SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
[No Fee Required]
For the fiscal year ended December 31, 1998
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[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
[No Fee Required]
For the transition period from ____________________ to ___________________
Commission file number 0-3108
TRION, INC.
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(Exact name of Registrant as specified in its charter)
Commonwealth of Pennsylvania 25-0922753
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 760, 101 McNeill Road
Sanford, North Carolina 27331-0760
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (919)775-2201
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.50
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 1, 1999.
Common Stock, par value $.50 - $19,452,242
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Indicate the number of shares outstanding of each of the Registrant's classes
of common stock as of March 1, 1999.
7,149,247 shares of Common Stock, par value $.50
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DOCUMENTS INCORPORATED BY REFERENCE: Portions of the annual Proxy Statement
dated March 26, 1999 are incorporated by reference into Part III.
<PAGE> -1-
PART I
Item 1. Business.
GENERAL
Trion, Inc. (the "Company" or "Trion") was incorporated in 1946 in the
Commonwealth of Pennsylvania and is principally engaged in the design,
manufacture, sale and distribution of equipment to improve indoor air quality
("IAQ"). On August 1, 1995 the Company acquired Envirco Corporation
("Envirco"), a manufacturer and distributor of ultra clean air systems and
components located in Albuquerque, New Mexico. In addition, on August 30,
1996 the Company acquired Herrmidifier Company, Inc. ("Herrmidifier"), a
manufacturer and distributor of humidification systems and components located
in Lancaster, Pennsylvania. The Herrmidifier operation was consolidated into
the Company's Sanford, North Carolina facility during 1997 and 1998 and the
Lancaster, Pennsylvania facility was closed concurrently with the expiration
of its lease in May of 1998.
SUBSEQUENT EVENT
On March 17, 1999 the Company announced that its Board of Directors had
unanimously decided to pursue strategic alternatives that include the possible
sale of the Company. In connection with this decision, the Company had
retained Harris Williams & Co. of Richmond, Virginia to advise the Company on
related financial matters and to coordinate all contact with the Company in
this regard.
PRODUCTS AND MARKETS
The Company's industry segments are Consumer Products, Engineered Products,
Cleanroom Products and European Operations. See Note N to the financial
statements included in Item 8 of this Annual Report on Form 10-K for financial
information concerning the Company's industry segments.
Consumer Products.
The Company's Consumer Products group, located in Sanford, North Carolina,
designs, manufactures and markets products that are intended for home use.
Included are free standing appliance tabletop and console air cleaners as well
as residential whole-house air cleaners, air filters and humidifiers that are
integrated into home owner's heating, ventilation and air conditioning
systems. Consumer Products comprised 40%, 40% and 38% of the Company's total
sales in the years 1998, 1997 and 1996, respectively. The Company's appliance
units historically have been marketed principally to retailers, direct
marketers and others on a private label basis. In recent years, the Company
has begun to market products under Trion brand names. The Company introduced a
newly designed line of appliance products in 1997. The Company's residential
products are marketed through a representative organization that services
distributors and dealers, and are sold to Original Equipment Manufacturers
("OEM").
Engineered Products.
The Engineered Products group designs, manufactures and sells indoor air
quality and dust collection equipment. The products comprising this segment
are manufactured in the Company's Sanford, North Carolina facility.
Engineered Products comprised 25%, 22% and 22% of the Company's total sales in
the years 1998, 1997 and 1996, respectively. Air cleaning and air filter
equipment within the Engineered Products segment are primarily designed for
<PAGE> -2-
industrial, commercial and specialty applications and used in a wide variety
of industries including metal working, pharmaceuticals, medical, commercial
buildings, restaurants, general manufacturing, ships and submarines. Products
range from custom-engineered systems that remove large volumes of airborne
contaminants caused by industrial processes to self-contained air cleaners
used to capture tobacco smoke, dust and pollen in environments such as
enclosed work areas, offices and restaurants. The Company's humidification
products are used for commercial and industrial applications. Products
include custom-designed systems as well as standard equipment with options
used in industrial processes and commercial installations as well as OEM. As
part of the Engineered Products segment, the Company also manufactures
equipment in its Sanford facility to electrostatically distribute microthin
films of lubricants, corrosion inhibitors and other protective coatings to
metal strips on high speed mill lines.
Cleanroom Products.
Through its subsidiary, Envirco, the Company utilizes high efficiency
particulate arrestance ("HEPA") and ultra low particulate arrestance ("ULPA")
technologies in manufacturing contamination control air systems and filters
for applications including cleanrooms in the semiconductor and
microelectronics industries and systems to provide hospitals with clean
environments for surgery rooms, cancer research, patient isolation and sterile
medication preparation. The Company's products include the patented
MAC-10(Registered Mark) used in cleanroom applications and
Hospi-Gard(Registered Mark), a portable filtration unit used in medical
applications. Of the Company's total net sales, the Cleanroom Products
segment comprised 23%, 27% and 29% in 1998, 1997 and 1996, respectively.
European Operations.
European Operations consists of sales and distribution primarily in Europe of
all IAQ and cleanroom products manufactured at Trion's U.S. facilities.
European Operations comprised 12%, 11% and 11% of the Company's total sales in
each of the years 1998, 1997 and 1996, respectively.
TECHNOLOGIES
In its air cleaning products, the Company utilizes what it believes to be the
industry's broadest range of technologies to collect airborne contaminants.
- HEPA filtration utilizes laminar flow filtration which ensures
even and constant airflow and has 99.97% efficiency on 0.3
micron size particles. ULPA filtration functions similarly
and has 99.999% efficiency on 0.12 micron size particles. These
processes provide the level of airborne contamination control
essential for applications requiring ultra-clean air, such as
cleanrooms and hospital and laboratory settings.
- Electrostatic precipitators are high efficiency electronic
air cleaners. In an electrostatic precipitator, air passes
through an ionizing section where airborne particles are
electrically charged by ions in an electrostatic field.
The charged particles then enter a collecting cell where
the particles are repelled from charged plates and collected
on grounded plates within the cell. This process is highly
effective at capturing submicron particulate, including
particulate found in tobacco smoke, dust, pollen, welding
smoke and oil mists from machining operations. A unique feature
is the low pressure drop of the electrostatic precipitator.
<PAGE> -3-
- In a media filtration system, air passes through media
filters that trap airborne particles. Some of these
filters, like cartridge collectors, can collect submicron
particulate, such as smoke, as well as larger
particulate. Other filters, like bag collectors, are
useful for larger particulate such as that generated in
machining and welding processes. In some systems, air
passes through a prefilter where larger particles are
collected and then pass through a second or third media
filter where smaller particles are collected.
In its humidification products, the Company also uses multiple technologies.
Humidification is accomplished by introducing moisture in the form of steam,
water vapor or water droplets into the air. The moisture raises the relative
humidity of the air stream to a desired level for human comfort, protection of
valuable articles and manufacturing processes.
RAW MATERIALS AND PURCHASED COMPONENTS
Raw materials and components used by the Company in its manufacturing
processes are either readily available from a number of suppliers or are
manufactured by the Company from raw materials that are readily available.
Aluminum, steel and filter paper represent principal raw materials in the
Company's products. Prices for aluminum, steel and filter paper can be
subject to wide fluctuation and the Company's products cannot always be priced
to take into account such fluctuations, especially in the short term. Other
significant materials used by the Company include motors, blowers, injection
molded plastics, media filters, packaging materials and various electrical
components. In the aggregate, the cost of materials in 1998 and in 1997
increased less than the consumer price index. The Company does not anticipate
significant cost increases during 1999.
SALES AND DISTRIBUTION
North America:
Within the Company's Consumer Products segment, the Company's appliance units
historically have been marketed principally to retailers, direct marketers and
others on a private label basis. The Company's residential products are both
marketed through a representative organization, which services distributor and
dealer networks, and are sold direct to OEM's. Trion sells appliance air
cleaners on a recurring basis to Sears, Roebuck and Co. within the Company's
Consumer Products segment. This customer represented approximately 8% of
consolidated sales in 1998 and the loss of the account could have an adverse
effect on the Company. Engineered Products and Cleanroom Products are sold by
the Company directly and through an outside sales force which is made up of
representatives and distributors. Products are sold to end users,
contractors, catalog houses, and OEM accounts. The Company's products are
also exported from the United States throughout the world through distributors
and representatives. For information regarding the Company's export sales,
see Note N to the financial statements included in Item 8 of this Annual
Report on Form 10-K.
European Operations:
Through Trion Limited, a wholly-owned subsidiary, the Company has a marketing
and distribution office in Andover, England, servicing primarily the European
market directly and through distributors and representatives.
<PAGE> -4-
COMPETITION
While the Company is a principal competitor in most of its markets, the indoor
air quality industry is highly competitive.
In the Consumer Products markets, while appliance air cleaners are sold by a
large number of companies, Honeywell, Inc., Holmes Products Corporation and
Trion together have the predominant share of the market. Of the three, Trion
is the only manufacturer of electronic appliance air cleaners. Principal
residential products competitors include Honeywell, Inc., Research Products
Inc., and Emerson Electric Company.
In Engineered Products, the market is fragmented, with no company having a
predominant share. The Company, Clarcor, Inc., Donaldson Company, Inc., Farr
Company, and BTR Siebe plc are major participants.
The principal competitors in the Cleanroom Products segment include companies
outside the United States such as Shin Sung Engineering Company headquartered
in South Korea, Air Tech in Japan, Meissner & Wurst in Germany, and Topre in
Japan.
Competition in most of the Company's market segments is primarily on the basis
of price, product technology, product quality and customer service with a
majority of the Company's business obtained through competitive bidding. Some
of the Company's competitors have assets and/or sales substantially in excess
of the Company.
PATENTS AND TRADEMARKS
The Company holds a number of patents that relate to the design and use of its
products, some of which it considers significant to the overall conduct of the
Company's business. One significant patent held by the Company will expire in
December 2002, however, subsequent patented improvements and design features
should minimize the impact to the Company. The Company owns several
trademarks that it considers important in the marketing of its products and
believes that its rights in these trademarks are adequately protected and of
unlimited duration.
RESEARCH AND DEVELOPMENT
The Company's ongoing research and development program involves creating new
products and redesigning existing products to reduce manufacturing costs and
to increase product efficiencies. During 1998, 1997 and 1996, the Company
spent approximately $1,337,000, $1,328,000, and $1,259,000, respectively, on
research and development activities.
EMPLOYEES
As of December 31, 1998, the Company employed approximately 402 persons
worldwide. The Company's employees are not represented by a union. The
Company believes its employee relations are satisfactory.
BACKLOG
The backlog of unfilled orders at December 31, 1998 was $6,855,000 as compared
to $8,747,000 at the prior year-end. Substantially all of this backlog is
scheduled for shipment during 1999.
<PAGE> -5-
RISKS
As a cautionary note to investors, statements made in this Annual Report on
Form 10-K concerning future revenues, earnings, competition and technology are
forward - looking statements that involve risks and uncertainties. In
addition, the Company may from time to time make oral forward - looking
statements. There are several important factors that could cause actual
results to differ materially from those contained in any forward - looking
statement made by or on behalf of the Company. Such factors include, but are
not limited to, those set forth below.
Potential Fluctuations in Operating Results: The Company can experience
fluctuations in operating results, both on a quarterly and annual basis,
caused by various factors, including general economic conditions and the
factors discussed below under "Cyclicality". Fluctuations in the Company's
operating results, particularly quarter-to-quarter, are also affected in
certain of its markets by the timing of customer orders, the pattern of
customer purchasing cycles and the resulting changes in product mix.
Cyclicality: Sales of Engineered Products in general are tied to capital
spending levels. A significant percentage of the Company's sales of
residential wholehouse air cleaners is dependent upon residential
construction, which is a cyclical industry. In addition, the Company has
substantial sales of products for cleanroom applications to the
microelectronics industry, which can be cyclical. Sales of Consumer Products
may also be subject to cycles due to the seasons and weather conditions.
Competition: While the Company is a principal competitor in most of its
markets, the indoor air quality industry is highly competitive. There can be
no assurance that there will not be adverse changes in the Company's
competitive environment in the future, including those resulting from
consolidation in the indoor air quality industry. Competition is primarily on
the basis of price, product quality, product technology and customer service,
with a majority of the Company's business obtained through competitive
bidding. See "Business - Competition" for a more detailed discussion of
competition in the Company's markets.
Fluctuations in Raw Material Costs: Aluminum, steel and filter paper represent
principal raw materials in the Company's products. Prices for these materials
can be subject to wide fluctuation and the Company's products cannot always be
priced to take into account such fluctuations, especially in the short term.
See "Business - Raw Materials and Purchased Components" for a more detailed
discussion of raw materials used in the Company's business.
International Transactions: The Company has sold and expects it will continue
to sell products in areas outside the United States. Such transactions entail
the risks associated with conducting business internationally, including the
risk of currency fluctuations, slower payment of invoices, adverse trade
regulations and possible social, political and economic instability. In
particular, the Company has had significant sales in Asia which have been and
will be adversely affected by current economic conditions in that region.
While the full impact of this economic instability cannot be predicted, it
could have a material adverse effect on the Company's revenue and
profitability.
<PAGE> -6-
Intellectual Property: The Company's success is dependent in part on its
ability to protect proprietary technology contained in certain of its
products. While Trion's critical technologies are patented, there can be no
assurance that this will prove sufficient to deter misappropriation of those
technologies or independent third-party development of rival technologies,
which would have an adverse effect on the Company's sales. The defense and
prosecution of patent suits are both costly and time-consuming, even if the
outcome is favorable to the Company. In foreign countries, the expenses
associated with such proceedings can be prohibitive. In addition, there is an
inherent unpredictability in obtaining and enforcing patents in foreign
countries.
Reliance on Key Personnel: The Company's operations are dependent on the
continued efforts of senior management, in particular Steven L. Schneider, its
President and Chief Executive Officer. Should any of the senior managers be
unable to continue in their present roles, the Company's prospects could be
adversely affected.
Potential Regulatory Risks: The Company's business and products may be
significantly influenced by the constantly changing body of environmental laws
and regulations, which require that certain environmental standards be met and
impose liability for the failure to comply with such standards. While the
Company endeavors at its facilities to ensure compliance with environmental
laws and regulations, future changes in such standards could have an adverse
effect on the Company. In addition, to some extent, changes in the
liabilities and risks imposed by the environmental laws on the Company's
customers could impact demand for certain of the Company's products or impose
greater liabilities and risks on the Company, which could also have an adverse
effect on the Company's business.
Year 2000: Many existing information technology ("IT") products and systems
and non-IT products and systems containing embedded processor technology were
originally programmed to represent any date by using six digits (e.g.,
12/31/99), as opposed to eight digits (e.g., 12/31/1999). Accordingly, such
products and systems may experience miscalculations, malfunctions or
disruptions when attempting to process information containing dates that fall
after December 31, 1999 or other dates, such as September 9, 1999 (9/9/99), a
date traditionally used by some computer programmers as a default. These
potential problems are collectively referred to as the "Year 2000" problem.
The following comments summarize the Company's approach and status with
respect to Year 2000 issues. The Company's plan to resolve the Year 2000
problem involves four phases: assessment, remediation, testing and
implementation.
The Company uses numerous software applications and computer programs
throughout the various functions within it organization that may require
modification in order to address the Year 2000 issues. The significant systems
identified include: the primary computer system (IBM AS400), which maintains
the Company's sales, accounting and inventory records and transactions in
Sanford, North Carolina, its primary manufacturing and headquarters location;
the networked personal computer systems, which maintain engineering design
software, electronic mail, and various support subsystems including sales,
accounting and inventory transactions at the other Company locations;
individual personal computers utilizing standard, off-the-shelf software; and
embedded non-IT microprocessors contained in production machinery, office
equipment and other such devices.
<PAGE> -7-
Over 90% of the software and computer programs used by the Company are
standard off-the-shelf applications, all of which have been or the Company
anticipates will be deemed by the Company's software providers to be Year 2000
compliant by the provider. The remaining custom software applications and code
are currently undergoing a comprehensive review and correction process which
will prepare them for compliance in mid-1999. The Company is assessing and
evaluating its non-IT systems, but does not believe it will have a material
adverse effect on the Company's business, financial condition or results of
operations. The Company expects to remediate and test its non-IT systems by
mid-1999.
The Company is currently in the process of assessing and evaluating its
materially significant customers and suppliers of goods and services, to
determine the ability of those entities to achieve Year 2000 compliance. As
part of the process, the Company will distribute Year 2000 compliance
questionnaires to its materially significant customers and suppliers and will
evaluate their responses. The Company will continue to assess and evaluate
the potential impact of Year 2000 issues on these entities and expects to
complete this process by mid-1999.
The Company has employed third party providers in its efforts to address the
Year 2000 issue in conjunction with the Company's own information technology
staff. Excluding the costs for the Company's own information technology
personnel, the total cost of compliance is expected to be approximately
$262,000 (of which $75,000 will be a capital expenditure) with $114,000 having
been expended through December 31, 1998. All costs (except capital) have been
and will be expensed as incurred and will be funded out of normal operating
cash flows.
Excluding any possible catastrophic events such as the loss of utilities or
banking, financial or communications services, the potential risks known to
the Company at this time are primarily limited to delays, disruptions or
losses resulting from information bottlenecks and the lack of computer
processing power. In order to mitigate the risk to the greatest extent
possible, the Company would be prepared to track mission-critical information
manually. Such information includes recording customer orders, purchasing
needed materials from suppliers, issuing payments for purchases/payroll, and
creating customer invoices/ collections. The Company believes its current
workforce and the employment pool available in the area is sufficiently
skilled to accommodate such a demand. Although the Company has few sole-source
components, in the case of vendors or suppliers that are found to be
non compliant, the Company will either ensure stocking levels of related
inventory items are increased or identify and certify alternative suppliers
prior to January 2000. The Company will continue to evaluate its contingency
planning activities as more information becomes available. At this time, the
total cost of the risks to the Company is not anticipated to have a material
adverse effect on the business, financial condition or results of operations
on the Company.
Item 2. Properties.
The Company owns a 263,000 square foot modern brick facility on 27 acres in
Sanford, North Carolina which houses the Company's corporate headquarters as
well as manufacturing, engineering, sales and distribution operations. This
property plus equipment are pledged to secure industrial revenue bonds
totaling $3,200,000 at December 31, 1998. The bonds mature on November 1,
2011. The carrying value of assets pledged to secure these bonds was
<PAGE> -8-
approximately $5,135,000 at December 31, 1998. In addition, the Company
currently leases a 45,000 square foot facility in Albuquerque, New Mexico
which houses Envirco. The lease may be terminated at the Company's option with
six months notice. The Company has evaluated the alternatives and options
available and will be relocating to a new 63,000 square foot leased facility
in Albuquerque during the third quarter. During May 1998, the lease for a
53,000 square foot facility located in Lancaster, Pennsylvania housing the
Herrmidifier operation expired. The Company successfully relocated and
consolidated all Lancaster operations into its Sanford facility at that time.
Foreign properties consist of a Company owned 53,000 square foot facility
located in Andover, England.
The Company's facilities in Sanford and Andover are suitable for their
intended uses; however, Andover has excess capacity for current needs and
remains for sale. The new facility in Albuquerque is appropriate and better
suited for the Company's Cleanroom Products operation and will provide
additional capacity should the served market improve.
Item 3. Legal Proceedings.
The Company is involved in various legal proceedings that are incidental to
the conduct of its business. The Company is not involved in any pending or
threatened legal proceedings which the Company believes could reasonably be
expected to have a material adverse effect on the Company's financial
condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 4A. Executive Officers of the Registrant.
Name Age Positions and Office Held
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Joseph W. Deering (1) 58 Chairman of the Board
Steven L. Schneider (2) 55 President and Chief Executive Officer
Brian H. Boender (3) 49 Vice President - Sales and Marketing
Ronald J. Doneff (4) 46 Vice President - Sales and Marketing
Charles A. Haynes (5) 50 Vice President - Engineering
Calvin J. Monsma (6) 47 Vice President and Chief Financial Officer
David M. Schlegel (7) 47 Vice President - President, Envirco
R. G. Stephens (8) 52 Vice President - Manufacturing
J. Gary Waters (9) 53 Vice President - Finance, N.A. Operations
(1) Mr. Deering is President of PMI Food Equipment Group (a division of
Premark International, Inc.) a manufacturer of commercial food service
products located in Troy, Ohio.
(2) Mr. Schneider joined the Company on May 24, 1993. For a period of more
than five years prior to joining the Company, Mr. Schneider served as Group
President of Tomkins Industries U.S.A., a subsidiary of Tomkins PLC, a
diversified manufacturing company.
(3) Prior to joining the Company on July 19, 1993, Mr. Boender was Vice
President-International for White-Rodgers (Division of Emerson Electric Co.),
a leading manufacturer in the HVAC industry, from May 1992 until July 1993.
(4) Mr. Doneff joined Trion on December 1, 1998. Mr. Doneff was employed
from September 1995 to November 1998 as National Sales Director at United Air
Specialists, a leading manufacturer of IAQ products, and prior to that he
served in sales management positions at Donaldson Company, Inc.
<PAGE> -9-
(5) Prior to joining the Company on July 6, 1994, Mr. Haynes was Engineering
Director of Heating Products for NORDYNE, a leading manufacturer of HVAC
products for modular housing and residential applications.
(6) Prior to joining the Company on July 11, 1994, Mr. Monsma was employed by
Concurrent Computer Corporation, a provider of high-performance real-time
computer systems, serving as Director of Finance for worldwide sales and
international operations until he joined the Company.
(7) Mr. Schlegel has been the President of the Company's Envirco subsidiary,
which was acquired by Trion in August 1995, for more than five years.
(8) Mr. Stephens joined the Company in 1966 and was appointed to the position
of Vice President - Manufacturing in June 1998. Prior to that he had served
as Director of Operations for the Company since 1989.
(9) Mr. Waters assumed responsibility for the newly created position of Vice
President Finance for North America Operations in November 1996. Prior to
that he had served as Vice President - Operations since September 1994 and
Vice President and Controller from 1989 until his election as Vice
President - Operations.
On March 31, 1993 the Company and Mr. Schneider entered into an employment
agreement which was subsequently amended and restated on July 28, 1995 and
again on May 20, 1998 (the "Agreement") providing for his employment as
President and Chief Executive Officer for a five-year term commencing on May
24, 1993 and which, after the initial term, is automatically extended for an
additional year on each anniversary date. A more complete discussion
regarding the Agreement may be found under the caption "Compensation
Agreements" on page 11 of the annual Proxy Statement dated March 26, 1999 and
is incorporated herein by reference.
In August 1995, as part of the Envirco acquisition, the Company and Mr.
Schlegel entered into an employment agreement providing for his employment as
President of the Company's Envirco subsidiary for a five year term. A more
complete discussion regarding the agreement may be found under the caption
"Compensation Agreements" on page 11 of the annual Proxy Statement dated March
26, 1999 and is incorporated herein by reference.
In addition, Mr. Monsma is a party to a change in control agreement. A
complete discussion regarding the terms of this agreement may be found under
the caption "Compensation Agreements of page 11 of the annual Proxy Statement
dated March 26, 1999 and is incorporated herein by reference. All other
executive officers serve at the discretion of the Board.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Trion, Inc.'s common stock trades on the NASDAQ Stock Market(Registered Mark)
under the symbol TRON. There were 897 shareholders of record on January 4,
1999. High and low sales prices and dividends declared by quarter for the last
two years were:
1998 1997
1998 Market Price 1997 Market Price
----------------- Dividends ------------------ Dividends
Quarter Ended High Low Declared High Low Declared
- ------------- ----- ----- --------- ------ ----- ---------
March 31. . . . . $6.88 $4.56 $0.02 $6.25 $3.88 $0.02
June 30 . . . . . $6.88 $5.00 $0.02 $5.38 $3.50 $0.02
September 30. . . $6.88 $3.25 $0.00 $5.50 $3.94 $0.02
December 31 . . . $4.88 $2.50 $0.00 $5.88 $4.13 $0.02
<PAGE> -10-
Item 6. Selected Financial Data.
(dollars in thousands, except per share data)
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Net Sales . . . . . . . . . . $57,214 $65,150 $62,401 $49,565 $39,090
Net Income (Loss) . . . . . .($ 1,196) $ 2,051 $ 1,112 $ 2,303 $ 1,734
Return on Sales . . . . . . . (2.1%) 3.1% 1.8% 4.6% 4.4%
Shareholders' Equity . . . . $21,541 $22,867 $21,042 $20,142 $18,007
Return on Beginning
Shareholders' Equity . . . . (5.2%) 9.7% 5.5% 12.8% 10.9%
Total Assets . . . . . . . . $39,201 $42,192 $40,796 $40,464 $27,146
Long-Term Debt . . . . . . . $ 5,700 $ 8,250 $ 9,908 $10,836 $ 3,525
Working Capital . . . . . . . $10,775 $13,646 $14,182 $16,486 $15,385
Per Common Share:
Earnings (Loss) - Basic . . .($ 0.17) $ 0.29 $ 0.16 $ 0.33 $ 0.25
Earnings (Loss) - Diluted . .($ 0.17) $ 0.29 $ 0.16 $ 0.32 $ 0.24
Dividends Declared. . . . . . $ 0.04 $ 0.08 $ 0.08 $ 0.08 $ None
Book Value . . . . . . . . . $ 3.01 $ 3.21 $ 3.01 $ 2.90 $ 2.61
The earnings per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, Earnings Per
Share (SFAS 128). For further discussion of earnings per share and the impact
of SFAS 128, see Notes to the Consolidated Financial Statements.
All amounts prior to 1996 have been restated to reflect the acquisition of the
Herrmidifier Company in August 1996 which was accounted for as a pooling of
interest. The restated financial and performance highlights for 1995 and 1994
above include the historical financial statements of Herrmidifier Company for
the years ended December 31, 1995 and 1994. Past performance may not be
indicative of future results.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Net sales for the year 1998 were $57,214,000, a 12% decrease from the
$65,150,000 recorded in 1997. On a year to year basis, the Company
experienced a decline in sales in all segments. All segments were impacted by
the Asian economic crisis which caused lower shipments to that region of the
world. The consumer products segments also declined as a result of 20% lower
shipments to a major retailer, offset by an improvement in shipments of the
Company's residential product line. Additionally, the cleanroom products
segment was impacted by a sharp decline in the semiconductor capital equipment
market. However, during the fourth quarter of 1998 the Company experienced an
improvement in most product segments as compared to the third quarter of 1998.
Net sales in 1996 were $62,401,000. The primary reasons for the 4% increase
in 1997, to $65,150,000, include a 29% increase in the Company's sales of
appliance products within its Consumer Products segment due to the
introduction of a new line of appliance products during 1997 and a 15%
increase in sales of the Company's traditional commercial/industrial product
lines on which the Company placed additional focus and emphasis.
Consolidated gross profit as a percentage of sales in 1998 increased over
1997, improving from 33.7% to 35.0% for the year, mainly due to product mix
and cost controls. Due to competition, all Company segments experienced
<PAGE> -11-
pricing pressures however, as a result of significant cost reductions and
Value Analysis programs, all segments realized an increase in the gross profit
percentage. The completed consolidation of the Lancaster, Pennsylvania
manufacturing facility into the Sanford, North Carolina facility was a major
profit improvement effort undertaken during 1998. In addition, profit
improvements were made through the implementation of tooling and die changes
thereby eliminating direct and indirect labor costs. Value Analysis programs
are formal meetings conducted by the Company where teams (consisting of
employees from manufacturing, accounting, engineering, and sales) are assigned
the task of analyzing the composition of individual products; including the
function of each component of the product, the manufacturing processes
utilized and the related costs of each element analyzed. Specifically, five
individual Value Analysis programs were conducted during 1998 which led to the
Company making design improvements on its new line of appliance products, one
residential product, two commercial/industrial products, and the
MAC10(Registered Mark) patented cleanroom product.
Consolidated gross profit as a percentage of sales in 1997 improved slightly
over 1996, coming in at 33.7% for 1997 as compared to 33.5% the year before.
Operating improvements were recorded by both acquisitions, Envirco and
Herrmidifier. Profit improvement programs and Value Analysis activities, as
described above, included the relocation of the Herrmidifier residential
products manufacturing line as well as design improvements to several of the
Company's products. Two Value Analysis sessions were held in 1997.
Improvements generated were partially offset by start up production costs
associated with the introduction of the new line of appliance products.
Selling, administration and engineering expenses were $516,000 lower in 1998
than in 1997 and $218,000 lower than in 1996 due to lower sales volumes and
cost controls. As a percentage of sales, selling, administration and
engineering expenses were 30.7% in 1998 in comparison to 27.8% and 28.5% in
1997 and 1996, respectively. The primary reason for the reduced spending and
increases as a percentage of sales is related directly to the lower sales
volume in 1998 as compared to 1997 and 1996. In order to control operating
expenses, throughout 1998 the Company made adjustments in its levels of
spending and manpower at all domestic operations in response to the reduced
sales volumes. The Company continues to maintain its spending in research and
development efforts.
Interest expense during 1998 was $828,000 as compared to $978,000 in 1997 and
$856,000 in 1996. The decrease in 1998 was due to a reduction in debt. The
increase in 1997 was due to incremental borrowings used primarily to fund
capital expenditures. In aggregate, the weighted average interest paid was
approximately 7.7% in 1998, 7.5% in 1997 and 7.3% in 1996. The increase in
1998 is due to a change in the basis point spread of interest rates as
directed by the existing credit agreement whereas the increase in 1997 from
1996 is primarily due to the Company entering into an interest rate hedge
agreement on $6,000,000.
Amortization expense was $344,000 for 1998, 1997 and 1996 reflecting the
amortization of goodwill recorded for the purchase of Envirco.
On August 14, 1998, the Company entered into an Agreement and Plan of Merger
("Merger Agreement") with McLeod Russel Holdings PLC ("McLeod Russel") and
McLeod Russel of Pennsylvania, Inc. ("Sub"), a wholly owned subsidiary of
McLeod Russel. On October 14, 1998, the Company, McLeod Russel, and Sub
mutually agreed to terminate the Merger Agreement and entered into a Mutual
<PAGE> -12-
Release and Termination Agreement. There were no fees paid between the
companies.
The Company recorded charges for the $2,900,000 settlement on August 10, 1998
for the lawsuit filed by Carico International, of which one-half was paid in
September 1998 and one-half was paid in January 1999. The Company also
recorded charges of $1,022,000 for: legal, accounting and investment banking
advice related the merger with McLeod Russel and its subsequent termination;
legal fees in connection with the Carico settlement; and charges in connection
with the completed consolidation effort of the Company's humidification
product line into its Sanford manufacturing facility. In addition, a credit
of $325,000 was recorded for the recovery of legal costs associated with the
Carico lawsuit. In 1996, a one time acquisition expense of $414,000 was
directly related to the Herrmidifier acquisition in August of 1996 for legal,
accounting and investment banking fees.
Due to the above non-recurring charges and additional research and development
tax credits, the Company reported a loss before income taxes in 1998 thereby
generating a tax benefit of $982,000 for the year. Income taxes were $662,000
and $502,000, or an effective rate of 24.4% and 31.1% in 1997 and 1996,
respectively. This reduction in the effective income tax rate between these
two periods is primarily attributable to the profits posted by the Company's
subsidiary in the United Kingdom offset by the utilization of related tax loss
carryforwards and research and development tax credits taken in 1997.
In 1998, the Company reported a net loss of $1,196,000 for the year. This
performance as compared to the prior year was due primarily to the
non-recurring charges and, to a lesser extent, the lower sales volume. Net
income for the year ended 1997 was $2,051,000 as compared to $1,112,000 in
1996. The 84% improvement in 1997 was the result of the previously mentioned
increase in sales, favorable gross profit and operating expenses as a
percentage of sales, and the lower effective rate in income taxes. The
resulting basic and diluted earnings (loss) per share were the same in 1998,
or ($0.17) per share, the same in 1997, or $0.29 per share, and the same in
1996, or $0.16 per share.
Liquidity and Sources of Capital
Cash flow provided by operating activities was sufficient to fund working
capital requirements. Net capital expenditures during 1998 were $1,016,000 as
compared to $2,998,000 in 1997. This level of spending is significantly below
recent years and reflects the Company's deliberate control on spending during
1998 in light of its financial performance. During 1998, the Company
continued to invest in tooling, machinery and equipment in order to lower
manufacturing costs and streamline production processes. The Company's cash
balance decreased from $2,979,000 to $2,158,000 during the year primarily due
to debt repayment. The level of cash was required to satisfy the
aforementioned payment related to the Carico lawsuit which was due and paid in
early January of 1999. The Company continues to improve asset management as
accounts receivable days outstanding improved by 11% and inventories declined
by $394,000. Working capital declined to $10,775,000 in 1998 as compared to
$13,646,000 in 1997 and the ratio of current assets to current liabilities is
at 1.9 to 1 as compared to 2.2 to 1 a year ago. The Company will continue to
take measures to improve asset and resource management.
The Company had an unsecured line of credit with Wachovia Bank of North
Carolina, N.A. which was comprised of an $8,000,000 revolving line of credit
and a $10,000,000 fixed term component. The revolving line of credit
<PAGE> -13-
component expires in March 1999. The term component has $5,000,000
outstanding as of December 31, 1998, and is payable in four equal installments
of $1,250,000 on each of March 1999, September 1999, March 2000 and September
2000. On March 19, 1999 the Company entered into a new secured credit
agreement with its lender which replaced and refinanced the existing
agreement. Under the new facility, any amounts outstanding under the facility
are secured by the accounts receivable, inventory and general intangibles of
the Company. The maximum amount available under the revolving line of credit
has been reduced to $5,000,000. The terms of the agreement contain among
other provisions, requirements for maintaining certain net worth and other
financial ratios and specific limits or restrictions on additional
indebtedness.
Implications of the Year 2000 Issue
Many existing information technology ("IT") products and systems and non-IT
products and systems containing embedded processor technology were originally
programmed to represent any date by using six digits (e.g., 12/31/99), as
opposed to eight digits (e.g., 12/31/1999). Accordingly, such products and
systems may experience miscalculations, malfunctions or disruptions when
attempting to process information containing dates that fall after December
31, 1999 or other dates, such as September 9, 1999 (9/9/99), a date
traditionally used by some computer programmers as a default. These
potential problems are collectively referred to as the "Year 2000" problem.
The following comments summarize the Company's approach and status with
respect to Year 2000 issues.
The Company uses numerous software applications and computer programs
throughout the various functions within it organization which may require
modification in order to address the Year 2000 issues. The significant
systems identified include: the primary computer system (IBM AS400) which
maintains the Company's sales, accounting and inventory records and
transactions in Sanford, North Carolina, its primary manufacturing and
headquarters location; the networked personal computer systems which maintain
engineering design software, electronic mail, and various support subsystems
including sales, accounting and inventory transactions at the other Company
locations; individual personal computers utilizing standard, off-the-shelf
software; and embedded non-IT microprocessors contained in production
machinery, office equipment and other such devices.
Over 90% of the software and computer programs used by the Company are
standard off-the-shelf applications, all of which has been or will be deemed
by the Company's software providers to be Year 2000 compliant by the provider.
The remaining custom software applications and code are currently undergoing a
comprehensive review and correction process which will prepare them for
compliance in mid-1999. The Company is assessing and evaluating its non-IT
systems, but does not believe that Year 2000 issues with respect to the
systems will have a material adverse effect on the Company's business,
financial condition or results of operations. The Company expects to
remediate and test its non-IT systems by mid-1999.
The Company is currently in the process of assessing and evaluating its
materially significant customers and suppliers of goods and services to
determine the ability of those entities to achieve Year 2000 compliance. As
part of the process, the Company will distribute Year 2000 compliance
questionnaires to its materially significant customers and suppliers and will
evaluate their responses. The Company will continue to assess and evaluate
<PAGE> -14-
the potential impact of Year 2000 issues on these entities and expects to
complete this process by mid-1999.
The Company has employed third party providers in its efforts to address its
Year 2000 issues in conjunction with the Company's own information technology
staff. Excluding the costs for the Company's own information technology
personnel, the total cost of compliance is expected to be approximately
$262,000 (of which $75,000 will be a capital expenditure) with $114,000 having
been expended through December 31, 1998. All costs (except capital) have been
and will be expensed as incurred and will be funded out of normal operating
cash flows.
Excluding any possible catastrophic events such as the loss of utilities or
banking, financial or communications services, the potential risks known to
the Company at this time are primarily limited to delays, disruptions or
losses resulting from information bottlenecks and the lack of computer
processing power. In order to mitigate the risk to the greatest extent
possible, the Company will be prepared to track mission-critical information
manually. Such information includes recording customer orders, purchasing
needed materials from suppliers, issuing payments for purchases/payroll, and
creating customer invoices/ collections. The Company believes its current
workforce and the employment pool available in the area is sufficiently
skilled to accommodate such a demand. Although the Company has few sole-source
components, in the case of vendors or suppliers that are found to be
non compliant, the Company will either ensure stocking levels of related
inventory items are increased or identify and certify alternative suppliers
prior to January 2000. The Company will continue to evaluate its contingency
planning activities as more information becomes available. At this time, the
total cost of the risks is not anticipated to have a material adverse effect
on the business, financial condition or results of operations of the Company.
Euro Conversion
On January 1, 1999 eleven of the fifteen member countries of the European
Union (the "Participating Countries") established fixed conversion rates
between their existing sovereign currencies ("legacy currencies") and the
Euro. Between January 1, 1999 and December 31, 2001, the Euro will be used
solely for non-cash transactions. During this time period, the Euro will be
traded on currency exchanges and will be the basis of valuing legacy
currencies. The legacy currencies will continue to be legal tender.
Beginning January 1, 2002, the Participating Countries will issue new Euro-
denominated bills and coins denominated in the legacy currencies. The legacy
currencies will then no longer be legal tender for any transactions.
The Company exports a portion of its sales to countries that are Participating
Countries, especially from its European Operations. As the European pricing
policy has historically included some pricing in local currencies, the Company
believes that as a result of the Euro conversion the uncertainty of the effect
of exchange fluctuations will be reduced. The Company believes that the
conversion to the Euro will eliminate much of the advantage or disadvantage
coming from exchange rate fluctuation resulting from transactions involving
legacy currencies in Participating Countries. Accordingly, competitiveness
will be solely on price, quality and service. While the Company believes the
increased competitiveness based on these factors will provide the Company with
a strategic advantage over smaller local companies, it cannot assess the
magnitude of this impact on its operations.
<PAGE> -15-
The Company's Euro conversion plan provides for the invoicing of products in
both local currencies and the Euro beginning January 1, 1999.
The foregoing discussion contains forward-looking statements regarding the
Company's financial condition and results of operations, which are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management's judgment only as of the date hereof. The Company
undertakes no obligation to publicly revise these forward-looking statements
to reflect events and circumstances that arise after the date hereof. Factors
that might cause the Company's actual results to differ materially from those
anticipated in forward-looking statements include the following: generally
adverse economic and industry conditions, including a decline in demand for
IAQ products or significant changes in preferences in or use of such products;
changes in the competitive environment, including increased competition in the
Company's primary markets and consolidation in the air quality industry;
economic or political changes in the countries in which the Company operates
or adverse trade regulations; and non-availability of resources for the
Company, or its suppliers and customers, to complete their respective Year
2000 compliance effectively.
Item 7A. Quantitative and Qualitative Disclosure About Market Risks
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rate risks. Market risk is the potential
loss arising from adverse change in market rates and prices, such as foreign
currency exchange and interest rates. For the Company, these exposures are
primarily related to the sale of product to foreign customers, the acquisition
of raw materials and changes in interest rates. The Company does not enter
into derivatives or other financial instruments for trading or speculative
purposes. The Company has entered into a financial instrument to manage and
reduce the impact of changes in interest rates.
The fair value of the Company's debt was $10.7 million. Market risk was
estimated as the potential increase in fair value resulting from a
hypothetical 10% decrease in the Company's estimated weighted average
borrowing rate at December 31, 1998. To minimize the effects of interest rate
fluctuations, the Company entered into an interest rate hedge agreement
covering $6 million. The agreement locks in at a specific interest rate. If
the prevailing market interest rate increases, the Company is reimbursed for
the difference between the locked rate and the prevailing market rate on a
quarterly basis. If the prevailing market interest rate decreases, the
Company pays the difference between the locked rate and the prevailing market
rate on a quarterly basis. At the aforementioned hypothetical 10%
fluctuation, the impact of changes in interest rates on the Company's
financial condition or results of operations was not material.
The Company's financial position is effected by fluctuations in the value of
its subsidiaries' functional currency. The result of a uniform 10% change in
the value of the U.S. dollar relative to countries in which the Company
manufactures or sells its products would be a translation loss of
approximately $196.000. Changes in exchange rates also effect the volume of
sales or the foreign currency sales price as competitors' products become
more or less attractive. The Company's sensitivity analysis of the effects of
changes in foreign currency exchange rates does not factor in a potential
change in sales levels of local currency prices.
