addition to (as the case may be) the shares of Common Stock
immediately theretofore acquirable and receivable upon the conversion
of such holder's Series B Preferred Shares, such shares of stock,
securities or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such
holder's Series B Preferred Shares had such Organic Change not taken
place. In any such case, the Company will make appropriate provision
with respect to such holders' rights and interests to ensure that the
provisions of this Section 4(c) will thereafter be applicable to the
Series B Preferred Shares. The Company will not effect any such Organic
Change, unless prior to the consummation thereof, the successor entity
(if other than the Company) resulting from consolidation or merger or
the entity purchasing such assets assumes, by written instrument, the
obligation to deliver to each holder of Series B Preferred Shares such
shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
-6-
<PAGE>
(iii) Notices.
(A) Immediately upon any adjustment
of the Conversion Price, the Company will give written notice thereof
to each holder of Series B Preferred Shares, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(B) The Company will give written
notice to each holder of Series B Preferred Shares at least twenty (20)
days prior to the date on which the Company closes its books or sets a
record date (I) with respect to any dividend or distribution upon the
Common Stock, (II) with respect to any pro rata subscription offer to
holders of Common Stock or (III) for determining rights to vote with
respect to any Organic Change or Liquidation; provided that in no event
shall such notice be provided to such holder prior to such information
being made known to the public.
(C) The Company will also give
written notice to each holder of Series B Preferred Shares at least
twenty (20) days prior to the date on which any Organic Change or
Liquidation will take place.
(D) The Company shall give written
notice to the holders of the Series B Preferred Shares promptly after
the occurrence of the automatic conversion of the Series B Preferred
Shares into Common Stock as set forth in Section 4(b) hereof.
(d) Mechanics of Conversion. Subject to and in
compliance with all federal and state securities laws, the conversion
of Series B Preferred Shares pursuant to this Section 4 will be deemed
to have been effected (and the holder thereof will be deemed to be the
registered holder of the Conversion Shares), automatically if
conversion is pursuant to Section 4(b) hereof, or, if converted at the
option of the holder of Series B Preferred Shares pursuant to Section
4(a) hereof, by and on the date of surrender of certificates
representing the Series B Preferred Shares being converted to the
Company at its principal place of business, together with the Notice of
Conversion attached hereto as Exhibit I. As soon as practicable after
such conversion, the Company shall cause the transfer agent to deliver
to the registered holder thereof (a) a certificate representing the
shares of Common Stock to which the holder is entitled as a result of
such conversion, and (b) a new certificate for Series B Preferred
Shares for the unconverted shares of Series B Preferred Shares, if any,
represented by the surrendered certificate. The Company shall at all
times reserve for issuance a sufficient number of shares of Common
Stock to be issued as Conversion Shares, and upon issuance thereof, the
Conversion Shares shall be fully paid and nonassessable.
(e) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Series
B Preferred Shares
-7-
<PAGE>
shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on the Conversion Date.
(5) Transferability
(a) Right of First Offer. Prior to selling or
otherwise disposing (each, a "Transfer") of any Series B Preferred
Shares to any Person, other than a Permitted Transferee, the holder
proposing to make such Transfer (the "Transferring Holder") shall
deliver a written notice (an "Offer Notice") to the Company. The Offer
Notice shall disclose in reasonable detail the proposed number of
Series B Preferred Shares to be transferred (the "Offered Series B
Preferred Shares") and the proposed terms and conditions of the
Transfer. The Company may elect to purchase all (but not less than all)
of the Offered Series B Preferred Shares at the price and on the terms
specified therein by delivering written notice of such election to the
Transferring Holder within ten (10) business days (the "Election
Period") after the delivery of the Offer Notice. If the Company has
elected to purchase all of the Offered Series B Preferred Shares from
the Transferring Holder, the transfer of such shares shall be
consummated within thirty (30) days after the Company's notice of its
intent to purchase such shares on the terms and upon the conditions
specified in the Offer Notice. To the extent that the Company has not
elected to purchase all of the Offered Series B Preferred Shares, the
Transferring Holder may, within forty-five (45) days after the
expiration of the Election Period, transfer all (but not less than all)
of such Offered Series B Preferred Shares to one or more Persons in
concurrent transactions at a price no less than the price per share
specified in the Offer Notice and on other terms no more favorable than
offered to the Company in the Offer Notice. Prior to any transfer of
any Offered Series B Preferred Shares after such forty-five (45) day
period has expired, such Offered Series B Preferred Shares shall first
be offered to the Company under this Section 5(a).
(b) Securities Law Restrictions. In addition to the
terms set forth in Section 5(a) hereof, the Series B Preferred Shares
may not be transferred, except pursuant to an exemption or exclusion
from the registration requirements under the Securities Act of 1933, as
amended, which does not require the filing by the Company with the
Securities and Exchange Commission of any registration statement,
offering circular or other document, in which case, the Transferring
Holder shall first supply to the Company an opinion of counsel (which
opinion and counsel shall be reasonably satisfactory to the Company)
that such exemption or exclusion is available; provided that no such
opinion of counsel shall be required with respect to a transfer by the
Initial Holder to a Permitted Transferee.
(c) Legend. Each certificate evidencing Series B
Preferred Shares shall be stamped or otherwise imprinted with a legend
in substantially the following form:
-8-
<PAGE>
"THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD OTHER THAN TO A PERMITTED TRANSFEREE EXCEPT PURSUANT TO
AN AVAILABLE EXEMPTION OR EXCLUSION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, PROVIDED THAT AN
OPINION OF COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE
COMPANY, HAS BEEN GIVEN BY COUNSEL SATISFACTORY TO THE COMPANY
TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED. IN ADDITION,
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE PURSUANT TO THE CERTIFICATE OF
DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES B CONVERTIBLE
PREFERRED STOCK, OF THE COMPANY (THE "DESIGNATIONS"). A COPY
OF SUCH DESIGNATIONS SHALL BE FURNISHED WITHOUT CHARGE BY THE
COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST."
(6) Certain Definitions.
"Adverse Organic Change" means any recapitalization,
reorganization, reclassification, consolidation, merger or sale of all
or substantially all of the Company's assets to another Person or other
transaction which is effected in such a way that holders of Series B
Preferred Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets, other than cash
per share equal to the Liquidation Preference or other than shares of
capital stock of the Company or successor entity having rights and
preferences no less favorable to those provided to the holders of the
Series B Preferred Shares prior to such transaction.
"Average Trading Price" means, as of a given date, an
amount equal to the arithmetic average of the last closing sale price
of the Common Stock on the Principal Market for the Measurement Period
as reported by Bloomberg Financial Markets, absent manifest error.
"Conversion Price" means $14.25, subject to
adjustment as provided in Section 4(c) hereof.
"Conversion Date" means, as to any particular Series
B Preferred Shares, the date such shares are automatically converted
pursuant to Section 4(b) and in the case of a conversion by a holder,
the date on which such holder delivers to the Company the certificates
representing the Series B Preferred Stock being converted or such later
date as may be specified by such holder in the Notice of Conversion.
-9-
<PAGE>
"Conversion Shares" means shares of the Company's
Common Stock, US $.001 par value, issuable upon conversion of the
Series B Preferred Shares, as provided in Section 4 hereof.
"Event of Noncompliance" means the failure by the
Company to (i) declare a dividend pursuant to Section 1 hereof on any
Dividend Reference Date, (ii) pay a dividend pursuant to Section 1
hereof on any Dividend Payment Date or (iii) pay the Redemption Price
when due, in any such case, which failure continues for a period of ten
(10) business days following notice thereof to the Company from the
holders of the Series B Preferred Shares.
"Initial Holder" means the Person to whom the Series
B Preferred Shares are initially issued by the Company.
"Junior Securities" shall mean shares of the
Company's Common Stock, US $.001 par value per share, and any other
class of capital stock of the Company which by its terms is subordinate
in liquidation preference and payment of dividends to the rights of the
holders of the Series B Preferred Stock.
"Measurement Period" means a ten (10) consecutive
trading day period, provided that if the aggregate trading volume
reported by Bloomberg Financial Markets (absent manifest error) during
such period is less than 1,300,000 shares of Common Stock, additional
trading days will be added to the Measurement Period until the
Measurement Period covers the first to occur of (A) aggregate trading
volume of 1,300,000 shares of Common Stock, or (B) twenty consecutive
trading days with an aggregate trading volume of at least 450,000
shares of Common Stock.
"Permitted Transferee" means (i) Ronald Stern (or, in
the event of Ronald Stern's death or permanent incompetency, his
personal representative for purposes of the administration of his
estate or the protection and management of his assets) or (ii) any
other Person, directly or indirectly, controlled by, or under the
common control of, Ronald Stern as of the date of any Transfer thereto.
"Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
association or other entity or organization, an unincorporated
organization and a government or any department or agency thereof.
"Principal Market" means the quotation system or
national exchange from among the Nasdaq National Market, the New York
Stock Exchange or the American Stock Exchange, or any successor to any
of the foregoing, upon which the largest volume of shares of the
Company's Common Stock shall have traded during the sixty (60) trading
days prior to the date of determination.
-10-
<PAGE>
"Senior or Pari Passu Securities" means any equity
securities (or any securities convertible into or exchangeable for any
equity securities) which are senior or pari passu in rank and priority
with the Series B Preferred Shares in respect to the preferences as to
dividends, distributions or redemptions or payments upon a Liquidation.
(7) Taxes. The Company shall pay any and all taxes which may
be imposed upon it with respect to the issuance and delivery of Common
Stock upon the conversion of the Series B Preferred Shares as herein
provided. The Company shall not be required in any event to pay any
transfer or other taxes by reason of the issuance of such Common Stock
in names other than those in which the Series B Preferred Shares
surrendered for conversion are registered on the Company's records, and
no such conversion or issuance of Common Stock shall be made unless and
until the person requesting such issuance has paid to the Company the
amount of any such tax, or has established to the satisfaction of the
Company and its transfer agent, if any, that such tax has been paid.
(8) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company (a "Liquidation"), the holders of the Series B Preferred Shares
shall be entitled to receive in cash out of the assets of the Company,
whether from capital or from earnings available for distribution to its
stockholders (the "Preferred Funds"), before any amount shall be paid
to the holders of any Junior Securities, an amount per Series B
Preferred Share equal to the Liquidation Preference; provided that, if
the Preferred Funds are insufficient to pay the full amount due to the
holders of Series B Preferred Shares, then each holder of Series B
Preferred Shares shall receive a percentage of the Preferred Funds
equal to the full amount of Preferred Funds payable to such holder as a
percentage of the full amount of Preferred Funds payable to all holders
of Series B Preferred Shares. The purchase or redemption by the Company
of stock of any class, in any manner permitted by law, shall not, for
the purposes hereof, be regarded as a Liquidation. Neither the
consolidation or merger of the Company with or into any other Person,
nor the sale or transfer by the Company of less than substantially all
of its assets, shall, for the purposes hereof, be deemed to be a
Liquidation. No holder of Series B Preferred Shares shall be entitled
to receive any amounts with respect thereto upon any Liquidation other
than the amounts provided for herein.
(9) Shares to be Retired. Any share of Series B Preferred
Stock converted, redeemed, repurchased or otherwise acquired by the
Company shall be retired and canceled and may not be reissued.
(10) No Fractional Shares. In connection with any conversion,
Liquidation, redemption, or otherwise, the Company shall only issue
Common Stock in denominations equal to the nearest, lower whole number;
fractional shares due holders will be allocated their cash value and
paid by the Company to the holder by check.
-11-
<PAGE>
(11) Preferred Rank. All shares of Common Stock shall be of
junior rank to all Series B Preferred Shares in respect to the
preferences as to dividends and distributions and payments upon a
Liquidation and the rights of the shares of Common Stock shall be
subject to the preferences and relative rights of the Series B
Preferred Shares.
(12) Lost or Stolen Certificates. Upon receipt by the Company
of evidence satisfactory to the Company of the loss, theft, destruction
or mutilation of any preferred stock certificates representing the
Series B Preferred Shares, and (in the case of loss, theft or
destruction) of any indemnification undertaking by the holder to the
Company that is reasonably satisfactory to the Company, and upon
surrender and cancellation of the preferred stock certificate(s), if
mutilated, the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date. However, the Company shall not
be obligated to re-issue such lost or stolen preferred stock
certificates if holder contemporaneously requests the Company to
convert such Series B Preferred Shares into Common Stock.
(13) Shareholder Action. Except as otherwise set forth herein,
any matter to be voted upon by the holders of the Series B Preferred
Shares may be approved by the written consent of the holders of a
majority of the then outstanding Series B Preferred Shares.
(14) Additional Series B Preferred Shares. The Company hereby
covenants and agrees that, other than the Series B Preferred Shares, it
shall not authorize or issue any additional shares of Series B
Preferred Stock.
IN WITNESS WHEREOF, the Company has caused this certificate to be
signed by Donald C. Welchko, its Vice President as of the 18th day of September,
1998.
ANICOM, INC.
By: /s/ Donald C. Welchko
---------------------
Title: Vice President
-------------------
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<PAGE>
EXHIBIT I
ANICOM, INC.
