SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 1-8689
DIXON TICONDEROGA COMPANY
Incorporated pursuant to the Laws of Delaware State
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Internal Revenue Service-- Employer Identification No. 23-0973760
195 International Parkway, Heathrow, FL 32746
(407) 829-9000
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The total number of shares of the registrant's Common Stock, $1 par value,
outstanding on December 31, 2002, was 3,192,832.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Information
Consolidated Balance Sheets --
December 31, 2002 and September 30, 2002 3
Consolidated Statements of Operations --
For The Three Months Ended December 31, 2002 and 2001 4
Consolidated Statements of Comprehensive Loss
For The Three Months Ended December 31, 2002 and 2001 5
Consolidated Statements of Cash Flows --
For The Three Months Ended December 31, 2002 and 2001 6-7
and 2001
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-16
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18-20
Signatures 21
Certifications 22-25
2
PART I - FINANCIAL INFORMATION
------------------------------
Item 1.
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
December 31, September 30,
2002 2002
------------- -------------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 729,138 $ 2,589,493
Receivables, less allowance for doubtful
accounts of $1,295,242 in 2002 and
$1,381,780 in 2001 19,302,197 29,179,803
Inventories 31,365,878 28,761,337
Other current assets 3,213,051 3,914,817
------------- -------------
Total current assets 54,610,264 64,445,450
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land and buildings 10,962,729 10,881,021
Machinery and equipment 16,003,885 16,948,612
Furniture and fixtures 1,584,405 1,607,449
------------- -------------
28,551,019 29,437,082
Less accumulated depreciation (19,032,366) (19,641,894)
------------- -------------
9,518,653 9,795,188
------------- -------------
OTHER ASSETS 7,950,260 7,872,957
------------- -------------
$72,079,177 $82,113,595
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 4,749,633 $ 7,463,458
Current maturities of long-term debt 13,171,420 12,341,735
Accounts payable 7,670,552 8,819,499
Accrued liabilities 7,183,479 12,485,494
------------- -------------
Total current liabilities 32,775,084 41,110,186
------------- -------------
LONG-TERM DEBT 15,819,805 16,383,106
------------- -------------
DEFERRED INCOME TAXES AND OTHER 1,460,849 1,183,467
------------- -------------
MINORITY INTEREST 557,221 583,841
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, par $1, authorized 100,000
shares, none issued - -
Common stock, par $1, authorized 8,000,000 shares,
issued 3,710,309 shares in 2002 and 2001 3,710,309 3,710,309
Capital in excess of par value 3,593,826 3,593,826
Retained earnings 24,175,222 25,107,752
Accumulated other comprehensive loss (6,094,509) (5,640,262)
------------- -------------
25,384,848 26,771,625
Less shareholder loans (557,721) (557,721)
Less treasury stock, at cost (517,477 shares) (3,360,909) (3,360,909)
------------- -------------
21,466,218 22,852,995
------------- -------------
$72,079,177 $82,113,595
============= =============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
3
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
THREE MONTHS ENDED
DECEMBER 31,
2002 2001
------------- -------------
REVENUES $15,869,790 $17,496,208
------------- -------------
COST AND EXPENSES:
Cost of goods sold 10,457,256 11,309,007
Selling and administrative expenses 5,728,236 6,613,447
Provision for restructuring and related costs 74,550 174,850
Debt refinancing costs 624,662 --
------------- -------------
16,884,704 18,097,304
------------- -------------
OPERATING LOSS (1,014,914) (601,096)
OTHER INCOME 440,820 252,676
INTEREST EXPENSE (804,227) (874,501)
------------- -------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAX BENEFIT AND MINORITY INTEREST (1,378,321) (1,222,921)
INCOME TAX BENEFIT (436,553) (453,914)
------------- -------------
(941,768) (769,007)
MINORITY INTEREST (9,238) 5,604
------------- -------------
NET LOSS FROM CONTINUING OPERATIONS $ (932,530) $ (774,611)
============= =============
LOSS PER COMMON SHARE (BASIC):
Continuing operations $ (.29) $ (.24)
============= =============
LOSS PER COMMON SHARE (DILUTED):
Continuing operations $ (.29) $ (.24)
============= =============
SHARES OUTSTANDING:
Basic 3,192,832 3,177,462
============= =============
Diluted 3,192,832 3,177,462
============= =============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
4
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
---------------------------------------------
THREE MONTHS ENDED
DECEMBER 31,
2002 2001
------------- ------------
NET LOSS FROM CONTINUING OPERATIONS $ (932,530) $ (774,611)
OTHER COMPREHENSIVE INCOME (LOSS):
Current period adjustment to recognize
fair value of cash flow hedges 14,257 71,263
Foreign currency translation adjustments (468,504) 658,178
------------- ------------
COMPREHENSIVE LOSS $(1,386,777) $ (45,170)
============= ============
The accompanying notes to consolidated financial statements
are an integral part of these statements.
5
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
THREE MONTHS ENDED
DECEMBER 31,
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss from continuing operations $ (932,530) $ (774,611)
Adjustment to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 609,057 587,642
Deferred taxes 433,620 43,272
Provision for doubtful accounts receivable 117,584 109,935
Loss (gain) attributable to foreign currency
exchange (116,114) (36,929)
Income (loss) attributable to minority interest (9,238) 5,604
Changes in assets [(increase) decrease] and
liabilities [increase (decrease)]:
Receivables, net 9,580,033 6,303,861
Inventories (2,834,198) 246,541
Other current assets 878,063 (244,939)
Accounts payable and accrued liabilities (6,417,918) (4,893,783)
Other assets 109,253 (59,744)
------------ ------------
Net cash provided by operations 1,417,612 1,286,849
------------ ------------
Cash flows from investing activities:
Purchases of plant and equipment, net (386,483) (511,381)
------------ ------------
Cash flows from financing activities:
Principal reductions of notes payable (1,597,469) (212,595)
Principal reductions of long-term debt (15,173,814) (409,817)
Proceeds from long-term debt 14,449,123 --
Debt refinancing costs (549,193) --
Other non-current liabilities (99,745) (6,692)
------------ ------------
Net cash used in financing activities (2,971,098) (629,104)
------------ ------------
Effect of exchange rate changes on cash 79,614 (118,688)
------------ ------------
Net increase (decrease) in cash and cash equivalents (1,860,355) 27,676
Cash and cash equivalents, beginning of period 2,589,493 844,299
============ ============
Cash and cash equivalents, end of period $ 729,138 $ 871,975
============ ============
6
Supplemental Disclosures:
Cash paid during the period:
Interest $2,483,514 $1,487,510
Income taxes 1,290,899 282,025
The accompanying notes to consolidated financial statements
are an integral part of these statements.
7
DIXON TICONDEROGA COMPANY AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. Basis of presentation:
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements and the
notes thereto included in the Company's latest annual report on Form 10-K.
In the opinion of the Company, all adjustments (solely of a normal
recurring nature) necessary to present fairly the financial position of
Dixon Ticonderoga Company and subsidiaries as of December 31, 2002, and
the results of their operations and cash flows for the three months ended
December 31, 2002 and 2001, have been included. The results of operations
for such interim periods are not necessarily indicative of the results for
the entire year.
In August 2001, the Emerging Issues Task Force ("EITF") issued EITF No.
01-02, "Accounting for Consideration Given by Vendor to a Customer or a
Reseller of Vendor's Product", which codified and reconciled the Task
Force's consensuses in EITF 00-14, "Accounting for Certain Sales
Incentives", EITF 00-22, "Accounting for Points and Certain Other Time
Based Sales Incentives or Volume Based Sales Incentive Offers, and Offers
of Free Products or Services to Be Delivered in the Future", and ETF
00-25, "Vendor Income Statement Characterization of Consideration Paid to
a Reseller of the Vendor's Products". These EITF's prescribe guidance
regarding the timing of recognition and income statement classification of
costs inured for certain sales incentive programs to resellers and end
consumers. The adoption of EITF No. 01-09 had no impact on results of
operations. The Consolidated Statement of Operations for the three months
ended December 31, 2001 has been reclassified to reflect certain sales
incentives as reductions of gross revenue that were previously classified
as selling expenses.
Certain other prior year amounts have been reclassified to conform with
the current year classifications.
2. Inventories:
Since amounts for inventories under the LIFO method are based on annual
determinations of quantities and costs as of the end of the fiscal year,
the inventories at December 31, 2002 (for which the LIFO method of
accounting are used) are based on certain estimates relating to quantities
and costs as of year end.
Inventories consist of (in thousands):
December 31, September 30,
2002 2002
------------ -------------
Raw materials $12,115 $11,014
Work in process 2,655 2,718
Finished goods 16,596 15,029
------------ -------------
$31,366 $28,761
============ =============
8
3. RECENT ACCOUNTING PRONOUNCEMENTS:
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". The statement addresses the accounting for
extinguishment of debt, sale-leaseback transactions and certain lease
modifications. The statement is effective for transactions occurring after
May 15, 2002. The Company does not expect the adoption of Statement No.
145 to have a material impact on the Company's future results of
operations or financial position.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)." The provisions of Statement No. 146 are effective for
exit or disposal activities that are initiated after December 31, 2002.
The Company does not expect the adoption of Statement No. 146 to have a
material impact on the Company's future results of operations or financial
position.
In November 2002, the FASB issued FASB Interpretation No. (FIN) 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates
on the disclosures to be made by a guarantor about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for
the fair value of the obligation undertaken in issuing the guarantee. The
recognition and measurement provisions of this Interpretation are
effective for all guarantees issued or modified after December 31, 2002.
The Company has no guarantees of others which require disclosure at this
time.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," amending FASB
Statement No. 123, "Accounting for Stock-based Compensation." This
statement provides two additional alternative transition methods for
recognizing an entity's voluntary decision to change its method of
accounting for stock-based employee compensation to the fair-value method.
In addition, the statement amends the disclosure requirements of FASB
Statement No. 123 so that entities will have to (1) make more-prominent
disclosures regarding the pro forma effects of using the fair-value method
of accounting for stock-based compensation, (2) present those disclosures
in a more accessible format in the footnotes to the annual financial
statements, and (3) include those disclosures in interim financial
statements. Statement No. 148's transition guidance and provisions for
annual disclosures are effective for fiscal years ending after December
15, 2002; earlier application is permitted. The provisions for
interim-period disclosures are effective for financial reports that
contain financial statements for interim periods beginning after December
15, 2002.
4. RESTRUCTURING AND RELATED COSTS:
In fiscal 2002, the Company provided approximately $1,155,000 for
restructuring and improvement related costs in connection with Phase 3
(the final phase) of its Restructuring and Cost Reduction Program, which
includes a plant closure and further consolidation of its manufacturing
operations into the Company's Mexico facility and additional personnel
reductions, primarily in manufacturing and corporate activities. An
additional 120 employees (principally plant workers) were affected by the
final phase of the program. The carrying amount of additional property to
be held for disposal at completion of Phase 3 is approximately $200,000.
9
The restructuring and impairment related charges (principally severances,
other employee costs and contractual obligations) and utilization since
September 30, 2002 are summarized below (in thousands):
Employee severance
and related costs Other Total
------------------ -------- --------
Reserve balances at
September 30, 2002 $ 1,110 $ 45 $ 1,155
Quarter Ended December 31, 2002
restructuring and related charges -- 75 75
Payments in quarter
ended December 31, 2002 (176) (78) (254)
------------------ -------- --------
Reserve balances at
December 31, 2002 $ 934 $ 42 $ 976
================== ======== ========
In the prior year quarter ended December 31, 2001, the Company
additionally provided approximately $175,000 for severances and lease
settlement costs.
5. DEBT FINANCING COSTS:
In connection with the completion of its debt restructuring on October 3,
2002, the Company expensed approximately $625,000 of deferred financing
costs associated with its previous senior debt with a consortium of
lenders (which was repaid) and its previous subordinated debt agreements
(which were substantially modified).
10
6. LINE OF BUSINESS REPORTING:
Due to the Company's plan to exit the Industrial Group (Note 6), the
Company's continuing operations consist only of one principal business
segment - its Consumer Group. The following information sets forth certain
additional data pertaining to its operations for the three-month periods
ended December 31, 2002 and 2001 (in thousands).
Operating
Revenues Profit (Loss)
------------ -------------
2002:
United States $ 9,479 $ (1,059)
Canada 1,740 162
Mexico 4,344 (88)
United Kingdom 286 6
China 21 (36)
------------ -------------
$15,870 $ (1,015)
============ =============
2001:
United States $10,667 $ (811)
Canada 1,822 124
Mexico 4,757 65
United Kingdom 232 (6)
China 18 27
------------ -------------
$17,496 $ (601)
============ =============
The United States operating loss in each period includes unallocated
corporate expenses.
7. DISCONTINUED OPERATIONS:
In September 2001, the Company formalized its decision to offer for sale
its New Castle Refractories division, the last business of its Industrial
Group. In December 2002, the Company entered into an agreement to sell
this division to local management. The transaction is expected to close in
early 2003. Provision has been made for the expected operating losses of
the Industrial Group through the expected disposal date and, accordingly,
no results from discontinued operations are reflected in the accompanying
consolidated financial statements.
Assets and liabilities relating to discontinued operations and included in
the accompanying consolidated balance sheets are as follows (in
thousands):
December 31, September 30,
2002 2002
------------ --------------
Current assets $ 4,005 $ 3,905
Property, plant and equipment, net 364 386
Current liabilities (1,184) (1,254)
Long-term liabilities and other, net (713) (813)
------------ --------------
Net assets of discontinued operations $ 2,472 $ 2,224
============ ==============
11
Item 2.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
REVENUES for the quarter ended December 31, 2002, decreased $1,626,000
from the prior year. The changes are detailed below:
Increase % Increase (Decrease)
(Decrease) --------------------------
(in thousands) Total Volume Price/Mix
-------------- ----- ------ ---------
U.S. Consumer $ (1,188) (11) (7) (4)
Foreign Consumer (438) (6) (7) 1
U.S. Consumer revenue decreased principally due to a shift in purchasing
by major educational wholesalers that deferred shipments to the Company's later
fiscal quarters. The decrease in Foreign Consumer revenue was due principally to
lower volume in the mass retail channel. In addition, Mexico price increases
offset an approximate 10% decrease in the value of the Mexican peso as compared
to the U.S. dollar. The effect of this devaluation was approximately $420,000.
While the Company has operations in Canada, Mexico and the U.K.,
historically only the operating results in Mexico have been materially impacted
by currency fluctuations. There has been a significant devaluation of the
Mexican peso at least once in each of the last three decades, the last one being
in August, 1998. In the short term after such a devaluation, consumer confidence
has been shaken, leading to an immediate reduction in revenues in the months
following the devaluation. Then, after the immediate shock, and as the peso
stabilizes, revenues tend to grow. Selling prices tend to rise over the long
term to offset any inflationary increases in costs. The peso, as well as any
currency value, depends on many factors including international trade, investor
confidence, and government policy, to name a few. These factors are impossible
for the Company to predict, and thus, an estimate of potential effect on results
of operations for the future cannot be made. This currency risk in Mexico is
presently managed through occasional foreign currency hedges, local currency
financing and by export sales denominated in U.S. dollars.
OPERATING LOSS increased overall by $414,000 from last year's quarter.
However, the current fiscal quarter included $625,000 in debt refinancing costs,
expensed in connection with the Company's debt restructuring completed on
October 3, 2002. In addition, restructuring and related costs decreased by
$100,000. Excluding these items, operating loss would have been lower by
approximately $111,000. This improvement is attributable to increased
contribution margins in the U.S. due to the favorable impact of its
consolidation and cost reduction programs. Despite the decrease in revenues
discussed above, operating income improved due to lower selling and
administrative expenses (36.1% of sales as compared with 37.8% in the prior year
quarter). Lower variable U.S. marketing costs and commissions, as well as
decreased salaries, fringes and distribution costs, contributed to this
improvement.
OTHER INCOME represents import duty rebates received in each period
presented. Similar receipts in the future are subject to Federal legislation and
the activities of various foreign pencil manufacturers.
INTEREST EXPENSE decreased $70,000 on lower overall consolidated
borrowings.
INCOME TAX benefit decreased $17,000 despite a larger pre-tax loss due to
the effects of foreign tax rates and lower effective state tax rates.
MINORITY INTEREST represents approximately 3% of the net results from
operations of the Company's Mexico subsidiary.
12
CURRENT ECONOMIC ENVIRONMENT AND EVENTS
- ---------------------------------------
Although not directly impacted by recent events in the U.S. and abroad,
management believes that softening economic conditions have recently affected
and could continue to affect the retail mass or other markets served by the
Company's Consumer Group and thus could lead to reduced overall revenues. In
addition, certain expenses which have risen recently (such as insurance costs)
could continue to trend significantly higher in the coming years due to recent
events.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company generated approximately $1.4 million in cash flows from
operating activities in the first quarter of fiscal 2003. In the prior year
period, cash flows from operating activities amounted to $1.3 million. Increased
accounts receivable collections were partially offset by higher inventories
reflecting safety stocks and increased purchases in Mexico as a result of the
Company's continuing consolidation activities. In addition, higher cash flows
were used to extinguish certain trade liabilities.
The Company's fiscal 2003 investing activities included approximately
$386,000 in net purchases of property and equipment, compared to $511,000 in the
prior year period. Generally, all major capital projects are discretionary in
nature and thus no material purchase commitments exist. Capital expenditures are
usually funded from operations and existing financing or new leasing
arrangements.
On October 3, 2002, the Company completed a financing agreement with a new
senior lender and its existing subordinated lenders to restructure its present
U.S. debt through fiscal 2005. Foothill Capital Corporation has provided a
three-year $28 million senior debt facility which replaces the Company's
previous senior debt with a consortium of lenders. The new senior debt
arrangement provides approximately $5 million in increased working capital
liquidity for operations and to make certain subordinated debt payments.
The senior debt facility includes a $25 million revolving loan, which
bears interest at either the prime rate (4.75% at September 30, 2002), plus
0.75%, or the prevailing LIBOR rate (approximately 1.8% at September 30, 2002),
plus 3.5%. Borrowings under the revolving loan are based upon 85% of eligible
U.S. and Canada accounts receivable, as defined; 50% of certain accounts
receivable having extended payment terms; and varying advance rates for U.S. and
Canada raw materials and finished goods inventories. The facility also includes
term loans aggregating $3 million, which bear interest at either the prime rate,
plus 1.5%, or the prevailing LIBOR rate, plus 4.25%. These loans are payable in
monthly installments of $50,000, plus interest, with the balance due in a
balloon payment in October 2005. The loan agreement also contains restrictions
regarding the payment of dividends as well as subordinated debt payments
(discussed below), a requirement to maintain a minimum level of earnings before
interest, taxes, depreciation and amortization and net worth and a limitation on
the amount of annual capital expenditures. To better balance and manage overall
interest rate exposure, the Company previously executed an interest rate swap
agreement that effectively fixed the rate of interest on $8 million of its
variable rate debt at 8.98% through August 2005.
These financing arrangements are collateralized by the tangible and
intangible assets of the U.S. and Canada operations (including accounts
receivable, inventories, property, plant and equipment, patents and trademarks)
and a guarantee by and pledge of capital stock of the Company's subsidiaries. As
of December 31, 2002, the Company had approximately $15 million of unused lines
of credit available.
On October 3, 2002, the Company also reached agreement with the holders of
$16.5 million of Senior Subordinated Notes to restructure the notes, extending
the maturity date to 2005. The Company is only required to pay monthly
installments of $50,000 through December 2003 and $150,000 per month from
January 2004 through the maturity date. However, the Company paid $1 million in
principal (and $2.1 million of accrued interest) at closing of the new senior
debt facility and expects to make additional excess payments to its subordinated
lenders over the next three years. Additional payments of $500,000 were made
prior to December 31, 2002. Payments to the subordinated lenders are subject to
certain restrictions imposed under the senior debt facility. Interest on the
balance of subordinated debt is paid quarterly. If the Company is unable to make
scheduled and additional excess payments totaling at least $7.5 million by 2005
(due to restrictions imposed under the new senior debt facility or otherwise)
13
the noteholders will receive warrants equivalent to approximately 1.6% of the
diluted common shares outstanding for each $1 million in unpaid principal, in
addition to warrants for 300,000 common shares with an exercise price of $7.24
per share (expiring in September 2003) now held by them. Any warrants received
or earned will be relinquished if the notes are paid in full during the term of
the new agreement. The agreement also grants the subordinated lenders a lien on
Company assets (junior in all aspects to the new senior debt collateral
agreements described above). The interest rate on the subordinated notes had
been 13.5% through June 30, 2002 [12% payable in cash and 1.5% payable-in-kind
(PIK)] plus an additional 2% on past due amounts. At closing, the interest rate
on the notes was changed to 12.5% (without PIK) through maturity in October
2005. The new subordinated note agreement includes certain other provisions,
including restrictions as to the payment of dividends and the elimination or
adjustment of financial covenants contained in the original agreement to conform
to those contained in the new senior debt agreements.
In addition, the Company's Mexico subsidiary had approximately $12 million
in bank lines of credit ($7 million unused) as of December 31, 2002, expiring at
various dates from March 2003 through October 2004, which bear interest at a
rate based upon either a floating U.S. bank rate or the rate of certain Mexico
government securities. The Company is awaiting approval on additional Mexico
lines of credit and is presently reviewing other debt proposals for this
subsidiary. The Company relies heavily upon the availability of the lines of
credit in the U.S. and Mexico for liquidity in its operations.
The Company believes that amounts available from its lines of credit under
its senior debt and under lines of credit available to its Mexican subsidiary
are sufficient to fulfill all current and anticipated operating requirements of
its business through 2005. The Company's Mexico subsidiary cannot assure that
each of its lines of credit will continue to be available after their respective
expiration dates, or that replacement lines of credit will be secured. However,
the Company believes there should be sufficient amounts available under its
present or future facilities or lines of credit to cover any potential
shortfalls due to any expiring lines of credit.
The Company has retained Wachovia Securities (formerly First Union
Securities) and certain other outside consultants to advise and assist it in
evaluating certain strategic alternatives, including capital restructuring,
mergers and acquisitions, and/or other measures designed to maximize shareholder
value.
Contractual obligations as of December 31, 2002 are summarized in the
table below. Although classified as current maturities in the accompanying
consolidated financial statements and due in the current fiscal year below, U.S.
senior debt of $11,420 and Mexico notes payable of $4,750 are expected to remain
outstanding as revolving lines of credit for working capital purposes through
2005.
Payments Due by Period (in thousands)
-----------------------------------------------------------
Contractual Current Fiscal Fiscal
Obligations Total fiscal years years Thereafter
year 2004-2006 2007-2008
- ------------------- --------- ---------- ----------- ----------- ----------
Long Term Debt
and Notes Payable $ 33,750 $ 17,927 $ 14,589 $ 457 $ 777
Operating Leases 9,469 2,245 5,937 1,287 --
--------- ---------- ----------- ----------- ----------
$ 43,219 $ 20,172 $ 20,526 $ 1,744 $ 777
========= ========== =========== =========== ==========
14
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". The statement addresses the accounting for extinguishment of debt,
sale-leaseback transactions and certain lease modifications. The statement is
effective for transactions occurring after May 15, 2002. The Company does not
expect the adoption of Statement No. 145 to have a material impact on the
Company's future results of operations or financial position.
In July 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring)." The provisions of
Statement No. 146 are effective for exit or disposal activities that are
initiated after December 31, 2002. The Company does not expect the adoption of
Statement No. 146 to have a material impact on the Company's future results of
operations or financial position.
In November 2002, the FASB issued FASB Interpretation No. (FIN) 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 elaborates on the
disclosures to be made by a guarantor about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The recognition and
measurement provisions of this Interpretation are effective for all guarantees
issued or modified after December 31, 2002. The Company has no guarantees of
others which require disclosure at this time.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," amending FASB Statement
No. 123, "Accounting for Stock-based Compensation." This statement provides two
additional alternative transition methods for recognizing an entity's voluntary
decision to change its method of accounting for stock-based employee
compensation to the fair-value method. In addition, the statement amends the
disclosure requirements of FASB Statement No. 123 so that entities will have to
(1) make more-prominent disclosures regarding the pro forma effects of using the
fair-value method of accounting for stock-based compensation, (2) present those
disclosures in a more accessible format in the footnotes to the annual financial
statements, and (3) include those disclosures in interim financial statements.
Statement No. 148's transition guidance and provisions for annual disclosures
are effective for fiscal years ending after December 15, 2002; earlier
application is permitted. The provisions for interim-period disclosures are
effective for financial reports that contain financial statements for interim
periods beginning after December 15, 2002.
15
FORWARD-LOOKING STATEMENTS
- --------------------------
The statements in this Quarterly Report on Form 10-Q that are not purely
historical are "forward-looking statements" within the meaning of section 27A of
the Securities Act of 1933 and section 21E of the Securities Exchange Act of
1934, including statements about the Company's expectations, beliefs, intentions
or strategies regarding the future. Forward-looking statements include
statements regarding, among other things, the effects of the devaluation of the
Mexican peso; the sufficiency and continued availability of the Company's lines
of credit and its ability to meet its current and anticipated obligations;
management's inventory reduction plan and expectation for savings from the
restructuring and cost-reduction program; the Company's ability to increase
sales in its core businesses; and its expectations regarding the Company's
ability to utilize certain tax benefits in the future. Readers are cautioned
that any such forward-looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties and other factors
that could cause the actual results to differ materially from those expressed or
implied by such forward-looking statements. Such risks include (but are not
limited to) the risk that the Company's lenders will not continue to fund the
Company in the future; the cancellation of the lines of credit available to the
Company's Mexico subsidiary; the inability to maintain and/or secure new sources
of capital; manufacturing inefficiencies as a result of the inventory reduction
plan; difficulties encountered with the consolidation and cost-reduction
program; increased competition; U.S. and foreign economic factors; foreign
currency exchange risk and interest rate fluctuation risk, among others.
16
Item 3.
- -------
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
As discussed elsewhere, the Company is exposed to the following principal
market risks (i.e. risks of loss arising from adverse changes in market rates):
foreign exchange rates and interest rates on debt.
The Company's exposure to foreign currency exchange rate risk in its
international operations is principally limited to Mexico and, to a lesser
degree, Canada. Approximately 40% of the Company's fiscal 2002 net revenues were
derived in Mexico and Canada, combined (exclusive of intercompany activities).
Foreign exchange transaction gains and losses arise from monetary assets and
liabilities denominated in currencies other than the business unit's functional
local currency. It is estimated that a 10% change in both the Mexican peso and
Canadian dollar exchange rates would impact reported operating profit by
approximately $500,000. This quantitative measure has inherent limitations
because it does not take into account the changes in customer purchasing
patterns or any adjustment to the Company's financing or operating strategies in
response to such a change in rates. Moreover, this measure does not take into
account the possibility that these currency rates can move in opposite
directions, such that gains from one may offset losses from another.
In addition, the Company's cash flows and earnings are subject to changes
in interest rates. As of December 31, 2002, approximately 50% of total short and
long-term debt is fixed, at rates between 8% and 12.5%. The balance of the
Company debt is variable, principally based upon the prevailing U.S. bank prime
rate or LIBOR rate. An interest rate swap, which expires in 2005, fixes the rate
of interest on $8 million of this debt at 8.98%. A change in the average
prevailing interest rates of the remaining debt of 1% would have an estimated
impact of $100,000 upon the Company's pre-tax results of operations and cash
flows. This quantitative measure does not take into account the possibility that
the prevailing rates (U.S. bank prime and LIBOR) can move in opposite directions
and that the Company has, in most cases, the option to elect either as the
determining interest rate factor.
17
PART II. OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Documents filed as part of this report:
--------------------------------------
1. Financial statements
--------------------
See index under Item 8. Financial Statements and Supplementary Data.
2. Exhibits
--------
The following exhibits are required to be filed as part of this
Quarterly Report on Form 10-Q:
(2) a. Share Purchase Agreement by and among Dixon Ticonderoga
de Mexico, S.A. de C.V., and by Grupo Ifam, S.A. de C.V.,
and Guillermo Almazan Cueto with respect to the capital
stock of Vinci de Mexico, S.A. de C.V., (English
translation). 4
(2) b. Asset Purchase Agreement dated February 9, 1999, by and
between Dixon Ticonderoga Company, as Seller and Asbury
Carbons, Inc., as Buyer. 6
(3) (i) Restated Certificate of Incorporation. 2
(3) (ii) Amended and Restated Bylaws. 1
(4) a. Specimen Certificate of Company Common Stock. 2
(4) b. Amended and Restated Stock Option Plan. 3
(10) a. First Modification of Amended and Restated Revolving
Credit Loan and Security Agreement by and among Dixon
Ticonderoga Company, Dixon Ticonderoga, Inc., First Union
Commercial Corporation, First National Bank of Boston and
National Bank of Canada. 1
(10) b. 12.00% Senior Subordinated Notes, Due 2003, Note and
Warrant Purchase Agreement. 1
(10) c. 12.00% Senior Subordinated Notes, Due 2003, Common Stock
Purchase Warrant Agreement. 1
(10) d. License and Technological Agreement between Carborundum
Corporation and New Castle Refractories Company, a division
of Dixon Ticonderoga Company. 1
(10) e. Equipment Option and Purchase Agreement between
Carborundum Corporation and New Castle Refractories
Company, a division of Dixon Ticonderoga Company. 1
(10) f. Product Purchase Agreement between Carborundum
Corporation and New Castle Refractories Company, a division
of Dixon Ticonderoga Company. 1
18
(10) g. Second Modification of Amended and Restated Revolving
Credit Loan and Security Agreement by and among Dixon
Ticonderoga Company, Dixon Ticonderoga, Inc., First Union
Commercial Corporation, First National Bank of Boston and
National Bank of Canada. 5
(10) h. Third Modification of Amended and Restated Revolving
Credit Loan and Security Agreement, Amendment to Loan
Documents and Assignment by and among Dixon Ticonderoga
Company, Dixon Ticonderoga, Inc., First Union Commercial
Corporation, BankBoston, N.A., National Bank of Canada and
LaSalle Bank. 7
(10) i. First Modification of Amended and Restated Term Loan
Agreement and Assignment by and among Dixon Ticonderoga
Company, Dixon Ticonderoga, Inc., First Union Commercial
Corporation, BankBoston, N.A., National Bank of Canada and
LaSalle Bank. 7
(10) j. Amendment No. 1 to 12.00% Senior Subordinated Notes, Due
2003, Note and Warrant Purchase Agreement.7
(10) k. Fourth Modification of Amended and Restated Revolving
Credit Loan and Security Agreement. 8
(10) l. Second Modification of Amended and Restated Term Loan
Agreement. 8
(10) m. Amendment No. 2 to Note and Warrant Purchase Agreement. 8
(10) n. Loan and Security Agreement by and among Dixon
Ticonderoga Company and its Subsidiaries and Foothill
Capital Corporation.