<PAGE> -16-
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements and the report of independent auditors
are set forth below. Information required by Item 302, "Supplementary Data,"
is set forth in Note K of the Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
TRION, INC. AND SUBSIDIARIES
(in thousands, except per share amounts) Year Ended December 31
1998 1997 1996
------- ------- -------
Net Sales . . . . . . . . . . . . . . . . . $57,214 $65,150 $62,401
------- ------- -------
Cost and expenses:
Cost of products sold . . . . . . . . . 37,201 43,171 41,487
Selling, administration
and engineering expenses. . . . . . . 17,574 18,090 17,792
Interest . . . . . . . . . . . . . . . 828 978 856
Amortization . . . . . . . . . . . . . 344 344 344
Non-recurring charges . . . . . . . . . 3,597 -- 414
Other expense (income), net . . . . . . (152) (146) (106)
------- ------- -------
59,392 62,437 60,787
------- ------- -------
Income (loss) before income taxes . . . . . (2,178) 2,713 1,614
------- ------- -------
Income tax expense (benefit):
Current . . . . . . . . . . . . . . . . (831) 716 685
Deferred . . . . . . . . . . . . . . . (151) (54) (183)
------- ------- -------
(982) 662 502
------- ------- -------
Net income (loss) for the year. . . . . . . ($ 1,196) $ 2,051 $ 1,112
======= ======= =======
Earnings (loss) per share of common stock -
basic. . . . . . . . . . . . . . ($ 0.17) $ 0.29 $ 0.16
======= ======= =======
Earnings (loss) per share of common stock -
assuming dilution. . . . . . . . ($ 0.17) $ 0.29 $ 0.16
======= ======= =======
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
TRION, INC. AND SUBSIDIARIES
(in thousands) Year Ended December 31
1998 1997 1996
Net income (loss) . . . . . . . . . . . . . ($ 1,196) $ 2,051 $ 1,112
Other comprehensive income, net of tax:
Foreign currency translation adjustments. 35 (159) 153
------- ------- -------
Comprehensive income (loss) . . . . . . . . ($ 1,161) $ 1,892 $ 1,265
======= ======= =======
See notes to consolidated financial statements
<PAGE> -17-
CONSOLIDATED BALANCE SHEETS
TRION, INC. AND SUBSIDIARIES
(in thousands)
ASSETS December 31
1998 1997
------- -------
CURRENT ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . $ 2,158 $ 2,979
Trade accounts receivable less allowance for
doubtful accounts: ($317,000 in 1998 and
$454,000 in 1997) . . . . . . . . . . . . . . 9,964 11,815
Inventories . . . . . . . . . . . . . . . . . . 8,834 9,228
Refundable income taxes . . . . . . . . . . . . 994 --
Prepaid expenses and other current assets . . . 694 536
Deferred current income taxes . . . . . . . . . 91 163
------- -------
Total current assets . . . . . . . . . . . . 22,735 24,721
------- -------
PROPERTY, PLANT AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . 78 78
Buildings . . . . . . . . . . . . . . . . . . . 5,408 5,428
Equipment . . . . . . . . . . . . . . . . . . . 19,663 19,810
Allowance for depreciation . . . . . . . . . . (15,549) (14,861)
------- -------
9,600 10,455
------- -------
OTHER ASSETS
Goodwill less accumulated amortization:
($1,174,000 in 1998 and $830,000 in 1997) . . 5,705 6,049
Deferred income taxes . . . . . . . . . . . . . 546 323
Other non-current assets . . . . . . . . . . . 615 644
------- -------
6,866 7,016
------- -------
$39,201 $42,192
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . $ 2,198 $ 2,714
Note Payable . . . . . . . . . . . . . . . . . 1,450 --
Revolving line of credit. . . . . . . . . . . . 2,500 2,000
Accrued expenses:
Compensation and fringes . . . . . . . . . . 1,027 1,653
Selling and promotions . . . . . . . . . . . 540 685
Other . . . . . . . . . . . . . . . . . . . . 1,745 1,322
Income taxes . . . . . . . . . . . . . . . . . -- 193
Current portion of long-term debt . . . . . . . 2,500 2,508
------- -------
Total current liabilities . . . . . . . . . . 11,960 11,075
LONG-TERM DEBT . . . . . . . . . . . . . . . . . 5,700 8,250
------- -------
17,660 19,325
------- -------
SHAREHOLDERS' EQUITY
Common stock, par value $0.50 a share:
Authorized 20,000,000 shares
Issued and outstanding: (7,149,247 in 1998
and 7,128,797 in 1997). . . . . . . . . . . 3,575 3,564
Additional paid-in capital . . . . . . . . . . 1,558 1,448
Retained earnings . . . . . . . . . . . . . . . 16,199 17,681
Accumulated other comprehensive income. . . . . 209 174
------- -------
21,541 22,867
------- -------
$39,201 $42,192
======= =======
See notes to consolidated financial statements
<PAGE> -18-
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
TRION, INC. AND SUBSIDIARIES
(in thousands, except shares outstanding)
Year Ended December 31
1998 1997 1996
--------- --------- ---------
Shares Outstanding:
Balance at beginning of year . . . . . 7,128,797 6,997,519 6,951,483
Board of Directors retainer fee. . . . 11,983 7,578 4,440
Exercise of stock options. . . . . . . 8,467 123,700 41,596
--------- --------- ---------
Balance at end of year . . . . . . . . 7,149,247 7,128,797 6,997,519
========= ========= =========
Common Stock:
Balance at beginning of year . . . . . $ 3,564 $ 3,499 $ 3,476
Board of Directors retainer fee. . . . 6 4 2
Exercise of stock options. . . . . . . 5 61 21
--------- --------- ---------
Balance at end of year . . . . . . . . 3,575 3,564 3,499
--------- --------- ---------
Additional paid in capital:
Balance at beginning of year . . . . . 1,448 1,017 869
Board of Directors retainer fee. . . . 67 32 26
Exercise of stock options. . . . . . . 43 399 122
--------- --------- ---------
Balance at end of year . . . . . . . . 1,558 1,448 1,017
--------- --------- ---------
Retained Earnings:
Balance at beginning of year . . . . . 17,681 16,193 15,620
Net income (loss). . . . . . . . . . . (1,196) 2,051 1,112
Dividends declared:
($0.04 per share in 1998 and
$0.08 per share in 1997 & 1996). . . (286) (563) (539)
--------- --------- ---------
Balance at end of year . . . . . . . . 16,199 17,681 16,193
--------- --------- ---------
Accumulated other comprehensive income:
Balance at beginning of year . . . . . 174 333 180
Translation adjustments for the year . 35 (159) 153
--------- --------- ---------
Balance at end of year . . . . . . . . 209 174 333
--------- --------- ---------
--------- --------- ---------
Shareholders' Equity at End of Year . . $ 21,541 $ 22,867 $ 21,042
========= ========= =========
See notes to consolidated financial statements
<PAGE> -19-
CONSOLIDATED STATEMENTS OF CASH FLOWS
TRION, INC. AND SUBSIDIARIES
(in thousands)
Year Ended December 31
1998 1997 1996
-------- -------- -------
OPERATING ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . .($1,196) $2,051 $1,112
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . 1,871 1,753 1,442
Amortization . . . . . . . . . . . . . . . . 344 344 344
Deferred income taxes . . . . . . . . . . . . (151) (54) (183)
Non-recurring charge - litigation settlement. 1,450 -- --
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . 1,851 (165) 1,436
Refundable income taxes . . . . . . . . . . (994) -- --
Inventory and prepaid expenses . . . . . . 265 617 1,073
Accounts payable and accrued expenses . . . (915) 385 (1,829)
Foreign currency transaction loss (gain) . . (54) (71) (68)
------- ------- ------
Net cash provided by operating activities . 2,471 4,860 3,327
------- ------- ------
INVESTING ACTIVITIES
Purchases of property, plant and equipment(net). (1,016) (2,998) (3,149)
------- ------- ------
Net cash used by investing activities . . . (1,016) (2,998) (3,149)
------- ------- ------
FINANCING ACTIVITIES
Net proceeds from master credit facility . . . . 500 2,200 3,500
Principal payments on long-term debt . . . . . . (2,558) (3,014) (1,901)
Stock issued . . . . . . . . . . . . . . . . . . 121 496 174
Cash dividends paid . . . . . . . . . . . . . . (428) (563) (528)
------- ------- ------
Net cash provided (used) by
financing activities . . . . . . . . . . (2,365) (881) 1,245
------- ------- ------
Effect of foreign exchange rate changes on cash . 89 (75) 153
------- ------- ------
Increase (decrease) in cash . . . . . . . . . . . (821) 906 1,576
Cash at beginning of year . . . . . . . . . . . . 2,979 2,073 497
------- ------- ------
Cash at end of year . . . . . . . . . . . . . . . $2,158 $2,979 $2,073
======= ======= ======
See notes to consolidated financial statements
<PAGE> -20-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ACCOUNTING POLICIES
Operations: The Company is principally engaged in the design, manufacture and
sale of equipment to improve the quality of indoor air in the residential,
commercial and industrial markets, and equipment to electrostatically
distribute micro-thin films of lubricants, corrosion inhibitors and other
protective coatings to metal strips on high speed process lines.
Translation of Foreign Currencies: Assets and liabilities of foreign
subsidiaries are translated using year-end exchange rates and revenues and
expenses are translated using a weighted average exchange rate for the year.
Unrealized currency translation adjustments are recorded as a component of
shareholders' equity and are not included in income until realized.
Principles of Consolidation: The financial statements include the accounts of
the Company's subsidiaries, all of which are wholly owned. All significant
intercompany transactions have been eliminated.
Use of Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Interest Rate Hedge Agreement: The interest rate differential to be paid or
received as a result of the interest rate hedge agreement is paid quarterly
and recognized as an adjustment to interest expense. (See Note F)
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out method for domestic inventories and by
the first-in, first-out method for all other inventories. Obsolete or slow
moving inventory is written off or written down when it is determined that the
carrying value of the particular item exceeds realizable value.
Property, Plant and Equipment: Property, plant and equipment are carried at
cost. Depreciation is computed by the straight-line method. The range of the
estimated lives used in depreciating buildings are 25 to 40 years and for
equipment 4 to 10 years.
Intangible and Long-Lived Assets: The carrying value of intangible and long-
lived assets are reviewed if the facts and circumstances indicate impairment
of their carrying value. The Company's policy for the valuation of intangibles
and long-lived assets is to calculate the undiscounted projected future cash
flows expected to be generated over the life of the intangibles. Any
impairment in the carrying value of such intangibles is recorded when
identified. Goodwill is amortized on a straight line basis over 20 years.
Pension and Savings Plans: The Company has one noncontributory defined benefit
pension plan and three defined contribution profit sharing plans covering
eligible employees. Effective December 31, 1998, the Company adopted
Statement of Financial Accounting Standards No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits. The provisions of SFAS 132
revise employer's disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of these plans. It
<PAGE> -21-
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable. (See Note J)
Net Sales: The Company recognizes revenues on product sales when goods are
shipped although the Company may delay recognition of revenue at the time of
physical shipment due to various contractual issues including, but not limited
to, extension of payment terms, passage of title and risk of loss. Upon
meeting all required criteria, the Company may also recognize revenues on a
bill and hold basis however, the Company did not have any bill and hold
transactions during 1998, 1997 or 1996.
Advertising Costs: It is the Company's policy to expense all advertising costs
in the year the advertising occurs. Advertising expenses were $1,091,000,
$784,000, and $764,000 for the years 1998, 1997 and 1996, respectively.
Research and Development Expenses: Included in selling, administration and
engineering expenses is $1,337,000, $1,328,000 and $1,259,000 for research and
development in the years 1998, 1997 and 1996, respectively. It is a policy of
the Company to expense research and development costs in the year incurred.
Warranty Expenses: The Company has a warranty reserve which has been
established at a percentage of cost of sales. This percentage, which is
subject to regular review, is based on the history of warranty expenses
incurred.
Comprehensive Income: As of January 1, 1998 the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the Company's net income or shareholders' equity.
SFAS 130 requires unrealized gains and losses on the Company's available for
sale securities and foreign currency translation adjustments, which prior
adoption were reported separately in shareholders' equity to be included in
other comprehensive income. All adjustments made between net income and
comprehensive income for the Company are attributed to foreign currency
translation. Prior year financial statements presented conform to the
requirements of SFAS 130.
Derivatives: In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), which is required to be
adopted in years beginning after June 15, 1999. Since the Company does not
enter into derivatives, management does not anticipate that the adoption of
SFAS 133 will have a significant effect on earnings or the financial position
of the Company.
Statement of Cash Flows: For purposes of this statement, the Company considers
all highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
Segment Information: Effective January 1, 1998, the Company adopted Statement
of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"). SFAS 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related
<PAGE> -22-
disclosures about products and services, geographic areas and major customers.
The adoption of SFAS 131 did not affect the Company's results of operations or
financial position. (See Note N)
Reclassification: Certain amounts in 1997 and 1996 have been reclassified to
conform to present classifications. These reclassifications have no effect on
previously reported shareholders' equity or financial results.
NOTE B - NON-RECURRING CHARGES
On August 14, 1998, the Company entered into an Agreement and Plan of Merger
("Merger Agreement") with McLeod Russel Holdings PLC ("McLeod Russel") and
McLeod Russel of Pennsylvania, Inc. ("Sub"), a wholly owned subsidiary of
McLeod Russel. On October 14, 1998, the Company, McLeod Russel, and Sub
mutually agreed to terminate the Merger Agreement and entered into a Mutual
Release and Termination Agreement. There were no fees paid between the
companies.
The Company recorded charges for the $2,900,000 settlement on August 10, 1998
for the lawsuit filed by Carico International, of which one-half was paid in
September 1998 and one-half was paid in January 1999. The Company also
recorded charges of $1,022,000 for: legal, accounting and investment banking
advice related the merger with McLeod Russel and its subsequent termination;
legal fees in connection with the Carico settlement; and charges in connection
with the completed consolidation effort of the Company's humidification
product line into its Sanford manufacturing facility. In addition, a credit
of $325,000 was recorded for the recovery of legal costs associated with the
Carico lawsuit.
NOTE C - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
1998 1997 1996
----------- ----------- -----------
Numerator for basic and diluted
earnings (loss) per share:
Net income (loss). . . . . . . . . .($ 1,196,000) $ 2,051,000 $ 1,112,000
Denominator:
Denominator for basic earnings per
share-weighted average shares: . . . 7,143,245 7,031,432 6,976,252
Effect of dilutive securities:
Employee stock options . . . . . N/A 147,539 172,256
----------- ---------- -----------
Denominator for diluted earnings
per share - adjusted weighted average
shares and assumed conversions . . . 7,143,245 7,178,971 7,148,508
=========== ========== ===========
Basic earnings (loss) per share. . . . . $ (0.17) $ 0.29 $ 0.16
=========== ========== ===========
Diluted earnings (loss) per share. . . . $ (0.17) $ 0.29 $ 0.16
=========== ========== ===========
NOTE D - ACQUISITIONS
On August 30, 1996, the Company acquired 100% of the outstanding stock of
Herrmidifier Company, Inc. (Herrmidifier) located in Lancaster, Pennsylvania
for 500,000 shares of the Company's Common Stock. Related to this transaction,
the Company recognized approximately $414,000 in one-time transaction costs.
The transaction was accounted for by the pooling of interest method, and
accordingly, the 1996 consolidated financial statements for the periods
presented were restated to include Herrmidifier.
<PAGE> -23-
NOTE E - INVENTORIES
(in thousands) 1998 1997
------- -------
Raw materials . . . . . . . . . . . . . . . . $ 4,454 $ 5,169
Work in process and finished products . . . . 4,380 4,059
------- -------
$ 8,834 $ 9,228
======= =======
If the first-in, first-out method of accounting for cost had been used for
domestic inventories, inventories would have been approximately $405,000 and
$364,000 more at December 31, 1998 and 1997, respectively.
NOTE F - LINE OF CREDIT/LONG-TERM DEBT
In September 1995, the Company obtained a master credit facility in the United
States which allows the Company to borrow up to $18,000,000 at the London
Interbank Offering Rate of interest plus 1.25% to 2.00%. The structure of this
master credit facility included an $8,000,000 thirty six (36) month revolving
line of credit and a $10,000,000 sixty (60) month declining balance term loan
with 12.5% of the balance as of March 1997 payable every six months beginning
March 1997. The revolver component expires in March 1999. As of December 31,
1998 and 1997, the amount outstanding on the revolving line of credit was
$2,500,000 and $2,000,000, respectively, and the amount outstanding on the
term portion was $5,000,000 and $7,500,000, respectively.
On March 19, 1999 the Company entered into a new secured credit agreement with
its lender which replaced and refinanced the existing agreement. Under the
new facility, any amounts outstanding under the facility are secured by the
accounts receivable, inventory and general intangibles of the Company. The
maximum amount available under the revolving line of credit has been reduced
to $5,000,000. The terms of the agreement contain among other provisions,
requirements for maintaining certain net worth and other financial ratios and
specific limits or restrictions on additional indebtedness.
Long-term debt for the periods is comprised of the following:
(in thousands) 1998 1997
------- -------
Term Loan . . . . . . . . . . . . . . . . . . . . . . . $ 5,000 $ 7,500
Industrial Development Revenue Refunding Bonds, 1995. . 3,200 3,200
Other . . . . . . . . . . . . . . . . . . . . . . . . . -- 58
------- -------
8,200 10,758
Less: Current portion of long-term debt . . . . . . . . 2,500 2,508
------- -------
Total long-term debt . . . . . . . . . . . . . . . . . $ 5,700 $ 8,250
======= =======
In aggregate, the weighted average interest rate paid during 1998 was 7.7% and
7.5% in 1997. The industrial development revenue refunding bonds, due in
November of 2011, bear interest, inclusive of fees for the letter of credit,
remarketing, and other financing charges, of approximately 5.0% and require no
principal payments until maturity. The bonds are secured by the Sanford
facility, including real property and equipment. Maturities on long-term debt
over the next five years are as follows: 1999 - $2,500,000; 2000 - $2,500,000;
and 2001 through 2003 - $0. As of December 31, 1998, the Company had recorded
a $1,450,000 note payable due January 1999 associated with the non-recurring
charges. In order to reduce the impact of fluctuations in interest rates on
its floating rate debt the Company entered into an interest rate hedge
agreement. On December 31, 1998, the Company had one interest rate hedge
agreement outstanding. In 1998, it effectively fixed the rate of interest on
$6,000,000 of debt at a rate of 8.2%. The hedge agreement expires in 1999.
<PAGE> -24-
NOTE G - LEASES
The Company currently leases a 45,000 square foot facility in Albuquerque, New
Mexico which houses Envirco. The lease may be terminated at the Company's
option with six months notice. The Company has evaluated the alternatives and
options available and, during the first quarter of 1999, located a replacement
facility and expects it will be relocating to a new 63,000 square foot leased
facility in Albuquerque during the third quarter of 1999. In May 1998, the
lease on the Lancaster facility expired and the Company consolidated remaining
operations into its Sanford, North Carolina facility.
In addition, the Company leases a small amount of other equipment. Total lease
payments were $438,000 in 1998, $548,000 in 1997, and $546,000 in 1996. Future
minimum lease payments in effect at December 31, 1998 are as follows:
1999 $ 368,000
2000 200,000
2001 65,000
2002 47,000
2003 and thereafter 82,000
---------
Total $ 762,000
=========
NOTE H - INCOME TAXES
The liability method is used in accounting for income taxes as prescribed by
FASB Statement No. 109, Accounting for Income Taxes (SFAS 109). Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Income (loss) before income taxes consisted of the following:
(in thousands) 1998 1997 1996
------- ------- -------
Domestic . . . . . ($ 2,836) $ 2,127 $ 841
Foreign . . . . . 658 586 773
------- ------- -------
($ 2,178) $ 2,713 $ 1,614
======= ======= =======
Federal, foreign and state income tax expenses (benefit) consisted of the
following:
(in thousands) 1998 1997 1996
----------------- ------------------ -----------------
Current Deferred Current Deferred Current Deferred
------- -------- ------- -------- ------- --------
Federal .... ($ 945) $ 116 $ 559 $ 18 $ 592 ($ 48)
Foreign..... -- (106) (2) (70) 2 (131)
State ...... 114 (161) 159 (2) 91 (4)
------- ------- ------- -------- ------- -------
($ 831) ($ 151) $ 716 ($ 54) $ 685 ($ 183)
======= ======= ======= ======== ======= =======
Income tax payments were $361,000 in 1998, $565,000 in 1997, and $772,000 in
1996.
<PAGE> -25-
Significant components of the Company's deferred tax liabilities and assets
consisted of the following:
(in thousands) 1998 1997
------- -------
Deferred tax liabilities:
Tax over book depreciation and amortization . . $ 653 $ 571
Prepaid expenses. . . . . . . . . . . . . . . . 33 74
------- -------
Total liabilities . . . . . . . . . . . . . . . 686 645
------- -------
Deferred tax assets:
Foreign operating loss carryforward . . . . . . 512 671
Product warranty reserve . . . . . . . . . . . . 158 172
Inventory reserve (including UCR) . . . . . . . . 338 277
Allowances for doubtful accounts . . . . . . . . 80 134
State operating loss carry forward. . . . . . . . 189 --
Other reserves . . . . . . . . . . . . . . . . . 251 347
------- -------
Total assets . . . . . . . . . . . . . . . . . . 1,528 1,601
Valuation allowance . . . . . . . . . . . . . . . (205) (470)
------- -------
Net deferred tax assets . . . . . . . . . . . . . 1,323 1,131
------- -------
Net asset . . . . . . . . . . . . . . . . . . . . . $ 637 $ 486
======= =======
At December 31, 1998, the Company had operating loss carryforwards of
$1,372,000 in England that are available indefinitely to offset future taxable
income of that subsidiary. For financial reporting purposes, a valuation
allowance has been recognized to offset the deferred tax assets related to the
carryforward and the change in the valuation allowance relates to the
utilization of this carryforward.
Income tax expense (benefit) to the statutory rate reconciliation follows:
(in thousands) 1998 1997 1996
------- ------- -------
Statutory rate . . . . . . . . . . . . . . ($ 741) $ 923 $ 549
Tax difference of foreign subsidiaries
primarily related to effect of tax
benefits on operating losses . . . . . . (330) (201) (261)
Non-deductible acquisition expenses . . . . -- -- 141
Other . . . . . . . . . . . . . . . . . . . 89 (60) 73
------- ------- -------
Total income tax expense (benefit). . . . . ($ 982) $ 662 $ 502
======= ======= =======
NOTE I - STOCK OPTIONS
At December 31, 1998, the Company had two incentive stock option plans in
effect - the "1985 Plan" and the "1995 Plan." Options to purchase shares of
common stock may be granted to officers and other key executives at prices not
less than the fair market value of the stock on the date of grant for a term
of up to ten years at the discretion of the Board of Directors. A summary of
transactions relating to options during 1998 and 1997 follows:
Shares Price Range Value
------- ------------- ----------
Balance December 31, 1996 . . . . . . . . 205,745 $2.88 - $6.13 $1,003,703
Granted . . . . . . . . . . . . . . . . . 42,530 $5.00 - $5.25 222,658
Exercised . . . . . . . . . . . . . . . . (67,000) $2.88 - $3.75 (242,500)
Canceled. . . . . . . . . . . . . . . . . (8,866) $4.81 - $6.13 (48,814)
------- ----------
Balance December 31, 1997 . . . . . . . . 172,409 $4.50 - $6.13 $ 935,047
Granted . . . . . . . . . . . . . . . . . 96,500 $3.00 - $5.31 498,466
Exercised . . . . . . . . . . . . . . . . (8,467) $5.25 - $6.13 (47,865)
Canceled. . . . . . . . . . . . . . . . . (17,624) $4.88 - $6.13 (91,410)
Expired . . . . . . . . . . . . . . . . . (5,000) $4.50 (22,500)
------- ----------
Balance December 31, 1998 . . . . . . . . 237,818 $3.00 - $6.13 $1,271,738
======= ==========
Exercisable at December 31, 1997 . . . . 91,242 $4.50 - $6.13 $ 491,558
======= ==========
Exercisable at December 31, 1998 . . . . 110,019 $4.81 - $6.13 $ 603,881
======= ==========
<PAGE> -26-
At December 31, 1998, there were no shares available for future grants under
the 1985 Plan and 119,186 shares available under the 1995 Plan. As of
December 31, 1998, the weighted average exercise price for all outstanding
options above is $5.00 per share and the weighted average remaining
contractual life is 2.6 years. All incentive stock options were granted for a
period of five years and one-third of the shares may be exercised in each year
following the date of grant.
In addition, during 1993, non-qualified stock options were granted for:
100,000 shares at $2.50 per share; 75,000 shares at $3.00 per share; and
70,000 at $3.13 per share. The market value on the date of grant of the
100,000 and 75,000 shares was $3.75 and the market value on the date of grant
of 70,000 shares was $4.38. The option for 100,000 shares was granted for a
period of five years. Vesting of the 100,000 shares was 25% per year
commencing in May 1993. In 1995 and 1997, 43,300 and 56,700, respectively, of
the 100,000 shares were exercised. The option for 75,000 shares was
originally granted for a period of five years and during 1998 the period was
extended to ten years and will now expire in 2003. The market price as of the
date of extension was $4.88 per share. Vesting of the 75,000 shares was at 33
1/3% per year commencing May 1994. The options for 70,000 shares are for a
period of ten years and were vested immediately. In 1996, non-qualified stock
options were granted for 8,000 shares at $6.00 per share and 20,000 shares at
$6.00 per share. 4,000 of these shares were canceled in 1997. The per share
market value on the date of grant of the remaining 4,000 shares was $5.50 and
the 20,000 shares was $6.13. The excess of market prices over grant prices at
the date of grant are charged to expense over the respective vesting periods.
The Company has elected to follow APB Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25), and related Interpretations in accounting for
its employee stock options because, as discussed below, the alternative fair
value accounting provided for under FASB Statement No. 123, Accounting for
Stock-Based Compensation (SFAS 123), requires use of option valuation models
that were not developed for use in valuing employee stock options. Under APB
25, because the exercise price of the Company's employee incentive stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its stock options.
Pro forma information regarding net income and earnings per share is required
by SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following assumptions for 1996,
1997 and 1998: risk free interest rate of 5.25%; a weighted average dividend
yield of 0.00%; a volatility factor of .485; and an expected life of five
years. The
<PAGE> -27-
effects of applying SFAS 123 and pro forma disclosure are not
indicative of future amounts until the new rules are applied to all outstand-
ing awards. For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
(in thousands, except per share amounts) 1998 1997 1996
-------- -------- --------
Pro forma net income ($ 1,454) $ 1,990 $ 1,018
Pro forma earnings (loss) per share-basic ($ 0.20) $ 0.28 $ 0.15
Pro forma earnings (loss) per share-diluted ($ 0.20) $ 0.28 $ 0.15
The weighted average per share fair values of options granted in the year
ended December 31, 1998, 1997 and 1996 were $5.15, $5.23 and $6.13,
respectively.
NOTE J - PENSION AND SAVINGS PLANS
The Company provides a defined benefit pension plan to substantially all
Sanford, North Carolina, employees. The following provides a reconciliation
of projected benefit obligation, plan assets and funded status of the plan.
1998 1997 1996
---- ---- ----
Change in benefit obligation:
Benefit obligation at
beginning of year. . . . . . . $ 4,931,418 $ 5,524,257 $ 5,446,047
Service cost . . . . . . . . . . - 341,894 175,026
Interest cost. . . . . . . . . . 335,887 379,781 348,725
Amendments . . . . . . . . . . . - - -
Actuarial (gains). . . . . . . . - (38,200) (26,208)
Benefits paid. . . . . . . . . . 757,741 1,276,314 418,933
----------- ----------- -----------
Benefit obligation at
end of year. . . . . . . . . . $ 4,509,564 $ 4,931,418 $ 5,524,257
=========== =========== ===========
Change in plan assets:
Fair value of plan assets at
beginning of year. . . . . . . $ 5,462,890 $ 6,405,211 $ 6,453,407
Actual return on plan assets . . 281,000 333,993 370,737
Benefits paid. . . . . . . . . . 757,741 1,276,314 418,933
----------- ----------- -----------
Benefit obligation at
end of year. . . . . . . . . . $ 4,986,149 $ 5,462,890 $ 6,405,211
=========== =========== ===========
Funded (underfunded)
status of the plan . . . . . . $ 476,585 $ 531,472 $ 880,954
Unrecognized transition
obligation (asset) . . . . . . (148,908) (173,725) (198,542)
Unrecognized prior service cost. - - (8,819)
Unrecognized net (gain) loss . . (341,616) (380,408) (434,798)
----------- ----------- -----------
Prepaid (accrued) benefit cost . $ (13,939) $ (22,661) $ 238,795
=========== =========== ===========
The weighted average rate assumptions used in determining pension costs and
the projected benefit obligation were:
1998 1997 1996
---- ---- ----
Discount rate. . . . . . . . . . 7.00% 7.00% 7.00%
Expected return on plan assets . 6.00% 6.00% 6.00%
Rate of compensation increase. . 0.00% 0.00% 0.00%
<PAGE> -28-
Net periodic pension costs include the following components:
1998 1997 1996
---- ---- ----
Service cost . . . . . . . . . . $ - $ 341,894 $ 175,026
Interest cost. . . . . . . . . . 335,887 379,781 348,725
Expected return on plan assets . (319,792) (378,383) (372,633)
Amortization of unrecognized
transition obligation (asset). (24,817) (24,817) (24,817)
Amortization of prior
service cost . . . . . . . . . - (1,710) (1,710)
Recognized net actuarial gain. . - - (9,268)
---------- ----------- -----------
Net periodic pension cost. . . . $ (8,722) $ 316,765 $ 115,323
========== =========== ===========
The Company also maintains defined benefit contribution profit sharing plans
as described in Section 401(k) of the Internal Revenue Code of 1986. During
1998, 1997, and 1996, the Company contributed $158,000, $173,000, and
$131,000, respectively.
NOTE K - SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
Summary quarterly financial data for the years ended December 31, 1998 and
1997 are set forth below:
(in thousands, except per share data) Earnings Earnings
(Loss) (Loss)
Cost of Net Income Per Share Per Share
Quarter Ended Net Sales Products Sold (Loss) -Basic -Diluted
- ------------- --------- ------------- ---------- --------- ---------
1998:
March 31 . . . . $15,981 $10,733 $ 271 $ 0.04 $ 0.04
June 30 . . . . 14,610 9,023 (1,243) (0.17) (0.17)
September 30 . . 12,347 8,265 (744) (0.10) (0.10)
December 31 . . 14,276 9,180 520 0.07 0.07
------- ------- ------- ------- -------
Year 1998 . . $57,214 $37,201 ($ 1,196) ($ 0.17) ($ 0.17)
======= ======= ======= ======= =======
1997:
March 31 . . . . $13,572 $ 9,175 $ 6 $ 0.00 $ 0.00
June 30 . . . . 17,757 11,948 501 0.07 0.07
September 30 . . 15,708 10,422 534 0.08 0.08
December 31 . . 18,113 11,626 1,010 0.14 0.14
------- ------- ------- ------- -------
Year 1997 . . $65,150 $43,171 $ 2,051 $ 0.29 $ 0.29
======= ======= ======= ======= =======
The first three quarters of 1997 earnings per share amounts have been restated
to comply with SFAS 128.
NOTE L - FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
trade accounts receivable. The Company maintains cash with various financial
institutions. Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number of entities comprising the
Company's customer base. However, as of December 31, 1998, the Company's
receivable from one customer was $1,624,000. The carrying amount reported in
the balance sheet for cash, accounts receivable, accounts payable and long-term
debt approximate their fair values.
NOTE M - CONTINGENCIES
In the course of the Company's business, various lawsuits, claims and
proceedings have been or may be instituted or asserted against the Company, in
which the amounts claimed may be substantial. However, based on facts
currently available, the Company believes that the disposition of matters that
are currently pending or asserted will not have a material adverse effect on
the financial position or results of operations of the Company.
<PAGE> -29-
NOTE N - INDUSTRY SEGMENT INFORMATION
The Company's operations are classified in four segments: Consumer Products;
Engineered Products; Cleanroom Products and European Operations. These
segments were identified as being the primary components which are regularly
reviewed by the President and Chief Executive Officer (the chief operating
decision maker) of the Company.
Consumer Products include free standing appliance air cleaners as well as air
cleaners, air filters and humidifiers manufactured for permanent installation
in residential air handling systems.
Engineered Products include air quality products manufactured for commercial,
industrial and marine applications and equipment designed to electrostatically
distribute micro-thin films of lubricants, corrosion inhibitors and other
protective coatings to metal strips on high speed mill lines.
Cleanroom Products includes airborne contamination control equipment intended
for use in applications requiring a high and/or ultra high degree of air
cleaning efficiency and particulate capture.
European Operations consists only of Trion Limited which functions in Europe
as a sales and distribution operation for products in the three segments
above. The U.S. manufacturing operations provide products for resale.
Consumer Products, Engineered Products and Cleanroom Products segments include
revenues from external customers both inside and outside the U.S. and the
European Operations segment includes revenues from external customers both
inside and outside of Europe.
The accounting policies of the segments are the same as those described in
Note A. Intersegment revenues are not used for segment performance
measurement purposes. Segment profit is calculated as net sales less cost of
products sold and related operating expenses. In computing segment profit,
interest expense, non-recurring charges, other income and general corporate
operating expenses, and taxes on income are not used for segment measurement
purposes and are included in general corporate.
The Company's Sanford manufacturing facility serves the Consumer Products,
Engineered Products and European Operations segments; therefore, specific
identification of its property, plant and equipment and inventory is not
practicable. Assets, depreciation and expenses were allocated to the
referenced segments based on estimates. Other general corporate assets were
not allocated to segments which included cash, refundable and deferred income
taxes, as well as office equipment and engineering equipment located in
Sanford.
Engineered Products revenues from external customers include direct and
indirect sales to the United States government of approximately $992,000 in
1998, $1,237,000 in 1997 and $1,033,000 in 1996. Consumer Products revenues
from external customers include sales to a significant retail customer of
approximately $4,294,000 in 1998; $5,343,000 in 1997; and $3,553,000 in 1996.
<PAGE> -30-
Additional segment information is set forth below:
(in thousands)
Consumer Engineered Cleanroom European General
1998: Products Products Products Operations Corporate
- ---- -------- ---------- --------- ---------- ---------
Revenues from
external customers. . . $ 22,957 $ 14,482 $ 12,925 $ 6,850 $ 0
Depreciation and
amortization. . . . . . $ 763 $ 430 $ 644 $ 311 $ 67
Segment profit (loss). . $ 1,567 $ 178 $ 1,201 $ 148 ($4,290)
Segment assets . . . . . $ 11,211 $ 6,485 $ 8,907 $ 6,614 $5,984
1997:
- ----
Revenues from
external customers. . . $ 25,877 $ 14,735 $ 17,609 $ 6,929 $ 0
Depreciation and
amortization. . . . . . $ 745 $ 388 $ 644 $ 263 $ 57
Segment profit (loss). . $ 1,869 $ 723 $ 1,869 $ 122 ($2,532)
Segment assets . . . . . $ 12,806 $ 6,195 $ 11,623 $ 6,419 $5,149
1996:
- ----
Revenues from
external customers. . . $ 23,527 $ 13,835 $ 18,185 $ 6,854 $ 0
Depreciation and
amortization. . . . . . $ 584 $ 315 $ 562 $ 283 $ 42
Segment profit (loss). . $ 1,524 $ 1,229 $ 633 $ 326 ($2,600)
Segment assets . . . . . $ 10,437 $ 5,868 $ 12,786 $ 7,423 $4,282
1998: Total
- ---- --------
Revenues from
external customers. . . $ 57,214
Depreciation and
amortization. . . . . . $ 2,215
Segment profit (loss). . ($ 1,196)
Segment assets . . . . . $ 39,201
1997:
- ----
Revenues from
external customers. . . $ 65,150
Depreciation and
amortization. . . . . . $ 2,097
Segment profit (loss). . $ 2,051
Segment assets . . . . . $ 42,192
1996:
- ----
Revenues from
external customers. . . $ 62,401
Depreciation and
amortization. . . . . . $ 1,786
Segment profit (loss). . $ 1,112
Segment assets . . . . . $ 40,796
Geographic information for revenues from external customers is as follows:
(in thousands) 1998 1997 1996
-------- -------- --------
United States . . . . . . . . . . . . . . . . $ 43,432 $ 48,616 $ 45,661
Pacific Rim . . . . . . . . . . . . . . . . . 3,732 7,605 7,419
Europe . . . . . . . . . . . . . . . . . . . . 6,538 7,393 7,004
Other . . . . . . . . . . . . . . . . . . . . 3,512 1,536 2,317
-------- -------- --------
$ 57,214 $ 65,150 $ 62,401
======== ======== ========
Geographic information for identifiable assets is as follows:
(in thousands) 1998 1997 1996
-------- -------- --------
United States . . . . . . . . . . . . . . . . $ 32,587 $ 35,773 $ 33,373
Pacific Rim . . . . . . . . . . . . . . . . . -- -- --
Europe . . . . . . . . . . . . . . . . . . . . 6,614 6,419 7,423
Other . . . . . . . . . . . . . . . . . . . . -- -- --
-------- -------- --------
$ 39,201 $ 42,192 $ 40,796
======== ======== ========
A reconciliation of profit and (loss) follows:
(in thousands) 1998 1997 1996
-------- -------- --------
Total profit (loss) for reportable segments. . $ 3,094 $ 4,583 $ 3,712
Interest . . . . . . . . . . . . . . . . . . . (828) (978) (856)
Non-recurring charges. . . . . . . . . . . . . (3,597) -- (414)
Other income and general corporate expenses. . (847) (892) (828)
Income tax (expense) benefit . . . . . . . . . 982 (662) (502)
-------- -------- --------
Total consolidated profit (loss) . . . . .($ 1,196) $ 2,051 $ 1,112
======== ======== ========
A reconciliation of segment assets follows:
(in thousands) 1998 1997 1996
-------- -------- --------
Total assets for reportable segments . . . . . $ 33,217 $ 37,043 $ 36,514
Cash . . . . . . . . . . . . . . . . . . . . . 2,158 2,979 2,073
Refundable and deferred income taxes . . . . . 1,631 486 432
Equipment and other . . . . . . . . . . . . . 2,195 1,684 1,777
-------- -------- --------
Total consolidated assets. . . . . . . . . $ 39,201 $ 42,192 $ 40,796
======== ======== ========
<PAGE> -31-
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Trion, Inc.
Sanford, North Carolina
We have audited the accompanying consolidated balance sheets of Trion, Inc.
and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, comprehensive income (loss),
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. Our audits also included the financial statement
schedule listed in the Index at Item 14(d). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Trion, Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
Raleigh, North Carolina
January 29, 1999,
except for the second paragraph in Note F,
as to which the date is
March 19, 1999
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The sections titled "Election of Directors", "Security Ownership" and "Section
16(a) Beneficial Ownership Reporting Compliance" of the annual Proxy Statement
dated March 26, 1999 are incorporated herein by reference.
See Item 4A. of this report for the required information on executive
officers.
<PAGE> -32-
Item 11. Executive Compensation.
The sections titled "Executive Compensation" (excluding the information under
the subheading "Compensation Committee Report on Executive Compensation") and
the last two paragraphs in "Election of Directors" (which contains information
concerning Directors' compensation) of the annual Proxy Statement dated March
26, 1999 is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The section titled "Security Ownership" and the table included within section
"Election of Directors" (which contains information concerning Directors'
ownership) of the annual Proxy Statement dated March 26, 1999 are incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Item 14. (a) (1) and (2)- The following consolidated financial statements of
Trion, Inc. and subsidiaries, included in the annual report of the Company to
its shareholders for the year ended December 31, 1998 are included in Item 8
beginning on page 17 hereof:
Consolidated Balance Sheets -- December 31, 1998 and 1997.
Consolidated Statements of Operations -- years ended December 31, 1998, 1997
and 1996.
Consolidated Statements of Comprehensive Income (Loss) -- years ended December
31, 1998, 1997 and 1996.
Consolidated Statements of Changes in Shareholders' Equity -- years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows -- years ended December 31, 1998, 1997
and 1996.
Notes to Consolidated Financial Statements -- December 31, 1998.
Report of Independent Auditors, Ernst & Young LLP -- January 29, 1999, except
for the second paragraph in Note F, as to which the date is March 19, 1999.
Parent company financial statements are not included because restricted net
assets of subsidiaries after intercompany eliminations are less than 25% of
consolidated net assets.
Item 14. (a) (3) - See Index to Exhibits beginning on page 35 hereof.
Item 14. (b) - There were two reports on Form 8-K filed by the Registrant
during the last quarter of the period covered by this report:
October 16, 1998; Items 5 and 7
March 17, 1999; Items 5 and 7
<PAGE> -33-
Item 14. (c) - The Exhibits required by Item 601 of Regulation S-K are filed
herewith and incorporated by reference herein. See Index to Exhibits
beginning on page 35 hereof.
Item 14. (d) - The following consolidated financial statement schedule of
Trion, Inc. and subsidiaries is included on page 35 hereof:
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are not applicable and therefore have been
omitted.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRION, INC.
By: /s/ Steven L. Schneider 3/24/99
----------------------- -------
Steven L. Schneider, Date
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Steven L. Schneider 3/24/99 /s/ James E. Heins 3/24/99
- ---------------------------- ------- ------------------------ -------
Steven L. Schneider, Date James E. Heins, Date
President, Chief Executive Director
Officer and Director
(Principal Executive Officer)
/s/ Calvin J. Monsma 3/24/99 /s/ F. Trent Hill 3/24/99
- ---------------------------- ------- ------------------------ -------
Calvin J. Monsma, Date F. Trent Hill, Date
Vice President and Director
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Hugh E. Carr 3/24/99 /s/ Grant R. Meyers 3/24/99
- ---------------------------- ------- ------------------------ -------
Hugh E. Carr, Date Grant R. Meyers, Date
Director Director
/s/ Samuel J. Wornom III 3/24/99
- ---------------------------- ------- ------------------------ -------
Joseph W. Deering, Date Samuel J. Wornom III, Date
Director Director
/s/ Seddon Goode, Jr. 3/24/99
- ---------------------------- -------
Seddon Goode, Jr., Date
Director
<PAGE> -34-
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
TRION, INC. AND SUBSIDIARIES
Col. A Col. B Col. C Col. D Col. E
ADDITIONS
Balance at Charged to Charged to
Beginning Costs and Other
of Period Expenses Accts. - Deductions
Describe Describe
Year ended December 31, 1998:
Deducted from assets accounts:
Allowance for doubtful (1)
accounts . . . . . . . . $ 454,000 ($ 49,000) $ - $ 88,000
Valuation allowance for (2)
Deferred tax asset . . . 470,000 - - 265,000
---------- --------- --------- --------
$ 924,000 ($ 49,000) $ - $353,000
========== ========= ========= ========
Year ended December 31, 1997:
Deducted from assets accounts:
Allowance for doubtful (1)
accounts . . . . . . . . $ 448,000 $ 545,000 $ - $539,000
Valuation allowance for (2)
Deferred tax asset . . . 745,000 - - 275,000
---------- --------- --------- --------
$1,193,000 $ 545,000 $ - $814,000
========== ========= ========= ========
Year ended December 31, 1996:
Deducted from assets accounts:
Allowance for doubtful (1)
accounts . . . . . . . . $ 346,000 $ 302,000 $ - $200,000
Valuation allowance for (2)
Deferred tax asset . . . 1,141,000 - - 396,000
---------- --------- --------- --------
$1,487,000 $ 302,000 $ - $596,000
========== ========= ========= ========
Col. A Col. F
Balance at
end of
Period
Year ended December 31, 1998:
Deducted from assets accounts:
Allowance for doubtful
accounts . . . . . . . . $ 317,000
Valuation allowance for
Deferred tax asset . . . 205,000
----------
$ 522,000
==========
Year ended December 31, 1997:
Deducted from assets accounts:
Allowance for doubtful
accounts . . . . . . . . $ 454,000
Valuation allowance for
Deferred tax asset . . . 470,000
----------
$ 924,000
==========
Year ended December 31, 1996:
Deducted from assets accounts:
Allowance for doubtful
accounts . . . . . . . . $ 448,000
Valuation allowance for
Deferred tax asset . . . 745,000
----------
$1,193,000
==========
(1) Uncollectible accounts written off, net of recoveries.
(2) Utilization of net operating loss carryforwards and valuation adjustment.
INDEX TO EXHIBITS
The following Exhibits to this report are filed herewith or, if marked with an
asterisk (*), are incorporated herein by reference:
Exhibit
Number Description of Exhibits
- ------- -----------------------
3.1 Articles of Incorporation (incorporated herein by reference to Exhibit
3.1 to Form 10-K for the year ended December 31, 1985, file number
0-3108). (*)
3.2 Bylaws (incorporated herein by reference to Exhibit 3.2 to Form 10-Q
for the quarter ended September 30, 1997, file number 0-3108). (*)
4.1 $18,000,000 Credit Agreement dated September 8, 1995 (incorporated
herein by reference to Exhibit 4.1 to Form 10-K for the year ended
December 31, 1995, file number 0-3108). (*)
4.2 Credit Agreement dated March 19, 1999.
10.1 1999 Management Incentive Plan as adopted in December 1998. (**)
10.2 1985 Trion, Inc. Incentive Stock Option Plan as adopted and approved
by shareholders on April 16, 1985 (incorporated herein by reference
to Exhibit A to Proxy Statement dated April 16, 1985, file number
0-3108). (*) (**)
10.3 Form of option for the 1985 Trion, Inc. Incentive Stock Option Plan
(incorporated herein by reference to Exhibit 10.4 to Form 10-K for
the year ended December 31, 1986, file number 0-3108). (*) (**)
<PAGE> -35-
10.4 Trion Savings Plus Plan, effective January 1, 1987 as approved in
November 1986 (incorporated herein by reference to Exhibit 10.5 to Form
10-K for the year ended December 31, 1986, file number 0-3108). (*) (**)
10.5 Loan Agreement dated August 1, 1984 between The Lee County Industrial
Facilities and Pollution Control Financing Authority and Trion, Inc.