NOTICE OF CONVERSION
Reference is made to the Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock of Anicom, Inc. (the "Designation"). In
accordance with and pursuant to the Designation, the undersigned hereby elects
to convert the number of shares of Series B Convertible Preferred Stock, par
value $.01 (the "Series B Preferred"), of Anicom, Inc., a Delaware corporation
(the "Company"), indicated below into shares of Common Stock, par value $.001
(the "Common Stock"), of the Company, by tendering the stock certificate(s)
representing the share(s) of Series B Preferred specified below as of the date
specified below:
Date of Conversion _________________________________
Number of shares of Series B
Preferred to be converted: _________________________________
Stock certificates no(s). of Series B
Preferred to be converted: _________________________________
Please confirm the following information:
Conversion Price: _________________________________
Number of shares of Common Stock
to be issued: _________________________________
Please issue the Common Stock into which the Series B Preferred Shares are being
converted in the following name and to the following address:
Issue to: _________________________________
_________________________________
_________________________________
Phone No. of converting holder: _________________________________
Duly executed: By_______________________________
Name & Title: _________________________________
Dated: _________________________________
Exhibit 10
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms.............................................1
Section 1.2 Computation of Time Periods...............................15
Section 1.3 Accounting Terms..........................................15
Section 1.4 Incorporation of Schedules................................15
Section 1.5 Headings and Table of Contents............................15
Section 1.6 Singular, Plural, etc.....................................15
Section 1.7 Conflict..................................................15
Section 1.8 Currency..................................................15
Section 1.9 Time......................................................15
Section 1.10 Wholly Owned Subsidiary..................................15
ARTICLE II
THE CREDIT FACILITIES
Section 2.1 Availability..............................................16
Section 2.2 Advances..................................................16
Section 2.3 Certain Provisions Relating to Bankers' Acceptances.......17
Section 2.4 Fixed Rate Option.........................................20
Section 2.5 Termination of Commitment.................................20
Section 2.6 Use of Proceeds...........................................20
ARTICLE III
INTEREST AND FEES
Section 3.1 Interest on Prime Rate Loans..............................20
Section 3.2 Annual Payment Option.....................................20
Section 3.3 Acceptance Fee............................................21
Section 3.4 Reduced Margin............................................21
Section 3.5 Reimbursement Obligations.................................21
Section 3.6 Structure Advisory and Arrangement Fee...................22
Section 3.7 Yearly Rate Statements....................................22
ARTICLE IV
REPAYMENT OF OBLIGATIONS
Section 4.1 Repayment on Maturity.....................................22
Section 4.2 Voluntary Repayment.......................................22
Section 4.3 Mandatory Repayment of Credit Facilities...................23
<PAGE>
ARTICLE V
PAYMENTS AND ACCOUNTS
Section 5.1 Payments..................................................23
Section 5.2 Maintenance of Accounts...................................23
ARTICLE VI
CURRENCY AND COSTS
Section 6.1 Currency..................................................23
Section 6.2 Additional Payments.......................................23
ARTICLE VII
CONDITIONS OF LENDING
Section 7.1 Conditions Precedent to Drawdown Advance..................25
Section 7.2 Conditions Precedent to Each Advance......................26
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
Section 8.1 Representations and Warranties by the Borrower............27
Section 8.2 Survival of Representations and Warranties................31
ARTICLE IX
COVENANTS OF THE BORROWER
Section 9.1 Affirmative Covenants.....................................31
Section 9.2 Negative Covenants........................................35
ARTICLE X
ACCELERATION
Section 10.1 Events of Default........................................37
Section 10.2 Remedies Upon Default....................................40
Section 10.3 Judgment Currency........................................41
ARTICLE XI
GENERAL
Section 11.1 Evidence of Debt.........................................41
Section 11.2 Additional Expenses......................................41
Section 11.3 Invalidity of any Provisions.............................41
Section 11.4 Amendments, Waivers, etc.................................41
Section 11.5 Notices, etc.............................................42
Section 11.6 Costs and Expenses.......................................42
Section 11.7 Indemnification..........................................43
<PAGE>
Section 11.8 Taxes....................................................44
Section 11.9 Calculations.............................................45
Section 11.10 Assignments and Participations...........................46
Section 11.11 Governing Law............................................47
Section 11.12 Consent to Jurisdiction..................................47
Section 11.13 Binding Effect...........................................47
Section 11.14 Interest Savings Clause..................................47
Section 11.15 Entire Agreement.........................................47
Section 11.16 Counterparts.............................................48
Schedule 1 - Form of Advance Request
Schedule 2 - Compliance Certificate
Schedule 3 - Form of Prime Rate Note
<PAGE>
ANICOM MULTIMEDIA WIRING
SYSTEMS INCORPORATED
As Borrower
- and -
BANK OF MONTREAL
As Lender
TERM CREDIT AGREEMENT
DATED as of September 21, 1998
Fraser & Beatty
P.O. Box 100
1 First Canadian Place
Toronto, Ontario
M5X 1B2
<PAGE>
THIS TERM CREDIT AGREEMENT is made as of the 21st day of
September, 1998,
B E T W E E N:
ANICOM MULTIMEDIA WIRING SYSTEMS
INCORPORATED, a company under the laws of
the Province of Nova Scotia,
as the Borrower hereunder,
- and -
BANK OF MONTREAL, a Canadian chartered bank,
as the Lender hereunder
WHEREAS Bank of Montreal has agreed, on and subject to the
terms and conditions hereof, to extend to Anicom Multimedia Wiring Systems
Incorporated the term credit facilities provided for herein to assist Anicom
Multimedia Wiring Systems Incorporated to acquire certain assets of Texcan
Cables Limited;
NOW THEREFORE in consideration of these premises and the
agreements hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms. Unless the context otherwise requires, the following
capitalized terms shall have the following respective meanings in this Agreement
and in each of the other Loan Documents:
"Acceptance Fee" means the fee payable in Canadian dollars to
the Lender in respect of the Bankers' Acceptances accepted by the Lender prior
to and as a condition of such acceptance, computed in accordance with Section
3.3;
"Acquisition" means the acquisition by the Borrower of the
Texcan Assets, such acquisition to be completed on or before September 21, 1998;
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<PAGE>
"Acquisition Agreement" means the asset purchase agreement
dated September 21, 1998 among the Borrower, Texcan, the Parent, Texcan Cables
Inc. and Texcan Cables International, Inc., as supplemented, amended, modified
or restated from time to time with the consent of the Lender hereunder;
"Advance" means any extension of credit by the Lender
hereunder in the form of a Prime Rate Loan or a BA Advance, each of which is
referred to herein as a "Type of Advance", including the conversion of a Prime
Rate Loan or a BA Advance into another Type of Advance or to an Advance pursuant
to Section 2.3(g);
"Advance Request" means a request for an Advance or conversion
of a Prime Rate Loan or a BA Advance to another Type of Advance duly completed
and executed by the chief financial officer of the Borrower, or another senior
officer of the Borrower acceptable to the Lender, for and on behalf of the
Borrower, substantially in the form of Schedule 1 hereto;
"Affiliate" means, with respect to any Person (the "first
Person"), any other Person which directly or indirectly controls, or is under
common control with, or is controlled by, the first Person and, if the first
Person is an individual, any member of the immediate family of the first Person
and any Person who is controlled by any such member. As used in this definition,
"control" (including without limitation its correlative meanings, "controlled
by" and "under common control with") shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies (whether through the ownership of securities or partnership or other
ownership interests, by contract or otherwise), provided that, in any event, any
Person which owns directly or indirectly more than 10% of the Voting Securities
of a body corporate or more than 10% of the partnership or other ownership
interests of any other Person will be deemed to control such corporation or
other Person. Notwithstanding the foregoing, (i) no individual shall be deemed
to be an Affiliate of a corporation solely by reason of his or her being an
officer or director of such corporation, and (ii) the Lender shall not be deemed
to be an Affiliate of the Borrower solely by reason of such relationship;
"Agreement" means this term credit agreement as supplemented,
amended, modified or restated from time to time, and the expressions "Article",
"Section" and "Schedule" followed by a number mean and refer to the specified
Article, Section or Schedule of this Agreement, respectively;
"Annual Financial Statements" means the annual consolidated
financial statements of a Person, including all notes thereto, which statements
shall include a balance sheet as of the end of the applicable Financial Year,
and an income statement, a statement of change of financial position, a
statement of changes in shareholders equity, in each case for such Financial
Year, each setting forth in comparative form the corresponding figures for the
previous Financial Year and all prepared in conformity with GAAP;
"Arm's-Length" means arm's-length within the meaning of such
term under the Income Tax Act (Canada), as amended from time to time;
2
<PAGE>
"Assets" means, with respect to any Person, all present or
future property, assets and undertaking of such Person, real or personal,
moveable or immoveable, tangible or intangible, of whatsoever nature or kind and
wherever situate, including without limitation anything properly classified as
an asset in accordance with GAAP;
"Assignee Lender" has the meaning set out in Section 11.10;
"Assignee Lender's Commitment" has the meaning set out in
Section 11.10;
"Assignee Lender's Commitment Percentage" has the meaning set
out in Section 11.10;
"BA Advance" means any Advance by way of the acceptance of any
Draft drawn by the Borrower on, and the purchase of the resulting Bankers'
Acceptance by, the Lender;
"BA Discount Proceeds" means in respect of any Bankers'
Acceptance being purchased by the Lender on any day an amount (rounded to the
nearest whole Canadian cent, and with one-half of one Canadian cent being
rounded up) calculated on such day by multiplying
(a) the Face Amount of such Bankers' Acceptance, by
(b) the quotient equal to one divided by the sum of one plus the
product of:
(A) the BA Reference Rate (expressed as a decimal)
applicable to such Bankers' Acceptance; and
(B) a fraction, the numerator of which is the number of
days remaining in the term of such Bankers' Acceptance
and the denominator of which is 365,
with such quotient being rounded up or down to the nearest
fifth decimal place and .000005 being rounded up,
less the amount of the Acceptance Fee payable to the Lender in respect of, and
as a condition precedent to the issuance by the Lender of, such Bankers'
Acceptance;
"BA Reference Rate" means, as applicable to any Bankers'
Acceptance being purchased by the Lender on any day, the per annum percentage
discount rate (expressed to two decimal places and rounded upward, if necessary,
to the nearest 1/100th of 1%), quoted by the Lender as that at which the Lender
would, in accordance with its normal practice, on such day be prepared to
purchase Bankers' Acceptances in an amount and having a maturity date comparable
to the amount and maturity date of such Bankers' Acceptance;
"BA Margin" means 5.25% per annum, subject to reduction
thereof pursuant to Section 3.4;
"Bankers' Acceptance" means a Draft of the Borrower
denominated in Canadian Dollars which has been accepted by the Lender pursuant
to Sections 2.2 and 2.3;
3
<PAGE>
"Bankers' Acceptance Liabilities" means, at any time and in
respect of any Bankers' Acceptance, the Face Amount thereof if still outstanding
and unpaid or, following maturity and payment thereof, the aggregate unpaid
amount of all Reimbursement Obligations at that time due and payable in respect
of the payment of such Bankers' Acceptance upon maturity;
"Borrower" means Anicom Multimedia Wiring Systems
Incorporated, a company incorporated under the laws of the Province of Nova
Scotia;
"Borrower's Account" means the Canadian Dollar account
maintained by the Borrower with the Lender at the Lender's main Toronto, Ontario
branch;
"Business Day" means any day of the year, other than Saturday
or Sunday or any other day on which banks are closed for normal business in
Toronto, Ontario;
"Canadian Dollars" and the symbols "Can. $" and "Cdn. $" mean
lawful money of Canada;
"Canadian Dollar Equivalent" means, at any time, the amount of
Canadian Dollars which could be purchased from the Lender by the payment of a
specified amount of another currency using the Lender's relevant spot rate for
the sale of Canadian Dollars quoted by the Lender's Main Toronto Branch at such
time;
"Capital Adequacy Guideline" means the capital adequacy
requirements from time to time specified by OSFI or any other applicable
Governmental Authority and published by it as one or more guidelines for
chartered banks in Canada;
"Capital Lease" means any lease which would be classified as a
capital lease in accordance with GAAP;
"CBCA" means the Canada Business Corporations Act, as amended
from time to time;
"CDOR Rate" means, on any day, the annual rate which is the
rate determined by the Lender as being the arithmetic average (rounded up or
down, if necessary, to the nearest 0.01% and 0.005% being rounded up) of the
discount rates applicable to Canadian Dollar bankers' acceptances for a period
of one month appearing on the "Reuters Screen CDOR Page" (as defined in the
International Swap and Derivatives Association, Inc. definitions, as modified
and amended from time to time) at approximately 10:00 a.m. on such day, or if
such day is not a Business Day then on the immediately preceding Business Day;
provided, however, if such rates do not appear on the Reuters Screen CDOR Page
for such one month period as contemplated, then the CDOR Rate on any day shall
be calculated as the rate as determined by the Lender equal to the BA Reference
Rate that would be applicable to any Drafts required to be purchased by the
Lender on such day and having a term to maturity of 30 days;
"Change of Control" means the occurrence of one or more of the
following events:
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(a) in the case of the Borrower:
(i) the Parent shall cease to be the beneficial owner,
directly, or indirectly through wholly owned
Subsidiaries, of all of the issued and outstanding
Voting Securities of the Borrower; or
(ii) nominees of the Parent, or their designees, shall
cease to represent a majority of the Borrower's Board
of Directors;
(b) in the case of any Material Subsidiary :
(i) the Borrower shall cease to be the beneficial owner,
directly, or indirectly through wholly owned
Subsidiaries, of all of the issued and outstanding
Voting Securities of such Material Subsidiary; or
(ii) nominees of the Borrower, or their designees, shall
cease to represent a majority of such Material
Subsidiary's Board of Directors;
"Claim" means any claim of any nature whatsoever including,
without limitation, any demand, liability, obligation, cause of action, suit,
proceeding, judgment, award, assessment and reassessment, whether present or
future;
"Closing" means the execution and delivery of this Agreement
and the other Loan Documents by the respective parties thereto;
"Closing Unaudited Financial Statements" means the pro forma
financial statements of the Borrower as of the Closing Date reflecting the
completion of the Acquisition;
"Closing Date" means that date on which the Closing shall
occur;
"Commitment" means at any time, as to the Lender, the
obligation of the Lender to make Prime Rate Loans and accept and purchase
Bankers' Acceptances in an aggregate amount of Outstanding Principal Obligations
at any one time outstanding up to (but not exceeding) the Canadian Dollar
Equivalent of U.S. $35,000,000, as the same may be terminated or reduced from
time to time pursuant to Section 2.1 or 2.5;
"Compensating Amount" has the meaning set out in Section 6.2;
"Compliance Certificate" means, the certificate of the
Borrower substantially in the form set out in Schedule 2 delivered pursuant to
Section 9.1(j) and signed on its behalf by its chief financial officer, or any
other senior officer acceptable to the Lender;
"Corporate Distribution" means, in respect of any Person:
(i) any payment, dividend or other distribution on or in respect
of securities (whether in the form of debt or equity) issued
by such Person;
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(ii) any purchase, redemption, retraction or other acquisition by
such Person of any of its issued securities (whether in the
form of debt or equity), or any purchase by such Person from
any of its Affiliates or any other Person not dealing at
Arms'-Length with such Person of any securities (whether in
the form of debt or equity) issued by such Affiliate or other
Person;
(iii) any consulting, management, administration, service or license
fee, royalty or charge or any similar fee or charge paid or
payable by such Person to any of its Affiliates or any other
Person not dealing at Arm's-Length with such Person;
(iv) any payment by such Person or any of its Subsidiaries on
account of any loan or advance owed by such Person to any of
its Affiliates or any other Person not dealing at Arm's-Length
with such Person; or
(v) any loan to, or guarantee of the indebtedness of, or other
financial assistance provided to, any Person not dealing at
Arm's-Length with such Person;
"Cover" for any Bankers' Acceptance Liabilities shall be
effected by paying to the Lender immediately available and freely transferable
funds in Canadian Dollars in the full amount of such Bankers' Acceptance
Liabilities, which funds shall be held by the Lender in a collateral account
maintained by the Lender and assigned to the Lender as general and continuing
collateral security for the payment of such Bankers' Acceptance Liabilities
using documentation reasonably satisfactory to the Lender. Such funds shall be
retained by the Lender in such collateral account until such time as the
applicable Bankers' Acceptances shall have matured and the related Bankers'
Acceptance Liabilities shall have been fully satisfied; provided, however, that
at such time if a Default or Event of Default has occurred and is continuing,
the Lender shall not be required to release any of the said funds in such
collateral account from the terms of such collateral assignment until such
Default or Event of Default shall have been cured or waived;
"Credit Facilities" means the term credit facilities extended
by the Lender to the Borrower pursuant to the provisions hereof to assist the
Borrower to complete the Acquisition;
"Current Ratio" has the meaning ascribed to that term in the
Existing Credit Agreement in effect on the date of this Agreement, as such term
may be supplemented, amended, modified or restated from time to time with the
consent of the Lender hereunder;
"Debt" of any Person means :
(i) all indebtedness of such Person for or in respect of borrowed
money, credit or other financial accommodation including,
without limitation, liabilities and obligations with respect
to letters of credit, letters of guarantee, bankers'
acceptances or similar instruments issued or accepted by banks
and other financial institutions for the account of such
Person, and bonds, debentures, notes, commercial paper or
similar instruments, and in respect of swap arrangements and
interest rate, foreign exchange or other risk management
arrangements calculated on a marked to market basis in the
manner specified from time to time by the Lender;
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(ii) all indebtedness of such Person for or in respect of the
purchase or acquisition price of property or services, whether
or not recourse is limited to the repossession and sale of any
such property, but excluding any such indebtedness incurred in
the ordinary course of business for the purpose of carrying on
the same, consistent with historical practice, owing to the
suppliers of such goods or services;
(iii) all obligations under any Capital Lease entered into by such
Person as lessee;
(iv) all obligations of such Person to purchase, redeem, retract or
otherwise acquire any securities issued by such Person; and
(v) all Debt (as hereinbefore defined but of any other Person)
which is directly or indirectly guaranteed by such Person or
in respect of which such Person has otherwise assured another
Person against loss;
"Debt to Earnings Ratio" has the meaning ascribed to that term
in the Existing Credit Agreement in effect on the date of this Agreement, as
such term may be supplemented, amended, modified or restated from time to time
with the consent of the Lender hereunder;
"Default" means any event which with the giving of notice, the
passage of time, or both, would constitute an Event of Default;
"Draft" means at any time a bill of exchange, within the
meaning of the Bills of Exchange Act (Canada), drawn by the Borrower on the
Lender and bearing such distinguishing letters and numbers as the Lender may
determine, but which at such time has not been completed or accepted by the
Lender;
"Drawdown Advance" has the meaning set out in Section 2.1;
"Drawdown Period" means that period of time ending at 3:00
p.m. (Toronto, Ontario time) on the Drawdown Period Termination Date;
"Drawdown Period Termination Date" means September 30, 1998;
"Drawing" means the acceptance of Drafts and the purchase of
the resulting Bankers' Acceptances by the Lender pursuant to an Advance Request