(10) o. Dixon Ticonderoga Company Amended and Restated Note and
Warrant Purchase Agreement, 12.5% Senior Subordinated
Notes, due October 3, 2005.
(21) Subsidiaries of the Company 9
(99.1) Certification by Officers
1 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1996, file number 0-2655, filed in Washington, D.C.
2 Incorporated by reference to the Company's quarterly report on Form 10-Q for
the period ended March 31, 1997, file number 0-2655, filed in Washington, D.C.
3 Incorporated by reference to Appendix 3 to the Company's Proxy Statement dated
January 27, 1997, filed in Washington, D.C.
4 Incorporated by reference to the Company's current report on Form 8-K dated
December 12, 1997, filed in Washington D.C.
5 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1998, file number 0-2615, filed in Washington, D.C.
6 Incorporated by reference to the Company's current report on Form 8-K dated
March 2, 1999, filed in Washington D.C.
19
7 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 1999, file number 0-2615 filed in Washington, D.C.
8 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 2000, file number 0-2655 filed in Washington, D.C.
9 Incorporated by reference to the Company's Annual Report on Form 10-K for the
year ended September 30, 2001, file number 1-8689 filed in Washington, D.C.
(b) Reports on Form 8-K:
--------------------
None.
20
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIXON TICONDEROGA COMPANY
Dated: February 14, 2003
-------------------------------
By: /s/ Gino N. Pala
-------------------------------
Gino N. Pala
Chairman of Board, Co-Chief Executive
Officer and Director
Dated: February 14, 2003
-------------------------------
By: /s/ Richard A. Asta
-------------------------------
Richard A. Asta
Executive Vice President of Finance,
Chief Financial Officer and Director
Dated: February 14, 2003
---------------------------------
By: /s/ John Adornetto
---------------------------------
John Adornetto
Vice President/Corporate Controller and
Chief Accounting Officer
21
CERTIFICATIONS
--------------
I, Gino N. Pala, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dixon Ticonderoga
Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a)designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b)evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c)presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b)any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies.
Date: February 14, 2003
/s/ Gino N. Pala
- --------------------------------
Gino N. Pala
Chairman of Board, Co-Chief Executive
Officer and Director
22
CERTIFICATIONS
--------------
I, Richard F. Joyce, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dixon Ticonderoga
Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a)designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b)evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c)presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b)any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies.
Date: February 14, 2003
/s/ Richard F. Joyce
- --------------------------------
Richard F. Joyce
Vice Chairman of Board, Co-Chief
Executive Officer, President and Director
23
CERTIFICATIONS
--------------
I, Richard A. Asta, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dixon Ticonderoga
Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a)designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b)evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c)presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b)any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies.
Date: February 14, 2003
/s/ Richard A. Asta
- --------------------------------
Richard A. Asta
Executive Vice President of Finance,
Chief Financial Officer and Director
24
CERTIFICATIONS
--------------
I, John Adornetto, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Dixon Ticonderoga
Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a)designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b)evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c)presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b)any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies.
Date: February 14, 2003
/s/ John Adornetto
- --------------------------------
John Adornetto
Vice President/Corporate Controller
and Chief Accounting Officer
25
Exhibit 99.1
------------
CERTIFICATION BY OFFICERS
-------------------------
In connection with the Quarterly Report of Dixon Ticonderoga Company on
Form 10-Q for the period ended December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof the undersigned certify, pursuant to
18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Quarterly Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Quarterly Report fairly present, in
all material respects, the financial condition and results of
operations of the Company.
DIXON TICONDEROGA COMPANY
-------------------------
Dated: February 14, 2003
-------------------------------
By: /s/ Gino N. Pala
-------------------------------
Gino N. Pala
Chairman of Board, Co-Chief Executive
Officer and Director
Dated: February 14, 2003
-------------------------------
/s/ Richard F. Joyce
--------------------------------
Richard F. Joyce
Vice Chairman of Board, Co-Chief
Executive Officer, President and Director
Dated: February 14, 2003
-------------------------------
By: /s/ Richard A. Asta
-------------------------------
Richard A. Asta
Executive Vice President of Finance,
Chief Financial Officer and Director
Dated: February 14, 2003
---------------------------------
By: /s/ John Adornetto
---------------------------------
John Adornetto
Vice President/Corporate Controller and
Chief Accounting Officer
Exhibit (10) n.
---------------
Loan and Security Agreement by and among
----------------------------------------
Dixon Ticonderoga Company and its Subsidiaries and
--------------------------------------------------
Foothill Capital Corporation.
-----------------------------
EXECUTION
LOAN AND SECURITY AGREEMENT
by and among
DIXON TICONDEROGA COMPANY,
as Borrower,
DIXON TICONDEROGA INC.
DIXON EUROPE, LIMITED
GRUPO DIXON, S.A. DE C.V.
DIXON COMERCIALIZADORA, S.A. DE C.V.
SERVIDIX, S.A. DE C.V.
DIXON TICONDEROGA DE MEXICO, S.A. DE C.V.
DIXON INDUSTRIAL MEXICO, S.A. DE C.V.
BEIJING DIXON TICONDEROGA STATIONERY COMPANY LIMITED
TICONDEROGA GRAPHITE INC.,
as Guarantors,
and
FOOTHILL CAPITAL CORPORATION,
as Lender
Dated as of October 3, 2002
TABLE OF CONTENTS
-----------------
Page
----
1.0 DEFINITIONS AND CONSTRUCTION 1
1.1 Definitions 1
1.2 Accounting Terms 32
1.3 Code 32
1.4 Construction 32
1.5 Schedules and Exhibits 32
2. LOAN AND TERMS OF PAYMENT 32
2.1 Revolver Advances 32
2.2 Term Loan A 34
2.3 Term Loan B 35
2.4 Borrowing Procedures and Settlements. 35
2.5 Payments 35
2.6 Overadvances 37
2.7 Interest Rates and Letter of Credit Fee: Rates,
Payments, and Calculations 37
2.8 Cash Management. 39
2.9 Crediting Payments; Float Charge 40
2.10 Designated Account 40
2.11 Maintenance of Loan Account; Statements of Obligations 41
2.12 Fees 41
2.13 Letters of Credit 41
2.14 LIBOR Option 44
2.15 Capital Requirements 46
2.16 Mandatory Prepayments 47
3. CONDITIONS; TERM OF AGREEMENT 48
3.1 Conditions Precedent to the Initial Extension of Credit 48
3.2 Conditions Subsequent to the Initial Extension of Credit 52
3.3 Conditions Precedent to all Extensions of Credit 53
3.4 Term 53
3.5 Effect of Termination 53
3.6 Early Termination by Borrower 54
4. CREATION OF SECURITY INTEREST 54
4.1 Grant of Security Interest 54
4.2 Negotiable Collateral 55
4.3 Collection of Accounts, General Intangibles, and
Negotiable Collateral 55
4.4 Delivery of Additional Documentation Required 55
4.5 Power of Attorney 55
4.6 Right to Inspect 56
4.7 Control Agreements 56
5. REPRESENTATIONS AND WARRANTIES 57
5.1 No Encumbrances 57
5.2 Eligible Accounts 57
5.3 Eligible Inventory 57
5.4 Equipment 57
5.5 Location of Inventory and Equipment 57
5.6 Inventory Records 57
5.7 Location of Chief Executive Office; FEIN 57
5.8 Due Organization and Qualification; Subsidiaries 57
5.9 Due Authorization; No Conflict 58
5.10 Litigation 59
5.11 No Material Adverse Change 59
5.12 Fraudulent Transfer 59
5.13 Employee Benefits 60
5.14 Environmental Condition 61
5.15 Brokerage Fees 61
5.16 Intellectual Property 61
5.17 Leases 62
5.18 DDAs 62
5.19 Complete Disclosure 62
5.20 Tax Returns 62
5.21 Indebtedness 62
5.22 Inactive Subsidiaries 63
5.23 Leased Equipment. 63
6. AFFIRMATIVE COVENANTS 63
6.1 Accounting System 63
6.2 Collateral Reporting 63
6.3 Financial Statements, Reports, Certificates 64
6.4 Guarantor Reports 66
6.5 Return 67
6.6 Maintenance of Properties 67
6.7 Taxes 67
6.8 Insurance 67
6.9 Location of Inventory and Equipment 68
6.10 Compliance with Laws 68
6.11 Leases 68
6.12 Brokerage Commissions 68
6.13 Existence 69
6.14 Environmental 69
6.15 Disclosure Updates 69
6.16 Compliance with ERISA 69
6.17 License Agreements 70
7. NEGATIVE COVENANTS 70
7.1 Indebtedness 70
7.2 Liens 73
7.3 Restrictions on Fundamental Changes 74
7.4 Disposal of Assets 74
7.5 Change Name 74
7.6 Guarantee 74
7.7 Nature of Business 74
7.8 Prepayments and Amendments 75
7.9 Change of Control 75
7.10 Consignments 75
7.11 Distributions 75
7.12 Accounting Methods 75
7.13 Investments 75
7.14 Transactions with Affiliates 75
7.15 Suspension 76
7.16 Compensation 76
7.17 Use of Proceeds 76
7.18 Change in Location of Chief Executive Office; Inventory
and Equipment with Bailees 76
7.19 Securities Accounts 76
7.20 Financial Covenants 76
7.21 Consultant 81
8. EVENTS OF DEFAULT 81
9. LENDER'S RIGHTS AND REMEDIES 83
9.1 Rights and Remedies 83
9.2 Remedies Cumulative 85
10. TAXES AND EXPENSES 86
11. WAIVERS; INDEMNIFICATION 86
11.1 Demand; Protest 86
11.2 Lender's Liability for Collateral 86
11.3 Indemnification 86
12. NOTICES 87
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER 88
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS 89
14.1 Assignments and Participations 89
14.2 Successors 91
15. AMENDMENTS; WAIVERS 91
15.1 Amendments and Waivers 91
15.2 No Waivers; Cumulative Remedies 91
16. GENERAL PROVISIONS 91
16.1 Effectiveness 91
16.2 Section Headings 91
16.3 Interpretation 91
16.4 Severability of Provisions 92
16.5 Withholding Taxes 92
16.6 Currency Indemnity 92
16.7 Amendments in Writing 93
16.8 Counterparts; Telefacsimile Execution 93
16.9 Revival and Reinstatement of Obligations 93
16.10 Integration 93
LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of
October 3, 2002, between FOOTHILL CAPITAL CORPORATION, a California corporation
("Lender"), DIXON TICONDEROGA COMPANY, a Delaware corporation ("Borrower"),
DIXON TICONDEROGA INC., an Ontario corporation ("Canadian Guarantor"), DIXON
EUROPE, LIMITED, a limited liability company organized under the laws of the
United Kingdom ("DEL"), GRUPO DIXON, S.A. DE C.V., a corporation organized under
the laws of Mexico ("Grupo"), DIXON COMERCIALIZADORA, S.A. DE C.V., a
corporation organized under the laws of Mexico ("CD"), SERVIDIX, S.A. DE C.V., a
corporation organized under the laws of Mexico ("Servidix"), DIXON TICONDEROGA
DE MEXICO, S.A. DE C.V., a corporation organized under the laws of Mexico
("DTM"), DIXON INDUSTRIAL MEXICO, S.A. DE C.V.a corporation organized under the
laws of Mexico ("DIM") , BEIJING DIXON TICONDEROGA STATIONERY COMPANY LIMITED, a
limited liability company organized under the laws of China ("DT-China")and
TICONDEROGA GRAPHITE INC., a New York corporation ("Graphite") (each of Canadian
Guarantor, DEL, Grupo, Servidix, CD, DTM, DIM, DT-China and Graphite being
individually a "Guarantor" and collectively, "Guarantors"). The parties agree as
follows:
1. DEFINITIONS AND CONSTRUCTION.
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1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Account Debtor" means any Person who is or who may become obligated
under, with respect to, or on account of, an Account, chattel paper, or a
General Intangible.
"Accounts" means all of Borrower's and Canadian Guarantor's now owned
or hereafter acquired right, title, and interest with respect to "accounts" (as
that term is defined in the Code), and any and all supporting obligations in
respect thereof.
"ACH Transactions" means any cash management or related services
(including the Automated Clearing House processing of electronic funds transfers
through the direct Federal Reserve Fedline system) provided by Wells Fargo or
its Affiliates for the account of Borrower or its Subsidiaries.
"Additional Documents" has the meaning set forth in Section 4.4.
"Adjusted Letter of Credit Usage" means, as of the date of
determination, the sum of (a) the amount equal to (1) 100% minus the advance
rate applicable to Eligible Inventory times (2) the undrawn amount of
outstanding Qualified Import Letters of Credit issued for the purpose of
purchasing such Eligible Inventory, plus (b) 100% of the undrawn amount of all
other outstanding Letters of Credit, plus (c) 100% of the amount of outstanding
time drafts accepted by an Underlying Issuer as a result of drawings under
Underlying Letters of Credit.
"Advances" has the meaning set forth in Section 2.1.
"Affiliate" means, as applied to any Person, any other Person who,
directly or indirectly, controls, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct the management and
policies of a Person, whether through the ownership of Stock, by contract, or
otherwise; provided, however, that, for purposes of the definitions of Eligible
Accounts and Eligible Special Program Accounts and Section 7.14 hereof: (a) any
Person which owns directly or indirectly 10% or more of the securities having
ordinary voting power for the election of directors or other members of the
governing body of a Person or 10% or more of the partnership or other ownership
interests of a Person (other than as a limited partner of such Person) shall be
deemed to control such Person, (b) each director (or comparable manager) of a
Person shall be deemed to be an Affiliate of such Person, and (c) each
partnership or joint venture in which a Person is a partner or joint venturer
shall be deemed to be an Affiliate of such Person.
"Agreement" has the meaning set forth in the preamble hereto.
"Applicable Prepayment Premium" means, as of any date of
determination, an amount equal to (a) during the period of time from and after
the date of the execution and delivery of this Agreement up to the date that is
the first anniversary of the Closing Date, 3% of the sum of (i) the Maximum
Revolver Amount, plus (ii) the outstanding principal balance of the Term Loans
on the date immediately prior to the date of determination, (b) during the
period of time from and including the date that is the first anniversary of the
Closing Date up to the date that is the second anniversary of the Closing Date,
2% of the sum of (i) the Maximum Revolver Amount, plus (ii) the outstanding
principal balance of the Term Loans on the date immediately prior to the date of
determination, and (c) during the period of time from and including the date
that is the second anniversary of the Closing Date up to the Maturity Date, 1%
of the sum of (i) the Maximum Revolver Amount, plus (ii) the outstanding
principal balance of the Term Loans on the date immediately prior to the date of
determination.
"Assignee" has the meaning set forth in Section 14.1(a).
"Authorized Person" means any officer or other employee of Borrower.
"Availability" means, as of any date of determination, if such date is
a Business Day, and determined at the close of business on the immediately
preceding Business Day, if such date of determination is not a Business Day, the
amount that Borrower is entitled to borrow as Advances under Section 2.1 (after
giving effect to all then outstanding Obligations (other than Bank Products
Obligations) and all sublimits and reserves applicable hereunder).
"Bank Product Agreements" means those certain cash management service
agreements entered into from time to time by Borrower or its Subsidiaries in
connection with any of the Bank Products.
"Bank Product Obligations" means all obligations, liabilities,
contingent reimbursement obligations, fees, and expenses owing by Borrower or
its Subsidiaries to Wells Fargo or its Affiliates pursuant to or evidenced by
the Bank Product Agreements and irrespective of whether for the payment of
money, whether direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, and including all such amounts that Borrower
is obligated to reimburse to Lender as a result of Lender purchasing
participations or executing indemnities or reimbursement obligations with
respect to the Bank Products provided to Borrower or its Subsidiaries pursuant
to the Bank Product Agreements.
"Bank Products" means any service or facility extended to Borrower or
its Subsidiaries by Wells Fargo or any Affiliate of Wells Fargo including: (a)
credit cards, (b) credit card processing services, (c) debit cards, (d) purchase
cards, (e) ACH Transactions, (f) cash management, including controlled
disbursement, accounts or services, or (g) Hedge Agreements.
"Bank Product Reserves" means, as of any date of determination, the
amount of reserves that Lender has established (based upon Wells Fargo's or its
Affiliate's reasonable determination of the credit exposure in respect of then
extant Bank Products) for Bank Products then provided or outstanding.
"Bankruptcy Code" means the United States Bankruptcy Code, as in
effect from time to time.
"Base LIBOR Rate" means the rate per annum, determined by Lender in
accordance with its customary procedures, and utilizing such electronic or other
quotation sources as it considers appropriate (rounded upwards, if necessary, to
the next 1/16%), on the basis of the rates at which Dollar deposits are offered
to major banks in the London interbank market on or about 2:00 p.m. (Atlanta,
Georgia time) 2 Business Days prior to the commencement of the applicable
Interest Period, for a term and in amounts comparable to the Interest Period and
amount of the LIBOR Rate Loan requested by Borrower in accordance with this
Agreement, which determination shall be conclusive in the absence of manifest
error.
"Base Rate" means, the rate of interest announced within Wells Fargo
at its principal office in San Francisco as its "prime rate", with the
understanding that the "prime rate" is one of Wells Fargo's base rates (not
necessarily the lowest of such rates) and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto and is evidenced by the recording thereof after its announcement in such
internal publication or publications as Wells Fargo may designate.
"Base Rate Loan" means each portion of an Advance or the Term Loans
that bears interest at a rate determined by reference to the Base Rate.
"Base Rate Margin" means three-quarters of one (.75%) percentage
point.
"Base Rate Term Loan Margin" means one and one-half (1.50%) percentage
points.
"Benefit Plan" means a "defined benefit plan" (as defined in Section
3(35) of ERISA) for which Borrower or any Subsidiary or ERISA Affiliate of
Borrower has been an "employer" (as defined in Section 3(5) of ERISA) within the
past six years.
"Board of Directors" means the board of directors (or comparable
managers) of Borrower or any Guarantor or any committee thereof duly authorized
to act on behalf of the board.
"Books" means Borrower's and its Subsidiaries' now owned or hereafter
acquired books and records (including all of their Records indicating,
summarizing, or evidencing its assets (including the Collateral) or liabilities,
all of Borrower's or its Subsidiaries' Records relating to their business
operations or financial condition, and all of their goods or General Intangibles
related to such information).
"Borrower" has the meaning set forth in the preamble to this
Agreement.
"Borrowing" means a borrowing hereunder of an Advance.
"Borrowing Base" has the meaning set forth in Section 2.1.
"Borrowing Base Certificate" means a certificate in the form of
Exhibit B-1.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which national banks are authorized or required to close, except that, if
a determination of a Business Day shall relate to a LIBOR Rate Loan, the term
"Business Day" also shall exclude any day on which banks are closed for dealings
in Dollar deposits in the London interbank market.
"Canadian Guarantor" means Dixon Ticonderoga Inc., an Ontario
corporation and its successors and assigns.
"Canadian Pension Plan" shall mean any plan, program or arrangement
that is a pension plan for the purposes of any applicable pension benefits
legislation or any tax laws of Canada or a Province thereof, whether or not
registered under any such laws, which is maintained or contributed to by, or to
which there is an obligation to contribute by, Canadian Guarantor or Borrower in
respect of any Person's employment in Canada with Borrower or Canadian Guarantor
which, for greater certainty, does not include the Canada Pension Plan or any
other plan maintained by the Government of Canada or by a government of any
Province of Canada.
"Capital Lease" means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means any Indebtedness represented by
obligations under a Capital Lease.
"Cash Equivalents" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or issued by any agency thereof
and backed by the full faith and credit of the United States or in the case of
the Canadian Guarantor, Canada or any instrumentality thereof, in each case
maturing within 1 year from the date of acquisition thereof, (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 1 year from the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either S&P or Moody's,
(c) commercial paper maturing no more than 270 days from the date of acquisition
thereof and, at the time of acquisition, having a rating of A-1 or P-1, or
better, from S&P or Moody's, and (d) certificates of deposit or bankers'
acceptances maturing within 1 year from the date of acquisition thereof either
(i) issued by any bank organized under the laws of the United States or any
state thereof which bank has a rating of A or A2, or better, from S&P or Moody's
or in the case of Canadian Guarantor, a bank organized under the laws of Canada
having combined capital and surplus and undivided profits of not less than the
US Dollar Equivalent of $250,000,000, or (ii) certificates of deposit less than
or equal to $100,000 in the aggregate issued by any other bank insured by the
Federal Deposit Insurance Corporation.
"Cash Management Bank" has the meaning set forth in Section 2.8(a).
"Cash Management Account" has the meaning set forth in Section
2.8(a).
"Cash Management Agreements" means those certain cash management
service agreements, in form and substance satisfactory to Lender, each of which
is among Borrower or Canadian Guarantor, as the case may be, Lender, and one of
the Cash Management Banks.
"Change of Control" means (a) any "person" or "group" (within the
meaning of Sections 13(d) and 14(d) of the Exchange Act), other than Permitted
Holders, becomes the beneficial owner (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 10% or more, of the Stock of Borrower
having the right to vote for the election of members of the Board of Directors,
or (b) a majority of the members of the Board of Directors do not constitute
Continuing Directors, or (c) Borrower ceases to directly own and control 100% of
the outstanding Stock of each of its Subsidiaries (except for Grupo, in which
case it shall be deemed a "Change of Control" if Borrower and Canadian
Guarantor, collectively, cease to directly own and control at least 97% of the
Stock of such Subsidiary) extant as of the Closing Date.
"Closing Date" means the date of the making of the initial Advance (or
other extension of credit) hereunder or the date on which Lender sends Borrower
a written notice that each of the conditions precedent set forth in Section 3.1
either have been satisfied or have been waived.
"Closing Date Business Plan" means the set of Projections of Borrower
and its Subsidiaries, on a consolidated and consolidating basis, for the 3 year
period following the Closing Date (on a year by year basis, and for the 1 year
period following the Closing Date, on a month by month basis), in form and
substance (including as to scope and underlying assumptions) satisfactory to
Lender.
"Code" means the New York Uniform Commercial Code, as in effect from
time to time.
"Collateral" means all of Borrower's and Canadian Guarantor's now
owned or hereafter acquired right, title, and interest in and to each of the
following:
(a) Accounts,
(b) Books,
(c) Equipment,
(d) General Intangibles,
(e) Inventory,
(f) Investment Property (provided, that, Investment Property shall not
include Treasury Stock of Borrower reserved to satisfy outstanding warrant
requirements),
(g) Negotiable Collateral,
(h) Real Property Collateral,
(i) money or other assets of Borrower that now or hereafter come into
the possession, custody, or control of Lender, and
(j) the proceeds and products, whether tangible or intangible, of any
of the foregoing, including proceeds of insurance covering any or all of the
foregoing, and any and all Accounts, Books, Equipment, General Intangibles,
Inventory, Investment Property, Negotiable Collateral, Real Property Collateral,
money, deposit accounts, or other tangible or intangible property resulting from
the sale, exchange, collection, or other disposition of any of the foregoing, or
any portion thereof or interest therein, and the proceeds thereof; except for
the last day of the term of any lease or agreement to which Canadian Guarantor
is a party therefor but upon enforcement of the security interest Canadian
Guarantor shall stand possessed of such last day in trust to assign the same to
any person acquiring the term of the lease or agreement therefor
"Collateral Access Agreement" means a landlord waiver, bailee letter,
or acknowledgment agreement of any lessor, warehouseman, processor, consignee,
or other Person in possession of, having a Lien upon, or having rights or
interests in the Equipment or Inventory, in each case, in form and substance
satisfactory to Lender.
"Collections" means all cash, checks, notes, instruments, and other
items of payment (including insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds) of Borrower and Canadian Guarantor.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit C-1 delivered by the chief financial officer of Borrower to Lender.
"Consolidated EBITDA" means, with respect to any fiscal period,
Borrower's and its Subsidiaries consolidated net earnings (or loss), minus
extraordinary gains, plus interest expense, income taxes, and depreciation and
amortization plus non-recurring non-cash losses for such period, as determined
in accordance with GAAP.
"Continuing Director" means (a) any member of the Board of Directors
who was a director (or comparable manager) of Borrower on the Closing Date, and
(b) any individual who becomes a member of the Board of Directors after the
Closing Date if such individual was appointed or nominated for election to the
Board of Directors by a majority of the Continuing Directors, but excluding any
such individual originally proposed for election in opposition to the Board of
Directors in office at the Closing Date in an actual or threatened election
contest relating to the election of the directors (or comparable managers) of
Borrower (as such terms are used in Rule 14a-11 under the Exchange Act) and
whose initial assumption of office resulted from such contest or the settlement
thereof.
"Control Agreement" means a control agreement, in form and substance
satisfactory to Lender, executed and delivered by Borrower or Canadian
Guarantor, as the case may be, Lender, and the applicable securities
intermediary with respect to a Securities Account or bank with respect to a
deposit account.
"Copyright Security Agreement" means a copyright security agreement
executed and delivered by Borrower and Lender, the form and substance of which
is satisfactory to Lender.
"Daily Balance" means, with respect to each day during the term of
this Agreement, the amount of an Obligation owed at the end of such day.
"DDA" means any checking or other demand deposit account maintained by
Borrower.
"Deer Lake Note and Mortgage" means collectively, (a) the Promissory
Note, dated May 15, 2001, in the principal amount of $1,640,000 made by SMT
Holdings, LLC in favor of Borrower, (b) the Mortgage, dated May 15, 2001 by and
between SMT Holdings, LLC in favor of Borrower covering real property located in
West Brunswick, Township, Pennsylvania, (c) the Guaranty made by Anex Warehouse
and Distribution Company, Inc. of the obligations of SMT Holdings, LLC arising
under the Promissory Note referred to in clause (a) hereof, and (d) all
documents and instruments and other agreements delivered in connection with the
foregoing, as the same may be modified, amended, restated or otherwise
supplemented from time to time.
"Default" means an event, condition, or default that, with the giving
of notice, the passage of time, or both, would be an Event of Default.
"Designated Account" means that certain DDA of Borrower identified on
Schedule D-1.
"Designated Account Bank" means First Union National Bank, whose
office is located at Charlotte, North Carolina, and whose ABA number is
063107513.
"Dilution" means, as of any date of determination, a percentage, based
upon the experience of the immediately prior 365 days, that is the result of
dividing the Dollar (or the US Dollar Equivalent, as the case may be) amount of
(a) bad debt write-downs, discounts, advertising allowances, credits, or other
dilutive items with respect to the Accounts during such period, including,
without limitation, the co-op advertising and volume rebates, by (b) Borrower's
and Canadian Guarantor's gross billings with respect to Accounts during such
period.
"Dilution Reserve" means, as of any date of determination, an amount
sufficient to reduce the advance rate against Eligible Accounts and Eligible
Special Program Accounts, as the case may be, by one percentage point for each
percentage point by which Dilution is in excess of 5%.
"Disbursement Letter" means an instructional letter executed and
delivered by Borrower to Lender regarding the extensions of credit to be made on
the Closing Date, the form and substance of which is satisfactory to Lender.
"Dollars" or "$" means United States dollars.
"Due Diligence Letter" means the due diligence letter sent by Lender's
counsel to Borrower, together with Borrower's completed responses to the
inquiries set forth therein, the form and substance of such responses to be
satisfactory to Lender.