(incorporated herein by reference to Exhibit 10.1 to Form 10-Q for the
quarter ended September 30, 1984, file number 0-3108). (*)
10.6 Note dated September 11, 1984 from Trion, Inc. to The Lee County
Industrial Facilities and Pollution Control Financing Authority
(incorporated herein by reference to Exhibit 10.2 to Form 10-Q for
the quarter ended September 30, 1984, file number 0-3108). (*)
10.7 Guaranty and Purchase Agreement dated as of August 1, 1984 from
Trion, Inc. to Wachovia Bank and Trust Company, N.A. (incorporated
herein by reference to Exhibit 10.3 to Form 10-Q for the quarter
ended September 30, 1984, file number 0-3108). (*)
10.8 Stock Option Agreement between Samuel J. Wornom III and Trion, Inc.
dated September 21, 1993 (incorporated herein by reference to
Exhibit 10.2 to Form 10-Q for the quarter ended September 30, 1993,
file number 0-3108). (*) (**)
10.9 Stock Option Agreement between Steven L. Schneider and Trion, Inc. dated
March 31, 1993 (incorporated herein by reference to Exhibit 10.2 to Form
10-Q for the quarter ended June 30, 1993, file number 0-3108). (*) (**)
10.10 Trion, Inc. 1995 Stock Incentive Plan (incorporated herein by
reference to the Registrant's Registration Statement No.033-59095
on Form S-8 dated May 4, 1995). (*) (**)
10.11 Form of option for the Trion, Inc. 1995 Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.14 to Form 10-K for
the year ended December 31, 1995, file number 0-3108). (*) (**)
10.12 First Amendment to Stock Option Agreement between Steven L.
Schneider and Trion, Inc. dated July 28, 1995 (incorporated herein
by reference to Exhibit 10.15 to Form 10-K for the year ended
December 31, 1995, file number 0-3108). (*) (**)
10.13 Second Amendment to Stock Option Agreement between Steven L.
Schneider and Trion, Inc. dated May 7, 1998 (incorporated herein
by reference to Exhibit 10.1 to Form 10-Q for the quarter ended
June 30, 1998, file number 0-3108). (*) (**)
10.14 Second Amended and Restated Employment Agreement between Steven L.
Schneider and Trion, Inc. dated May 20, 1998 (incorporated herein
by reference to Exhibit 10.1 to Form 10-Q for the quarter ended
September 30, 1998, file number 0-3108). (*) (**)
10.15 Trion, Inc. 1995 Non-Employee Director Stock Plan (incorporated
herein by reference to the Registrant's Registration Statement
No. 033-58561 on form S-8 dated April 12, 1995). (*) (**)
10.16 Employment Agreement between David M. Schlegel and Trion, Inc. and
Envirco Corporation dated August 1, 1995 (incorporated herein by
reference to Exhibit 10.2 to Form 10-Q for the Quarter ended
June 30, 1998, file number 0-3108). (*) (**)
10.17 Change in Control Agreement between Calvin J. Monsma and Trion, Inc.
dated May 19, 1998 (incorporated herein by reference to Exhibit 10.2 to
Form 10-Q for the Quarter ended June 30, 1998, file number
0-3108). (*) (**)
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors, Ernst & Young LLP.
27 Financial Data Schedule.
(**) Management Contract or Compensatory Plan.
<PAGE> -36-
CREDIT AGREEMENT
dated as of
March 19, 1999
among
TRION, INC.
The Banks Listed Herein
and
WACHOVIA BANK, N.A.,
as Agent
<PAGE>
TABLE OF CONTENTS
CREDIT AGREEMENT
Page
ARTICLE IDEFINITIONS . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.01. Definitions. . . . . . . . . . . . . . . . . . . .1
SECTION 1.02. Accounting Terms and Determinations. . . . . . . 19
SECTION 1.03. References . . . . . . . . . . . . . . . . . . . 20
SECTION 1.04. Use of Defined Terms . . . . . . . . . . . . . . 20
SECTION 1.05. Terminology. . . . . . . . . . . . . . . . . . . 20
ARTICLE IITHE CREDITS. . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.01. Commitments to Make Revolver Loans and Refunding
Loans with respect to Term Loans. . . . . . . . . . . . . 20
SECTION 2.02. Method of Borrowing Revolver Loans and Refunding
Loans with respect to Term Loans. . . . . . . . . . . . . 22
SECTION 2.03. Notes. . . . . . . . . . . . . . . . . . . . . . 24
SECTION 2.04. Maturity of Loans. . . . . . . . . . . . . . . . 24
SECTION 2.05. Interest Rates . . . . . . . . . . . . . . . . . 25
SECTION 2.06. Fees . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.07. Optional Termination or Reduction of Commitments 27
SECTION 2.08. Mandatory Reduction and Termination of Commitments27
SECTION 2.09. Optional Prepayments . . . . . . . . . . . . . . 27
SECTION 2.10. Mandatory Prepayments. . . . . . . . . . . . . . 27
SECTION 2.11. General Provisions as to Payments. . . . . . . . 28
SECTION 2.12. Computation of Interest and Fees . . . . . . . . 30
ARTICLE IIICONDITIONS TO BORROWINGS. . . . . . . . . . . . . . 30
SECTION 3.01. Conditions to First Borrowing. . . . . . . . . . 30
SECTION 3.02. Conditions to All Borrowings . . . . . . . . . . 32
ARTICLE IVREPRESENTATIONS AND WARRANTIES . . . . . . . . . . . 33
SECTION 4.01. Corporate Existence and Power. . . . . . . . . . 33
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.03. Binding Effect . . . . . . . . . . . . . . . . . 33
SECTION 4.04. Financial Information. . . . . . . . . . . . . . 33
SECTION 4.05. No Litigation. . . . . . . . . . . . . . . . . . 34
SECTION 4.06. Compliance with ERISA. . . . . . . . . . . . . . 34
SECTION 4.07. Compliance with Laws; Payment of Taxes . . . . . 34
SECTION 4.08. Subsidiaries . . . . . . . . . . . . . . . . . . 35
SECTION 4.09. Investment Company Act . . . . . . . . . . . . . 35
SECTION 4.10. Public Utility Holding Company Act . . . . . . . 35
SECTION 4.11. Ownership of Property; Liens . . . . . . . . . . 35
SECTION 4.12. No Default . . . . . . . . . . . . . . . . . . . 35
SECTION 4.13. Full Disclosure. . . . . . . . . . . . . . . . . 35
SECTION 4.14. Environmental Matters. . . . . . . . . . . . . . 36
SECTION 4.15. Capital Stock. . . . . . . . . . . . . . . . . . 36
SECTION 4.16. Margin Stock . . . . . . . . . . . . . . . . . . 37
SECTION 4.17. Insolvency . . . . . . . . . . . . . . . . . . . 37
SECTION 4.18. Insurance. . . . . . . . . . . . . . . . . . . . 37
SECTION 4.19. Year 2000 Compliance . . . . . . . . . . . . . . 37
ARTICLE VCOVENANTS . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 5.01. Information. . . . . . . . . . . . . . . . . . . 38
SECTION 5.02. Inspection of Property, Books and Records. . . . 40
SECTION 5.03. Maintenance of Existence . . . . . . . . . . . . 41
SECTION 5.04. Dissolution. . . . . . . . . . . . . . . . . . . 41
SECTION 5.05. Consolidations, Mergers and Sales of Assets. . . 41
SECTION 5.06. Use of Proceeds. . . . . . . . . . . . . . . . . 42
SECTION 5.07. Compliance with Laws; Payment of Taxes . . . . . 42
SECTION 5.08. Insurance. . . . . . . . . . . . . . . . . . . . 42
SECTION 5.09. Change in Fiscal Year. . . . . . . . . . . . . . 43
SECTION 5.10. Maintenance of Property. . . . . . . . . . . . . 43
SECTION 5.11. Environmental Notices. . . . . . . . . . . . . . 43
SECTION 5.12. Environmental Matters. . . . . . . . . . . . . . 43
SECTION 5.13. Environmental Release. . . . . . . . . . . . . . 43
SECTION 5.14. Transactions with Affiliates . . . . . . . . . . 44
SECTION 5.15. Additional Debt. . . . . . . . . . . . . . . . . 44
SECTION 5.16. Loans or Advances. . . . . . . . . . . . . . . . 44
SECTION 5.17. Investments. . . . . . . . . . . . . . . . . . . 44
SECTION 5.18. Negative Pledge. . . . . . . . . . . . . . . . . 45
SECTION 5.19. Fixed Charge Coverage Ratio. . . . . . . . . . . 46
SECTION 5.20. Ratio of Consolidated Funded Debt to Consolidated
Total Capital . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 5.21. Ratio of Consolidated Funded Debt to Consolidated
Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 5.22. Minimum Consolidated Net Worth . . . . . . . . 47
SECTION 5.23. Domestic Significant Subsidiaries to Become
Guarantors. . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 5.24. Capital Stock and Promissory Notes of Foreign
Significant Subsidiaries to Be Pledged. . . . . . . . . . 48
ARTICLE VIDEFAULTS . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 6.01. Events of Default. . . . . . . . . . . . . . . . 49
SECTION 6.02. Notice of Default. . . . . . . . . . . . . . . . 52
ARTICLE VIITHE AGENT . . . . . . . . . . . . . . . . . . . . . 52
SECTION 7.01. Appointment; Powers and Immunities . . . . . . . 52
SECTION 7.02. Reliance by Agent. . . . . . . . . . . . . . . . 53
SECTION 7.03. Defaults . . . . . . . . . . . . . . . . . . . . 53
SECTION 7.04. Rights of Agent as a Bank. . . . . . . . . . . . 54
SECTION 7.05. Indemnification. . . . . . . . . . . . . . . . . 54
SECTION 7.06 Consequential Damages. . . . . . . . . . . . . . 54
SECTION 7.07. Payee of Note Treated as Owner . . . . . . . . . 55
SECTION 7.08. Nonreliance on Agent and Other Banks . . . . . . 55
SECTION 7.09. Failure to Act . . . . . . . . . . . . . . . . . 55
SECTION 7.10. Resignation or Removal of Agent. . . . . . . . . 56
ARTICLE VIIICHANGE IN CIRCUMSTANCES; COMPENSATION. . . . . . . 56
SECTION 8.01. Basis for Determining Interest Rate Inadequate or
Unfair. . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 8.02. Illegality . . . . . . . . . . . . . . . . . . . 57
SECTION 8.03. Increased Cost and Reduced Return. . . . . . . . 57
SECTION 8.04. Base Rate Loans Substituted for Euro-Dollar Loans59
SECTION 8.05. Compensation . . . . . . . . . . . . . . . . . . 60
ARTICLE IXMISCELLANEOUS. . . . . . . . . . . . . . . . . . . . 60
SECTION 9.01. Notices. . . . . . . . . . . . . . . . . . . . . 60
SECTION 9.02. No Waivers . . . . . . . . . . . . . . . . . . . 61
SECTION 9.03. Expenses; Documentary Taxes. . . . . . . . . . . 61
SECTION 9.04. Indemnification. . . . . . . . . . . . . . . . . 61
SECTION 9.05. Setoff; Sharing of Setoffs . . . . . . . . . . . 62
SECTION 9.06. Amendments and Waivers . . . . . . . . . . . . . 63
SECTION 9.07. No Margin Stock Collateral . . . . . . . . . . . 64
SECTION 9.08. Successors and Assigns . . . . . . . . . . . . . 64
SECTION 9.09. Confidentiality. . . . . . . . . . . . . . . . . 66
SECTION 9.10. Representation by Banks. . . . . . . . . . . . . 67
SECTION 9.11. Obligations Several. . . . . . . . . . . . . . . 67
SECTION 9.12. Georgia Law. . . . . . . . . . . . . . . . . . . 68
SECTION 9.13. Severability . . . . . . . . . . . . . . . . . . 68
SECTION 9.14. Interest . . . . . . . . . . . . . . . . . . . . 68
SECTION 9.15. Interpretation . . . . . . . . . . . . . . . . . 69
SECTION 9.16. Waiver of Jury Trial; Consent to Jurisdiction. . 69
SECTION 9.17. Counterparts . . . . . . . . . . . . . . . . . . 69
SECTION 9.18. Source of Funds -- ERISA . . . . . . . . . . . . 69
SECTION 9.19. Entire Agreement. . . . . . . . . . . . . . . . 70
EXHIBITS
EXHIBIT A-1 Form of Revolver Loan Note
EXHIBIT A-2 Form of Term Loan Note
EXHIBIT B Form of Opinion of Counsel for the Borrower
EXHIBIT C Form of Opinion of Special Counsel for the Agent
EXHIBIT D Form of Assignment and Acceptance
EXHIBIT E Form of Notice of Borrowing
EXHIBIT F Form of Compliance Certificate
EXHIBIT G Form of Closing Certificate
EXHIBIT H Form of Funding Indemnification Letter
EXHIBIT I Form of Collateral Disclosure Certificate
EXHIBIT J-1 Form of Borrower Security Agreement
EXHIBIT J-2 Form of Domestic Significant Subsidiary Security
Agreement
EXHIBIT K Form of Borrowing Base Certificate
EXHIBIT L Form of Guaranty Agreement
Schedule 4.08 Subsidiaries
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of March 19, 1999 among
TRION, INC., the BANKS listed on the signature pages hereof and
WACHOVIA BANK, N.A., as Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The terms as defined in
this Section 1.01 shall, for all purposes of this Agreement and
any amendment hereto (except as herein otherwise expressly
provided or unless the context otherwise requires), have the
meanings set forth herein:
"Acquisition" means any acquisition of the stock in or
a significant part of the assets of any Person, other than
acquisition of supplies and raw materials in the ordinary course
of business.
"Adjusted London Interbank Offered Rate" has the
meaning set forth in Section 2.05(c).
"Affected Bank" has the meaning set forth in Section
8.03.
"Affiliate" of any relevant Person means (i) any Person
that directly, or indirectly through one or more intermediaries,
controls the relevant Person (a "Controlling Person"), (ii) any
Person (other than the relevant Person or a Subsidiary of the
relevant Person) which is controlled by or is under common
control with a Controlling Person, or (iii) any Person (other
than a Subsidiary of the relevant Person) of which the relevant
Person owns, directly or indirectly, 20% or more of the common
stock or equivalent equity interests. As used herein, the term
"control" means possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of
a Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agent" means Wachovia Bank, N.A., a national banking
association organized under the laws of the United States of
America, in its capacity as agent for the Banks hereunder, and
its successors and permitted assigns in such capacity.
"Agreement" means this Credit Agreement, together with
all amendments and supplements hereto.
"Applicable Margin" has the meaning set forth in
Section 2.05(a).
"Assignee" has the meaning set forth in Section
9.08(c).
"Assignment and Acceptance" means an Assignment and
Acceptance executed in accordance with Section 9.08(c) in the
form attached hereto as Exhibit D.
"Authority" has the meaning set forth in Section 8.02.
"Bank" means each bank listed on the signature pages
hereof as having a Commitment, and its successors and assigns.
"Base Rate" means for any Base Rate Loan for any day,
the rate per annum equal to the higher as of such day of (i) the
Prime Rate, or (ii) one-half of one percent above the Federal
Funds Rate. For purposes of determining the Base Rate for any
day, changes in the Prime Rate or the Federal Funds Rate shall be
effective on the date of each such change.
"Base Rate Loan" means a Loan to be made as a Base Rate
Loan pursuant to the applicable Notice of Borrowing, Section
2.02(f), or Article VIII, as applicable.
"Borrower" means Trion, Inc., a Pennsylvania
corporation, and its successors and its permitted assigns.
"Borrowing" means (i) a borrowing hereunder consisting
of Revolver Loans made to the Borrower at the same time by all of
the Banks, pursuant to Article II, and (ii) a Refunding Loan with
respect to the Term Loans. A Borrowing is a "Base Rate
Borrowing" if such Loans are Base Rate Loans or a "Euro-Dollar
Borrowing" if such Loans are Euro-Dollar Loans. A Borrowing is a
"Revolver Loan Borrowing" if such Loans are made pursuant to
Section 2.01 or a "Term Loan Borrowing" if such Loans are
Refunding Loans with respect to the Term Loans.
"Borrowing Base" means the following sum: (a) (i) an
amount equal to 75% (or such lesser percentage which the Agent
will establish in its good faith credit judgment by written
notice to the Borrower and the Banks, or such greater percentage,
subject to the approval of the Required Banks, which the Agent
will establish in its good faith credit judgment by written
notice to the Borrower and the Banks) of the dollar value of
Eligible Receivables as of the date of determination, plus
(ii) an amount equal to 35% (or such lesser percentage which the
Agent will establish in its good faith credit judgment by written
notice to the Borrower and the Banks, or such greater percentage,
subject to the approval of the Required Banks, which the Agent
will establish in its good faith credit judgment by written
notice to the Borrower and the Banks) of the dollar value of the
Eligible Inventory valued at the lower of cost or market value on
a first-in, first-out basis, as at the date of determination,
minus (b) the outstanding principal balance of the Term Loans.
"Borrowing Base Certificate" means a certificate in the
form of EXHIBIT K attached hereto.
"Capital Stock" means any nonredeemable capital stock
of the Borrower or any Consolidated Subsidiary (to the extent
issued to a Person other than the Borrower), whether common or
preferred.
"CERCLA" means the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. and its
implementing regulations and amendments.
"CERCLIS" means the Comprehensive Environmental
Response Compensation and Liability Inventory System established
pursuant to CERCLA.
"Change of Law" shall have the meaning set forth in
Section 8.02.
"Closing Certificate" has the meaning set forth in
Section 3.01(e).
"Closing Date" means March 19, 1999.
"Code" means the Internal Revenue Code of 1986, as
amended, or any successor Federal tax code.
"Collateral Disclosure Certificates" means those
certain Collateral Disclosure Certificates substantially in the
form attached hereto as EXHIBIT I completed, executed and
delivered by the Borrower and the Guarantors.
"Commitment" means, with respect to each Bank, the
amount set forth as the Commitment opposite the name of such Bank
on the signature pages hereof to make Revolver Loans in
accordance with Section 2.01(a), as such amount may be reduced
from time to time pursuant to Sections 2.07 and 2.08.
"Compliance Certificate" has the meaning set forth in
Section 5.01(c).
"Consolidated Cash Flow" means the sum of the
following, calculated on a consolidated basis in accordance with
GAAP for the Borrower and its Consolidated Subsidiaries:
(i) Consolidated Net Income, plus (ii) depreciation and
amortization expense, plus (iii) other non-cash charges.
"Consolidated Fixed Charges" for any period means the
sum of the following (i) Consolidated Interest Expense for such
period, and (ii) all payment obligations for such period under
all operating leases and rental agreements for the Borrower or
any of its Consolidated Subsidiaries.
"Consolidated Funded Debt" means at any date, without
duplication, the sum of the Debt of the Borrower and its
Consolidated Subsidiaries, determined on a consolidated basis as
of such date, consisting of (i) indebtedness for borrowed money,
(ii) capital leases, (iii) the undrawn face amount of any and all
letters of credit, and (v) Guarantees of Debt of Persons other
than the Borrower or any Consolidated Subsidiary.
"Consolidated Interest Expense" for any period means
interest, whether expensed or capitalized, in respect of Debt of
the Borrower or any of its Consolidated Subsidiaries outstanding
during such period.
"Consolidated Net Income" means, for any period, the
Net Income of the Borrower and its Consolidated Subsidiaries
determined on a consolidated basis, but excluding (i)
extraordinary items and (ii) any equity interests of the Borrower
or any Subsidiary in the unremitted earnings of any Person that
is not a Subsidiary.
"Consolidated Net Worth" means, at any time,
the shareholders' equity of the Borrower and its
Consolidated Subsidiaries, as set forth or reflected on the most
recent consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries prepared in accordance with GAAP, but
excluding any Redeemable Preferred Stock of the Borrower or any
of its Consolidated Subsidiaries. Consolidated Net Worth
generally would include, but not be limited to (i) the par or
stated value of all outstanding Capital Stock, (ii) capital
surplus, (iii) retained earnings, and (iv) various deductions
such as (A) purchases of treasury stock, (B) valuation
allowances, (C) receivables due from an employee stock ownership
plan, (D) employee stock ownership plan debt guarantees, and (E)
translation adjustments for foreign currency transactions.
"Consolidated Subsidiary" means at any date any
Subsidiary or other entity the accounts of which, in accordance
with GAAP, would be consolidated with those of the Borrower in
its consolidated financial statements as of such date.
"Consolidated Total Assets" means, at any time, the
total assets of the Borrower and its Consolidated Subsidiaries,
determined on a consolidated basis, as set forth or reflected on
the most recent consolidated balance sheet of the Borrower and
its Consolidated Subsidiaries, prepared in accordance with GAAP.
"Consolidated Total Capital" means, at any time, the
sum of (i) Consolidated Net Worth, and (ii) Consolidated Funded
Debt.
"Controlled Group" means all members of a controlled
group of corporations and all trades or businesses (whether or
not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414 of
the Code.
"Debt" of any Person means at any date, without
duplication, (i) all obligations of such Person for borrowed
money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all
obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in
the ordinary course of business, (iv) all obligations of such
Person as lessee under capital leases, (v) all obligations of
such Person to reimburse any bank or other Person in respect of
amounts payable under a banker's acceptance, (vi) all Redeemable
Preferred Stock of such Person (in the event such Person is a
corporation), (vii) all obligations of such Person to reimburse
any bank or other Person in respect of amounts paid or to be paid
under a letter of credit or similar instrument, (viii) all Debt
of others secured by a Lien on any asset of such Person, whether
or not such Debt is assumed by such Person, and (ix) all Debt and
other obligations of others Guaranteed by such Person.
"Default" means any condition or event which
constitutes an Event of Default or which with the giving of
notice or lapse of time or both would, unless cured or waived,
become an Event of Default.
"Default Rate" means, with respect to any Loan, on any
day, the sum of 2% plus the then highest interest rate (including
the Applicable Margin) which may be applicable to any Loans
hereunder (irrespective of whether any such type of Loans are
actually outstanding hereunder).
"Dollars" or "$" means dollars in lawful currency of
the United States of America.
"Domestic Business Day" means any day except a
Saturday, Sunday or other day on which commercial banks in
Georgia are authorized by law to close.
"Domestic Significant Subsidiary" means a Significant
Subsidiary which is not a Foreign Significant Subsidiary.
"EBILT" means the sum of the following, calculated on a
consolidated basis in accordance with GAAP for the Borrower and
its Consolidated Subsidiaries: (i) Consolidated Net Income; plus
(ii) income taxes; plus (iii) Consolidated Fixed Charges.
"Eligible Inventory" means the gross dollar value of
inventory of the Borrower and Envirco Corporation; provided, in
each of the foregoing cases, that such inventory:
(i) is at all times subject to a duly perfected, first
priority security interest in favor of Agent, subject only
to any Permitted Encumbrances;
(ii) constituting finished goods is in good and
saleable condition;
(iii) is not on consignment from or subject to any
guaranteed sale, sale-or-return, sale-or-approval, or
repurchase agreement with any supplier;
(iv) does not constitute returned goods in transit to
customers,
(v) constituting finished goods does not constitute (as
determined consistently with the Borrower's past practices
and in accordance with GAAP) obsolete, repossessed, damaged
or slow-moving goods;
(vi) conforms in all respects to the warranties and
representations with respect to inventory set forth in the
Security Agreements;
(vii) is not subject to a negotiable document of title
(unless issued or endorsed, and delivered to Agent);
(viii) is not subject to any license or other agreement
that limits or restricts the Borrower's, Envirco
Corporation's, or the Agent's right to sell or otherwise
dispose of such inventory;
(ix) is located in the United States on premises (A)
owned by the Borrower or Envirco Corporation, or (B) leased
by the Borrower or Envirco Corporation with respect to which
the Agent holds a landlord lien waiver or subordination
satisfactory to the Agent in all respects in the event that
inventory stored at any such leased location has a book
value greater than $300,000 at any time, provided that with
respect to any such leased location held by the Borrower or
Envirco Corporation as of the Closing Date, such inventory
will not be ineligible under this clause (ix) unless the
Borrower fails to so provide the Agent with a landlord lien
waiver or subordination on or before April 30, 1999;
(x) meets all standards imposed by any governmental
agency or authority in all material respects;
(xi) is located on the premises described in the
Collateral Disclosure Certificates; and
(xii) which (including, without limitation, work in
process) has not otherwise been determined by the Agent in
its good faith credit judgment to be ineligible for purposes
hereof.
"Eligible Receivables" means that portion of the
accounts receivable of the Borrower and Envirco Corporation
consisting of trade accounts receivable actually owing to each of
the Borrower and Envirco Corporation by its account debtors
subject to no counterclaim, defense, setoff or deduction,
provided, in each of the foregoing cases, that such accounts
receivable is at all times subject to a duly perfected, first
priority security interest in favor of Agent, excluding, however,
in any event any such account:
(i) with respect to which any portion thereof is more
than 60 days past due (or such lesser number of days which
the Agent may establish by written notice from time to time
to the Borrower in its good faith credit judgment);
(ii) which is owing by any Subsidiary or other
Affiliate;
(iii) which is owing by any account debtor having 25%
(or such lesser percentage which the Agent may establish by
written notice from time to time to the Borrower in its good
faith credit judgment) or more in face value of its then
existing accounts with the Borrower or Envirco Corporation
ineligible hereunder;
(iv) the assignment of which is subject to any
requirements set forth in the Federal Assignment of Claims
Act, provided that any such accounts will not be ineligible
under this clause (iv) for any amounts not exceeding
$300,000 individually or in the aggregate at any time;
(v) which is owing by any account debtor (excluding,
however, for the purposes of this clause (v) only, the
account debtors and their Affiliates designated as the
"excepted account debtors" on the Borrowing Base Certificate
executed and delivered to the Agent on the Closing Date)
whose accounts, in face amount, with the Borrower or Envirco
Corporation exceed 20% (or in each case such lesser
percentage which the Agent may establish by written notice
from time to time to the Borrower in its good faith credit
judgment) of the Eligible Receivables, but only to the
extent of such excess;
(vi) which account exceeds $500,000 and is owed by,
billed to, or will be paid by an account debtor not located
in the United States, unless such account is secured by a
letter of credit which is payable in Dollars and is
acceptable to the Agent in its good faith credit judgment;
(vii) which is subject to a "bill and hold" arrangement
(as to which the account debtor has been invoiced but the
goods have not yet been shipped);
(viii) which is owing by any account debtor which is
the subject (as debtor) of any voluntary or involuntary case
or proceeding under any bankruptcy, insolvency or other
similar law or as to which a trustee, receiver, liquidator,
custodian or other similar official has been appointed for
it or for any substantial part of its property;
(ix) which arises from the sale of any inventory that
is not Eligible Inventory pursuant to clause (iii) of the
proviso contained in the definition of "Eligible Inventory";
(x) with respect to which the Agent determines in its
good faith credit judgment that collection of such account
is insecure, or that payment thereof is doubtful or will be
delayed by reason of such account debtor's financial
condition or that the prospect of payment or performance by
such account debtor is or will be impaired;
(xi) which is owed by, billed to, or will be paid by an
account debtor located in the State of Alabama or any other
state the laws of which deny creditors access to its courts
in the absence of qualification to do business as a foreign
corporation in such state or in the absence of the filing of
any required reports with such state, unless each of the
Borrower and Envirco Corporation has qualified as a foreign
corporation authorized to do business in Alabama or such
state or has filed such required reports;
(xii) which is subject to any Lien other than a
Permitted Encumbrance;
(xiii) which arises from (A) the sale of goods which
have not been delivered and accepted by the account debtor,
or (B) services which have not been performed by the
Borrower or Envirco Corporation and accepted by the account
debtor;
(xiv) which is owing by any account debtor with
respect to which the Borrower or Envirco Corporation has
determined for any reason not to continue selling goods to
or performing services for on open account;
(xv) which is evidenced by chattel paper or an
instrument of any kind, or has been reduced to judgment;
(xvi) with respect to which the Borrower or Envirco
Corporation has made an agreement with the account debtor
(A) for any deduction therefrom, except for discounts or
allowances which are made in the ordinary course of business
for prompt payment and which discounts or allowances are
reflected in the calculation of the face amount of each
invoice related to such Receivable, but only to the extent
of such deduction, or (B) to extend the time of payment
thereof beyond the period set forth in clause (i) in this
definition;
(xvii) which arises from a retail sale of goods to a
Person who is purchasing the same primarily for personal,
family or household purposes; or
(xviii) which has otherwise been determined by the
Agent in its good faith credit judgment not to be eligible
for purposes hereof.
"Environmental Authority" means any foreign, federal,
state, local or regional government that exercises any form of
jurisdiction or authority under any Environmental Requirement.
"Environmental Authorizations" means all licenses,
permits, orders, approvals, notices, registrations or other legal
prerequisites for conducting the business of the Borrower or any
Subsidiary required by any Environmental Requirement.
"Environmental Judgments and Orders" means all
judgments, decrees or orders arising from or in any way
associated with any Environmental Requirements, whether or not
entered upon consent, or written agreements with an Environmental
Authority or other entity arising from or in any way associated
with any Environmental Requirement, whether or not incorporated
in a judgment, decree or order.
"Environmental Liabilities" means any liabilities,
whether accrued, contingent or otherwise, arising from and in any
way associated with any Environmental Requirements.
"Environmental Notices" means all notices from any
Environmental Authority or all material notices from any other
person or entity, of possible or alleged noncompliance with or
liability under any Environmental Requirement, including without
limitation any complaints, citations, demands or requests from
any Environmental Authority or from any other person or entity
for correction of any violation of any Environmental Requirement
or any investigations concerning any violation of any
Environmental Requirement.
"Environmental Proceedings" means any judicial or
administrative proceedings arising from or in any way associated
with any Environmental Requirement.
"Environmental Releases" means releases as defined in
CERCLA or under any applicable state or local environmental law
or regulation.
"Environmental Requirements" means any legal
requirement relating to health, safety or the environment and
applicable to the Borrower, any Subsidiary or the Properties,
including but not limited to any such requirement under CERCLA or
similar state legislation and all federal, state and local laws,
ordinances, regulations, orders, writs, decrees and common law.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, or any successor law.
Any reference to any provision of ERISA shall also be deemed to
be a reference to any successor provision or provisions thereof.
"Euro-Dollar Business Day" means any Domestic Business
Day on which dealings in Dollar deposits are carried out in the
London interbank market.
"Euro-Dollar Loan" means a Loan to be made as a
Euro-Dollar Loan pursuant to the applicable Notice of Borrowing.
"Euro-Dollar Reserve Percentage" has the meaning set
forth in Section 2.05(c).
"Event of Default" has the meaning set forth in Section
6.01.
"Federal Funds Rate" means, for any day, the rate per
annum (rounded upward, if necessary, to the next higher 1/100th
of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic
Business Day next succeeding such day, provided that (i) if the
day for which such rate is to be determined is not a Domestic
Business Day, the Federal Funds Rate for such day shall be such
rate on such transactions on the next preceding Domestic Business
Day as so published on the next succeeding Domestic Business Day,
and (ii) if such rate is not so published for any day, the
Federal Funds Rate for such day shall be the average rate charged
to the Agent on such day on such transactions, as determined by
the Agent.
"Fiscal Quarter" means any fiscal quarter of the Borrower.
"Fiscal Year" means any fiscal year of the Borrower.
"Fixed Charge Coverage Ratio" means the ratio of (i)
EBILT to (ii) Consolidated Fixed Charges.
"Foreign Significant Subsidiary" means a Significant
Subsidiary (i) located outside of the United States and (ii)
which, with respect to the Borrower, would be a "controlled
foreign corporation" deemed to hold "United States property"
under Section 956 of the Code solely as a result of becoming a
Guarantor by delivering a Guaranty.
"Funding Indemnification Letter" means a letter from
the Borrower to the Agent substantially in the form of Exhibit H,
pursuant to which (i) the Banks and the Borrower shall agree upon
the interest rates, amount of Borrowing and Interest Periods for
each portion of any Borrowing on the Closing Date which is to
constitute a Euro-Dollar Loan, and (ii) the Borrower shall
indemnify the Banks from any loss or expense arising from the
failure to close on the anticipated Closing Date identified in
such letter or the failure to borrow such Euro-Dollar Loan on
such date, unless such failure is caused solely by the Banks'
breach of this Agreement.
"GAAP" means generally accepted accounting principles
applied on a basis consistent with those which, in accordance
with Section 1.02, are to be used in making the calculations for
purposes of determining compliance with the terms of this
Agreement.
"Guarantee" by any Person means any obligation,
contingent or otherwise, of such Person directly or indirectly
guaranteeing any Debt or other obligation of any other Person
and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such
Person (i) to secure, purchase or pay (or advance or supply funds
for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities or
services, to provide collateral security, to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the
obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in
whole or in part), provided that the term Guarantee shall not
include endorsements for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Guarantors" means any one or more or all of the
following, as the context shall require: (i) Envirco Corporation;
and (ii) any Domestic Significant Subsidiary which becomes a
Guarantor pursuant to Section 5.23.
"Guaranty" means each Guaranty Agreement substantially
in the form attached hereto as EXHIBIT L executed and delivered
by each Guarantor, together with all amendments, consolidations,
modifications, renewals and supplements thereto.
"Hazardous Materials" includes, without limitation, (a)
solid or hazardous waste, as defined in the Resource Conservation
and Recovery Act of 1980, 42 U.S.C. Section 6901 et seq. and its
implementing regulations and amendments, or in any applicable
state or local law or regulation, (b) "hazardous substance",
"pollutant", or "contaminant" as defined in CERCLA, or in any
applicable state or local law or regulation, (c) gasoline, or any
other petroleum product or by-product, including, crude oil or
any fraction thereof, or (d) pesticides, as defined in the
Federal Insecticide, Fungicide, and Rodenticide Act of 1975, or
in any applicable state or local law or regulation, as each such
Act, statute or regulation may be amended from time to time.
"Interest Period" means: (1) with respect to each
Euro-Dollar Borrowing, the period commencing on the date of such
Borrowing and ending on the numerically corresponding day in the
first, second, or third month thereafter, as the Borrower may
elect in the applicable Notice of Borrowing; provided that:
(a) any Interest Period (subject to paragraph (c)
below) which would otherwise end on a day which is not a
Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar
Business Day falls in another calendar month, in which case
such Interest Period shall end on the next preceding
Euro-Dollar Business Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall, subject to
paragraph (c) below, end on the last Euro-Dollar Business
Day of the appropriate subsequent calendar month; and
(c) no Interest Period may be selected which begins
before the Termination Date and would otherwise end after
the Termination Date.
(2) with respect to each Base Rate Borrowing, the period
commencing on the date of such Borrowing and ending 30 days
thereafter; provided that:
(a) any Interest Period (subject to paragraph (b)
below) which would otherwise end on a day which is not a
Domestic Business Day shall be extended to the next
succeeding Domestic Business Day; and
(b) no Interest Period which begins before the
Termination Date and would otherwise end after the
Termination Date may be selected.
"Investment" means any investment in any Person,
whether by means of purchase or acquisition of obligations or
securities of such Person, capital contribution to such Person,
loan or advance to such Person, making of a time deposit with
such Person, Guarantee or assumption of any obligation of such
Person or otherwise.
"Lending Office" means, as to each Bank, its office
located at its address set forth on the signature pages hereof
(or identified on the signature pages hereof as its Lending
Office) or such other office as such Bank may hereafter designate
as its Lending Office by notice to the Borrower and the Agent.
"Lien" means, with respect to any asset, any mortgage,
deed to secure debt, deed of trust, lien, pledge, charge,
security interest, security title, preferential arrangement which
has the practical effect of constituting a security interest or
encumbrance, or encumbrance or servitude of any kind in respect
of such asset to secure or assure payment of a Debt or a
Guarantee, whether by consensual agreement or by operation of
statute or other law, or by any agreement, contingent or
otherwise, to provide any of the foregoing. For the purposes of
this Agreement, the Borrower or any Subsidiary shall be deemed to
own subject to a Lien any asset which it has acquired or holds
subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Loan" means a Base Rate Loan, Euro-Dollar Loan,
Revolver Loan or Term Loan, and "Loans" means Base Rate Loans,
Euro-Dollar Loans, Revolver Loans, Term Loans, or any or all of
them, as the context shall require, as the same are advanced or
refunded as Refunding Loans pursuant to the terms and conditions
set forth in Section 2.01.
"Loan Documents" means this Agreement, the Notes, the
Security Agreements, the Collateral Disclosure Certificates, any
other document evidencing, relating to or securing the Loans, and
any other document or instrument delivered from time to time in
connection with this Agreement, the Notes, the Security
Agreements, the Collateral Disclosure Certificates, or the Loans,
as such documents and instruments may be amended or supplemented
from time to time.
"London Interbank Offered Rate" has the meaning set
forth in Section 2.05(c).
"Margin Stock" means "margin stock" as defined in
Regulations T, U or X.
"Material Adverse Effect" means, with respect to any
event, act, condition or occurrence of whatever nature (including
any adverse determination in any litigation, arbitration, or
governmental investigation or proceeding), whether singly or in
conjunction with any other event or events, act or acts,
condition or conditions, occurrence or occurrences, whether or
not related, a material adverse change in, or a material adverse
effect upon, any of (a) the financial condition, operations,
business, properties or prospects of the Borrower and its
Consolidated Subsidiaries taken as a whole, (b) the rights and
remedies of the Agent or the Banks under the Loan Documents, or
the ability of the Borrower to perform its obligations under the
Loan Documents to which it is a party, as applicable, or (c) the
legality, validity or enforceability of any Loan Document.
"Maturity Date" means, for the Term Loans, September 8, 2000.
"Multiemployer Plan" shall have the meaning set forth
in Section 4001(a)(3) of ERISA.
"Net Income" means, as applied to any Person for any
period, the aggregate amount of net income of such Person, after
taxes, for such period, as determined in accordance with GAAP.
"Notes" means each of the Revolver Loan Notes or Term
Loan Notes, or any or all of them, as the context shall require,
together with all amendments, consolidations, modifications,
renewals and supplements thereto.
"Notice of Borrowing" has the meaning set forth in
Section 2.02.
"Obligations" means all indebtednesses, liabilities and
obligations of the Borrower to the Agent or the Banks incurred or
arising from time to time under this Agreement and each of the
Loan Documents, including the Loans, interest on the Loans and
the other Obligations, fees, costs and indemnification amounts
and any and all extensions or renewals thereof in whole or in
part.
"Participant" has the meaning set forth in Section 9.08(b).
"PBGC" means the Pension Benefit Guaranty Corporation
or any entity succeeding to any or all of its functions under
ERISA.
"Permitted Encumbrances" means Liens permitted under
Section 5.18 and as expressly permitted under the terms of each
of the Security Agreements.
"Person" means an individual, a corporation, a
partnership, an unincorporated association, a trust or any other
entity or organization, including, but not limited to, a
government or political subdivision or an agency or
instrumentality thereof.
"Plan" means at any time an employee pension benefit
plan which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code and is
either (i) maintained by a member of the Controlled Group for
employees of any member of the Controlled Group or (ii)
maintained pursuant to a collective bargaining agreement or any
other arrangement under which more than one employer makes
contributions and to which a member of the Controlled Group is
then making or accruing an obligation to make contributions or
has within the preceding 5 plan years made contributions.
"Prime Rate" refers to that interest rate so
denominated and set by Wachovia from time to time as an interest
rate basis for borrowings. The Prime Rate is but one of several
interest rate bases used by Wachovia. Wachovia lends at interest
rates above and below the Prime Rate.
"Prior Credit Agreement" means that certain $18,000,000
Credit Agreement dated as of September 8, 1995 among the
Borrower, the Agent and the Banks.
"Properties" means all real property owned, leased or
otherwise used or occupied by the Borrower or any Subsidiary,
wherever located.
"Redeemable Preferred Stock" of any Person means any
preferred stock issued by such Person which is at any time prior
to the Termination Date either (i) mandatorily redeemable (by
sinking fund or similar payments or otherwise) or (ii) redeemable
at the option of the holder thereof.
"Refunding Loan" means with respect to (i) Revolver
Loans, each Revolver Loan made on the day on which the Interest
Period with respect to an outstanding Revolver Loan is maturing
or a Revolver Loan made as a Base Rate Borrowing is being
converted to a Euro-Dollar Borrowing or vice versa, if and to the
extent that the proceeds thereof are used entirely for the
purpose of paying such maturing Revolver Loan or Revolver Loan
being converted, excluding any difference between the amount of
such maturing Revolver Loan or Revolver Loan being converted and
any greater amount being borrowed on such day and actually either
being made available to the Borrower pursuant to Section 2.02(c)
or remitted to the Agent as provided in Section 2.11, in each
case as contemplated in Section 2.02(d), and (ii) Term Loans, a
Term Loan which is a Base Rate Borrowing which is being converted
to a Euro-Dollar Borrowing or vice versa.
"Regulation T" means Regulation T of the Board of
Governors of the Federal Reserve System, as in effect from time
to time, together with all official rulings and interpretations
issued thereunder.
"Regulation U" means Regulation U of the Board of
Governors of the Federal Reserve System, as in effect from time
to time, together with all official rulings and interpretations
issued thereunder.
"Regulation X" means Regulation X of the Board of
Governors of the Federal Reserve System, as in effect from time
to time, together with all official rulings and interpretations
issued thereunder.
"Required Banks" means at any time Banks having at
least 67% of the aggregate amount of the Commitments or, if the
Commitments are no longer in effect, Banks holding at least 67%
of the aggregate outstanding principal amount of the sum of the
(i) Revolver Loans and (ii) Term Loans.
"Revolver Loan" means the Base Rate Loans and
Euro-Dollar Loans to be made by each Bank in accordance with Section
2.01(a) in the amount of its Commitment, and "Revolver Loans"
means, collectively, the Revolver Loans of all of the Banks.
"Revolver Loan Notes" means the promissory notes of the
Borrower, substantially in the form of Exhibit A-1, evidencing
the obligation of the Borrower to repay Revolver Loans, together
with all amendments, consolidations, modifications, renewals and
supplements thereto.
"Security Agreements" means Security Agreements
substantially in the form attached hereto as EXHIBIT J-1 with
respect to the Borrower, and EXHIBIT J-2 with respect to each
Domestic Significant Subsidiary, completed, executed and
delivered by the Borrower and the Domestic Significant
Subsidiaries, together with all amendments, consolidations,
modifications, renewals and supplements thereto.
"Significant Subsidiary" means each Guarantor and any
Subsidiary which either (x) has assets which constitute more than
5% of Consolidated Total Assets at the end of the most recent
Fiscal Quarter, or (y) contributed more than 5% of EBILT during
the most recent Fiscal Quarter and the 3 Fiscal Quarters
immediately preceding such Fiscal Quarter (or, with respect to
any Subsidiary which existed during the entire 4 Fiscal Quarter
period but was acquired by the Borrower during such period, which
would have contributed more than 5% of EBILT during such period
had it been a Subsidiary for the entire period).
"Subsidiary" means any corporation or other entity of
which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time
directly or indirectly owned by the Borrower.
"Taxes" has the meaning set forth in Section 2.11(c).
"Termination Date" means March 18, 2000.
"Term Loans" means the term loans to be made by the
Banks hereunder pursuant to Section 2.01(b) on the date of the
initial Borrowing under this Agreement.