received from the Borrower in accordance with Article II;
"EBITDA" for any period means earnings of any Person and its
Subsidiaries for such period determined on a consolidated basis, before Interest
Expense, Taxes, depreciation and amortization of such Person and its
Subsidiaries determined on a consolidated basis for such period, but excluding,
for greater certainty, any gain or loss arising from the disposition or write-up
or write-down of any fixed assets and any other non-cash or extraordinary items;
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<PAGE>
"Eligible Instruments" means:
(i) marketable securities issued or fully and unconditionally
guaranteed or insured by Canada or any Province thereof or
issued by any agency or instrumentality of any of them, and in
any case backed by the full faith and credit thereof, in each
case having a maturity date of not more than one year from the
date of acquisition;
(ii) bankers' acceptances of, or time deposits or certificates of
deposit having a maturity date of not more than one year from
the date of acquisition, issued by any Canadian chartered bank
or trust company which has issued capital and earned and
contributed surplus in excess of Cdn. $500,000,000;
(iii) commercial paper maturing within 270 days after the date of
acquisition thereof issued by an issuer organized under the
laws of Canada or any Province thereof which is rated at least
A-l or the equivalent thereof by Standard & Poor's
Corporation, P-l or the equivalent thereof by Moody's
Investors Service, Inc. or R-l low by Dominion Bond Rating
Service; and
(iv) any other investment which the Lender shall expressly consent
in writing to accept as an Eligible Instrument for the
purposes of this Agreement;
"Encumbrance" means any mortgage, charge, hypothec, pledge,
security interest, lien or deposit arrangement or any other encumbrance or
arrangement of any kind or nature that in substance secures the payment of any
indebtedness or liability or the observance or performance of any obligation,
regardless of form and whether consensual or arising by law, statutory or
otherwise;
"Event of Default" means any of the events specified in
Section 10.1;
"Existing Credit Agreement" means the long-term credit
agreement dated as of June 30, 1998 among the Parent, Harris Trust and Savings
Bank, as agent, and certain other lending institutions party to such agreement,
as lenders thereunder, as (unless otherwise specified herein) supplemented,
amended, modified or restated from time to time;
"Face Amount" means in respect of a Draft or a Bankers'
Acceptance, the amount stated therein to be payable to the holder thereof on its
maturity;
"Financial Quarter" means a period of three consecutive months
in each Financial Year;
"Financial Year" means a financial year of a Person;
"GAAP" means, at any time, accounting principles generally
accepted in Canada as recommended in the Handbook of the Canadian Institute of
Chartered Accountants applied on a basis consistent with prior years;
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<PAGE>
"Governmental Authority" means any governmental authority of
Canada, any Province of Canada, the United States of America, any State of the
United States or any other foreign jurisdiction, and any political subdivision
of any of the foregoing, and any central bank, agency, department, commission,
board, bureau, court or other tribunal in any such domestic or foreign
jurisdiction, having or asserting jurisdiction over either of the Borrower or
any of their respective Material Subsidiaries or the Lender, or any of its
Assets;
"Indebtedness" of any Person means any indebtedness or
liability, contingent or otherwise, which, in accordance with GAAP, would be
classified as a liability on a balance sheet of such Person, whether or not
incurred in the ordinary course of business, but in any event including, without
limitation or duplication, any Debt of such Person;
"Interest Coverage Ratio" has the meaning ascribed to that
term in the Existing Credit Agreement in effect on the date of this Agreement,
as such term may be supplemented, amended, modified or restated from time to
time with the consent of the Lender hereunder;
"Interest Expense" of any Person for any period means (i) the
aggregate amount (without duplication) of all interest, fees (other than
professional fees), commissions, costs and other charges paid in cash or accrued
as a liability by such Person during such period on or in respect of or in
connection with any Indebtedness, including, without limitation, all interest
expenses (whether capitalized or not) on short and long term obligations for
borrowed money, fees and other charges payable in respect of financial
guarantees, letters of credit or letters of guarantee or obligations to
financial institutions who issued such letters of credit or letters of
guarantee, discounts in respect of the proceeds of bankers' acceptances, asset
monetizations and securitizations, any capitalized interest and the interest
portion of payments under Capital Leases, interest on subordinated debentures or
other subordinated Indebtedness, less (ii) interest income of such Person for
such period;
"Interest Payment Date" has the meaning set out in Section
3.2;
"Investment" means the purchase or other acquisition of any
securities or indebtedness of, or the making of any loan, advance, transfer of
Assets (other than transfers in the ordinary course of business) or capital
contribution to, or the incurring of any liability (other than trade accounts
payable arising in the ordinary course of business), contingently or otherwise,
in respect of the indebtedness of, any Person;
"Legal Requirement" means any law, statute, ordinance, decree,
requirement, order, judgment, rule, guideline, bulletin or regulation (or
interpretation of any of the foregoing) of, and the terms of any license or
permit issued by, any Governmental Authority, whether presently existing or
arising in the future, including without limitation all Guidelines and Bulletins
issued by OSFI;
"Lender" means Bank of Montreal, a Canadian chartered bank;
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<PAGE>
"Leverage Ratio" has the meaning ascribed to that term in the
Existing Credit Agreement in effect on the date of this Agreement, as such term
may be supplemented, amended, modified or restated from time to time with the
consent of the Lender hereunder;
"Loan Documents" means this Agreement, the Put/Call Agreement
and all other documents, certificates, instruments and agreements to be executed
and delivered to the Lender by the Borrower or by any other Person as
contemplated hereunder and thereunder;
"Loss" means any loss, cost or expense whatsoever, whether
present or future, direct or indirect, including, without limitation, any
damages, judgments, penalties, fines, fees, charges, claims, demands,
liabilities and any and all legal and other professional fees and disbursements,
except any such loss representing loss of profit;
"Margin" means, in respect of BA Advances, the BA Margin and,
in respect of Prime Rate Loans, the Prime Rate Margin;
"Material Adverse Effect" means, when used in relation to the
Borrower, a material adverse effect on the business, operations, Assets or
condition (financial or otherwise) of the Borrower and its Subsidiaries taken as
a whole, or on the ability of the Borrower to perform any of its obligations
under this Agreement and the other Loan Documents and, when used in relation to
the Parent, means a material adverse effect on the business, operations, Assets
or condition (financial or otherwise) of the Parent and its Subsidiaries taken
as a whole, or on the ability of the Parent to perform any of its obligations
under the Existing Credit Agreement or the Put/Call Agreement and the other Loan
Documents;
"Material Assets" means any Asset or group of Assets the loss
of which would have a Material Adverse Effect;
"Material Contracts" means those contracts, agreements,
instruments, leases, licenses or permits to which any Person is a party or by
which it or any of its Assets is bound, the breach, termination or amendment of
which could reasonably be expected to have a Material Adverse Effect;
"Material Subsidiary" means any Subsidiary of the Borrower,
whether now owned or hereafter acquired, which has (directly and together with
its Subsidiaries) EBITDA for the immediately preceding Financial Year which
comprises seven percent or more of the EBITDA of the Borrower and its
Subsidiaries for such Financial Year on a consolidated basis;
"Maturity Date" means the seventh anniversary of the date of
the Drawdown Advance;
"Minimum Required Amount" has the meaning ascribed to that
term in the Existing Credit Agreement in effect on the date of this Agreement,
as such term may be supplemented, amended, modified or restated from time to
time with the consent of the Lender hereunder;
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"Obligations" means, at any time, the sum of (i) the aggregate
principal amount of all Prime Rate Loans advanced to the Borrower and all
accrued and unpaid interest thereon outstanding and unpaid at such time, (ii)
the aggregate Bankers' Acceptance Liabilities of the Borrower at such time in
respect of all Bankers' Acceptances drawn by the Borrower on and accepted by the
Lender at or prior to such time, including all accrued and unpaid interest on
any then outstanding Reimbursement Obligations in respect of any such Bankers'
Acceptance, and (iii) all other then outstanding liabilities, obligations and
indebtedness of the Borrower to the Lender under this Agreement or any of the
other Loan Documents;
"OSFI" means the Office of the Superintendent of Financial
Institutions (Canada);
"Outstanding Principal Obligations" means, at any time, the
sum of the aggregate principal amount of all Prime Rate Loans advanced to the
Borrower outstanding and unpaid at such time, and the aggregate Bankers'
Acceptance Liabilities outstanding and unpaid at such time in respect of
Bankers' Acceptances drawn by the Borrower;
"Parent" means Anicom, Inc., a corporation incorporated under
the laws of the State of Delaware;
"Parent Event of Default" means an Event of Default as defined
under the Existing Credit Agreement;
"Past Due Rate" means, on any day, a rate per annum equal to
the Prime Rate plus the Prime Rate Margin plus two percent;
"Permitted Encumbrances" means:
(i) in the case of any real or immoveable property situate in
Canada, the reservations, limitations, provisos and
conditions, if any, expressed in the original grant from the
Crown;
(ii) any Encumbrance for taxes, assessments and governmental
charges or liens not yet due or, if due, the validity of which
is being diligently contested in good faith and by appropriate
proceedings and in respect of which adequate provision has
been made on the books of the Borrower or the relevant
Subsidiary of the Borrower to the Lender's sole satisfaction;
(iii) any mechanics', construction, workers' or repairers' lien or
other like Encumbrance arising in the ordinary course of
business for amounts the payment of which is either not yet
due or, if due, the validity of which is being contested in
good faith and by appropriate proceedings and in respect of
which adequate provision has been made on the books of the
Borrower or Subsidiary of the Borrower to the Lender's sole
satisfaction;
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(iv) any Encumbrance arising out of any judgment or award with
respect to which an appeal or proceeding for review is then
being prosecuted in good faith and by appropriate proceedings
and in respect of which adequate provision has been made on
the books of the Borrower or the relevant Subsidiary of the
Borrower to the Lender's sole satisfaction, and with respect
to which there shall have been secured a stay of execution
pending such appeal or proceeding for review;
(v) any servitude, easement, restriction, right-of-way and other
similar right in real or immovable property or any interest
therein which will not in the aggregate materially impair the
value, marketability or use of such property;
(vi) any right reserved to or vested in any Governmental Authority,
by the terms of any lease, licence, franchise, grant or permit
acquired by the Borrower or relevant Subsidiary of the
Borrower or by any statutory provision, to terminate any such
lease, licence, franchise, grant or permit, or to require
annual or other payments as a condition to the continuance
thereof;
(vii) any Encumbrance resulting from the deposit of cash or
securities in connection with any contract, tender or
compensation, surety or appeal bond, or in respect of the
costs of any litigation when required by law;
(viii) any Encumbrances given to a public utility or any Governmental
Authority when required to obtain the services of such utility
or other authority in connection with the operations of the
Borrower or the relevant Subsidiary of the Borrower in the
ordinary course of its business; and
(ix) any Encumbrance given (whether or not to the transferor),
assumed or arising by operation of law after the date hereof
to provide or secure or to provide the obligor with funds to
pay the whole or part of the consideration for the acquisition
of any Asset and which is secured only by the Asset being
acquired by the obligor, and includes the renewal, extension
or refinancing of any such Encumbrance and of the Debt secured
thereby upon the same Asset if such Debt and the security
therefor are not increased thereby;
"Permitted Purpose" means the use by the Borrower of the
proceeds of any Advance hereunder for the Acquisition and for the conversion of
Advances to another Type of Advance hereunder;
"Permitted Transaction" means any transaction of the Borrower
with one or more of its wholly-owned Subsidiaries, or any transaction between
two or more wholly-owned Subsidiaries of the Parent with each other, other than
any such transaction that could otherwise result in a Default or Event of
Default hereunder;
"Person" includes an individual, partnership, limited
liability partnership, corporation, limited liability corporation, joint stock
company, trust, unincorporated association, joint venture, Governmental
Authority or other entity;
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"Plan" means at any time any bonus, pension, profit sharing,
deferred compensation, retirement, hospitalization, disability, insurance or
similar plan or practice, formal or informal, of any Person with respect to any
of such Person's directors, officers, employees or agents, other than the Canada
Pension Plan, the Ontario Health Insurance Plan and other similar health plans
established and administered by any Governmental Authority;
"Prepayment Discount" means in respect of any prepayment
pursuant to Section 3.2(b) the difference between (i) the amount of the accrued
interest up to the prepayment date, and (ii) the amount that is the net present
value of the accrued interest computed based on the number of days from and
including the date that such prepayment is made but excluding the next scheduled
Interest Payment Date if interest were payable on such amount at a rate equal to
the yield to maturity, on the Business Day immediately preceding the date that
the prepayment is to be made, assuming semi-annual compounding, of a
non-callable Government of Canada Bond maturing within 5 Business Days of the
next scheduled Interest Payment Date (or if there is no such Government of
Canada bond which matures within such period, then the yield to maturity of the
Government of Canada bond shall be interpolated from the next longer to the next
shorter maturing Government of Canada bonds on a straight line basis),
discounted from the next scheduled Interest Payment Date to the date of such
prepayment at the same yield as determined above;
"Prime Rate" means, on any day , the greater of (i) the
floating rate of interest per annum announced from time to time by the Lender as
the reference rate of interest it will use to determine rates of interest for
Canadian Dollar commercial loans made by it to borrowers in Canada; and (ii) the
rate as determined by the Lender equal to (A) the CDOR Rate, plus (B) 0.75% per
annum;
"Prime Rate Loan" means any Advance made by the Lender to the
Borrower under the Credit Facilities in Canadian Dollars bearing interest by
reference to the Prime Rate;
"Prime Rate Margin" means 4.25% per annum, subject to
reduction thereof pursuant to Section 3.4;
"Prime Rate Note" has the meaning set out in Section 7.1;
"Put/Call Agreement" means the agreement between the Lender
and the Parent dated as of September 21, 1998 setting out the terms and
conditions upon which the Lender will be entitled to require that the
Obligations and the Loan Documents be purchased, directly or indirectly, by the
Parent, as supplemented, amended, modified or restated from time to time with
the consent of the Lender hereunder;
"Quarterly Financial Statements" means the quarterly
consolidated financial statements of a Person, which statements shall include a
balance sheet as of the end of the applicable Financial Quarter and an income
statement, a statement of change of financial position, a statement of changes
in shareholders' equity, in each case for such Financial Quarter and for the
Financial Year to date, subject to normal year-end adjustments, each setting
forth in comparative form the corresponding figures for the corresponding
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Financial Quarter of the previous Financial Year and all prepared in accordance
with GAAP , and except that in all cases such statements may exclude detailed
footnote disclosures, and certified by the chief financial officer or other duly
authorized senior officer of such Person as presenting fairly the financial
condition of such Person and, if such Person has any Subsidiaries, its
consolidated Subsidiaries as of the date thereof and the results of its or their
operations for the period covered thereby in accordance with GAAP, subject to
normal year-end adjustments;
"Refunding Bankers' Acceptance" has the meaning set out in
Section 2.3;
"Reimbursement Obligations" means, at any time, the
obligations of the Borrower to reimburse the Lender in respect of any Bankers'
Acceptance drawn by the Borrower upon the Lender and paid by the Lender on
maturity thereof, which remain outstanding and unpaid at such time;
"Structure Advisory and Arrangement Fee" has the meaning set
out in Section 3.6;
"Subsidiary" means a subsidiary as defined in the CBCA;
"Taking" means the expropriation, condemnation or taking by
eminent domain or by any proceeding or purchase in lieu thereof of any Assets of
any Person for which compensation shall be given or paid by any Governmental
Authority;
"Tangible Net Worth" has the meaning ascribed to that term in
the Existing Credit Agreement in effect on the date of this Agreement, as such
term may be supplemented, amended, modified or restated from time to time with
the consent of the Lender hereunder;
"Tax" or "Taxes" means all income, capital, gross receipts,
sales, use, employment, franchise, profits, property or other taxes, fees,
levies, duties, assessments or charges of any kind whatsoever (whether payable
directly or by withholding), together with any interest and penalties, additions
to tax or additional amounts imposed by any Governmental Authority with respect
thereto;
"Term" means the period of time ending at 3:00 p.m. (Toronto
time) on the Termination Date;
"Termination Date" means the earlier of the Maturity Date and
the date on which the Lender shall declare that the Commitments have been
terminated or on which the Obligations shall automatically, or by virtue of a
declaration by the Lender, become due and payable;
"Texcan" means Texcan Cables Limited;
"Texcan Assets" means all Assets of Texcan to be acquired by
the Borrower pursuant to the Acquisition Agreement; and
"Voting Securities" means with respect to any body corporate
any issued and outstanding shares in the capital of such Person or any other
security issued by such Person carrying voting rights for the election of
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directors or other governing body of such Person under all circumstances or by
reason of an event that has occurred and is continuing or by reason of a
condition that has been fulfilled.
Section 1.2 Computation of Time Periods. In this Agreement, in the computation
of periods of time from a specified date to a later specified date, unless
otherwise expressly stated the word "from" means "from and including" and the
words "to" and "until" each mean "to but excluding".
Section 1.3 Accounting Terms. All accounting terms not specifically defined
herein shall be construed, and all calculations made for the purposes of
determining compliance with the provisions of this Agreement shall (except as
otherwise expressly provided herein) be made, in accordance with GAAP.
Section 1.4 Incorporation of Schedules. The following Schedules annexed hereto
shall, for all purposes hereof, form an integral part of this Agreement:
Schedule 1 Form of Advance Request
Schedule 2 Compliance Certificate
Schedule 3 Form of Prime Rate Note
Section 1.5 Headings and Table of Contents. The inclusion of headings and a
table of contents in this Agreement is intended for convenience of reference
only and shall not affect in any way the construction or interpretation hereof.
Section 1.6 Singular, Plural, etc. As used herein, each gender shall include all
genders, and the singular shall include the plural and the plural the singular,
as the context shall require.
Section 1.7 Conflict. In the event of a conflict between the provisions of this
Agreement and the provisions of any of the other Loan Documents, the provisions
of this Agreement shall prevail.
Section 1.8 Currency. Unless otherwise expressly stated, any reference herein to
any sum of money herein shall be construed as a reference to Canadian Dollars.
Section 1.9 Time. Unless otherwise expressly stated, any reference herein to
time shall be construed as a reference to local time in Toronto, Ontario,
Canada, and time is and shall be construed to be of the essence.
Section 1.10 Wholly Owned Subsidiary. Unless otherwise expressly stated, any
reference herein to a wholly owned Subsidiary of a Person shall mean a
Subsidiary of such Person where such Person is the beneficial owner, directly or
indirectly, of all of the issued and outstanding Voting Securities of such
Subsidiary, other than qualifying shares of such Subsidiary required by any
applicable Legal Requirement to be held by any directors or nominee directors,
and any reference herein to the ownership of all of the issued and outstanding
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Voting Securities of a Person shall exclude qualifying shares of such Person
required by any applicable Legal Requirement to be held by any directors or
nominee directors.
ARTICLE II
THE CREDIT FACILITIES
Section 2.1 Availability.