"Eligible Accounts" means those Accounts created by Borrower or
Canadian Guarantor in the ordinary course of their respective businesses, that
arise out of Borrower's or Canadian Guarantor's, as the case may be, sale of
goods or rendition of services, that comply with each of the representations and
warranties respecting Eligible Accounts made by Borrower and Canadian Guarantor
in the Loan Documents, and that are not excluded as ineligible by virtue of one
or more of the criteria set forth below; provided, however, that such criteria
may be fixed and revised from time to time by Lender in Lender's Permitted
Discretion to address the results of any audit performed by Lender from time to
time after the Closing Date. In determining the amount to be included, Eligible
Accounts shall be calculated net of Borrower's or Canadian Guarantor's, as the
case may be, credit insurance deductible, customer deposits and unapplied cash
remitted to Borrower and Canadian Guarantor. Eligible Accounts shall not include
the following:
(a) Accounts that the Account Debtor has failed to pay within the
earlier of 60 days past due or 120 days after the original invoice,
(b) Accounts owed by an Account Debtor (or its Affiliates) where 50%
or more of all Accounts owed by that Account Debtor (or its Affiliates) are
deemed ineligible under clause (a) above,
(c) Accounts with respect to which the Account Debtor is an employee,
Affiliate, or agent of Borrower or any Guarantor,
(d) Accounts arising in a transaction wherein goods are placed on
consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale
on approval, a bill and hold, or any other terms by reason of which the payment
by the Account Debtor may be conditional,
(e) Accounts that are not payable in Dollars or in the case of
Canadian Guarantor, Canadian Dollars or Dollars,
(f) Accounts with respect to which the Account Debtor either (i) does
not maintain its chief executive office in the United States or Canada
(provided, that, at any time promptly upon Lender's request, Borrower or
Canadian Guarantor, as the case may be, shall execute and deliver, or cause to
be executed and delivered, such other agreements, documents and instruments as
may be required by Lender to perfect the security interests of Lender in those
Accounts of an Account Debtor with its chief executive office or principal place
of business in Canada in accordance with the applicable Federal laws of Canada
or any Province thereof in which such chief executive office or principal place
of business is located and take or cause to be taken such other and further
actions as Lender may request to enable Lender as secured party with respect
thereto to collect such Accounts under the applicable Federal laws of Canada or
any Province thereof) or (ii) is not organized under the laws of the United
States or any state thereof or Canada or any province thereof, or (iii) is the
government of any foreign country or sovereign state, or of any state, province,
municipality, or other political subdivision thereof, or of any department,
agency, public corporation, or other instrumentality thereof, unless (y) the
Account is supported by an irrevocable letter of credit satisfactory to Lender
(as to form, substance, and issuer or domestic confirming bank) that has been
delivered to Lender and is directly drawable by Lender, or (z) the Account is
covered by credit insurance in form, substance, and amount, and by an insurer,
satisfactory to Lender,
(g) Accounts with respect to which the Account Debtor is either (i)
the United States or any department, agency, or instrumentality of the United
States (exclusive, however, of Accounts with respect to which Borrower or
Canadian Guarantor, as the case may be, has complied, to the reasonable
satisfaction of Lender, with the Assignment of Claims Act, 31 USC ss. 3727), or
(ii) any state of the United States (exclusive, however, of Accounts owed by any
state that does not have a statutory counterpart to the Assignment of Claims
Act) or (iii) Canada, any Province, political subdivision, department, agency or
instrumentality thereof, unless the account debtor is Her Majesty in right of
Canada or any Provincial or local Governmental Authority, or any ministry, upon
Lender's request, the Financial Administration Act, R.S.C. 185, C.F-11, as
amended or any similar applicable Provincial or local law, regulation or
requirement, if applicable has been complied with in a manner reasonably
satisfactory to Lender,
(h) Accounts with respect to which the Account Debtor is a creditor of
Borrower or Canadian Guarantor, as the case may be, has or has asserted a right
of setoff, has disputed its liability, or has made any claim with respect to its
obligation to pay the Account, to the extent of such claim, right of setoff, or
dispute,
(i) Accounts with respect to an Account Debtor whose total obligations
(including obligations owing in respect of Special Program Accounts) owing to
Borrower or Canadian Guarantor, in the aggregate, exceed 10% (such percentage as
applied to a particular Account Debtor, provided, that, such percentage shall be
fifteen (15%) percent in the case where either Staples, Inc. or School
Specialty, Inc. is the Account Debtor, in any case, being subject to reduction
by Lender in its Permitted Discretion if the creditworthiness of such Account
Debtor deteriorates) of all Eligible Accounts and Eligible Special Program
Accounts, to the extent of the obligations owing by such Account Debtor in
excess of such percentage,
(j) Accounts with respect to which the Account Debtor is subject to an
Insolvency Proceeding, is not Solvent, has gone out of business, or as to which
Borrower or Canadian Guarantor, as the case may be, has received notice of an
imminent Insolvency Proceeding or a material impairment of the financial
condition of such Account Debtor,
(k) Accounts with respect to which the Account Debtor is located in
the states of New Jersey, Minnesota, or West Virginia (or any other state that
requires a creditor to file a business activity report or similar document in
order to bring suit or otherwise enforce its remedies against such Account
Debtor in the courts or through any judicial process of such state), unless
Borrower or Canadian Guarantor, as the case may be, has qualified to do business
in New Jersey, Minnesota, West Virginia, or such other states, or has filed a
business activities report with the applicable division of taxation, the
department of revenue, or with such other state offices, as appropriate, for the
then-current year, or is exempt from such filing requirement,
(l) Accounts, the collection of which, Lender, in its Permitted
Discretion, believes to be doubtful by reason of the Account Debtor's financial
condition,
(m) Accounts that are not subject to a valid and perfected first
priority Lender's Lien,
(n) Accounts which are Special Program Accounts,
(o) Accounts with respect to which (i) the goods giving rise to such
Account have not been shipped and billed to the Account Debtor, or (ii) the
services giving rise to such Account have not been performed and billed to the
Account Debtor, or
(p) Accounts that represent the right to receive progress payments or
other advance billings that are due prior to the completion of performance by
Borrower or Canadian Guarantor, as the case may be, of the subject contract for
goods or services.
"Eligible In-Transit Inventory" means those items of Inventory that do
not qualify as Eligible Landed Inventory solely because they are not in a
location set forth on Schedule E-1 or in transit among such locations, but as to
which (a) the Inventory was the subject of a Qualified Import Letter of Credit,
(b) such Inventory currently is in transit (whether by vessel, air, or land)
from a location outside of the continental United States to a location set forth
on Schedule E-1 that is the subject of a Collateral Access Agreement, (c) title
to such Inventory has passed to Borrower or Canadian Guarantor, as the case may
be, (d) such Inventory is insured against types of loss, damage, hazards, and
risks, and in amounts, satisfactory to Lender in its Permitted Discretion, (e)
such Inventory either (1) is the subject of a negotiable bill of lading (x) that
is consigned to Lender (either directly or by means of endorsements), (y) that
was issued by the carrier respecting the subject Inventory, and (z) that either
is (I) in the possession of Lender or a customs broker, or (II) the subject of a
telefacsimile copy that Lender has received from the Underlying Issuer which
issued the Underlying Letter of Credit and as to which Lender also has received
a confirmation from such Underlying Issuer that such document is in-transit by
air-courier to Lender or a customs broker, or (2) is the subject of a negotiable
cargo receipt and is not the subject of a bill of lading (other than a
negotiable bill of lading consigned to, and in the possession of, a consolidator
or Lender, or their respective agents) and such negotiable cargo receipt is (x)
consigned to Lender (either directly or by means of endorsements), (y) that was
issued by a consolidator respecting the subject Inventory, (z) that either is
(I) in the possession of Lender or a customs broker, or (II) the subject of a
telefacsimile copy that Lender has received from the Underlying Issuer which
issued the Underlying Letter of Credit and as to which Lender also has received
a confirmation from such Underlying Issuer that such document is in-transit by
air-courier to Lender or a customs broker, (f) Borrower or Canadian Guarantor,
as the case may be, has provided a certificate to Lender that certifies that, to
the best knowledge of Borrower, or Canadian Guarantor, as the case may be, such
Inventory meets all of Borrower's or Canadian Guarantor, as the case may be,
representations and warranties contained in the Loan Documents concerning
Eligible Inventory, that it knows of no reason why such Inventory would not be
accepted by Borrower or Canadian Guarantor, as the case may be, when it arrives,
and that the shipment as evidenced by the documents conforms to the related
order documents, and (g) the Underlying Letter of Credit has been drawn upon in
full and the Underlying Issuer has honored such drawing and Lender has honored
its obligations to the Underlying Issuer under the applicable Qualified Import
Letter of Credit.
"Eligible Inventory" means Eligible Landed Inventory.
"Eligible Landed Inventory" means Inventory of Borrower and Canadian
Guarantor consisting of raw materials and first quality finished goods held for
sale in the ordinary course of Borrower's or Canadian Guarantor's, as the case
may be, business located at one of Borrower's or Canadian Guarantor's, as the
case may be, business locations set forth on Schedule E-1 (or in-transit between
any such locations), that complies with each of the representations and
warranties respecting Eligible Inventory made by Borrower or Canadian
Guarantor's, as the case may be, in the Loan Documents, and that is not excluded
as ineligible by virtue of the one or more of the criteria set forth below;
provided, however, that such criteria may be fixed and revised from time to time
by Lender in Lender's Permitted Discretion to address the results of any audit
or appraisal performed by Lender from time to time after the Closing Date. In
determining the amount to be so included, Inventory shall be valued at the lower
of cost or market on a basis consistent with Borrower's or Canadian Guarantor's,
as the case may be, historical accounting practices. An item of Inventory shall
not be included in Eligible Inventory if:
(a) Borrower or Canadian Guarantor, as the case may be, does not have
good, valid, and marketable title thereto,
(b) it is not located at one of the locations in the United States or
Canada set forth on Schedule E-1 or in transit from one such location to another
such location,
(c) it is located on real property leased by Borrower or Canadian
Guarantor in a contract warehouse, in each case, unless it is subject to a
Collateral Access Agreement executed by the lessor, warehouseman, or other third
party, as the case may be, and unless it is segregated or otherwise separately
identifiable from goods of others, if any, stored on the premises,
(d) it is not subject to a valid and perfected first priority Lender's
Lien,
(e) it consists of goods returned or rejected by Borrower's or
Canadian Guarantor's customers, or
(f) it consists of goods that are, restrictive or custom items
(provided, that, restrictive or custom items does not include private label
goods), work-in-process, or goods that constitute spare parts, packaging and
shipping materials, supplies used or consumed in Borrower's or Canadian
Guarantor's business, bill and hold goods, defective goods, "seconds," or
Inventory acquired on consignment.
"Eligible Special Program Accounts" means those Special Program
Accounts created by Borrower or Canadian Guarantor in the ordinary course of
their respective businesses, that arise out of Borrower's or Canadian
Guarantor's, as the case may be, sale of goods or rendition of services, that
comply with each of the representations and warranties respecting Eligible
Special Program Accounts made by Borrower and Canadian Guarantor in the Loan
Documents, and that are not excluded as ineligible by virtue of one or more of
the criteria set forth below; provided, however, that such criteria may be fixed
and revised from time to time by Lender in Lender's Permitted Discretion to
address the results of any audit performed by Lender from time to time after the
Closing Date. In determining the amount to be included, Eligible Special Program
Accounts shall be calculated net of Borrower's or Canadian Guarantor's, as the
case may be, credit insurance deductible, customer deposits and unapplied cash
remitted to Borrower and Canadian Guarantor. Eligible Special Program Accounts
shall not include the following Special Program Accounts:
(a) Special Program Accounts that the Account Debtor has failed to pay
within the earlier of ten (10) days after the original due date for such Special
Program Accounts or three hundred fifteen (315) days after the date of the
original invoice,
(b) Special Program Accounts owed by an Account Debtor (or its
Affiliates) where 50% or more of all Special Program Accounts owed by that
Account Debtor (or its Affiliates) are deemed ineligible under clause (a) above,
(c) Special Program Accounts with respect to which the Account Debtor
is an employee, Affiliate, or agent of Borrower or any Guarantor,
(d) Special Program Accounts arising in a transaction wherein goods
are placed on consignment or are sold pursuant to a guaranteed sale, a sale or
return, a sale on approval, a bill and hold, or any other terms by reason of
which the payment by the Account Debtor may be conditional,
(e) Special Program Accounts that are not payable in Dollars or in the
case of Canadian Guarantor, Canadian Dollars or Dollars,
(f) Special Program Accounts with respect to which the Account Debtor
either (i) does not maintain its chief executive office in the United States or
Canada (provided, that, at any time promptly upon Lender's request, Borrower or
Canadian Guarantor, as the case may be, shall execute and deliver, or cause to
be executed and delivered, such other agreements, documents and instruments as
may be required by Lender to perfect the security interests of Lender in those
Special Program Accounts of an Account Debtor with its chief executive office or
principal place of business in Canada in accordance with the applicable Federal
laws of Canada or any Province thereof in which such chief executive office or
principal place of business is located and take or cause to be taken such other
and further actions as Lender may request to enable Lender as secured party with
respect thereto to collect such Special Program Accounts under the applicable
Federal laws of Canada or any Province thereof) or (ii) is not organized under
the laws of the United States or any state thereof or Canada or any province
thereof, or (iii) is the government of any foreign country or sovereign state,
or of any state, province, municipality, or other political subdivision thereof,
or of any department, agency, public corporation, or other instrumentality
thereof, unless (y) the Account is supported by an irrevocable letter of credit
satisfactory to Lender (as to form, substance, and issuer or domestic confirming
bank) that has been delivered to Lender and is directly drawable by Lender, or
(z) the Account is covered by credit insurance in form, substance, and amount,
and by an insurer, satisfactory to Lender,
(g) Special Program Accounts with respect to which the Account Debtor
is either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Special Program Accounts with respect
to which Borrower or Canadian Guarantor, as the case may be, has complied, to
the reasonable satisfaction of Lender, with the Assignment of Claims Act, 31 USC
ss. 3727), or (ii) any state of the United States (exclusive, however, of
Special Program Accounts owed by any state that does not have a statutory
counterpart to the Assignment of Claims Act), or (iii) Canada, any Province,
political subdivision, department, agency or instrumentality thereof, unless the
account debtor is Her Majesty in right of Canada or any Provincial or local
Governmental Authority, or any ministry, upon Lender's request, the Financial
Administration Act, R.S.C. 185, C.F-11, as amended or any similar applicable
Provincial or local law, regulation or requirement, if applicable has been
complied with in a manner reasonably satisfactory to Lender,
(h) Special Program Accounts with respect to which the Account Debtor
is a creditor of Borrower or Canadian Guarantor, as the case may be, has or has
asserted a right of setoff, has disputed its liability, or has made any claim
with respect to its obligation to pay the Account, to the extent of such claim,
right of setoff, or dispute,
(i) Special Program Accounts with respect to an Account Debtor whose
total obligations (including Eligible Accounts) owing to Borrower or Canadian
Guarantor, in the aggregate, exceed 10% (such percentage as applied to a
particular Account Debtor, provided, that, such percentage shall be fifteen
(15%) percent in the case where either Staples, Inc. or School Specialty, Inc.
is the Account Debtor, in any case, being subject to reduction by Lender in its
Permitted Discretion if the creditworthiness of such Account Debtor
deteriorates) of all Eligible Special Program Accounts and Eligible Accounts, to
the extent of the obligations owing by such Account Debtor in excess of such
percentage,
(j) Special Program Accounts with respect to which the Account Debtor
is subject to an Insolvency Proceeding, is not Solvent, has gone out of
business, or as to which Borrower or Canadian Guarantor, as the case may be, has
received notice of an imminent Insolvency Proceeding or a material impairment of
the financial condition of such Account Debtor,
(k) Special Program Accounts with respect to which the Account Debtor
is located in the states of New Jersey, Minnesota, or West Virginia (or any
other state that requires a creditor to file a business activity report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower or Canadian Guarantor, as the case may be, has
qualified to do business in New Jersey, Minnesota, West Virginia, or such other
states, or has filed a business activities report with the applicable division
of taxation, the department of revenue, or with such other state offices, as
appropriate, for the then-current year, or is exempt from such filing
requirement,
(l) Special Program Accounts, the collection of which, Lender, in its
Permitted Discretion, believes to be doubtful by reason of the Account Debtor's
financial condition,
(m) Special Program Accounts that are not subject to a valid and
perfected first priority Lender's Lien,
(n) Special Program Accounts with respect to which (i) the goods
giving rise to such Account have not been shipped and billed to the Account
Debtor, or (ii) the services giving rise to such Account have not been performed
and billed to the Account Debtor, or
(o) Special Program Accounts owed by an Account Debtor (or its
Affiliates) to the extent the aggregate US Dollar (or US Dollar Equivalent) of
such Special Program Accounts of such Account Debtor otherwise eligible times
fifty (50%) percent exceeds the US Dollar Equivalent of $750,000 (provided,
that, if the Account Debtor is School Specialty, Inc., the US Dollar (or US
Dollar Equivalent) limit shall be $1,000,000), or
(p) Special Program Accounts that represent the right to receive
progress payments or other advance billings that are due prior to the completion
of performance by Borrower or Canadian Guarantor, as the case may be, of the
subject contract for goods or services.
"Environmental Actions" means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter, or other communication from any
Governmental Authority, or any third party involving violations of Environmental
Laws or releases of Hazardous Materials from (a) any assets, properties, or
businesses of Borrower or Guarantor or any predecessor in interest, (b) from
adjoining properties or businesses, or (c) from or onto any facilities which
received Hazardous Materials generated by Borrower, any Guarantor or any
predecessor in interest.
"Environmental Law" means any applicable federal, state, provincial,
foreign or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy, or rule of common
law now or hereafter in effect and in each case as amended, or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, to the extent binding on Borrower or any
Subsidiary, relating to the environment, employee health and safety, or
Hazardous Materials, including CERCLA; RCRA; the Federal Water Pollution Control
Act, 33 USCss.1251 et seq; the Toxic Substances Control Act, 15 USC,ss. 2601 et
seq; the Clean Air Act, 42 USCss.7401 et seq.; the Safe Drinking Water Act, 42
USC.ss.3803 et seq.; the Oil Pollution Act of 1990, 33 USC.ss. 2701 et seq.; the
Emergency Planning and the Community Right-to-Know Act of 1986, 42 USC.ss. 11001
et seq.; the Hazardous Material Transportation Act, 49 USCss. 1801 et seq.; the
Occupational Safety and Health Act, 29 USC. ss.651 et seq. (to the extent it
regulates occupational exposure to Hazardous Materials), the Canadian
Environmental Assessment Act, the Canadian Environmental Protection Act, the
Environmental Assessment Act (Ontario) and the Environmental Protection Act
(Ontario); and any state, provincial, and local or foreign counterparts or
equivalents, in each case as amended from time to time.
"Environmental Liabilities and Costs" means all liabilities, monetary
obligations, Remedial Actions, losses, damages, punitive damages, consequential
damages, treble damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts, or consultants, and costs of
investigation and feasibility studies), fines, penalties, sanctions, and
interest incurred as a result of any claim or demand by any Governmental
Authority or any third party, and which relate to any Environmental Action.
"Environmental Lien" means any Lien in favor of any Governmental
Authority for Environmental Liabilities and Costs.
"Equipment" means all of Borrower's and Canadian Guarantor's now owned
or hereafter acquired right, title, and interest with respect to equipment,
machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles
(including motor vehicles), tools, parts, goods (other than consumer goods, farm
products, or Inventory), wherever located, including all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto.
"ERISA Affiliate" means (a) any Person subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower or any of its Subsidiaries under IRC Section 414(b), (b) any trade or
business subject to ERISA whose employees are treated as employed by the same
employer as the employees of Borrower or any of its Subsidiaries under IRC
Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412
of the IRC, any organization subject to ERISA that is a member of an affiliated
service group of which Borrower or any of its Subsidiaries is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section
412 of the IRC, any Person subject to ERISA that is a party to an arrangement
with Borrower or any of its Subsidiaries and whose employees are aggregated with
the employees of Borrower or any of its Subsidiaries under IRC Section 414(o).
"ERISA Event" shall mean (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder, with respect to a
Benefit Plan; (b) the adoption of any amendment to a Benefit Plan that would
require the provision of security pursuant to Section 401(a)(29) of the Code or
Section 307 of ERISA; (c) the existence with respect to any Benefit Plan of an
"accumulated funding deficiency" (as defined in Section 412 of the Code or
Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section
412 of the Code or Section 303(d) of ERISA of an application for a waiver of the
minimum funding standard with respect to any Benefit Plan; (e) the occurrence of
a "prohibited transaction" with respect to which Borrower or any of its
Subsidiaries is a "disqualified person" (within the meaning of Section 4975 of
the Code) or with respect to which Borrower or any of its Subsidiaries could
otherwise be liable for amounts in excess of $500,000; (f) a complete or partial
withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan or a
cessation of operations which is treated as such a withdrawal or notification
that a Multiemployer Plan is in reorganization; (g) the filing of a notice of
intent to terminate, the treatment of a Benefit Plan amendment as a termination
under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the
Pension Benefit Guaranty Corporation to terminate a Benefit Plan or
Multiemployer Plan; (h) an event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan;
(i) the imposition of any liability under Title IV of ERISA, other than the
Pension Benefit Guaranty Corporation premiums due but not delinquent under
Section 4007 of ERISA, upon Borrower or any ERISA Affiliate; and (j) any other
event or condition with respect to a Benefit Plan or Multiemployer Plan or any
Benefit Plan subject to Title IV of ERISA maintained, or contributed to, by any
ERISA Affiliate that could reasonably be expected to result in liability of
Borrower or any of its Subsidiaries for amounts in excess of $500,000.
"Event of Default" has the meaning set forth in Section 8.
"Excess Availability" means the amount, as of the date any
determination thereof is to be made, equal to Availability minus the aggregate
amount, if any, of all trade payables of Borrower and Canadian Guarantor aged in
excess of historical levels with respect thereto and all book overdrafts in
excess of historical practices with respect thereto, in each case as determined
by Lender in its Permitted Discretion.
"Exchange Act" means the Securities Exchange Act of 1934, as in effect
from time to time.
"Exchange Rate" shall mean the prevailing spot rate of exchange of
such bank as Lender may reasonably select for the purpose of conversion of one
currency to another, at or around 2:00 p.m., Atlanta, Georgia time, on the date
on which any such conversion of currency is to be made under this Agreement.
"Existing Lenders" shall mean the lenders to Borrower and Canadian
Guarantor listed on Schedule A hereto (and including First Union Commercial
Corporation, in its capacity as agent acting for such lenders) and their
respective predecessors, successors and assigns.
"Family Member" means, with respect to any individual, any other
individual having a relationship by blood (to the second degree of
consanguinity), marriage, or adoption to such individual.
"Family Trusts" means, with respect to any individual, trusts or other
estate planning vehicles established for the benefit of Family Members of such
individual and in respect of which such individual serves as trustee or in a
similar capacity.
"Fee Letter" means that certain fee letter, dated as of even date
herewith, between Borrower and Lender, in form and substance satisfactory to
Lender.
"FEIN" means Federal Employer Identification Number.
"Foreign Subsidiary" shall mean any direct or indirect Subsidiary of
Borrower organized in a jurisdiction other than the United States of America, a
state thereof, the District of Columbia, or Puerto Rico.
"Funding Date" means the date on which a Borrowing occurs.
"Funding Losses" has the meaning set forth in Section 2.14(b)(ii).
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, as set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board which are applicable to the circumstances
as of the date of determination consistently applied, except, that, if any
change in generally accepted accounting principles after the date hereof affects
the calculation of compliance with the financial covenants in Section 7.20
(a)(i), (ii) and (iii) such that such change would cause Borrower to be in
default of any such financial covenant(s), Borrower may by notice to Lender,
provide Lender with new Projections, in form and substance satisfactory to
Lender, incorporating such changes, and Lender shall, in its Permitted
Discretion, reset such covenant(s)s thereafter in accordance with generally
accepted accounting principles as then in effect.
"General Intangibles" means all of Borrower's and Canadian Guarantor's
now owned or hereafter acquired right, title, and interest with respect to
general intangibles (including payment intangibles, contract rights, rights to
payment, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, software,
literature, reports, catalogs, money, deposit accounts, insurance premium
rebates, tax refunds, and tax refund claims), and any and all supporting
obligations in respect thereof, and any other personal property other than
goods, Accounts, Investment Property, and Negotiable Collateral.
"Governing Documents" means, with respect to any Person, the
certificate or articles of incorporation, by-laws, or other organizational
documents of such Person.
"Governmental Authority" means any nation or government, federal,
state, local, provincial or other governmental or administrative body,
instrumentality, department, or agency or any court, tribunal, administrative
hearing body, arbitration panel, commission, or other similar dispute-resolving
panel or body.
"Grupo" means Grupo Dixon S.A. de C.V., a Mexican corporation and its
successors and assigns.
"Guarantors" shall mean, collectively, the following (together with
their respective successors and assigns): (a) Dixon Ticonderoga Inc., an Ontario
corporation, (B) Dixon Europe, Limited, a limited liability company organized
under the laws of the United Kingdom, (c) Grupo Dixon, S.A. de C.V., a
corporation organized under the laws of Mexico, (d) Dixon Comercializadora, S.A.
de C.V., a corporation organized under the laws of Mexico, (e), Servidix, S.A.
de C.V., a corporation organized under the laws of Mexico, (f), Dixon
Ticonderoga de Mexico, S.A. de C.V., a corporation organized under the laws of
Mexico, (g) Dixon Industrial Mexico, S.A. de C.V., a corporation organized under
the laws of Mexico, (h), Beijing Dixon Ticonderoga Stationery Company Limited, a
limited liability company organized under the laws of China, and (i) Ticonderoga
Graphite Inc.; each sometimes being referred to herein individually as a
"Guarantor".
"Guarantees" shall mean, collectively, those certain general
continuing guarantees executed and delivered by Canadian Guarantor and each of
the other Guarantors in favor of Lender, in form and substance satisfactory, to
Lender; each sometimes being referred to herein individually as a "Guarantee".
"Hazardous Materials" means (a) substances that are defined or listed
in, or otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Hedge Agreement" means any and all transactions, agreements, or
documents now existing or hereafter entered into between Borrower or its
Subsidiaries and Wells Fargo or its Affiliates, which provide for an interest
rate, credit, commodity or equity swap, cap, floor, collar, forward foreign
exchange transaction, currency swap, cross currency rate swap, currency option,
or any combination of, or option with respect to, these or similar transactions,
for the purpose of hedging Borrower's or its Subsidiaries' exposure to
fluctuations in interest or exchange rates, loan, credit exchange, security or
currency valuations or commodity prices.
"Heathrow Facility" means the Real Property and related improvements
owned by Borrower and located at 195 International Parkway, Heathrow, Florida.
"Indebtedness" means (a) all obligations for borrowed money, (b) all
obligations evidenced by bonds, debentures, notes, or other similar instruments
and all reimbursement or other obligations in respect of letters of credit,
bankers acceptances, interest rate swaps, or other financial products, (c) all
obligations under Capital Leases, (d) all obligations or liabilities of others
secured by a Lien on any asset of Borrower or its Subsidiaries, irrespective of
whether such obligation or liability is assumed, (e) all obligations for the
deferred purchase price of assets (other than trade debt incurred in the
ordinary course of business and repayable in accordance with customary trade
practices), and (f) any obligation guaranteeing or intended to guarantee
(whether directly or indirectly guaranteed, endorsed, co-made, discounted, or
sold with recourse) any obligation of any other Person.
"Indemnified Liabilities" has the meaning set forth in Section 11.3.
"Indemnified Person" has the meaning set forth in Section 11.3.
"Insolvency Proceeding" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other state
or federal bankruptcy, or under the bankruptcy or insolvency laws of Canada
(including the Bankruptcy and Insolvency Act (Canada) and the Companies'
Creditors Arrangement Act (Canada)), or any similar law now or hereafter in
effect in any jurisdiction or under any insolvency, reorganization,
administration, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity), assignments for the benefit of creditors, formal or informal
moratoria, compositions, extensions generally with creditors, or proceedings
seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that portion of
the book value of all of such Person's assets that would be treated as
intangibles under GAAP.
"Intercreditor Agreement" shall mean the Intercreditor and
Subordination Agreement, dated of even date herewith, by and among Lender and
Subordinated Noteholders, as acknowledged and agreed to by Borrower and
Guarantors, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
"Interest Period" means, with respect to each LIBOR Rate Loan, a
period commencing on the date of the making of such LIBOR Rate Loan and ending
1, 2, or 3 months thereafter; provided, however, that (a) if any Interest Period
would end on a day that is not a Business Day, such Interest Period shall be
extended (subject to clauses (c)-(e) below) to the next succeeding Business Day,
(b) interest shall accrue at the applicable rate based upon the LIBOR Rate from
and including the first day of each Interest Period to, but excluding, the day
on which any Interest Period expires, (c) any Interest Period that would end on
a day that is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Business Day, (d) with
respect to an Interest Period that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period), the Interest Period shall
end on the last Business Day of the calendar month that is 1, 2, or 3 months
after the date on which the Interest Period began, as applicable, and (e)
Borrower may not elect an Interest Period which will end after the Maturity
Date.
"Inventory" means all Borrower's and Canadian Guarantor's now owned or
hereafter acquired right, title, and interest with respect to inventory,
including goods held for sale or lease or to be furnished under a contract of
service, goods that are leased by Borrower or Canadian Guarantor, as the case
may be, as lessor, goods that are furnished by Borrower or Canadian Guarantor,
as the case may be, under a contract of service, and raw materials, work in
process, or materials used or consumed in Borrower's or Canadian Guarantor's, as
the case may be, business.
"Inventory Reserves" means reserves (determined from time to time by
Lender in its Permitted Discretion) for (a) the estimated costs relating to
unpaid freight charges, warehousing or storage charges, taxes, duties, and other
similar unpaid costs associated with the acquisition of Eligible In-Transit
Inventory by Borrower or Canadian Guarantor, as the case may be, plus (b) the
estimated reclamation claims of unpaid sellers of Inventory sold to Borrower or
Canadian Guarantor, as the case may be.
"Investment" means, with respect to any Person, any investment by such
Person in any other Person (including Affiliates) in the form of loans,
guarantees, advances, or capital contributions (excluding (a) commission,
travel, and similar advances to officers and employees of such Person made in
the ordinary course of business, and (b) bona fide Accounts arising in the
ordinary course of business consistent with past practices), purchases or other
acquisitions for consideration of Indebtedness or Stock, and any other items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
"Investment Property" means all of Borrower's and Canadian Guarantor's
now owned or hereafter acquired right, title, and interest with respect to
"investment property" as that term is defined in the Code, and any and all
supporting obligations in respect thereof.
"IRC" means the Internal Revenue Code of 1986, as in effect from time
to time.
"L/C" has the meaning set forth in Section 2.13(a).
"L/C Disbursement" means a payment made by Lender pursuant to a Letter
of Credit.
"L/C Undertaking" has the meaning set forth in Section 2.13(a).
"Lender" has the meaning set forth in the preamble to this Agreement.