"Term Loan Notes" means the promissory notes of the
Borrower, substantially in the form of Exhibit A-2, evidencing
the obligation of the Borrower to repay Term Loans, together with
all amendments, consolidations, modifications, renewals and
supplements thereto.
"Third Parties" means all lessees, sublessees,
licensees and other users of the Properties, excluding those
users of the Properties in the ordinary course of the Borrower's
business and on a temporary basis.
"Transferee" has the meaning set forth in Section 9.08(d).
"Unfunded Vested Liabilities" means, with respect to
any Plan at any time, the amount (if any) by which (i) the
present value of all vested nonforfeitable benefits under such
Plan exceeds (ii) the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, but only to the extent that
such excess represents a potential liability of a member of the
Controlled Group to the PBGC or the Plan under Title IV of ERISA.
"Unused Commitment" means at any date, with respect to
any Bank, an amount equal to its Commitment less the aggregate
outstanding principal amount of its Revolver Loans.
"Wachovia" means Wachovia Bank, N.A., a national
banking association, and its successors.
"Wholly Owned Subsidiary" means any Subsidiary all of
the shares of capital stock or other ownership interests of which
(except directors' qualifying shares) are at the time directly or
indirectly owned by the Borrower.
"Year 2000 Compliant and Ready" means that (A) the
Borrower's and its Subsidiaries' hardware and software systems
with respect to the operation of its business and its general
business plan will: (i) handle date information involving any
and all dates before, during and after January 1, 2000, including
accepting input, providing output and performing date
calculations in whole or in part; (ii) operate, accurately
without interruption on and in respect of any and all dates
before, during and after January 1, 2000 and without any change
in performance; (iii) store and provide date input information
without creating any ambiguity as to the century and; (B) the
Borrower has developed alternative plans to ensure business
continuity in the event of the failure of any or all of items (i)
through (iii) above.
SECTION 1.02. Accounting Terms and Determinations.
Unless otherwise specified herein, all terms of an accounting
character used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial
statements required to be delivered hereunder shall be prepared,
in accordance with GAAP, applied on a basis consistent (except
for changes concurred in by the Borrower's independent public
accountants or otherwise required by a change in GAAP) with the
most recent audited consolidated financial statements of the
Borrower and its Consolidated Subsidiaries delivered to the Banks
unless with respect to any such change concurred in by the
Borrower's independent public accountants or required by GAAP, in
determining compliance with any of the provisions of this
Agreement or any of the other Loan Documents: (i) the Borrower
shall have objected to determining such compliance on such basis
at the time of delivery of such financial statements, or (ii) the
Required Banks shall so object in writing within 30 days after
the delivery of such financial statements, in either of which
events such calculations shall be made on a basis consistent with
those used in the preparation of the latest financial statements
as to which such objection shall not have been made (which, if
objection is made in respect of the first financial statements
delivered under Section 5.01 hereof, shall mean the financial
statements referred to in Section 4.04).
SECTION 1.03. References. Unless otherwise indicated,
references in this Agreement to "Articles", "Exhibits",
"Schedules", "Sections" and other Subdivisions are references to
articles, exhibits, schedules, sections and other subdivisions
hereof.
SECTION 1.04. Use of Defined Terms. All terms defined
in this Agreement shall have the same defined meanings when used
in any of the other Loan Documents, unless otherwise defined
therein or unless the context shall require otherwise.
SECTION 1.05. Terminology. All personal pronouns used
in this Agreement, whether used in the masculine, feminine or
neuter gender, shall include all other genders; the singular
shall include the plural, and the plural shall include the
singular. Titles of Articles and Sections in this Agreement are
for convenience only, and neither limit nor amplify the
provisions of this Agreement.
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Make Revolver Loans and
Refunding Loans with respect to Term Loans. (a) Each Bank
severally agrees, on the terms and conditions set forth herein,
to make Revolver Loans to the Borrower from time to time before
the Termination Date; provided that, immediately after each such
Loan is made,
(i) the aggregate principal amount of Revolver Loans
by such Bank shall not exceed the amount of its Commitment,
and
(ii) the aggregate outstanding amount of all Revolver
Loans shall not exceed the lesser of (A) aggregate amount of
the Commitments or (B) the aggregate amount of the Borrowing
Base.
Each Revolver Loan Borrowing under this Section shall be in an
aggregate principal amount of (i) $250,000 or any larger multiple
of $50,000 in the case of Euro-Dollar Loans, and (ii) $100,000 or
any larger multiple of $1,000 in the case of Base Rate Loans
(except that any such Borrowing may be in the aggregate amount of
the Unused Commitments subject to clauses (i) and (ii) of this
Section 2.01), and in each case shall be made from the several
Banks ratably in proportion to their respective Commitments.
Within the foregoing limits, the Borrower may borrow under this
Section, repay or, to the extent permitted by Section 2.09,
prepay Revolver Loans and reborrow under this Section at any time
before the Termination Date.
(b) Each Bank which is a party to this Agreement on the
Closing Date severally agrees, on the terms and conditions set
forth herein, to advance its Term Loan on the date of the initial
Borrowing in the following amount: (i) Wachovia agrees to advance
its Term Loan in the principal amount equal to $1,875,000, and
(ii) First Union National Bank agrees to advance its Term Loan in
the principal amount equal to $1,875,000. After making payments
on the Term Loans, the Borrower may not reborrow Term Loans
except as Refunding Loans. Each Term Loan Refunding Loan under
this Section shall be in an aggregate principal amount of (i)
$1,000,000 or any larger multiple of $1,000 in the case of
Euro-Dollar Loans, and (ii) $150,000 or any larger multiple of $1,000
in the case of Base Rate Loans. A Term Loan Refunding Loan may be
made on a date specified in a Notice of Borrowing pursuant to
Section 2.02, which date must be a Euro-Dollar Business Day (or a
Domestic Business Day, in the case of a Base Rate Borrowing).
Subject to the provisions of Section 8.05, Term Loans may prepaid
at any time without premium or penalty, but principal amounts
prepaid, and principal amounts repaid may not be reborrowed,
except as Refunding Loans. The Term Loans shall be repaid in 3
consecutive semi-annual installments of principal equal to
$1,250,000 each due on September 8, 1999, March 8, 2000, and
September 8, 2000 (or on the first Domestic Business Day
thereafter, if such day is not a Domestic Business Day), with a
final payment of all outstanding principal (if any) and all
accrued and unpaid interest on the Maturity Date.
SECTION 2.02. Method of Borrowing Revolver Loans and
Refunding Loans with respect to Term Loans. (a) The Borrower
shall give the Agent notice (a "Notice of Borrowing"), which
shall be substantially in the form of Exhibit E, prior to 11:00
A.M. (Atlanta, Georgia time) on the same Domestic Business Day
for each Base Rate Borrowing and at least 3 Euro-Dollar Business
Days before each Euro-Dollar Borrowing, and shall be accompanied
by a Borrowing Base Certificate, specifying:
(i) the date of such Borrowing, which shall be a
Domestic Business Day in the case of a Base Rate Borrowing
or a Euro-Dollar Business Day in the case of a Euro-Dollar
Borrowing,
(ii) the aggregate amount of such Borrowing,
(iii) whether the Loans comprising such Borrowing are
to be Revolver Loans or Refunding Loans with respect to
Revolver Loans or Term Loans, and whether such Loans are to
be Base Rate Loans or Euro-Dollar Loans,
(iv) in the case of a Euro-Dollar Borrowing, the
duration of the Interest Period applicable thereto, subject
to the provisions of the definition of Interest Period, and
(v) as set forth on the Borrowing Base Certificate,
that the Borrower is in compliance with Sections 2.01 and
2.10.
(b) Upon receipt of a Notice of Borrowing and
Borrowing Base Certificate, the Agent shall promptly notify each
Bank of the contents thereof and of such Bank's ratable share of
such Borrowing and such Notice of Borrowing, once received by the
Agent, shall not thereafter be revocable by the Borrower.
(c) Not later than 2:00 P.M. (Atlanta, Georgia time) on
the date of each Borrowing, each Bank shall (except as provided
in paragraph (d) of this Section) make available its ratable
share of such Borrowing, in Federal or other funds immediately
available in Atlanta, Georgia, to the Agent at its address
determined pursuant to Section 9.01. Unless the Agent determines
that any applicable condition specified in Article III has not
been satisfied, the Agent will make the funds so received from
the Banks available to the Borrower at the Agent's aforesaid
address. Unless the Agent receives notice from a Bank, at the
Agent's address referred to in or specified pursuant to Section
9.01, no later than 2:00 P.M. (local time at such address) on the
date of a Base Rate Borrowing, or 4:00 P.M. (local time at such
address) on the Euro-Dollar Business Day before the date of a
Euro-Dollar Borrowing, in either case stating that such Bank will
not make a Loan in connection with such Borrowing, the Agent
shall be entitled to assume that such Bank will make a Loan in
connection with such Borrowing and, in reliance on such
assumption, the Agent may (but shall not be obligated to) make
available such Bank's ratable share of such Borrowing to the
Borrower for the account of such Bank. If the Agent makes such
Bank's ratable share available to the Borrower and such Bank does
not in fact make its ratable share of such Borrowing available on
such date, the Agent shall be entitled to recover such Bank's
ratable share from such Bank or the Borrower (and for such
purpose shall be entitled to charge such amount to any account of
the Borrower maintained with the Agent), together with interest
thereon for each day during the period from the date of such
Borrowing until such sum shall be paid in full at a rate per
annum equal to the rate at which the Agent determines that it
obtained (or could have obtained) overnight Federal funds to
cover such amount for each such day during such period, provided
that (i) any such payment by the Borrower of such Bank's ratable
share and interest thereon shall be without prejudice to any
rights that the Borrower may have against such Bank and (ii)
until such Bank has paid its ratable share of such Borrowing,
together with interest pursuant to the foregoing, it will have no
interest in or rights with respect to such Borrowing for any
purpose hereunder. If the Agent does not exercise its option to
advance funds for the account of such Bank, it shall promptly
notify the Borrower of such decision.
(d) If any Bank makes a new Loan hereunder on a day on
which the Borrower is to repay all or any part of an outstanding
Loan from such Bank, such Bank shall apply the proceeds of its
new Loan to make such repayment as a Refunding Loan and only an
amount equal to the difference (if any) between the amount being
borrowed and the amount of such Refunding Loan shall be made
available by such Bank to the Agent as provided in paragraph (c)
of this Section, or remitted by the Borrower to the Agent as
provided in Section 2.11, as the case may be.
(e) Notwithstanding anything to the contrary contained
in this Agreement, no Euro-Dollar Borrowing may be made if there
shall have occurred a Default or an Event of Default, which
Default or Event of Default shall not have been cured or waived,
and all Refunding Loans shall be made as Base Rate Loans (but
shall bear interest at the Default Rate, if applicable).
(f) In the event that a Notice of Borrowing fails to
specify whether the Loans comprising such Borrowing are to be
Base Rate Loans or Euro-Dollar Loans, such Loans shall be made as
Base Rate Loans. If the Borrower is otherwise entitled under
this Agreement to repay any Loans maturing at the end of an
Interest Period applicable thereto with the proceeds of a new
Borrowing, and the Borrower fails to repay such Loans using its
own moneys and fails to give a Notice of Borrowing in connection
with such new Borrowing, a new Borrowing shall be deemed to be
made on the date such Loans mature in an amount equal to the
principal amount of the Loans so maturing, and the Loans
comprising such new Borrowing shall be Base Rate Loans.
(g) Notwithstanding anything to the contrary
contained herein, there shall not be more than 6 Euro-Dollar
Loans at any given time.
SECTION 2.03. Notes. (a) The Revolver Loans of each
Bank shall be evidenced by a single Revolver Loan Note payable to
the order of such Bank, for the account of its Lending Office in
an amount equal to the original principal amount of such Bank's
Revolver Loan Commitment.
(b) The Term Loans of each Bank shall be evidenced by
a single Term Loan Note payable to the order of such Bank for the
account of its Lending Office in an amount equal to the original
principal amount of such Bank's Term Loan Commitment.
(c) Upon receipt of each Bank's Revolver Loan Notes
pursuant to Section 3.01, the Agent shall deliver such Revolver
Notes to such Bank. Each Bank shall record, and prior to any
transfer of its Notes shall endorse on the schedules forming a
part thereof appropriate notations to evidence, the date, amount
and maturity of, and effective interest rate for, each Loan and
Refunding Loan made by it, the date and amount of each payment of
principal made by the Borrower with respect thereto, and such
schedules of each such Bank's Notes shall constitute rebuttable
presumptive evidence of the respective principal amounts owing
and unpaid on such Bank's Notes; provided that the failure of any
Bank to make any such recordation or endorsement shall not affect
the obligation of the Borrower hereunder or under the Notes or
the ability of any Bank to assign its Notes. Each Bank is hereby
irrevocably authorized by the Borrower so to complete its Notes
as set forth above and to attach to and make a part of any Note a
continuation of any such schedule as and when required.
SECTION 2.04. Maturity of Loans. (a) Each Loan included
in any Borrowing (whether as an advance of a Revolver Loan, or a
Revolver Loan or Term Loan consisting of a Refunding Loan) shall
mature, and the principal amount thereof shall be due and
payable, on the last day of the Interest Period applicable to
such Borrowing.
(b) Notwithstanding the foregoing, (i) the outstanding
principal amount of the Revolver Loans, if any, together with all
accrued but unpaid interest thereon, if any, shall be due and
payable on the Termination Date, and (ii) the outstanding
principal amount of the Term Loans, together with all accrued but
unpaid interest thereon, if any, shall be due and payable on the
Maturity Date.
SECTION 2.05. Interest Rates. (a) "Applicable Margin" means
(i) for any Base Rate Loan, 0.00%, and (ii) for any Euro-Dollar
Loan, 2.00%.
(b) Each Base Rate Loan shall bear interest on the
outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal
to the Base Rate for such day plus the Applicable Margin. Such
interest shall be payable for each Interest Period on the last
day thereof. Any overdue principal of and, to the extent
permitted by applicable law, overdue interest on any Base Rate
Loan shall bear interest, payable on demand, for each day until
paid at a rate per annum equal to the Default Rate.
(c) Each Euro-Dollar Loan shall bear interest on the
outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the sum of the
Applicable Margin plus the applicable Adjusted London Interbank
Offered Rate for such Interest Period. Such interest shall be
payable for each Interest Period on the last day thereof and, if
such Interest Period is longer than 3 months, at intervals of 3
months after the first day thereof. Any overdue principal of
and, to the extent permitted by law, overdue interest on any
Euro-Dollar Loan shall bear interest, payable on demand, for each
day until paid at a rate per annum equal to the Default Rate.
The "Adjusted London Interbank Offered Rate" applicable
to any Interest Period means a rate per annum equal to the
quotient obtained (rounded upwards, if necessary, to the next
higher 1/100th of 1%) by dividing (i) the applicable London
Interbank Offered Rate for such Interest Period by (ii) 1.00
minus the Euro-Dollar Reserve Percentage.
The "London Interbank Offered Rate" applicable to any
Euro-Dollar Loan means for the Interest Period of such
Euro-Dollar Loan, the rate per annum determined on the basis of
the offered rate for deposits in Dollars of amounts equal or
comparable to the principal amount of such Euro-Dollar Loan
offered for a term comparable to such Interest Period, which
rates appear on the Telerate Screen Page 3750 effective as of
11:00 A.M., London time, 2 Euro-Dollar Business Days prior to the
first day of such Interest Period, provided that (i) if more than
one such offered rate appears on the Telerate Screen Page 3750,
the "London Interbank Offered Rate" will be the arithmetic
average (rounded upward, if necessary, to the next higher 1/100th
of 1%) of such offered rates; (ii) if no such offered rates
appear on such page, the "London Interbank Offered Rate" for such
Interest Period will be the arithmetic average (rounded upward,
if necessary, to the next higher 1/100th of 1%) of rates quoted
by not less than 2 major banks in New York City, selected by the
Agent, at approximately 10:00 A.M., New York City time, 2
Euro-Dollar Business Days prior to the first day of such Interest
Period, for deposits in Dollars offered to leading European banks
for a period comparable to such Interest Period in an amount
comparable to the principal amount of such Euro-Dollar Loan.
"Euro-Dollar Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such
day, as prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the maximum
reserve requirement for a member bank of the Federal Reserve
System in respect of "Eurocurrency liabilities" (or in respect of
any other category of liabilities which includes deposits by
reference to which the interest rate on Euro-Dollar Loans is
determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any
Bank to United States residents). The Adjusted London Interbank
Offered Rate shall be adjusted automatically on and as of the
effective date of any change in the Euro-Dollar Reserve
Percentage.
(d) The Agent shall determine each interest rate
applicable to the Loans hereunder. The Agent shall give prompt
notice to the Borrower and the Banks by telecopier of each rate
of interest so determined, and its determination thereof shall be
conclusive in the absence of manifest error.
(e) After the occurrence and during the continuance of
a Default, the principal amount of the Loans (and, to the extent
permitted by applicable law, all accrued interest thereon) may,
after the election of the Required Banks and notice thereof has
been given to the Borrower, bear interest at the Default Rate.
SECTION 2.06. Fees. (a) The Borrower shall pay to the
Agent, for the ratable account of each Bank, a commitment fee,
calculated on the average daily amount of such Bank's Unused
Commitment, at the rate of 0.25% per annum. Such commitment fees
shall accrue from and including the Closing Date to but excluding
the Termination Date and shall be payable on each March 31, June
30, September 30 and December 31 and on the Termination Date.
(b) On the Closing Date, the Borrower shall pay to the
Agent, for the ratable account of each Bank, an upfront fee,
calculated on the amount of such Bank's Commitment, at the rate
of 0.25% per annum.
(c) The Borrower shall pay to the Agent, for the
account and sole benefit of the Agent, such fees and other
amounts at such times as may be mutually agreed to by the
Borrower and the Agent from time to time.
SECTION 2.07. Optional Termination or Reduction of
Commitments. The Borrower may, upon at least 3 Domestic Business
Days' notice to the Agent, terminate at any time, or
proportionately reduce the Unused Commitments from time to time
by an aggregate amount of at least $1,000,000 or any larger
multiple of $500,000. If the Commitments are terminated in their
entirety, all accrued fees (as provided under Section 2.06) shall
be due and payable on the effective date of such termination.
SECTION 2.08. Mandatory Reduction and Termination of
Commitments. (a) The Commitments shall terminate on the
Termination Date and any Revolver Loans then outstanding
(together with accrued interest thereon) shall be due and payable
on such date.
SECTION 2.09. Optional Prepayments. (a) The Borrower
may, upon at least 1 Domestic Business Days' notice to the Agent,
prepay any Base Rate Borrowing in whole at any time, or from time
to time in part in amounts aggregating at least $150,000 or any
larger multiple of $50,000, by paying the principal amount to be
prepaid together with accrued interest thereon to the date of
prepayment. Each such optional prepayment shall be applied to
prepay ratably the Base Rate Loans of the several Banks included
in such Base Rate Borrowing.
(b) Except as provided in Section 8.02, the Borrower
may not prepay all or any portion of the principal amount of any
Euro-Dollar Loan prior to the maturity thereof.
(c) Upon receipt of a notice of prepayment pursuant to
this Section 2.9, the Agent shall promptly notify each Bank of
the contents thereof and of such Bank's ratable share of such
prepayment and such notice, once received by the Agent, shall not
thereafter be revocable by the Borrower.
SECTION 2.10. Mandatory Prepayments. (a) On each date
on which the Commitments are reduced pursuant to Section 2.07 or
Section 2.08, the Borrower shall repay or prepay such principal
amount of the outstanding Revolver Loans, if any (together with
interest accrued thereon), as may be necessary so that after such
payment the aggregate unpaid principal amount of the Revolver
Loans does not exceed the aggregate amount of the Commitments as
then reduced. Each such payment or prepayment shall be applied
ratably to the Revolver Loans of the Banks outstanding on the
date of payment or prepayment in the following order of priority:
(i) first, to Base Rate Loans; and (ii) secondly, to Euro-Dollar
Loans.
(b) On each date on which the outstanding principal
balance of the Revolver Loans exceeds the Borrowing Base, the
Borrower shall repay or prepay such principal amount of the
outstanding Revolver Loans, if any (together with interest
accrued thereon and any amount due under SECTION 8.05), as may be
necessary so that after such payment the outstanding principal
balance of the Revolver Loans does not exceed the Borrowing Base.
Each such payment or prepayment shall be applied ratably to the
Revolver Loans of the Banks outstanding on the date of payment or
prepayment, first to Base Rate Loans, then to Euro-Dollar Loans.
SECTION 2.11. General Provisions as to Payments.
(a) The Borrower shall make each payment of principal of, and
interest on, the Loans and of fees hereunder, not later than
11:00 A.M. (Atlanta, Georgia time) on the date when due, in
Federal or other funds immediately available in Atlanta,
Georgia, to the Agent at its address referred to in Section 9.01.
The Agent will promptly distribute to each Bank its ratable share
of each such payment received by the Agent for the account of the
Banks.
(b) Whenever any payment of principal of, or interest
on, the Base Rate Loans or of fees hereunder shall be due on a
day which is not a Domestic Business Day, the date for payment
thereof shall be extended to the next succeeding Domestic
Business Day. Whenever any payment of principal of or interest
on, the Euro-Dollar Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day unless
such Euro-Dollar Business Day falls in another calendar month, in
which case the date for payment thereof shall be the next
preceding Euro-Dollar Business Day.
(c) All payments of principal, interest and fees and
all other amounts to be made by the Borrower pursuant to this
Agreement with respect to any Loan or fee relating thereto shall
be paid without deduction for, and free from, any tax, imposts,
levies, duties, deductions, or withholdings of any nature now or
at anytime hereafter imposed by any governmental authority or by
any taxing authority thereof or therein excluding in the case of
each Bank, taxes imposed on or measured by its net income, and
franchise taxes imposed on it, by the jurisdiction under the laws
of which such Bank (as the case may be) is organized or any
political subdivision thereof and, in the case of each Bank,
taxes imposed on its income, and franchise taxes imposed on it,
by the jurisdiction of such Bank's applicable Lending Office or
any political subdivision thereof (all such non-excluded taxes,
imposts, levies, duties, deductions or withholdings of any nature
being "Taxes"). In the event that the Borrower is required by
applicable law to make any such withholding or deduction of Taxes
with respect to any Loan or fee or other amount, the Borrower
shall pay such deduction or withholding to the applicable taxing
authority, shall promptly furnish to any Bank in respect of which
such deduction or withholding is made all receipts and other
documents evidencing such payment and shall pay to such Bank
additional amounts as may be necessary in order that the amount
received by such Bank after the required withholding or other
payment shall equal the amount such Bank would have received had
no such withholding or other payment been made. If no
withholding or deduction of Taxes are payable in respect to any
Loan or fee relating thereto, the Borrower shall furnish any
Bank, at such Bank's reasonable request, a certificate from each
applicable taxing authority or an opinion of counsel acceptable
to such Bank, in either case stating that such payments are
exempt from or not subject to withholding or deduction of Taxes.
If the Borrower fails to provide such original or certified copy
of a receipt evidencing payment of Taxes or certificate(s) or
opinion of counsel of exemption, the Borrower hereby agrees to
compensate such Bank for, and indemnify them with respect to, the
tax consequences of the Borrower's failure to provide evidence of
tax payments or tax exemption.
Each Bank which is not organized under the laws of the
United States or any state thereof agrees, as soon as practicable
after receipt by it of a request by the Borrower to do so, to
file all appropriate forms and take other appropriate action to
obtain a certificate or other appropriate document from the
appropriate governmental authority in the jurisdiction imposing
the relevant Taxes, establishing that it is entitled to receive
payments of principal and interest under this Agreement and the
Notes without deduction and free from withholding of any Taxes
imposed by such jurisdiction; provided that if it is unable, for
any reason, to establish such exemption, or to file such forms
and, in any event, during such period of time as such request for
exemption is pending, the Borrower shall nonetheless remain
obligated under the terms of the immediately preceding paragraph.
In the event any Bank receives a refund of any Taxes
paid by the Borrower pursuant to this Section 2.11(c), it will
pay to the Borrower the amount of such refund promptly upon
receipt thereof; provided that if at any time thereafter it is
required to return such refund, the Borrower shall promptly repay
to it the amount of such refund.
Without prejudice to the survival of any other
agreement of the Borrower hereunder, the agreements and
obligations of the Borrower and the Banks contained in this
Section 2.11(c) shall be applicable with respect to any
Participant, Assignee or other Transferee, and any calculations
required by such provisions (i) shall be made based upon the
circumstances of such Participant, Assignee or other Transferee,
and (ii) constitute a continuing agreement and shall survive the
termination of this Agreement and the payment in full or
cancellation of the Notes.
SECTION 2.12. Computation of Interest and Fees.
Interest on Base Rate Loans shall be computed on the basis of a
year of 360 days and paid for the actual number of days elapsed
(including the first day but excluding the last day). Interest
on Euro-Dollar Loans shall be computed on the basis of a year of
360 days and paid for the actual number of days elapsed,
calculated as to each Interest Period from and including the
first day thereof to but excluding the last day thereof.
Commitment fees and any other fees payable hereunder shall be
computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but
excluding the last day).
ARTICLE III
CONDITIONS TO BORROWINGS
SECTION 3.01. Conditions to First Borrowing. The
obligation of each Bank to make a Loan on the occasion of the
first Borrowing is subject to the satisfaction of the conditions
set forth in Section 3.02 and receipt by the Agent of the
following (as to the documents described in paragraphs (a),(c),
(d)and (e) below, in sufficient number of counterparts for
delivery of a counterpart to each Bank and retention of one
counterpart by the Agent):
(a) from each of the parties hereto of either (i) a
duly executed counterpart of this Agreement signed by such
party or (ii) a facsimile transmission stating that such
party has duly executed a counterpart of this Agreement and
sent such counterpart to the Agent;
(b) duly executed, respectively, by the Borrower and
the Guarantors (i) Revolver Loan Notes and Term Loan Notes
for the account of each Bank complying with the provisions
of Section 2.03, (ii) Security Agreements, (iii) Guaranty,
and (iv) Collateral Disclosure Certificates;
(c) an opinion letter (together with any opinions of
local counsel relied on therein) of Smith Helms Mulliss &
Moore, L.L.P., counsel for the Borrower and the Guarantors,
dated as of the Closing Date, substantially in the form of
Exhibit B and covering such additional matters relating to
the transactions contemplated hereby as the Agent or any
Bank may reasonably request;
(d) an opinion of Jones, Day, Reavis & Pogue, special
counsel for the Agent, dated as of the Closing Date,
substantially in the form of Exhibit C and covering such
additional matters relating to the transactions contemplated
hereby as the Agent may reasonably request;
(e) a certificate (the "Closing Certificate")
substantially in the form of Exhibit G), dated as of the
Closing Date, signed by a principal financial officer of the
Borrower, to the effect that (i) no Default has occurred and
is continuing on the date of the first Borrowing and (ii)
the representations and warranties of the Borrower contained
in Article IV are true on and as of the date of the first
Borrowing hereunder;
(f) all documents which the Agent or any Bank may
reasonably request relating to the existence of the Borrower
and each Guarantor, the corporate authority for and the
validity of this Agreement, the Notes, the Security
Agreements, the Guaranty, and any other matters relevant
hereto, all in form and substance satisfactory to the Agent,
including, without limitation, a certificate of incumbency
of the Borrower and each Guarantor, signed by the Secretary
or an Assistant Secretary of the Borrower and each
Guarantor, certifying as to the names, true signatures and
incumbency of the officer or officers of the Borrower or
such Guarantor authorized to execute and deliver the Loan
Documents, or the Guaranty, as applicable, and certified
copies of the following items: (i) the Borrower's and each
Guarantor's Certificate of Incorporation, (ii) the
Borrower's and each Guarantor's Bylaws, (iii) certificates
of the Secretary of State for the State of organization and
existence of the Borrower and each Guarantor as to the good
standing of the Borrower and each Guarantor (iv) the action
taken by the Board of Directors of the Borrower and each
Guarantor authorizing the Borrower's and each Guarantor's
execution, delivery and performance of this Agreement, the
Notes, the Security Agreement, and the other Loan Documents
to which the Borrower is a party, and of the Guaranty and
Security Agreement by the Domestic Significant Subsidiaries;
(g) UCC, tax and judgment lien searches (satisfactory
to the Agent and the Lenders in all respects) against the
Borrower and the Guarantors; and
(h) a Notice of Borrowing for Loans, in accordance
with the terms of this Agreement, in an amount sufficient to
refinance in full all outstanding Debt under the Prior
Credit Agreement and, pursuant to which the Banks'
commitments to make Loans under the Prior Credit Agreement
are terminated.
In addition, if the Borrower desires funding of a Euro-Dollar
Loan on the Closing Date, the Agent shall have received, the
requisite number of days prior to the Closing Date, a Funding
Indemnification Letter.
SECTION 3.02. Conditions to All Borrowings. The
obligation of each Bank to make a Loan on the occasion of each
Borrowing is subject to the satisfaction of the following
conditions except as expressly provided in the last sentence of
this Section 3.02:
(a) receipt by the Agent of a Notice of Borrowing;
(b) the fact that, immediately before and after such
Borrowing, no Default shall have occurred and be continuing;
(c) the fact that the representations and warranties
of the Borrower contained in Article IV of this Agreement
shall be true on and as of the date of such Borrowing; and
(d) the fact that, immediately after such Borrowing,
the conditions set forth in clauses (i) and (ii) of Section
2.01 shall have been satisfied.
Each Borrowing (including Refunding Loans) hereunder shall be
deemed to be a representation and warranty by the Borrower on the
date of such Borrowing as to the truth and accuracy of the facts
specified in paragraphs (b), (c) and (d) of this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Corporate Existence and Power. The
Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
incorporation, is duly qualified to transact business in every
jurisdiction where, by the nature of its business, such
qualification is necessary and except where the failure to so
qualify would not have and is not reasonably expected to cause a
Material Adverse Effect, and has all corporate powers and all
governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
SECTION 4.02. Corporate and Governmental Authorization;
No Contravention. The execution, delivery and performance by the
Borrower of this Agreement, the Notes and the other Loan
Documents (i) are within the Borrower's corporate powers, (ii)
have been duly authorized by all necessary corporate action,
(iii) require no action by or in respect of or filing with, any
governmental body, agency or official (other than filings under
applicable securities laws reporting the closing of the Loans
hereunder), (iv) do not contravene, or constitute a default
under, any provision of applicable law or regulation or of the
certificate of incorporation or by-laws of the Borrower or of any
agreement, judgment, injunction, order, decree or other
instrument binding upon the Borrower or any of its Subsidiaries,
the violation of which would have and or would reasonably be
expected to cause a Material Adverse Effect, and (v) do not
result in the creation or imposition of any Lien on any asset of
the Borrower or any of its Subsidiaries.
SECTION 4.03. Binding Effect. This Agreement
constitutes a valid and binding agreement of the Borrower
enforceable against the Borrower in accordance with its terms,
and the Notes and the other Loan Documents, when executed and
delivered in accordance with this Agreement, will constitute
valid and binding obligations of the Borrower enforceable against
the Borrower in accordance with their respective terms, provided
that the enforceability hereof and thereof is subject in each
case to general principles of equity and to bankruptcy,
insolvency and similar laws affecting the enforcement of
creditors' rights generally.
SECTION 4.04. Financial Information. (a) The
consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as of December 31, 1997 and the related consolidated
statements of income, shareholders' equity and cash flows for the
Fiscal Year then ended, reported on by Ernst & Young, LLP, copies
of which have been delivered to each of the Banks, and the
unaudited consolidated financial statements of the Borrower for
the interim period ended September 30, 1998, copies of which have
been delivered to each of the Banks, fairly present, in
conformity with GAAP (subject to any year-end adjustments in
accordance with GAAP), the consolidated financial position of the
Borrower and its Consolidated Subsidiaries as of such dates and
their consolidated results of operations and cash flows for such
periods stated.
(b) Since September 30, 1998, there has been no event,
act, condition or occurrence having a Material Adverse Effect.
SECTION 4.05. No Litigation. There is no action, suit
or proceeding pending, or to the knowledge of the Borrower
threatened, against or affecting the Borrower or any of its
Subsidiaries before any court or arbitrator or any governmental
body, agency or official which could have a Material Adverse
Effect or which in any manner draws into question the validity of
or could impair the ability of the Borrower to perform its
obligations under, this Agreement, the Notes or any of the other
Loan Documents.
SECTION 4.06. Compliance with ERISA. (a) The Borrower
and each member of the Controlled Group have fulfilled their
obligations under the minimum funding standards of ERISA and the
Code with respect to each Plan and are in compliance in all
material respects with the presently applicable provisions of
ERISA and the Code, and have not incurred any material liability
to the PBGC or a Plan under Title IV of ERISA.
(b) Neither the Borrower nor any member of the
Controlled Group is or ever has been obligated to contribute to
any Multiemployer Plan.
SECTION 4.07. Compliance with Laws; Payment of Taxes.
The Borrower and its Subsidiaries are in compliance with all
applicable laws, regulations and similar requirements of
governmental authorities, except where such compliance is being
contested in good faith through appropriate proceedings or the
failure of which would not have and is not reasonably expected to
cause a Material Adverse Effect. There have been filed on behalf
of the Borrower and its Subsidiaries all Federal, state and local
income, excise, property and other tax returns which are required
to be filed by them (including extensions of the time of filing
thereof) and all taxes due pursuant to such returns or pursuant
to any assessment received by or on behalf of the Borrower or any
Subsidiary have been paid. The charges, accruals and reserves on
the books of the Borrower and its Subsidiaries in respect of
taxes or other governmental charges are, in the opinion of the
Borrower, adequate. United States income tax returns of the
Borrower and its Subsidiaries have been examined and closed
through the Fiscal Year ended December 31, 1991.
SECTION 4.08. Subsidiaries. Each of the Borrower's
Subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to transact business in every
jurisdiction where, by the nature of its business, such
qualification is necessary, and has all corporate powers and all
governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted, except where
the failure to so qualify would not have and is not reasonably
expected to cause a Material Adverse Effect. The Borrower has no
Subsidiaries except for those Subsidiaries listed on Schedule
4.08, which accurately sets forth each such Subsidiary's complete
name and jurisdiction of incorporation.
SECTION 4.09. Investment Company Act. Neither the
Borrower nor any of its Subsidiaries is an "investment company"
within the meaning of the Investment Company Act of 1940, as
amended.
SECTION 4.10. Public Utility Holding Company Act.
Neither the Borrower nor any of its Subsidiaries is a "holding
company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", as such terms are defined in the Public
Utility Holding Company Act of 1935, as amended.
SECTION 4.11. Ownership of Property; Liens. Each of
the Borrower and its Consolidated Subsidiaries has title to its
properties sufficient for the conduct of its business, and none
of such property is subject to any Lien except as permitted in
Section 5.18.
SECTION 4.12. No Default. Neither the Borrower nor any
of its Consolidated Subsidiaries is in default under or with
respect to any agreement, instrument or undertaking to which it
is a party or by which it or any of its property is bound which
could have or cause a Material Adverse Effect. No Default or
Event of Default has occurred and is continuing.
SECTION 4.13. Full Disclosure. All information
heretofore furnished by the Borrower to the Agent or any Bank for
purposes of or in connection with this Agreement or any
transaction contemplated hereby is, and all such information
hereafter furnished by the Borrower to the Agent or any Bank will
be, true, accurate and complete in every material respect or
based on reasonable estimates on the date as of which such
information is stated or certified. The Borrower has disclosed
to the Banks in writing any and all facts which could have or
cause a Material Adverse Effect.
SECTION 4.14. Environmental Matters. (a) Neither the
Borrower nor any Subsidiary is subject to any Environmental
Liability which could have or cause a Material Adverse Effect and
neither the Borrower nor any Subsidiary has been designated as a
potentially responsible party under CERCLA or under any state
statute similar to CERCLA. None of the Properties has been
identified on any current or proposed (i) National Priorities
List under 40 C.F.R. Section 300, (ii) CERCLIS list or (iii) any list
arising from a state statute similar to CERCLA.
(b) No Hazardous Materials have been or are being
used, produced, manufactured, processed, treated, recycled,
generated, stored, disposed of, managed or otherwise handled at,
or shipped or transported to or from the Properties by the
Borrower or are otherwise present at, on, in or under the
Properties, or, to the best of the knowledge of the Borrower, at
or from any adjacent site or facility, except for Hazardous
Materials, such as cleaning solvents, pesticides and other
materials used, produced, manufactured, processed, treated,
recycled, generated, stored, disposed of, managed, or otherwise
handled in the ordinary course of business in compliance in all
material respects with all applicable Environmental Requirements.
(c) The Borrower, and each of its Subsidiaries and
Affiliates, has procured all Environmental Authorizations
necessary for the conduct of its business in all material
respects, and is in compliance in all material respects with all
Environmental Requirements in connection with the operation of
the Properties and the Borrower's, and each of its Subsidiary's
and Affiliate's, respective businesses.
SECTION 4.15. Capital Stock. All Capital Stock,
debentures, bonds, notes and all other securities of the Borrower
and its Subsidiaries presently issued and outstanding are validly
and properly issued in accordance with all applicable laws,
including, but not limited to, the "Blue Sky" laws of all
applicable states and the federal securities laws, in all
material respects. The issued shares of Capital Stock of the
Borrower's Wholly Owned Subsidiaries are owned by the Borrower
free and clear of any Lien or adverse claim. At least a majority
of the issued shares of capital stock of each of the Borrower's
other Subsidiaries (other than Wholly Owned Subsidiaries) is
owned by the Borrower free and clear of any Lien or adverse
claim.
SECTION 4.16. Margin Stock. Neither the Borrower nor
any of its Subsidiaries is engaged principally, or as one of its
important activities, in the business of purchasing or carrying
any Margin Stock, and no part of the proceeds of any Loan will be
used to purchase or carry any Margin Stock or to extend credit to
others for the purpose of purchasing or carrying any Margin
Stock, or be used for any purpose which violates, or which is
inconsistent with, the provisions of Regulation X.
SECTION 4.17. Insolvency. After giving effect to the
execution and delivery of the Loan Documents and the making of
the Loans under this Agreement: (i) the Borrower will not (x) be
"insolvent," within the meaning of such term as used in or as
defined in Section 101 of the "Bankruptcy Code", or Section 2 of either
the "UFTA" or the "UFCA", or as defined or used in any "Other
Applicable Law" (as those terms are defined below), or (y) be
unable to pay its debts generally as such debts become due within
the meaning of Section 548 of the Bankruptcy Code, Section 4 of
the UFTA or Section 6 of the UFCA, or (z) have an unreasonably
small capital to engage in any business or transaction, whether
current or contemplated, within the meaning of Section 548 of the
Bankruptcy Code, Section 4 of the UFTA or Section 5 of the UFCA;
and (ii) to the Borrower's knowledge, the obligations of the
Borrower under the Loan Documents and with respect to the Loans
will not be rendered avoidable under any Other Applicable Law.
For purposes of this Section 4.17, "Bankruptcy Code" means Title
11 of the United States Code, "UFTA" means the Uniform Fraudulent
Transfer Act, "UFCA" means the Uniform Fraudulent Conveyance Act,
and "Other Applicable Law" means any other applicable state law
pertaining to fraudulent transfers or acts voidable by creditors,
in each case as such law may be amended from time to time.
SECTION 4.18. Insurance. The Borrower and each of its
Subsidiaries has (either in the name of the Borrower or in such
Subsidiary's own name), with, to the Borrower's knowledge,
financially sound and reputable insurance companies, insurance on
all its property in at least such amounts and against at least
such risks as are usually insured against in the same general
area by companies of comparable financial worth engaged in the
same or similar business.
SECTION 4.19. Year 2000 Compliance. The Borrower has
developed a comprehensive plan (the "Y2K Plan") for insuring that
the Borrower's and its Subsidiaries' software and hardware
systems which impact or affect in any way the business operations
of the Borrower and its Subsidiaries will be Year 2000 Compliant
and Ready on or before June 30, 1999, except with respect to any
non-compliance which could not reasonably be expected to have a
Material Adverse Effect. The Borrower and its Subsidiaries have
met the Y2K Plan milestones such that all hardware and software
systems will be Year 2000 Compliant and Ready in accordance with
the Y2K Plan, except with respect to any non-compliance which
could not reasonably be expected to have a Material Adverse
Effect.
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Bank has any
Commitment hereunder or any amount payable hereunder or under any
Note remains unpaid:
SECTION 5.01. Information. The Borrower will deliver
to each of the Banks:
(a) as soon as available and in any event within 90
days after the end of each Fiscal Year, a consolidated
balance sheet of the Borrower and its Consolidated
Subsidiaries as of the end of such Fiscal Year and the
related consolidated statements of income, shareholders'
equity and cash flows for such Fiscal Year, setting forth in
each case in comparative form the figures for the previous
fiscal year, all certified by Ernst & Young, LLP or other
independent public accountants of nationally recognized
standing, with such certification to be free of exceptions
and qualifications not acceptable to the Required Banks;
(b) as soon as available and in any event within 45
days after the end of each of the first 3 Fiscal Quarters of
each Fiscal Year, a consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of the end of
such Fiscal Quarter and the related statement of income and
statement of cash flows for such Fiscal Quarter and for the
portion of the Fiscal Year ended at the end of such Fiscal
Quarter, setting forth in each case in comparative form the
figures for the corresponding Fiscal Quarter and the
corresponding portion of the previous Fiscal Year, all
certified (subject to normal year-end adjustments) as to
fairness of presentation, GAAP and consistency by the chief
financial officer or the chief accounting officer of the
Borrower;
(c) simultaneously with the delivery of each set of
financial statements referred to in paragraphs (a) and (b)
above, a certificate, substantially in the form of Exhibit F
(a "Compliance Certificate"), of the chief financial officer
or the chief accounting officer of the Borrower (i) setting
forth in reasonable detail the calculations required to
establish whether the Borrower was in compliance with the
requirements of Sections 5.16 and 5.18 through 5.22,
inclusive, on the date of such financial statements and (ii)
stating whether any Default exists on the date of such
certificate and, if any Default then exists, setting forth
the details thereof and the action which the Borrower is
taking or proposes to take with respect thereto;
(d) simultaneously with the delivery of each set of
annual and quarterly financial statements referred to in
paragraphs (a) and (b) above, a statement of the Chief
Financial Officer, or Chief Technology Officer to the
effect that nothing has come to their attention to cause
them to believe that the Y2K Plan milestones have not been
met in a manner such that the Borrower's and its
Subsidiaries hardware and software systems will not be Year
2000 Compliant and Ready in accordance with the Y2K Plan,
except with respect to any non-compliance which could not
reasonably be expected to have a Material Adverse Effect;
(e) simultaneously with the delivery of each set of
annual financial statements referred to in paragraph (a)
above, a statement of the firm of independent public
accountants which reported on such statements to the effect
that nothing has come to their attention to cause them to
believe that any Default under the Borrower's financial
covenants (as set forth in Sections 5.19 through and
including 5.22, or in other Sections from time to time),
existed on the date of such financial statements;
(f) within 5 Domestic Business Days after the Borrower
becomes aware of the occurrence of any Default, a
certificate of the chief financial officer or the chief
accounting officer of the Borrower setting forth the details
thereof and the action which the Borrower is taking or
proposes to take with respect thereto;
(g) promptly upon the mailing thereof to the
shareholders of the Borrower generally, copies of all
financial statements, reports and proxy statements so
mailed;
(h) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto and
any registration statements on Form S-8 or its equivalent)
and annual, quarterly or monthly reports which the Borrower
shall have filed with the Securities and Exchange
Commission;
(i) if and when any member of the Controlled Group (i)
gives or is required to give notice to the PBGC of any
"reportable event" (as defined in Section 4043 of ERISA)
with respect to any Plan which might constitute grounds for
a termination of such Plan under Title IV of ERISA, or knows
that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy
of the notice of such reportable event given or required to
be given to the PBGC; (ii) receives notice of complete or
partial withdrawal liability under Title IV of ERISA, a copy
of such notice; or (iii) receives notice from the PBGC under
Title IV of ERISA of an intent to terminate or appoint a
trustee to administer any Plan, a copy of such notice; and
(j) as soon as practicable, but in any event on or
before 15 days after the end of each Fiscal Quarter, or such
more frequent intervals as required by the Agent from time
to time a duly executed Borrowing Base Certificate (and, to
the Agent, any accompanying documentation required by the
Agent), with respect to satisfaction of the requirement that
the outstanding principal balance of the Loans shall not
exceed the Borrowing Base, as of the last day of the
reporting period, or such other form as the Agent may
deliver for such purpose to the Borrower from time to time
hereafter, the statements in which, in each instance, shall
be certified as to truth and accuracy by a duly authorized
officer of the Borrower; and
(k) from time to time such additional information
regarding the financial position or business of the Borrower
and its Subsidiaries as the Agent, at the request of any
Bank, may reasonably request.