(a) Subject to the terms and conditions of this Agreement, including without
limitation the provisions of Article VII, the Lender hereby extends to the
Borrower non-revolving term credit facilities in the aggregate principal amount
up to the amount of the Commitment which shall be drawn at one time during the
Drawdown Period by way of Prime Rate Loan or BA Advance (the "Drawdown Advance")
and used by the Borrower only for Permitted Purposes. During the Term, and
subject to the terms and conditions hereof, including without limitation the
provisions of Article VII, the Borrower shall be entitled to convert, in whole
or in part, the Drawdown Advance to any other Type of Advance and thereafter to
convert, in whole or in part, any outstanding Advance to any other Type of
Advance or, in the case of an outstanding BA Advance, to an Advance pursuant to
Section 2.3(g). Any Advance converted to another Advance shall cease to bear
interest and fees as the former Advance, and shall begin to bear interest and
fees as the new Advance, on and as of the date of such conversion. Subject to
any such conversion, any payment made on account of the Outstanding Principal
Obligations under the Credit Facilities shall constitute a permanent reduction
in the amount thereof and may not be reborrowed by the Borrower hereunder.
(b) Subject to the terms and conditions of this Agreement:
(i) from and after 3:00 p.m. (Toronto, Ontario time) on the
Drawdown Period Termination Date, the Borrower shall cease to
be entitled to obtain, and, subject to conversion of
outstanding Advances from one Type of Advance to another in
accordance with Section 2.1(a), the Lender shall cease to have
any obligation to make, any further Advance; and
(ii) at such time on the Drawdown Period Termination Date, the
Commitment in excess of the Outstanding Principal Obligations
at such time shall automatically be cancelled on a permanent
basis.
Section 2.2 Advances. The Lender agrees, subject to the terms and conditions of
this Agreement (including, without limitation, Section 2.1 and Article VII
hereof), to make Prime Rate Loans and to accept and purchase Bankers'
Acceptances, as follows:
(a) Prime Rate Loans. During the Term the Borrower shall be entitled to request
and the Lender shall make, Prime Rate Loans under this Section 2.2(a) to the
Borrower in an aggregate principal amount at any one time outstanding which,
when added to all Bankers' Acceptance Liabilities outstanding at such time, does
not exceed the amount of the Lender's Commitment. Any and all such Prime Rate
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Loans shall be due and payable in full on the Termination Date. The aggregate of
all Prime Rate Loans to be made by the Lender in connection with any particular
Advance shall be not less than the lesser of (i) in the case of the Drawdown
Advance, the amount of the Commitment not utilized by way of BA Advance, and in
the case of any other Advance, the aggregate Bankers' Acceptance Liabilities to
be converted into such Prime Rate Loans, and (ii) $1,000,000 or any integral
multiple thereof.
(b) Bankers' Acceptances. During the Term the Borrower shall be entitled to
issue and request the Lender to accept and purchase, and the Lender shall accept
and purchase, Bankers' Acceptances drawn on the Lender pursuant to Section 2.3
hereof in an aggregate Face Amount at any one time outstanding which, when added
to all other Outstanding Principal Obligations outstanding at such time, does
not exceed the amount of the Lender's Commitment. Each BA Advance shall be in a
minimum Aggregate Face Amount of Cdn. $100,000 or any integral multiple thereof,
and each Bankers' Acceptance shall be in a minimum Face Amount of Cdn. $100,000
or any integral multiple thereof.
(c) Advance Requests. The Borrower if it wishes an Advance shall give to the
Lender irrevocable telephone or written notice (or such other method of
notification as may be agreed upon between the Lender and the Borrower) not
later than 11:00 a.m. (Toronto, Ontario time), (i) in the case of the Drawdown
Advance, on the proposed date of the Drawdown Advance, and (ii) in the case of
any other Advance, three Business Days prior to the proposed date of the
Advance, specifying the date of the Advance, the Type of Advance, the aggregate
amount thereof and (in the case of a BA Advance) the term or terms to maturity
of the requested Bankers' Acceptances, and confirmed by the delivery to the
Lender of an Advance Request in respect of such Advance prior to the time such
Advance is to be made by the Lender. Any such notice or Advance Request, once
given by the Borrower to the Lender, shall be irrevocable and binding, and
(subject to the conditions precedent provided for herein conditioning the
Borrower's right to obtain the requested, or any, Advance), the Borrower shall
be obligated to take the requested Advance on the date specified in such Advance
Request.
Section 2.3 Certain Provisions Relating to Bankers' Acceptances.
(a) Bankers' Acceptances shall be issued and shall mature on a Business Day.
Each Bankers' Acceptance shall have a term, subject to availability, of at least
30 days and not more than 45 days excluding days of grace, shall mature on or
before the Maturity Date and shall be in form and substance satisfactory to the
Lender. No Bankers' Acceptance may be made or accepted on or after the
Termination Date, nor may any Bankers' Acceptance be prepaid, whether pursuant
to Section 4.2 or otherwise, or converted to another Type of Advance or to a
Prime Rate Loan, prior to the maturity date of such Bankers' Acceptance.
(b) To facilitate the acceptance of Bankers' Acceptances under this Agreement,
the Borrower shall, from time to time as required, provide to the Lender Drafts,
in form satisfactory to the Lender, duly executed and endorsed in blank by the
Borrower in quantities sufficient for the Lender to fulfill its obligations
hereunder. In addition, the Borrower hereby appoints the Lender as its attorney
to sign and endorse on its behalf, in handwriting or by facsimile or mechanical
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signature as and when deemed necessary by the Lender, blank forms of Bankers'
Acceptances. The Borrower recognizes and agrees that all Bankers' Acceptances
signed and/or endorsed on its behalf by the Lender shall bind the Borrower as
fully and effectually as if signed in the handwriting of and duly issued by the
proper signing officer of the Borrower. The Lender is hereby authorized to issue
such Bankers' Acceptances endorsed in blank in such Face Amounts as may be
determined by the Lender provided that the aggregate amount thereof is equal to
the aggregate Face Amount of Bankers' Acceptances required to be accepted by the
Lender. The Lender shall not be responsible or liable for its failure to accept
a Bankers' Acceptance if the cause of such failure is, in whole or in part, due
to the failure of the Borrower to provide duly executed and endorsed Drafts to
the Lender on a timely basis nor shall the Lender be liable for any damage, loss
or other claim arising by reason of any loss or improper use of any such
instrument except loss or improper use arising by reason of the gross negligence
or willful misconduct of the Lender, its officers, employees, agents or
representatives. The Lender shall maintain a record with respect to Bankers'
Acceptances (i) received by it from the Borrower in blank hereunder, (ii) voided
by it for any reason, (iii) accepted by it hereunder, (iv) purchased by it
hereunder, and (v) canceled at their respective maturities.
(c) Drafts of the Borrower to be accepted as Bankers' Acceptances hereunder
shall be duly executed by a duly authorized officer of the Borrower.
Notwithstanding that any person whose signature appears on any Bankers'
Acceptance as a signatory for the Borrower may no longer be an authorized
signatory for the Borrower at the date of issuance of a Bankers' Acceptance,
such signature shall nevertheless be valid and sufficient for all purposes as if
such authority had remained in force at the time of such issuance and any such
Bankers' Acceptance so signed shall be binding on the Borrower.
(d) On the requested date of Advance, the Lender agrees to purchase from the
Borrower, at the face amount thereof discounted by the BA Reference Rate, any
Bankers' Acceptance accepted by it and provide to the Borrower, the amount of
the BA Discount Proceeds in respect thereof, which amount (for greater
certainty) shall be net of the amount of the Acceptance Fee payable by the
Borrower to the Lender under Section 3.3 in respect of such Bankers' Acceptance.
(e) The Lender may at any time and from time to time hold, sell, rediscount or
otherwise dispose of any or all Bankers' Acceptances accepted and purchased by
it.
(f) The Borrower waives presentment for payment and any other defense to payment
of any amounts due to the Lender in respect of a Bankers' Acceptance accepted by
it pursuant to this Agreement which might exist solely by reason of such
Bankers' Acceptance being held, at the maturity thereof, by the Lender in its
own right and the Borrower agrees not to claim any days of grace if the Lender
as holder sues the Borrower on any such Bankers' Acceptance for payment of the
amount payable by the Borrower thereunder.
(g) With respect to each Bankers' Acceptance, the Borrower, prior to the
occurrence and continuation of a Default or an Event of Default, may give
irrevocable written notice by means of an Advance Request (or such other method
of notification as may be agreed upon between the Lender and the Borrower) to
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the Lender at or before 11:00 a.m. (Toronto, Ontario time) not less than two
Business Days prior to the maturity date of such Bankers' Acceptance of the
Borrower's intention to issue one or more Bankers' Acceptances on such maturity
date (each a "Refunding Bankers' Acceptance") to provide for the payment of such
maturing Bankers' Acceptance (it being understood that payments by the Borrower
and fundings by the Lender in respect of each maturing Bankers' Acceptance and
each related Refunding Bankers' Acceptance shall be made on a net basis
reflecting the difference between the Face Amount of such maturing Bankers'
Acceptance and the BA Discount Proceeds (net of the applicable Acceptance Fee)
of such Refunding Bankers' Acceptance). Any funding on account of any maturing
Bankers' Acceptance must be made at or before 11:00 a.m. (Toronto, Ontario time)
on the maturity date of such Bankers Acceptance. If the Borrower fails to give
such notice, then subject to satisfaction of the conditions in Section VII
hereof, the Borrower shall be irrevocably deemed to have requested and to have
been advanced a Prime Rate Loan in the Face Amount of such maturing Bankers'
Acceptance on the maturity date of such Bankers' Acceptance from the Lender,
which Prime Rate Loan shall thereafter bear interest as such in accordance with
the provisions hereof until paid in full. Should the Borrower not be entitled to
a Prime Rate Loan at all or in an amount sufficient to fully reimburse the
Lender for the Face Amount of a matured Bankers' Acceptance, the Face Amount of
such Bankers' Acceptance shall constitute Reimbursement Obligations of the
Borrower to the Lender and shall bear interest in accordance with Section 3.5.
(h) If the Lender determines in good faith, which determination shall be final,
conclusive and binding upon the Borrower, and notifies the Borrower that, by
reason of circumstances affecting the money market, there is no competitive
market for Bankers' Acceptances, then,
(i) the right of the Borrower to request an Advance by way of
Bankers' Acceptances shall be suspended until the Lender
determines that the circumstances causing such suspension no
longer exist and the Lender so notifies the Borrower; and
(ii) any Advance Request which is outstanding shall be deemed to
constitute a request for an Advance by way of a Prime Rate
Loan.
(i) The Lender shall promptly notify the Borrower of the suspension of the
Borrower's right to request an Advance by way of Bankers' Acceptances and of the
termination of any such suspension.
(j) If an Event of Default shall have occurred and then be continuing (whether
or not any declaration pursuant to Article X is made), the Borrower shall
forthwith provide Cover to, and thereafter shall maintain Cover with, the Lender
in respect of all outstanding Bankers' Acceptances.
(k) Bankers' Acceptances accepted or purchased by the Lender under this
Agreement after clearing services as provided for in the Depository Bills and
Notes Act (Canada) acceptable to the Lender are available may, at the option of
the Lender, be issued in the form of a "depository bill" and deposited with a
"clearing house", as each such term is defined in the Depository Bills and Notes
Act (Canada).
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Section 2.4 Fixed Rate Option. The Borrower may, at its option, (provided that
such option may be exercised only once) request the Lender at any time
commencing ninety days after the Closing Date to fix the rate at which all or
any portion of the then Outstanding Principal Obligations hereunder shall bear
interest at the LenderAEs then available relevant swap rate plus the then
applicable BA Margin for the remaining Term, subject to the availability of
fixed rate financing, pursuant to an interest rate swap or protection agreement
in form and substance satisfactory to the Lender with the frequency of such
fixed rate interest payments to be set out in such agreement.
Section 2.5 Termination of Commitment. On the Termination Date, the Commitment
shall be terminated in its entirety.
Section 2.6 Use of Proceeds. The proceeds of the Advances shall be used by the
Borrower only for Permitted Purposes, provided that as against the Borrower and
any other Person, the Lender shall not have any responsibility as to the use of
any such proceeds.
ARTICLE III
INTEREST AND FEES
Section 3.1 Interest on Prime Rate Loans. Except as otherwise provided herein,
the Borrower shall pay interest on the outstanding principal amount of each
Prime Rate Loan outstanding under the Credit Facilities from the date on which
such Prime Rate Loan was made until such outstanding principal amount shall have
been repaid in full, and both before and after maturity, default and judgment,
at a floating rate per annum equal to the Prime Rate in effect from time to time
plus the Prime Rate Margin in effect from time to time, calculated daily and
compounded and payable monthly in arrears on the last Business Day of each month
of each year, and on the Termination Date, with interest on overdue interest at
the said rate, in each case based on the actual number of days elapsed and a
year of 365 or 366 days, as the case may be.
Section 3.2 Annual Payment Option.
(a) The Borrower may, at its option, (provided that such option may be exercised
only once) elect at any time commencing ninety days after the Closing Date to
pay interest on Prime Rate Loans on an annual rather than on a monthly basis by
giving irrevocable written notice thereof to the Lender at or before 11:00 a.m.
(Toronto, Ontario time) not less than three Business Days prior to the last
Business Day of the then current month (the "Effective Date"). Any such notice,
once given by the Borrower to the Lender, shall be irrevocable and binding, and,
provided that no Default or Event of Default shall have occurred and be
continuing, shall be effective with respect to interest accrued and payable on
Prime Rate Loans after the Effective Date. On and after the Effective Date, the
Borrower shall pay interest on the outstanding principal amount of each Prime
Rate Loan outstanding under the Credit Facilities from the later of (i) the day
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after the Effective Date, and (ii) the date on which such Prime Rate Loan was
made, until such outstanding principal amount thereof shall have been repaid in
full, and both before and after maturity, default and judgment, at a floating
rate per annum equal to (A) the Prime Rate in effect from time to time, plus (B)
the Prime Rate Margin in effect from time to time, plus (C) 0.25% per annum,
calculated daily and compounded and payable annually in arrears on (an "Interest
Payment Date") each anniversary of the Effective Date and on the Termination
Date, with interest on overdue interest at the said rate, in each case based on
the actual number of days elapsed and a year of 365 or 366 days, as the case may
be.
(b) After the Effective Date the Borrower may, at its option, prepay prior to an
Interest Payment Date all or any portion of the interest on any Prime Rate Loans
that has accrued up to such prepayment date, less an amount equal to the
Prepayment Discount as full satisfaction of the accrued interest prepaid. The
Borrower shall give the Lender two Business Days prior written notice of its
intention to make a prepayment contemplated by this Section 3.2(b).
Section 3.3 Acceptance Fee. An Acceptance Fee shall be payable by the Borrower
to the Lender (in the manner specified in Section 2.3(d)) in respect of, and as
a condition precedent to the acceptance by the Lender of, a Bankers' Acceptance
drawn by the Borrower to be accepted by the Lender, equal to the product of (A)
the then current BA Margin, and (B) the Face Amount of such Bankers' Acceptance,
multiplied by a fraction the numerator of which is the term to maturity of such
Bankers' Acceptance, expressed in days, and the denominator of which is 365 (or
366 during a year of 366 days).
Section 3.4 Reduced Margin. For so long (but only for so long) as (i) the
Put/Call Agreement is in full force and effect (and has not been terminated or
expired or the operation thereof stayed or the Parent shall not be resisting or
disputing its obligations thereunder, whether or not pursuant to court
proceedings), and (ii) subject to the Permitted Encumbrances, the Lender's
rights and entitlement to be paid the Obligations hereunder shall always rank at
least pari passu with the most senior Debt of the Borrower, secured or
unsecured, and (iii) subject to the Encumbrances permitted under Section 8.12 of
the Existing Credit Agreement, the obligations and liabilities of the Parent to
the Lender under or in respect of the Put/Call Agreement shall always rank at
least pari passu with the most senior Debt of the Parent, secured or unsecured,
the Margin otherwise applicable to Prime Rate Loans and to BA Advances shall be
reduced by 4.00% per annum. For clarity, such reduction shall continue to apply
upon the issuance of a Put notice or a Call notice pursuant to the Put/Call
Agreement until the settlement date and purchase of the Obligations thereunder.
In the event that the Put/Call Agreement ceases to be in full force and effect
or the Obligations are not purchased in accordance with the Put/Call Agreement
or the Obligations hereunder or the obligations and liabilities of the Parent to
the Lender under or in respect of the Put/Call Agreement cease to have the
ranking specified above, then the reduction in the Margin referred to above
shall cease to apply.
Section 3.5 Reimbursement Obligations. The amount of any Reimbursement
Obligation may, if the applicable conditions precedent specified in Article VII
hereof have been satisfied, be paid with the proceeds of Prime Rate Loans or, as
provided in Section 2.3(g), by the acceptance and purchase of Bankers'
Acceptances. Pending any such repayment in full, the Borrower shall pay to the
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Lender for the account of the Lender interest on any Reimbursement Obligation at
the Past Due Rate, from and including the date on which such Reimbursement
Obligations arose to the date of payment in full, calculated daily and
compounded monthly in arrears based on the number of days elapsed and a year of
365 or 366 days, as the case may be, and payable on demand, both before and
after judgement in respect thereof.
Section 3.6 Structure Advisory and Arrangement Fee. The Borrower shall pay to
Bank of Montreal Global Capital Solutions Ltd. a non-refundable structure
advisory and arrangement fee equal to U.S. $70,000 (the "Structure Advisory and
Arrangement Fee") on the Closing Date. The Structure Advisory and Arrangement
Fee shall be conclusively deemed to have been earned at the time such fee is
payable.