"Lender Expenses" means all (a) costs or expenses (including taxes,
and insurance premiums) required to be paid by Borrower or any of its
Subsidiaries under any of the Loan Documents that are paid or incurred by
Lender, (b) fees or charges paid or incurred by Lender in connection with
Lender's transactions with Borrower or its Subsidiaries, including, fees or
charges for photocopying, notarization, couriers and messengers,
telecommunication, public record searches (including tax lien, litigation, and
UCC and PPSA searches and including searches with the patent and trademark
office, the copyright office, or the department of motor vehicles), filing,
recording, publication, appraisal (including periodic Collateral appraisals or
business valuations to the extent of the fees and charges (and up to the amount
of any limitation) contained in this Agreement), real estate surveys, real
estate title policies and endorsements, and environmental audits, (c) costs and
expenses incurred by Lender in the disbursement of funds to Borrower (by wire
transfer or otherwise), (d) charges paid or incurred by Lender resulting from
the dishonor of checks, (e) reasonable costs and expenses paid or incurred by
Lender to correct any default or enforce any provision of the Loan Documents, or
in gaining possession of, maintaining, handling, preserving, storing, shipping,
selling, preparing for sale, or advertising to sell the Collateral, or any
portion thereof, irrespective of whether a sale is consummated, (f) audit fees
and expenses of Lender related to audit examinations of the Books to the extent
of the fees and charges (and up to the amount of any limitation) contained in
this Agreement, (g) reasonable costs and expenses of third party claims or any
other suit paid or incurred by Lender in enforcing or defending the Loan
Documents or in connection with the transactions contemplated by the Loan
Documents or Lender's relationship with Borrower or any guarantor of the
Obligations, (h) Lender's reasonable fees and expenses (including attorneys
fees) incurred in advising, structuring, drafting, reviewing, administering, or
amending the Loan Documents, and (i) Lender's reasonable fees and expenses
(including attorneys fees) incurred in terminating, enforcing (including
attorneys fees and expenses incurred in connection with a "workout," a
"restructuring," or an Insolvency Proceeding concerning Borrower or any
Guarantor or in exercising rights or remedies under the Loan Documents), or
defending the Loan Documents, irrespective of whether suit is brought, or in
taking any Remedial Action concerning the Collateral.
"Lender-Related Person" means Lender, Lender's Affiliates, and the
officers, directors, employees, and agents of Lender.
"Lender's Account" means the account identified on Schedule L-1.
"Lender's Liens" means the Liens granted by Borrower or any Guarantor
to Lender under this Agreement or the other Loan Documents.
"Letter of Credit" means an L/C or an L/C Undertaking, as the context
requires.
"Letter of Credit Usage" means, as of any date of determination, the
aggregate undrawn amount of all outstanding Letters of Credit plus 100% of the
amount of outstanding time drafts accepted by an Underlying Issuer as a result
of drawings under Underlying Letters of Credit.
"LIBOR Deadline" has the meaning set forth in Section 2.14(b)(i).
"LIBOR Notice" means a written notice in the form of Exhibit L-1.
"LIBOR Rate" means, for each Interest Period for each LIBOR Rate Loan,
the rate per annum determined by Lender (rounded upwards, if necessary, to the
next 1/16%) by dividing (a) the Base LIBOR Rate for such Interest Period, by (b)
100% minus the Reserve Percentage. The LIBOR Rate shall be adjusted on and as of
the effective day of any change in the Reserve Percentage.
"LIBOR Rate Loan" means each portion of an Advance or the Term Loans
that bears interest at a rate determined by reference to the LIBOR Rate.
"LIBOR Rate Margin" means three and one-half of one (3.50%) percentage
points.
"LIBOR Rate Term Loan Margin" means four and one-quarter of one
(4.25%) percentage points.
"License Agreement" shall have the meaning set forth in Section 5.16.
"Lien" means any interest in an asset securing an obligation owed to,
or a claim by, any Person other than the owner of the asset, whether such
interest shall be based on the common law, statute, or contract, whether such
interest shall be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or the existence
of some future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, conditional
sale or trust receipt, or from a lease, consignment, or bailment for security
purposes and also including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property.
"Liquidity Event" means the occurrence of any of the following events:
(a) Borrower's receipt of any income tax refund for federal taxes paid for
fiscal years prior to the year 2002, (b) Borrower's receipt of any imported
pencil duty rebates, (c) the receipt of any principal payment in respect of the
Deer Lake Note and Mortgage and/or the Permitted Disposition of such note and
mortgage, or (d) the consummation of a sale/leaseback or mortgage refinancing
with respect to the Heathrow Facility.
"Loan Account" has the meaning set forth in Section 2.11.
"Loan Documents" means this Agreement, the Bank Product Agreements,
the Cash Management Agreements, the Control Agreements, the Copyright Security
Agreement, the Disbursement Letter, the Due Diligence Letter, the Fee Letter,
the Guarantees, the Letters of Credit, the Mortgages, the Officers' Certificate,
the Patent Security Agreement, the Stock Pledge Agreement, the Trademark
Security Agreement, any note or notes executed by Borrower in connection with
this Agreement and payable to Lender, and any other agreement entered into, now
or in the future, by Borrower or any Guarantor and Lender in connection with
this Agreement.
"Material Adverse Change" means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Borrower or any Guarantor, (b) a material
impairment of Borrower's or any Guarantor's ability to perform its obligations
under the Loan Documents to which it is a party or of Lender's ability to
enforce the Obligations or realize upon the Collateral, or (c) a material
impairment of the enforceability or priority of the Lender's Liens with respect
to the Collateral as a result of an action or failure to act on the part of
Borrower or any Guarantor.
"Maturity Date" has the meaning set forth in Section 3.4.
"Maximum Revolver Amount" means $25,000,000.
"Mortgages" means, individually and collectively, one or more
mortgages, hypothecs, deeds of trust, or deeds to secure debt, executed and
delivered by Borrower or Canadian Guarantor, as the case may be, in favor of
Lender, in form and substance satisfactory to Lender, that encumber the Real
Property Collateral and the related improvements thereto.
"Multiemployer Plan" shall mean a "multi-employer plan" as defined in
Section 4001(a)(3) of ERISA which is or was at any time during the current year
or the immediately preceding six (6) years contributed to by Borrower or any
ERISA Affiliate.
"NCR Buyer" means New Castle Refractories Company, Inc., a
Pennsylvania corporation and its successors and assigns.
"NCR Division" means the assets of Borrower constituting its New
Castle Refractories division located in New Castle, Lawrence County,
Pennsylvania, Newell, Hancock County, West Virginia, and Masillon (Townships of
Lawrence and Tuscarawas) Stark County, Ohio.
"NCR Properties" shall mean the Real Property of Borrower constituting
its New Castle Refractories division located in New Castle, Lawrence County,
Pennsylvania, Newell, Hancock County, West Virginia, and Masillon (Townships of
Lawrence and Tuscarawas), Stark County, Ohio.
"Negotiable Collateral" means all of Borrower's and Canadian
Guarantor's now owned and hereafter acquired right, title, and interest with
respect to letters of credit, letter of credit rights, instruments, promissory
notes, drafts, documents, and chattel paper (including electronic chattel paper
and tangible chattel paper), and any and all supporting obligations in respect
thereof.
"Net Liquidation Percentage" means the percentage of the book value of
Borrower's and Canadian Guarantor's Inventory that is estimated to be
recoverable in an orderly liquidation of such Inventory net of estimated
liquidation expenses, such percentage to be determined from time to time by a
qualified appraisal company selected by Lender.
"North American EBITDA" means, with respect to any fiscal period,
Borrower's and Canadian Guarantor's, combined United States and Canadian
operations net earnings (or loss), minus extraordinary gains, plus interest
expense, income taxes, and depreciation and amortization plus non-recurring
non-cash losses for such period, as determined in accordance with GAAP
"Obligations" means (a) all loans (including the Term Loans),
Advances, debts, principal, interest (including any interest that, but for the
provisions of the Bankruptcy Code, would have accrued), contingent reimbursement
obligations with respect to outstanding Letters of Credit, premiums, liabilities
(including all amounts charged to Borrower's Loan Account pursuant hereto),
obligations, fees (including the fees provided for in the Fee Letter), charges,
costs, Lender Expenses (including any fees or expenses that, but for the
provisions of the Bankruptcy Code, the Bankruptcy and Insolvency Act (Canada),
the Companies' Creditors Arrangement Act (Canada), or any similar statute would
have accrued), lease payments, guaranties, covenants, and duties of any kind and
description owing by Borrower and Guarantors to Lender pursuant to or evidenced
by the Loan Documents and irrespective of whether for the payment of money,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including all interest not paid when due and
all Lender Expenses that Borrower or any Guarantor is required to pay or
reimburse by the Loan Documents, by law, or otherwise, and (b) all Bank Product
Obligations. Any reference in this Agreement or in the Loan Documents to the
Obligations shall include all amendments, changes, extensions, modifications,
renewals replacements, substitutions, and supplements, thereto and thereof, as
applicable, both prior and subsequent to any Insolvency Proceeding.
"Officers' Certificate" means, the representations and warranties of
officers form submitted by Lender to Borrower and Canadian Guarantor, together
with Borrower's and Canadian Guarantor's completed responses to the inquiries
set forth therein, the form and substance of such responses to be satisfactory
to Lender.
"Overadvance" has the meaning set forth in Section 2.6.
"Participant" has the meaning set forth in Section 14.1(d).
"Patent Security Agreement" means a patent security agreement executed
and delivered by Borrower and Lender, the form and substance of which is
satisfactory to Lender.
"Pay-Off Letter" means a letter, in form and substance satisfactory to
Lender, from Existing Lender to Lender respecting the amount necessary to repay
in full all of the obligations of Borrower owing to Existing Lender and obtain a
release of all of the Liens existing in favor of Existing Lender in and to the
assets of Borrower.
"Permitted Discretion" means a determination made in good faith and in
the exercise of reasonable (from the perspective of a secured asset-based
lender) business judgment.
"Permitted Dispositions" means (a) sales or other dispositions by
Borrower or its Subsidiaries of Equipment that is substantially worn, damaged,
or obsolete in the ordinary course of business, provided, that, the proceeds of
any such disposition are immediately paid or delivered, or caused to paid or
delivered to Lender, for application to the Obligations in the following order:
first, to Term Loan B, second, to Term Loan A, and third, to the Advances, (b)
sales by Borrower or its Subsidiaries of Inventory to buyers in the ordinary
course of business, (c) the use or transfer of money or Cash Equivalents by
Borrower or its Subsidiaries in a manner that is not prohibited by the terms of
this Agreement or the other Loan Documents, (d) the licensing by Borrower or its
Subsidiaries, on a non-exclusive basis, of patents, trademarks, copyrights, and
other intellectual property rights in the ordinary course of business, (e) the
sale by Borrower of Equipment to Grupo, provided, that, each of the following
conditions has been satisfied in the determination of Lender: (i) Borrower shall
have sent written notice to Lender of such intended disposition no later than
thirty (30) days prior to the date of sale, which notice shall identify each of
the items of Equipment to be sold to the appraisal referred to in Section
3.1(w), (ii) such Equipment shall have a value in the aggregate, not in excess
of $300,000, (iii) such Equipment is currently located at Borrower's Sandusky,
Ohio, location, (iv) Borrower shall only accept cash consideration from Grupo,
in an amount not less than $300,000, which shall be immediately paid or
delivered, or caused to paid or delivered to Lender, for application to the
Obligations in the following order: first, to Term Loan B, second, to Term Loan
A, and third, to the Advances; (v) the sale shall have been consummated no later
than December 31, 2002; (vi) on the date of such sale and after giving effect
thereto, no Event of Default shall exist or have occurred and be continuing, and
(vii) in the event that, at the time of such disposition and after giving effect
to such disposition, the orderly liquidation value of the remaining Equipment or
the gross quick sale value of any of the Real Property Collateral as set forth
in the most recent acceptable appraisals received by Lender with respect thereto
has declined so that the then outstanding principal amount of the Term Loans is
more than such percentage of such appraised value as Lender used in establishing
the original principal amount of the Term Loans, Borrower shall additionally
prepay the Terms Loans by such amount, and such payments shall be applied in
accordance with Section 2.16(c), and (f) the sale of all of Borrower's right,
title and interest in and to the Deer Lake Note and Mortgage, provided, that,
each of the following conditions has been satisfied in the determination of
Lender: (i) Borrower shall have sent written notice to Lender of such intended
disposition no later than thirty (30) days prior to the date of sale, which
notice shall identify, among other things, the outstanding principal amount of
such Note and the intended purchaser thereof, and (ii) Borrower shall only
accept cash consideration from such purchaser, in an amount equal to not less
than eighty (80%) percent of the then outstanding principal amount of the Note,
which consideration shall be immediately paid or delivered, or caused to paid or
delivered to Lender, for application to the Obligations in accordance with
Section 2.16(b).
"Permitted Holder" means (a) Mr. Gino N. Pala, having an address c/o
Dixon Ticonderoga Company, 195 International Parkway, Heathrow, Florida 32746,
(b) Mr. Richard F. Joyce, having an address c/o Dixon Ticonderoga Company, 195
International Parkway, Heathrow, Florida 32746 and their respective Family
Members, and Family Trusts and (c) any of The Equitable Life Assurance Society
of the United States, John Hancock Life Insurance Company, or Signature 1A
(Cayman), Ltd.
"Permitted Investments" means (a) investments by Borrower or Canadian
Guarantor in Cash Equivalents, (b) investments by Borrower in negotiable
instruments for collection, (c) advances made by Borrower in connection with
purchases of goods or services in the ordinary course of business , (d) loans by
Borrower to Canadian Guarantor after the date hereof, provided, that, as to all
of such loans, (i) within thirty (30) days after the end of each fiscal month,
Borrower shall provide to Lender a report in form and substance satisfactory to
Lender of the outstanding amount of such loans as of the last day of the
immediately preceding month and indicating any loans made and payments received
during the immediately preceding month, (ii) the Indebtedness arising pursuant
to any such loan shall not be evidenced by a promissory note or other
instrument, unless the single original of such note or other instrument is
promptly delivered to Lender to hold as part of the Collateral, with such
endorsement and/or assignment by the payee of such note or other instrument as
Lender may require, (iii) as of the date of any such loan and after giving
effect thereto, Borrower shall be Solvent, and (iv) as of the date of any such
loan and after giving effect thereto, no Default or Event of Default shall exist
or have occurred and be continuing.
"Permitted Liens" means (a) Liens held by Lender, (b) Liens for unpaid
taxes that either (i) are not yet delinquent, or (ii) do not constitute an Event
of Default hereunder and are the subject of Permitted Protests, (c) Liens set
forth on Schedule P-1, (d) the interests of lessors under operating leases, (e)
purchase money Liens or the interests of lessors under Capital Leases to the
extent that such Liens or interests secure Permitted Purchase Money Indebtedness
and so long as such Lien attaches only to the asset purchased or acquired and
the proceeds thereof, (f) Liens arising by operation of law in favor of
warehousemen, landlords, carriers, mechanics, materialmen, laborers, or
suppliers, incurred in the ordinary course of business and not in connection
with the borrowing of money, and which Liens either (i) are for sums not yet
delinquent, or (ii) are the subject of Permitted Protests, (g) Liens arising
from deposits made in connection with obtaining worker's compensation or other
unemployment insurance, (h) Liens or deposits to secure performance of bids,
tenders, or leases incurred in the ordinary course of business and not in
connection with the borrowing of money, (i) Liens granted as security for surety
or appeal bonds in connection with obtaining such bonds in the ordinary course
of business, (j) Liens resulting from any judgment or award that is not an Event
of Default hereunder, (k) Liens with respect to the Real Property Collateral
that are exceptions to the commitments for title insurance issued in connection
with the Mortgages, as accepted by Lender, (l) liens and security interests of
Ohio National Life Insurance Company on the Heathrow Facility to secure
Indebtedness to Ohio National Life Insurance Company permitted under Section 7.2
(c) hereof, (m) liens and security interests of Subordinated Noteholders on the
Collateral, provided, that, such liens and security interests shall be subject
and subordinate in all respects to the liens and security interests of Lender,
and (n) with respect to any Real Property that is not part of the Real Property
Collateral, easements, rights of way, and zoning restrictions that do not
materially interfere with or impair the use or operation thereof.
"Permitted Protest" means the right of Borrower or any of its
Subsidiaries, as applicable, to protest any Lien (other than any such Lien that
secures the Obligations), taxes (other than payroll taxes or taxes that are the
subject of a United States federal tax lien), or rental payment, provided that
(a) a reserve with respect to such obligation is established on the Books in
such amount as is required under GAAP, (b) any such protest is instituted
promptly and prosecuted diligently by Borrower or any of its Subsidiaries, as
applicable, in good faith, and (c) Lender is satisfied that, while any such
protest is pending, there will be no impairment of the enforceability, validity,
or priority of any of the Lender's Liens.
"Permitted Purchase Money Indebtedness" means, as of any date of
determination, Purchase Money Indebtedness incurred after the Closing Date in an
aggregate principal amount outstanding at any one time not in excess of
$500,000.
"Person" means natural persons, corporations, limited liability
companies, limited partnerships, general partnerships, limited liability
partnerships, joint ventures, trusts, land trusts, business trusts, or other
organizations, irrespective of whether they are legal entities, and governments
and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other than Real
Property.
"PPSA" shall mean the Personal Property Security Act as in effect in
the Province of Ontario, the Civil Code of Quebec as in effect in the Province
of Quebec or any other Canadian Federal or Provincial statute pertaining to the
granting, perfecting, priority or ranking of security interests, liens,
hypothecs on personal property, and any successor statutes, together with any
regulations thereunder, in each case as in effect from time to time. References
to sections of the PPSA shall be construed to also refer to any successor
sections.
"Priority Payables" shall mean, as to Borrower or Canadian Guarantor
at any time, (10 the full amount of the liabilities of Borrower and Canadian
Guarantor at such time which (1) have a trust imposed to provide for payment or
a security interest, pledge, lien or charge ranking or capable of ranking senior
to or pari passu with security interests, liens or charges securing the
Obligations on any of the Eligible Accounts, Eligible Inventory of Borrower or
Canadian Guarantor, as the case may be, under Federal, Provincial, State,
county, district, municipal, or local law in Canada or (2) have a right imposed
to provide for payment ranking or capable of ranking senior to or pari passu
with the Obligations under local or national law, regulation or directive,
including, but not limited to, claims for unremitted and/or accelerated rents,
taxes (including claims for debts due to Inland Revenue or Customs and Excise),
wages, withholding taxes, and other amounts payable to an insolvency
administrator, employee withholdings or deductions and vacation pay, workers'
compensation obligations, government royalties or pension fund obligations in
each case to the extent such trust, or security interest, lien or charge has
been or may be imposed and (iii) the amount equal to the percentage applicable
to Inventory in the calculation of the Borrowing Base multiplied by the
aggregate Value of the Eligible Inventory of Borrower or Canadian Guarantor, as
the case may be, which Lender, in good faith, considers is or may be subject to
retention of title provisions by a supplier or a right of a supplier to recover
possession thereof, where such supplier's right has priority over the security
interests, liens or charges securing the Obligations, including, Eligible
Inventory subject to a right of a supplier to repossess goods pursuant to
Section 81.1 of the Bankruptcy and Insolvency Act (Canada) or any applicable
laws granting revendication or similar rights to unpaid suppliers or any similar
laws of Canada or any other applicable jurisdiction (provided, that, to the
extent such Inventory has been identified and has been excluded from Eligible
Inventory, the amount owing to the supplier shall not be considered a Priority
Payable).
"Projections" means Borrower's and its Subsidiaries, consolidated and
consolidating forecasted (a) balance sheets, (b) profit and loss statements, and
(c) cash flow statements, all prepared on a basis consistent with Borrower's
historical financial statements, together with appropriate supporting details
and a statement of underlying assumptions.
"Purchase Money Indebtedness" means Indebtedness (other than the
Obligations, but including Capitalized Lease Obligations), incurred at the time
of, or within 20 days after, the acquisition of any fixed assets for the purpose
of financing all or any part of the acquisition cost thereof.
"Qualified Import Letter of Credit" means a Letter of Credit that (a)
is issued to facilitate the purchase by Borrower of Eligible Inventory, (b) is
in form and substance acceptable to Lender, and (c) is issued to support an
Underlying Letter of Credit that only is drawable by the beneficiary thereof by
the presentation of, among other documents, either (i) a negotiable bill of
lading that is consigned to Lender (either directly or by means of endorsements)
and that was issued by the carrier respecting the subject Eligible Inventory, or
(ii) a negotiable cargo receipt that is consigned to Lender (either directly or
by means of endorsements) and that was issued by a consolidator respecting the
subject Eligible Inventory; provided, however, that, in the latter case, no bill
of lading shall have been issued by the carrier (other than a bill of lading
consigned to the consolidator or to Lender).
"Real Property" means any estates or interests in real property now
owned or hereafter acquired by Borrower or Canadian Guarantor and the
improvements thereto.
"Real Property Collateral" means the parcel or parcels of Real
Property identified on Schedule R-1 and any Real Property hereafter acquired by
Borrower or Canadian Guarantor, as the case may be. Real Property Collateral
does not include and will not include the Heathrow Facility until a refinancing
of the indebtedness of the Heathrow Facility occurs as permitted in Section
7.1(e).
"Record" means information that is inscribed on a tangible medium or
which is stored in an electronic or other medium and is retrievable in
perceivable form.
"Remedial Action" means all actions taken to (a) clean up, remove,
remediate, contain, treat, monitor, assess, evaluate, or in any way address
Hazardous Materials in the indoor or outdoor environment, (b) prevent or
minimize a release or threatened release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment, (c) perform any pre-remedial studies,
investigations, or post-remedial operation and maintenance activities, or (d)
conduct any other actions authorized by 42 USC ss. 9601.
"Required Availability" means Excess Availability and unrestricted
cash and Cash Equivalents in an amount of not less than $5,000,000.
"Reserve Percentage" means, on any day, for Lender, the maximum
percentage prescribed by the Board of Governors of the Federal Reserve System
(or any successor Governmental Authority) for determining the reserve
requirements (including any basic, supplemental, marginal, or emergency
reserves) that are in effect on such date with respect to eurocurrency funding
(currently referred to as "eurocurrency liabilities") of Lender, but so long as
Lender is not required or directed under applicable regulations to maintain such
reserves, the Reserve Percentage shall be zero.
"Revolver Usage" means, as of any date of determination, the sum of
(a) the then extant amount of outstanding Advances, plus (b) the then extant
amount of the Letter of Credit Usage.
"SEC" means the United States Securities and Exchange Commission and
any successor thereto.
"Securities Account" means a "securities account" as that term is
defined in the Code.
"Solvent" means, with respect to any Person on a particular date, that
such Person is not insolvent (as such term is defined in the Uniform Fraudulent
Transfer Act).
"Special Program Accounts" means Accounts of Borrower and Canadian
Guarantor which: (i) are for an amount in excess of $5,000, and pursuant to
which goods are shipped in November or December with 25% of the amount owing in
respect thereof being due and payable on June 15th of the following year and the
balance due September 15th, or (ii) are due from "educational customers"
pursuant to which goods are shipped between April 1st and July 31st of any year
with due dates of September 10th of the same year.
"Stock" means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including common stock, preferred stock, or
any other "equity security" (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the SEC under the Exchange Act).
"Stock Pledge Agreement" means a stock pledge agreement, in form and
substance satisfactory to Lender, executed and delivered by Borrower and/or
Canadian Guarantor to Lender with respect to the pledge of the Stock owned by
Borrower or Canadian Guarantor, as the case may be.
"Subordinated Debt" shall mean all obligations, liabilities and
indebtedness of every kind, nature and description owing by Borrower to
Subordinated Note Agent or any Subordinated Noteholder, including principal,
interest, charges, fees, premiums, indemnities and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, whether arising
under the Subordinated Debt Agreements or otherwise, whether now existing or
hereafter arising, whether arising before, during or after the initial or any
renewal term of the Subordinated Debt Agreements or after the commencement of
any case with respect to any Debtor under the U.S. Bankruptcy Code or any state
insolvency law or similar statute (and including, without limitation, any
principal, interest, fees, costs, expenses and other amounts, whether or not
such amounts are allowed or allowable in whole or in part, in any such case or
similar proceeding), whether direct or indirect, absolute or contingent, joint
or several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, and whether arising directly or howsoever acquired by
Subordinated Note Agent or any Subordinated Noteholder.
"Subordinated Debt Agreements" shall mean, collectively, the
Subordinated Note Agreement and all agreements, documents and instruments at any
time executed and/or delivered by Debtors or any other person to, with or in
favor of Subordinated Note Agent or any Subordinated Noteholder in connection
therewith or related thereto, as all of the foregoing now exist or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced.
"Subordinated Note Agent" shall mean State Street Bank and Trust
Company, a Massachusetts trust company, in its capacity as collateral agent
pursuant to the Subordinated Debt Agreements for the benefit and on behalf of
Subordinated Noteholders, and its successors and assigns (and including, without
limitation, any successors, assignee or additional person at any time acting as
agent for the benefit of or on behalf of it and/or Subordinated Noteholders).
"Subordinated Noteholders" shall mean, collectively, The Equitable
Life Assurance Society of the United States, John Hancock Life Insurance Company
and Signature 1A (Cayman), Ltd. and their respective successors and assigns
(including any other lender or group of lenders that at any time succeeds to or
refinances, replaces or substitutes for all or any portion of the Subordinated
Debt at any time and from time to time); each sometimes being referred to
individually as a "Subordinated Noteholder".
"Subordinated Note Purchase Agreement" shall mean, the Amended and
Restated Note and Warrant Purchase Agreement, dated of even date herewith, by
and among Borrower, and Subordinated Noteholders, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
"Subsidiary" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of Stock having ordinary voting power to elect a
majority of the board of directors (or appoint other comparable managers) of
such corporation, partnership, limited liability company, or other entity.
"Tangible Net Worth" means, as of any date of determination, the
result of (a) Borrower's (on a consolidated basis with its Subsidiaries) total
stockholder's equity, minus (b) the sum of (i) all Intangible Assets of Borrower
(on a consolidated basis with its Subsidiaries), (ii) all of Borrower's prepaid
expenses (on a consolidated basis with its Subsidiaries), and (iii) all amounts
due to Borrower from Affiliates plus (c) other comprehensive loss items, minus
(d) other comprehensive income items.
"Taxes" has the meaning set forth in Section 16.5.
"Term Loan A" has the meaning set forth in Section 2.2.
"Term Loan A Amount" means $2,000,000.
"Term Loan B" has the meaning set forth in Section 2.3.
"Term Loan B Amount" shall mean $1,000,000.
"Term Loans" means, collectively, Term Loan A and Term Loan B.
"Trademark Security Agreements" means the trademark security
agreements executed and delivered by each of Borrower and Canadian Guarantor and
Lender, the form and substance of which is satisfactory to Lender.
"Underlying Issuer" means a third Person which is the beneficiary of
an L/C Undertaking and which has issued a letter of credit at the request of
Lender for the benefit of Borrower and, in the case of a proposed Qualified
Import Letter of Credit, has agreed, in writing, to hold documents of title as
agent for Lender.
"Underlying Letter of Credit" means a letter of credit that has been
issued by an Underlying Issuer.
"US Dollar Equivalent" shall mean at any time (2) as to any amount
denominated in US Dollars, the amount thereof at such time, and (3) as to any
amount denominated in any other currency, the equivalent amount in US Dollars
calculated by Lender at such time using the Exchange Rate in effect on the
Business Day of determination.
"US Dollars" or "US$" or "$" shall mean lawful currency of the United
States of America.
"Value" shall mean, the US Dollar Equivalent, as determined by Lender
in good faith, with respect to Inventory, the lower of (a) cost computed on a
first-in first-out basis in accordance with GAAP or (b) market value, provided,
that, for purposes of the calculation of the Borrowing Base, (1) the Value of
the Inventory shall not include: (1) the portion of the value of Inventory equal
to the gross profit earned by any Affiliate on the sale thereof to Borrower or
Canadian Guarantor, as the case may be, (provided, that, in the case of gross
profit earned by Grupo on the sale of Inventory to Borrower or Canadian
Guarantor, as the case may be, the portion of the value of the Inventory equal
to the profit earned by Grupo not in excess of 15% shall be included in the
calculation of the value of such Inventory, and in the case of gross profit
earned by Borrower on the sale of Inventory to Canadian Guarantor, the portion
of the value of the Inventory equal to the profit not in excess of 18% shall be
included in the calculation of the value of such Inventory) or (2) write-ups or
write-downs in value with respect to currency exchange rates and (2)
notwithstanding anything to the contrary contained herein, the cost of the
Inventory shall be computed in the same manner and consistent with the most
recent appraisal of the Inventory received and accepted by Lender prior to the
date hereof, if any.
"Voidable Transfer" has the meaning set forth in Section 16.9.
"Wells Fargo" means Wells Fargo Bank, National Association, a national
banking association.
1.2 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower and its Subsidiaries on a
consolidated basis unless the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein.
1.4 Construction. Unless the context of this Agreement or any other Loan
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the term "including" is
not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement or any
other Loan Document refer to this Agreement or such other Loan Document, as the
case may be, as a whole and not to any particular provision of this Agreement or
such other Loan Document, as the case may be. Section, subsection, clause,
schedule, and exhibit references herein are to this Agreement unless otherwise
specified. Any reference in this Agreement or in the other Loan Documents to any
agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements, thereto and thereof, as applicable (subject to any
restrictions on such alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements
set forth herein). Any reference herein to any Person shall be construed to
include such Person's successors and assigns. Any requirement of a writing
contained herein or in the other Loan Documents shall be satisfied by the
transmission of a Record and any Record transmitted shall constitute a
representation and warranty as to the accuracy and completeness of the
information contained therein.
1.5 Schedules and Exhibits. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
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2.1 Revolver Advances.