SECTION 5.02. Inspection of Property, Books and
Records. The Borrower will (i) keep, and cause each Subsidiary
to keep, proper books of record and account in which full, true
and correct entries in conformity with GAAP shall be made of all
dealings and transactions in relation to its business and
activities; and (ii) permit, and cause each Subsidiary to permit,
representatives of any Bank at such Bank's expense prior to the
occurrence of a Default and at the Borrower's expense after the
occurrence of a Default to visit and inspect any of their
respective properties, to examine and make abstracts from any of
their respective books and records and to discuss their
respective affairs, finances and accounts with their respective
officers, employees and independent public accountants. The
Borrower agrees to cooperate and assist in such visits and
inspections, in each case at such reasonable times and as often
as may reasonably be desired.
SECTION 5.03. Maintenance of Existence. The Borrower
shall, and shall cause each Subsidiary to, maintain its corporate
existence and carry on its business in substantially the same
manner and in substantially the same fields as such business is
now carried on and maintained, except as otherwise permitted in
Section 5.05 and except for the dissolution and liquidation of
Trion GMBH.
SECTION 5.04. Dissolution. Neither the Borrower nor
any of its Subsidiaries shall suffer or permit dissolution or
liquidation either in whole or in part or redeem or retire any
shares of its own stock or that of any Subsidiary, except (i)
through corporate reorganization to the extent permitted by
Section 5.05, (ii) for the redemption by Trion Limited of Trion
Limited capital stock owned by the Borrower, and (iii) except for
the dissolution and liquidation of Trion GMBH.
SECTION 5.05. Consolidations, Mergers and Sales of
Assets. The Borrower will not, nor will it permit any Subsidiary
to, consolidate or merge with or into, or sell, lease or
otherwise transfer all or any substantial part of its assets to,
any other Person, or discontinue or eliminate any business line
or segment, provided that (a) the Borrower may merge with another
Person if (i) such Person was organized under the laws of the
United States of America or one of its states, (ii) the Borrower
is the corporation surviving such merger and (iii) immediately
after giving effect to such merger, no Default shall have
occurred and be continuing and the Borrower shall have
demonstrated in writing to the Agent's satisfaction that the
Borrower shall be in pro forma compliance with the covenants of
the Borrower set forth in this Agreement, (b) Subsidiaries of the
Borrower may merge with one another, and (c) the foregoing
limitation on the sale, lease or other transfer of assets and on
the discontinuation or elimination of a business line or segment
shall not prohibit, during any Fiscal Quarter, a transfer of
assets or the discontinuance or elimination of a business line or
segment (in a single transaction or in a series of related
transactions) unless the aggregate assets to be so transferred or
utilized in a business line or segment to be so discontinued,
when combined with all other assets transferred, and all other
assets utilized in all other business lines or segments
discontinued, during such Fiscal Quarter and the immediately
preceding 3 Fiscal Quarters, either (x) constituted more than 10%
of Consolidated Total Assets at the end of the fourth Fiscal
Quarter immediately preceding such Fiscal Quarter, or
(y) contributed more than 10% of EBILT during the 8 Fiscal
Quarters immediately preceding such Fiscal Quarter.
Notwithstanding the foregoing, in no event shall any disposition
of assets permitted in this Section 5.05 be permitted in the
event that after such disposition (A) Consolidated Total Assets
shall be less than $37,972,800 (which amount equals 90% of
Consolidated Total Assets for the Fiscal Year ending December 31,
1997), or (B) assets not so disposed of shall have contributed
less than $3,365,100 (which amount equals 90% of EBILT for the
Fiscal Year ending December 31, 1997).
SECTION 5.06. Use of Proceeds. No portion of the
proceeds of the Loans will be used by the Borrower or any
Subsidiary (i) in connection with, whether directly or
indirectly, any tender offer for, or other acquisition of, stock
of any corporation with a view towards obtaining control of such
other corporation, unless such tender offer or other acquisition
is to be made on a negotiated basis with the approval of the
Board of Directors of the Person to be acquired, and the
provisions of Section 5.17 would not be violated, (ii) directly
or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any Margin Stock, or (iii)
for any purpose in violation of any applicable law or regulation.
Subject to the foregoing, (i) the proceeds of the Revolver Loans
shall be used solely for refinancing in full the "Revolver Loans"
outstanding under the Prior Credit Agreement, and for the
Borrower's working capital and general corporate purposes, and
(ii) the proceeds of the Term Loans shall be used solely for the
refinancing in full of the "Term Loans" outstanding under the
Prior Credit Agreement.
SECTION 5.07. Compliance with Laws; Payment of Taxes.
The Borrower will, and will cause each of its Subsidiaries and
each member of the Controlled Group to, comply with applicable
laws (including but not limited to ERISA), regulations and
similar requirements of governmental authorities (including but
not limited to PBGC), except where the necessity of such
compliance is being contested in good faith through appropriate
proceedings and except where the failure to so comply would not
have and is not reasonably expected to cause a Material Adverse
Effect. The Borrower will, and will cause each of its
Subsidiaries to, pay promptly when due all taxes, assessments,
governmental charges, claims for labor, supplies, rent and other
obligations which, if unpaid, might become a lien against the
property of the Borrower or any Subsidiary, except liabilities
being contested in good faith and against which, if requested by
the Agent, the Borrower will set up reserves in accordance with
GAAP.
SECTION 5.08. Insurance. The Borrower will maintain,
and will cause each of its Subsidiaries to maintain (either in
the name of the Borrower or in such Subsidiary's own name), with,
to the best of the Borrower's knowledge, financially sound and
reputable insurance companies, insurance on all its property in
at least such amounts and against at least such risks as are
usually insured against in the same general area by companies of
comparable financial worth engaged in the same or similar
business.
SECTION 5.09. Change in Fiscal Year. The Borrower will
not change its Fiscal Year without the consent of the Required
Banks.
SECTION 5.10. Maintenance of Property. The Borrower
shall, and shall cause each Subsidiary to, maintain all of its
properties and assets used in its business in good condition,
repair and working order, ordinary wear and tear excepted.
SECTION 5.11. Environmental Notices. The Borrower
shall furnish to the Banks and the Agent prompt written notice of
all material Environmental Liabilities, and all pending,
threatened or anticipated Environmental Proceedings,
Environmental Notices, Environmental Judgments and Orders, and
Environmental Releases at, on, in, under or in any way affecting
the Properties or any adjacent property, and all facts, events,
or conditions that could lead to any of the foregoing.
SECTION 5.12. Environmental Matters. The Borrower and
its Subsidiaries will not, and will not permit any Third Party
to, use, produce, manufacture, process, treat, recycle, generate,
store, dispose of, manage at, or otherwise handle, or ship or
transport to or from the Properties any Hazardous Materials
except for Hazardous Materials such as cleaning solvents,
pesticides and other similar materials used, produced,
manufactured, processed, treated, recycled, generated, stored,
disposed, managed, or otherwise handled in the ordinary course of
business in compliance in all material respects with all
applicable Environmental Requirements.
SECTION 5.13. Environmental Release. The Borrower
agrees that upon the occurrence of an Environmental Release at or
on any of the Properties it will act immediately to investigate
the extent of, and to take appropriate remedial action to
eliminate, such Environmental Release, whether or not ordered or
otherwise directed to do so by any Environmental Authority;
provided the foregoing shall not require the Borrower to take any
action not required by applicable law unless such action would be
reasonably prudent to avoid liability to third parties other than
any Environmental Authority.
SECTION 5.14. Transactions with Affiliates. Neither
the Borrower nor any of its Subsidiaries shall enter into, or be
a party to, any transaction with any Affiliate of the Borrower or
such Subsidiary (which Affiliate is not the Borrower or a Wholly
Owned Subsidiary), except as permitted by law and in the ordinary
course of business and pursuant to reasonable terms and are no
less favorable to Borrower or such Subsidiary than would be
obtained in a comparable arm's length transaction with a Person
which is not an Affiliate.
SECTION 5.15. Additional Debt. Neither the Borrower
nor any of its Subsidiaries shall incur or permit to exist any
Debt not in existence on the Closing Date, and extensions or
renewals thereof, other than (i) Debt permitted to be secured by
Liens permitted by Section 5.18, (ii) Debt of the types described
in clause (vii) of the definition of Debt which is incurred in
the ordinary course of business in connection with the sale or
purchase of goods or to assure performance of any obligation to a
utility or a governmental entity or a worker's compensation
obligation; (iii) Debt permitted by Section 5.16; and (iv) Debt
under this Agreement.
SECTION 5.16. Loans or Advances. Neither the Borrower
nor any of its Subsidiaries shall make loans or advances to any
Person except as permitted by Section 5.17 and except: (i) loans
or advances to employees (A) for travel expenses incurred in the
ordinary course of business, and (B) in addition to loans or
advances under the immediately preceding clause (A), not
exceeding $100,000 in the aggregate principal amount outstanding
at any time made in the ordinary course of business and
consistent with practices existing on March 19, 1999; (ii)
deposits required by government agencies or public utilities;
(iii) loans or advances from the Borrower to any Guarantor or
from any Guarantor to any other Guarantor; (iv) accounts
receivable outstanding in the ordinary course of business owed to
the Borrower for the sale of its inventory, and (v) solely after
compliance with Section 5.24 with respect to each Foreign
Significant Subsidiary to which loans or advances shall be made,
loans or advances from the Borrower to Foreign Significant
Subsidiaries which are not Guarantors in the aggregate
outstanding at any time not exceeding 10% of the Borrower's
Consolidated Net Worth; provided that after giving effect to the
making of any loans, advances or deposits permitted by this
Section, the Borrower will be in full compliance with all the
provisions of this Agreement.
SECTION 5.17. Investments. Neither the Borrower nor
any of its Subsidiaries shall make Investments in any Person
except as permitted by Section 5.16 and except Investments in (i)
direct obligations of the United States Government maturing
within one year, (ii) certificates of deposit issued by a
commercial bank whose credit is satisfactory to the Agent, (iii)
commercial paper rated A1 or the equivalent thereof by Standard &
Poor's Corporation or P1 or the equivalent thereof by Moody's
Investors Service, Inc. and in either case maturing within 6
months after the date of acquisition,(iv) tender bonds the
payment of the principal of and interest on which is fully
supported by a letter of credit issued by a United States bank
whose long-term certificates of deposit are rated at least AA or
the equivalent thereof by Standard & Poor's Corporation and Aa or
the equivalent thereof by Moody's Investors Service, Inc. and\or
(v) the acquisition of stock of entities which are in, or assets
used for, lines of business which are related or similar to the
lines of business of the Borrower or any of its Subsidiaries.
SECTION 5.18. Negative Pledge. Neither the Borrower
nor any Consolidated Subsidiary will create, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired by
it, except:
(a) Liens existing on the date of this Agreement
securing Debt outstanding on the date of this Agreement in
an aggregate principal amount not exceeding $3,500,000;
(b) any Lien existing on any asset of any corporation
at the time such corporation becomes a Consolidated
Subsidiary and not created in contemplation of such event;
(c) any Lien on any asset of any corporation existing
at the time such corporation is merged or consolidated with
or into the Borrower or a Consolidated Subsidiary and not
created in contemplation of such event;
(d) any Lien existing on any asset prior to the
acquisition thereof by the Borrower or a Consolidated
Subsidiary and not created in contemplation of such
acquisition;
(e) Liens securing Debt owing by any Subsidiary to the
Borrower;
(f) any Lien arising out of the refinancing,
extension, renewal or refunding of any Debt secured by any
Lien permitted by any of the foregoing paragraphs of this
Section, provided that (i) such Debt is not secured by any
additional assets, and (ii) the amount of such Debt secured
by any such Lien is not increased;
(g) Liens incidental to the conduct of its business or
the ownership of its assets which do not in the aggregate
materially detract from the value of its assets or
materially impair the use thereof in the operation of its
business;
(h) any Lien on Margin Stock; and
(i) Liens in favor of the Agent under the Security
Agreements;
Provided Liens permitted by the foregoing paragraphs (b), (c),
(d) and (g) shall at no time secure Debt in an aggregate amount
greater than 10% of Consolidated Net Worth.
SECTION 5.19. Fixed Charge Coverage Ratio. At the end
of each Fiscal Quarter, commencing with the Fiscal Quarter ending
March 31, 1999, the Fixed Charge Coverage Ratio for the Fiscal
Quarter shall be greater than the following amounts at the
following times:
Fiscal Quarter Ending Ratio
March 31, 1999 1.5 to 1.0
June 30, 1999 1.75 to 1.0
For each Fiscal Quarter thereafter 2.0 to 1.0
The Fixed Charge Coverage Ratio shall be calculated as follows:
(a) for the three Fiscal Quarters immediately following the
Closing Date, (i) for the first Fiscal Quarter thereafter times
4; (ii) for the first and second Fiscal Quarters thereafter times
2; and (iii) for the first, second and third Fiscal Quarters
thereafter times 1.3333; and (b) for all other Fiscal Quarters
thereafter, for the Fiscal Quarter then ending and the
immediately preceding 3 fiscal quarters.
SECTION 5.20. Ratio of Consolidated Funded Debt to
Consolidated Total Capital. The ratio of Consolidated Funded
Debt to Consolidated Total Capital will not at any time exceed
0.40 to 1.00.
SECTION 5.21. Ratio of Consolidated Funded Debt to
Consolidated Cash Flow. The ratio of Consolidated Funded Debt to
Consolidated Cash Flow shall not exceed the following amounts at
the following times:
Fiscal Quarter Ending Ratio
March 31, 1999 3.5 to 1.0
June 30, 1999 3.25 to 1.0
For each Fiscal Quarter thereafter 3.0 to 1.0
For the purposes of this Section 5.21, Consolidated Cash Flow
shall be calculated as follows: (a) for the three Fiscal Quarters
immediately following the Closing Date, (i) for the first Fiscal
Quarter thereafter times 4; (ii) for the first and second Fiscal
Quarters thereafter times 2; and (iii) for the first, second and
third Fiscal Quarters thereafter times 1.3333; and (b) for all
other Fiscal Quarters thereafter, for the Fiscal Quarter then
ending and the immediately preceding 3 fiscal quarters.
SECTION 5.22. Minimum Consolidated Net Worth.
Consolidated Net Worth will at no time be less than $20,000,000
plus the sum of (i) 50% of the cumulative Consolidated Net Income
of the Borrower and its Consolidated Subsidiaries during any
period after September 30, 1998 (taken as one accounting period),
calculated quarterly at the end of each Fiscal Quarter but
excluding from such calculations of Consolidated Net Income for
purposes of this clause (i), any quarter in which the
Consolidated Net Income of the Borrower and its Consolidated
Subsidiaries is negative, plus (ii) 100% of the cumulative
proceeds of from the sale of any Capital Stock received during
any period after the Closing Date, plus (iii) 100% of the amount
of any Capital Stock issued in exchange for the cancellation or
conversion of Debt after the Closing Date, calculated quarterly
at the end of each Fiscal Quarter.
SECTION 5.23. Domestic Significant Subsidiaries to
Become Guarantors. (a) In the event any Subsidiary (whether
existing on the Closing Date or acquired or created thereafter)
is or becomes a Domestic Significant Subsidiary, then (i) within
10 Domestic Business Days after the Borrower becomes aware that
it is a Domestic Significant Subsidiary, it must so notify the
Agent, and (ii) within 10 Domestic Business Days after giving
such notice, such Domestic Significant Subsidiary must become a
Guarantor by (x) executing and delivering to the Agent a
counterpart of the Guaranty and a Security Agreement, (y)
delivering to the Agent an opinion of counsel to such Subsidiary
substantially in the form of Exhibit B, but limited to such
Domestic Significant Subsidiary, and excluding paragraph 2
thereof, and (z) delivering to the Agent documents pertaining to
such Domestic Significant Subsidiary reasonably requested by the
Agent of the types described in paragraph (f) of Section 3.01.
(b) In the case of any Guarantor the stock of which is to be
sold, such Guarantor may submit to the Agent a request for a
release of its obligations under the Guaranty, and such Guarantor
shall be entitled to obtain from the Agent a written release from
the Guaranty, provided that it can demonstrate to the reasonable
satisfaction of the Agent that (A) the provisions of Section 5.05
will not be breached by such sale, (b) all loans to such
Guarantor from the Borrower or any other Guarantor have been
repaid in full, (C) the net purchase price to be realized by the
seller of such Guarantor for such sale will be not less than 100%
of the net book value of such seller's Investment in such
Guarantor, and (D) no Event of Default is in existence or will be
caused as a result of such sale, and upon obtaining such written
release, it shall no longer be a Guarantor for any purpose
hereunder or under the Guaranty.
SECTION 5.24. Capital Stock and Promissory Notes of
Foreign Significant Subsidiaries to Be Pledged. In the event any
Subsidiary (whether existing on the Closing Date or acquired or
created thereafter) is or becomes a Foreign Significant
Subsidiary, then (i) within 10 Euro-Dollar Business Days after
the Borrower becomes aware that it is a Foreign Significant
Subsidiary, it must so notify the Agent, and (ii) within 10
Euro-Dollar Business Days after giving such notice, the Borrower shall
(A) execute and deliver to the Agent a Stock Pledge Agreement
satisfactory to the Banks in all respects (whereby 51% of the
issued and outstanding capital stock of such Subsidiary shall be
pledged to the Banks), a Note Pledge Agreement satisfactory to
the Banks in all respects, and deliver the original Promissory
Note satisfactory to the Banks in all respects and/or original
stock certificate evidencing such pledged capital stock so
pledged by such pledge agreements, along with an opinion of
counsel to the Borrower substantially in the form of Exhibit B,
but limited to the aforementioned pledge agreements, and deliver
to the Agent documents pertaining to the Borrower reasonably
requested by the Agent of the types described in paragraph (f) of
Section 3.01, or (B) in lieu of the security provided in clause
(ii)(A) of this Section above, provide the Banks with further
assurances or guarantees comparable to those set forth in clause
(ii)(A) of this Section above, which further assurances or
guarantees shall be satisfactory to the Banks in their sole
discretion. Provided, however, with respect to Trion Limited,
which is a Foreign Significant Subsidiary, the Borrower shall not
be required to comply with clause (ii) of this Section above
until the earlier to occur of the date on which (x) loans or
advances from the Borrower to Trion Limited (relating to Trion
Limited's payroll needs) exceed $250,000 at any time outstanding,
or (y) another Foreign Significant Subsidiary is required to
comply with clause (ii) of this Section above.
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the
following events ("Events of Default") shall have occurred and be
continuing:
(a) the Borrower shall fail to pay when due any
principal of any Loan or shall fail to pay any interest on
any Loan within 5 Domestic Business Days after such interest
shall become due, or shall fail to pay any fee or other
amount payable hereunder within 5 Domestic Business Days
after such fee or other amount becomes due; or
(b) the Borrower shall fail to observe or perform any
covenant contained in Sections 5.01(f), 5.02(ii), 5.03
through 5.06, inclusive, Sections 5.15 through 5.22,
inclusive; or
(c) the Borrower shall fail to observe or perform any
covenant or agreement contained or incorporated by reference
in this Agreement (other than those covered by paragraph (a)
or (b) above) and such failure shall not have been cured
within 30 days after the earlier to occur of (i) written
notice thereof has been given to the Borrower by the Agent
at the request of any Bank or (ii) any of the chief
executive, chief financial, chief operating, chief legal or
chief accounting officer of the Borrower otherwise becomes
aware of any such failure; or
(d) any representation, warranty, certification or
statement made by the Borrower in Article IV of this
Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall
prove to have been incorrect or misleading in any material
respect when made (or deemed made); or
(e) the Borrower or any Subsidiary shall fail to make
any payment in respect of Debt in the aggregate principal
amount outstanding in excess of $1,000,000 (other than the
Notes) when due or within any applicable grace period; or
(f) any event or condition shall occur which results in
the acceleration of the maturity of Debt of the Borrower or
any Subsidiary in the aggregate principal amount outstanding
in excess of $1,000,000 (including, without limitation, any
required mandatory prepayment or "put" of such Debt to the
Borrower or any Subsidiary) or enables (or, with the giving
of notice or lapse of time or both, would enable) the
holders of such Debt or commitment or any Person acting on
such holders' behalf to accelerate the maturity thereof or
terminate any such commitment (including, without
limitation, any required mandatory prepayment or "put" of
such Debt to the Borrower or any Subsidiary); or
(g) the Borrower or any Significant Subsidiary shall
commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its
property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in
an involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize
any of the foregoing; or
(h) an involuntary case or other proceeding shall be
commenced against the Borrower or any Significant Subsidiary
seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial
part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered
against the Borrower or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect; or
(i) the Borrower or any member of the Controlled Group
shall fail to pay when due any material amount which it
shall have become liable to pay to the PBGC or to a Plan
under Title IV of ERISA; or notice of intent to terminate a
Plan or Plans shall be filed under Title IV of ERISA by the
Borrower, any member of the Controlled Group, any plan
administrator or any combination of the foregoing and such
termination may have or would reasonably be expected to
cause a Material Adverse Effect; or the PBGC shall institute
proceedings under Title IV of ERISA to terminate or to cause
a trustee to be appointed to administer any such Plan or
Plans or a proceeding shall be instituted by a fiduciary of
any such Plan or Plans to enforce Section 515 or 4219(c)(5)
of ERISA and such proceeding shall not have been dismissed
within 30 days thereafter; or a condition shall exist by
reason of which the PBGC would be entitled to obtain a
decree adjudicating that any such Plan or Plans must be
terminated; or
(j) one or more judgments or orders for the payment of
money in an aggregate amount in excess of $250,000 shall be
rendered against the Borrower or any Subsidiary and such
judgment or order shall continue unsatisfied and unstayed
for a period of 30 days; or
(k) a federal tax lien shall be filed against the
Borrower or any Subsidiary under Section 6323 of the Code or
a lien of the PBGC shall be filed against the Borrower or
any Subsidiary under Section 4068 of ERISA involving
amounts in excess of $250,000 in the aggregate, and in
either case such lien shall remain undischarged for a period
of 25 days after the date of filing; or
(l) (i) any Person or two or more Persons acting in
concert shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934) of 30%
or more of the outstanding shares of the voting stock of the
Borrower; or (ii) as of any date a majority of the Board of
Directors of the Borrower consists of individuals who were
not either (A) directors of the Borrower as of the
corresponding date of the previous year, (B) selected or
nominated to become directors by the Board of Directors of
the Borrower of which a majority consisted of individuals
described in clause (A), or (C) selected or nominated to
become directors by the Board of Directors of the Borrower
of which a majority consisted of individuals described in
clause (A) and individuals described in clause (B); or
(m) the occurrence of any event, act, occurrence, or
condition which the Required Banks determine either does or
has a reasonable probability of causing a Material Adverse
Effect.
then, and in every such event, (i) the Agent shall, if requested
by the Required Banks, by notice to the Borrower terminate the
Commitments and they shall thereupon terminate, and (ii) the
Agent shall, if requested by the Required Banks, by notice to the
Borrower declare the Notes (together with accrued interest
thereon) to be, and the Notes shall thereupon become, immediately
due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the
Borrower together with interest at the Default Rate accruing on
the principal amount thereof from and after the date of such
Event of Default; provided that if any Event of Default specified
in paragraph (g) or (h) above occurs with respect to the
Borrower, without any notice to the Borrower or any other act by
the Agent or the Banks, the Commitments shall thereupon terminate
and the Notes (together with accrued interest thereon) shall
become immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby
waived by the Borrower together with interest thereon at the
Default Rate accruing on the principal amount thereof from and
after the date of such Event of Default. Notwithstanding the
foregoing, the Agent shall have available to it all other
remedies at law or equity, and shall exercise any one or all of
them at the request of the Required Banks.
SECTION 6.02. Notice of Default. The Agent shall give
notice to the Borrower of any Default under Section 6.01(c)
promptly upon being requested to do so by any Bank and shall
thereupon notify all the Banks thereof.
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment; Powers and Immunities. Each
Bank hereby irrevocably appoints and authorizes the Agent to act
as its agent hereunder and under the other Loan Documents with
such powers as are specifically delegated to the Agent by the
terms hereof and thereof, together with such other powers as are
reasonably incidental thereto. The Agent: (a) shall have no
duties or responsibilities except as expressly set forth in this
Agreement and the other Loan Documents, and shall not by reason
of this Agreement or any other Loan Document be a trustee for any
Bank; (b) shall not be responsible to the Banks for any recitals,
statements, representations or warranties contained in this
Agreement or any other Loan Document, or in any certificate or
other document referred to or provided for in, or received by any
Bank under, this Agreement or any other Loan Document, or for the
validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document or any
other document referred to or provided for herein or therein or
for any failure by the Borrower to perform any of its obligations
hereunder or thereunder; (c) shall not be required to initiate or
conduct any litigation or collection proceedings hereunder or
under any other Loan Document except to the extent requested by
the Required Banks, and then only on terms and conditions
satisfactory to the Agent, and (d) shall not be responsible for
any action taken or omitted to be taken by it hereunder or under
any other Loan Document or any other document or instrument
referred to or provided for herein or therein or in connection
herewith or therewith, except for its own gross negligence or
wilful misconduct. The Agent may employ agents and
attorneys-in-fact and shall not be responsible for the negligence
or misconduct of any such agents or attorneys-in-fact selected
by it with reasonable care. The provisions of this Article VII
are solely for the benefit of the Agent and the Banks, and the
Borrower shall not have any rights as a third party beneficiary
of any of the provisions hereof, except as expressly set forth
herein. In performing its functions and duties under this
Agreement and under the other Loan Documents, the Agent shall act
solely as agent of the Banks and does not assume and shall not be
deemed to have assumed any obligation towards or relationship of
agency or trust with or for the Borrower. The duties of the
Agent shall be ministerial and administrative in nature, and the
Agent shall not have by reason of this Agreement or any other
Loan Document a fiduciary relationship in respect of any Bank.
SECTION 7.02. Reliance by Agent. The Agent shall be
entitled to rely upon any certification, notice or other
communication (including any thereof by telephone, telecopier,
telegram or cable) believed by it to be genuine and correct and
to have been signed or sent by or on behalf of the proper Person
or Persons, and upon advice and statements of legal counsel,
independent accountants or other experts selected by the Agent.
As to any matters not expressly provided for by this Agreement or
any other Loan Document, the Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder and
thereunder in accordance with instructions signed by the Required
Banks, and such instructions of the Required Banks in any action
taken or failure to act pursuant thereto shall be binding on all
of the Banks.
SECTION 7.03. Defaults. The Agent shall not be deemed
to have knowledge of the occurrence of a Default or an Event of
Default (other than the nonpayment of principal of or interest on
the Loans) unless the Agent has received notice from a Bank or
the Borrower specifying such Default or Event of Default and
stating that such notice is a "Notice of Default". In the event
that the Agent receives such a notice of the occurrence of a
Default or an Event of Default, the Agent shall give prompt
notice thereof to the Banks. The Agent shall give each Bank
prompt notice of each nonpayment of principal of or interest on
the Loans whether or not it has received any notice of the
occurrence of such nonpayment. The Agent shall (subject to
Section 9.06) take such action hereunder with respect to such
Default or Event of Default as shall be directed by the Required
Banks, provided that, unless and until the Agent shall have
received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it
shall deem advisable in the best interests of the Banks.
SECTION 7.04. Rights of Agent as a Bank. If Wachovia
Bank, N.A. at any time becomes a Bank hereunder, the following
provisions shall apply. With respect to the Loans made by it,
the Agent in its capacity as a Bank hereunder shall have the same
rights and powers hereunder as any other Bank and may exercise
the same as though it were not acting as the Agent, and the term
"Bank" or "Banks" shall, unless the context otherwise indicates,
include Wachovia Bank, N.A. in its individual capacity. The
Agent may (without having to account therefor to any Bank) accept
deposits from, lend money to and generally engage in any kind of
banking, trust or other business with the Borrower (and any of
its Affiliates) as if it were not acting as the Agent, and the
Agent may accept fees and other consideration from the Borrower
(in addition to any agency fees and arrangement fees heretofore
agreed to between the Borrower and the Agent) for services in
connection with this Agreement or any other Loan Document or
otherwise without having to account for the same to the Banks.
SECTION 7.05. Indemnification. Each Bank severally
agrees to indemnify the Agent, to the extent the Agent shall not
have been reimbursed by the Borrower, ratably in accordance with
its Commitment, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses
(including, without limitation, counsel fees and disbursements)
or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of this Agreement or any other Loan
Document or any other documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or
thereby (excluding, unless an Event of Default has occurred and
is continuing, the normal administrative costs and expenses
incident to the performance of its agency duties hereunder) or
the enforcement of any of the terms hereof or thereof or any such
other documents; provided that no Bank shall be liable for any of
the foregoing to the extent they arise from the gross negligence
or wilful misconduct of the Agent. If any indemnity furnished to
the Agent for any purpose shall, in the opinion of the Agent, be
insufficient or become impaired, the Agent may call for
additional indemnity and cease, or not commence, to do the acts
indemnified against until such additional indemnity is furnished.
SECTION 7.06 Consequential Damages. THE AGENT SHALL
NOT BE RESPONSIBLE OR LIABLE TO ANY BANK, THE BORROWER OR ANY
OTHER PERSON OR ENTITY FOR ANY PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
SECTION 7.07. Payee of Note Treated as Owner. The
Agent may deem and treat the payee of any Note as the owner
thereof for all purposes hereof unless and until a written notice
of the assignment or transfer thereof shall have been filed with
the Agent and the provisions of Section 9.08(c) have been
satisfied. Any requests, authority or consent of any Person who
at the time of making such request or giving such authority or
consent is the holder of any Note shall be conclusive and
binding on any subsequent holder, transferee or assignee of that
Note or of any Note or Notes issued in exchange therefor or
replacement thereof.
SECTION 7.08. Nonreliance on Agent and Other Banks.
Each Bank agrees that it has, independently and without reliance
on the Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit
analysis of the Borrower and decision to enter into this
Agreement and that it will, independently and without reliance
upon the Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to
make its own analysis and decisions in taking or not taking
action under this Agreement or any of the other Loan Documents.
The Agent shall not be required to keep itself informed as to the
performance or observance by the Borrower of this Agreement or
any of the other Loan Documents or any other document referred to
or provided for herein or therein or to inspect the properties or
books of the Borrower or any other Person. Except for notices,
reports and other documents and information expressly required to
be furnished to the Banks by the Agent hereunder or under the
other Loan Documents, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition or
business of the Borrower or any other Person (or any of their
Affiliates) which may come into the possession of the Agent.
SECTION 7.09. Failure to Act. Except for action
expressly required of the Agent hereunder or under the other Loan
Documents, the Agent shall in all cases be fully justified in
failing or refusing to act hereunder and thereunder unless it
shall receive further assurances to its satisfaction by the Banks
of their indemnification obligations under Section 7.05 against
any and all liability and expense which may be incurred by the
Agent by reason of taking, continuing to take, or failing to take
any such action.
SECTION 7.10. Resignation or Removal of Agent. Subject
to the appointment and acceptance of a successor Agent as
provided below, the Agent may resign at any time by giving notice
thereof to the Banks and the Borrower and the Agent may be
removed at any time with or without cause by the Required Banks.
Upon any such resignation or removal, the Required Banks shall
have the right to appoint a successor Agent reasonably
satisfactory to the Borrower. If no successor Agent shall have
been so appointed by the Required Banks and shall have accepted
such appointment within 30 days after the retiring Agent's notice
of resignation or the Required Banks' removal of the retiring
Agent, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent. Any successor Agent shall be a bank
which has a combined capital and surplus of at least
$500,000,000. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation or
removal hereunder as Agent, the provisions of this Article VII
shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as
the Agent hereunder.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES; COMPENSATION
SECTION 8.01. Basis for Determining Interest Rate
Inadequate or Unfair. If on or prior to the first day of any
Interest Period:
(a) the Agent determines that deposits in Dollars (in
the applicable amounts) are not being offered in the
relevant market for such Interest Period, or
(b) the Required Banks advise the Agent that the London
Interbank Offered Rate, as determined by the Agent will not
adequately and fairly reflect the cost to such Banks of
funding the Euro-Dollar Loans for such Interest Period,
the Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Agent notifies the Borrower that
the circumstances giving rise to such suspension no longer exist,
the obligations of the Banks to make Euro-Dollar Loans specified
in such notice shall be suspended. Unless the Borrower notifies
the Agent at least 2 Domestic Business Days before the date of
any Borrowing of such Euro-Dollar Loans for which a Notice of
Borrowing has previously been given that it elects not to borrow
on such date, such Borrowing shall instead be made as a Base Rate
Borrowing.
SECTION 8.02. Illegality. If, after the date hereof,
the adoption of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or
administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or
administration thereof (any such agency being referred to as an
"Authority" and any such event being referred to as a "Change of
Law"), or compliance by any Bank (or its Lending Office) with any
request or directive (whether or not having the force of law) of
any Authority shall make it unlawful or impossible for any Bank
(or its Lending Office) to make, maintain or fund its Euro-Dollar
Loans and such Bank shall so notify the Agent, the Agent shall
forthwith give notice thereof to the other Banks and the
Borrower, whereupon until such Bank notifies the Borrower and the
Agent that the circumstances giving rise to such suspension no
longer exist, the obligation of such Bank to make Euro-Dollar
Loans shall be suspended. Before giving any notice to the Agent
pursuant to this Section, such Bank shall designate a different
Lending Office if such designation will avoid the need for giving
such notice and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. If such Bank shall
determine that it may not lawfully continue to maintain and fund
any of its outstanding Euro-Dollar Loans to maturity and shall so
specify in such notice, the Borrower shall immediately prepay in
full the then outstanding principal amount of each Euro-Dollar
Loan of such Bank, together with accrued interest thereon.
Concurrently with prepaying each such Euro-Dollar Loan, the
Borrower shall borrow a Base Rate Loan in an equal principal
amount from such Bank (on which interest and principal shall be
payable contemporaneously with the related Euro-Dollar Loans of
the other Banks), and such Bank shall make such a Base Rate Loan.
SECTION 8.03. Increased Cost and Reduced Return.
(a) If after the date hereof, a Change of Law or compliance by
any Bank (or its Lending Office) with any request or directive
(whether or not having the force of law) of any Authority:
(i) shall impose, modify or deem applicable any
reserve, special deposit or similar requirement (including,
without limitation, any such requirement imposed by the
Board of Governors of the Federal Reserve System, but
excluding any such requirement included in an applicable
Euro-Dollar Reserve Percentage) against assets of, deposits
with or for the account of, or credit extended by, any Bank
(or its Lending Office); or
(ii) shall impose on any Bank (or its Lending Office)
or on the London interbank market any other condition
affecting its Euro-Dollar Loans, its Notes or its obligation
to make Euro-Dollar Loans;
and the result of any of the foregoing is to increase the cost to
such Bank (or its Lending Office) of making or maintaining any
Loan, or to reduce the amount of any sum received or receivable
by such Bank (or its Lending Office) under this Agreement or
under its Notes with respect thereto, by an amount deemed by such
Bank to be material, then, within 15 days after demand by such
Bank (with a copy to the Agent), the Borrower shall pay to such
Bank such additional amount or amounts as will compensate such
Bank for such increased cost or reduction.
(b) If any Bank shall have determined that after the
date hereof the adoption of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or
any change in the interpretation or administration thereof, or
compliance by any Bank (or its Lending Office) with any request
or directive regarding capital adequacy (whether or not having
the force of law) of any Authority, has or would have the effect
of reducing the rate of return on such Bank's capital as a
consequence of its obligations hereunder to a level below that
which such Bank could have achieved but for such adoption, change
or compliance (taking into consideration such Bank's policies
with respect to capital adequacy) by an amount deemed by such
Bank to be material, then from time to time, within 15 days after
demand by such Bank, the Borrower shall pay to such Bank such
additional amount or amounts as will compensate such Bank for
such reduction.
(c) Each Bank will promptly notify the Borrower and
the Agent of any event of which it has knowledge, occurring after
the date hereof, which will entitle such Bank to compensation
pursuant to this Section and will designate a different Lending
Office if such designation will avoid the need for, or reduce the
amount of, such compensation and will not, in the judgment of
such Bank, be otherwise disadvantageous to such Bank. A
certificate of any Bank claiming compensation under this Section
and setting forth the additional amount or amounts to be paid to
it hereunder shall be conclusive in the absence of manifest
error. In determining such amount, such Bank may use any
reasonable averaging and attribution methods.
(d) The provisions of this Section 8.03 shall be
applicable with respect to any Participant, Assignee or other
Transferee, and any calculations required by such provisions
shall be made based upon the circumstances of such Participant,
Assignee or other Transferee.
(e) Notwithstanding the foregoing, in the event the
Borrower is required to pay any Bank amounts pursuant to Section
2.11(c) or this Section 8.03 and the designation of a different
Lending Office pursuant to Section 2.11(c) or Section 8.03(c)
will not avoid the need for compensation to such Bank (an
"Affected Bank"), the Borrower may give notice to such Affected
Bank (with copies to the Agent) that it wishes to seek one or
more assignees (which may be one or more of the Banks) to assume
the Commitment of such Affected Bank and to purchase its
outstanding Loans and Notes; provided, that if there is more than
one Affected Bank which has requested substantially and
proportionally equal compensation hereunder, the Borrower shall
elect to seek an assignee to assume the Commitments of all such
Affected Banks. Each Affected Bank agrees to sell its
Commitment, Loans, Notes and interest in this Agreement in
accordance with Section 9.08(c) to any such assignee for an
amount equal to the sum of the outstanding unpaid principal of
and accrued interest on such Loans and Notes, plus all other fees
and amounts (including, without limitation, any compensation due
to such Affected Banks under Section 2.11(c) or this Section
8.03) due to such Affected Bank hereunder calculated, in each
case, to the date such Loans, Notes and interest are purchased.
Upon such sale or prepayment, each such Affected Bank shall have
no further commitment or other obligation to the Borrower
hereunder or under any Note.
SECTION 8.04. Base Rate Loans Substituted for
Euro-Dollar Loans. If (i) the obligation of any Bank to make or
maintain any Euro-Dollar Loans has been suspended pursuant to
Section 8.02 or (ii) any Bank has demanded compensation under
Section 8.03, and the Borrower shall, by at least 5 Euro-Dollar
Business Days' prior notice to such Bank through the Agent, have
elected that the provisions of this Section shall apply to such
Bank, then, unless and until such Bank notifies the Borrower that
the circumstances giving rise to such suspension or demand for
compensation no longer apply:
(a) all Loans which would otherwise be made by such
Bank Euro-Dollar Loans shall be made instead as Base Rate
Loans (in all cases interest and principal on such Loans
shall be payable contemporaneously with the related
Euro-Dollar Loans of the other Banks), and
(b) after each of its Euro-Dollar Loans has been
repaid, all payments of principal which would otherwise be
applied to repay such Euro-Dollar Loans shall be applied to
repay its Base Rate Loans instead.
SECTION 8.05. Compensation. Upon the request of any
Bank, delivered to the Borrower and the Agent, the Borrower shall
pay to such Bank such amount or amounts as shall compensate such
Bank for any loss, cost or expense incurred by such Bank as a
result of:
(a) any payment or prepayment (pursuant to Section
2.9, 2.10, 6.01, 8.02 or otherwise) of a Euro-Dollar Loan on a
date other than the last day of an Interest Period for such Loan;
or
(b) any failure by the Borrower to borrow a
Euro-Dollar Loan on the date for the Euro-Dollar Borrowing of which
such Euro-Dollar Loan is a part specified in the applicable
Notice of Borrowing delivered pursuant to Section 2.02;
such compensation to include, without limitation, an amount equal
to the excess, if any, of (x) the amount of interest which would
have accrued on the amount so paid or prepaid or not prepaid or
borrowed for the period from the date of such payment, prepayment
or failure to prepay or borrow to the last day of the then
current Interest Period for such Euro-Dollar Loan (or, in the
case of a failure to prepay or borrow, the Interest Period for
such Euro-Dollar Loan which would have commenced on the date of
such failure to prepay or borrow) at the applicable rate of
interest for such Euro-Dollar Loan provided for herein over (y)
the amount of interest (as reasonably determined by such Bank)
such Bank would have paid on deposits in Dollars of comparable
amounts having terms comparable to such period placed with it by
leading banks in the London interbank market.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing
(including bank wire, telecopier or similar writing) and shall be
given to such party at its address or telecopier number set forth
on the signature pages hereof or such other address or telecopier
number as such party may hereafter specify for the purpose by
notice to each other party. Each such notice, request or other
communication shall be effective (i) if given by telecopier, when
such telecopy is transmitted to the telecopier number specified
in this Section and the appropriate confirmation is received,
(ii) if given by mail, 72 hours after such communication is
deposited in the mails with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when
delivered at the address specified in this Section; provided that
notices to the Agent under Article II or Article VIII shall not
be effective until received.
SECTION 9.02. No Waivers. No failure or delay by the
Agent or any Bank in exercising any right, power or privilege
hereunder or under any Note or other Loan Document shall operate
as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
SECTION 9.03. Expenses; Documentary Taxes. The
Borrower shall pay (i) all out-of-pocket expenses of the Agent,
including fees and disbursements of special counsel for the
Agent, Jones, Day, Reavis & Pogue, in connection with the
preparation of this Agreement and the other Loan Documents
executed and delivered on the Closing Date, (ii) all
out-of-pocket expenses of the Agent, including fees and
disbursements of special counsel for the Banks and the Agent, in
connection with the preparation of other Loan Documents after the
Closing Date, any waiver or consent hereunder or thereunder or
any amendment hereof or thereof or any Default or alleged Default
hereunder or thereunder, and (iii) if a Default occurs, all
out-of-pocket expenses incurred by the Agent and the Banks,
including fees and disbursements of counsel, in connection with
such Default and collection and other enforcement proceedings
resulting therefrom, including out-of-pocket expenses incurred in
enforcing this Agreement and the other Loan Documents. The
Borrower shall indemnify the Agent and each Bank against any
transfer taxes, documentary taxes, assessments or charges made by
any Authority by reason of the execution and delivery of this
Agreement or the other Loan Documents.