Section 3.7 Yearly Rate Statements. For the purpose of complying with the
Interest Act (Canada), it is expressly stated that:
(a) where interest is calculated pursuant hereto at a rate based on a 365 day
period, the yearly rate or percentage of interest to which such rate is
equivalent is such rate multiplied by the actual number of days in the year (365
or 366, as the case may be) divided by 365; and
(b) the parties hereto acknowledge that there is a material distinction between
the nominal and effective rates of interest, that they are capable of making the
calculations necessary to compare such rates and that the principle of deemed
reinvestment of interest shall not apply to any calculations of interest
hereunder.
ARTICLE IV
REPAYMENT OF OBLIGATIONS Section 4.1 Repayment on Maturity. The Obligations
shall become due and payable, and shall be paid in full, on the Maturity Date
except to the extent that all or any portion of the Obligations shall have
become due and payable prior thereto in accordance with the provisions hereof.
Section 4.2 Voluntary Repayment. Subject to the terms and conditions hereof, the
Borrower may, without bonus or penalty, upon prior written notice to the Lender
specifying the proposed date and aggregate principal amount of the prepayment
and the Advance or Advances on account of which such prepayment is to be
applied, prepay the specified principal amount on account of the then
Outstanding Principal Obligations under the Credit Facilities, together with all
accrued interest to the date of such prepayment on the specified principal
amount so prepaid and any other amounts payable to the Lender by the Borrower
hereunder in respect thereof including, without limitation, pursuant to Section
11.7. Such notice shall be given at or before 11:00 a.m. (Toronto, Ontario time)
not less than three Business Days prior to the proposed date of prepayment and,
once given, any such notice shall be irrevocable and binding upon the Borrower.
Notwithstanding the foregoing, the Borrower shall not be entitled to give any
such notice or to make any such prepayment unless each partial prepayment is in
an aggregate principal amount of not less than Cdn. $1,000,000.
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Section 4.3 Mandatory Repayment of Credit Facilities. Subject to the terms and
conditions hereof, the Outstanding Principal Obligations under the Credit
Facilities shall be repaid forthwith, upon demand by or on behalf of the Lender,
to the extent that the then Outstanding Principal Obligations under the Credit
Facilities exceed the then current Commitment, whether as a result of exchange
rate fluctuations, oversight or otherwise, together with all accrued interest to
the date of such repayment on the principal amount so repaid and any other
amounts payable to the Lender by the Borrower hereunder in respect thereof
including, without limitation, pursuant to Section 11.7.
ARTICLE V
PAYMENTS AND ACCOUNTS
Section 5.1 Payments.
(a) All payments of principal, interest, Reimbursement Obligations and other
amounts to be made by the Borrower hereunder and under the other Loan Documents
shall be made in immediately available, freely transferable Canadian Dollars to
the Lender not later than 11:00 a.m. (Toronto, Ontario time) on the date on
which such payment shall become due. Any such payment made after such time on
such due date shall be deemed to have been made on the next succeeding Business
Day.
(b) The Borrower shall, at the time of making each payment hereunder, or under
any other Loan Document, specify to the Lender the Obligations payable by the
Borrower hereunder or thereunder to which such payment is to be applied.
(c) If the due date of any payment hereunder or under any other Loan Document
falls on a day which is not a Business Day, the due date for such payment shall
be extended to the next succeeding Business Day and interest shall be payable in
respect of the principal amount so payable for the period of such extension.
Section 5.2 Maintenance of Accounts. The Borrower shall maintain the Borrower's
Account with the Lender.
ARTICLE VI
CURRENCY AND COSTS
Section 6.1 Currency. All Advances under the Credit Facilities shall be
denominated only in Canadian Dollars and shall be repayable, and all interest,
fees, costs and charges in respect thereof or in connection therewith shall
accrue and be payable, in Canadian Dollars.
Section 6.2 Additional Payments;. If subsequent to the date hereof (a) any
change in applicable law, regulation, rule, treaty, decree or regulatory
requirements or any change in the interpretation or application thereof by any
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Governmental Authority; or (b) compliance by the Lender with any guideline,
direction, request or requirement (whether or not having the force of law) of
any Governmental Authority shall have the effect of:
(i) increasing the cost to the Lender of continuing to provide or
maintain the Credit Facilities (including, without limitation,
the costs of maintaining any reserve or special deposit or
similar requirements with respect to this Agreement, or with
respect to its obligations hereunder or thereunder);
(ii) imposing on the Lender or expecting there to be maintained by
the Lender any additional capital adequacy or additional
capital requirement (including, without limiting the
generality of the foregoing, under any Capital Adequacy
Guideline or any other requirement which affects the Lender's
allocation of capital resources to its obligations) in respect
of the Lender's obligations hereunder;
(iii) reducing any amount paid or payable to the Lender under this
Agreement in any amount it deems material;
(iv) causing the Lender to make any payment or to forego any
return, on a basis calculated by reference to any amount
received or receivable by the Lender under this Agreement; or
(v) directly or indirectly reducing the effective return to the
Lender under this Agreement or on the Lender's overall capital
as a result of entering into this Agreement or as a result of
any of the transactions or obligations contemplated by this
Agreement (other than a reduction resulting from a generally
applicable higher rate of tax imposed on the net income of the
Lender) received or receivable by the Lender under this
Agreement,
the Borrower shall, subject to the terms and conditions hereof, pay such amount
(the "Compensating Amount") as the Lender may specify to be necessary to
compensate the Lender for and will indemnify the Lender against any such
additional cost, reduction, payment or foregone return. The payment by the
Borrower of such Compensating Amount is not, and shall not be deemed to be or
construed as, a repayment on account of any Outstanding Principal Obligations.
The Lender shall, forthwith after the Lender becoming aware of
the occurrence of an event having the effect set out in (i), (ii), (iii), (iv),
or (v) above entitling the Lender to the payment of a Compensating Amount and
the Lender determining to claim such Compensating Amount (which determination
the Lender shall make without undue delay), give notice to the Borrower of the
Compensating Amount claimed with details of the events giving rise thereto and
shall at that time provide to the Borrower a certificate setting out in
reasonable detail a calculation of the Compensating Amount claimed (and where
appropriate the Lender's reasonable allocation to its Advances hereunder of
Compensating Amounts with respect to the aggregate of such similar credits
granted by the Lender affected by such event). The certificate of the Lender
with respect to the Compensating Amount shall be final and conclusive in the
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absence of manifest error. The Borrower shall within fifteen days of receipt of
such notice from the Lender pay to the Lender the Compensating Amount. The
obligation to pay such a Compensating Amount for subsequent periods will
continue, subject as herein provided, until the earlier of the payment in full
of the Obligations owed to the Lender and the lapse or cessation of the event
giving rise to the Compensating Amount.
ARTICLE VII
CONDITIONS OF LENDING
Section 7.1 Conditions Precedent to Drawdown Advance. The obligations of the
Lender to make the Drawdown Advance under the Credit Facilities are subject to
the satisfaction of each of the following conditions precedent on and as of the
date of the Drawdown Advance, provided that such conditions precedent, being for
the sole benefit of the Lender, may be unilaterally waived by it in whole or in
part at any time on or before the date of the Drawdown Advance:
(a) The Lender shall have received the following, in form and substance and
dated as of a date satisfactory to the Lender and its counsel:
(i) certified copies of the charter documents and by-laws of the
Borrower and the Parent together with a related certificate
of non-restriction;
(ii) certified copies of the resolutions of the board of directors
of the Borrower approving the transactions contemplated hereby
and the execution, delivery and performance of this Agreement
and the other Loan Documents and certified copies of the
resolutions of the board of directors of the Parent approving
the transactions contemplated by the Put/Call Agreement and
the execution, delivery and performance by the Parent of the
Put/Call Agreement;
(iii) a certificate of status or compliance with respect to each of
the Borrower and the Parent issued by the appropriate
Governmental Authority of the jurisdiction of its
incorporation;
(iv) a certificate of incumbency of each of the Borrower and the
Parent, certifying as to the names and true signatures of its
officers authorized to sign this Agreement and the other Loan
Documents;
(v) a grid note (the "Prime Rate Note") in the form of Schedule 3,
completed in accordance with this Agreement, executed and
delivered by the Borrower;
(vi) the Put/Call Agreement executed and delivered by the Parent;
(vii) such other certificates and documentation relating to the
Parent, the Borrower or the Acquisition as the Lender may
reasonably request; and
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(viii) favourable opinions of counsel for each of the Borrower and
the Parent to and in favour of the Lender from such counsel in
form and substance satisfactory to the Lender;
(b) the Lender shall be satisfied with all aspects of its due diligence review
of the Borrower and its businesses, Assets and capital structure, the
Acquisition and the Loan Documents;
(c) the Lender shall be satisfied that the Acquisition will be completed in
accordance with information in respect of the Acquisition provided by the
Borrower to the Lender;
(d) any consent, approval, order, authorization, licence, exemption or
designation of or by any Governmental Authority or other Person required in
connection with the consummation of the Acquisition and the financing thereof,
or in connection with this Agreement and the incurrence and repayment of the
Obligations, shall have been received and true copies thereof provided to the
Lender;
(e) the Structure Advisory and Arrangement Fee shall have been paid in full when
due or arrangements for payment thereof satisfactory to Bank of Montreal Global
Capital Solutions Ltd. shall have been made; and
(f) counsel to the Lender shall have reported favourably to the Lender with
respect to the subject transaction.
Section 7.2 Conditions Precedent to Each Advance. The obligations of the Lender
to make any Advance under the Credit Facilities are subject to the satisfaction
of each of the following conditions precedent (provided that each such condition
precedent, being for the sole benefit of the Lender, may be unilaterally waived
by it in whole or in part at any time either generally or with respect to any
particular Advance):
(a) the Lender shall have received from the Borrower a duly completed Advance
Request in accordance with the provisions of this Agreement in that regard;
(b) the representations and warranties set forth herein and in any other Loan
Document shall be true and correct, both on the date of such Advance Request,
and on the requested date of Advance;
(c) the Borrower shall have observed and performed all covenants set forth
herein and in any other Loan Document;
(d) subject to any Permitted Encumbrances, the Lender's rights and entitlement
to be paid the Obligations hereunder shall rank at least pari passu with the
most senior Debt of the Borrower, secured or unsecured;
(e) subject to the Encumbrances permitted under Section 8.12 of the Existing
Credit Agreement, the obligations and liabilities of the Parent to the Lender
under or in respect of the Put/Call Agreement shall rank at least pari passu
with the most senior Debt of the Parent, secured or unsecured;
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(f) no Default or Event of Default shall have occurred and be continuing or will
result from giving effect to any Advance Request;
(g) no event shall have occurred which could reasonably be expected to have a
Material Adverse Effect; and
(h) the making of the requested Advance shall not be illegal or otherwise
prohibited by any Legal Requirement.
The submission by the Borrower of an Advance Request shall be
deemed to constitute a representation and warranty by the Borrower that the
conditions precedent to the making of the Advance requested thereby set forth in
this Article VII have been satisfied in full.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
Section 8.1 Representations and Warranties by the Borrower. The Borrower
represents and warrants to the Lender as follows, and acknowledges that the
Lender is relying thereon without independent inquiry in entering into this
Agreement and providing Advances from time to time:
(a) Organization and Qualification. The Borrower and each Material Subsidiary is
a corporation duly incorporated or amalgamated (as the case may be), and
organized, and is validly existing and is, where the failure to do so could
reasonably be expected to have a Material Adverse Effect, up-to-date in the
filing of all corporate, financial and other returns under the laws of its
jurisdiction of incorporation. The Borrower and each Material Subsidiary is duly
registered, licensed or qualified as an extra-provincial or foreign corporation,
and is up-to-date in the filing of all corporate, financial and other returns
under the laws of each jurisdiction in which it owns Material Assets or carries
on a material portion of its business, where the failure to be so registered,
licenced or qualified could result in a Material Adverse Effect. The Borrower
has delivered to the Lender a complete and correct copy of the charter documents
and by-laws of the Borrower, in each case as amended to the date of such
delivery, and there have been no amendments to any such charter documents or
by-laws other than as have been disclosed to the Lender;
(b) Corporate Power. The Borrower has full corporate right, power and authority
to enter into and perform its obligations under each of the Loan Documents and
the Borrower and each Material Subsidiary has full corporate power and authority
to own and operate its Assets and to carry on its business as now conducted and
as presently proposed to be conducted;
(c) Conflict with Other Instruments. The execution and delivery by the Borrower
of the Loan Documents, the performance by the Borrower of its obligations
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thereunder and hereunder (as the case may be) and compliance with the terms,
conditions and provisions thereof and hereof do not and will not after
completion of the Acquisition:
(i) conflict with or result in a breach of any of the terms,
conditions or provisions of (A) the charter documents or
by-laws of the Borrower or any of the Material Subsidiaries,
(B) any Legal Requirement applicable to the Borrower or any of
its Material Subsidiaries or any Material Assets, (C) the
Existing Credit Agreement, or (D) except as disclosed to the
Lender in writing, any Material Contract; or
(ii) result in, require or permit (A) the imposition of any
Encumbrance upon or with respect to any Material Assets now
owned or hereafter acquired, (B) the acceleration of the
maturity of any Debt of, binding on or affecting the Borrower
or any of its Material Subsidiaries or any Material Assets, or
(C) any third party to terminate or acquire rights under the
Existing Credit Agreement or any Material Contract;
(d) Authorization, Governmental Approvals, etc. The execution and delivery of
each of the Loan Documents by the Borrower and the performance by the Borrower
of its obligations hereunder and thereunder (as the case may be) have been duly
authorized by all necessary corporate action; no consent, approval, order,
authorization, licence, exemption or designation of or by any Governmental
Authority or other Person is required in connection with the execution, delivery
and performance by the Borrower of this Agreement or any of the other Loan
Documents except such as have been obtained and true copies of which have been
delivered to the Lender on or prior to the Closing Date; and no registration,
qualification, designation, declaration or filing with any Governmental
Authority is or was necessary to enable or empower the Borrower to enter into
and to perform its obligations under the Loan Documents except such as have been
made or obtained and are in full force and effect, unamended;
(e) Due Execution. The Loan Documents have each been duly executed and delivered
by the Borrower and each constitutes a legal, valid and binding obligation of
the Borrower enforceable in accordance with its terms, subject to bankruptcy,
insolvency, arrangement and other laws affecting the enforcement of creditors'
rights generally (other than those pertaining to settlements, fraudulent
conveyances, assignments and preferences) and the availability, in the
discretion of a court of competent jurisdiction, of equitable remedies;
(f) Ownership of Property. The Borrower is the absolute beneficial owner of,
with good and marketable title to, all of its Material Assets free and clear of
all Encumbrances other than Permitted Encumbrances;
(g) Subsidiaries. On the Closing Date and upon completion of the Acquisition the
Borrower will not have any Subsidiaries. The Borrower has not agreed or offered
to acquire any shares in the capital of any other corporation or any ownership
interest in any other Person which after acquisition thereof would amount to a
Material Asset or to acquire or lease any other Material Asset or business
operations other than pursuant to the Acquisition. None of the Borrower or, to
the best of the Borrower's knowledge, Texcan or any of its Subsidiaries have
sold, lost or otherwise disposed of any Material Assets forming part of the
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assets reflected in the Closing Unaudited Financial Statements, except as has
otherwise been disclosed to the Lender in writing by means of (a) the Loan
Documents, or (b) an officer's certificate delivered to the Lender on Closing;
(h) Terms of the Acquisition. Upon completion of the Acquisition, the Borrower
will be the sole beneficial owner of all of the Texcan Assets with good and
marketable title thereto free and clear of all Encumbrances other than Permitted
Encumbrances.
Upon completion of the Acquisition:
(i) no Person will have any agreement or option, or any right or
privilege (whether by law, pre-emptive or contractual) capable
of becoming an agreement or option, for the purchase of any
Material Assets, except as permitted pursuant to Section 9.2;
and
(ii) none of the Borrower or any of its Subsidiaries will have any
outstanding Debt other than Debt referred to in Section 8.1(i)
below to be incurred on completion of the Acquisition;
(i) Debt. None of the Borrower or any of its Subsidiaries has any
outstanding Debt other than:
(i) Debt reflected in the Closing Unaudited Financial Statements
of the Borrower; and
(iii) Obligations owed or otherwise incurred to the Lender under the
Loan Documents;
(j) No Default Under Material Contracts. None of the Borrower or any of its
Subsidiaries is in default or breach in any material respect of any Material
Contract to which it is a party or by which it or any of its Material Assets may
be bound and there exists no state of facts which after notice or the passage of
time, or both, would constitute such a default or breach, and all such Material
Contracts are in good standing in all material respects;
(k) Absence of Unusual Transactions and Events. Except in connection with the
transactions contemplated by the Acquisition, the Borrower has not, since
September 4, 1998 and to and including the date of the Drawdown Advance:
(i) paid or satisfied any Debt, other than in accordance with the
terms of such Debt;
(ii) waived or cancelled any material rights or material Claims or
made any material gift, other than in the ordinary course of
such corporation's business consistent with past practice;
(iii) made or suffered any Change of Control, nor any Material
Adverse Effect;
(iv) except as would otherwise be permitted hereunder, declared or
paid any dividend or made any other Corporate Distribution,
whether in cash, stock or in specie; or
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(v) authorized or agreed or otherwise become committed to do any
of the foregoing;
(l) Tax Matters. All Taxes that are or may become payable by the Borrower or any
of its Material Subsidiaries in respect of any prior period have been fully paid
or fully disclosed and fully provided for in the books and financial statements
of the Borrower and each such Material Subsidiary. There are no actions, audits,
assessments, reassessments, suits, proceedings, investigations or claims pending
or threatened against the Borrower or any of its Subsidiaries in respect of any
Taxes or any matters under discussion with any Governmental Authority relating
to any Taxes which, if determined adversely, could have a Material Adverse
Effect;
(m) Litigation and Other Proceedings. There is no court, administrative,
regulatory or other proceeding (whether civil, quasi-criminal or criminal),
arbitration or other dispute settlement procedure, or any investigation or
inquiry, by or before any Governmental Authority against or involving the
Borrower or any of its Subsidiaries (whether in progress or threatened) which,
if determined adversely, could have a Material Adverse Effect;
(n) Financial Statements.