(a) Subject to the terms and conditions of this Agreement, and during
the term of this Agreement, Lender agrees to make advances ("Advances") to
Borrower in an amount at any one time outstanding not to exceed an amount equal
to the lesser of (i) the Maximum Revolver Amount less the Letter of Credit
Usage, or (ii) the Borrowing Base less the Adjusted Letter of Credit Usage and
the aggregate amount of the Inventory Reserves. For purposes of this Agreement,
"Borrowing Base," as of any date of determination, shall mean the result of:
(x) the lesser of
(i) the sum of (A) eighty-five (85%) percent of the US
Dollar Equivalent of the amount of Eligible Accounts and (B) the
lesser of (1) fifty (50%) percent of the US Dollar Equivalent of the
amount of Eligible Special Program Accounts or (2) $2,500,000; less
the aggregate US Dollar Equivalent of the amount, if any, of the
Dilution Reserve, and
(ii) an amount equal to the US Dollar Equivalent of
Borrower's and Canadian Guarantor's Collections with respect to
Accounts for the immediately preceding 90 days if the date of
determination occurs during the months of September, October,
November, December, January, or February and 120 days if the date of
determination occurs during the months of March, April, May, June,
July or August, plus
(y) the lowest of
(i) $15,000,000,
(ii) the sum of (A) twenty-five (25%) percent of the US
Dollar Equivalent of the Value of Eligible Inventory consisting of raw
materials and (B) seventy (70%) percent of the US Dollar Equivalent of
the Value of Eligible Inventory consisting of finished goods,
(iii) eighty (80%) percent of the then extant Net
Liquidation Percentage of the US Dollar Equivalent of the book value
of Borrower's and Canadian Guarantor's Eligible Inventory by category,
and
(iv) 125% of the amount of credit availability created by
clause (x) above, minus
(z) the sum of (i) the Bank Products Reserve, and (ii) the
aggregate amount of reserves, if any, established by Lender under Section
2.1(b).
(b) Anything to the contrary in this Section 2.1 notwithstanding,
Lender shall have the right to establish reserves in such amounts, and with
respect to such matters, as Lender in its Permitted Discretion shall deem
necessary or appropriate, against the Borrowing Base, including reserves with
respect to (i) sums that Borrower or Canadian Guarantor, as the case may be, is
required to pay (such as taxes, assessments, insurance premiums, or, in the case
of leased assets, rents or other amounts payable under such leases) and has
failed to pay under any Section of this Agreement or any other Loan Document,
and (ii) amounts owing by Borrower or Canadian Guarantor, as the case may be, to
any Person to the extent secured by a Lien on, or trust over, any of the
Collateral (other than any existing Permitted Lien set forth on Schedule P-1
which is specifically identified thereon as entitled to have priority over the
Lender's Liens), which Lien or trust, in the Permitted Discretion of Lender
likely would have a priority superior to the Lender's Liens (such as Liens or
trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen,
laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, or
other taxes where given priority under applicable law) in and to such item of
the Collateral, (iii) to reflect Priority Payables, (iv) the amount of the
accrued and unpaid royalties, fees or other charges owing to any owner or
licensor of intellectual property subject to a License Agreement (including,
without limitation, the agreements with the licensors on Schedule 3.1(q))
affixed to, incorporated in or otherwise used in connection with the
manufacture, distribution or sale of Inventory (but not including for this
purpose royalties, fees or other charges owing to any owner or licensor if the
License Agreement with respect thereto includes provisions satisfactory to
Lender allowing the security interest of Lender in such Inventory and giving
Lender the ability to use such intellectual property to sell or otherwise
realize on such Inventory), and (v) to locations leased by Borrower or as to
locations owned and operated by a third person, if Lender shall not have
received a Collateral Access Agreement from the owner and operator or lessor
with respect to such location, duly authorized, executed and delivered by such
owner and operator or lessor (or Lender shall determine to accept a Collateral
Access Agreement that does not include all required provisions or provisions in
the form otherwise required by Lender), Lender may, at its option, establish
such reserves in respect of amounts at any time due or to become due to the
owner and operator or lessor thereof as Lender shall determine. In addition to
the foregoing, Lender shall have the right to have the Inventory reappraised by
a qualified appraisal company selected by Lender from time to time after the
Closing Date for the purpose of redetermining the Net Liquidation Percentage of
the Eligible Inventory portion of the Collateral and, as a result, redetermining
the Borrowing Base.
(c) Anything to the contrary in Section 2.1(a) notwithstanding,
availability created by the Eligible Accounts, Eligible Special Program
Accounts, and Eligible Inventory of Canadian Guarantor, for purposes of
calculating the Borrowing Base, shall never exceed the US Dollar Equivalent of
$5,000,000.
(d) Lender shall have no obligation to make additional Advances
hereunder to the extent such additional Advances would cause the Revolver Usage
to exceed the Maximum Revolver Amount.
(e) Amounts borrowed pursuant to this Section may be repaid and,
subject to the terms and conditions of this Agreement, reborrowed at any time
during the term of this Agreement.
2.2 Term Loan A. Subject to the terms and conditions of this Agreement, on
the Closing Date Lender agrees to make a term loan (the "Term Loan A") to
Borrower in an amount equal to the Term Loan A Amount. Term Loan A shall be
repaid in thirty-six (36) consecutive monthly installments, commencing on
November 1, 2002, and on the first day of each calendar month thereafter, the
first thirty-five installments of which shall be in the amount of $33,333. The
outstanding unpaid principal balance and all accrued and unpaid interest under
Term Loan A shall be due and payable on the date of termination of this
Agreement, whether by its terms, by prepayment, or by acceleration. All amounts
outstanding under Term Loan A shall constitute Obligations.
2.3 Term Loan B. Subject to the terms and conditions of this Agreement, on
the Closing Date Lender agrees to make a term loan (the "Term Loan B") to
Borrower in an amount equal to the Term Loan B Amount. Term Loan B shall be
repaid in thirty-six (36) consecutive installments, commencing November 1, 2002
and on the first day of each calendar month thereafter, the first thirty-five
installments of which shall be in the amount of $16,667. The outstanding unpaid
principal balance and all accrued and unpaid interest under Term Loan B shall be
due and payable on the date of termination of this Agreement, whether by its
terms, by prepayment, or by acceleration. All amounts outstanding under Term
Loan B shall constitute Obligations.
2.4 Borrowing Procedures and Settlements.
(a) Procedure for Borrowing. Each Borrowing shall be made by a request
by an Authorized Person delivered to Lender (which notice must be received by
Lender no later than 1:00 p.m. (Atlanta, Georgia time) on the Business Day that
is the requested Funding Date specifying (i) the amount of such Borrowing, and
(ii) the requested Funding Date, which shall be a Business Day. At Lender's
election, in lieu of delivering the above-described request in writing, any
Authorized Person may give Lender telephonic notice of such request by the
required time, with such telephonic notice to be confirmed in writing within 24
hours of the giving of such notice.
(b) Making of Advances. If Lender has received a timely request for a
Borrowing in accordance with the provisions hereof, and subject to the
satisfaction of the applicable terms and conditions set forth herein, Lender
shall make the proceeds of such Advance available to Borrower on the applicable
Funding Date by transferring immediately available funds equal to such proceeds
to Borrower's Designated Account.
2.5 Payments.
(a) Payments by Borrower. Except as otherwise expressly provided
herein, all payments by Borrower shall be made to Lender's Account and shall be
made in immediately available funds, no later than 2:00 p.m. (Atlanta, Georgia
time) on the date specified herein. Any payment received by Lender later than
2:00 p.m. (Atlanta, Georgia time) shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall continue to
accrue until such following Business Day.
(b) Application of Payments.
(i) All payments shall be remitted to Lender and all such
payments (other than payments received while no Default or Event of Default
has occurred and is continuing and which relate to the payment of principal
or interest of specific Obligations or which relate to the payment of
specific fees), and all proceeds of Accounts or other Collateral received
by Lender, shall be applied as follows:
(A) first, to pay any Lender Expenses then due to Lender
under the Loan Documents, until paid in full,
(B) second, to pay any fees then due to Lender under the
Loan Documents until paid in full,
(C) third, ratably to pay interest due in respect of the
Advances and the Term Loans until paid in full,
(D) fourth, ratably to pay all principal amounts then due
and payable (other than as a result of an acceleration thereof) with
respect to the Term Loans until paid in full,
(E) fifth, so long as no Event of Default has occurred and
is continuing, and at Lender's election, to pay amounts then due and
owing by Borrower or its Subsidiaries in respect of Bank Products,
until paid in full,
(F) sixth, so long as no Event of Default has occurred and
is continuing, to pay the principal of all Advances until paid in
full,
(G) seventh, if an Event of Default has occurred and is
continuing, ratably (i) to pay the principal of all Advances until
paid in full, and (ii) to Lender, to be held by Lender, for the
benefit of Wells Fargo or its Affiliates, as applicable, as cash
collateral in an amount up to the amount of the Bank Products Reserve
established prior to the occurrence of, and not in contemplation of,
the subject Event of Default until Borrower's and its Subsidiaries'
obligations in respect of the then extant Bank Products have been paid
in full or the cash collateral amount has been exhausted,
(H) eighth, if an Event of Default has occurred and is
continuing, to pay ratably the outstanding principal balance of the
Term Loans (in the inverse order of the maturity of the installments
due thereunder) until the Term Loans are paid in full,
(I) ninth, if an Event of Default has occurred and is
continuing, to be held by Lender as cash collateral in an amount up to
105% of the then extant Letter of Credit Usage until paid in full,
(J) tenth, to pay any other Obligations until paid in full,
and
(K) eleventh, to Borrower (to be wired to the Designated
Account) or such other Person entitled thereto under applicable law.
(ii) In each instance, so long as no Default or Event of Default
has occurred and is continuing, Section 2.5(b) shall not be deemed to apply
to any payment by Borrower specified by Borrower to be for the payment of
specific Obligations then due and payable (or prepayable) under any
provision of this Agreement.
(iii) For purposes of the foregoing, "paid in full" means payment
of all amounts owing under the Loan Documents according to the terms
thereof, including loan fees, service fees, professional fees, interest
(and specifically including interest accrued after the commencement of any
Insolvency Proceeding), default interest, interest on interest, and expense
reimbursements, whether or not the same would be or is allowed or
disallowed in whole or in part in any Insolvency Proceeding.
(iv) In the event of a direct conflict between the priority
provisions of this Section 2.5 and other provisions contained in any other
Loan Document, it is the intention of the parties hereto that such priority
provisions in such documents shall be read together and construed, to the
fullest extent possible, to be in concert with each other. In the event of
any actual, irreconcilable conflict that cannot be resolved as aforesaid,
the terms and provisions of this Section 2.5 shall control and govern.
2.6 Overadvances. If, at any time or for any reason, the amount of
Obligations (other than Bank Product Obligations) owed by Borrower to Lender
pursuant to Sections 2.1 and 2.12 is greater than either the Dollar or
percentage limitations set forth in Sections 2.1 or 2.12, (an "Overadvance"),
Borrower immediately shall pay to Lender, in cash, the amount of such excess,
which amount shall be used by Lender to reduce the Obligations in accordance
with the priorities set forth in Section 2.5(b). In addition, Borrower hereby
promises to pay the Obligations (including principal, interest, fees, costs, and
expenses) in Dollars in full to Lender as and when due and payable under the
terms of this Agreement and the other Loan Documents.
2.7 Interest Rates and Letter of Credit Fee: Rates, Payments, and
Calculations.
(a) Interest Rates. Except as provided in clause (c) below, all
Obligations (except for undrawn Letters of Credit and except for Bank Product
Obligations) that have been charged to the Loan Account pursuant to the terms
hereof shall bear interest on the Daily Balance thereof as follows (i) if the
relevant Obligation is an Advance that is a LIBOR Rate Loan, at a per annum rate
equal to the LIBOR Rate plus the LIBOR Rate Margin, (ii) if the relevant
Obligation is a portion of the Term Loans that is a LIBOR Rate Loan, at a per
annum rate equal to the LIBOR Rate plus the LIBOR Rate Term Loan Margin, (iii)
if the relevant Obligation is a portion of the Term Loans that is a Base Rate
Loan, at a per annum rate equal to the Base Rate plus the Base Rate Term Loan
Margin, and (iv) otherwise, at a per annum rate equal to the Base Rate plus the
Base Rate Margin.
(b) Letter of Credit Fee. Borrower shall pay Lender a Letter of Credit
fee (in addition to the charges, commissions, fees, and costs set forth in
Section 2.13(e)) which shall accrue at a rate equal to 3.50% per annum of the
Daily Balance of the undrawn amount of all outstanding Letters of Credit.
(c) Default Rate. Upon the occurrence and during the continuation of
an Event of Default,
(i) all Obligations (except for undrawn Letters of Credit and
except for Bank Products Obligations) that have been charged to the Loan
Account pursuant to the terms hereof shall bear interest on the Daily
Balance thereof at a per annum rate equal to 3 percentage points above the
per annum rate otherwise applicable hereunder, and
(ii) the Letter of Credit fee provided for above shall be
increased to 3 percentage points above the per annum rate otherwise
applicable hereunder.
(d) Payment. Interest, Letter of Credit fees, and all other fees
payable hereunder shall be due and payable, in arrears, on the first day of each
month at any time that Obligations or obligation to extend credit hereunder are
outstanding. Borrower hereby au+thorizes Lender, from time to time without prior
notice to Borrower, to charge such interest and fees, all Lender Expenses (as
and when incurred), the charges, commissions, fees, and costs provided for in
Section 2.13(e) (as and when accrued or incurred), the fees and costs provided
for in Section 2.12 (as and when accrued or incurred), and all other payments as
and when due and payable under any Loan Document (including the installments due
and payable with respect to the Term Loans and including any amounts due and
payable to Wells Fargo or its Affiliates in respect of Bank Products up to the
amount of the then extant Bank Products Reserve) to Borrower's Loan Account,
which amounts thereafter shall constitute Advances hereunder and shall accrue
interest at the rate then applicable to Advances hereunder. Any interest not
paid when due shall be compounded by being charged to Borrower's Loan Account
and shall thereafter constitute Advances hereunder and shall accrue interest at
the rate then applicable to Advances that are Base Rate Loans hereunder.
(e) Computation. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed. In the event the Base Rate is changed from time to time
hereafter, the rates of interest hereunder based upon the Base Rate
automatically and immediately shall be increased or decreased by an amount equal
to such change in the Base Rate.
(f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall
the interest rate or rates payable under this Agreement, plus any other amounts
paid in connection herewith, exceed the highest rate permissible under any law
that a court of competent jurisdiction shall, in a final determination, deem
applicable. Borrower and Lender, in executing and delivering this Agreement,
intend legally to agree upon the rate or rates of interest and manner of payment
stated within it; provided, however, that, anything contained herein to the
contrary notwithstanding, if said rate or rates of interest or manner of payment
exceeds the maximum allowable under applicable law, then, ipso facto, as of the
date of this Agreement, Borrower is and shall be liable only for the payment of
such maximum as allowed by law, and payment received from Borrower in excess of
such legal maximum, whenever received, shall be applied to reduce the principal
balance of the Obligations to the extent of such excess.
(g) Interest Payable by Canadian Guarantor. With respect to any
interest payable to Lender by Canadian
Guarantor pursuant to the Loan Documents,
(i) For purposes of disclosure under the Interest Act (Canada),
where interest is calculated pursuant thereto at a rate based upon a three
hundred sixty (360) day year or three hundred sixty-five (365) day year
(the "First Rate"), the rate or percentage of interest on a yearly basis is
equivalent to such First Rate multiplied by the actual number of days in
the year divided by three hundred sixty (360) or three hundred sixty-five
(365), as applicable.
(ii) Notwithstanding the provisions of this Section 3 or any
other provision of this Agreement, in no event shall the aggregate
"interest" (as that term is defined in Section 347 of the Criminal Code
(Canada)) with respect to any Loans by or on behalf of Lender exceed the
effective annual rate of interest on the "credit advanced" (as defined
therein) lawfully permitted under Section 347 of the Criminal Code
(Canada). The effective annual rate of interest for such purpose shall be
determined in accordance with generally accepted actuarial practices and
principles over the term of the applicable Loan by or on behalf of Lender,
and in the event of a dispute, a certificate of a Fellow of the Canadian
Institute of Actuaries appointed by Lender will be conclusive for the
purposes of such determination.
(iii) A certificate of an authorized signing officer of Lender as
to each rate of interest payable hereunder from time to time absent
manifest error shall be conclusive evidence of such rate.
For greater certainty, unless otherwise specified in this Agreement or any
of the other Loan Documents, as applicable, whenever any amount is payable
under this Agreement or any of the other Loan Documents by Canadian
Guarantor as interest or as a fee which requires the calculation of an
amount using a percentage per annum, each party to this Agreement
acknowledges and agrees that such amount shall be calculated as of the date
payment is due without application of the "deemed reinvestment principle"
or the "effective yield method." As an example, when interest is calculated
and payable monthly, the rate of interest payable per month is one twelfth
(1/12) of the stated rate of interest per annum.
2.5 Cash Management.
(a) Borrower and Canadian Guarantor shall each (i) establish and
maintain cash management services of a type and on terms satisfactory to Lender
at one or more of the banks set forth on Schedule 2.8(a) (each, a "Cash
Management Bank"), and shall request in writing and otherwise take such
reasonable steps to ensure that all of its Account Debtors forward payment of
the amounts owed by them directly to such Cash Management Bank(s), and (ii)
deposit or cause to be deposited promptly, and in any event no later than the
first Business Day after the date of receipt thereof, all Collections (including
those sent directly by Account Debtors to a Cash Management Bank) into a bank
account in Lender's name (a "Cash Management Account") at one of the Cash
Management Banks.
(b) Each Cash Management Bank shall establish and maintain Cash
Management Agreements with Lender and Borrower or Canadian Guarantor, as the
case may be, in form and substance acceptable to Lender. Each such Cash
Management Agreement shall provide, among other things, that (i) all items of
payment deposited in such Cash Management Account and proceeds thereof are held
by such Cash Management Bank as agent or bailee-in-possession for Lender, (ii)
the Cash Management Bank has no rights of setoff or recoupment or any other
claim against the applicable Cash Management Account other than for payment of
its service fees and other charges directly related to the administration of
such Cash Management Account and for returned checks or other items of payment,
and (iii) it immediately will forward by daily sweep all amounts in the
applicable Cash Management Account to the Lender's Account except, with respect
to Canadian Guarantor, in which case, the applicable Cash Management Bank shall
only be required to make daily sweeps to Lender's Account upon Lender's
notification to such Cash Management Bank of the occurrence of an Event of
Default.
(c) So long as no Default or Event of Default has occurred and is
continuing, Borrower (on its own behalf and on behalf of Canadian Guarantor) may
amend Schedule 2.8(a) to add or replace a Cash Management Bank or Cash
Management Account; provided, however, that (i) such prospective Cash Management
Bank shall be satisfactory to Lender and Lender shall have consented in writing
in advance to the opening of such Cash Management Account with the prospective
Cash Management Bank, and (ii) prior to the time of the opening of such Cash
Management Account, Borrower and such prospective Cash Management Bank shall
have executed and delivered to Lender a Cash Management Agreement. Borrower and
Canadian Guarantor shall close any of their respective Cash Management Accounts
(and establish replacement cash management accounts in accordance with the
foregoing sentence) promptly and in any event within 30 days of notice from
Lender that the creditworthiness of any Cash Management Bank is no longer
acceptable in Lender's reasonable judgment, or as promptly as practicable and in
any event within 60 days of notice from Lender that the operating performance,
funds transfer, or availability procedures or performance of the Cash Management
Bank with respect to Cash Management Accounts or Lender's liability under any
Cash Management Agreement with such Cash Management Bank is no longer acceptable
in Lender's reasonable judgment.
(d) The Cash Management Accounts shall be cash collateral accounts,
with all cash, checks and similar items of payment in such accounts securing
payment of the Obligations, and in which Borrower or Canadian Guarantor, as the
case may be, is hereby deemed to have granted a Lien to Lender.
2.9 Crediting Payments; Float Charge. The receipt of any payment item by
Lender (whether from transfers to Lender by the Cash Management Banks pursuant
to the Cash Management Agreements or otherwise) shall not be considered a
payment on account unless such payment item is a wire transfer of immediately
available federal funds made to the Lender's Account or unless and until such
payment item is honored when presented for payment. Should any payment item not
be honored when presented for payment, then Borrower shall be deemed not to have
made such payment and interest shall be calculated accordingly. Anything to the
contrary contained herein notwithstanding, any payment item shall be deemed
received by Lender only if it is received into the Lender's Account on a
Business Day on or before 2:00 p.m. (Atlanta, Georgia time). If any payment item
is received into the Lender's Account on a non-Business Day or after 2:00 p.m.
(Atlanta, Georgia time) on a Business Day, it shall be deemed to have been
received by Lender as of the opening of business on the immediately following
Business Day. From and after the Closing Date, Lender shall be entitled to
charge Borrower for one (1) Business Day of `clearance' or `float' at the rate
applicable to Base Rate Loans under Section 2.7 on all Collections that are
received by Borrower (regardless of whether forwarded by the Cash Management
Banks to Lender). This across-the-board one (1) Business Day clearance or float
charge on all Collections is acknowledged by the parties to constitute an
integral aspect of the pricing of the financing of Borrower and shall apply
irrespective of whether or not there are any outstanding monetary Obligations;
the effect of such clearance or float charge being the equivalent of charging
one (1) Business Day of interest on such Collections.
2.10 Designated Account. Lender is authorized to make the Advances and the
Term Loans, and Lender is authorized to issue the Letters of Credit, under this
Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Person, or without instructions if pursuant to
Section 2.7(d). Borrower agrees to establish and maintain the Designated Account
with the Designated Account Bank for the purpose of receiving the
proceeds of the Advances requested by Borrower and made by Lender hereunder.
Unless otherwise agreed by Lender and Borrower, any Advance requested by
Borrower and made by Lender hereunder shall be made to the Designated Account.
2.11 Maintenance of Loan Account; Statements of Obligations. Lender shall
maintain an account on its books in the name of Borrower (the "Loan Account") on
which Borrower will be charged with the Term Loans, all Advances made by Lender
to Borrower or for Borrower's account, the Letters of Credit issued by Lender
for Borrower's account, and with all other payment Obligations hereunder or
under the other Loan Documents (except for Bank Product Obligations), including,
accrued interest, fees and expenses, and Lender Expenses. In accordance with
Section 2.9, the Loan Account will be credited with all payments received by
Lender from Borrower or for Borrower's account, including all amounts received
in the Lender's Account from any Cash Management Bank. Lender shall render
statements regarding the Loan Account to Borrower, including principal,
interest, fees, and including an itemization of all charges and expenses
constituting Lender Expenses owing, and such statements shall be conclusively
presumed to be correct and accurate and constitute an account stated between
Borrower and Lender unless, within 30 days after receipt thereof by Borrower,
Borrower shall deliver to Lender written objection thereto describing the error
or errors contained in any such statements.
2.12 Fees. Borrower shall pay to Lender the following fees and charges,
which fees and charges shall be non-refundable when paid (irrespective of
whether this Agreement is terminated thereafter):
(a) Unused Line Fee. On the first day of each month during the term of
this Agreement, an unused line fee in an amount equal to .50% per annum of the
result of (a) the Maximum Revolver Amount, less (b) the sum of (i) the average
Daily Balance of Advances that were outstanding during the immediately preceding
month, plus (ii) the average Daily Balance of the Letter of Credit Usage during
the immediately preceding month,
(b) Fee Letter Fees. As and when due and payable under the terms of
the Fee Letter, Borrower shall pay to Lender the fees set forth in the Fee
Letter, and
(c) Audit, Appraisal, and Valuation Charges. Audit, appraisal, and
valuation fees and charges as follows (i) a fee of $850 per day, per auditor,
plus out-of-pocket expenses for each financial audit or field examination of
Borrower and/or Canadian Guarantor performed by personnel employed by Lender,
(ii) if implemented, a one time charge of $3,000 plus out-of-pocket expenses for
expenses for the establishment of electronic collateral reporting systems, (iii)
a fee of $1,500 per day per appraiser, plus out-of-pocket expenses, for each
appraisal of the Collateral performed by personnel employed by Lender, and (iv)
the actual charges paid or incurred by Lender if it elects to employ the
services of one or more third Persons to perform financial audits of Borrower
and/or Canadian Guarantor, to appraise the Collateral, or any portion thereof,
or to assess Borrower's and/or Canadian Guarantor's business valuation.
2.13 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, Lender
agrees to issue letters of credit for the account of Borrower (each, an "L/C")
or to purchase participations or execute indemnities or reimbursement
obligations (each such undertaking, an "L/C Undertaking") with respect to
letters of credit issued by an Underlying Issuer (as of the Closing Date, the
prospective Underlying Issuer is to be Wells Fargo) for the account of Borrower.
To request the issuance of an L/C or an L/C Undertaking (or the amendment,
renewal, or extension of an outstanding L/C or L/C Undertaking), Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by Lender) to Lender (reasonably in
advance of the requested date of issuance, amendment, renewal, or extension) a
notice requesting the issuance of an L/C or L/C Undertaking, or identifying the
L/C or L/C Undertaking to be amended, renewed, or extended, the date of
issuance, amendment, renewal, or extension, the date on which such L/C or L/C
Undertaking is to expire, the amount of such L/C or L/C Undertaking, the name
and address of the beneficiary thereof (or the beneficiary of the Underlying
Letter of Credit, as applicable), and such other information as shall be
necessary to prepare, amend, renew, or extend such L/C or L/C Undertaking. If
requested by Lender, Borrower also shall be an applicant under the application
with respect to any Underlying Letter of Credit that is to be the subject of an
L/C Undertaking. Lender shall have no obligation to issue a Letter of Credit if
any of the following would result after giving effect to the requested Letter of
Credit:
(i) the Adjusted Letter of Credit Usage would exceed the
Borrowing Base less the amount of outstanding Advances, or
(ii) the Letter of Credit Usage would exceed $2,000,000, or
(iii) the Letter of Credit Usage would exceed the Maximum
Revolver Amount less the then extant amount of outstanding Advances.
(b) Borrower and Lender acknowledge and agree that certain Underlying
Letters of Credit may be issued to support letters of credit that already are
outstanding as of the Closing Date. Each Letter of Credit (and corresponding
Underlying Letter of Credit) shall be in form and substance acceptable to Lender
(in the exercise of its Permitted Discretion), including the requirement that
the amounts payable thereunder must be payable in Dollars. If Lender is
obligated to advance funds under a Letter of Credit, Borrower immediately shall
reimburse such L/C Disbursement to Lender by paying to Lender an amount equal to
such L/C Disbursement not later than 2:00 p.m., Atlanta, Georgia time, on the
date that such L/C Disbursement is made, if Borrower shall have received written
or telephonic notice of such L/C Disbursement prior to 1:00 p.m., Atlanta,
Georgia time, on such date, or, if such notice has not been received by Borrower
prior to such time on such date, then not later than 2:00 p.m., Atlanta, Georgia
time, on the Business Day that Borrower receives such notice, if such notice is
received prior to 1:00 p.m., Atlanta, Georgia time, on the date of receipt, and,
in the absence of such reimbursement, the L/C Disbursement immediately and
automatically shall be deemed to be an Advance hereunder and, thereafter, shall
bear interest at the rate then applicable to Advances that are Base Rate Loans
under Section 2.7. To the extent an L/C Disbursement is deemed to be an Advance
hereunder, Borrower's obligation to reimburse such L/C Disbursement shall be
discharged and replaced by the resulting Advance.
(c) Borrower and each Guarantor, jointly and severally, hereby agrees
to indemnify, save, defend, and hold Lender harmless from any loss, cost,
expense, or liability, and reasonable attorneys fees incurred by Lender arising
out of or in connection with any Letter of Credit; provided, however, that
neither Borrower nor any Guarantor shall be obligated hereunder to indemnify for
any loss, cost, expense, or liability that is caused by the gross negligence or
willful misconduct of Lender. Borrower and each Guarantor agrees to be bound by
the Underlying Issuer's regulations and interpretations of any Underlying Letter
of Credit or by Lender's interpretations of any L/C issued by Lender to or for
Borrower's account, even though this interpretation may be different from
Borrower's own, and Borrower and each Guarantor understands and agrees that
Lender shall not be liable for any error, negligence, or mistake, whether of
omission or commission, in following Borrower's instructions or those contained
in the Letter of Credit or any modifications, amendments, or supplements
thereto. Borrower and each Guarantor understands that the L/C Undertakings may
require Lender to indemnify the Underlying Issuer for certain costs or
liabilities arising out of claims by Borrower against such Underlying Issuer.
Borrower and each Guarantor, jointly and severally, hereby agrees to indemnify,
save, defend, and hold Lender harmless with respect to any loss, cost, expense
(including reasonable attorneys fees), or liability incurred by Lender under any
L/C Undertaking as a result of Lender's indemnification of any Underlying
Issuer; provided, however, that Borrower and Guarantors shall not be obligated
hereunder to indemnify for any loss, cost, expense, or liability that is caused
by the gross negligence or willful misconduct of Lender.
(d) Borrower hereby authorizes and directs any Underlying Issuer to
deliver to Lender all instruments, documents, and other writings and property
received by such Underlying Issuer pursuant to such Underlying Letter of Credit
and to accept and rely upon Lender's instructions with respect to all matters
arising in connection with such Underlying Letter of Credit and the related
application.
(e) Any and all charges, commissions, fees, and costs incurred by
Lender relating to Underlying Letters of Credit shall be Lender Expenses for
purposes of this Agreement and immediately shall be reimbursable by Borrower to
Lender; it being acknowledged and agreed by Borrower that, as of the Closing
Date, the issuance charge imposed by the prospective Underlying Issuer is .825%
per annum of the face amount of each Underlying Letter of Credit, that such
issuance charge may be changed from time to time, and that the Underlying Issuer
also imposes a schedule of charges for amendments, extensions, drawings, and
renewals.
(f) If by reason of (i) any change in any applicable law, treaty,
rule, or regulation or any change in the interpretation or application thereof
by any Governmental Authority, or (ii) compliance by the Underlying Issuer or
Lender with any direction, request, or requirement (irrespective of whether
having the force of law) of any Governmental Authority or monetary authority
including, Regulation D of the Federal Reserve Board as from time to time in
effect (and any successor thereto):
(i) any reserve, deposit, or similar requirement is or shall be
imposed or modified in respect of any Letter of Credit issued hereunder, or
(ii) there shall be imposed on the Underlying Issuer or Lender
any other condition regarding any Underlying Letter of Credit or any Letter
of Credit issued pursuant hereto,
and the result of the foregoing is to increase, directly or indirectly, the cost
to Lender of issuing, making, guaranteeing, or maintaining any Letter of Credit
or to reduce the amount receivable in respect thereof by Lender, then, and in
any such case, Lender may, at any time within a reasonable period after the
additional cost is incurred or the amount received is reduced, notify Borrower,
and Borrower shall pay on demand such amounts as Lender may specify to be
necessary to compensate Lender for such additional cost or reduced receipt,
together with interest on such amount from the date of such demand until payment
in full thereof at the rate then applicable to Base Rate Loans hereunder. The
determination by Lender of any amount due pursuant to this Section, as set forth
in a certificate setting forth the calculation thereof in reasonable detail,
shall, in the absence of manifest or demonstrable error, be final and conclusive
and binding on all of the parties hereto.