SECTION 9.04. Indemnification. The Borrower shall
indemnify the Agent, the Banks and each Affiliate thereof and
their respective directors, officers, employees and agents from,
and hold each of them harmless against, any and all losses,
liabilities, claims or damages to which any of them may become
subject, insofar as such losses, liabilities, claims or damages
arise out of or result from any actual or proposed use by the
Borrower of the proceeds of any extension of credit by any Bank
hereunder or breach by the Borrower of this Agreement or any
other Loan Document or from any investigation, litigation
(including, without limitation, any actions taken by the Agent or
any of the Banks to enforce this Agreement or any of the other
Loan Documents) or other proceeding (including, without
limitation, any threatened investigation or proceeding) relating
to the foregoing, and the Borrower shall reimburse the Agent and
each Bank, and each Affiliate thereof and their respective
directors, officers, employees and agents, upon demand for any
expenses (including, without limitation, legal fees) incurred in
connection with any such investigation or proceeding; but
excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the gross negligence or wilful
misconduct of the Person to be indemnified.
SECTION 9.05. Setoff; Sharing of Setoffs. (a) The
Borrower agrees that the Agent and each Bank shall have a lien
for all indebtedness and obligations owing to them from the
Borrower upon all deposits or deposit accounts, of any kind, or
any interest in any deposits or deposit accounts thereof, now or
hereafter pledged, mortgaged, transferred or assigned to the
Agent or any such Bank or otherwise in the possession or control
of the Agent or any such Bank for any purpose for the account or
benefit of the Borrower and including any balance of any deposit
account or of any credit of the Borrower with the Agent or any
such Bank, whether now existing or hereafter established hereby
authorizing the Agent and each Bank at any time or times with or
without prior notice to apply such balances or any part thereof
to such of the indebtedness and obligations owing by the Borrower
to the Banks and/or the Agent then past due and in such amounts
as they may elect, and whether or not the collateral, if any, or
the responsibility of other Persons primarily, secondarily or
otherwise liable may be deemed adequate. For the purposes of
this paragraph, all remittances and property shall be deemed to
be in the possession of the Agent or any such Bank as soon as the
same may be put in transit to it by mail or carrier or by other
bailee.
(b) Each Bank agrees that if it shall, by exercising
any right of setoff or counterclaim or resort to collateral
security or otherwise, receive payment of a proportion of the
aggregate amount of principal and interest owing with respect to
the Note held by it which is greater than the proportion received
by any other Bank in respect of the aggregate amount of all
principal and interest owing with respect to the Note held by
such other Bank, the Bank receiving such proportionately greater
payment shall purchase such participations in the Notes held by
the other Banks owing to such other Banks, and such other
adjustments shall be made, as may be required so that all such
payments of principal and interest with respect to the Notes held
by the Banks owing to such other Banks shall be shared by the
Banks pro rata; provided that (i) nothing in this Section shall
impair the right of any Bank to exercise any right of setoff or
counterclaim it may have and to apply the amount subject to such
exercise to the payment of indebtedness of the Borrower other
than its indebtedness under the Notes, and (ii) if all or any
portion of such payment received by the purchasing Bank is
thereafter recovered from such purchasing Bank, such purchase
from each other Bank shall be rescinded and such other Bank shall
repay to the purchasing Bank the purchase price of such
participation to the extent of such recovery together with an
amount equal to such other Bank's ratable share (according to the
proportion of (x) the amount of such other Bank's required
repayment to (y) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable
by the purchasing Bank in respect of the total amount so
recovered. The Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any holder of a
participation in a Note, whether or not acquired pursuant to the
foregoing arrangements, may exercise rights of setoff or
counterclaim and other rights with respect to such participation
as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation.
SECTION 9.06. Amendments and Waivers. (a) Any
provision of this Agreement, the Notes or any other Loan
Documents may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Borrower
and the Required Banks (and, if the rights or duties of the Agent
are affected thereby, by the Agent); provided that, no such
amendment or waiver shall, unless signed by all Banks and the
Borrower, (i) change the Commitment of any Bank or subject any
Bank to any additional obligation, (ii) change the principal of
or rate of interest on any Loan or any fees (other than fees
payable to the Agent) hereunder, (iii) change the date fixed for
any payment of principal of or interest on any Loan or any fees
hereunder, (iv) change the amount of principal, interest or fees
due on any date fixed for the payment thereof, (v) change the
percentage of the Commitments or of the aggregate unpaid
principal amount of the Notes, or the percentage of Banks, which
shall be required for the Banks or any of them to take any action
under this Section or any other provision of this Agreement, (vi)
change the manner of application of any payments made under this
Agreement or the Notes, (vii) release or substitute all or any
substantial part of the collateral held as security for the
Obligations,(viii) release any Guarantee given to support payment
of the Obligations, (ix) change the definitions of "Borrowing
Base," "Eligible Receivables," "Eligible Inventory," or "Required
Banks," or (x) amend this Section 9.06.
(b) The Borrower will not solicit, request or
negotiate for or with respect to any proposed waiver or amendment
of any of the provisions of this Agreement unless each Bank shall
be informed thereof by the Borrower and shall be afforded an
opportunity of considering the same and shall be supplied by the
Borrower with sufficient information to enable it to make an
informed decision with respect thereto. Executed or true and
correct copies of any waiver or consent effected pursuant to the
provisions of this Agreement shall be delivered by the Borrower
to each Bank forthwith following the date on which the same shall
have been executed and delivered by the requisite percentage of
Banks. The Borrower will not, directly or indirectly, pay or
cause to be paid any remuneration, whether by way of supplemental
or additional interest, fee or otherwise, to any Bank (in its
capacity as such) as consideration for or as an inducement to the
entering into by such Bank of any waiver or amendment of any of
the terms and provisions of this Agreement unless such
remuneration is concurrently paid, on the same terms, ratably to
all such Banks.
SECTION 9.07. No Margin Stock Collateral. Each of the
Banks represents to the Agent and each of the other Banks that it
in good faith is not, directly or indirectly (by negative pledge
or otherwise), relying upon any Margin Stock as collateral in the
extension or maintenance of the credit provided for in this
Agreement.
SECTION 9.08. Successors and Assigns. (a) The
provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and assigns; provided that the Borrower may not assign or
otherwise transfer any of its rights under this Agreement.
(b) Any Bank may at any time sell to one or more
Persons (each a "Participant") participating interests in any
Loan owing to such Bank, any Note held by such Bank, any
Commitment hereunder or any other interest of such Bank
hereunder. In the event of any such sale by a Bank of a
participating interest to a Participant, such Bank's obligations
under this Agreement shall remain unchanged, such Bank shall
remain solely responsible for the performance thereof, such Bank
shall remain the holder of any such Note for all purposes under
this Agreement, and the Borrower and the Agent shall continue to
deal solely and directly with such Bank in connection with such
Bank's rights and obligations under this Agreement. In no event
shall a Bank that sells a participation be obligated to the
Participant to take or refrain from taking any action hereunder
except that such Bank may agree that it will not (except as
provided below), without the consent of the Participant, agree
to (i) the change of any date fixed for the payment of principal
of or interest on the related loan or loans, (ii) the change of
the amount of any principal, interest or fees due on any date
fixed for the payment thereof with respect to the related loan or
loans, (iii) the change of the principal of the related loan or
loans, (iv) any change in the rate at which either interest is
payable thereon or (if the Participant is entitled to any part
thereof) fee is payable hereunder from the rate at which the
Participant is entitled to receive interest or fee (as the case
may be) in respect of such participation, (v) the release or
substitution of all or any substantial part of the collateral (if
any) held as security for the Loans, or (vi) the release of any
Guarantee given to support payment of the Loans. Each Bank
selling a participating interest in any Loan, Note, Commitment or
other interest under this Agreement shall, within 10 Domestic
Business Days of such sale, provide the Borrower and the Agent
with written notification stating that such sale has occurred and
identifying the Participant and the interest purchased by such
Participant. The Borrower agrees that each Participant shall be
entitled to the benefits of Article VIII with respect to its
participation in Loans outstanding from time to time.
(c) Any Bank may at any time assign to one or more
banks or financial institutions (each an "Assignee"), all or a
proportionate part of both of its Revolver Loans and its
Commitment with respect thereto and the identical percentage of
its Term Loans, and its rights and obligations under this
Agreement, the Notes and the other Loan Documents, and such
Assignee shall assume all such rights and obligations, pursuant
to an Assignment and Acceptance, executed by such Assignee, such
transferor Bank and the Agent (and, in the case of an Assignee
that is not then a Bank, by the Borrower); provided that (i) no
interest may be sold by a Bank pursuant to this paragraph (c)
unless the Assignee shall agree to assume ratably equivalent
portions of the transferor Bank's Commitment, (ii) the amount of
the Commitment of the assigning Bank subject to such assignment
(determined as of the effective date of the assignment) shall be
equal to $500,000 (or any larger multiple of $100,000), and (iii)
no interest may be sold by a Bank (except during the existence of
a Default or Event of Default) pursuant to this paragraph (c) to
any Assignee that is not then a Bank without the consent of the
Borrower and the Agent, which consent shall not be unreasonably
withheld. Upon (A) execution of the Assignment and Acceptance by
such transferor Bank, such Assignee, the Agent and the Borrower,
(B) delivery of an executed copy of the Assignment and Acceptance
to the Borrower and the Agent, (C) payment by such Assignee to
such transferor Bank of an amount equal to the purchase price
agreed between such transferor Bank and such Assignee, and (D)
payment of a processing and recordation fee of $2,500 to the
Agent, such Assignee shall for all purposes be a Bank party to
this Agreement and shall have all the rights and obligations of a
Bank under this Agreement to the same extent as if it were an
original party hereto with a Commitment as set forth in such
instrument of assumption, and the transferor Bank shall be
released from its obligations hereunder to a corresponding
extent, and no further consent or action by the Borrower, the
Banks or the Agent shall be required. Upon the consummation of
any transfer to an Assignee pursuant to this paragraph (c), the
transferor Bank, the Agent and the Borrower shall make
appropriate arrangements so that, if required, a new Note is
issued to such Assignee.
(d) Subject to the provisions of Section 9.09, the
Borrower authorizes each Bank to disclose to any Participant,
Assignee or other transferee (each a "Transferee") and any
prospective Transferee any and all financial information in such
Bank's possession concerning the Borrower which has been
delivered to such Bank by the Borrower pursuant to this Agreement
or which has been delivered to such Bank by the Borrower in
connection with such Bank's credit evaluation prior to entering
into this Agreement.
(e) No Transferee shall be entitled to receive any
greater payment under Section 8.03 than the transferor Bank would
have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Borrower's
prior written consent or by reason of the provisions of Section
8.02 or 8.03 requiring such Bank to designate a different Lending
Office under certain circumstances or at a time when the
circumstances giving rise to such greater payment did not exist.
(f) Anything in this Section 9.08 to the contrary
notwithstanding, any Bank may assign and pledge all or any
portion of the Loans and/or obligations owing to it to any
Federal Reserve Bank or the United States Treasury as collateral
security pursuant to Regulation A of the Board of Governors of
the Federal Reserve System and any Operating Circular issued by
such Federal Reserve Bank, provided that any payment in respect
of such assigned Loans and/or obligations made by the Borrower to
the assigning Bank in accordance with the terms of this Agreement
shall satisfy the Borrower's obligations hereunder in respect of
such assigned Loans and/or obligations to the extent of such
payment. No such assignment shall release the assigning and/or
pledging Bank from its obligations hereunder.
SECTION 9.09. Confidentiality. Each Bank agrees to
exercise commercially reasonable efforts to keep any information
delivered or made available by the Borrower to it confidential
from anyone other than persons employed or retained by such Bank
who are or are expected to become engaged in evaluating,
approving, structuring or administering the Loans; provided that
nothing herein shall prevent any Bank from disclosing such
information (i) to any other Bank, (ii) upon the order of any
court or administrative agency, (iii) upon the request or demand
of any regulatory agency or authority having jurisdiction over
such Bank, (iv) which has been publicly disclosed, (v) to the
extent reasonably required in connection with any litigation to
which the Agent, any Bank or their respective Affiliates may be a
party, (vi) to the extent reasonably required in connection with
the exercise of any remedy hereunder, (vii) to such Bank's legal
counsel and independent auditors and (viii) to any actual or
proposed Participant, Assignee or other Transferee of all or part
of its rights hereunder which has agreed in writing to be bound
by the provisions of this Section 9.09; provided that should
disclosure of any such confidential information be required by
virtue of clause (ii) of the immediately preceding sentence, any
relevant Bank shall promptly notify the Borrower of same so as to
allow the Borrower to seek a protective order or to take any
other appropriate action; provided, further, that, no Bank shall
be required to delay compliance with any directive to disclose
any such information so as to allow the Borrower to effect any
such action.
SECTION 9.10. Representation by Banks. Each Bank
hereby represents that it is a commercial lender or financial
institution which makes Loans in the ordinary course of its
business and that it will make its Loans hereunder for its own
account in the ordinary course of such business; provided that,
subject to Section 9.08, the disposition of the Note or Notes
held by that Bank shall at all times be within its exclusive
control.
SECTION 9.11. Obligations Several. The obligations of
each Bank hereunder are several, and no Bank shall be responsible
for the obligations or commitment of any other Bank hereunder.
Nothing contained in this Agreement and no action taken by the
Banks pursuant hereto shall be deemed to constitute the Banks to
be a partnership, an association, a joint venture or any other
kind of entity. The amounts payable at any time hereunder to
each Bank shall be a separate and independent debt, and each Bank
shall be entitled to protect and enforce its rights arising out
of this Agreement or any other Loan Document and it shall not be
necessary for any other Bank to be joined as an additional party
in any proceeding for such purpose.
SECTION 9.12. Georgia Law. This Agreement and each
Note shall be construed in accordance with and governed by the
law of the State of Georgia.
SECTION 9.13. Severability. In case any one or more of
the provisions contained in this Agreement, the Notes or any of
the other Loan Documents should be invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein and
therein shall not in any way be affected or impaired thereby and
shall be enforced to the greatest extent permitted by law.
SECTION 9.14. Interest. In no event shall the amount
of interest, and all charges, amounts or fees contracted for,
charged or collected pursuant to this Agreement, the Notes or the
other Loan Documents and deemed to be interest under applicable
law (collectively, "Interest") exceed the highest rate of
interest allowed by applicable law (the "Maximum Rate"), and in
the event any such payment is inadvertently received by any Bank,
then the excess sum (the "Excess") shall be credited as a payment
of principal, unless the Borrower shall notify such Bank in
writing that it elects to have the Excess returned forthwith. It
is the express intent hereof that the Borrower not pay and the
Banks not receive, directly or indirectly in any manner
whatsoever, interest in excess of that which may legally be paid
by the Borrower under applicable law. The right to accelerate
maturity of any of the Loans does not include the right to
accelerate any interest that has not otherwise accrued on the
date of such acceleration, and the Agent and the Banks do not
intend to collect any unearned interest in the event of any such
acceleration. All monies paid to the Agent or the Banks
hereunder or under any of the Notes or the other Loan Documents,
whether at maturity or by prepayment, shall be subject to rebate
of unearned interest as and to the extent required by applicable
law. By the execution of this Agreement, the Borrower covenants
that (i) the credit or return of any Excess shall constitute the
acceptance by the Borrower of such Excess, and (ii) the Borrower
shall not seek or pursue any other remedy, legal or equitable ,
against the Agent or any Bank, based in whole or in part upon
contracting for charging or receiving any Interest in excess of
the Maximum Rate. For the purpose of determining whether or not
any Excess has been contracted for, charged or received by the
Agent or any Bank, all interest at any time contracted for,
charged or received from the Borrower in connection with this
Agreement, the Notes or any of the other Loan Documents shall, to
the extent permitted by applicable law, be amortized, prorated,
allocated and spread in equal parts throughout the full term of
the Commitments. The Borrower, the Agent and each Bank shall, to
the maximum extent permitted under applicable law, (i)
characterize any non-principal payment as an expense, fee or
premium rather than as Interest and (ii) exclude voluntary
prepayments and the effects thereof. The provisions of this
Section shall be deemed to be incorporated into each Note and
each of the other Loan Documents (whether or not any provision of
this Section is referred to therein). All such Loan Documents
and communications relating to any Interest owed by the Borrower
and all figures set forth therein shall, for the sole purpose of
computing the extent of obligations hereunder and under the Notes
and the other Loan Documents be automatically recomputed by the
Borrower, and by any court considering the same, to give effect
to the adjustments or credits required by this Section.
SECTION 9.15. Interpretation. No provision of this
Agreement or any of the other Loan Documents shall be construed
against or interpreted to the disadvantage of any party hereto
by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured or
dictated such provision.
SECTION 9.16. WAIVER OF JURY TRIAL; CONSENT TO
JURISDICTION. THE BORROWER (A) AND EACH OF THE BANKS AND THE
AGENT IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS,
OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY,
(B) SUBMITS TO THE NONEXCLUSIVE PERSONAL JURISDICTION IN THE
STATE OF NORTH CAROLINA, THE COURTS THEREOF AND THE UNITED STATES
DISTRICT COURTS SITTING THEREIN, FOR THE ENFORCEMENT OF THIS
AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS, (C) WAIVES ANY
AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY JURISDICTION TO
OBJECT ON ANY BASIS (INCLUDING, WITHOUT LIMITATION, INCONVENIENCE
OF FORUM) TO JURISDICTION OR VENUE WITHIN THE STATE OF NORTH
CAROLINA FOR THE PURPOSE OF LITIGATION TO ENFORCE THIS AGREEMENT,
THE NOTES OR THE OTHER LOAN DOCUMENTS, AND (D) AGREES THAT
SERVICE OF PROCESS MAY BE MADE UPON IT IN THE MANNER PRESCRIBED
IN SECTION 9.01 FOR THE GIVING OF NOTICE TO THE BORROWER.
NOTHING HEREIN CONTAINED, HOWEVER, SHALL PREVENT THE AGENT FROM
BRINGING ANY ACTION OR EXERCISING ANY RIGHTS AGAINST ANY SECURITY
AND AGAINST THE BORROWER PERSONALLY, AND AGAINST ANY ASSETS OF
THE BORROWER, WITHIN ANY OTHER STATE OR JURISDICTION.
SECTION 9.17. Counterparts. This Agreement may be
signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and
hereto were upon the same instrument.
SECTION 9.18. Source of Funds -- ERISA. Each of the
Banks hereby severally (and not jointly) represents to the
Borrower that no part of the funds to be used by such Bank to
fund the Loans hereunder from time to time constitutes (i) assets
allocated to any separate account maintained by such Bank in
which any employee benefit plan (or its related trust) has any
interest nor (ii) any other assets of any employee benefit plan.
As used in this Section, the terms "employee benefit plan" and
"separate account" shall have the respective meanings assigned to
such terms in Section 3 of ERISA.
SECTION 9.19. Entire Agreement. This Agreement, the
Notes, the Security Agreements, and the other Loan Documents
referred to herein embody the final, entire agreement among the
parties hereto and supersede any and all prior commitments,
agreements, representations, and understandings, whether written
or oral, relating to the subject matter hereof and may not be
contradicted or varied by evidence of prior, contemporaneous, or
subsequent oral agreements or discussions of the parties hereto.
There are no oral agreements among the parties hereto with
respect to the matters set forth in this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, under seal, by their respective
authorized officers as of the day and year first above written.
TRION, INC. (SEAL)
By: /S/ CALVIN J. MONSMA
Title: Vice President and Chief
Financial Officer
101 McNeill Road
Sanford, North Carolina, 27330
Attention: Cal Monsma
Telecopier number: 919-774-8771
Confirmation number: 919-775-2201
COMMITMENTS WACHOVIA BANK, N.A.,
as Agent and as a Bank (SEAL)
Commitment:
$2,500,000
By: /s/ K.A. SHERMAN
Title: Sr. Vice President
Lending Office
Wachovia Bank of North
Carolina, N.A.
227 Fayetteville Street Mall
Raleigh, N. C. 27601
Attention: Keith Sherman
Telecopier number: 919-755-7879
Confirmation number: 919-755-7806
Commitment: FIRST UNION NATIONAL BANK,
$2,500,000 as Lender (SEAL)
By: /s/ WILLIAM D. ALFANO
Title: Vice President
Office
First Union National Bank
2200 W. Main Street
Durham, North Carolina 27705
Attention: William D. Alfano
Telecopier number: 919-286-6134
Confirmation number: 919-286-6150
TOTAL COMMITMENTS:
$5,000,000
EXHIBIT A-1
REVOLVER LOAN NOTE
Atlanta, Georgia
March 19, 1999
For value received, TRION, INC., a Pennsylvania
corporation (the "Borrower"), promises to pay to the order of
__________________________________________________ (the "Bank"),
for the account of its Lending Office, the principal sum of TWO
MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($2,500,000), or
such lesser amount as shall equal the unpaid principal amount of
each Loan made by the Bank to the Borrower pursuant to the Credit
Agreement referred to below, on the dates and in the amounts
provided in the Credit Agreement. The Borrower promises to pay
interest on the unpaid principal amount of this Revolver Loan
Note on the dates and at the rate or rates provided for in the
Credit Agreement. Interest on any overdue principal of and, to
the extent permitted by law, overdue interest on the principal
amount hereof shall bear interest at the Default Rate, as
provided for in the Credit Agreement. All such payments of
principal and interest shall be made in lawful money of the
United States in Federal or other immediately available funds at
the office of Wachovia Bank, N.A., 191 Peachtree Street, N.E.,
Atlanta, Georgia 30303-1757, or such other address as may be
specified from time to time pursuant to the Credit Agreement.
All Loans made by the Bank, the respective maturities
thereof, the interest rates from time to time applicable thereto,
and all repayments of the principal thereof shall be recorded by
the Bank and, prior to any transfer hereof, endorsed by the Bank
on the schedule attached hereto, or on a continuation of such
schedule attached to and made a part hereof; provided that the
failure of the Bank to make any such recordation or endorsement
shall not affect the obligations of the Borrower hereunder or
under the Credit Agreement.
This Revolver Loan Note is one of the Loan Notes
referred to in the Credit Agreement dated as of March 19, 1999
among the Borrower, the Banks listed on the signature pages
thereof and Wachovia Bank, N.A., as Agent (as the same may be
amended and modified from time to time, the "Credit Agreement").
Terms defined in the Credit Agreement are used herein with the
same meanings. Reference is made to the Credit Agreement for
provisions for the optional and mandatory prepayment and the
repayment hereof and the acceleration of the maturity hereof.
IN WITNESS WHEREOF, the Borrower has caused this
Revolver Loan Note to be duly executed, under seal, by its duly
authorized officer as of the day and year first above written.
TRION, INC. (SEAL)
By:
Title:
Revolver Loan Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
Base Rate Amount Amount of
or Euro- of Principal Maturity Notation
Date Dollar Loan Loan Repaid Date Made By
EXHIBIT A-2
TERM LOAN NOTE
Atlanta, Georgia
March 19, 1999
For value received, TRION, INC., a Pennsylvania
corporation (the "Borrower"), promises to pay to the order of
__________________________________________________ (the "Bank"),
for the account of its Lending Office, the principal sum of ONE
MILLION EIGHT HUNDRED SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS
($1,875,000), or such lesser amount as shall equal the unpaid
principal amount of each Loan made by the Bank to the Borrower
pursuant to the Credit Agreement referred to below, on the dates
and in the amounts provided in the Credit Agreement. The
Borrower promises to pay interest on the unpaid principal amount
of this Term Loan Note on the dates and at the rate or rates
provided for in the Credit Agreement. Interest on any overdue
principal of and, to the extent permitted by law, overdue
interest on the principal amount hereof shall bear interest at
the Default Rate, as provided for in the Credit Agreement. All
such payments of principal and interest shall be made in lawful
money of the United States in Federal or other immediately
available funds at the office of Wachovia Bank, N.A., 191
Peachtree Street, N.E., Atlanta, Georgia 30303-1757, or such
other address as may be specified from time to time pursuant to
the Credit Agreement.
This Term Loan Note is one of the Term Loan Notes
referred to in the Credit Agreement dated as of March 19, 1999,
among the Borrower, the Banks listed on the signature pages
thereof and Wachovia Bank, N.A., as Agent (as the same may be
amended and modified from time to time, the "Credit Agreement").
Terms defined in the Credit Agreement are used herein with the
same meanings. Reference is made to the Credit Agreement for
provisions for the optional and mandatory prepayment and the
repayment hereof and the acceleration of the maturity hereof.
IN WITNESS WHEREOF, the Borrower has caused this Term
Loan Note to be duly executed, under seal, by its duly authorized
officer as of the day and year first above written.
TRION, INC. (SEAL)
By:
Title:
Term Loan Note (Cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
Base Rate Amount Amount of
or Euro- of Principal Maturity Notation
Date Dollar Loan Loan Repaid Date Made By
EXHIBIT B
OPINION OF
COUNSEL FOR THE BORROWER
[Dated as provided in
Section 3.01 of the Credit
Agreement]
To the Banks and the Agent
Referred to Below
c/o Wachovia Bank, N.A.,
as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attn: Syndications Group
Dear Sirs:
We have acted as counsel for Trion, Inc., a Pennsylvania
corporation (the "Borrower") and for [describe Guarantors]
(collectively, the Guarantors) in connection with the Credit
Agreement (the "Credit Agreement") dated as of March 19, 1999,
among the Borrower, the banks listed on the signature pages
thereof and Wachovia Bank, N.A., as Agent. Terms defined in the
Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or
otherwise identified to our satisfaction, of such documents,
corporate records, certificates of public officials and other
instruments and have conducted such other investigations of fact
and law as we have deemed necessary or advisable for purposes of
this opinion. We have assumed for purposes of our opinions set
forth below that the execution and delivery of the Credit
Agreement by each Bank and by the Agent have been duly authorized
by each Bank and by the Agent.
Upon the basis of the foregoing, we are of the opinion
that:
1. The Borrower is a corporation duly incorporated,
validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and has all corporate powers
required to carry on its business as now conducted.
2. The execution, delivery and performance by the
Borrower of the Credit Agreement, the Notes and the Security
Agreement by the Borrower and of the Guaranty and the Security
Agreement by the Guarantors (i) are within the Borrower's and
Guarantors' respective corporate powers, (ii) have been duly
authorized by all necessary corporate action, (iii) require no
action by or in respect of, or filing with, any governmental
body, agency or official, (iv) do not contravene, or constitute a
default under, any provision of applicable law or regulation or
of the certificate of incorporation or by-laws of the Borrower or
any Guarantor or of any agreement, judgment, injunction, order,
decree or other instrument which to our knowledge is binding upon
the Borrower or any Guarantor and (v) to our knowledge, except as
provided in the Credit Agreement, do not result in the creation
or imposition of any Lien on any asset of the Borrower or any of
its Subsidiaries.
3. Each of the Credit Agreement, the Security
Agreements and the Guaranty constitutes a valid and binding
agreement of the Borrower and the Guarantors, as applicable,
enforceable against the Borrower and the Guarantors,
respectively, in accordance with its terms, and the Notes
constitute valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms, except as
such enforceability may be limited by: (i) bankruptcy, insolvency
or similar laws affecting the enforcement of creditors' rights
generally and (ii) general principles of equity.
4. To our knowledge, there is no action, suit or
proceeding pending, or threatened, against or affecting the
Borrower or any of its Subsidiaries before any court or
arbitrator or any governmental body, agency or official in which
there is a reasonable possibility of an adverse decision which
could materially adversely affect the business, consolidated
financial position or consolidated results of operations of the
Borrower and its Consolidated Subsidiaries, considered as a
whole, or which in any manner questions the validity or
enforceability of the Credit Agreement, any Note, the Security
Agreements or the Guaranty.
5. Each of the Borrower's Subsidiaries is a
corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation, and has all
corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its
business as now conducted.
6. Neither the Borrower nor any of its Subsidiaries is
an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
7. Neither the Borrower nor any of its Subsidiaries is
a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935, as
amended.
8. Each of the Security Agreements creates a valid
security interest in the Collateral (as defined in each Security
Agreement) in favor of the Agent, for the benefit of the Banks,
the creation of a security interest in which is governed by, and
is subject to, the Uniform Commercial Code as in effect on the
date hereof in the State of North Carolina [and New Mexico](the
"UCC"). (Such Collateral referred to herein as the "UCC
Collateral")] The financing statements attached hereto as
Exhibit C (the "Financing Statements") are in appropriate form
for filing in the office of [the Secretary of State of North
Carolina, the clerk of __________________ County, North Carolina,
the Secretary of State of New Mexico, and the clerk of
__________________ County, New Mexico] (collectively, the "Filing
Offices"). Upon the filing of the Financing Statements with the
respective Filing Offices, such security interest in all UCC
Collateral, a security interest in which may be perfected by the
filing of financing statements, shall be perfected.
We are qualified to practice in the Commonwealth of
Pennsylvania and the State of North Carolina and do not purport
to be experts on any laws other than the laws of the United
States and the Commonwealth of Pennsylvania and the State of
North Carolina and this opinion is rendered only with respect to
such laws. We have made no independent investigation of the laws
of any other jurisdiction.
This opinion is delivered to you in connection with the
transaction referenced above and may only be relied upon by you,
any Assignee, Participant or other Transferee under the Credit
Agreement, and Jones, Day, Reavis & Pogue without our prior
written consent.
Very truly yours,
EXHIBIT C
OPINION OF
JONES, DAY, REAVIS & POGUE, SPECIAL COUNSEL
FOR THE AGENT
[Dated as provided in
Section 3.01 of the Credit
Agreement]
To the Banks and the Agent
Referred to Below
c/o Wachovia Bank, N.A.,
as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attn: Syndications Group
Dear Sirs:
We have participated in the preparation of the Credit
Agreement (the "Credit Agreement") dated as of March 19, 1999,
among Trion, Inc., a Pennsylvania corporation (the "Borrower"),
the banks listed on the signature pages thereof (the "Banks") and
Wachovia Bank, N.A., as Agent (the "Agent"), and have acted as
special counsel for the Agent for the purpose of rendering this
opinion pursuant to Section 3.01(d) of the Credit Agreement.
Terms defined in the Credit Agreement are used herein as therein
defined.
This opinion letter is limited by, and is in accordance
with, the January 1, 1992 edition of the Interpretive Standards
applicable to Legal Opinions to Third Parties in Corporate
Transactions adopted by the Legal Opinion Committee of the
Corporate and Banking Law Section of the State Bar which
Interpretive Standards are incorporated herein by this reference.
We have examined originals or copies, certified or
otherwise identified to our satisfaction, of such documents,
corporate records, certificates of public officials and other
instruments and have conducted such other investigations of fact
and law as we have deemed necessary or advisable for purposes of
this opinion.
Upon the basis of the foregoing, and assuming the due
authorization, execution and delivery of the Credit Agreement,
each of the Notes and the Security Agreement by or on behalf of
the Borrower, and the Guaranty and the Security Agreement by each
Guarantor, we are of the opinion that each of the Credit
Agreement, the Security Agreements and the Guaranty constitutes a
valid and binding agreement of the Borrower and each Guarantor,
as applicable, and each Note constitutes valid and binding
obligations of the Borrower, in each case enforceable in
accordance with its terms except as: (i) the enforceability
thereof may be affected by bankruptcy, insolvency,
reorganization, fraudulent conveyance, voidable preference,
moratorium or similar laws applicable to creditors' rights or the
collection of debtors' obligations generally; (ii) rights of
acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability; and
(iii) the enforceability of certain of the remedial, waiver and
other provisions of the Credit Agreement, the Notes, the Guaranty
and the Security Agreements may be further limited by the laws of
the State; provided that such additional laws do not, in our
opinion, substantially interfere with the practical realization
of the benefits expressed in the Credit Agreement and the Notes,
except for the economic consequences of any procedural delay
which may result from such laws.
In giving the foregoing opinion, we express no opinion as to
the effect (if any) of any law of any jurisdiction except the
State. We express no opinion as to the effect of the compliance
or noncompliance of the Agent or any of the Banks with any state
or federal laws or regulations applicable to the Agent or any of
the Banks by reason of the legal or regulatory status or the
nature of the business of the Agent or any of the Banks.
This opinion is delivered to you in connection with the
transaction referenced above and may only be relied upon by you
and any Assignee, Participant or other Transferee under the
Credit Agreement without our prior written consent.
Very truly yours,
EXHIBIT D
ASSIGNMENT AND ACCEPTANCE
Dated , 19
Reference is made to the Credit Agreement dated as of
March 19, 1999 (together with all amendments and modifications
thereto, the "Credit Agreement") among Trion, Inc. , a
Pennsylvania corporation (the "Borrower"), the Banks (as defined
in the Credit Agreement) and Wachovia Bank, N.A., as Agent (the
"Agent"). Terms defined in the Credit Agreement are used herein
with the same meaning.
(the
"Assignor") and (the
"Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the
Assignee, without recourse to the Assignor, and the Assignee
hereby purchases and assumes from the Assignor, a %
interest in and to all of the Assignor's rights and obligations
under the Credit Agreement as of the Effective Date (as defined
below) (including, without limitation, a % interest (which
on the Effective Date hereof is $__________) in the Assignor's
Commitment and a interest (which on the Effective Date
hereof is $ ) in the Revolver Loans and Term Loans
owing to the Assignor and a % interest in the Revolver Loan
Notes and the Term Loan Notes held by the Assignor (which on the
Effective Date hereof is $__________ and $__________,
respectively).
2. The Assignor (i) makes no representation or
warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in
connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of
the Credit Agreement or any other instrument or document
furnished pursuant thereto, other than that it is the legal and
beneficial owner of the interest being assigned by it hereunder,
that such interest is free and clear of any adverse claim and
that as of the date hereof its Revolver Loan Commitment and Term
Loan Commitment (without giving effect to assignments thereof
which have not yet become effective) is $__________ and
$__________, respectively, and the aggregate outstanding
principal amount of Revolver Loans and Term Loans owing to it
(without giving effect to assignments thereof which have not yet
become effective) is $____________ and $____________,
respectively; (ii) makes no representation or warranty and
assumes no responsibility with respect to the financial condition
of the Borrower or the performance or observance by the Borrower
of any of its obligations under the Credit Agreement or any other
instrument or document furnished pursuant thereto; and (iii)
attaches the Notes referred to in paragraph 1 above and requests
that the Agent exchange such Notes for [a new Revolver Loan Note
dated , in the principal amount of $__________
payable to the order of the Assignee and a new Term Loan Note
dated ___________, ____ in the principal amount of
$______________ payable to the order of the Assignee] [new Notes
as follows: a (i) Revolver Loan Note dated ,
in the principal amount of $ payable to the order
of the Assignor (ii) Revolver Loan Note dated ,
in the principal amount of $ payable to the order
of the Assignee, (iii) a new Term Loan Note dated ___________,
____ in the principal amount of $______________ payable to the
order of the Assignor and (iii) a new Term Loan Note dated
___________, ____ in the principal amount of $______________
payable to the order of the Assignee].
3. The Assignee (i) confirms that it has received a
copy of the Credit Agreement, the Guaranty, the Security
Agreements, together with copies of the financial statements
referred to in Section 4.04(a) of the Credit Agreement (or any
more recent financial statements of the Borrower delivered
pursuant to Section 5.01(a) or (b) of the Credit Agreement) and
such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will,
independently and without reliance upon the Agent, the Assignor
or any other Bank and based on such documents and information as
it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit
Agreement; (iii) confirms that it is a bank or financial
institution; (iv) appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under
the Credit Agreement as are delegated to the Agent by the terms
thereof, together with such powers as are reasonably incidental
thereto; (v) agrees that it will perform in accordance with their
terms all of the obligations which by the terms of the Credit
Agreement are required to be performed by it as a Bank; (vi)
specifies as its Lending Office (and address for notices) the
office set forth beneath its name on the signature pages hereof,
(vii) represents and warrants that the execution, delivery and
performance of this Assignment and Acceptance are within its
corporate powers and have been duly authorized by all necessary
corporate action, (viii) makes the representation and warranty
contained in Section 9.18 of the Credit Agreement[, and (ix)
attaches the forms prescribed by the Internal Revenue Service of
the United States certifying as to the Assignee's status for
purposes of determining exemption from United States withholding
taxes with respect to all payments to be made to the Assignee
under the Credit Agreement and the Notes or such other documents
as are necessary to indicate that all such payments are subject
to such taxes at a rate reduced by an applicable tax treaty].
4. The Effective Date for this Assignment and
Acceptance shall be , 19 (the "Effective Date").
Following the execution of this Assignment and Acceptance, it
will be delivered to the Agent for execution and acceptance by
the Agent and to the Borrower for execution by the Borrower.
5. Upon such execution and acceptance by the Agent, from
and after the Effective Date, (i) the Assignee shall be a party
to the Credit Agreement and, to the extent rights and obligations
have been transferred to it by this Assignment and Acceptance,
have the rights and obligations of a Bank thereunder and (ii) the
Assignor shall, to the extent its rights and obligations have
been transferred to the Assignee by this Assignment and
Acceptance, relinquish its rights (other than under Sections
8.03, 9.03 and 9.04 of the Credit Agreement) and be released from
its obligations under the Credit Agreement.
6. Upon such execution and acceptance by the Agent, from
and after the Effective Date, the Agent shall make all payments
in respect of the interest assigned hereby to the Assignee. The
Assignor and Assignee shall make all appropriate adjustments in
payments for periods prior to such acceptance by the Agent
directly between themselves.
7. This Assignment and Acceptance shall be governed
by, and construed in accordance with, the laws of the State of
Georgia.
[NAME OF ASSIGNOR]
By:
Title:
[NAME OF ASSIGNEE]
By:
Title:
Lending Office:
[Address]
WACHOVIA BANK, N.A.,
As Agent
By:
Title:
[TRION, INC. (SEAL)
By:
Title:]
EXHIBIT E
NOTICE OF BORROWING
, 199
Wachovia Bank, N.A., as Agent
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1757
Attention: Syndications Group
Re: Credit Agreement (as amended and modified from time to
time, the "Credit Agreement") dated as of March 19,
1999 by and among Trion, Inc., the Banks from time to
time parties thereto, and Wachovia Bank, N.A., as
Agent.
Gentlemen:
Unless otherwise defined herein, capitalized terms used
herein shall have the meanings attributable thereto in the Credit
Agreement.
This Notice of Borrowing is delivered to you pursuant to
Section 2.02 of the Credit Agreement.
The Borrower hereby requests a [Revolver Loan] consisting of
a [Euro-Dollar Borrowing] [Base Rate Borrowing] in the aggregate
principal amount of $ to be made on ,
199 , and for interest to accrue thereon at the rate established
by the Credit Agreement for [Euro-Dollar Loans] [Base Rate
Loans]. The duration of the Interest Period with respect thereto
shall be [1 month] [2 months] [3 months] [6 months] [30 days].
The Borrower hereby requests [the initial Term Loan] [a Term
Loan Refunding Loan] consisting of a [Euro-Dollar Borrowing]
[Base Rate Borrowing] in the aggregate principal amount of $
to be made on , 199 , and for interest to
accrue thereon at the rate established by the Credit Agreement
for [Euro-Dollar Loans] [Base Rate Loans]. The duration of the
Interest Period with respect thereto shall be [1 month] [2
months] [3 months] [6 months] [30 days].
[For the initial Borrowing only: The Borrower hereby agrees
in favor of the Agent and the Banks that the Prior Credit
Agreement is terminated and of no force or effect (except for
provisions of the Prior Credit Agreement which by their express
terms survive the termination of the Credit Agreement).]
The Borrower has caused this Notice of Borrowing to be
executed and delivered by its duly authorized officer this
day of , 199 .
TRION, INC.
By:
Title:
EXHIBIT F
COMPLIANCE CERTIFICATE
Reference is made to the Credit Agreement dated as of
March 19, 1999 (as modified and supplemented and in effect from
time to time, the "Credit Agreement") among Trion, Inc., the
Banks from time to time parties thereto, and Wachovia Bank, N.A.,
as Agent. Capitalized terms used herein shall have the meanings
ascribed thereto in the Credit Agreement.
Pursuant to Section 5.01(c) of the Credit Agreement,
____________________, the duly authorized of
Trion, Inc., hereby (i) certifies to the Agent and the Banks that
the information contained in the Compliance Check List attached
hereto is true, accurate and complete as of , ,
and that no Default is in existence on and as of the date hereof
and (ii) restates and reaffirms that the representations and
warranties contained in Article IV of the Credit Agreement are
true on and as of the date hereof as though restated on and as of
this date.
TRION, INC.
By:
Title:
COMPLIANCE CHECK LIST
TRION, INC.
,
1. Loans and Advances (Section 5.16)
Neither the Borrower nor any of its Subsidiaries shall make
loans or advances to any Person except as permitted by
Section 5.17 and except: (i) loans or advances to employees
(A) for travel expenses incurred in the ordinary course of
business, and (B) in addition to loans or advances under the
immediately preceding clause (A), not exceeding $100,000 in
the aggregate principal amount outstanding at any time made
in the ordinary course of business and consistent with
practices existing on March 19, 1999; (ii) deposits required
by government agencies or public utilities; (iii) loans or
advances from the Borrower to any Guarantor or from any
Guarantor to any other Guarantor; (iv) accounts receivable
outstanding in the ordinary course of business owed to the
Borrower for the sale of its inventory, and (v) solely after
compliance with Section 5.24 with respect to each Foreign
Significant Subsidiary to which loans or advances shall be
made, loans or advances from the Borrower to Foreign
Significant Subsidiaries which are not Guarantors in the
aggregate outstanding at any time not exceeding 10% of the
Borrower's Consolidated Net Worth; provided that after giving
effect to the making of any loans, advances or deposits
permitted by this Section, the Borrower will be in full
compliance with all the provisions of this Agreement.
(a) To Employees $
Limitation $100,00
(b) To Foreign Significant
Subsidiaries $
Limitation (10% of Consolidated
Net Worth) $
2. Negative Pledge (Section 5.18)
Neither the Borrower nor any Consolidated Subsidiary will
create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except: [ . . .]; Provided
Liens permitted by the foregoing paragraphs (b), (c), (d) and
(g) shall at no time secure Debt in an aggregate amount
greater than 10% of Consolidated Net Worth.
None of the Borrower's or any Consolidated Subsidiary's
property is subject to any Lien securing Debt which is
permitted by paragraphs (b), (c), (d) and (g) of Section
5.18, except for:
Description of Lien and Property Amount of Debt
subject to same Secured
a. ___________________________ $_____________
b. ___________________________ $_____________
c. ___________________________ $_____________
d. ___________________________ $_____________
Total $
Limitation (10% of Consolidated Net Worth) $_____________
3. Fixed Charge Coverage Ratio (Section 5.19)
At the end of each Fiscal Quarter, commencing with the Fiscal
Quarter ending March 31, 1999, the Fixed Charge Coverage
Ratio for the Fiscal Quarter shall be greater than the
following amounts at the following times:
Fiscal Quarter Ending Ratio
March 31, 1999 1.5 to 1.0
June 30, 1999 1.75 to 1.0
For each Fiscal Quarter thereafter 2.0 to 1.0
The Fixed Charge Coverage Ratio shall be calculated as
follows: (a) for the three Fiscal Quarters immediately
following the Closing Date, (i) for the first Fiscal Quarter
thereafter times 4; (ii) for the first and second Fiscal
Quarters thereafter times 2; and (iii) for the first, second
and third Fiscal Quarters thereafter times 1.3333; and (b)
for all other Fiscal Quarters thereafter, for the Fiscal
Quarter then ending and the immediately preceding 3 fiscal
quarters.