(i) the Closing Unaudited Financial Statements of the Borrower
have been prepared on an unconsolidated pro forma basis and on
the basis of the assumptions therein set out and present
fairly the financial position of the Borrower as at the
Closing Date on an unconsolidated pro forma basis after giving
effect to the completion of the Acquisition (subject to usual
year end adjustments which are not expected to be materially
adverse); and
(ii) all other financial statements delivered to the Lender
relating to each of the Borrower and its Subsidiaries have
been prepared in accordance with GAAP and present fairly in
all material respects the financial position of each of the
Borrower and its Subsidiaries, as the case may be, and the
results of their operations for the period covered thereby
(subject to usual adjustments which are not expected to be
materially adverse);
(o) Disclosure. The Borrower has made available to the Lender prior to the
Closing Date all of the material agreements, arrangements and undertakings, both
written and oral, relating to the Acquisition to which it is party and all
material information known to it to such date relating to the Acquisition. To
the best of the knowledge of the Borrower, all such information, and all other
information supplied to the Lender by the Borrower, and its Affiliates,
shareholders or Subsidiaries (i) with respect to any and all factual matters, is
true and correct in all material respects (except as otherwise disclosed to the
Lender in writing on or before the Closing Date), (ii) with respect to any
projections or forecasts therein and the assumptions on the basis of which such
information was prepared, is believed to be reasonable in the circumstances
(except as otherwise disclosed to the Lender in writing on or before the Closing
Date), and (iii) with respect to any other matters being the subject of opinion,
is believed on reasonable grounds to be true and correct in all material
respects (except as otherwise disclosed to the Lender in writing on or before
the Closing Date). There is no fact known to the Borrower as of the Closing Date
which could reasonably be expected to have after completion of the Acquisition a
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Material Adverse Effect which has not been fully and adequately disclosed to the
Lender prior to the Closing Date;
(p) Pension Plans. There are no unfunded liabilities under any of the Plans
provided by the Borrower and its Subsidiaries, and without limiting the
generality of the foregoing, there is no going concern unfunded actuarial
liability, past service unfunded actuarial liability or solvency deficiency,
which would reasonably be expected to have a Material Adverse Effect;
(q) Compliance with Laws. The Borrower and each of its Subsidiaries has complied
and is complying in all material respects with all Legal Requirements applicable
to its business, property, Assets and operations in each jurisdiction in which
such corporations own any Material Assets or carry on any material portion of
their respective businesses where the failure to do so could reasonably be
expected to have a Material Adverse Effect;
(r) Insurance. The Borrower has in place all insurance policies required in
accordance with the provisions of this Agreement and all policy premiums owing
or payable in respect thereof have been paid to date; and
(s) Year 2000 Compliance. All adequate systems, procedures and organizational
structures are in place to ensure that relevant systems and equipment of and
used by the Borrower and its Material Subsidiaries, including related supporting
data and files, will, on a timely basis, function correctly when dealing with
dates and times and date or time related data to, without interruption,
accurately process date and time data from, into, and between the twentieth and
twenty-first centuries and the years 1999 and 2000 and perform leap year
calculations and to not, as a result of the processing of such date or time, (i)
create any logical or mathematical inconsistency, (ii) malfunction, or (iii)
cease to function, except to the extent that failure to comply with this Section
8.1(s) would not have a Material Adverse Effect. Accurate processing as referred
to above, includes accurately outputing, extracting, displaying, calculating,
comparing, sorting, sequencing and printing such data.
Section 8.2 Survival of Representations and Warranties. The representations and
warranties herein set forth or contained in any certificates or documents
delivered to the Lender pursuant hereto shall survive the execution and delivery
hereof and any investigation at any time made by or on behalf of the Lender. The
representations and warranties shall be deemed to be continuing and repeated by
the Borrower at the time that any Advance is requested by or made to the
Borrower, and all references to the Closing Date contained in such
representations and warranties shall be deemed to refer to the date of any such
Advance.
ARTICLE IX
COVENANTS OF THE BORROWER
Section 9.1 Affirmative Covenants. From and after the Closing Date and so long
as any Obligations remain outstanding and unpaid or any Commitment of the Lender
shall continue to exist, the Borrower shall:
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(a) Payment of Obligations to Lender. Duly and punctually pay to the Lender all
amounts payable by the Borrower hereunder as and when the same become due;
(b) Payment of Taxes, etc. Pay and discharge, and cause each of its Material
Subsidiaries to pay and discharge, before the same shall become delinquent, all
Taxes where the failure to do so could have a Material Adverse Effect, except
any such Taxes which are being contested in good faith and by proper proceedings
and for which adequate provision for payment has been made to the sole
satisfaction of the Lender, acting reasonably;
(c) Maintenance of Insurance. Maintain, and cause each of its Material
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies in such amounts and covering such risks as is usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which the Borrower or such Subsidiary, as the case may be,
operates;
(d) Preservation of Corporate Existence, etc. Preserve and maintain, and cause
each of its Material Subsidiaries to preserve and maintain, as contemplated
under the terms of the Acquisition, its and their respective corporate existence
and rights (charter and statutory) and maintain, and cause each of its Material
Subsidiaries to maintain, up-to-date registrations and licences and filings of
all corporate, financial and other returns under the laws of all jurisdictions
where the Borrower or such Material Subsidiary owns any Material Assets or
carries on a material portion of its business, where the failure to do so could
have a Material Adverse Effect; and maintain and cause its Material Subsidiaries
to maintain full corporate right, power and authority to perform their
respective obligations under each of the Loan Documents to which each is a party
and to own and operate their respective Assets and to carry on their respective
businesses where the failure to do so could have a Material Adverse Effect;
(e) Conflict with Other Instruments. Ensure that at all times and from time to
time the execution and delivery by it of each of the Loan Documents to which it
is a party, the performance by it of its obligations thereunder and the
compliance by it with the terms, conditions and provisions thereof will not:
(i) conflict with or result in a breach of any of the terms,
conditions or provisions of (A) its or any of the Material
Subsidiaries' charter documents or by-laws, (B) any Legal
Requirement applicable to it or any of the Material
Subsidiaries or any Material Assets, or (C) the Existing
Credit Agreement or any Material Contract; or
(ii) result in, require or permit (A) the imposition of any
Encumbrance upon or with respect to any Material Assets now
owned or hereafter acquired, (B) the acceleration of the
maturity of any Debt, binding on or affecting the Borrower or
any of the Material Subsidiaries or any Material Asset, or (C)
any third party to terminate or acquire rights under the
Existing Credit Agreement or any Material Contract;
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(f) Enforceability. Ensure that at all times and from time to time the execution
and delivery of each of the Loan Documents by it and the performance by it of
its obligations thereunder will be, upon the execution and delivery thereof,
duly authorized by all necessary corporate action; that all consents, approvals,
orders, authorizations, licenses, exemptions or designations of or by any
Governmental Authority or other Person required in connection with the
execution, delivery and performance by it of any such documents have been
obtained; and that all registrations, qualifications, designations, declarations
or filings with any Governmental Authority necessary to enable or empower it to
enter into and to perform its obligations under any such documents have been
obtained and continue in full force and effect as required for such purpose; and
that any and all Loan Documents to which it is a party have been duly executed
and delivered by it and that each will constitute its legal, valid and binding
obligation enforceable in accordance with its terms, subject only to bankruptcy,
insolvency, arrangement and other laws affecting the enforcement of creditors'
rights generally (other than those pertaining to settlements, fraudulent
conveyances, assignments and preferences) and the availability, in the
discretion of a court of competent jurisdiction, of equitable remedies;
(g) Compliance with Laws, etc. Comply, and cause each of its Subsidiaries to
comply, in all material respects with all applicable Legal Requirements, and
duly observe all valid requirements of any Governmental Authority, if the
failure to do so could reasonably be expected to have a Material Adverse Effect
and, without limiting the generality of the foregoing, comply fully and strictly
with all Legal Requirements of all relevant municipal, provincial, federal and
other Governmental Authorities relating to contaminants, pollutants, hazardous
substances and other environmental issues;
(h) Keeping of Books. Keep, and cause each of its Material Subsidiaries to keep,
financial books and records systems in accordance with GAAP and all applicable
Legal Requirements, and in such books and records make full and correct entries
of all financial transactions, Assets, liabilities, shareholders equity,
participation accounts and business of the Borrower and each of its Material
Subsidiaries in accordance with GAAP;
(i) Maintenance of Assets, etc. Maintain and preserve, and cause each of its
Subsidiaries to maintain and preserve, all of its or their Material Assets in
all material respects in good repair, working order and condition (reasonable
wear and tear excepted) and, from time to time, make all needful and proper
repairs, renewals, replacements, additions and improvements thereto, so that the
business carried on may be properly and advantageously conducted at all times in
accordance with prudent business management; and, without limiting the
generality of the foregoing, maintain, preserve and protect, and cause each of
its Subsidiaries to maintain, preserve and protect its or their intangibles,
including all trademarks, trade names, copyrights, licences and other
intellectual property, that constitute Material Assets, without conflict with
the rights of others;
(j) Reporting Requirements. Furnish to the Lender:
(i) annually, as soon as available and in any event within 120
days after the end of each Financial Year,
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(A) Audited Financial Statements. The audited Annual
Financial Statements of the Parent and of the Borrower
and the Material Subsidiaries for such Financial Year;
and
(B) Compliance Certificate. A Compliance Certificate dated
the date of delivery thereof;
(ii) quarterly, as soon as available and in any event within 90
days after the end of each Financial Quarter,
(A) Quarterly Financial Statements. The Quarterly Financial
Statements of the Parent and of the Borrower and the
Material Subsidiaries for such Financial Quarter; and
(B) Compliance Certificate. A Compliance Certificate dated
the date of delivery thereof;
(iii) promptly after becoming aware thereof, notice of any existing
or threatened action, suit or proceeding before any
Governmental Authority which, if adversely decided, could have
a Material Adverse Effect;
(iv) promptly on reasonable demand, a Compliance Certificate dated
the date of delivery thereof;
(v) promptly upon becoming aware thereof, notice of any fact or
change which has had, is having or is expected to have a
Material Adverse Effect;
(vi) notice of any Subsidiary of the Borrower becoming a Material
Subsidiary thereof, forthwith after becoming aware thereof;
and
(vii) such other information respecting the business and affairs,
financial or otherwise, of the Borrower or any of its
Subsidiaries or Affiliates, as the Lender may from time to
time reasonably request;
(k) Cure Defects. Promptly cure or cause to be cured, or cause its Subsidiaries
to cure or cause to be cured, any defects in the execution, delivery, validity
or enforceability of any of the Loan Documents or any of the other agreements,
instruments or documents contemplated thereby or executed pursuant hereto or
thereto and at its expense, execute and deliver or cause to be executed and
delivered all such agreements, instruments and other documents and make all
necessary filings and recordings as the Lender may consider reasonably necessary
or desirable for the foregoing purposes;
(l) Notice of Default, etc.. Notify the Lender forthwith in writing of the
occurrence of a Default, an Event of Default or any fact or circumstance which
has resulted or can reasonably be expected to result in a Material Adverse
Effect, and in such notice and in further notices delivered from time to time
thereafter to (and in any event forthwith in response to any request for such a
notice by) the Lender, provide the Lender with the particulars of the steps
being taken to remedy any such Default, Event of Default or fact or circumstance
giving rise to any such Material Adverse Effect;
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(m) Corporate Distributions. Subject to compliance with applicable Legal
Requirements, cause such of its Subsidiaries to declare and pay to the Borrower
or to such Subsidiary's holding body corporate such dividends and other
Corporate Distributions as may be required to provide sufficient funds to the
Borrower to duly and punctually pay to the Lender all amounts payable by the
Borrower hereunder as and when the same become due; and
(n) Further Assurances. At its cost and expense, upon request of the Lender,
duly execute and deliver, or cause to be duly executed and delivered, to the
Lender all such further agreements, instruments, documents and other assurances
and do and cause to be done all such further acts and things as may be necessary
or desirable in the reasonable opinion of the Lender to carry out more
effectually the provisions and purposes of this Agreement or any of the other
Loan Documents.
Section 9.2 Negative Covenants. From and after the Closing Date and so long as
any Obligations remain outstanding and unpaid or any Commitment of the Lender
shall continue to exist, the Borrower shall not, without the prior written
consent of the Lender, which consent shall not be unreasonably withheld:
(a) Debt. Create, incur, assume or suffer to exist, or permit any of its
Subsidiaries to create, incur, assume or suffer to exist any Debt other than:
(i) Debt reflected in the Closing Unaudited Financial Statements
of the Borrower; and
(iii) Obligations owed or otherwise incurred to the Lender under
the Loan Documents;
(b) Encumbrances, etc. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Encumbrance on any of its or
their respective Assets other than a Permitted Encumbrance or create or suffer
to exist, or permit any of its Subsidiaries to create or suffer to exist, any
Encumbrance on any Material Assets other than a Permitted Encumbrance;
(c) Sale of Material Assets. Effect, or permit any of its Subsidiaries to
effect, any sale, lease, exchange, transfer, assignment or other disposition
(whether in one transaction or a series of related transactions) of any Material
Assets other than for the purpose of effecting a Permitted Transaction or
repayment or repayments on account of the then outstanding Obligations;
(d) Issue or Transfer of Shares. Other than expressly provided for herein, issue
any shares in its capital or any options, warrants or other rights to purchase
any shares in its capital or other equity interests, or securities exchangeable
or convertible into shares in its capital or other equity interests, or permit
any of its Subsidiaries to do so, other than pursuant to a Permitted
Transaction;
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(e) Change in Nature of Business. Make, or permit any of its Subsidiaries to
make, any material change in the nature of its or their business;
(f) Mergers, etc. Amalgamate with any other Person or Persons, or enter into any
transaction (whether by way of reconstruction, reorganization, consolidation,
amalgamation, merger, transfer, sale, lease or otherwise) whereby all or a
material portion of its Assets would become the property of any other Person or,
in the case of any such merger, of the continuing corporation resulting
therefrom, or permit any of its Subsidiaries to amalgamate with any other Person
or Persons or to enter into any such transaction other than a Permitted
Transaction;
(g) Investments. Other than pursuant to a Permitted Transaction, make, or permit
any of its Subsidiaries to make, any Investment, other than the Acquisition or
Investments in Eligible Instruments, otherwise than in the ordinary course of
its business and in accordance with any investment policy adopted by its, or
such Subsidiary's, board of directors and in compliance with all applicable
Legal Requirements;
(h) Prohibition on Restrictions. Create or permit any of its Subsidiaries to,
create or otherwise cause or suffer to exist any Encumbrance or restriction
which prohibits or otherwise restricts in any material respect:
(i) the ability of any such Subsidiary to (A) pay dividends or
make other distributions or pay any Debt owed to the Borrower
or any such Subsidiary, (B) make any other Corporate
Distribution to the Borrower or any such Subsidiary or (C)
transfer any of its properties or assets to the Borrower or
any such Subsidiary, or;
(ii) the ability of the Borrower or any such Subsidiary to create,
incur, assume or suffer to exist any Encumbrance upon its
property or assets to secure the Obligations,
other than prohibitions or restrictions existing under or by reason of (A) this
Agreement and the Loan Documents, (B) Legal Requirements, (C) customary
non-assignment provisions entered into in the ordinary course of business and
consistent with past practices, (D) purchase money obligations for property
acquired in the ordinary course of business, so long as such obligations are
permitted under this Agreement, (E) Permitted Encumbrances and any documents or
instruments governing the terms of any Debt secured by any such Permitted
Encumbrances, provided that such prohibitions or restrictions apply only to the
assets subject to such Permitted Encumbrances, or (F) the Existing Credit
Agreement;
(i) Change of Control. Effect, or permit any of its Material Subsidiaries to
effect, whether in one transaction or a series of related transactions, any
Change of Control in respect of the Borrower or any of the Material
Subsidiaries;
(j) Transactions with Affiliates. Except as otherwise expressly contemplated or
permitted by this Agreement, directly or indirectly:
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(i) make any Investment, or permit any of its Subsidiaries to
make any Investment, in any Affiliate;
(ii) transfer, sell, lease, assign or otherwise dispose of, or
permit any of its Subsidiaries to transfer, sell, lease,
assign or otherwise dispose of, any Asset to any Affiliate;
(iii) merge into or consolidate with or purchase or acquire any
Assets from, or permit any of its Subsidiaries to merge into,
or consolidate with or purchase or acquire any Assets from,
any Affiliate; or
(iv) enter into, or permit any of its Subsidiaries to enter into,
any other transaction directly or indirectly with or for the
benefit of any Affiliate (including, without limitation, any
guarantee or assumption of any obligation of any Affiliate),
provided that (A) any Affiliate who is an individual may serve as a director,
officer or employee of the Borrower or any of its Affiliates, or any one or more
of them, and receive reasonable compensation in connection with services
rendered by such individual in such capacity, and (B) the Borrower and any of
its Subsidiaries may enter into any such transaction with any Affiliate if such
transaction is a Permitted Transaction or if the terms and conditions thereof
are at least as favourable to the Borrower or such Subsidiary as market terms
and conditions, and if such transaction would otherwise be permitted under all
applicable Legal Requirements;
(k) Financial Year. Change its Financial Year, or permit any of its Material
Subsidiaries to change their respective Financial Years to other than December
31 or to have a financial year that does not end on December 31 of each calendar
year; or
(l) Acquisition Agreement. Cause or permit any Subsidiary or Affiliate of the
Borrower to supplement, amend, modify, restate, or otherwise make, permit,
consent to or acquiesce in any modification of any term or condition of, the
Acquisition Agreement or any obligations or liabilities arising thereunder or
pursuant thereto.