(g) Borrower acknowledges and agrees that certain of the Qualified
Import Letters of Credit may provide for the presentation of time drafts to the
Underlying Issuer. If an Underlying Issuer accepts such a time draft that is
presented under an Underlying Letter of Credit, it is acknowledged and agreed
that (i) the Letter of Credit will require Lender to reimburse the Underlying
Issuer for amounts paid on account of such time draft on or after the maturity
date thereof, (ii) the pricing provisions hereof (including Sections 2.7(b) and
2.13(e)) shall continue to apply, until payment of such time draft on or after
the maturity date thereof, as if the Underlying Letter of Credit were still
outstanding, and (iii) on the date on which Lender makes payment to the
Underlying Issuer of the amounts paid on account of such time draft, Borrower
immediately shall reimburse such amount to Lender and such amount shall
constitute an L/C Disbursement hereunder.
2.14 LIBOR Option.
(a) Interest and Interest Payment Dates. In lieu of having interest
charged at the rate based upon the Base Rate, Borrower shall have the option
(the "LIBOR Option") to have interest on all or a portion of the Advances or the
Term Loans be charged at a rate of interest based upon the LIBOR Rate. Interest
on LIBOR Rate Loans shall be payable on the earliest of (i) the last day of the
Interest Period applicable thereto, (ii) the occurrence of an Event of Default
in consequence of which Lender has elected to accelerate the maturity of all or
any portion of the Obligations, or (iii) termination of this Agreement pursuant
to the terms hereof. On the last day of each applicable Interest Period, unless
Borrower properly has exercised the LIBOR Option with respect thereto, the
interest rate applicable to such LIBOR Rate Loan automatically shall convert to
the rate of interest then applicable to Base Rate Loans of the same type
hereunder. At any time that an Event of Default has occurred and is continuing,
Borrower shall no longer have the option to request that Advances or the Term
Loans bear interest at the LIBOR Rate and Lender shall have the right to convert
the interest rate on all outstanding LIBOR Rate Loans to the rate then
applicable to Base Rate Loans hereunder.
(b) LIBOR Election.
(i) Borrower may, at any time and from time to time, so long as
no Event of Default has occurred and is continuing, elect to exercise the
LIBOR Option by notifying Lender prior to 2:00 p.m. (Atlanta, Georgia time)
at least 3 Business Days prior to the commencement of the proposed Interest
Period (the "LIBOR Deadline"). Notice of Borrower's election of the LIBOR
Option for a permitted portion of the Advances or the Term Loans and an
Interest Period pursuant to this Section shall be made by delivery to
Lender of a LIBOR Notice received by Lender before the LIBOR Deadline, or
by telephonic notice received by Lender before the LIBOR Deadline (to be
confirmed by delivery to Lender of a LIBOR Notice received by Lender prior
to 5:00 p.m. (Atlanta, Georgia time) on the same day.
(ii) Each LIBOR Notice shall be irrevocable and binding on
Borrower. In connection with each LIBOR Rate Loan, Borrower shall
indemnify, defend, and hold Lender harmless against any loss, cost, or
expense incurred by Lender as a result of (a) the payment of any principal
of any LIBOR Rate Loan other than on the last day of an Interest Period
applicable thereto (including as a result of an Event of Default), (b) the
conversion of any LIBOR Rate Loan other than on the last day of the
Interest Period applicable thereto, or (c) the failure to borrow, convert,
continue or prepay any LIBOR Rate Loan on the date specified in any LIBOR
Notice delivered pursuant hereto (such losses, costs, and expenses,
collectively, "Funding Losses"). Funding Losses shall be deemed to equal
the amount determined by Lender to be the excess, if any, of (i) the amount
of interest that would have accrued on the principal amount of such LIBOR
Rate Loan had such event not occurred, at the LIBOR Rate that would have
been applicable thereto, for the period from the date of such event to the
last day of the then current Interest Period therefor (or, in the case of a
failure to borrow, convert, or continue, for the period that would have
been the Interest Period therefor), minus (ii) the amount of interest that
would accrue on such principal amount for such period at the interest rate
which Lender would be offered were it to be offered, at the commencement of
such period, Dollar deposits of a comparable amount and period in the
London interbank market. A certificate of Lender delivered to Borrower
setting forth any amount or amounts that Lender is entitled to receive
pursuant to this Section shall be conclusive absent manifest error.
(iii) Borrower shall have not more than 5 LIBOR Rate Loans in
effect at any given time. Borrower only may exercise the LIBOR Option for
LIBOR Rate Loans of at least $1,000,000 and integral multiples of $500,000
in excess thereof.
(c) Prepayments. Borrower may prepay LIBOR Rate Loans at any time;
provided, however, that in the event that LIBOR Rate Loans are prepaid on any
date that is not the last day of the Interest Period applicable thereto,
including as a result of any automatic prepayment through the required
application by Lender of proceeds of Collections in accordance with Section
2.5(b) or for any other reason, including early termination of the term of this
Agreement or acceleration of all or any portion of the Obligations pursuant to
the terms hereof, Borrower shall indemnify, defend, and hold Lender and its
Participants harmless against any and all Funding Losses in accordance with
clause (b)(ii) above.
(d) Special Provisions Applicable to LIBOR Rate.
(i) The LIBOR Rate may be adjusted by Lender on a prospective
basis to take into account any additional or increased costs to Lender of
maintaining or obtaining any eurodollar deposits or increased costs due to
changes in applicable law occurring subsequent to the commencement of the
then applicable Interest Period, including changes in tax laws (except
changes of general applicability in corporate income tax laws) and changes
in the reserve requirements imposed by the Board of Governors of the
Federal Reserve System (or any successor), excluding the Reserve
Percentage, which additional or increased costs would increase the cost of
funding loans bearing interest at the LIBOR Rate. In any such event, Lender
shall give Borrower notice of such a determination and adjustment and, upon
its receipt of the notice from Lender, Borrower may, by notice to Lender
(y) require Lender to furnish to Borrower a statement setting forth the
basis for adjusting such LIBOR Rate and the method for determining the
amount of such adjustment, or (z) repay the LIBOR Rate Loans with respect
to which such adjustment is made (together with any amounts due under
clause (b)(ii) above).
(ii) In the event that any change in market conditions or any
law, regulation, treaty, or directive, or any change therein or in the
interpretation of application thereof, shall at any time after the date
hereof, in the reasonable opinion of Lender, make it unlawful or
impractical for Lender to fund or maintain LIBOR Advances or to continue
such funding or maintaining, or to determine or charge interest rates at
the LIBOR Rate, Lender shall give notice of such changed circumstances to
Borrower and (y) in the case of any LIBOR Rate Loans that are outstanding,
the date specified in Lender's notice shall be deemed to be the last day of
the Interest Period of such LIBOR Rate Loans, and interest upon the LIBOR
Rate Loans thereafter shall accrue interest at the rate then applicable to
Base Rate Loans, and (z) Borrower shall not be entitled to elect the LIBOR
Option until Lender determines that it would no longer be unlawful or
impractical to do so.
(e) No Requirement of Matched Funding. Anything to the contrary
contained herein notwithstanding, neither Lender, nor any of its Participants,
is required actually to acquire eurodollar deposits to fund or otherwise match
fund any Obligation as to which interest accrues at the LIBOR Rate. The
provisions of this Section shall apply as if Lender or its Participants had
match funded any Obligation as to which interest is accruing at the LIBOR Rate
by acquiring eurodollar deposits for each Interest Period in the amount of the
LIBOR Rate Loans.
2.15 Capital Requirements. If, after the date hereof, Lender determines
that (i) the adoption of or change in any law, rule, regulation or guideline
regarding capital requirements for banks or bank holding companies, or any
change in the interpretation or application thereof by any Governmental
Authority charged with the administration thereof, or (ii) compliance by Lender
or its parent bank holding company with any guideline, request, or directive of
any such entity regarding capital adequacy (whether or not having the force of
law), the effect of reducing the return on Lender's or such holding company's
capital as a consequence of Lender's obligations hereunder to a level below that
which Lender or such holding company could have achieved but for such adoption,
change, or compliance (taking into consideration Lender's or such holding
company's then existing policies with respect to capital adequacy and assuming
the full utilization of such entity's capital) by any amount deemed by Lender to
be material, then Lender may notify Borrower thereof. Following receipt of such
notice, Borrower agrees to pay Lender on demand the amount of such reduction of
return of capital as and when such reduction is determined, payable within 90
days after presentation by Lender of a statement in the amount and setting forth
in reasonable detail Lender's calculation thereof and the assumptions upon which
such calculation was based (which statement shall be deemed true and correct
absent manifest error). In determining such amount, Lender may use any
reasonable averaging and attribution methods.
2.16 Mandatory Prepayments.
(a) Borrower shall, on the date of receipt of the proceeds from the
occurrence of any Liquidity Event, prepay the Obligations in the amounts and in
the order set forth in Section 2.16(b) hereof.
(b) On the date of Borrower's receipt of the net proceeds of any
Liquidity Event, so long as no Event of Default has occurred and is continuing,
and Excess Availability is equal to or greater than $3,000,000, Borrower shall
cause fifty (50%) percent of the net proceeds of such Liquidity Event to be paid
to or delivered to Lender and such proceeds shall be applied, first, to the
outstanding amount of Term Loan B, second, to the outstanding amount of Term
Loan A, and then, to the outstanding amount of Advances, provided, that, to the
extent the foregoing Obligations have been paid in full, Lender at its option,
may hold such proceeds as cash collateral for the Obligations. In the event that
on the date of Borrower's receipt of the net proceeds of any Liquidity Event,
Excess Availability is less than $3,000,000, then Borrower shall pay to or
deliver to Lender from the net proceeds the amount necessary to reduce the
outstanding principal amount of Advances to an amount such that Excess
Availability then equals $3,000,000, and to the extent that any net proceeds of
such Liquidity Event remain after such application, then Borrower shall pay to
Lender fifty (50%) percent of the remainder of such proceeds which shall be
applied to the Obligations as follows: first, to the outstanding amount of Term
Loan B, second, to the outstanding amount of Term Loan A, and then, to the
outstanding amount of Advances, provided, that, to the extent the foregoing
Obligations have been paid in full, Lender at its option, may hold such proceeds
as cash collateral for the Obligations. In the event that any application of net
proceeds to the outstanding principal amount of Subordinated Debt would cause
the aggregate principal payment limitations with respect to Subordinated Debt
(on an annual basis for any calendar year) as set forth in Sections 7.1
(d)(ii)to be exceeded, then amount of any such excess shall also be paid by
Borrower to Lender and applied to the Obligations, in the order set forth above.
Any payments received after the occurrence and during the continuance of an
Event of Default shall be applied in accordance with Section 2.5(b) hereof. For
purposes hereof, the term "net proceeds" shall mean the cash proceeds of any
Liquidity Event after deducting all reasonable fees, costs, and expenses
directly related thereto and in the case of a Liquidity Event involving the
Heathrow Property, after deduction of the proceeds necessary to repay the
existing financing with respect to such property.
(c) Borrower shall, in the event that the orderly liquidation value of
the Equipment or the gross quick sale value of any of the Real Property
Collateral as set forth in the most recent acceptable appraisals received by
Lender with respect thereto has declined so that the then outstanding principal
amount of the Term Loans is more than such percentage of such appraised value as
Lender used in establishing the original principal amount of the Term Loans,
prepay the Terms Loans by such amount. Any prepayments made pursuant to this
Section 2.16(c) shall, so long as no Event of Default has occurred and is
continuing, be applied, first to the outstanding amount of Term Loan B, and
second, to the outstanding amount of Term Loan A.
(d) All prepayments of any Term Loans shall be applied against the
remaining installments (if any) of principal due on the respective Term Loans,
in the inverse order of maturity. All prepayments of principal under this
Section 2.16 shall be made together with accrued and unpaid interest thereon to
the date of such prepayment.
3. CONDITIONS; TERM OF AGREEMENT.
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3.1 Conditions Precedent to the Initial Extension of Credit. The obligation
of Lender to make the initial Advance (or otherwise to extend any credit
provided for hereunder), is subject to the fulfillment, to the satisfaction of
Lender, of each of the conditions precedent set forth below:
(a) the Closing Date shall occur on or before October 4, 2002;
(b) Lender shall have received all financing statements required by
Lender, duly executed, to the extent required, by Borrower and Canadian
Guarantor, and Lender shall have received searches reflecting the filing of all
such financing statements;
(c) Lender shall have received each of the following documents, in
form and substance satisfactory to Lender, duly executed, and each such document
shall be in full force and effect:
(i) the Cash Management Agreements,
(ii) the Control Agreements,
(iii) the Copyright Security Agreement,
(iv) the Disbursement Letter,
(v) the Due Diligence Letter,
(vi) the Fee Letter,
(vii) the Guarantees,
(viii) the Mortgages,
(ix) the Officers' Certificate,
(x) the Patent Security Agreement,
(xi) the Pay-Off Letter, together with UCC and PPSA termination
statements and other documentation evidencing the termination by Existing
Lender of its Liens in and to the properties and assets of Borrower,
Canadian Guarantor and the other Guarantors,
(xii) the (A) Stock Pledge Agreement, together with all
certificates representing the shares of Stock of each Subsidiary of
Borrower, as well as Stock powers with respect thereto endorsed in blank,
and (B) Stock Pledge Agreement, together with all certificates representing
the shares of Capital Stock pledged thereunder, as well as Stock powers
with respect thereto endorsed in blank of all of the issued and outstanding
shares of the Stock of each Subsidiary owned by Canadian Guarantor, in each
case together with stock powers duly executed in blank with respect
thereto;
(xiii) the Trademark Security Agreements;
(xiv) Term Loan A Promissory Note in the original principal
amount of $2,000,000, issued by Borrower payable to Lender; and
(xv) Term Loan B Promissory Note in the original principal amount
of $1,000,000, issued by Borrower payable to Lender.
(d) Lender shall have received a certificate from the Secretary of
Borrower attesting to the resolutions of Borrower's Board of Directors
authorizing its execution, delivery, and performance of this Agreement and the
other Loan Documents to which Borrower is a party and authorizing specific
officers of Borrower to execute the same;
(e) Lender shall have received the Intercreditor Agreement, in form
and substance satisfactory to Lender, as duly authorized, executed and delivered
by the Subordinate Note Agent, Subordinated Noteholders, Borrower and
Guarantors;
(f) Lender shall have received the Subordinated Note Purchase
Agreement, as amended and restated on the date hereof and the other Subordinated
Debt Agreements and all related agreements, documents and instruments, which
shall each be in form and substance satisfactory to Lender;
(g) Lender shall have received evidence of credit insurance for
Accounts owing by account debtors and an endorsement naming Lender as loss payee
with respect thereto, in each case in form and substance satisfactory to Lender;
(h) Lender shall have received copies of Borrower's Governing
Documents, as amended, modified, or supplemented to the Closing Date, certified
by the Secretary of Borrower;
(i) Lender shall have received a certificate of status with respect to
Borrower, dated within 10 days of the Closing Date, such certificate to be
issued by the appropriate officer of the jurisdiction of organization of
Borrower, which certificate shall indicate that Borrower is in good standing in
such jurisdiction;
(j) Lender shall have received certificates of status with respect to
Borrower, each dated within 30 days of the Closing Date, such certificates to be
issued by the appropriate officer of the jurisdictions (other than the
jurisdiction of organization of Borrower) in which its failure to be duly
qualified or licensed would constitute a Material Adverse Change, which
certificates shall indicate that Borrower is in good standing in such
jurisdictions;
(k) Lender shall have received a certificate from the Secretary of
each Guarantor (other than DIM) attesting to the resolutions of each Guarantor's
Board of Directors authorizing its execution, delivery, and performance of the
Loan Documents to which such Guarantor is a party and authorizing specific
officers of such Guarantor to execute the same;
(l) Lender shall have received copies of each Guarantor's Governing
Documents, as amended, modified, or supplemented to the Closing Date, certified
by the Secretary of such Guarantor;
(m) Lender shall have received a certificate of status with respect to
Canadian Guarantor, dated within 30 days of the Closing Date, such certificate
to be issued by the appropriate officer of the jurisdiction of organization of
Canadian Guarantor, which certificate shall indicate that Canadian Guarantor is
in good standing in such jurisdiction;
(n) Lender shall have received certificates of status with respect to
Canadian Guarantor, each dated within 30 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions (other
than the jurisdiction of organization of Canadian Guarantor) in which its
failure to be duly qualified or licensed would constitute a Material Adverse
Change, which certificates shall indicate that Canadian Guarantor is in good
standing in such jurisdictions;
(o) Lender shall have received a certificate of insurance, together
with the endorsements thereto, as are required by Section 6.8, the form and
substance of which shall be satisfactory to Lender;
(p) Lender shall have received Collateral Access Agreements with
respect to the locations listed on Schedule 3.1 (p) hereto;
(q) Lender shall have received licensor agreements, in form and
substance satisfactory to Lender, from each of the licensors of intellectual
property to Borrower or Canadian Guarantor listed on Schedule 3.1 (q), as
applicable, duly authorized, executed and delivered by the parties thereto,
provided, that, in the event such agreements are not provided, Lender may
exercise its right to establish a reserve in accordance with Section 2.1(b)(iv);
(r) Lender shall have received an opinion of Borrower's and Canadian
Guarantor's counsel in form and substance satisfactory to Lender;
(s) Lender shall have received satisfactory evidence (including a
certificate of the chief financial officer of Borrower for itself and each of
its Subsidiaries) that all tax returns required to be filed by Borrower and
Canadian Guarantor have been timely filed and all taxes upon Borrower, Canadian
Guarantor or its properties, assets, income, and franchises (including Real
Property taxes and payroll taxes) have been paid prior to delinquency, except
such taxes that are the subject of a Permitted Protest;
(t) Borrower shall have the Required Availability after giving effect
to the initial extensions of credit hereunder;
(u) Lender shall have completed its business, legal, and collateral
due diligence, including (i) a collateral audit and review of Borrower's and
Canadian Guarantor's books and records and verification of Borrower's
representations and warranties to Lender, the results of which shall be
satisfactory to Lender, and (ii) an inspection of each of the locations where
Inventory is located, the results of which shall be satisfactory to Lender;
(v) Lender shall have received completed reference checks with respect
to Borrower's senior management, the results of which are satisfactory to Lender
in its sole discretion;
(w) Lender shall have received an appraisal of the Net Liquidation
Percentage applicable to Borrower's and Canadian Guarantor's Inventory and an
appraisal of Borrower's Equipment, the results of which shall be satisfactory to
Lender;
(x) Lender shall have received Borrower's Closing Date Business Plan;
(y) Borrower shall pay all Lender Expenses incurred in connection with
the transactions evidenced by this Agreement;
(z) Lender shall have received (i) appraisals of the Real Property
Collateral satisfactory to Lender, and (ii) mortgagee title insurance policies
(or marked commitments to issue the same) for the Real Property Collateral
(exclusive of the NCR Properties) issued by a title insurance company
satisfactory to Lender (each a "Mortgage Policy" and, collectively, the
"Mortgage Policies") in amounts satisfactory to Lender assuring Lender that the
Mortgages on such Real Property Collateral are valid and enforceable first
priority mortgage Liens on such Real Property Collateral free and clear of all
defects and encumbrances except Permitted Liens, and the Mortgage Policies
otherwise shall be in form and substance satisfactory to Lender;
(aa) Lender shall have received a phase-I environmental report and a
real estate survey with respect to each parcel composing the Real Property
Collateral owned by Borrower (other than the NCR Properties); the environmental
consultants and surveyors retained for such reports or surveys, the scope of the
reports or surveys, and the results thereof shall be acceptable to Lender;
(bb) Lender shall have received the most recent year-end financial
statements of Staples, Inc. and School Specialty, Inc., each of which shall be
satisfactory to Lender;
(cc) Lender shall have received an assignment, in form and substance
satisfactory to Lender, of all of Borrower's right, title and interest in and to
the Deer Lake Note and Mortgage;
(dd) Lender shall have received a copy of the latest version of the
Purchase and Sale Agreement between Borrower and NCR Buyer, with respect to the
NCR Division, which agreement shall be in form and substance satisfactory to
Lender;
(ee) Borrower and Guarantors shall have received all licenses,
approvals or evidence of other actions required by any Governmental Authority in
connection with the execution and delivery by Borrower and such Guarantor of
this Agreement or any other Loan Document or with the consummation of the
transactions contemplated hereby and thereby;
(ff) Lender shall have received evidence satisfactory to Lender, that
Borrower has qualified to do business in New Jersey, Minnesota, West Virginia,
or has filed a business activities report with the applicable division of
taxation, the department of revenue, or with such other state offices, as
appropriate, for the then-current year, or is exempt from such filing
requirement; and
(gg) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered, executed,
or recorded and shall be in form and substance satisfactory to Lender.
3.2 Conditions Subsequent to the Initial Extension of Credit. The
obligation of Lender to continue to make Advances (or otherwise extend credit
hereunder) is subject to the fulfillment, on or before the date applicable
thereto, of each of the conditions subsequent set forth below (the failure by
Borrower to so perform or cause to be performed constituting an Event of
Default):
(a) within 30 days of the Closing Date, deliver to Lender certified
copies of the policies of insurance, together with the endorsements thereto, as
are required by Section 6.8, the form and substance of which shall be
satisfactory to Lender and its counsel;
(b) within 30 days of the Closing Date, Canadian Guarantor shall have
established a lockbox and blocked account, in Canada with a Cash Management Bank
acceptable to Lender, and such Cash Management Bank shall have entered into a
Cash Management Agreement with Lender and Borrower or Canadian Guarantor, as the
case may be, in form and substance acceptable to Lender in accordance with
Section 2.8 hereof;
(c) within 90 days of the Closing Date to the extent that the NCR
Properties have not been sold, deliver to Lender, mortgagee title insurance
policies (or marked commitments to issue the same) for the Real Property
Collateral issued by a title insurance company satisfactory to Lender in amounts
satisfactory to Lender assuring Lender that the Mortgages on such Real Property
Collateral are valid and enforceable first priority mortgage Liens on such Real
Property Collateral free and clear of all defects and encumbrances except
Permitted Liens, and the Mortgage Policies otherwise shall be in form and
substance satisfactory to Lender;
(d) within 60 days of the Closing Date, Lender shall have received a
phase-II environmental report with respect to each parcel composing the Real
Property Collateral owned by Borrower in Sandusky, Ohio; the environmental
consultants and surveyors retained for such reports or surveys, the scope of the
reports or surveys, and the results thereof shall be acceptable to Lender.
(e) within 30 days of the Closing Date, Lender shall have received a
certificate from the Secretary of each of DEL and DT-China attesting to the
resolutions of each such Guarantor's Board of Directors authorizing its
execution, delivery and performance of the Loan Documents to which such
Guarantor is a party and authorizing specific officers of such Guarantor to
execute the same, each in form and substance satisfactory to Lender and its
counsel;
(f) within 30 days of the Closing Date, Lender shall have received
copies of the Governing Documents of each of DEL and DT-China, as amended,
modified, or supplemented to the date thereof, certified by the Secretary of
such Guarantor, each in form and substance satisfactory to Lender and its
counsel; and
(g) within 30 days of the Closing Date, Lender shall have received
copies of the articles of incorporation or formation certified by the
appropriate government official of the jurisdiction of formation for each of
DEL, Grupo, CD, Servidix and DT-China.
3.3 Conditions Precedent to all Extensions of Credit. The obligation of
Lender to make all Advances (or to extend any other credit hereunder) shall be
subject to the following conditions precedent:
(a) the representations and warranties contained in this Agreement and
the other Loan Documents shall be true and correct in all material respects on
and as of the date of such extension of credit, as though made on and as of such
date (except to the extent that such representations and warranties relate
solely to an earlier date),
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof,
(c) no injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the extending of such credit shall
have been issued and remain in force by any Governmental Authority against
Borrower , Lender, or any of their Affiliates;
(d) no Material Adverse Change shall have occurred; and
(e) In the case of Advances made or to be made based upon Eligible
Accounts or Special Program Accounts of the Canadian Guarantor included in the
Borrowing Base, no requirement of the Minister of National Revenue for payment
pursuant to Section 224, or any successor section, of the Income Tax Act
(Canada) or Section 317, of any successor section of the Excise Act (Canada) or
any comparable provision of similar legislation shall have been received by
Lender or any other Person in respect of Canadian Guarantor or otherwise issued
in respect of Canadian Guarantor.
3.4 Term. This Agreement shall become effective upon the execution and
delivery hereof by Borrower, Guarantors and Lender and shall continue in full
force and effect for a term ending on October 3, 2005 (the "Maturity Date"). The
foregoing notwithstanding, Lender shall have the right to terminate its
obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default.
3.5 Effect of Termination. On the date of termination of this Agreement,
all Obligations (including contingent reimbursement obligations of Borrower with
respect to outstanding Letters of Credit and including all Bank Products
Obligations) immediately shall become due and payable without notice or demand
(including (a) either (i) providing cash collateral to be held by Lender in an
amount equal to 105% of the then extant Letter of Credit Usage, or (ii) causing
the original Letters of Credit to be returned to Lender, and (b) providing cash
collateral to be held by Lender for the benefit of Wells Fargo or its Affiliates
with respect to the then extant Bank Products Obligations). No termination of
this Agreement, however, shall relieve or discharge Borrower of its duties,
Obligations, or covenants hereunder and the Lender's Liens in the Collateral
shall remain in effect until all Obligations have been fully and finally
discharged and Lender's obligations to provide additional credit hereunder have
been terminated. When this Agreement has been terminated and all of the
Obligations have been fully and finally discharged and Lender's obligations to
provide additional credit under the Loan Documents have been terminated
irrevocably and Lender has received release documentation satisfactory to it,
Lender will, at Borrower's sole expense, execute and deliver any UCC and PPSA
termination statements, lien releases, mortgage releases, re-assignments of
trademarks, discharges of security interests, and other similar discharge or
release documents (and, if applicable, in recordable form) as are reasonably
necessary to release, as of record, the Lender's Liens and all notices of
security interests and liens previously filed by Lender with respect to the
Obligations.
3.6 Early Termination by Borrower. Borrower has the option, at any time
upon 90 days prior written notice to Lender, to terminate this Agreement by
paying to Lender, in cash, the Obligations (including (a) either (i) providing
cash collateral to be held by Lender in an amount equal to 105% of the then
extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to
be returned to Lender, and (b) providing cash collateral to be held by Lender
for the benefit of Wells Fargo or its Affiliates with respect to the then extant
Bank Products Obligations), in full, together with the Applicable Prepayment
Premium. If Borrower has sent a notice of termination pursuant to the provisions
of this Section, then Lender's obligations to extend credit hereunder shall
terminate and Borrower shall be obligated to repay the Obligations (including
(a) either (i) providing cash collateral to be held by Lender in an amount equal
to 105% of the then extant Letter of Credit Usage, or (ii) causing the original
Letters of Credit to be returned to Lender, and (b) providing cash collateral to
be held by Lender for the benefit of Wells Fargo or its Affiliates with respect
to the then extant Bank Products Obligations), in full, together with the
Applicable Prepayment Premium, on the date set forth as the date of termination
of this Agreement in such notice. In the event of the termination of this
Agreement and repayment of the Obligations at any time prior to the Maturity
Date, for any other reason, including (a) termination upon the election of
Lender to terminate after the occurrence of an Event of Default, (b) foreclosure
and sale of Collateral, (c) sale of the Collateral in any Insolvency Proceeding,
or (iv) restructure, reorganization, or compromise of the Obligations by the
confirmation of a plan of reorganization or any other plan of compromise,
restructure, or arrangement in any Insolvency Proceeding, then, in view of the
impracticability and extreme difficulty of ascertaining the actual amount of
damages to Lender or profits lost by Lender as a result of such early
termination, and by mutual agreement of the parties as to a reasonable
estimation and calculation of the lost profits or damages of Lender, Borrower
shall pay the Applicable Prepayment Premium to Lender, measured as of the date
of such termination.
4. CREATION OF SECURITY INTEREST.
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4.1 Grant of Security Interest. (a) Borrower hereby grants to Lender a
continuing security interest in all of its right, title, and interest in all
currently existing and hereafter acquired or arising Personal Property
Collateral in order to secure prompt repayment of any and all of the Obligations
in accordance with the terms and conditions of the Loan Documents and in order
to secure prompt performance by Borrower of each of its covenants and duties
under the Loan Documents. The Lender's Liens in and to the Personal Property
Collateral shall attach to all Personal Property Collateral without further act
on the part of Lender or Borrower. Anything contained in this Agreement or any
other Loan Document to the contrary notwithstanding, except for Permitted
Dispositions, Borrower has no authority, express or implied, to dispose of any
item or portion of the Collateral.
(b) Canadian Guarantor hereby grants to Lender a continuing security
interest in all of its right, title, and interest in all currently existing and
hereafter acquired or arising Personal Property Collateral in order to secure
prompt repayment of any and all of its Obligations in accordance with the terms
and conditions of its Guarantee and the other Loan Documents and in order to
secure prompt performance by Canadian Guarantor of each of its covenants and
duties under its Guarantee and the other Loan Documents. The Lender's Liens in
and to the Personal Property Collateral shall attach to all Personal Property
Collateral without further act on the part of Lender or Canadian Guarantor.
Anything contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for Permitted Dispositions, Canadian Guarantor has no
authority, express or implied, to dispose of any item or portion of the
Collateral.