(a) EBILT Schedule - 1 $
(b) Consolidated Fixed Charges Schedule - 1 $
Actual Ratio of (a) to (b)
Minimum Ratio (see table above)
4. Ratio of Consolidated Funded Debt to Consolidated Total
Capital (Section 5.20)
The ratio of Consolidated Funded Debt to Consolidated Total
Capital will not at any time exceed 0.40 to 1.00.
(a) Consolidated Funded Debt Schedule - 2 $
(b) Consolidated Total Capital $
Actual Ratio of (a) to (b)
Maximum Ratio 0.40 to 1.0
5. Ratio of Consolidated Funded Debt to Consolidated Cash Flow
(Section 5.21)
The ratio of Consolidated Funded Debt to Consolidated Cash
Flow shall not exceed the following amounts at the following
times:
Fiscal Quarter Ending Ratio
March 31, 1999 3.5 to 1.0
June 30, 1999 3.25 to 1.0
For each Fiscal Quarter thereafter 3.0 to 1.0
For the purposes of this Section 5.21, Consolidated Cash Flow
shall be calculated as follows: (a) for the three Fiscal
Quarters immediately following the Closing Date, (i) for the
first Fiscal Quarter thereafter times 4; (ii) for the first
and second Fiscal Quarters thereafter times 2; and (iii) for
the first, second and third Fiscal Quarters thereafter times
1.3333; and (b) for all other Fiscal Quarters thereafter, for
the Fiscal Quarter then ending and the immediately preceding
3 fiscal quarters.
(a) Consolidated Funded Debt Schedule - 2 $
(b) Consolidated Cash Flow Schedule - 3 $
Maximum Ratio (see table above)
COMPLIANCE CHECK LIST
TRION, INC.
,
6. Minimum Consolidated Net Worth (Section 5.22)
Consolidated Net Worth will at no time be less than
$20,000,000 plus the sum of (i) 50% of the cumulative
Consolidated Net Income of the Borrower and its Consolidated
Subsidiaries during any period after September 30, 1997
(taken as one accounting period), calculated quarterly at the
end of each Fiscal Quarter but excluding from such
calculations of Consolidated Net Income for purposes of this
clause (i), any quarter in which the Consolidated Net Income
of the Borrower and its Consolidated Subsidiaries is
negative, plus (ii) 100% of the cumulative proceeds of from
the sale of any Capital Stock received during any period
after the Closing Date, plus (iii) 100% of the amount of any
Capital Stock issued in exchange for the cancellation or
conversion of Debt after the Closing Date, calculated
quarterly at the end of each Fiscal Quarter.
(a) $20,000,000
(b) 50% of positive Consolidated
Net Income after Closing Date $__________
(c) 100% of cumulative proceeds
of Capital Stock after Closing Date $__________
(d) 100% of Capital Stock issued in
exchange for Debt after the
Closing Date $__________
Actual Consolidated Net Worth $__________
Required Consolidated Net
Worth (sum of (a) plus (b) plus (c)
less (d) $__________
Schedule - 1
EBILT
(a) Consolidated Net Income for:
quarter - $
quarter - $
quarter - $
quarter - $
Total $
(b) Income taxes for:
quarter - $
quarter - $
quarter - $
quarter - $
Total $
(c) Consolidated Interest Expense for:
quarter - $
quarter - $
quarter - $
quarter - $
Total $
(d) Operating Leases and Rentals for:
quarter - $
quarter - $
quarter - $
quarter - $
Total $
Total EBILT $
CONSOLIDATED FIXED CHARGES
sum of (c) plus (d) $
Schedule - 2
CONSOLIDATED FUNDED DEBT
INTEREST
RATE MATURITY TOTAL
Indebtedness for Borrowed Money
$
$
$
$
$
Total $
Capital Leases
$
$
$
$
Total $
Guarantees
$
$
Total $
Total Consolidated Funded Debt $
Schedule - 3
CONSOLIDATED CASH FLOW
Consolidated Net Income for:
quarter - $
quarter - $
quarter - $
quarter - $
Total $
Depreciation for:
quarter - $
quarter - $
quarter - $
quarter - $
Total $
Amortization for:
quarter - $
quarter - $
quarter - $
quarter - $
Total $
Other non-cash charges for:
quarter - $
quarter - $
quarter - $
quarter - $
Total $
Total Consolidated Cash Flow $__________
EXHIBIT G
TRION, INC.
CLOSING CERTIFICATE
Reference is made to the Credit Agreement (the "Credit
Agreement") dated as of March 19, 1999, among Trion, Inc., the
Banks listed therein, and Wachovia Bank, N.A., as Agent.
Capitalized terms used herein have the meanings ascribed thereto
in the Credit Agreement.
Pursuant to Section 3.01(e) of the Credit Agreement,
, the duly authorized of
Trion, Inc. hereby certifies to the Agent and the Banks that (i)
no Default has occurred and is continuing as of the date hereof,
and (ii) the representations and warranties contained in Article
IV of the Credit Agreement are true on and as of the date hereof.
Certified as of this 19th day of March, 1999.
By:
Printed Name:
Title:
EXHIBIT H
March 19, 1999
Wachovia Bank, N.A.
191 Peachtree Street, N.E.
Atlanta, GA 30303-1757
Facsimile: 404-332-4005
Telephone: 404-332-6454
Attention: Syndications Group
Re: Proposed credit facilities in the amount of $5,000,000
(the "Proposed Credit Facilities") to be entered into pursuant
to Credit Agreement dated as of March 19, 1999 among Trion,
Inc., a Pennsylvania corporation, the Banks listed therein and
Wachovia Bank, N.A., as Agent, in substantially the form of the
draft thereof dated March 19, 1999 (the "Draft Credit
Agreement"; capitalized terms which are used but not defined
herein have the meanings given them in the Draft Credit
Agreement)
Gentlemen:
It is anticipated that the Proposed Credit Facilities will
close on or about March 19, 1999, and that the only Banks will be
Wachovia Bank, N.A. and First Union National Bank (collectively, the
"Proposed Banks"). Section 2.02 of the Proposed Credit Agreement
generally requires that Notices of Borrowing be given at least 3
Euro-Dollar Business Days before each Euro-Dollar Borrowing. The
Borrower would like to have the opportunity to obtain Euro-Dollar
Borrowings on the Closing Date for the initial Revolver Loan advance,
but could of course not comply with such notice provisions with
respect thereto.
The Borrower hereby requests that the Agent and the
Proposed Banks, on a one-time basis only, waive the aforesaid notice
provisions, and permit the Borrower to obtain Euro-Dollar Borrowings
on the Closing Date in such amounts, and for such Interest Periods,
as have been agreed to by the Borrower and the Agent and notified to
the Proposed Banks (the "Agreed Initial Closing Date Euro-Dollar
Borrowings") by March 19, 1999 (the "Proposed Closing Date"), and in
consideration thereof, and for other good and valuable consideration,
the receipt of which hereby is acknowledged, to pay to and indemnify
and hold harmless each of the Proposed Banks with respect to such
amount or amounts as shall compensate the Proposed Banks for any
loss, cost or expense incurred by the Proposed Banks as a result of
any failure of (i) the Proposed Credit Facilities to close, or (ii)
the Borrower to borrow any of the Agreed Initial Closing Date
Euro-Dollar Rate Borrowings on the Proposed Closing Date.
This indemnification letter is executed and delivered to
Wachovia Bank, N.A. as proposed Agent under the Proposed Credit
Facilities, but for the benefit of the Proposed Banks, and the
Proposed Banks shall be entitled to rely on and directly enforce the
terms and provisions hereof.
Sincerely,
TRION, INC.
By:
Title:
EXHIBIT I
Form of Collateral Disclosure Certificate
[to be completed by each borrower and guarantor]
THIS COLLATERAL DISCLOSURE CERTIFICATE is provided this _____
day of , by
, a corporation organized under the laws
of the State of (the "Obligor"),
to WACHOVIA BANK, N.A., as agent (the "Agent") for itself and other
lenders (the "Banks") party to the Credit Agreement to be executed
and delivered among the Obligor, the Agent and such Banks (the
"Credit Agreement").
The Obligor agrees that the SCHEDULES [the form of which should
be duplicated as necessary to include all information requested]
attached to this Certificate are part of this Certificate and that
this Certificate shall be included in the definition of the "Loan
Documents" contained in the Credit Agreement. The Obligor represents
and warrants to the Agent and the Banks that the information
contained in this Certificate is true and accurate as of the date
hereof. This representation and warranty shall survive the closing
of, and any loan made under, the Credit Agreement.
WITNESS the signature and seal of the Obligor as of the date
first written above.
By:
Title:
SCHEDULE 1 TO COLLATERAL DISCLOSURE CERTIFICATE
Real Estate Owned
The following identifies all real estate and certain documentation
relating thereto (copies of which are attached hereto) owned by the
Obligor:
1. Street Address (or, if none, other common description):
Environmental Audits, Reports, and Notifications:
SCHEDULE 2 TO COLLATERAL DISCLOSURE CERTIFICATE
Real Estate Leased
The following describes all leases (including, without limitation,
subleases) of real property (copies of which are attached hereto) to
which the Obligor is a party or under which it has any rights:
1. Street Name (or, if none, other common description):
Record Owner (and, if different, name of Obligor's landlord):
SCHEDULE 3 TO COLLATERAL DISCLOSURE CERTIFICATE
Personal Property Locations
The following describes each location (street address, city or
town, county, and state) where the Obligor owns, stores or leases any
personal property (including, without limitation, inventory, equipment
and books and records):
1. Type of personal property at location:
Street Address:
City or Town:
County:
State:
SCHEDULE 4 TO COLLATERAL DISCLOSURE CERTIFICATE
Places of Business
A. The following describes each present place of business of the
Obligor:
1. Street Address:
City or Town:
County:
State:
Business activity at location:
B. The following describes each past place of business of the
Obligor:
1. Street Address:
City or Town:
County:
State:
Business activity at location:
SCHEDULE 5 TO COLLATERAL DISCLOSURE CERTIFICATE
Location of Books and Records relating to
Accounts and Receivables
The following are the only places where the Obligor's records
relating to accounts receivable are located:
1. Street Address:
City or Town:
County:
State:
Name of person in possession
of records if other than
the Obligor:
SCHEDULE 6 TO COLLATERAL DISCLOSURE CERTIFICATE
Location of Chief Executive Office; Mailing Address
A. The following is the location of the Obligor's chief
executive office:
Street Address:
City or Town:
County:
State:
B. The following is the mailing address of the Obligor to be
inserted on financing statements covering the collateral:
C. The following is the Obligor's federal identification number:
.
SCHEDULE 7 TO COLLATERAL DISCLOSURE CERTIFICATE
Governmental Permits
The following are all material governmental franchises, licenses
or permits held by the Obligor (other than permits required for
businesses generally) (copies of which are attached hereto):
SCHEDULE 8 TO COLLATERAL DISCLOSURE CERTIFICATE
Bailees, Warehousemen and Others
The following are each bailee, warehouseman, inventory processor
or other third party having possession of any of the Obligor's property
(excluding any repairmen and/or common carriers which may have
possession of any of the Obligor's property in the ordinary course of
the Obligor's business and not, for example, as a lienor) and documents
of title relating to such property (copies of which are attached
hereto):
SCHEDULE 9 TO COLLATERAL DISCLOSURE CERTIFICATE
Patents, Trademarks, Copyrights, Franchise, Etc.
A. The following are all patents, and all licenses other
agreements to use the patents of others, held by the Obligor:
1.
B. The following are all trademarks and servicemarks, and all
licenses and other agreements to use the trademarks and servicemarks of
others, held by the Obligor:
1.
C. The following are all copyrights, and all licenses and other
agreements to use materials copyrighted by others, held by the Obligor:
1.
D. The following are all franchises, distribution agreements,
marketing agreements and other similar agreements between the Obligor
and others (copies of which are attached hereto):
1.
SCHEDULE 10 TO COLLATERAL DISCLOSURE CERTIFICATE
Legal and Trade Names
The following are all past and present legal and trade names of
the Obligor:
1.
EXHIBIT J-1
FORM OF BORROWER SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") dated as of March 31,
1999 executed and delivered by TRION, INC., a corporation organized
under the laws of Pennsylvania with its principal place of business and
chief executive office located in Lee County, at 101 McNeill Road,
Sanford, North Carolina, 27330 (the "Borrower"), in favor of WACHOVIA
BANK, N.A. with an office located at 191 Peachtree Street, N.E.,
Atlanta, Georgia 30303-1757 (the "Agent"), in its capacity as agent for
the "Banks" party to the Credit Agreement (as hereinafter defined) and
each assignee thereof becoming a Lender as provided therein (the
"Banks").
WHEREAS, the Borrower, the Banks and the Agent have entered into
that certain Credit Agreement dated as of even date herewith (as the
same may be amended, supplemented, restated or otherwise modified from
time to time, the "Credit Agreement") pursuant to which the Banks have
agreed to extend certain financial accommodations to the Borrower
subject to the terms thereof;
WHEREAS, it is a condition precedent to the Banks' extension of
such financial accommodations under the Credit Agreement that the
Borrower execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the above premises and for
other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the Borrower, the Borrower hereby
agrees with the Agent as follows:
Section 1. Grant of Security. To secure the prompt and complete
payment, observance and performance when due (whether at stated
maturity, by acceleration or otherwise) of all of the Obligations, the
Borrower hereby collaterally assigns to the Agent for the benefit of
the Banks, and grants to the Agent for the benefit of the Banks a
security interest and lien in and upon, the Collateral.
Section 2. Representations and Warranties. The Borrower
represents to the Agent and the Banks as follows:
(a) Collateral Disclosure Certificate. The information set forth
in that certain Collateral Disclosure Certificate executed
and delivered by Borrower to the Agent dated on or about even
date herewith is true and accurate in all material respects.
(b) Authorization. The Borrower has the right and power, and has
taken all necessary action to authorize it, to execute,
deliver and perform this Agreement in accordance with its
terms. This Agreement, the financial statements and the
instruments, agreements and other documents to which the
Borrower is a party and which evidence or relate in any way
to the Obligations have been duly executed and delivered by
the authorized officers of the Borrower and each is a legal,
valid and binding obligation of the Borrower enforceable
against the Borrower in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws
affecting the enforcement of creditors' rights generally and
by principles of equity.
(c) Compliance of Agreement with Laws, etc. The execution,
delivery and performance of this Agreement by the Borrower in
accordance with its terms, including the granting of the
Security Interest, do not and will not, by the passage of
time, the giving of notice or otherwise:
(i) Require any approval by a Governmental Authority or
violate any applicable Laws relating to the Borrower, except with
respect to any failure to receive such approval or an violation
which could not reasonably be expected to have a Material Adverse
Effect;
(ii) Conflict with, result in a breach of or constitute a
default under, the articles or certificate of incorporation or
bylaws of the Borrower, or any indenture, instrument or other
material agreement to which the Borrower is a party or by which it
or any of its properties may be bound; or
(iii) Result in, or require the creation or imposition
of, any Lien upon or with respect to any property in which the
Borrower now or may hereafter have rights, except the Liens in
favor of the Banks and the Agents for the benefit of the Banks
granted hereby.
(d) Liens. None of the Collateral is, as of the date hereof,
subject to any Lien except in favor of the Agent and as may
be set forth on Schedule 2(d) hereto. No financing statement
under the Uniform Commercial Code of any jurisdiction which
names the Borrower as debtor or covers any of the Collateral
or any other property of the Borrower, or any other notice
filed in the public records indicating the existence of a
Lien thereon, has been filed and is still effective in any
state or other jurisdiction, and the Borrower has not signed
any such financing statement or notice or any security
agreement authorizing any Person to file any such financing
statement or notice.
(e) Inventory. All Inventory is in good condition, meets in all
material respects all standards imposed by any Governmental
Authority, or department or division thereof, having
regulatory authority over such goods, their use or sale, and
(except for inventory for which amounts are reserved in the
ordinary course of business and in accordance with GAAP) is
currently either usable or salable in the normal course of
the Borrower's business.
(f) Security Interest. It is the intent of the Borrower that
this Agreement create a valid and perfected first-priority
security interest in the Collateral, securing the payment of
the Obligations, subject to any prior inchoate interest
granted by law for taxes not yet due and owing.
(g) Title to Collateral. The Borrower has good, marketable and
legal title to the Collateral.
Section 3. Continued Priority of Security Interest.
(a) The Security Interest shall at all times be valid, perfected
and of first priority and enforceable against the Borrower
and all other Persons, in accordance with the terms of this
Agreement, as security for the Obligations.
(b) The Borrower shall, at its sole cost and expense, take all
action that may be necessary or desirable, or that the Agent
may reasonably request, so as at all times to maintain the
validity, perfection, enforceability and priority of the
Security Interest in the Collateral in conformity with the
requirements of Section 3(a) hereof, or to enable the Agent
to exercise or enforce its rights on behalf of the Banks
hereunder including, without limitation:
(i) Paying, when due and owing, all taxes, assessments and
other claims lawfully levied or assessed on any of the Collateral.
(ii) Obtaining landlords', mortgagees', mechanics', bailees',
warehousemen's or processors' releases, subordinations or waivers
with respect to any or all of the Collateral, in form and
substance satisfactory to the Agent, for each leased location with
respect to which Inventory with a book value greater than $300,000
is located on such location leased by the Borrower, provided that
with respect to any leased location held by the Borrower as of the
Closing Date for which such releases and waivers are required, the
Borrower will not be in default of this clause (ii) unless the
Borrower fails to so provide the Agent with such landlord
subordinations or waivers on or before April 30, 1999; and
(iii) Executing and delivering financing statements,
pledges, designations, hypothecations, notices and assignments, in
each case in form and substance satisfactory to the Agent,
relating to the creation, validity, perfection, priority or
continuation of the Security Interest under the Uniform Commercial
Code or other applicable Laws.
(c) The Agent is hereby authorized to execute and file in all
necessary and appropriate jurisdictions (as determined by the
Agent) one or more financing or continuation statements (or
any other document or instrument referred to in Section
3(b)(iii) above) in the name of the Borrower and, after the
Borrower has failed to do so upon request, to sign the
Borrower's name thereto. The Borrower authorizes the Agent
to file any such financing statement, document or instrument
without the signature of the Borrower to the extent permitted
by applicable Laws. Further, to the extent permitted by
applicable Laws, a carbon, photographic, xerographic or other
reproduction of this Agreement or of any Financing Statement
is sufficient as a financing statement.
Section 4. Covenants Regarding Contracts.
(a) Anything herein to the contrary notwithstanding, (i) the
Borrower shall remain liable under all Assigned Contracts to
the extent set forth therein to perform its duties and
obligations thereunder to the same extent as if this
Agreement had not been executed, (ii) the exercise by the
Agent of any of its rights on behalf of the Banks hereunder
shall not release the Borrower from any of its duties or
obligations under any of the Assigned Contracts (except to
the extent that such exercise prevents the Borrower from
satisfying such duties and obligations), and (iii) the Agent
shall not have any duties, obligations or liability under any
of the Assigned Contracts or duties by reason of this
Agreement, nor shall the Agent be obligated to perform any of
the duties or obligations of the Borrower thereunder, to make
any payment, to make any inquiry as to the nature or
sufficiency of any payment received by the Borrower or the
sufficiency of any performance by any party under any such
contract or agreement, or to take any action to collect or
enforce any claim for payment assigned hereunder.
(b) The Borrower shall at its expense:
(i) Perform and observe all the terms and provisions of the
Assigned Contracts to be performed or observed by it, maintain the
Assigned Contracts in full force and effect to the extent of the
Borrower's normal business practices, and enforce the Assigned
Contracts in accordance with their terms to the extent of the
Borrower's normal business practices; and
(ii) Furnish to the Agent such information and reports
regarding the Assigned Contracts as the Agent may reasonably
request.
(c) Unless expressly set forth herein, all contracts and contract
rights of the Borrower shall constitute Assigned Contracts
and shall constitute part of the Collateral.
Section 5. Covenants Regarding Collateral Generally.
(a) Verification. During the existence of a Default or Event of
Default, the Agent shall have the right at any time and from
time to time, in the name of such Agent or in the name of the
Borrower, to verify the validity, amount or any other matter
relating to any receivables by mail, telephone or otherwise,
and Agent will give Borrower notice thereof.
(b) Delivery of Instruments. In the event any of the Collateral
becomes evidenced by a promissory note, trade acceptance or
any other instrument, the Borrower will immediately
thereafter deliver such instrument to the Agent,
appropriately endorsed to the Agent on behalf of the Banks.
(c) Defense of Title. The Borrower shall at all times be the
sole owner of each and every item of Collateral and shall
defend, at its sole cost and expense, its title in and to,
and the Security Interest in, the Collateral against the
claims and demands of all Persons.
(d) Maintenance of Collateral. The Borrower shall maintain all
physical property that constitutes Collateral in good and
workable condition, with reasonable allowance for wear and
tear, and shall exercise proper custody over all such
property.
(e) Location of Office. The Borrower's chief executive office,
principal place of business, and its books and records
relating to the Collateral will continue to be kept at the
address set forth in the Collateral Disclosure Certificate
referred to in Section 2(a) hereof, and the Borrower will not
change the location of such office and place of business or
such books and records without giving the Agent thirty (30)
days' prior written notice thereof.
(f) Location of Collateral. All Inventory, other than Inventory
in transit to any such location, will at all times be kept by
the Borrower at the locations set forth in the Collateral
Disclosure Certificate referred to in Section 2(a) hereof,
and shall not, without the thirty (30) days' prior written
notice to the Agent, be removed therefrom except in
connection with sales thereof in the ordinary course of
business or except to another location at which the Agent's
security interest therein remains perfected.
(g) Change of Name, Structure, Etc. Without giving the Agent
thirty (30) days' prior written notice, the Borrower will not
(i) change its name, identity or structure, (ii) conduct
business under any trade name or other fictitious name other
than those set forth in the Collateral Disclosure Certificate
referred to in Section 2(a) hereof.
(h) Records Relating to Collateral. The Borrower will at all
times keep complete and accurate records of Inventory,
itemizing and describing the kind, type and quantity of
Inventory and the Borrower's cost therefor and a current
price list for any Inventory, and keep complete and accurate
records of all other Collateral.
(i) Other Information. The Borrower shall furnish to the Agent
such other information with respect to the Collateral,
including, but not limited to, physical listings of
Inventory, as the Agent may reasonably request from time to
time.
(j) Sale of Collateral. Except as permitted under the terms of
the Credit Agreement, the Borrower shall not sell, transfer,
convey or dispose of any Collateral. The inclusion of
"proceeds" of the Collateral under the Security Interest
shall not be deemed a consent by the Agent to any other sale
or other disposition of any part or all of the Collateral.
(k) Collateral Account; Lock Boxes. During the existence of a
Default or an Event of Default, the Agent may establish or
cause to be established one or more collateral accounts in
the name of and under the sole control of the Agent and lock
boxes in the name of and under the sole control of the Agent
or other similar arrangements for the deposit of proceeds of
Accounts, and, in such cases, the Borrower shall cause to be
forwarded to the Agent at the Agent's Office, on a daily
basis, collection reports in form and substance satisfactory
to the Agent. In connection therewith, the Agent is hereby
authorized to endorse drafts and other items of payment with
respect to the proceeds of such Accounts.
Section 6. The Agent Appointed Attorney-in-Fact. The Borrower
hereby irrevocably appoints the Agent the Borrower's attorney-in-fact,
with full authority in the place and stead of the Borrower and in the
name of the Borrower or otherwise, from time to time upon the
occurrence and during the continuance of a Default or Event of Default
in the Agent's discretion to take any action and to execute any
instrument or document which the Agent may deem necessary or advisable
to accomplish the purposes of this Agreement and to exercise any rights
and remedies the Agent may have under this Agreement or applicable
Laws, including, without limitation: (i) to obtain and adjust
insurance required to be maintained pursuant to the terms of the Credit
Agreement; (ii) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral; (iii) to receive,
endorse, and collect any drafts or other instruments, documents and
chattel paper, in connection with clause (i) or (ii) above; (iv) to
sell or assign any Account upon such terms, for such amount and at such
time or times as the Agent deems advisable, to settle, adjust,
compromise, extend or renew any Account or to discharge and release any
Account; and (v) to file any claims or take any action or institute any
proceedings which the Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights
of the Agent on behalf of the Banks with respect to any of the
Collateral. The power-of-attorney granted hereby shall be irrevocable
and coupled with an interest.
Section 7. The Agent May Perform. If the Borrower fails to
perform any agreement contained herein, the Agent may, without notice
to the Borrower, itself perform, or cause performance of, such
agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by the Borrower.
Section 8. The Agent's Duties. The powers conferred on the
Agent hereunder are solely to protect its interest in the Collateral
and shall not impose any duty upon the Agent to exercise any such
powers. Except for the safe custody of any Collateral in its
possession and the account for moneys actually received by it
hereunder, the Agent shall have no duty as to any Collateral. The
Agent shall be deemed to have exercised reasonable care in the custody
of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which the Agent accords its own
property; it being understood that the Agent shall be under no
obligation to take any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral, but may do so
at its option, and all reasonable expenses incurred in connection
therewith shall be for the sole account of the Borrower and shall be a
part of the Obligations.
Section 9. Remedies. The Agent may take any or all of the
following actions upon the occurrence of an Event of Default.
(a) Inventory.
(i) Entry. The Agent may enter upon any premises on which
Inventory may be located and, without resistance or interference
by the Borrower, take physical possession of any or all thereof
and maintain such possession on such premises or move the same or
any part thereof to such other place or places as the Agent shall
choose; without being liable to the Borrower on account of any
loss, damage or depreciation that may occur as a result thereof,
other than for actions that were not taken in good faith.
(ii) Assembly. The Borrower shall, upon request of and
without charge to the Agent, assemble the Inventory and maintain
or deliver it into the possession of the Agent or any agent or
representative of the Agent at such place or places as the Agent
may designate.
(iii) Warehousing. The Agent may, at the expense of the
Borrower, cause any of the Inventory to be placed in a public or
field warehouse, and the Agent shall not be liable to the Borrower
on account of any loss, damage or depreciation that may occur as
a result thereof, other than for actions that were not taken in
good faith, or were grossly negligent or constituted willful
misconduct.
(b) Use of Premises and Patents. The Agent may:
(i) without notice, demand or other process, and without
payment of any rent or any other charge to the Borrower, enter any
of the Borrower's premises and, without breach of the peace, until
the Agent completes the enforcement of its rights in the
Collateral, take possession of such premises or place custodian in
exclusive control thereof, and remain on such premises; and
(ii) in the exercise of the rights of the Agent under this
Agreement, without payment or compensation of any kind, use any
and all trademarks, trade styles, trade names, patents, patent
applications, licenses, franchises and the like to the extent of
the rights of the Borrower therein, and the Borrower hereby grants
a license to the Agent of this purpose.
(c) Payments Directly to Agent. The Agent may at any time and
from time to time notify, or request the Borrower to notify,
in writing or otherwise, any account debtor or other obligor
with respect to any one or more of the Accounts to make
payments to the Agent or any agent or designee of the Agent
directly, at such address as may be specified by the Agent.
If, notwithstanding the giving of any notice, any account
debtor or other such obligor shall make payment to the
Borrower, the Borrower shall hold all such payments it
receives in trust for the Agent, without commingling the same
with other funds or property of or held by the Borrower, and
shall promptly deliver the same to the Agent or any such
agent or designee immediately upon receipt by the Borrower in
the identical form received, together with any necessary
endorsements.
(d) Rights as a Secured Creditor. The Agent may exercise all of
the rights and remedies of a secured party under the Uniform
Commercial Code and under any other applicable Laws,
including, without limitation, the right, without notice
except as specified below and with or without taking
possession thereof, to sell the Collateral or any part
thereof in one or more parcels at a public or private sale at
any location chosen by the Agent, for cash, on credit or for
future delivery, and at such price or prices and upon such
other terms as may be permitted by applicable Laws. The
Borrower agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days' notice to the
Borrower of the time and place of any public sale or the time
after which any private sale is to be made shall constitute
reasonable notification, but notice given in any other
reasonable manner or at any other reasonable time shall
constitute reasonable notification. The Agent shall not be
obligated to make any sale of Collateral regardless of notice
of sale having been given. The Agent may adjourn any public
or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so
adjourned. The Agent may bid all or any portion of the
Obligations at any such sale.
(e) Waiver of Marshaling. The Borrower hereby waives any right
to require any marshaling of assets and any similar right
with respect to the Collateral.
(f) Appointment of Receiver. To the extent permitted by
applicable Laws, the Agent shall be entitled to the
appointment of a receiver, to take possession of all or any
portion of the Collateral and/or the business operations of
the Borrower and to exercise such power as the court shall
confer upon such receiver.
(g) Accounts/Assigned Contracts. The Agent shall have the
exclusive right to assert, either directly or on behalf of
the Borrower, any and all rights and claims the Borrower may
have under any Accounts and/or Assigned Contracts as the
Agent may deem proper and to receive and collect any and all
Accounts and Assigned Contracts and any and all rent, fees,
damages, awards and other monies arising thereunder or
resulting therefrom and to apply the same on account of any
of the Obligations.
Section 10. Enforcement Costs; Application of Proceeds. The
Borrower agrees to pay to the Agent all Enforcement Costs paid or
incurred by the Agent. This agreement shall survive the termination of
this Agreement and the Lien on the Collateral. All Enforcement Costs,
together with interest thereon from the date request for payment
thereof is made by the Agent until paid in full at a per annum rate of
interest equal at all times to the Default Rate and shall be paid by
the Borrower to the Agent whenever demanded by the Agent. Any proceeds
of the collection of the Obligations or of the sale or other
disposition of the Collateral will be applied by the Agent to the
payment of Enforcement Costs, and any balance of such proceeds (if any)
will be applied by the Agent to the payment of the remaining
Obligations (whether then due or not), at such time or times and in
such order and manner of application as the Agent may from time to time
in its sole discretion determine. If the sale or other disposition of
the Collateral fails to satisfy all of the Obligations, the Borrower
shall remain liable to the Agent for any deficiency. Any surplus from
the sale or disposition of the Collateral shall be paid to the Borrower
or to any other party entitled thereto or shall otherwise be paid over
in a manner permitted by law, less all Enforcement Costs related to any
such payment.
Section 11. Rights Cumulative. The rights and remedies of the
Agent under this Agreement, the Credit Agreement and each other
document or instrument evidencing or securing the Obligations shall be
cumulative and not exclusive of any rights or remedies which it would
otherwise have, including, but not limited to, those rights afforded by
the Uniform Commercial Code and other applicable Laws. In exercising
its rights and remedies, the Agent may be selective and no failure or
delay by the Agent in exercising any right shall operate as a waiver of
it, nor shall any single or partial exercise of any power or right
preclude its other or further exercise or the exercise of any other
power or right.
Section 12. Amendments, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by the
Borrower herefrom shall in any event be effective unless the same shall
be in writing and signed by the parties hereto, and then such waiver or
consent shall be effective only in the specific instance and for the
specific purpose for which given.
Section 13. Notices. Unless otherwise provided herein, notices
shall be made in the manner and subject to the terms regarding receipt
thereof as provided for in the Credit Agreement.
Section 14. Continuing Security Interest. This Agreement shall
create a continuing security interest in the Collateral and shall (i)
remain in full force and effect until indefeasible payment in full of
the Obligations and termination of the Commitments, (ii) be binding
upon the Borrower, its successors and assigns and (iii) inure the
benefit of the Agent, and its successors and assigns. The Borrower's
successors and assigns shall include, without limitation, a receiver,
trustee or debtor-in-possession thereof or therefore.
Section 15. Governing Law; Severability. THIS AGREEMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF GEORGIA. Whenever possible, each provision of this Agreement shall
be interpreted in such a manner as to be effective and valid under
applicable Laws, but if any provision of this Agreement shall be
prohibited by or invalid under applicable Laws, such provisions shall
be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provisions or the remaining
provisions of this Agreement.
Section 16. Litigation/Waivers. THE BORROWER (A) AND THE AGENT
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, (B) SUBMITS TO THE NONEXCLUSIVE PERSONAL JURISDICTION IN THE STATE OF
NORTH CAROLINA, THE COURTS THEREOF AND THE UNITED STATES DISTRICT
COURTS SITTING THEREIN, FOR THE ENFORCEMENT OF THIS AGREEMENT, AND
(C) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY
JURISDICTION TO OBJECT ON ANY BASIS (INCLUDING, WITHOUT LIMITATION,
INCONVENIENCE OF FORUM) TO JURISDICTION OR VENUE WITHIN THE STATE OF
NORTH CAROLINA FOR THE PURPOSE OF LITIGATION TO ENFORCE THIS AGREEMENT.
Section 17. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of
which, taken together, shall constitute but one and the same
instrument.
Section 18. Definitions. As used in this Agreement, the terms
defined in the Preamble and Recitals hereto shall have the respective
meanings specified therein, certain capitalized terms not defined
herein shall have the meaning set forth in the Credit Agreement, and
the following terms shall have the following meanings:
"Account" individually and "Accounts" collectively mean all of the
Borrower's right, title and interest in and to all presently existing
or hereafter acquired or created accounts, accounts receivable,
contract rights, documents of title, notes, drafts, instruments,
acceptances, chattel paper, and writings evidencing a monetary
obligation or a security interest in or a lease of goods relating to
the sale of goods or rendering of services; all rights to receive the
payment of money or other consideration under present or future
contracts (including, without limitation, all rights to receive
payments under presently existing or hereafter acquired or created
letters of credit) relating to the sale of goods or rendering of
services, or by virtue of merchandise sold or leased, services
rendered, loans and advances made or other considerations given, by or
set forth in or arising out of any present or future chattel paper,
note, draft, lease, acceptance, writing, bond, insurance policy,
instrument, document or general intangible, and all extensions and
renewals of any thereof relating to the sale of goods or rendering of
services; all rights under or arising out of present or future
contracts, agreements or general interests in merchandise which gave
rise to any or all of the foregoing, including all goods relating to
the sale of goods or rendering of services; all claims or causes of
action now existing or hereafter arising in connection with or under
any agreement or document or by operation of law or otherwise relating
to the sale of goods or rendering of services; all collateral security
of any kind (including real property) given by any person with respect
to any of the foregoing; all returned, rejected or repossessed goods,
the sale or lease of which shall have given or shall give rise to an
any of the foregoing and all cash and non-cash proceeds and products of
all such goods; and all proceeds (cash and non-cash) of the foregoing.
"Assigned Contract" means any contract or agreement relating to
Accounts or General Intangibles to which the Borrower is a party or
which runs in favor of the Borrower.
"Collateral" shall mean all of the Borrower's Accounts, Assigned
Contracts, General Intangibles, and Inventory, all whether now owned or
existing or hereafter acquired or created, together with any and all
cash and non-cash proceeds (including, without limitation, insurance
proceeds) and products thereof.
"Enforcement Costs" mean all reasonable expenses, charges, costs
and fees whatsoever (including, without limitation, reasonable
attorney's fees and expenses) of any nature whatsoever paid or incurred
by or on behalf of the Bank in connection with (a) the collection or
enforcement of any or all of the Obligations or this Agreement
(including, without limitation, attorneys fees incurred prior to the
institution of any suit or other proceeding), (b) the creation,
perfection, collection, maintenance, preservation, defense, protection,
realization upon, disposition, sale or enforcement of all or any part
of the Collateral, (c) the monitoring, inspection, administration,
processing, servicing of any or all of the Obligations and/or the
Collateral, (d) the preparation of this Agreement and the preparation
and review of lien and record searches, reports, certificates,
appraisals, environmental surveys, and/or other documents or
information relating from time to time to the taking, perfection,
inspection, preservation, protection and/or release of a Lien on the
Collateral, the value of the Collateral, or otherwise relating to the
Agent's rights and remedies under this Agreement or with respect to the
Collateral, and (e) all filing and/or recording taxes or fees and all
stamp and other taxes and fees payable or determined to be payable in
connection with the execution and delivery of this Agreement and any
and all liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes or fees.
"Financing Statements" mean any and all financing statements
executed and delivered by or on behalf of the Borrower in connection
with the perfection of the Security Interest, together with any
amendments thereto and any continuations thereof.
"General Intangibles" shall mean all of the Borrower's right,
title and interest in and to all general intangibles of every nature,
whether presently existing or hereafter acquired or created, including,
without limitation, all books, correspondence, credit files, records,
computer programs, computer tapes, cards and other papers and documents
in the possession or control of the Borrower, claims (including without
limitation all claims for income tax and other refunds), choses in
action, judgments, patents, patent licenses, trademarks, trademark
licenses, licensing agreements, rights in intellectual property,
goodwill (including all goodwill of the Borrower's business symbolized
by and associated with any and all trademarks, trademark licenses,
copyrights and/or service marks), franchises, royalty payments,
contractual rights, literary rights, copyrights, service names, service
marks, logos, trade secrets, all amounts received as an award in or
settlement of a suit in damages, deposit accounts, interests in joint
ventures or general or limited partnerships, and all proceeds (cash and
non-cash of the foregoing.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Inventory" means all of the Borrower's right, title and interest
in and to all now owned and hereafter acquired inventory, goods,
merchandise and other personal property furnished under any contract of
service or intended for sale or lease, including, without limitation,
all raw materials, work-in-progress, finished goods and materials and
supplies of any kind, nature or description which are used or consumed
in the Borrower's business or are or might be used in connection with
the manufacture, packing, shipping, advertising, selling or finishing
of such goods, merchandise and other personal property and all
documents of title or documents representing the same and all proceeds,
(cash and non-cash) of the foregoing.
"Laws" mean all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any Governmental Authority or
political subdivision or agency thereof, or any court or similar entity
established by any thereof.
"Lien" means any mortgage, deed of trust, deed to secure debt,
grant, pledge, security interest, assignment, encumbrance, judgment,
financing statement, lien or charge of any kind, whether perfected or
unperfected, avoidable or unavoidable, consensual or non-consensual
including, without limitation, any conditional sale or other title
retention agreement, filed or unfiled tax liens, any lease in the
nature of a lien, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction,
excluding the precautionary filing of any financing statement by any
lessor in a true lease transaction, by any bailor in a true bailment
transaction or by any consignor in a true consignment transaction under
the Uniform Commercial Code of any jurisdiction or the agreement to
give any financing statement by any lessee in a true lease transaction,
by any bailee in a true bailment transaction or by any consignee in a
true consignment transaction.
"Obligations" shall have the meaning set forth in the Credit
Agreement, and includes, without limitation, all Enforcement Costs.
"Security Interest" means the Lien of the Agent on behalf of the
Banks upon, and the collateral assignments to the Agent of, the
Collateral effected hereby or pursuant to the terms hereof.
"Uniform Commercial Code" shall mean the Uniform Commercial Code
as in effect in the State of Georgia, as the same may be amended from
time to time. Unless otherwise set forth herein to the contrary, all
terms not otherwise defined herein and which are defined in the Uniform
Commercial Code are used herein with the meanings ascribed to them in
the Uniform Commercial Code.
IN WITNESS WHEREOF, the Borrower has caused this Agreement to be
duly executed and delivered under seal by its duly authorized officers
as of the day first above written.
TRION, INC.
By:
Name:
Title:
(CORPORATE SEAL)
EXHIBIT J-1
FORM OF DOMESTIC SIGNIFICANT SUBSIDIARY SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") dated as of March 31,
1999 executed and delivered by ENVIRCO CORPORATION, a corporation
organized under the laws of New Mexico with its principal place of
business and chief executive office located in Lee County, at 101
McNeill Road, Sanford, North Carolina, 27330 (the "Guarantor"), in
favor of WACHOVIA BANK, N.A. with an office located at 191 Peachtree
Street, N.E., Atlanta, Georgia 30303-1757 (the "Agent"), in its
capacity as agent for the "Banks" party to the Credit Agreement (as
hereinafter defined) and each assignee thereof becoming a Lender as
provided therein (the "Banks").
WHEREAS, TRION, INC., a corporation organized under the laws of
Pennsylvania (the "Borrower"), the Banks and the Agent have entered
into that certain Credit Agreement dated as of even date herewith (as
the same may be amended, supplemented, restated or otherwise modified
from time to time, the "Credit Agreement") pursuant to which the Banks
have agreed to extend certain financial accommodations to the Borrower
subject to the terms thereof;
WHEREAS, the Guarantor has executed and delivered to the Agent its
Guaranty dated as of even date herewith whereby the Guarantor has
guaranteed the Guaranteed Obligations as set forth in such Guaranty (as
the same may be amended, supplemented, restated or otherwise modified
from time to time, the "Guaranty");
WHEREAS, it is a condition precedent to the Banks' extension of
such financial accommodations under the Credit Agreement that the
Guarantor execute and deliver this Agreement;
NOW, THEREFORE, in consideration of the above premises and for
other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the Guarantor, the Guarantor hereby
agrees with the Agent as follows:
Section 19. Grant of Security. To secure the prompt and
complete payment, observance and performance when due (whether at
stated maturity, by acceleration or otherwise) of all of the Guaranteed
Obligations (as defined in the Guaranty), the Guarantor hereby
collaterally assigns to the Agent for the benefit of the Banks, and
grants to the Agent for the benefit of the Banks a security interest
and lien in and upon, the Collateral.
Section 20. Representations and Warranties. The Guarantor
represents to the Agent and the Banks as follows:
(a) Collateral Disclosure Certificate. The information set forth
in that certain Collateral Disclosure Certificate executed
and delivered by Guarantor to the Agent dated on or about
even date herewith is true and accurate in all material
respects.
(b) Authorization. The Guarantor has the right and power, and
has taken all necessary action to authorize it, to execute,
deliver and perform this Agreement in accordance with its
terms. This Agreement, the financial statements and the
instruments, agreements and other documents to which the
Guarantor is a party and which evidence or relate in any way
to the Guaranteed Obligations have been duly executed and
delivered by the authorized officers of the Guarantor and
each is a legal, valid and binding obligation of the
Guarantor enforceable against the Guarantor in accordance
with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting the enforcement of
creditors' rights generally and by principles of equity.
(c) Compliance of Agreement with Laws, etc. The execution,
delivery and performance of this Agreement by the Guarantor
in accordance with its terms, including the granting of the
Security Interest, do not and will not, by the passage of
time, the giving of notice or otherwise:
(i) Require any approval by a Governmental Authority or
violate any applicable Laws relating to the Guarantor, except with
respect to any failure to receive such approval or an violation
which could not reasonably be expected to have a Material Adverse
Effect;
(ii) Conflict with, result in a breach of or constitute a
default under, the articles or certificate of incorporation or
bylaws of the Guarantor, or any indenture, instrument or other
material agreement to which the Guarantor is a party or by which
it or any of its properties may be bound; or
(iii) Result in, or require the creation or imposition
of, any Lien upon or with respect to any property in which the
Guarantor now or may hereafter have rights, except the Liens in
favor of the Banks and the Agents for the benefit of the Banks
granted hereby.
(d) Liens. None of the Collateral is, as of the date hereof,
subject to any Lien except in favor of the Agent and as may
be set forth on Schedule 2(d) hereto. No financing statement
under the Uniform Commercial Code of any jurisdiction which
names the Guarantor as debtor or covers any of the Collateral
or any other property of the Guarantor, or any other notice
filed in the public records indicating the existence of a
Lien thereon, has been filed and is still effective in any
state or other jurisdiction, and the Guarantor has not signed
any such financing statement or notice or any security
agreement authorizing any Person to file any such financing
statement or notice.
(e) Inventory. All Inventory is in good condition, meets in all
material respects all standards imposed by any Governmental
Authority, or department or division thereof, having
regulatory authority over such goods, their use or sale, and
(except for inventory for which amounts are reserved in the
ordinary course of business and in accordance with GAAP) is
currently either usable or salable in the normal course of
the Guarantor's business.