ARTICLE X
ACCELERATION
Section 10.1 Events of Default. If any one or more of the following events (each
an "Event of Default") shall occur and be continuing then the Lender may, (i)
terminate the Lender's obligations to make any further Advance under the Credit
Facilities, and (ii) (at the same time or at any time after such termination)
declare the Obligations to be immediately due and payable, provided that should
any Event of Default specified in Sections 10.1(g), 10.1(h), 10.1(i) or 10.1(j)
occur then the Obligations shall, to the extent permitted by applicable law, be
and become immediately due and payable without any declaration or other act on
the part of the Lender:
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(a) the Borrower makes default in the payment on the due date thereof of any
amount payable by it hereunder on account of the Outstanding Principal
Obligations under the Credit Facilities;
(b) the Borrower makes default in the payment when due of any amount payable by
it hereunder on account of interest, fees, costs, expenses or other amounts
payable by it hereunder, and such default shall continue for three Business Days
after the earlier of the Borrower becoming aware of such default and notice of
such default being given to the Borrower by the Lender;
(c) the Borrower fails to perform any covenant, agreement or undertaking under
this Agreement other than those referred to in paragraphs (a) and (b) of this
Section 10.1 or in any other Loan Document, provided that if such failure is
capable of being remedied or cured within a ten day period, the Borrower,
subject to the other provisions of this Section 10.1, shall have a period of ten
days after the earlier of the Borrower becoming aware of such default and notice
of such default being given to the Borrower by the Lender within which to remedy
or cure such failure;
(d) any representation or warranty made by the Borrower in this Agreement or in
any other Loan Document is incorrect in any material respect when made (or when
deemed to be made hereunder or thereunder), provided that, notwithstanding any
lack of correctness of any such representation or warranty as so stated as at
the Closing Date, if the subject matter of such representation and warranty is
capable of being remedied or cured within a ten day period such that it would be
true if so stated at such later time, the Borrower, subject to the other
provisions of this Section 10.1, shall have a period of ten days after the
earlier of receipt of written notice from the Lender specifying the
representation or warranty concerned and the Borrower otherwise becoming aware
that such representation or warranty is incorrect in any material respect,
within which to remedy or cure such lack of correctness;
(e) the Parent makes default in the payment when due, or otherwise fails to
perform any covenant, agreement or undertaking under the Put/Call Agreement or a
Parent Event of Default under the Existing Credit Agreement shall occur, in
either case, whether before or after the occurrence of any other Default or
Event of Default under this Agreement;
(f) any representation or warranty made by the Parent to the Lender in the
Put/Call Agreement is incorrect in any material respect when made (or when
deemed to be made thereunder);
(g) the Borrower or any of its Material Subsidiaries or the Parent ceases or
threatens to cease to carry on business or becomes insolvent or bankrupt or
ceases paying its debts generally as they fall due, other than any such debts
which are contested in good faith and by appropriate proceedings and for which
adequate provision has been made to the Lender' sole satisfaction, or the
Borrower or any of its Material Subsidiaries or the Parent commits any act of
bankruptcy or makes an assignment for the benefit of creditors or otherwise
acknowledges its insolvency, or a trustee, receiver, receiver and manager,
liquidator, agent or similar official is appointed for the Borrower or any of
its Material Subsidiaries or the Parent or for any material part of its Assets,
or bankruptcy, reorganization, proposal, arrangement, moratorium, compromise or
similar proceedings shall be instituted by or in respect of the Borrower or any
of its Material Subsidiaries or the Parent under the laws of any jurisdiction;
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(h) without limiting the generality of paragraph (g) of this Section 10.1, any
Governmental Authority shall take control of the Borrower or any of its Material
Subsidiaries or the Parent, or shall take control of the Assets of any such
Person or any Material Assets;
(i) any proceeding is instituted by the Borrower or any of its Material
Subsidiaries or the Parent, any order is made or any resolution is passed for
the winding-up of the Borrower or any of its Material Subsidiaries or the
Parent;
(j) any petition shall be filed or other action or proceeding shall be
commenced, whether judicial, quasi-judicial or administrative in nature or by or
in respect of the Borrower or any of its Material Subsidiaries or the Parent, to
adjudge the Borrower or any of its Material Subsidiaries or the Parent insolvent
or a bankrupt, or to give notice of, consider or approve any proposal,
reorganization, compromise, moratorium or arrangement with all or any of the
creditors of the Borrower or any of its Material Subsidiaries or the Parent, or
to appoint a trustee, receiver, receiver and manager, liquidator, agent or
similar official of the Borrower or any of its Material Subsidiaries or the
Parent or any of its Assets or any Material Assets, or to wind-up, dissolve or
otherwise liquidate the Borrower or any of its Material Subsidiaries or the
Parent, provided that, if the Borrower or any of its Material Subsidiaries or
the Parent shall be contesting such petition, action or proceeding in good faith
and by appropriate proceedings based, in the Lender' sole opinion, on reasonable
and substantial grounds, the Borrower and each of its Material Subsidiaries or
the Parent , subject to the other provisions of this Section 10.1, shall have a
period of forty-five days after the date of the filing or commencement of such
petition, action or proceeding within which to obtain or procure an abandonment,
dismissal, withdrawal, quashing or permanent stay of such petition, action or
proceeding;
(k) any execution, sequestration or any other process of any court, any work
order or any distress or analogous process becomes enforceable against the
Borrower or any of its Material Subsidiaries or the Parent or any Material
Assets, if enforcement thereof could have a Material Adverse Effect;
(l) the Borrower or any of its Material Subsidiaries shall permit any sum in
excess of Cdn. $ 1,000,000, or the Parent shall permit any sum in excess of U.S.
$ 1,000,000, which has been admitted as due by it or is not disputed to be due
by it to remain unpaid for five days after proceedings have been taken to
enforce the same;
(m) the Borrower or any of its Material Subsidiaries or the Parent makes default
under the terms of any agreement or instrument for or in respect of any
Indebtedness in excess of Cdn. $ 1,000,000, or in excess of U.S. $ 1,000,000, in
the case of the Parent, and such default remains unremedied for the applicable
grace period, if any, specified in such agreement or instrument and has not been
waived by the Person to whom such Indebtedness is owed or by its authorized
representative or agent;
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(n) a Material Adverse Effect shall occur;
(o) there is any adverse qualification to any of the financial statements of the
Borrower or any of its Material Subsidiaries or the Parent by their respective
auditors;
(p) a Change of Control shall occur;
(q) this Agreement or the Put/Call Agreement shall cease to be in full force and
effect and to constitute a legal, valid and binding obligation of any of the
parties signatory thereto enforceable against such parties in accordance with
its terms, subject to bankruptcy, insolvency, arrangement and other laws
affecting the enforcement of creditors' rights generally (other than those
pertaining to settlements, fraudulent conveyances, assignments and preferences)
and the availability, in the discretion of a court of competent jurisdiction, of
equitable remedies;
(r) the operation of the Put/Call Agreement shall be stayed or the Parent shall
be resisting or disputing its obligations thereunder, whether or not pursuant to
court proceedings;
(s) subject to Permitted Encumbrances, the Lender's rights and entitlement to be
paid the Obligations hereunder shall cease to rank at least pari passu with the
most senior Debt of the Borrower, secured or unsecured;
(t) subject to the Encumbrances permitted under Section 8.12 of the Existing
Credit Agreement, the obligations and liabilities of the Parent to the Lender
under or in respect of the Put/Call Agreement shall cease to rank at least pari
passu with the most senior Debt of the Parent, secured or unsecured;
(u) the Parent shall at any time fail to maintain a Current Ratio of not less
than 1.40 to 1.00;
(v) the Parent shall, as of the last day of any Financial Quarter of the Parent,
fail to maintain an Interest Coverage Ratio of not less than 2.0 to 1.0;
(w) the Parent shall, as of the last day of any Financial Quarter of the
Parent, fail to maintain Tangible Net Worth at not less than the Minimum
Required Amount;
(x) the Parent shall, as of the last day of any Financial Quarter of the Parent,
fail to maintain the Debt to Earnings Ratio at not greater than 3.5 to 1.0; or
(y) the Parent shall, as of the last day of any Financial Quarter of the Parent,
fail to maintain the Leverage Ratio at not more than 0.40 to 1.00.
Section 10.2 Remedies Upon Default. Upon the occurrence of an Event of Default
and acceleration of the maturity of the Obligations owed to the Lender
hereunder, the Lender may commence such action or proceedings as it may deem
expedient, all without any additional notice, presentation, demand, protest,
notice of dishonour, entering into of possession of any of the Assets of the
Borrower, or any other action, notice of all of which the Borrower hereby
expressly waives. The rights and remedies of the Lender hereunder are cumulative
and are in addition to and not in substitution for any other rights or remedies
provided by law.
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Section 10.3 Judgment Currency. The obligation of the Borrower to make any
payment on account of the Obligations hereunder in Canadian Dollars (the "first
currency") shall not be discharged or satisfied by any tender or recovery
pursuant to any judgment expressed in or converted into any other currency (the
"second currency") except to the extent to which such tender or recovery shall
result in the effective receipt by the Lender of the full amount of the first
currency payable, and accordingly the primary obligation of the Borrower shall
be enforceable as an alternative or additional cause of action for the purpose
of recovery in the second currency of the amount (if any) by which such
effective receipt shall fall short of the full amount of the first currency
payable and shall not be affected by any judgment being obtained for any other
sum due hereunder.
ARTICLE XI GENERAL
Section 11.1 Evidence of Debt. The Obligations of the Borrower, whether
resulting from Advances under the Credit Facilities or otherwise, shall be
evidenced by the records of the Lender which shall constitute conclusive
evidence of such Obligations absent manifest error. Each of the Prime Rate Loans
shall be further evidenced by the Prime Rate Note executed and delivered by the
Borrower.
Section 11.2 Additional Expenses. If the Borrower should fail to observe or
perform any covenant or agreement to be observed or performed by the Borrower
hereunder the Lender may but shall not be obliged to perform or cause to be
performed the same for which purpose the Borrower hereby appoints the Lender to
be the lawful attorney of the Borrower, and all reasonable expenses incurred or
payments made by the Lender in so doing shall be paid by the Borrower to the
Lender forthwith upon demand and any such unpaid amount shall bear interest,
both before and after judgment, at the Past Due Rate, calculated daily and
compounded monthly in arrears and payable on demand, and the Borrower hereby
indemnifies the Lender against any loss incurred by the Lender in that regard.
Section 11.3 Invalidity of any Provisions. Any provision of this Agreement or
any of the other Loan Documents which is prohibited by the laws of any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition without invalidating the remaining terms and provisions hereof
or thereof and no such invalidity shall affect the obligation of the Borrower to
pay the Obligations in full. The rate of interest chargeable or collectable on
overdue instalments of interest shall not exceed the maximum rate permitted by
applicable law.
Section 11.4 Amendments, Waivers, etc. No failure to exercise and no delay in
exercising any right, power or privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. Any such amendment or
waiver shall be binding upon the Borrower and the Lender and shall be for such
period and subject to such conditions as shall be specified in the instrument
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containing such amendment or waiver. In the case of any such waiver of any Event
of Default, the Borrower and the Lender shall be restored to their former
positions and rights under this Agreement and any Event of Default or the
subsequent re-occurrence of the same Event of Default, so waived shall be deemed
to be cured and not continuing, provided that no such waiver or amendment shall
extend to any subsequent or other Event of Default or impair any right or remedy
consequent thereon. The remedies herein provided are cumulative and not
exclusive of any other right or remedy available at or provided by law.
Section 11.5 Notices, etc. All notices and other communications provided for
hereunder shall, except as otherwise permitted hereunder, be in writing
personally delivered, if
(i) to the Borrower, to it at:
c/o Anicom, Inc.
6133 North River Road
Suite 1000
Rosemont, Illinois
60018-5171
Telecopy: (847) 518-8777
for the attention of: Gregory E. Fix
with a copy to:
Stikeman Elliott
Suite 5300
Commerce Court West
Toronto, Ontario
M5L 1B9
Telecopy: (416)-947-0866
for the attention of: Brian Rose
(ii) to the Lender , to it at:
Bank of Montreal
115 South LaSalle Street
Chicago, Illinois
Toronto, Ontario
60603
Telecopy: (312) 750-3783
for the attention of: Director, Global Structured Finance
or in any case sent by facsimile or telecopy transmission or similar means of
recorded communication to such other address or facsimile or telecopy number as
any party hereto may from time to time designate to the other parties hereto in
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such manner, provided that any Advance Request given to the Lender hereunder
shall be delivered or transmitted to the address and telecopy number of the
Lender set out in Schedule 1 hereto. All such notices and communications shall,
when so delivered personally, shall be deemed to have been validly and
effectively received on the date of such delivery if such day is a Business Day,
or on the Business Day next following the date of delivery if such day is not a
Business Day, and when sent by facsimile or telecopy transmission or similar
means of recorded communication, shall be deemed to have been validly and
effectively received on the date transmitted, if transmitted before 3:00 p.m.
(Toronto, Ontario time) on a Business Day, or, in any other case, on the first
Business Day following the date transmitted.
Section 11.6 Costs and Expenses. The Borrower shall pay to the Lender on demand
all reasonable costs and expenses (including, without limitation, all reasonable
legal fees and disbursements) incurred by the Lender in connection with this
Agreement, the other Loan Documents and the Credit Facilities including, without
limitation, (i) the negotiation, preparation, execution, and delivery, both
prior and subsequent to the Closing Date, of this Agreement and the other Loan
Documents or any agreement or instrument contemplated hereby or thereby; (ii)
the performance by the Lender of its obligations and duties under this Agreement
and the other Loan Documents; (iii) advice of counsel with respect to the
administration of or other matters relating to the Credit Facilities, the Loan
Documents or any transaction contemplated thereunder; (iv) the enforcement of
any of the Loan Documents or the enforcement or preservation of rights under and
the refinancing, renegotiation or restructuring of the Credit Facilities under
this Agreement or the other Loan Documents or the bringing of any action, suit
or proceeding with respect to the enforcement of any of the Loan Documents or
any such right or seeking any remedy which may be available to the Lender or the
Lender at law or in equity; and (v) any amendments, waivers or consents
requested by the Borrower pursuant to the provisions hereof or any other Loan
Document.
Section 11.7 Indemnification.
(a) The Borrower agrees to indemnify the Lender and each of its Affiliates and
the directors, officers and employees of each of them from and against any and
all Claims and Losses of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against the Lender or any of its Affiliates or the
directors, officers or employees of any of them, arising by reason of any action
(including any action referred to herein) or inaction or omission to do any act
legally required of the Borrower pursuant to the Loan Documents.
(b) The Borrower shall pay to the Lender on demand any amounts required to
compensate the Lender for any Loss suffered or incurred by the Lender as a
result of (i) any payment being made (due to acceleration of the maturity of any
Advance to a date pursuant to Article X, a mandatory or optional prepayment of
principal or otherwise) in respect of any Bankers' Acceptance other than on the
maturity date of such Banker's Acceptance; (ii) the failure of the Borrower to
give any notice in the manner and at the times required by this Agreement; (iii)
the failure of the Borrower to effect an Advance in the manner and at the time
specified in any Advance Request or other notice given by the Borrower to the
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Lender requesting such Advance; or (iv) the failure of the Borrower to make a
payment or a mandatory repayment in the manner at the time specified in this
Agreement or any notice given by the Borrower to the Lender. A certificate as to
the amount of any such Loss, providing reasonable detail of the calculation of
such Loss and submitted in good faith by the Lender to the Borrower shall be
conclusive and binding for all purposes, absent manifest error.