4.2 Negotiable Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, and if and to
the extent that perfection or priority of Lender's security interest is
dependent on or enhanced by possession, Borrower, or Canadian Guarantor, as the
case may be, immediately upon the request of Lender, shall endorse and deliver
physical possession of such Negotiable Collateral to Lender.
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral.
At any time after the occurrence and during the continuation of an Event of
Default, Lender or Lender's designee may (a) notify Account Debtors of Borrower
or Canadian Guarantor, as the case may be, that the Accounts, chattel paper, or
General Intangibles have been assigned to Lender or that Lender has a security
interest therein, or (b) collect the Accounts, chattel paper, or General
Intangibles directly and charge the collection costs and expenses to the Loan
Account. Borrower and Canadian Guarantor each agrees that it will hold in trust
for Lender, as Lender's trustee, any Collections that it receives and
immediately will deliver said Collections to Lender or a Cash Management Bank in
their original form as received by Borrower or Canadian Guarantor, as the case
may be.
4.4 Delivery of Additional Documentation Required. At any time upon the
request of Lender, Borrower or Canadian Guarantor, as the case may be, shall
execute and deliver to Lender, any and all financing statements, original
financing statements in lieu of continuation statements, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of
title, and all other documents (the "Additional Documents") that Lender may
request in its Permitted Discretion, in form and substance satisfactory to
Lender, to perfect and continue perfected or better perfect the Lender's Liens
in the Collateral (whether now owned or hereafter arising or acquired), to
create and perfect Liens in favor of Lender in any Real Property acquired after
the Closing Date, and in order to fully consummate all of the transactions
contemplated hereby and under the other Loan Documents. To the maximum extent
permitted by applicable law, Borrower and Canadian Guarantor, each authorizes
Lender to execute any such Additional Documents in Borrower's or Canadian
Guarantor, as the case may be, name and authorizes Lender to file such executed
Additional Documents in any appropriate filing office. In addition, on such
periodic basis as Lender shall require, Borrower shall (a) provide Lender with a
report of all new patentable, copyrightable, or trademarkable materials acquired
or generated by Borrower or Canadian Guarantor, as the case may be, during the
prior period, (b) cause all patents, copyrights, and trademarks acquired or
generated by Borrower or Canadian Guarantor, as the case may be, that are not
already the subject of a registration with the appropriate filing office (or an
application therefor diligently prosecuted) to be registered with such
appropriate filing office in a manner sufficient to impart constructive notice
of Borrower's or Canadian Guarantor, as the case may be, ownership thereof, and
(c) cause to be prepared, executed, and delivered to Lender supplemental
schedules to the applicable Loan Documents to identify such patents, copyrights,
and trademarks as being subject to the security interests created thereunder.
4.5 Power of Attorney. Borrower and Canadian Guarantor each hereby
irrevocably makes, constitutes, and appoints Lender (and any of Lender's
officers, employees, or agents designated by Lender) as its true and lawful
attorney, with power to (a) if Borrower or Canadian Guarantor, as the case may
be, refuses to, or fails timely to execute and deliver any of the documents
described in Section 4.4, sign the name of Borrower or Canadian Guarantor, as
the case may be, on any of the documents described in Section 4.4, (b) at any
time that an Event of Default has occurred and is continuing, sign Borrower's or
Canadian Guarantor's, as the case may be, name on any invoice or bill of lading
relating to the Collateral, drafts against Account Debtors, or notices to
Account Debtors, (c) send requests for verification of Accounts, (d) endorse
Borrower's or Canadian Guarantor's, as the case may be, name on any Collection
item that may come into Lender's possession, (e) at any time that an Event of
Default has occurred and is continuing, make, settle, and adjust all claims
under Borrower's or Canadian Guarantor's, as the case may be, policies of
insurance and make all determinations and decisions with respect to such
policies of insurance, and (f) at any time that an Event of Default has occurred
and is continuing, settle and adjust disputes and claims respecting the
Accounts, chattel paper, or General Intangibles directly with Account Debtors,
for amounts and upon terms that Lender determines to be reasonable, and Lender
may cause to be executed and delivered any documents and releases that Lender
determines to be necessary. The appointment of Lender as Borrower's or Canadian
Guarantor's, as the case may be, attorney, and each and every one of its rights
and powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully and finally repaid and performed and Lender's
obligations to extend credit hereunder are terminated.
4.6 Right to Inspect. Lender and its officers, employees, or agents shall
have the right, from time to time hereafter to inspect the Books and to check,
test, and appraise the Collateral in order to verify Borrower's and Canadian
Guarantor's financial condition or the amount, quality, value, condition of, or
any other matter relating to, the Collateral. With respect to Inventory: upon
Lender's request, Borrower shall, at its expense, no more than four (4) times in
any twelve (12) month period, but at any time or times as Lender may request on
or after an Event of Default, deliver or cause to be delivered to Lender written
appraisals as to the Inventory (of both Canadian Guarantor and Borrower) in
form, scope and methodology acceptable to Lender and by an appraiser acceptable
to Lender, addressed to Lender and upon which Lender is expressly permitted to
rely. With respect to the Equipment and Real Property Collateral, upon Lender's
request, Borrower, at its expense, no more than four (4) times in any twelve
(12) month period prior to the repayment in full of the Term Loans and no more
than once in any twelve (12) month period thereafter, but at any time or times
as Lender may request on or after an Event of Default, deliver or cause to be
delivered to Lender written appraisals as to the Equipment and/or the Real
Property Collateral in form, scope and methodology acceptable to Lender and by
an appraiser acceptable to Lender, addressed to Lender and upon which Lender is
expressly permitted to rely. Lender shall also have the right to conduct field
examinations, at Borrower's expense, once each fiscal quarter of the Collateral
and Borrower's and Canadian Guarantor's operations.
4.7 Control Agreements. Borrower and Canadian Guarantor each agrees
that it will not transfer assets out of any Securities Accounts other than as
permitted under Section 7.19 and, if to another securities intermediary, unless
each of Borrower or Canadian Guarantor, as the case may be, Lender, and the
substitute securities intermediary have entered into a Control Agreement. No
arrangement contemplated hereby or by any Control Agreement in respect of any
Securities Accounts or other Investment Property shall be modified by Borrower
or Canadian Guarantor, as the case may be, without the prior written consent of
Lender. Upon the occurrence and during the continuance of a Default or Event of
Default, Lender may notify any securities intermediary to liquidate the
applicable Securities Account or any related Investment Property maintained or
held thereby and remit the proceeds thereof to the Lender's Account.
5. REPRESENTATIONS AND WARRANTIES.
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In order to induce Lender to enter into this Agreement, Borrower and each
Guarantor, jointly and severally, makes the following representations and
warranties to Lender which shall be true, correct, and complete, in all material
respects, as of the date hereof, and shall be true, correct, and complete, in
all material respects, as of the Closing Date, and at and as of the date of the
making of each Advance (or other extension of credit) made thereafter, as though
made on and as of the date of such Advance (or other extension of credit)
(except to the extent that such representations and warranties relate solely to
an earlier date) and such representations and warranties shall survive the
execution and delivery of this Agreement:
5.1 No Encumbrances. Borrower and Canadian Guarantor, each has good and
indefeasible title to the Collateral and the Real Property, free and clear of
Liens except for Permitted Liens.
5.2 Eligible Accounts and Eligible Special Program Accounts. The Eligible
Accounts and Special Program Accounts are bona fide existing payment obligations
of Account Debtors created by the sale and delivery of Inventory or the
rendition of services to such Account Debtors in the ordinary course of either
Borrower's or Canadian Guarantor's business, owed to Borrower or Canadian
Guarantor, as the case may be, without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation. As to each Account that is
identified by Borrower as an Eligible Account or an Eligible Special Program
Account in a borrowing base report submitted to Lender, such Account is not
excluded as ineligible by virtue of one or more of the excluding criteria set
forth in the definition of Eligible Accounts or Eligible Special Program
Accounts, as the case may be.
5.3 Eligible Inventory. All Eligible Inventory is of good and merchantable
quality, free from defects. As to each item of Inventory that is identified by
Borrower as Eligible Inventory in a borrowing base report submitted to Lender,
such Inventory is not excluded as ineligible by virtue of one or more of the
excluding criteria set forth in the definition of Eligible Inventory.
5.4 Equipment. All of the Equipment is used or held for use in Borrower's
or such Guarantor's business and is fit for such purposes.
5.5 Location of Inventory and Equipment. The Inventory and Equipment are
not stored with a bailee, warehouseman, or similar party and are located only at
the locations identified on Schedule 5.5.
5.6 Inventory Records. Borrower and each Guarantor keep correct and
accurate records itemizing and describing the type, quality, and quantity of its
Inventory and the book value thereof.
5.7 Location of Chief Executive Office; FEIN. The chief executive office of
Borrower is located at the address indicated in Schedule 5.7 and Borrower's FEIN
is identified in Schedule 5.7.
5.8 Due Organization and Qualification; Subsidiaries
(a) Borrower and each Guarantor is duly organized and existing and in
good standing under the laws of the jurisdiction of its organization and
qualified to do business in any state where the failure to be so qualified
reasonably could be expected to have a Material Adverse Change.
(b) Set forth on Schedule 5.8(b), is a complete and accurate
description of the authorized capital Stock of Borrower, by class, and, as of
the Closing Date, a description of the number of shares of each such class that
are issued and outstanding. Other than as described on Schedule 5.8(b), there
are no subscriptions, options, warrants, or calls relating to any shares of
Borrower's capital Stock, including any right of conversion or exchange under
any outstanding security or other instrument. Borrower is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital Stock or any security convertible into or
exchangeable for any of its capital Stock.
(c) Set forth on Schedule 5.8(c), is a complete and accurate list of
Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their organization, (ii) the number of shares of each class of common and
preferred Stock authorized for each of such Subsidiaries, and (iii) the number
and the percentage of the outstanding shares of each such class owned directly
or indirectly by Borrower. All of the outstanding capital Stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
(d) Except as set forth on Schedule 5.8(b), there are no
subscriptions, options, warrants, or calls relating to any shares of Borrower's
or Subsidiaries' capital Stock, including any right of conversion or exchange
under any outstanding security or other instrument. Neither Borrower nor any of
its Subsidiaries is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of Borrower's Subsidiaries'
capital Stock or any security convertible into or exchangeable for any such
capital Stock.
5.9 Due Authorization; No Conflict.
(a) The execution, delivery, and performance by Borrower and
Guarantors of this Agreement and the Loan Documents to which it is a party have
been duly authorized by all necessary action on the part of Borrower or such
Guarantor, as the case may be.
(b) The execution, delivery, and performance by Borrower and each
Guarantor of this Agreement and the Loan Documents to which it is a party do not
and will not (i) violate any provision of federal, state, or local law or
regulation applicable to Borrower or such Guarantor, as the case may be, the
Governing Documents of Borrower or such Guarantor, as the case may be, or any
order, judgment, or decree of any court or other Governmental Authority binding
on Borrower or such Guarantor, as the case may be, (ii) conflict with, result in
a breach of, or constitute (with due notice or lapse of time or both) a default
under any material contractual obligation of Borrower or such Guarantor, as the
case may be, (iii) result in or require the creation or imposition of any Lien
of any nature whatsoever upon any properties or assets of Borrower or such
Guarantor, as the case may be, other than Permitted Liens, or (iv) require any
approval of Borrower's or such Guarantor's, as the case may be, interestholders
or any approval or consent of any Person under any material contractual
obligation of Borrower or such Guarantor, as the case may be.
(c) Other than the filing of financing statements, fixture filings,
and Mortgages, the execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which Borrower is a party do not and will
not require any registration with, consent, or approval of, or notice to, or
other action with or by, any Governmental Authority or other Person.
(d) This Agreement and the other Loan Documents to which Borrower is a
party, and all other documents contemplated hereby and thereby, when executed
and delivered by Borrower will be the legally valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or limiting creditors' rights generally.
(e) The Lender's Liens are validly created, perfected, and first
priority Liens, subject only to Permitted Liens.
(f) The execution, delivery, and performance by each Guarantor of the
Loan Documents to which such Guarantor is a party do not and will not require
any registration with, consent, or approval of, or notice to, or other action
with or by, any Governmental Authority or other Person.
(g) The Loan Documents to which each Guarantor is a party, and all
other documents contemplated hereby and thereby, when executed and delivered by
such Guarantor will be the legally valid and binding obligations of such
Guarantor, enforceable against such Guarantor in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally.
5.10 Litigation. Other than those matters disclosed on Schedule 5.10, there
are no actions, suits, or proceedings pending or, to the best knowledge of
Borrower, threatened against Borrower, or any of its Subsidiaries, as
applicable, except for (a) matters that are fully covered by insurance (subject
to customary deductibles), and (b) matters arising after the Closing Date that,
if decided adversely to Borrower, or any of its Subsidiaries, as applicable,
reasonably could not be expected to result in a Material Adverse Change.
5.11 No Material Adverse Change. All financial statements relating to
Borrower or any of its Subsidiaries that have been delivered by Borrower or such
Guarantor to Lender have been prepared in accordance with GAAP (except, in the
case of unaudited financial statements, for the lack of footnotes and being
subject to year-end audit adjustments) and present fairly in all material
respects, Borrower's and its Subsidiaries' financial condition as of the date
thereof and results of operations for the period then ended. There has not been
a Material Adverse Change with respect to Borrower (or any Guarantor, as
applicable) since the date of the latest financial statements submitted to
Lender on or before the Closing Date except for the events reflected in the
Projections previously delivered to Lender.
5.12 Fraudulent Transfer.
(a) Borrower and each Guarantor is Solvent.
(b) No transfer of property is being made by Borrower or any Guarantor
and no obligation is being incurred by Borrower or any Guarantor in connection
with the transactions contemplated by this Agreement or the other Loan Documents
with the intent to hinder, delay, or defraud either present or future creditors
of Borrower or any Guarantor.
5.13 Employee Benefits.
(a) Each Benefit Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other Federal or State law.
Each Benefit Plan which is intended to qualify under Section 401(a) of the Code
has received a favorable determination letter from the Internal Revenue Service
and to the best of Borrower's knowledge, nothing has occurred which would cause
the loss of such qualification. Borrower and its ERISA Affiliates have made all
required contributions to any Benefit Plan subject to Section 412 of the Code,
and no application for a funding waiver or an extension of any amortization
period pursuant to Section 412 of the Code has been made with respect to any
Benefit Plan.
(b) There are no pending, or to the best of Borrower's knowledge,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Benefit Plan. There has been no prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Benefit
Plan.
(c) (i) No ERISA Event has occurred or is reasonably expected to occur
except for the ERISA Events described on Schedule 5.13; (ii) the current value
of each Benefit Plan's assets (determined in accordance with the assumptions
used for funding such Benefit Plan pursuant to Section 412 of the Code) are not
less than such Benefit Plan's liabilities under Section 4001(a)(16) of ERISA;
(iii) Borrower and its ERISA Affiliates, have not incurred and do not reasonably
expect to incur, any liability under Title IV of ERISA with respect to any
Benefit Plan (other than premiums due and not delinquent under Section 4007 of
ERISA); (iv) each Borrower and their ERISA Affiliates, have not incurred and do
not reasonably expect to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) Borrower and its ERISA Affiliates, have not engaged in a
transaction that would be subject to Section 4069 or 4212(c) of ERISA.
(d) With respect to any Canadian Pension Plan (i) such Canadian
Pension Plan is duly registered under all applicable Federal or Provincial
pension benefits legislation, (ii) all obligations of Borrower and Canadian
Guarantor (including fiduciary, funding, investment and administration
obligations) required to be performed by Borrower or Canadian Guarantor, as the
case may be, in connection with such Canadian Pension Plan or the funding
agreements therefor have been performed in a timely fashion and there are no
outstanding disputes concerning the assets held pursuant to any such funding
agreement, (iii) all contributions or premiums required to be made by Borrower
and Canadian Guarantor to such Canadian Pension Plan have been made in a timely
fashion in accordance with the terms of such Canadian Pension Plan and
applicable laws and regulations, (iv) all employee contributions to such
Canadian Pension Plan required to be made by way of authorized payroll deduction
have been properly withheld by Borrower and Canadian Guarantor and fully paid
into such Canadian Pension Plan in a timely fashion, (v) all reports and
disclosures relating to such Canadian Pension Plan required to be provided by
Borrower and Canadian Guarantor under any applicable laws or regulations have
been filed or distributed in a timely fashion, (vi) to the best of the knowledge
of each Borrower, there have been no improper withdrawals, or applications of,
the assets of any of such Canadian Pension Plan, (vii) to the best of the
knowledge of Borrower and Canadian Guarantor, no amount is owing by such
Canadian Pension Plan under the Income Tax Act (Canada) or any provincial
taxation statute, (viii) any Canadian Pension Plan which is required to be
funded in accordance with applicable Federal or Provincial pension benefits
legislation is fully funded both on an ongoing basis and on a solvency basis
(using actuarial assumptions and methods which are consistent with the
valuations last filed with the applicable governmental authorities and which are
consistent with generally accepted actuarial principles) and (ix) to the best of
the knowledge of Borrower and Canadian Guarantor, such Canadian Pension Plan is
not the subject of an investigation or any other proceeding by any applicable
governmental authorities or any other action or a claim and there exists no
state of facts which after notice or lapse of time or both could reasonably be
expected to give rise to any such proceeding, action or claim.
5.14 Environmental Condition. Except as set forth on Schedule 5.14, (a) to
Borrower's knowledge, none of Borrower's or Canadian Guarantor's assets has ever
been used by Borrower or Canadian Guarantor or by previous owners or operators
in the disposal of, or to produce, store, handle, treat, release, or transport,
any Hazardous Materials, where such production, storage, handling, treatment,
release or transport was in violation, in any material respect, of applicable
Environmental Law, (b) to Borrower's and Canadian Guarantor's knowledge, none of
Borrower's or Canadian Guarantor's properties or assets has ever been designated
or identified in any manner pursuant to any environmental protection statute as
a Hazardous Materials disposal site, (c) Neither Borrower or Canadian Guarantor
has received notice that a Lien arising under any Environmental Law has attached
to any revenues or to any Real Property owned or operated by Borrower or
Canadian Guarantor, as the case may be, and (d) Neither Borrower or Canadian
Guarantor, as the case may be, has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by Borrower or Canadian
Guarantor, as the case may be, resulting in the releasing or disposing of
Hazardous Materials into the environment. Borrower and Canadian Guarantor each
represents and warrants to Lender that it has delivered to Lender all
environmental reports issued with respect to all of the Real Property
Collateral.
5.15 Brokerage Fees. Borrower has not utilized the services of any broker
or finder in connection with Borrower's obtaining financing from Lender under
this Agreement and no brokerage commission or finders fee is payable by Borrower
in connection herewith.
5.16 Intellectual Property. Each of Borrower and Canadian Guarantor, as the
case may be, owns, or holds licenses in, all trademarks, trade names,
copyrights, patents, patent rights, and licenses that are necessary to the
conduct of its business as currently conducted. Attached hereto as Schedule 5.16
is a true, correct, and complete listing of all material patents, patent
applications, trademarks, trademark applications, copyrights, and copyright
registrations as to which Borrower or Canadian Guarantor, as the case may be, is
the owner or is an exclusive licensee. Canadian Guarantor does not own or hold
licenses in any copyrights, patents, patent rights, or licenses. No intellectual
property at any time used by Borrower or Canadian Guarantor, as the case may be,
which is owned by another person or owned by Borrower or Canadian Guarantor, as
the case may be, is subject to any security interest, lien, charge, collateral
assignment, pledge, hypothec or other encumbrance in favor of any person other
than Lender or is used in connection with the sale of any Inventory except to
the extent permitted under the terms of a valid and enforceable license
agreement between Borrower or Canadian Guarantor, as the case may be, and the
owner of such Intellectual Property (collectively, together with any such
agreements or arrangements entered into by Borrower or Canadian Guarantor after
the date hereof, the "License Agreements", sometimes being referred to herein
individually as a "License Agreement").
5.17 Leases. Borrower and Canadian Guarantor each enjoys peaceful and
undisturbed possession under all leases material to the business of Borrower or
Canadian Guarantor, as the case may be, and to which it is a party or under
which it is operating. All of such leases are valid and subsisting and no
material default by Borrower or Canadian Guarantor exists under any of them.
5.18 DDAs. Set forth on Schedule 5.18 are all of Borrower's and Canadian
Guarantor's DDAs, including, with respect to each depository (i) the name and
address of such depository, and (ii) the account numbers of the accounts
maintained with such depository.
5.19 Complete Disclosure. All factual information (taken as a whole)
furnished by or on behalf of Borrower or any of its Subsidiaries in writing to
Lender (including all information contained in the Schedules hereto or in the
other Loan Documents) for purposes of or in connection with this Agreement, the
other Loan Documents, or any transaction contemplated herein or therein is, and
all other such factual information (taken as a whole) hereafter furnished by or
on behalf of Borrower or any of its Subsidiaries in writing to Lender will be,
true and accurate, in all material respects, on the date as of which such
information is dated or certified and not incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading in any
material respect at such time in light of the circumstances under which such
information was provided. On the Closing Date, the Closing Date Projections
represent, and as of the date on which any other Projections are delivered to
Lender, such additional Projections represent Borrower's good faith best
estimate of its and its respective Subsidiaries' future performance for the
periods covered thereby.
5.20 Tax Returns. Borrower and each of its Subsidiaries has filed, or
caused to be filed, in a timely manner all tax returns, reports and declarations
which are required to be filed by it. All information in such tax returns,
reports and declarations is complete and accurate in all material respects
except as set forth on Schedule 5.20. Borrower and each of its Subsidiaries has
paid or caused to be paid all taxes due and payable or claimed due and payable
in any assessment received by it, and has collected, deposited and remitted in
accordance with all applicable laws all sales and/or use taxes applicable to the
conduct of its business, except taxes the validity of which are being contested
in good faith by appropriate proceedings diligently pursued and available to
Borrower or such Subsidiary and with respect to which adequate reserves have
been set aside on its books. Adequate provision has been made for the payment of
all accrued and unpaid Federal, State, provincial, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.
Borrower and Canadian Guarantor has each collected and deposited in a separate
bank account or remitted to the appropriate tax authority all sales and/or use
taxes applicable to its business required to be collected under the laws of the
United States or Canada and each possession or territory thereof, and each State
or political subdivision thereof, including any State or Province in which
Borrower or Canadian Guarantor owns any Inventory or owns or leases any other
property. Neither Borrower nor any Subsidiary of Borrower know of any proposed
additional tax assessment against it or any other Persons consolidated with
Borrower that could reasonably be expected to result in a Material Adverse
Change.
5.21 Indebtedness. Set forth on Schedule 5.21 is a true and complete list
of all Indebtedness of Borrower and its Subsidiaries outstanding immediately
prior to the Closing Date that is to remain outstanding after the Closing Date
and such Schedule accurately reflects the aggregate principal amount of such
Indebtedness and the principal terms thereof.
5.22 Inactive Subsidiaries. Each of Borrower's Subsidiaries identified on
Schedule 5.22 hereof (a) has no material assets or (b) has been dissolved or
liquidated.
5.23 Leased Equipment.
(a) None of the equipment leased by Borrower from Bankers Direct
Leasing, a division of EAB Leasing Corp., a Pennsylvania corporation, pursuant
to the terms of the Master Lease Agreement, dated as of January 5, 2000, between
Borrower and Bankers Direct Leasing, a division of EAB Leasing Corp., (i) is
located at either the Sandusky, Ohio or Versailles, Missouri, operations of
Borrower and (ii) was not included in the appraisal of Borrower's Equipment
delivered to Lender in satisfaction of Section 3.1 (w).
(b) Certain of the equipment leased by Borrower from BA Leasing &
Capital Corporation, a California corporation, pursuant to the terms of the
Lease Intended as Security, dated as of June 25, 1998, between Borrower and BA
Leasing & Capital Corporation, is located at either the Sandusky, Ohio or
Versailles, Missouri, operations of Borrower but was not included in the
appraisal of Borrower's Equipment delivered to Lender in satisfaction of Section
3.1 (w).
6. AFFIRMATIVE COVENANTS.
- -------------------------
Borrower and each Guarantor covenants and agrees that, so long as any
credit hereunder shall be available and until full and final payment of the
Obligations, Borrower and each Guarantor shall and shall cause each of its
Subsidiaries to do all of the following:
6.1 Accounting System. Maintain a system of accounting that enables
Borrower to produce financial statements in accordance with GAAP and maintain
records pertaining to the Collateral that contain information as from time to
time reasonably may be requested by Lender. Borrower and Canadian Guarantor also
shall keep an inventory reporting system that shows all additions, sales,
claims, returns, and allowances with respect to the Inventory.
6.2 Collateral Reporting. Provide Lender with the following documents at
the following times in form satisfactory to Lender:
|==============================================================================|
| |
|Daily (a) a sales journal, collection journal, and credit register|
| since the last such schedule and a calculation of the |
| Borrowing Base as of such date, and |
| |
| (b) notice of all returns, disputes, or claims. |
|------------------------------------------------------------------------------|
|------------------------------------------------------------------------------|
| |
|Weekly (c) Inventory reports specifying Borrower's and Canadian |
| Guarantor's cost and the wholesale market value of its |
| Inventory, by category, with additional detail showing |
| additions to and deletions from the Inventory. |
| |
| (d) a detailed aging, by total, of the Accounts, together |
| with a reconciliation to the detailed calculation of the |
| Borrowing Base previously provided to Lender, |
| |
| (e) a detailed calculation of the Borrowing Base (including |
| detail regarding those Accounts that are not Eligible |
| Accounts or Eligible Special Program Accounts), |
|------------------------------------------------------------------------------|
|------------------------------------------------------------------------------|
| (e) a detailed calculation of the Borrowing Base (including |
| detail regarding those Accounts that are not Eligible |
| Accounts or Eligible Special Program Accounts), |
|------------------------------------------------------------------------------|
| |
|Monthly (not (f) satisfactory reporting related to payroll, real estate |
|later than the and excise taxes and Borrower and Canadian Guarantor, |
|10th day of each |
|month) (g) a summary aging, by vendor, of Borrower's and Canadian |
| Guarantor's accounts payable and any book overdraft, |
| |
| (h) a calculation of Dilution for Borrower and Canadian |
| Guarantor for the prior month, |
|------------------------------------------------------------------------------|
|------------------------------------------------------------------------------|
| |
|Quarterly (i) a detailed list of Borrower's and Canadian Guarantor's|
| customers, |
| |
| (j) a report regarding Borrower's and Canadian Guarantor's |
| accrued, but unpaid, ad valorem taxes, |
|------------------------------------------------------------------------------|
|------------------------------------------------------------------------------|
| |
|Upon request by (k) copies of invoices in connection with the Accounts, |
|Lender credit memos, remittance advices, deposit slips, shipping |
| and delivery documents in connection with the Accounts and,|
| for Inventory and Equipment acquired by Borrower and |
| Canadian Guarantor, purchase orders and invoices, and |
| |
| (l) such other reports as to the Collateral, or the |
| financial condition of Borrower and its Subsidiaries, as |
| Lender may request. |
================================================================================
In addition, Borrower and Canadian Guarantor agree to cooperate fully with
Lender to facilitate and implement a system of electronic collateral reporting
in order to provide electronic reporting of each of the items set forth above.
6.3 Financial Statements, Reports, Certificates. Deliver to Lender:
(a) as soon as available, but in any event within 30 days (provided,
that, in the case of a month that is the end of one of the first 3 fiscal
quarters in a fiscal year, within 45 days, and to the extent that the SEC has
extended the time for filing such financial statements, then fifty (50) days)
after the end of each month during each of Borrower's fiscal years,
(i) a company prepared consolidated balance sheet, income
statement, and statement of cash flow covering Borrower's and its
Subsidiaries' operations during such period,
(ii) a certificate signed by the chief financial officer of
Borrower to the effect that:
(A) the financial statements delivered hereunder have been
prepared in accordance with GAAP (except for the lack of footnotes and
being subject to year-end audit adjustments) and fairly present in all
material respects the financial condition of Borrower and its
Subsidiaries,
(B) the representations and warranties of Borrower contained
in this Agreement and the other Loan Documents are true and correct in
all material respects on and as of the date of such certificate, as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date), and
(C) there does not exist any condition or event that
constitutes a Default or Event of Default (or, to the extent of any
non-compliance, describing such non-compliance as to which he or she
may have knowledge and what action Borrower has taken, is taking, or
proposes to take with respect thereto), and
(iii) for each month that is the date on which a financial
covenant in Section 7.20 is to be tested, a Compliance Certificate
demonstrating, in reasonable detail, compliance at the end of such period
with the applicable financial covenants contained in Section 7.20, and
(b) as soon as available, but in any event within 90 days after the
end of each of Borrower's fiscal years (provided, that, to the extent that the
SEC has granted additional time to file such financial statements, then within
105 days),
(i) financial statements of Borrower and its Subsidiaries for
each such fiscal year, audited by independent certified public accountants
reasonably acceptable to Lender and certified, without any qualifications,
by such accountants to have been prepared in accordance with GAAP (such
audited financial statements to include a balance sheet, income statement,
and statement of cash flow and, if prepared, such accountants' report to
management),
(ii) a certificate of such accountants addressed to Lender
stating that such accountants do not have knowledge of the existence of any
Default or Event of Default under Section 7.20,
(c) as soon as available, but in any event within 30 days prior to the
start of each of Borrower's fiscal years,
(i) copies of Borrower's Projections, in form and substance
(including as to scope and underlying assumptions) satisfactory to Lender,
in its sole discretion, for the forthcoming 3 years, year by year, and for
the forthcoming fiscal year, month by month, certified by the chief
financial officer of Borrower as being such officer's good faith best
estimate of the financial performance of Borrower during the period covered
thereby,
(d) in the event that Borrower proposes to make a payment of
Indebtedness in respect of the Subordinated Debt Agreements permitted in Section
7.1(d)(ii)(G), then no later than November 30th of any year, with respect to a
proposed payment on December 31st of such year and no later than May 30th of any
year, with respect to a proposed payment on June 30th of such year,
(i) copies of Borrower's Projections, in form and substance
(including as to scope and underlying assumptions) satisfactory to Lender,
in its sole discretion, for the immediately succeeding twelve month period,
month by month, certified by the chief financial officer of Borrower as
being such officer's good faith best estimate of the financial performance
of Borrower during the period covered thereby,
(e) if and when filed by Borrower or any Subsidiary,
(i) Form 10-Q quarterly reports, Form 10-K annual reports, and
Form 8-K current reports or similar reports required to be filed by any
Governmental Authority,
(ii) any other filings made by Borrower or any Subsidiary with
the SEC or similar Governmental Authority,
(iii) copies of federal income tax returns, and any amendments
thereto, filed with the Internal Revenue Service or similar Governmental
Authority in another jurisdiction, and
(iv) any other information that is provided by Borrower to its
shareholders generally,
(f) if and when filed by Borrower or any Subsidiary and as requested
by Lender, satisfactory evidence of payment of applicable excise taxes in each
jurisdictions in which (i) Borrower or any Subsidiary conducts business or is
required to pay any such excise tax, (ii) where Borrower's or any Subsidiary's
failure to pay any such applicable excise tax would result in a Lien on the
properties or assets of Borrower or any Subsidiary, or (iii) where Borrower's or
any Subsidiary's failure to pay any such applicable excise tax reasonably could
be expected to result in a Material Adverse Change,
(g) as soon as Borrower or any Subsidiary has knowledge of any event
or condition that constitutes a Default or an Event of Default, notice thereof
and a statement of the curative action that Borrower or such Subsidiary proposes
to take with respect thereto, and
(h) upon the request of Lender, any other report reasonably requested
relating to the financial condition of Borrower or any of its Subsidiaries.