(f) Security Interest. It is the intent of the Guarantor that
this Agreement create a valid and perfected first-priority
security interest in the Collateral, securing the payment of
the Guaranteed Obligations, subject to any prior inchoate
interest granted by law for taxes not yet due and owing.
(g) Title to Collateral. The Guarantor has good, marketable and
legal title to the Collateral.
Section 21. Continued Priority of Security Interest.
(a) The Security Interest shall at all times be valid, perfected
and of first priority and enforceable against the Guarantor
and all other Persons, in accordance with the terms of this
Agreement, as security for the Guaranteed Obligations.
(b) The Guarantor shall, at its sole cost and expense, take all
action that may be necessary or desirable, or that the Agent
may reasonably request, so as at all times to maintain the
validity, perfection, enforceability and priority of the
Security Interest in the Collateral in conformity with the
requirements of Section 3(a) hereof, or to enable the Agent
to exercise or enforce its rights on behalf of the Banks
hereunder including, without limitation:
(i) Paying, when due and owing, all taxes, assessments and
other claims lawfully levied or assessed on any of the Collateral.
(ii) Obtaining landlords', mortgagees', mechanics', bailees',
warehousemen's or processors' releases, subordinations or waivers
with respect to any or all of the Collateral, in form and
substance satisfactory to the Agent, for each leased location with
respect to which Inventory with a book value greater than $300,000
is located on such location leased by the Guarantor, provided that
with respect to any leased location held by the Guarantor as of
the Closing Date for which such releases and waivers are required,
the Guarantor will not be in default of this clause (ii) unless
the Guarantor fails to so provide the Agent with such landlord
subordinations or waivers on or before April 30, 1999; and
(iii) Executing and delivering financing statements,
pledges, designations, hypothecations, notices and assignments, in
each case in form and substance satisfactory to the Agent,
relating to the creation, validity, perfection, priority or
continuation of the Security Interest under the Uniform Commercial
Code or other applicable Laws.
(c) The Agent is hereby authorized to execute and file in all
necessary and appropriate jurisdictions (as determined by the
Agent) one or more financing or continuation statements (or
any other document or instrument referred to in Section
3(b)(iii) above) in the name of the Guarantor and, after the
Guarantor has failed to do so upon request, to sign the
Guarantor's name thereto. The Guarantor authorizes the Agent
to file any such financing statement, document or instrument
without the signature of the Guarantor to the extent
permitted by applicable Laws. Further, to the extent
permitted by applicable Laws, a carbon, photographic,
xerographic or other reproduction of this Agreement or of any
Financing Statement is sufficient as a financing statement.
Section 22. Covenants Regarding Contracts.
(a) Anything herein to the contrary notwithstanding, (i) the
Guarantor shall remain liable under all Assigned Contracts to
the extent set forth therein to perform its duties and
obligations thereunder to the same extent as if this
Agreement had not been executed, (ii) the exercise by the
Agent of any of its rights on behalf of the Banks hereunder
shall not release the Guarantor from any of its duties or
obligations under any of the Assigned Contracts (except to
the extent that such exercise prevents the Guarantor from
satisfying such duties and obligations), and (iii) the Agent
shall not have any duties, obligations or liability under any
of the Assigned Contracts or duties by reason of this
Agreement, nor shall the Agent be obligated to perform any of
the duties or obligations of the Guarantor thereunder, to
make any payment, to make any inquiry as to the nature or
sufficiency of any payment received by the Guarantor or the
sufficiency of any performance by any party under any such
contract or agreement, or to take any action to collect or
enforce any claim for payment assigned hereunder.
(b) The Guarantor shall at its expense:
(i) Perform and observe all the terms and provisions of the
Assigned Contracts to be performed or observed by it, maintain the
Assigned Contracts in full force and effect to the extent of the
Guarantor's normal business practices, and enforce the Assigned
Contracts in accordance with their terms to the extent of the
Guarantor's normal business practices; and
(ii) Furnish to the Agent such information and reports
regarding the Assigned Contracts as the Agent may reasonably
request.
(c) Unless expressly set forth herein, all contracts and contract
rights of the Guarantor shall constitute Assigned Contracts
and shall constitute part of the Collateral.
Section 23. Covenants Regarding Collateral Generally.
(a) Verification. During the existence of a Default or Event of
Default, the Agent shall have the right at any time and from
time to time, in the name of such Agent or in the name of the
Guarantor, to verify the validity, amount or any other matter
relating to any receivables by mail, telephone or otherwise,
and Agent will give Guarantor notice thereof.
(b) Delivery of Instruments. In the event any of the Collateral
becomes evidenced by a promissory note, trade acceptance or
any other instrument, the Guarantor will immediately
thereafter deliver such instrument to the Agent,
appropriately endorsed to the Agent on behalf of the Banks.
(c) Defense of Title. The Guarantor shall at all times be the
sole owner of each and every item of Collateral and shall
defend, at its sole cost and expense, its title in and to,
and the Security Interest in, the Collateral against the
claims and demands of all Persons.
(d) Maintenance of Collateral. The Guarantor shall maintain all
physical property that constitutes Collateral in good and
workable condition, with reasonable allowance for wear and
tear, and shall exercise proper custody over all such
property.
(e) Location of Office. The Guarantor's chief executive office,
principal place of business, and its books and records
relating to the Collateral will continue to be kept at the
address set forth in the Collateral Disclosure Certificate
referred to in Section 2(a) hereof, and the Guarantor will
not change the location of such office and place of business
or such books and records without giving the Agent thirty
(30) days' prior written notice thereof.
(f) Location of Collateral. All Inventory, other than Inventory
in transit to any such location, will at all times be kept by
the Guarantor at the locations set forth in the Collateral
Disclosure Certificate referred to in Section 2(a) hereof,
and shall not, without the thirty (30) days' prior written
notice to the Agent, be removed therefrom except in
connection with sales thereof in the ordinary course of
business or except to another location at which the Agent's
security interest therein remains perfected.
(g) Change of Name, Structure, Etc. Without giving the Agent
thirty (30) days' prior written notice, the Guarantor will
not (i) change its name, identity or structure, (ii) conduct
business under any trade name or other fictitious name other
than those set forth in the Collateral Disclosure Certificate
referred to in Section 2(a) hereof.
(h) Records Relating to Collateral. The Guarantor will at all
times keep complete and accurate records of Inventory,
itemizing and describing the kind, type and quantity of
Inventory and the Guarantor's cost therefor and a current
price list for any Inventory, and keep complete and accurate
records of all other Collateral.
(i) Other Information. The Guarantor shall furnish to the Agent
such other information with respect to the Collateral,
including, but not limited to, physical listings of
Inventory, as the Agent may reasonably request from time to
time.
(j) Sale of Collateral. Except as permitted under the terms of
the Credit Agreement, the Guarantor shall not sell, transfer,
convey or dispose of any Collateral. The inclusion of
"proceeds" of the Collateral under the Security Interest
shall not be deemed a consent by the Agent to any other sale
or other disposition of any part or all of the Collateral.
(k) Collateral Account; Lock Boxes. During the existence of a
Default or an Event of Default, the Agent may establish or
cause to be established one or more collateral accounts in
the name of and under the sole control of the Agent and lock
boxes in the name of and under the sole control of the Agent
or other similar arrangements for the deposit of proceeds of
Accounts, and, in such cases, the Guarantor shall cause to be
forwarded to the Agent at the Agent's Office, on a daily
basis, collection reports in form and substance satisfactory
to the Agent. In connection therewith, the Agent is hereby
authorized to endorse drafts and other items of payment with
respect to the proceeds of such Accounts.
Section 24. The Agent Appointed Attorney-in-Fact. The Guarantor
hereby irrevocably appoints the Agent the Guarantor's attorney-in-fact,
with full authority in the place and stead of the Guarantor and in the
name of the Guarantor or otherwise, from time to time upon the
occurrence and during the continuance of a Default or Event of Default
in the Agent's discretion to take any action and to execute any
instrument or document which the Agent may deem necessary or advisable
to accomplish the purposes of this Agreement and to exercise any rights
and remedies the Agent may have under this Agreement or applicable
Laws, including, without limitation: (i) to obtain and adjust
insurance required to be maintained pursuant to the terms of the Credit
Agreement; (ii) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become
due under or in respect of any of the Collateral including any Account;
(iii) to receive, endorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (i) or (ii)
above; (iv) to sell or assign any Account upon such terms, for such
amount and at such time or times as the Agent deems advisable, to
settle, adjust, compromise, extend or renew any Account or to discharge
and release any Account; and (v) to file any claims or take any action
or institute any proceedings which the Agent may deem necessary or
desirable for the collection of any of the Collateral or otherwise to
enforce the rights of the Agent on behalf of the Banks with respect to
any of the Collateral. The power-of-attorney granted hereby shall be
irrevocable and coupled with an interest.
Section 25. The Agent May Perform. If the Guarantor fails to
perform any agreement contained herein, the Agent may, without notice
to the Guarantor, itself perform, or cause performance of, such
agreement, and the expenses of the Agent incurred in connection
therewith shall be payable by the Guarantor.
Section 26. The Agent's Duties. The powers conferred on the
Agent hereunder are solely to protect its interest in the Collateral
and shall not impose any duty upon the Agent to exercise any such
powers. Except for the safe custody of any Collateral in its
possession and the account for moneys actually received by it
hereunder, the Agent shall have no duty as to any Collateral. The
Agent shall be deemed to have exercised reasonable care in the custody
of the Collateral in its possession if the Collateral is accorded
treatment substantially equal to that which the Agent accords its own
property; it being understood that the Agent shall be under no
obligation to take any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Collateral, but may do so
at its option, and all reasonable expenses incurred in connection
therewith shall be for the sole account of the Guarantor and shall be
a part of the Guaranteed Obligations.
Section 27. Remedies. The Agent may take any or all of the
following actions upon the occurrence of an Event of Default.
(a) Inventory.
(i) Entry. The Agent may enter upon any premises on which
Inventory may be located and, without resistance or interference
by the Guarantor, take physical possession of any or all thereof
and maintain such possession on such premises or move the same or
any part thereof to such other place or places as the Agent shall
choose; without being liable to the Guarantor on account of any
loss, damage or depreciation that may occur as a result thereof,
other than for actions that were not taken in good faith.
(ii) Assembly. The Guarantor shall, upon request of and
without charge to the Agent, assemble the Inventory and maintain
or deliver it into the possession of the Agent or any agent or
representative of the Agent at such place or places as the Agent
may designate.
(iii) Warehousing. The Agent may, at the expense of the
Guarantor, cause any of the Inventory to be placed in a public or
field warehouse, and the Agent shall not be liable to the
Guarantor on account of any loss, damage or depreciation that may
occur as a result thereof, other than for actions that were not
taken in good faith, or were grossly negligent or constituted
willful misconduct.
(b) Use of Premises and Patents. The Agent may:
(i) without notice, demand or other process, and without
payment of any rent or any other charge to the Guarantor, enter
any of the Guarantor's premises and, without breach of the peace,
until the Agent completes the enforcement of its rights in the
Collateral, take possession of such premises or place custodian in
exclusive control thereof and remain on such premises; and
(ii) in the exercise of the rights of the Agent under this
Agreement, without payment or compensation of any kind, use any
and all trademarks, trade styles, trade names, patents, patent
applications, licenses, franchises and the like to the extent of
the rights of the Guarantor therein, and the Guarantor hereby
grants a license to the Agent of this purpose.
(c) Payments Directly to Agent. The Agent may at any time and
from time to time notify, or request the Guarantor to notify,
in writing or otherwise, any account debtor or other obligor
with respect to any one or more of the Accounts to make
payments to the Agent or any agent or designee of the Agent
directly, at such address as may be specified by the Agent.
If, notwithstanding the giving of any notice, any account
debtor or other such obligor shall make payment to the
Guarantor, the Guarantor shall hold all such payments it
receives in trust for the Agent, without commingling the same
with other funds or property of or held by the Guarantor, and
shall promptly deliver the same to the Agent or any such
agent or designee immediately upon receipt by the Guarantor
in the identical form received, together with any necessary
endorsements.
(d) Rights as a Secured Creditor. The Agent may exercise all of
the rights and remedies of a secured party under the Uniform
Commercial Code and under any other applicable Laws,
including, without limitation, the right, without notice
except as specified below and with or without taking
possession thereof, to sell the Collateral or any part
thereof in one or more parcels at a public or private sale at
any location chosen by the Agent, for cash, on credit or for
future delivery, and at such price or prices and upon such
other terms as may be permitted by applicable Laws. The
Guarantor agrees that, to the extent notice of sale shall be
required by law, at least ten (10) days' notice to the
Guarantor of the time and place of any public sale or the
time after which any private sale is to be made shall
constitute reasonable notification, but notice given in any
other reasonable manner or at any other reasonable time shall
constitute reasonable notification. The Agent shall not be
obligated to make any sale of Collateral regardless of notice
of sale having been given. The Agent may adjourn any public
or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so
adjourned. The Agent may bid all or any portion of the
Guaranteed Obligations at any such sale.
(e) Waiver of Marshaling. The Guarantor hereby waives any right
to require any marshaling of assets and any similar right
with respect to the Collateral.
(f) Appointment of Receiver. To the extent permitted by
applicable Laws, the Agent shall be entitled to the
appointment of a receiver, to take possession of all or any
portion of the Collateral and/or the business operations of
the Guarantor and to exercise such power as the court shall
confer upon such receiver.
(g) Accounts/Assigned Contracts. The Agent shall have the
exclusive right to assert, either directly or on behalf of
the Guarantor, any and all rights and claims the Guarantor
may have under any Accounts and/or Assigned Contracts as the
Agent may deem proper and to receive and collect any and all
Accounts and Assigned Contracts and any and all rent, fees,
damages, awards and other monies arising thereunder or
resulting therefrom and to apply the same on account of any
of the Guaranteed Obligations.
Section 28. Enforcement Costs; Application of Proceeds. The
Guarantor agrees to pay to the Agent all Enforcement Costs paid or
incurred by the Agent. This agreement shall survive the termination of
this Agreement and the Lien on the Collateral. All Enforcement Costs,
together with interest thereon from the date request for payment
thereof is made by the Agent until paid in full at a per annum rate of
interest equal at all times to the Default Rate and shall be paid by
the Guarantor to the Agent whenever demanded by the Agent. Any
proceeds of the collection of the Guaranteed Obligations or of the sale
or other disposition of the Collateral will be applied by the Agent to
the payment of Enforcement Costs, and any balance of such proceeds (if
any) will be applied by the Agent to the payment of the remaining
Guaranteed Obligations (whether then due or not), at such time or times
and in such order and manner of application as the Agent may from time
to time in its sole discretion determine. If the sale or other
disposition of the Collateral fails to satisfy all of the Guaranteed
Obligations, the Guarantor shall remain liable to the Agent for any
deficiency. Any surplus from the sale or disposition of the Collateral
shall be paid to the Guarantor or to any other party entitled thereto
or shall otherwise be paid over in a manner permitted by law, less all
Enforcement Costs related to any such payment.
Section 29. Rights Cumulative. The rights and remedies of the
Agent under this Agreement, the Credit Agreement and each other
document or instrument evidencing or securing the Guaranteed
Obligations shall be cumulative and not exclusive of any rights or
remedies which it would otherwise have, including, but not limited to,
those rights afforded by the Uniform Commercial Code and other
applicable Laws. In exercising its rights and remedies, the Agent may
be selective and no failure or delay by the Agent in exercising any
right shall operate as a waiver of it, nor shall any single or partial
exercise of any power or right preclude its other or further exercise
or the exercise of any other power or right.
Section 30. Amendments, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by the
Guarantor herefrom shall in any event be effective unless the same
shall be in writing and signed by the parties hereto, and then such
waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
Section 31. Notices. Unless otherwise provided herein,
communications provided for hereunder shall be in writing and shall be
mailed, telecopied or delivered, if to the Guarantor, C/O the Borrower
at its address at 101 McNeill Road, Sanford, North Carolina, 27330
Attention: Cal Monsma, Telecopier number: 919-774-8771, Confirmation
number: 919-775-2201; if to the Agent, as set forth in Section 9.01 of
the Credit Agreement; or, as to each party, at such other address as
shall be designated by such party in a written notice to the other
parties. All such notices and other communications to the Guarantor
shall be effective as set forth in Section 9.01 of the Credit
Agreement.
Section 32. Continuing Security Interest. This Agreement shall
create a continuing security interest in the Collateral and shall (i)
remain in full force and effect until indefeasible payment in full of
the Guaranteed Obligations and termination of the Commitments, (ii) be
binding upon the Guarantor, its successors and assigns and (iii) inure
the benefit of the Agent, and its successors and assigns. The
Guarantor's successors and assigns shall include, without limitation,
a receiver, trustee or debtor-in-possession thereof or therefore.
Section 33. Governing Law; Severability. THIS AGREEMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF GEORGIA. Whenever possible, each provision of this Agreement shall
be interpreted in such a manner as to be effective and valid under
applicable Laws, but if any provision of this Agreement shall be
prohibited by or invalid under applicable Laws, such provisions shall
be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provisions or the remaining
provisions of this Agreement.
Section 34. Litigation/Waivers. THE GUARANTOR (A) AND THE AGENT
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, (B) SUBMITS TO THE NONEXCLUSIVE PERSONAL JURISDICTION IN THE
STATE OF NORTH CAROLINA, THE COURTS THEREOF AND THE UNITED STATES DISTRICT
COURTS SITTING THEREIN, FOR THE ENFORCEMENT OF THIS AGREEMENT, AND
(C) WAIVES ANY AND ALL PERSONAL RIGHTS UNDER THE LAW OF ANY
JURISDICTION TO OBJECT ON ANY BASIS (INCLUDING, WITHOUT LIMITATION,
INCONVENIENCE OF FORUM) TO JURISDICTION OR VENUE WITHIN THE STATE OF
NORTH CAROLINA FOR THE PURPOSE OF LITIGATION TO ENFORCE THIS AGREEMENT.
Section 35. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be an original and all of
which, taken together, shall constitute but one and the same
instrument.
Section 36. Definitions. As used in this Agreement, the terms
defined in the Preamble and Recitals hereto shall have the respective
meanings specified therein, certain capitalized terms not defined
herein shall have the meaning set forth in the Credit Agreement, and
the following terms shall have the following meanings:
"Account" individually and "Accounts" collectively mean all of the
Guarantor's right, title and interest in and to all presently existing
or hereafter acquired or created accounts, accounts receivable,
contract rights, documents of title, notes, drafts, instruments,
acceptances, chattel paper, and writings evidencing a monetary
obligation or a security interest in or a lease of goods relating to
the sale of goods or rendering of services; all rights to receive the
payment of money or other consideration under present or future
contracts (including, without limitation, all rights to receive
payments under presently existing or hereafter acquired or created
letters of credit) relating to the sale of goods or rendering of
services, or by virtue of merchandise sold or leased, services
rendered, loans and advances made or other considerations given, by or
set forth in or arising out of any present or future chattel paper,
note, draft, lease, acceptance, writing, bond, insurance policy,
instrument, document or general intangible, and all extensions and
renewals of any thereof relating to the sale of goods or rendering of
services; all rights under or arising out of present or future
contracts, agreements or general interests in merchandise which gave
rise to any or all of the foregoing, including all goods relating to
the sale of goods or rendering of services; all claims or causes of
action now existing or hereafter arising in connection with or under
any agreement or document or by operation of law or otherwise relating
to the sale of goods or rendering of services; all collateral security
of any kind (including real property) given by any person with respect
to any of the foregoing; all returned, rejected or repossessed goods,
the sale or lease of which shall have given or shall give rise to an
any of the foregoing and all cash and non-cash proceeds and products of
all such goods; and all proceeds (cash and non-cash) of the foregoing.
"Assigned Contract" means any contract or agreement relating to
Accounts or General Intangibles to which the Guarantor is a party or
which runs in favor of the Guarantor.
"Collateral" shall mean all of the Guarantor's Accounts, Assigned
Contracts, General Intangibles, and Inventory, all whether now owned or
existing or hereafter acquired or created, together with any and all
cash and non-cash proceeds (including, without limitation, insurance
proceeds) and products thereof.
"Enforcement Costs" mean all reasonable expenses, charges, costs
and fees whatsoever (including, without limitation, reasonable
attorney's fees and expenses) of any nature whatsoever paid or incurred
by or on behalf of the Bank in connection with (a) the collection or
enforcement of any or all of the Guaranteed Obligations or this
Agreement (including, without limitation, attorneys fees incurred prior
to the institution of any suit or other proceeding), (b) the creation,
perfection, collection, maintenance, preservation, defense, protection,
realization upon, disposition, sale or enforcement of all or any part
of the Collateral, (c) the monitoring, inspection, administration,
processing, servicing of any or all of the Guaranteed Obligations
and/or the Collateral, (d) the preparation of this Agreement and the
preparation and review of lien and record searches, reports,
certificates, appraisals, environmental surveys, and/or other documents
or information relating from time to time to the taking, perfection,
inspection, preservation, protection and/or release of a Lien on the
Collateral, the value of the Collateral, or otherwise relating to the
Agent's rights and remedies under this Agreement or with respect to the
Collateral, and (e) all filing and/or recording taxes or fees and all
stamp and other taxes and fees payable or determined to be payable in
connection with the execution and delivery of this Agreement and any
and all liabilities with respect to or resulting from any delay in
paying or omission to pay such taxes or fees.
"Financing Statements" mean any and all financing statements
executed and delivered by or on behalf of the Guarantor in connection
with the perfection of the Security Interest, together with any
amendments thereto and any continuations thereof.
"General Intangibles" shall mean all of the Guarantor's right,
title and interest in and to all general intangibles of every nature,
whether presently existing or hereafter acquired or created, including,
without limitation, all books, correspondence, credit files, records,
computer programs, computer tapes, cards and other papers and documents
in the possession or control of the Guarantor, claims (including
without limitation all claims for income tax and other refunds), choses
in action, judgments, patents, patent licenses, trademarks, trademark
licenses, licensing agreements, rights in intellectual property,
goodwill (including all goodwill of the Guarantor's business symbolized
by and associated with any and all trademarks, trademark licenses,
copyrights and/or service marks), franchises, royalty payments,
contractual rights, literary rights, copyrights, service names, service
marks, logos, trade secrets, all amounts received as an award in or
settlement of a suit in damages, deposit accounts, interests in joint
ventures or general or limited partnerships, and all proceeds (cash and
non-cash of the foregoing.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guaranteed Obligations" shall have the meaning set forth in the
Guaranty, and includes without limitation, all Enforcement Costs.
"Inventory" means all of the Guarantor's right, title and interest
in and to all now owned and hereafter acquired inventory, goods,
merchandise and other personal property furnished under any contract of
service or intended for sale or lease, including, without limitation,
all raw materials, work-in-progress, finished goods and materials and
supplies of any kind, nature or description which are used or consumed
in the Guarantor's business or are or might be used in connection with
the manufacture, packing, shipping, advertising, selling or finishing
of such goods, merchandise and other personal property and all
documents of title or documents representing the same and all proceeds,
(cash and non-cash) of the foregoing.
"Laws" mean all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any Governmental Authority or
political subdivision or agency thereof, or any court or similar entity
established by any thereof.
"Lien" means any mortgage, deed of trust, deed to secure debt,
grant, pledge, security interest, assignment, encumbrance, judgment,
financing statement, lien or charge of any kind, whether perfected or
unperfected, avoidable or unavoidable, consensual or non-consensual
including, without limitation, any conditional sale or other title
retention agreement, filed or unfiled tax liens, any lease in the
nature of a lien, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction,
excluding the precautionary filing of any financing statement by any
lessor in a true lease transaction, by any bailor in a true bailment
transaction or by any consignor in a true consignment transaction under
the Uniform Commercial Code of any jurisdiction or the agreement to
give any financing statement by any lessee in a true lease transaction,
by any bailee in a true bailment transaction or by any consignee in a
true consignment transaction.
"Security Interest" means the Lien of the Agent on behalf of the
Banks upon, and the collateral assignments to the Agent of, the
Collateral effected hereby or pursuant to the terms hereof.
"Uniform Commercial Code" shall mean the Uniform Commercial Code
as in effect in the State of Georgia, as the same may be amended from
time to time. Unless otherwise set forth herein to the contrary, all
terms not otherwise defined herein and which are defined in the Uniform
Commercial Code are used herein with the meanings ascribed to them in
the Uniform Commercial Code.
IN WITNESS WHEREOF, the Guarantor has caused this Agreement to be
duly executed and delivered under seal by its duly authorized officers
as of the day first above written.
ENVIRCO CORPORATION
By:
Name:
Title:
(CORPORATE SEAL)
EXHIBIT K
FORM OF BORROWING BASE CERTIFICATE
Reference is made to the Credit Agreement dated as of March
19, 1999 (as modified and supplemented and in effect from time to time,
the "Credit Agreement") among Trion, Inc., the Banks from time to time
parties thereto, and Wachovia Bank, N.A., as Agent. Capitalized terms
used herein shall have the meanings ascribed thereto in the Credit
Agreement.
The duly authorized Chief Financial Officer of Trion, Inc.,
hereby certifies to the Agent and the Banks that the calculations with
respect to the Borrowing Base set forth herein are true, accurate and
complete as of , . , and that no Default is in
existence on and as of the date hereof an
The amount of the Borrowing Base as of the date hereof is
calculated as follows:
A. Total Receivables: $_____________
Less Ineligible Receivables: ($ )
Equals Eligible Receivables: $____________
Multiplied by: 0.75
Equals Receivables Portion
of Borrowing Base: $____________
B. Total Inventory: $____________
Less Ineligible Inventory: ($ )
Equals Eligible Inventory $____________
Multiplied by 0.25
Equals Inventory Portion
of Borrowing Base: $____________
C. Eligible Receivables Base: $____________
Plus Eligible Inventory Base: $
Minus Outstanding Term Loan Balance:
$____________
Equals Borrowing Base: $____________
D. Amount of Revolver Loans outstanding
immediately before this Advance: $____________
Plus Revolver Loan requested: $
Equals Outstanding principal
amount of Revolver Loans:
$_____________
TRION, INC.
By:
Title:
EXHIBIT L
FORM OF GUARANTY AGREEMENT
GUARANTY
THIS GUARANTY (this "Guaranty") is made as of the 8th day of
September 1995 , by [insert names of the Guarantor(s)], each a
[___________________] corporation (each a "Guarantor", and
collectively, the "Guarantors", which terms shall include any
Subsidiary of Trion, Inc. which becomes a Guarantor pursuant to Section
15 hereof) in favor of the Agent, for the ratable benefit of the Banks,
under the Credit Agreement referred to below;
W I T N E S S E T H
WHEREAS, TRION, INC., a Pennsylvania corporation (the
"Borrower"), and WACHOVIA BANK, N.A., as Agent (the "Agent"), and
certain other Banks from time to time party thereto have entered into
a certain Credit Agreement dated as of even date herewith (as it may be
amended or modified further from time to time, the "Credit Agreement"),
providing, subject to the terms and conditions thereof, for extensions
of credit to be made by the Banks to the Borrower which will the
benefit the Guarantors;
WHEREAS, it is required by Section 3.01(g) of the Credit
Agreement, that the Guarantors execute and deliver this Guaranty
whereby the Guarantors shall guarantee the payment when due of all
principal, interest and other amounts that shall be at any time payable
by the Borrower under the Credit Agreement, the Notes and the other
Loan Documents; and
WHEREAS, in consideration of the financial and other support
that the Borrower has provided, and such financial and other support as
the Borrower may in the future provide, to the Guarantors, whether
directly or indirectly, and in order to induce the Banks and the Agent
to enter into the Credit Agreement, the Guarantors are willing to
guarantee the obligations of the Borrower under the Credit Agreement,
the Notes, and the other Loan Documents;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Definitions. Terms defined in the Credit
Agreement and not otherwise defined herein have, as used herein, the
respective meanings provided for therein.
SECTION 2. Representations and Warranties. The Guarantors
incorporate herein by reference as fully as if set forth herein all of
the representations and warranties pertaining to and by their terms
applicable to the Guarantors contained in Article IV of the Credit
Agreement (which representations and warranties shall be deemed to have
been renewed by the Guarantors upon each Borrowing under the Credit
Agreement).
SECTION 3. Covenants. The Guarantors covenant that, so long
as any Bank has any Commitment outstanding under the Credit Agreement
or any amount payable under the Credit Agreement or any Note shall
remain unpaid, the Guarantors will fully comply with those covenants
set forth in Article V of the Credit Agreement pertaining to and by
their terms applicable to the Guarantors, and the Guarantors
incorporate herein by reference as fully as if set forth herein all of
such covenants.
SECTION 4. The Guaranty. (a) The Guarantors hereby
unconditionally and jointly and severally guarantee the full and
punctual payment (whether at stated maturity, upon acceleration or
otherwise) of the principal of and interest on each Note issued by the
Borrower pursuant to the Credit Agreement, and the full and punctual
payment of all other amounts payable by the Borrower under the Credit
Agreement (including, without limitation, the Obligations, all Loans
and interest thereon, and all compensation and indemnification amounts
and fees payable pursuant to the Credit Agreement (all of the foregoing
obligations being referred to collectively as the "Guaranteed
Obligations"). Upon failure by the Borrower to pay punctually any such
amount, each of the Guarantors agrees that it shall forthwith on demand
pay the amount not so paid at the place and in the manner specified in
the Credit Agreement, the relevant Note or the relevant Loan Document,
as the case may be.
(b) Notwithstanding the foregoing, the Guarantor shall not
have any liability hereunder for an amount in excess of the maximum
amount of liability which could be asserted against the Guarantor
hereunder without (i) rendering the Guarantor "insolvent" within the
meaning of Section 101(31) of the Federal Bankruptcy Code (the
"Bankruptcy Code") or Section 2 of either the Uniform Fraudulent
Transfer Act (the "UFTA") or the Uniform Fraudulent Conveyance Act (the
"UFCA"), (ii) leaving the Guarantor with unreasonably small capital,
within the meaning of Section 548 of the Bankruptcy Code or Section 4
of the UFTA or Section 5 of the UFCA or (iii) leaving the Guarantor
unable to pay its debts as they become due within the meaning of
Section 548 of the Bankruptcy Code or Section 4 of the UFTA or Section
6 of the UFCA, or (iv) rendering the obligation of the Guarantor
hereunder avoidable under any other applicable state statute pertaining
to fraudulent transfers.
SECTION 5. Guaranty Unconditional. The obligations of the
Guarantors hereunder shall be unconditional and absolute and, without
limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(i) any extension, renewal, settlement,
compromise, waiver or release in respect of any obligation
of the Borrower under the Credit Agreement, any Note, or
any other Loan Document, by operation of law or otherwise
or any obligation of any other guarantor of any of the
Guaranteed Obligations;
(ii) any modification or amendment of or
supplement to the Credit Agreement, any Note, or any other
Loan Document;
(iii) any release, nonperfection or invalidity
of any direct or indirect security for any obligation of
the Borrower under the Credit Agreement, any Note, any
Loan Document, or any obligations of any other guarantor
of any of the Guaranteed Obligations;
(iv) any change in the corporate structure or
ownership of the Borrower or corporate structure or
ownership of any other Guarantor or any other guarantor of
any of the Guaranteed Obligations, or any insolvency,
bankruptcy, reorganization or other similar proceeding
affecting the Borrower, or any other Guarantor or any
other guarantor of the Guaranteed Obligations, or its
assets or any resulting release or discharge of any
obligation of the Borrower, or any other Guarantor or any
other guarantor of any of the Guaranteed Obligations;
(v) the existence of any claim, setoff or other
rights which the Guarantors may have at any time against
the Borrower, any other Guarantor or any other guarantor
of any of the Guaranteed Obligations, the Agent, any Bank
or any other Person, whether in connection herewith or any
unrelated transactions, provided that nothing herein shall
prevent the assertion of any such claim by separate suit
or compulsory counterclaim;
(vi) any invalidity or unenforceability
relating to or against the Borrower, or any other
Guarantor or any other guarantor of any of the Guaranteed
Obligations, for any reason related to the Credit
Agreement, any other Loan Document, or any other Guaranty,
or any provision of applicable law or regulation
purporting to prohibit the payment by the Borrower, or any
other Guarantor or any other guarantor of the Guaranteed
Obligations, of the principal of or interest on any Note
or any other amount payable by the Borrower under the
Credit Agreement, the Notes, or any other Loan Document;
or
(vii) any other act or omission to act or delay
of any kind by the Borrower, any other Guarantor or any
other guarantor of the Guaranteed Obligations, the Agent,
any Bank or any other Person or any other circumstance
whatsoever which might, but for the provisions of this
paragraph, constitute a legal or equitable discharge of
the Guarantors' obligations hereunder.
SECTION 6. Discharge Only Upon Payment In Full;
Reinstatement In Certain Circumstances. The Guarantors'
obligations hereunder shall remain in full force and effect until
all Guaranteed Obligations shall have been paid in full and the
Commitments under the Credit Agreement shall have terminated or
expired. If at any time any payment of the principal of or
interest on any Note or any other amount payable by the Borrower
under the Credit Agreement or any other Loan Document is rescinded
or must be otherwise restored or returned upon the insolvency,
bankruptcy or reorganization of the Borrower or otherwise, the
Guarantors' obligations hereunder with respect to such payment
shall be reinstated as though such payment had been due but not
made at such time.
SECTION 7. Waiver of Notice by the Guarantors. The
Guarantors irrevocably waive acceptance hereof, presentment,
demand, protest and, to the fullest extent permitted by law, any
notice not provided for herein, as well as any requirement that at
any time any action be taken by any Person against the Borrower,
any other Guarantor or any other guarantor of the Guaranteed
Obligations, or any other Person.
SECTION 8. Stay of Acceleration. If acceleration of the
time for payment of any amount payable by the Principal under the
Credit Agreement, any Note or any other Loan Document is stayed
upon the insolvency, bankruptcy or reorganization of the Borrower,
all such amounts otherwise subject to acceleration under the terms
of the Credit Agreement, any Note or any other Loan Document shall
nonetheless be payable by the Guarantors hereunder forthwith on
demand by the Agent made at the request of the Required Banks.
SECTION 9. Notices. All notices, requests and other
communications to any party hereunder shall be given or made by
telecopier or other writing and telecopied or mailed or delivered
to the intended recipient at its address or telecopier number set
forth on the signature pages hereof or such other address or
telecopy number as such party may hereafter specify for such
purpose by notice to the Agent in accordance with the provisions of
Section 9.01 of the Credit Agreement. Except as otherwise provided
in this Guaranty, all such communications shall be deemed to have
been duly given when transmitted by telecopier, or personally
delivered or, in the case of a mailed notice, 3 Domestic Business
Days after such communication is deposited in the mails with first
class postage prepaid, in each case given or addressed as
aforesaid.
SECTION 10. No Waivers. No failure or delay by the Agent
or any Banks in exercising any right, power or privilege hereunder
shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights
and remedies provided in this Guaranty, the Credit Agreement, the
Notes, and the other Loan Documents shall be cumulative and not
exclusive of any rights or remedies provided by law.
SECTION 11. Successors and Assigns. This Guaranty is for
the benefit of the Agent and the Banks and their respective
successors and assigns and in the event of an assignment of any
amounts payable under the Credit Agreement, the Notes, or the other
Loan Documents, the rights hereunder, to the extent applicable to
the indebtedness so assigned, may be transferred with such
indebtedness. This Guaranty may not be assigned by the Guarantors
without the prior written consent of the Agent and the Required
Banks, and shall be binding upon the Guarantors and their
respective successors and permitted assigns.
SECTION 12. Changes in Writing. Neither this Guaranty
nor any provision hereof may be changed, waived, discharged or
terminated orally, but only in writing signed by the Guarantors and
the Agent, with the consent of the Required Banks.
SECTION 13. GOVERNING LAW; SUBMISSION TO JURISDICTION;
WAIVER OF JURY TRIAL. THIS GUARANTY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF GEORGIA. EACH
OF THE GUARANTORS (A) AND THE AGENT IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, (B) SUBMITS TO THE
NONEXCLUSIVE PERSONAL JURISDICTION IN THE STATE OF NORTH CAROLINA,
THE COURTS THEREOF AND THE UNITED STATES DISTRICT COURTS SITTING
THEREIN, FOR THE ENFORCEMENT OF THIS AGREEMENT, (C) WAIVES ANY AND
ALL PERSONAL RIGHTS UNDER THE LAW OF ANY JURISDICTION TO OBJECT ON
ANY BASIS (INCLUDING, WITHOUT LIMITATION, INCONVENIENCE OF FORUM)
TO JURISDICTION OR VENUE WITHIN THE STATE OF NORTH CAROLINA FOR THE
PURPOSE OF LITIGATION TO ENFORCE THIS AGREEMENT.
SECTION 14. Taxes, etc. All payments required to be made
by the Guarantors hereunder shall be made without setoff or
counterclaim and free and clear of and without deduction or
withholding for or on account of, any present or future taxes,
levies, imposts, duties or other charges of whatsoever nature
imposed by any government or any political or taxing authority
pursuant and subject to the provisions of Section 2.10(c) of the
Credit Agreement, the terms of which are incorporated herein by
reference as to the Guarantors as fully as if set forth herein, and
for such purposes, the rights and obligations of the Borrower under
such Section shall devolve to the Guarantors as to payments
required to be made by the Guarantors hereunder.
SECTION 15. Additional Guarantors; Release of Guarantors.
Any Subsidiary which executes and delivers to the Agent a
counterpart of this Guaranty shall be a Guarantor for all purposes
hereunder. Under certain circumstances described in paragraph the
Credit Agreement, a Guarantor which is to be sold may obtain from
the Agent a written release from this Guaranty pursuant to the
provisions of such paragraph and upon obtaining such written
release, any such former Guarantor shall no longer be a Guarantor
hereunder. Each other Guarantor consents and agrees to any such
release and agrees that no such release shall affect its
obligations hereunder.<PAGE>
IN WITNESS WHEREOF, the Guarantors have caused this
Guaranty to be duly executed, under seal, by their respective
authorized officers as of the date first above written.
[Guarantor] (SEAL)
By:
Title:
Attention:
Telecopier number:
Confirmation number:
[Guarantor] (SEAL)
By:
Title:
Attention:
Telecopier number:
Confirmation number:
Schedule 4.08
Subsidiaries
Name Jurisdiction of Incorporation
Envirco Corporation New Mexico
Tryon Limited England
Tryon GMBH Germany
Tryon Canada Canada
Tryon International Virgin Islands
Trion, Inc.
1999 Management Incentive Plan
The Management Incentive Plan (MIP) is for Company officers and
other key staff residing in the United States. The Compensation
Committee of the Board of Directors (Committee) will administer
the MIP with assistance from the Chief Executive Officer.
The Committee shall determine annually those persons who will
participate in the MIP. It is anticipated that only those
executives who have a significant and recurring impact on the
Company's annual operating results will be eligible. Based on
the present organizational structure, only officers and other
members of the management team will be eligible.
The MIP will be awarded if a minimum working capital hurdle rate
is achieved for the year. This hurdle rate is defined as the
twelve-month average of inventory plus accounts receivable less
accounts payable divided by the sales volume on a consolidated
basis.
The targeted incentive, as a percentage of base salary, will vary
by position and responsibility and may be changed by the
Committee from one year to the next or for organizational changes
during the year. Following are the current relationships:
Target
Incentive Incentive Basis
__________ ______________________________________
Percent Company Business Unit Individual
of Base Performance Performance Performance
President and CEO 50% 80% - 20%
Vice President and CFO 35% 80% - 20%
Vice Presidents;
Sales/Marketing 50% - 80% 20%
Vice President Engineering 35% - 80% 20%
Vice President Finance 35% - 80% 20%
Other Key Management
Employees 15%-35% - 80% 20%
Consolidated Company performance will be measured and weighted as follows:
Net sales 40%
Income before Taxes 60%
Business unit performance is measured on a similar basis using
net sales and operating income with the specific weighting
determined by the individual position.
Each target will be established annually at the beginning of the year.
Individual performance goals will be established by the officer
responsible and the participant after discussions and analyses
of current requirements. Individual goals will be set to enhance
achievement of Company goals and will be weighted accordingly.
The incentive related to each element of the Company's
performance and Business Unit performance will be earned as
follows:
Percentage of
Attainment Incentive Earned
----------- ----------------
Threshold 0%
Target 100%
Maximum 150%
The amount of incentive earned will be prorated for actual
performance between the threshold and maximum levels.
Performance targets will be established annually at the
discretion of the Compensation Committee with the assistance of
the Chief Executive Officer.
Acquisitions made in 1999 are not included.
Extraordinary or unusual events will be excluded from measurement
of the Company, Business Unit and Individual performances. The
Committee will determine the events considered extraordinary or
unusual and will use generally accepted accounting principles as
a guideline in the determination.
It is anticipated that the incentive will be paid to participants
annually after completion of the audit by independent
accountants. If employment is terminated by reason of death,
disability or retirement during the plan year, the participant
will receive a pro rata share of the incentive earned for the
year. For determining the pro rata share, months employed during
the year will be rounded up to the next highest full month. If a
participant's employment is terminated during the plan year for
any other reason, pro rata payment of the incentive will be at
the sole discretion of the Committee.
Exhibit 21.1 Parents and Subsidiaries
The Company and its active subsidiaries as of December 31,
1998 are as follows:
State/Country Percentage of
Name of Company Of Incorporation Securities Owned
Trion, Inc. Pennsylvania Parent
Trion, Limited United Kingdom 100%
Envirco Corporation New Mexico 100%
Exhibit 23.1 - Consent of Ernst & Young LLP
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-4164) pertaining to the Trion Inc.
1982 and 1985 Incentive Stock Options Plans, the Registration
Statement (Form S-8 No. 33-69706) pertaining to the Stock Option
Agreements between Trion Inc. and Steven L. Schneider dated March
31, 1993; Edwin V. Clarke, Jr. dated September 17, 1993; and
Samuel J. Wornam, III dated September 21, 1993, the Registration
Statement (Form S-8 No. 33-58561) pertaining to the Trion Inc.
1995 Non-Employee Director Stock Plan, and in the Registration
Statement (Form S-8 No. 33-59095) pertaining to the Trion Inc.
1995 Stock Incentive Plan of our report dated January 29, 1999
(except for the second paragraph in Note F, as to which the date
is March 19, 1999), with respect to the consolidated financial
statements and schedule of Trion Inc. included in this Annual
Report (Form 10-K) for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
March 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,158,000
<SECURITIES> 0
<RECEIVABLES> 10,281,000
<ALLOWANCES> 371,000
<INVENTORY> 8,834,000
<CURRENT-ASSETS> 22,735,000
<PP&E> 25,149,000
<DEPRECIATION> 15,549,000
<TOTAL-ASSETS> 39,210,000
<CURRENT-LIABILITIES> 11,960,000
<BONDS> 3,200,000
0
0
<COMMON> 3,575,000
<OTHER-SE> 17,966,000
<TOTAL-LIABILITY-AND-EQUITY> 39,201,000
<SALES> 57,214,000
<TOTAL-REVENUES> 57,214,000
<CGS> 37,201,000
<TOTAL-COSTS> 55,119,000
<OTHER-EXPENSES> (152,000)
<LOSS-PROVISION> (137,000)
<INTEREST-EXPENSE> 828,000
<INCOME-PRETAX> (2,178,000)
<INCOME-TAX> (982,000)
<INCOME-CONTINUING> (1,196,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,196,000)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