(c) The Borrower hereby agrees to indemnify and save harmless the Lender and
each of its Affiliates and the directors, officers and employees of each of them
(collectively, the "Lender Related Parties") from and against any and all
claims, demands, costs, expenses, damages, penalties, losses, proceedings,
causes of action and liabilities incurred or suffered by the Lender or any
Lender Related Parties both as a result of having entered into this Agreement or
any of the Loan Documents and in respect of (i) any prior or future
contravention by the Borrower or any previous owner, operator or user of any of
any portion of the BorrowerAEs property of any environmental law, regulation,
rule, order, policy, guideline or other standard relating in any manner thereto,
or (ii) any environmental spill, discharge, emission, contamination, storage,
disposal or transport of contaminants or other hazardous substances or other
matter relating to any portion of the BorrowerAEs property which causes injury
or damage to any person, property or to the environment.
(d) The provisions of this Section 11.7 shall survive the termination of the
Agreement and the repayment of all Obligations. The Borrower acknowledges that
neither its obligation to indemnify, nor any actual indemnification by it, of
the Lender or any other Indemnified Party hereunder in respect of such Person's
Loss for the legal fees and expenses of such Person's counsel shall in any way
affect the confidentiality or privilege relating to any information communicated
by such Person to its counsel.
Section 11.8 Taxes. (a) Any and all payments to the Lender by the Borrower
hereunder (or under any of the other Loan Documents) shall be made free and
clear of and without deduction or withholding for any and all present and future
Taxes, imposed by any Governmental Authority including, without limitation, any
Taxes which arise from the execution, delivery or registration of, or otherwise
with respect to, this Agreement or any of the other Loan Documents, unless such
Taxes are required by law or the administration thereof to be deducted or
withheld. If the Borrower shall be required by law or the administration thereof
to deduct or withhold any such Taxes from or in respect of any amount payable
hereunder, (i) the amount payable shall be increased as may be necessary so that
after making all required deductions or withholdings (including deductions or
withholdings applicable to additional amounts paid under this paragraph), the
Lender shall receive an amount equal to the amount it would have received if no
such deduction or withholding had been made; (ii) the Borrower shall make such
deductions or withholdings; and (iii) the Borrower shall pay forthwith the full
amount deducted or withheld to the relevant taxation or other authority in
accordance with applicable law.
(b) The Borrower agrees to indemnify the Lender for the full amount of Taxes not
deducted or withheld and paid by the Borrower in accordance with Section 11.8
(a) to the relevant taxation or other authority and any Taxes imposed by any
jurisdiction on amounts payable by the Borrower under this Section 11.8, paid by
the Lender and any liability (including penalties, interest and expenses)
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arising therefrom or with respect thereto, whether or not any such Taxes were
correctly or legally asserted. Payment under this indemnification shall be made
within fifteen days from the date the Lender makes written demand therefor. A
certificate as to the amount of such Taxes, providing reasonable details of the
calculation thereof, and evidence of payment thereof submitted to the Borrower
by the Lender shall be conclusive evidence of the amount due from the Borrower
to the Lender absent manifest error.
(c) The Borrower shall furnish to the Lender the original or a certified copy of
a receipt evidencing any payment of Taxes made by the Borrower, as soon as such
receipt becomes available.
(d) If the Lender is, in the Lender's reasonable opinion, able to apply for or
otherwise take advantage of any tax credit, tax deduction or similar benefit by
reason of any withholding, deduction or remittance made by the Borrower in
respect of a payment made by it hereunder which payment shall have been
increased pursuant to this Section 11.8, then (subject as provided in the next
following sentence) the Lender will use its best efforts to obtain such credit,
deduction or benefit and upon receipt thereof will pay to the Borrower such
amount (if any) not exceeding the increased amount paid by the Borrower as
equals the net after-tax value to the Lender, in its reasonable opinion, of such
part of such credit, deduction or benefit as it considers is allocable to such
withholding or deduction having regard to all its dealings giving rise to
similar credits, deductions or benefits in relation to the same tax period and
to the cost of obtaining such credit deduction or benefit. The Borrower
acknowledges that (i) nothing herein contained shall interfere with the right of
the Lender to arrange its tax affairs in whatever manner it deems fit and in
particular the Lender shall not be under any obligation to claim relief from its
corporate profits or similar tax liability in respect of any such deduction or
withholding in priority to any other reliefs, claims, credit or deductions
available to it; and (ii) the Lender shall not be obligated to disclose to the
Borrower any information regarding its tax affairs or tax computations.
The provisions of this Section 11.8 shall survive the
termination of this Agreement and the repayment of all Obligations.
Section 11.9 Calculations. Except as otherwise provided herein, the financial
statements and returns to be furnished to the Lender pursuant to this Agreement
shall be made and prepared in accordance with GAAP, consistently applied
throughout the periods involved (except as set forth in the notes thereto or as
otherwise disclosed in writing by the Borrower to the Lender), provided, that,
except as otherwise specifically provided herein, all calculations determining
compliance with Article IX, including definitions used therein, shall utilize
accounting principles and policies in effect at the time of the preparation of,
and in conformity with those used to prepare, the the Closing Unaudited
Financial Statements delivered to the Lender, but shall not give effect to the
amortization of goodwill and intangible assets resulting from prior acquisitions
by the Borrower or any of its Material Subsidiaries or the amortization or
write-off of any expense incurred in connection with the Acquisition and
provided further that all calculations in respect of Sections 10.1(u) to
10.1(y), inclusive, including definitions used therein, shall utilize "GAAP" as
defined in the Existing Credit Agreement in effect on the date of this
Agreement, as such term may be supplemented, amended, modified or restated from
time to time with the consent of the Lender hereunder.
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Section 11.10 Assignments and Participations.
(a) The Borrower shall not be entitled to assign its rights and obligations
hereunder or any interest herein without the prior consent of the Lender.
(b) Subject to the provisions of this Agreement, the Lender may grant
participations to one or more Persons in or respect of all or any part of the
Lender's Commitment and the Obligations owed to the Lender and the rights of the
Lender under the Put/Call Agreement, but in any such event the participant shall
not have any rights under this Agreement or the other Loan Documents in respect
of its participation and shall only have, as against the Lender, those rights
and remedies in respect of such participation as are set forth in the agreement
or agreements made between the Lender and such participant relating thereto.
(c) The Lender may at any time, subject, prior to the occurrence of an Event of
Default and other than in respect to an assignment by a Lender to one of its
Affiliates or in respect to an assignment by the Lender in accordance with the
Put/Call Agreement, to the consent of the Borrower (such consent not to be
unreasonably withheld or delayed), assign all or part of the Lender's Commitment
and the Obligations then owed to the Lender and the rights of the Lender under
the Put/Call Agreement to one or more Persons (each of which is hereinafter in
this Section called the "Assignee Lender") in consideration of the agreement of
each such Assignee Lender to advance or hold that percentage of the Lender's
Commitment or Obligations owed to the Lender as corresponds with the percentage
thereof so assigned to such Assignee (hereinafter called the "Assignee Lender's
Commitment" and the "Assignee Lender's Commitment Percentage", respectively).
(d) If the Lender proposes to make any such assignment to a potential Assignee
Lender, the Lender shall provide to the Borrower or procure the provision to the
Borrower of any material information about such potential Assignee Lender which
is generally available in order to assist the Borrower in complying with any
applicable laws, treaties and regulations relating to the lending by such
potential Assignee Lender and to determine whether to give any required consent
by the Borrower under clause (c) above.
(e) If the Lender assigns all or any part of its Commitment hereunder to an
Assignee Lender as provided above, all references in this Agreement to the
Lender shall thereafter be construed as references to the Lender and such
Assignee Lender to the extent of their respective Commitments and, if such
Assignee Lender is not an Affiliate of the Lender the Borrower shall thereafter
look only to such Assignee Lender (and not to the Lender) in respect of that
proportion of such Lender's Commitment as corresponds to such Assignee Lenders'
Commitment therein and accordingly the Lender's obligation to provide Advances
in accordance with its Commitment hereunder shall be reduced correspondingly and
such Assignee Lender shall assume a Commitment equivalent to such reduction in
the Lender's Commitment.
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(f) The Lender may disclose to a potential participant or potential Assignee
Lender (provided that such potential participant or Assignee Lender has been
approved by the Borrower, such approval not to be unreasonably withheld) such
information concerning or pertaining to the Obligations of the Borrower and its
Subsidiaries as is known to the Lender, and may in addition express to any such
Person any opinion it may have with respect to any matter, provided such
potential participant or potential Assignee Lender covenants in favour of the
Borrower and the Lender to only use such information in connection with its
evaluation as to whether to take any such participation or assignment and,
should it do so, in connection therewith, and to maintain the confidential
nature of all such information.
Section 11.11 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the Province of Ontario and the laws of Canada
applicable therein.
Section 11.12 Consent to Jurisdiction. The Borrower hereby irrevocably submits
to the non-exclusive jurisdiction of the Courts of the Province of Ontario in
respect of any action, suit or proceeding arising out of or relating to this
Agreement and the other Loan Documents and the Credit Facilities hereby extended
and hereby irrevocably agrees that all Claims in respect of any such action,
suit or proceeding may be heard and determined in any such Ontario Court. The
Borrower hereby irrevocably waives, to the fullest extent it may effectively do
so, the defense of an inconvenient forum to the maintenance of such action or
proceeding. The Borrower agrees that a final judgment in any such suit, action
or proceeding shall be conclusive and may be enforced in another jurisdiction by
suit on the judgment or in any other manner provided by law. Nothing in this
Section 11.12 shall affect the right of the Lender bring any suit, action or
proceeding against the Borrower or its Assets in the courts of any other
jurisdiction.
Section 11.13 Binding Effect. This Agreement shall be binding upon and enure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
Section 11.14 Interest Savings Clause. Nothing contained in this Agreement or in
any promissory notes made by the Borrower to the Lender or in any of the other
Loan Documents shall be construed to permit the Lender to receive at any time
interest, fees or other charges in excess of the amounts which the Lender is
legally entitled to charge and receive under any law to which such interest,
fees or charges are subject. In no contingency or event whatsoever shall the
compensation payable to the Lender by the Borrower, howsoever characterized or
computed, hereunder or under any other agreement or instrument evidencing or
relating to the Obligations of the Borrower to the Lender hereunder, exceed the
highest rate permissible under any law to which such compensation is subject.
There is no intention that the Lender shall contract for, charge or receive
compensation in excess of the highest lawful rate, and, in the event it should
be determined that any excess has been charged or received, then, ipso facto,
such rate shall be reduced to the highest lawful rate so that no amounts shall
be charged which are in excess thereof; and the Lender shall apply such excess
against the Obligations of the Borrower to the Lender then outstanding and, to
the extent of any amounts remaining thereafter, refund such excess to the
Borrower.
Section 11.15 Entire Agreement. This Agreement, including the Schedules hereto,
constitutes the entire agreement between the Borrower and the Lender and
supersedes all prior agreements, whether oral or written, between the Borrower
and the Lender in respect of the Credit Facilities extended hereby.
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Section 11.16 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument.
IN WITNESS WHEREOF the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
ANICOM MULTIMEDIA WIRING
SYSTEMS INCORPORATED
Per:
-------------------------------------c/s
Authorized Signing Officer
Per:
-------------------------------------
Authorized Signing Officer
BANK OF MONTREAL
Per:
-------------------------------------
Authorized Signing Officer
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SCHEDULE 1
_______________________________,199___
Bank of Montreal
19th Floor
1 First Canadian Place
Toronto, Ontario
M5X 1A1
Attention: Manager,
Client Services
Telecopy No.: 416 360-6850
Dear Sirs:
ADVANCE REQUEST
The undersigned refers to the term credit agreement (the
"Credit Agreement") dated as of the 21st day of September, 1998, between Anicom
Multimedia Wiring Systems Incorporated, as Borrower, and Bank of Montreal, as
Lender. All capitalized terms used herein shall have the respective meanings
attributed thereto in the Credit Agreement.
The undersigned hereby requests, in accordance with Article II
of the Credit Agreement, the following Advance:
Requested Advance:
Type _______________________________________________________
(Prime Rate Loan or BA Advance)
Amount _______________________________________________________
If BA Advance requested,
term of Bankers' Acceptance _________________________________
Proposed Business Day of such Advance:________________________
Day/Month/Year
The undersigned hereby confirms that the Advance requested
hereby complies with the requirements of the Credit Agreement, and that no
Default or Event of Default has occurred and is continuing or will result from
giving effect to the Advance requested hereby.
ANICOM MULTIMEDIA WIRING
SYSTEMS INCORPORATED
By:_______________________________________
Name:
Title:
<PAGE>
SCHEDULE 2
FORM OF COMPLIANCE CERTIFICATE
TO: BANK OF MONTREAL (the "Lender")
COMPLIANCE CERTIFICATE
The undersigned, o, hereby certifies that o is the o of Anicom
Multimedia Wiring Systems Incorporated, a company incorporated under the laws of
the Province of Nova Scotia (the "Borrower"), and that, as such, o is authorized
to execute and deliver this certificate on behalf of the Borrower pursuant to
the credit agreement (the "Credit Agreement") dated as of the 21st day of
September, 1998, as amended from time to time, between the Borrower and the
Lender, and hereby further certifies that:
I. The representations and warranties set forth in Article VIII of the Credit
Agreement and in any documents delivered pursuant to the Credit Agreement are
true and correct with the same effect as though made on and as of the date of
this certificate.
II. The Borrower is in compliance with all of the provisions contained in the
Credit Agreement on its part to be observed and performed and as of the date of
this certificate and after giving effect to any Advance in respect of which this
certificate is delivered, no Default or Event of Default has occurred and is
continuing.
All capitalized terms used herein shall have the respective
meanings attributed thereto in the Credit Agreement.
DATED this _________ day of _______________________, 199_.
ANICOM MULTIMEDIA WIRING SYSTEMS INCORPORATED
By:__________________________________________
<PAGE>
SCHEDULE 3
PRIME RATE NOTE
FOR VALUE RECEIVED, the undersigned, ANICOM MULTIMEDIA WIRING
SYSTEMS INCORPORATED (the "Borrower"), hereby unconditionally promises to pay to
the order of BANK OF MONTREAL (the "Lender") at Toronto, Ontario in lawful money
of Canada the unpaid principal amount of all Advances by way of Prime Rate Loans
made by the Lender to the Borrower pursuant to the Credit Agreement (as
hereinafter defined). The principal amount of each Advance evidenced hereby
shall be payable on the Termination Date (or on such earlier date as may be
required pursuant to the Credit Agreement). The Borrower further agrees to pay
interest in like money on the unpaid principal amount hereof from time to time
outstanding at the applicable interest rates per annum determined as provided
in, and payable as specified in, the Credit Agreement.
In addition to any method set forth in the Credit Agreement
for recording the Advances by way of Prime Rate Loans made by the Lender, the
Lender is hereby authorized to endorse on Schedule A annexed hereto and made a
part hereof (or on a continuation thereof which shall be attached hereto and
made a part hereof) the date and amount of each Advance by way of Prime Rate
Loan made by the Lender pursuant to the Credit Agreement, each continuation
thereof, each conversion of all or a portion thereof to another Type of Advance
and the date and amount of each payment or prepayment of principal thereof. Each
such endorsement shall, to the extent permitted by applicable law, constitute
conclusive evidence of the accuracy of the information endorsed absent manifest
error; provided, however, that neither the failure to make any such endorsement,
nor any error therein, shall affect the obligations of the Borrower to repay
(with applicable interest) such Advances in accordance with the Credit
Agreement.
This Note is the Prime Rate Note referred to in the term
credit agreement, dated as of September 21, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), between the
Borrower and the Lender, is subject to the provisions of the Credit Agreement
and is subject to optional and mandatory prepayment as set forth therein. Terms
used herein which are defined in the Credit Agreement shall have such defined
meanings unless otherwise defined herein.
Upon the occurrence of any one or more of the Events of
Default specified in the Credit Agreement, all amounts then remaining unpaid on
this Note may be declared to be immediately due and payable as provided therein.
The Borrower waives presentment, protest and notice of
dishonour.
This Note shall be governed by, and construed and interpreted
in accordance with, the laws of the Province of Ontario and the laws of Canada
applicable therein.
ANICOM MULTIMEDIA WIRING SYSTEMS INCORPORATED
By:__________________________________________
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDING SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFRENCE TO SUCH FORM 10-Q.
</LEGEND>
<CIK> 0000935802
<NAME> ANICOM, INC.
<MULTIPLIER> 1,000
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 60
<SECURITIES> 0
<RECEIVABLES> 123,470
<ALLOWANCES> 3,384
<INVENTORY> 94,779
<CURRENT-ASSETS> 222,136
<PP&E> 13,549
<DEPRECIATION> 4,897
<TOTAL-ASSETS> 356,374
<CURRENT-LIABILITIES> 81,734
<BONDS> 0
20,000
0
<COMMON> 17
<OTHER-SE> 164,175
<TOTAL-LIABILITY-AND-EQUITY> 356,374
<SALES> 339,420
<TOTAL-REVENUES> 339,420
<CGS> 264,647
<TOTAL-COSTS> 264,647
<OTHER-EXPENSES> 64,082
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,503
<INCOME-PRETAX> 9,188
<INCOME-TAX> 3,796
<INCOME-CONTINUING> 5,392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,392
<EPS-PRIMARY> .23
<EPS-DILUTED> .22
</TABLE>