In addition to the financial statements referred to above, Borrower
agrees to deliver quarterly balance sheets and income statements prepared on a
consolidating basis and agrees that no Subsidiary of Borrower will have a fiscal
year different from that of Borrower except for Subsidiaries incorporated under
the laws of Mexico. Borrower agrees that its independent certified public
accountants are authorized to communicate with Lender and to release to Lender
whatever financial information concerning Borrower or any of its Subsidiaries
Lender reasonably may request. Borrower waives the right to assert a
confidential relationship, if any, it may have with any accounting firm or
service bureau in connection with any information requested by Lender pursuant
to or in accordance with this Agreement, and agrees that Lender may contact
directly any such accounting firm or service bureau in order to obtain such
information. Lender will use reasonable efforts to notify Borrower prior to any
proposed call or meeting with any such accounting firm or service bureau, and
Borrower may elect to participate in such call or attend such meeting.
6.4 Guarantor Reports. Cause each Guarantor to deliver its annual financial
statements at the time when Borrower provides its audited financial statements
to Lender and copies of all income tax returns as soon as the same are available
and in any event no later than 30 days after the same are required to be filed
by law.
6.5 Return. Cause returns and allowances, as between Borrower and its
Account Debtors, to be on the same basis and in accordance with the usual
customary practices of Borrower or Canadian Guarantor, as the case may be, as
they exist at the time of the execution and delivery of this Agreement. If, at a
time when no Event of Default has occurred and is continuing, any Account Debtor
returns any Inventory to Borrower or Canadian Guarantor, as the case may be,
Borrower or Canadian Guarantor, as the case may be, promptly shall determine the
reason for such return and, if Borrower accepts such return, issue a credit
memorandum (with a copy to be sent to Lender) in the appropriate amount to such
Account Debtor. If, at a time when an Event of Default has occurred and is
continuing, any Account Debtor returns any Inventory to Borrower or Canadian
Guarantor, as the case may be, Borrower or Canadian Guarantor, as the case may
be, promptly shall determine the reason for such return and, if Lender consents
(which consent shall not be unreasonably withheld), issue a credit memorandum
(with a copy to be sent to Lender) in the appropriate amount to such Account
Debtor.
6.6 Maintenance of Properties. Maintain and preserve all of its properties
which are necessary or useful in the proper conduct to its business in good
working order and condition, ordinary wear and tear excepted, and comply at all
times with the provisions of all leases to which it is a party as lessee so as
to prevent any loss or forfeiture thereof or thereunder.
6.7 Taxes. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its Subsidiaries, or any of its assets to be paid in full, before
delinquency or before the expiration of any extension period, except to the
extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest. Borrower and each of its Subsidiaries, will make timely
payment or deposit of all tax payments and withholding taxes required of it by
applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, provincial and federal income taxes, and will,
upon request, furnish Lender with proof satisfactory to Lender indicating that
Borrower and each of its Subsidiaries has made such payments or deposits.
Borrower (for itself and each of its Subsidiaries) shall deliver satisfactory
evidence of payment of applicable excise taxes in each jurisdictions in which
Borrower or any of its Subsidiaries is required to pay any such excise tax.
6.8 Insurance.
(a) At Borrower's expense, maintain insurance on behalf of itself and
each of its Subsidiaries respecting their assets wherever located, covering loss
or damage by fire, theft, explosion, and all other hazards and risks as
ordinarily are insured against by other Persons engaged in the same or similar
businesses. Borrower and Canadian Guarantor also shall maintain business
interruption, public liability, and product liability insurance, as well as
insurance against larceny, embezzlement, and criminal misappropriation. All such
policies of insurance shall be in such amounts and with such insurance companies
as are reasonably satisfactory to Lender. Borrower shall (for itself and on
behalf of Canadian Guarantor) deliver copies of all such policies to Lender with
a satisfactory lender's loss payable endorsement naming Lender as sole loss
payee or additional insured, as appropriate. Each policy of insurance or
endorsement shall contain a clause requiring the insurer to give not less than
30 days prior written notice to Lender in the event of cancellation of the
policy for any reason whatsoever.
(b) Borrower (for itself and on behalf of Canadian Guarantor) shall
give Lender prompt notice of any loss covered by such insurance. Lender shall
have the exclusive right to adjust any losses payable under any such insurance
policies in excess of $50,000, without any liability to Borrower or any
Subsidiary whatsoever in respect of such adjustments. Any monies received as
payment for any loss under any insurance policy mentioned above (other than
liability insurance policies) or as payment of any award or compensation for
condemnation or taking by eminent domain, shall be paid over to Lender to be
applied at the option of Lender either to the prepayment of the Obligations or
shall be disbursed to Borrower under staged payment terms reasonably
satisfactory to Lender for application to the cost of repairs, replacements, or
restorations. Any such repairs, replacements, or restorations shall be effected
with reasonable promptness and shall be of a value at least equal to the value
of the items of property destroyed prior to such damage or destruction.
(c) Borrower nor Canadian Guarantor will take out separate insurance
concurrent in form or contributing in the event of loss with that required to be
maintained under this Section 6.8, unless Lender is included thereon as named
insured with the loss payable to Lender under a lender's loss payable
endorsement or its equivalent. Borrower immediately shall notify Lender whenever
such separate insurance is taken out, specifying the insurer thereunder and full
particulars as to the policies evidencing the same, and copies of such policies
promptly shall be provided to Lender.
6.9 Location of Inventory and Equipment. Keep the Inventory and Equipment
only at the locations identified on Schedule 5.5; provided, however, that
Borrower (on its own behalf and on behalf of Canadian Guarantor) may amend
Schedule 5.5 so long as such amendment occurs by written notice to Lender not
less than 30 days prior to the date on which Inventory or Equipment is moved to
such new location, so long as such new location is within the continental United
States or Canada, and so long as, at the time of such written notification,
Borrower or Canadian Guarantor provides any financing statements or PPSA
financing statements or fixture filings necessary to perfect and continue
perfected the Lender's Liens on such assets and also provides to Lender a
Collateral Access Agreement.
6.10 Compliance with Laws. Comply with the requirements of all applicable
laws, rules, regulations, and orders of any Governmental Authority, including
the Fair Labor Standards Act and the Americans With Disabilities Act, other than
laws, rules, regulations, and orders the non-compliance with which, individually
or in the aggregate, would not result in and reasonably could not be expected to
result in a Material Adverse Change.
6.11 Leases. Pay when due all rents and other amounts payable under any
leases to which Borrower or Canadian Guarantor is a party or by which Borrower's
or Canadian Guarantor's, as the case may be, properties and assets are bound,
unless such payments are the subject of a Permitted Protest.
6.12 Brokerage Commissions. Pay any and all brokerage commission or finders
fees incurred in connection with or as a result of Borrower's obtaining
financing from Lender under this Agreement. Borrower agrees and acknowledges
that payment of all such brokerage commissions or finders fees shall be the sole
responsibility of Borrower, and Borrower agrees to indemnify, defend, and hold
Lender harmless from and against any claim of any broker or finder arising out
of Borrower's obtaining financing from Lender under this Agreement.
6.13 Existence. At all times preserve and keep in full force and effect
Borrower's and each Subsidiary (other than the Subsidiaries identified on
Schedule 5.22 hereof) valid existence and good standing and any rights and
franchises material to Borrower's or such Subsidiary's businesses.
6.14 Environmental. Keep any property either owned or operated by Borrower
or Canadian Guarantor, as the case may be, free of any Environmental Liens or
post bonds or other financial assurances sufficient to satisfy the obligations
or liability evidenced by such Environmental Liens, (b) comply, in all material
respects, with Environmental Laws and provide to Lender documentation of such
compliance which Lender reasonably requests, (c) promptly notify Lender of any
release of a Hazardous Material in any reportable quantity from or onto property
owned or operated by Borrower or Canadian Guarantor, as the case may be, and
take any Remedial Actions required to abate said release or otherwise to come
into compliance with applicable Environmental Law, and (d) promptly provide
Lender with written notice within 10 days of the receipt of any of the
following: (i) notice that an Environmental Lien has been filed against any of
the real or personal property of Borrower or Canadian Guarantor, as the case may
be, (ii) commencement of any Environmental Action or notice that an
Environmental Action will be filed against Borrower or Canadian Guarantor, as
the case may be, and (iii) notice of a violation, citation, or other
administrative order which reasonably could be expected to result in a Material
Adverse Change.
6.15 Disclosure Updates. Promptly and in no event later than 5 Business
Days after obtaining knowledge thereof, (a) notify Lender if any written
information, exhibit, or report furnished to Lender contained any untrue
statement of a material fact or omitted to state any material fact necessary to
make the statements contained therein not misleading in light of the
circumstances in which made, and (b) correct any defect or error that may be
discovered therein or in any Loan Document or in the execution, acknowledgment,
filing, or recordation thereof.
6.16 Compliance with ERISA. (a) Borrower shall, and shall cause each of its
ERISA Affiliates, to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other Federal and
State law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; (c) not terminate any of such Plans so as
to incur any material liability to the Pension Benefit Guaranty Corporation; (d)
not allow or suffer to exist any prohibited transaction involving any of such
Plans or any trust created thereunder which would subject Borrower, or such
ERISA Affiliate to a material tax or penalty or other liability on prohibited
transactions imposed under Section 4975 of the Code or ERISA; (e) make all
required contributions to any Plan which it is obligated to pay under Section
302 of ERISA, Section 412 of the Code or the terms of such Plan; (f) not allow
or suffer to exist any accumulated funding deficiency, whether or not waived,
with respect to any such Plan; or (g) allow or suffer to exist any occurrence of
a reportable event or any other event or condition which presents a material
risk of termination by the Pension Benefit Guaranty Corporation of any such Plan
that is a single employer plan, which termination could result in any material
liability to the Pension Benefit Guaranty Corporation.
(b) With respect to any Canadian Pension Plan, Borrower or Canadian
Guarantor: (i) shall administer such Canadian Pension Plan in all material
respects in accordance with the requirements of the applicable pension plan
texts, funding agreements, the Income Tax Act (Canada) and applicable federal or
provincial pension benefits legislation, (ii) shall use its best efforts to
deliver to Lender an undertaking of the funding agent for each Canadian Pension
Plan stating that the funding agent will notify Lender within seven (7) days of
Borrower's or Canadian Guarantor's, as applicable, failure to make any required
contribution to the applicable Canadian Pension Plan, (iii) without the prior
written consent of Lender, shall not terminate, or cause to be terminated,
subject to compliance with applicable provincial or federal pension benefits
legislation and the Income Tax Act (Canada), any Canadian Pension Plan, if such
plan would have a solvency deficiency on termination, (iv) shall promptly
provide Lender with any documentation relating to any Canadian Pension Plan as
Lender may reasonably request, subject to compliance with applicable legislation
governing privacy of information, and (v) shall notify Lender within thirty (30)
days of (A) the establishment of a Canadian Pension Plan, and (B) the
commencement of payment of contributions to a Canadian Pension Plan to which
Borrower or Canadian Guarantor had not previously been contributing.
6.17 License Agreements. Give Lender prompt written notice of any License
Agreement entered into by Borrower or Canadian Guarantor after the date hereof,
together with a true, correct and complete copy thereof and such other
information with respect thereto as Lender may request.
7. NEGATIVE COVENANTS.
- ----------------------
Borrower and each Guarantor covenants and agrees that, so long as any
credit hereunder shall be available and until full and final payment of the
Obligations, Borrower will not and will not permit any of its Subsidiaries to do
any of the following:
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement and the other Loan
Documents, together with Indebtedness owed to Underlying Issuers with respect to
Underlying Letters of Credit,
(b) Indebtedness set forth on Schedule 5.21,
(c) Permitted Purchase Money Indebtedness,
(d) Indebtedness of Borrower evidenced by or arising under the
Subordinated Debt Agreements as in effect on the date hereof, provided, that:
(i) the aggregate principal amount of such Indebtedness shall not
exceed $17,071,466, less the aggregate amount of all repayments,
repurchases or redemptions, whether optional or mandatory, in respect
thereof, plus interest thereon at the rate provided for in the Subordinated
Debt Agreements as in effect on the date hereof,
(ii) Borrower nor any of its Subsidiaries shall, directly or
indirectly, make any payments in respect of such Indebtedness, except that
Borrower may make:
(A) on the date hereof, (1) accrued and unpaid interest in
arrears in respect of the Subordinated Debt in an amount not greater
than $2,200,000 and (2) accrued and unpaid principal in arrears in
respect of the Subordinated Debt in an amount not greater than
$1,000,000, provided, that Excess Availability, on the date hereof,
and after giving effect to each such payment, shall not be less than
$5,000,000,
(B) regularly scheduled payments of interest after the date
hereof in respect of the Subordinated Debt in accordance with the
terms of the Subordinated Debt Agreements as in effect on the date
hereof; provided, that, as to any such regularly scheduled payment of
interest, each of the following conditions is satisfied as determined
by Lender in good faith: (1) as of the date of any such payment and
after giving effect thereto, no Event of Default shall exist or have
occurred and be continuing, and (2) as of the date of such payment and
immediately after giving effect thereto, Excess Availability shall not
be less than $3,000,000,
(C) regularly scheduled payments of principal in respect of
the Subordinated Debt due in the calendar year 2002, in accordance
with the terms of the Subordinated Debt Agreements as in effect on the
date hereof; provided, that, as to any such regularly scheduled
payment of principal, each of the following conditions is satisfied as
determined by Lender in good faith: (1) as of the date of any such
payment and after giving effect thereto, no Event of Default shall
exist or have occurred and be continuing, (2) as of the date of such
payment and immediately after giving effect thereto, Excess
Availability shall not be less than $3,000,000, (3) after giving
effect to any proposed principal payment, the aggregate amount of all
principal payments made in the calendar year 2002, in respect of the
Subordinated Debt shall not exceed $1,500,000 (including for purposes
of this calculation, the amount of the principal payment, if any, made
pursuant to Section 7.1(d)(ii)(A) hereof and the amount of any
prepayments of principal made as a result of the occurrence of a
Liquidity Event),and provided, that, in any event, the aggregate
amount of scheduled principal payments in any one calendar month
during 2002 shall not exceed $50,000,
(D) regularly scheduled payments of principal in respect of
the Subordinated Debt due in the calendar year 2003, in accordance
with the terms of the Subordinated Debt Agreements as in effect on the
date hereof; provided, that, as to any such regularly scheduled
payment of principal, each of the following conditions is satisfied as
determined by Lender in good faith: (1) as of the date of any such
payment and after giving effect thereto, no Event of Default shall
exist or have occurred and be continuing, (2) as of the date of such
payment and immediately after giving effect thereto, Excess
Availability shall not be less than $3,000,000, and (3) after giving
effect to any proposed principal payment, the aggregate amount of all
principal payments made in the calendar year 2003 (including the
amount of any prepayments of principal made as a result of the
occurrence of a Liquidity Event), in respect of the Subordinated Debt
shall not exceed $2,000,000, and provided, that, in any event, the
aggregate amount of scheduled principal payments in any one calendar
month during 2003 shall not exceed $50,000;
(E) regularly scheduled payments of principal in respect of
the Subordinated Debt due in the calendar year 2004, in accordance
with the terms of the Subordinated Debt Agreements as in effect on the
date hereof; provided, that, as to any such regularly scheduled
payment of principal, each of the following conditions is satisfied as
determined by Lender in good faith: (1) as of the date of any such
payment and after giving effect thereto, no Event of Default shall
exist or have occurred and be continuing, (2) as of the date of such
payment and immediately after giving effect thereto, Excess
Availability shall not be less than $3,000,000, and (3) after giving
effect to any proposed principal payment, the aggregate amount of all
principal payments made in the calendar year 2004 (including the
amount of any prepayments of principal made as a result of the
occurrence of a Liquidity Event), in respect of the Subordinated Debt
shall not exceed $2,000,000, and provided, that, in any event, the
aggregate amount of scheduled principal payments in any one calendar
month during 2004 shall not exceed $150,000, and
(F) regularly scheduled payments of principal in respect of
the Subordinated Debt due in the calendar year 2005, in accordance
with the terms of the Subordinated Debt Agreements as in effect on the
date hereof; provided, that, as to any such regularly scheduled
payment of principal, each of the following conditions is satisfied as
determined by Lender in good faith: (1) as of the date of any such
payment and after giving effect thereto, no Event of Default shall
exist or have occurred and be continuing, (2) as of the date of such
payment and immediately after giving effect thereto, Excess
Availability shall not be less than $3,000,000, and (3) after giving
effect to any proposed principal payment, the aggregate amount of all
principal payments made in the calendar year 2005 (including the
amount of any prepayments of principal made as a result of the
occurrence of a Liquidity Event), in respect of the Subordinated Debt
shall not exceed $1,000,000, and provided, that, in any event, the
aggregate amount of scheduled principal payments in any one calendar
month during 2005 shall not exceed $150,000, and
(G) in addition to the regularly scheduled payments of
principal after the date hereof in respect of the Subordinated Debt
permitted in accordance with Sections 7.1 (d)(ii)(A), (B), (C), (D),
(E) and (F) above, additional payments of principal on December 31 and
June 30 of each of those calendar years; provided, that, the amount of
any such payment shall not exceed the lesser of (i) the lesser of (A)
the average daily Excess Availability for the thirty (30) day period
immediately prior to the date of such proposed payment less $3,000,000
or (B) Excess Availability on the day of such proposed payment less
$3,000,000, (ii) the lowest projected Excess Availability for any
calendar month during the succeeding twelve (12) month period less
$3,000,000 (based on projections (in form satisfactory to Lender)
delivered by Borrower to Lender, in respect of any proposed December
31 payment, no later than November 30th of such calendar year, and in
respect of any proposed June 30th payment, no later than May 30th of
such calendar year) or (iii) the amount equal to the difference
between the aggregate amount of all principal payments already made in
the applicable calendar year and the limit set forth in clause (3) of
the subsection of Section of 7.1(d)(ii)(A), (B), (C), (D), (E) and (F)
which addresses the aggregate amount of permitted principal payments
for such calendar year; provided, that, as of the date of any such
payment and after giving effect thereto, no Event of Default shall
exist or have occurred and be continuing;
(H) in addition to the regularly scheduled payments of
principal after the date hereof in respect of the Subordinated Debt
permitted in accordance with Sections 7.1 (d)(ii)(A), (B), (C), (D),
(E) and (F) above, additional payments of principal may also be made
in connection with the occurrence of a Liquidity Event as follows: so
long as no Event of Default has occurred and is continuing, and on the
date of the proposed Liquidity Event Excess Availability equals or
exceeds $3,000,000, then, Borrower may pay to or deliver to
Subordinated Note Agent, fifty (50%) percent of the net proceeds of
such Liquidity Event for payment to the Subordinated Noteholders, and
in the event that on the date of the proposed Liquidity Event Excess
Availability is less than $3,000,000, then the net proceeds shall be
applied, first, to the then outstanding principal amount of Advances
as set forth in Section 2.16 hereof, such that the outstanding
principal amount of the Advances shall be reduced such that Excess
Availability equals at least $3,000,000, and to the extent that any
net proceeds of such Liquidity Event remain after such application,
fifty (50%) percent of the net proceeds shall be applied to the
payment of the Obligations as set forth in Section 2.16 and fifty
(50%) percent may be paid to Subordinated Note Agent in respect of the
Subordinated Debt, provided, that, in the event that any proposed
payment to Subordinated Note Agent of any Liquidity Event net proceeds
would cause the aggregate principal payment limitations with respect
to Subordinated Debt (on an annual basis as set forth in Sections 7.1
(d)(ii)) to be exceeded, then amount of any such excess shall be paid
to Lender and applied to the Obligations as set forth in Section 2.16
hereof;
(iii) Borrower shall not, directly or indirectly, amend,
modify, alter or change in any material respect any terms of the
Subordinated Debt the Subordinated Debt Agreements or any related
agreements, documents or instruments, except that Borrower may, after
prior written notice to Lender, amend, modify, alter or change the terms
thereof so as to extend the maturity thereof or defer the timing of any
payments in respect thereof, or to forgive or cancel any portion of such
Indebtedness other than pursuant to payments thereof, or to reduce the
interest rate or any fees in connection therewith, or redeem, retire,
defease, purchase or otherwise acquire such Indebtedness, or set aside or
otherwise deposit or invest any sums for such purpose, and in the event
that Borrower wants to make principal payments in excess of the annual
limitations set forth in clause (3) of Sections 7.1(d)(ii)(C), (D), (E)
and (F) Borrower must obtain Lender's prior written consent; and
(iv) Borrower shall furnish to Lender all notices or demands
in connection with such Indebtedness received by Borrower or any Guarantor
or on its behalf, promptly after receipt thereof or sent by Borrower or
any Guarantor or on its behalf concurrently with the sending thereof;
(e) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b), (c) and (d) of this Section 7.1 (and
continuance or renewal of any Permitted Liens associated therewith) so
long as: (i) the terms and conditions of such refinancings, renewals,
or extensions do not, in Lender's judgment, materially impair the
prospects of repayment of the Obligations by Borrower or any Guarantor
or materially impair Borrower's or any Guarantor's creditworthiness,
(ii) such refinancings, renewals, or extensions do not result in an
increase in the principal amount of, or interest rate with respect to,
the Indebtedness so refinanced, renewed, or extended, (iii) such
refinancings, renewals, or extensions do not result in a shortening of
the average weighted maturity of the Indebtedness so refinanced,
renewed, or extended, nor are they on terms or conditions that, taken
as a whole, are materially more burdensome or restrictive to Borrower
or any Guarantor, and (iv) if the Indebtedness that is refinanced,
renewed, or extended was subordinated in right of payment to the
Obligations, then the terms and conditions of the refinancing,
renewal, or extension Indebtedness must include subordination terms
and conditions that are at least as favorable to Lender as those that
were applicable to the refinanced, renewed, or extended Indebtedness;
provided, that, (A) any refinancing of the Subordinated Debt shall in
addition to satisfying the foregoing conditions shall also have a
stated maturity date that occurs after the Maturity Date, and (B) any
refinancing of the Indebtedness of Borrower which is currently secured
by the Heathrow Facility shall permit Lender to have a second lien on
the Heathrow Facility,
(f) Indebtedness composing Permitted Investments, and
(g) Indebtedness of Subsidiaries listed on Schedule 5.21, and
Indebtedness of Subsidiaries of Borrower (other than Indebtedness evidenced by
the Loan Documents) created after the date hereof, provided, that, the aggregate
principal amount of all such Indebtedness outstanding at any time shall not
exceed the US Dollar Equivalent $20,000,000.
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its assets, of any kind,
whether now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Liens (including Liens that are replacements of Permitted
Liens to the extent that the original Indebtedness is refinanced, renewed, or
extended under Section 7.1(e) and so long as the replacement Liens only encumber
those assets that secured the refinanced, renewed, or extended Indebtedness).
7.3 Restrictions on Fundamental Changes.
(a) Enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its Stock.
(b) Liquidate, wind up, or dissolve itself (or suffer any liquidation
or dissolution).
(c) Convey, sell, lease, license, assign, transfer, or otherwise
dispose of, in one transaction or a series of transactions, all or any
substantial part of its assets.
7.4 Disposal of Assets. Convey, sell, lease, license, assign, transfer, or
otherwise dispose of Borrower's or any Subsidiary's assets except (a) Permitted
Dispositions, and (b) the sale of the NCR Division, provided, that, each of the
following conditions is satisfied in the determination of Lender: (i) Lender has
received a copy of the Purchase and Sale Agreement, which is in form and
substance satisfactory to Lender, (ii) the purchase price for the NCR Division
is at least $2,500,000, (iii) any promissory note to be made by NCR Buyer in
favor of Borrower in respect of the purchase price shall not exceed $750,000,
shall bear interest at a per annum rate of not less than ten (10%) percent,
which interest shall be payable no less frequently than quarterly and shall
provide for at least annual principal payments ("Seller Note") and shall, to the
extent permitted by the lenders to NCR Buyer, be secured by a lien on all of the
assets being sold as part of the NCR Division, (iv) Lender shall have received
an assignment of all of Borrower's, right, title and interest in and to the
Seller Note, (v) Excess Availability on the date of such sale and after giving
effect thereto shall be not less than $3,000,000; (vi) all net proceeds payable
or deliverable to Borrower in respect of such sale shall be paid or delivered,
or caused to paid or delivered to Lender, for application to the Obligations in
the following order: first to the Advances, second to Term Loan B, and third, to
Term Loan A; (vii) the sale shall have been consummated no later than November
30, 2002; and (viii) on the date of such sale and after giving effect thereto,
no Event of Default shall exist or have occurred and be continuing.
7.5 Change Name. Change Borrower's or any Guarantor's name, FEIN, corporate
structure, or identity, or add any new fictitious name; provided, however, that
Borrower or any Guarantor may change its name upon at least 30 days prior
written notice to Lender of such change and so long as, at the time of such
written notification, Borrower or such Guarantor provides any financing
statements or fixture filings necessary to perfect and continue perfected the
Lender's Liens.
7.6 Guarantee. Guarantee or otherwise become in any way liable with respect
to the obligations of any third Person except (a) by endorsement of instruments
or items of payment for deposit to the account of Borrower or which are
transmitted or turned over to Lender, (b) guarantees of the Obligations
evidenced by the Loan Documents and (c) guarantees of the Subordinated Debt in
favor of the Subordinated Noteholders (as in effect on the date hereof).
7.7 Nature of Business. Make any change in the principal nature of its
business.
7.8 Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by Section
7.1(e), prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness
of Borrower, other than the Obligations in accordance with this Agreement, and
(b) Except in connection with a refinancing permitted by Section
7.1(e), directly or indirectly, amend, modify, alter, increase, or change any of
the terms or conditions of any agreement, instrument, document, indenture, or
other writing evidencing or concerning Indebtedness permitted under Sections
7.1(b), (c) or (d).
7.9 Change of Control. Cause, permit, or suffer, directly or indirectly,
any Change of Control.
7.10 Consignments. Consign any Inventory or sell any Inventory on bill and
hold, sale or return, sale on approval, or other conditional terms of sale.
7.11 Distributions. Make any distribution or declare or pay any dividends
(in cash or other property, other than common Stock) on, or purchase, acquire,
redeem, or retire any of Borrower's or any Guarantor's Stock, of any class,
whether now or hereafter outstanding.
7.12 Accounting Methods. Modify or change its method of accounting (other
than as may be required to conform to GAAP) or enter into, modify, or terminate
any agreement currently existing, or at any time hereafter entered into with any
third party accounting firm or service bureau for the preparation or storage of
Borrower's or any of its Subsidiaries' accounting records without said
accounting firm or service bureau agreeing to provide Lender information
regarding the Collateral or Borrower's or such Subsidiary's financial condition.
7.13 Investments. Except for Permitted Investments, directly or indirectly,
make or acquire any Investment or incur any liabilities (including contingent
obligations) for or in connection with any Investment; provided, however, that
Borrower and its Subsidiaries shall not have Permitted Investments (other than
in the Cash Management Accounts) in deposit accounts or Securities Accounts in
excess of $5,000 outstanding at any one time unless Borrower or its Subsidiary,
as applicable, and the applicable securities intermediary or bank have entered
into Control Agreements governing such Permitted Investments, as Lender shall
determine in its Permitted Discretion, to perfect (and further establish) the
Lender's Liens in such Permitted Investments.
7.14 Transactions with Affiliates. (a) Directly or indirectly enter into or
permit to exist any transaction with any Affiliate of Borrower except for
transactions that are in the ordinary course of Borrower's or such Guarantor's
business, as the case may be, upon fair and reasonable terms, that are fully
disclosed to Lender, and that are no less favorable to Borrower or such
Guarantor than would be obtained in an arm's length transaction with a
non-Affiliate.
(b) cause Grupo to increase its gross profit on sales of goods to
Borrower or Canadian Guarantor to exceed fifteen (15%) percent of the cost of
such Inventory to Grupo or pay Grupo in respect of any goods purchased from
Grupo more than Grupo's cost for such goods plus 15%.
7.15 Suspension. Suspend or go out of a substantial portion of its
business.
7.16 Compensation. Increase the annual fee or per-meeting fees paid to the
members of its Board of Directors during any year by more than 15% over the
prior year; pay or accrue total cash compensation, during any year, to its
officers and senior management employees in an aggregate amount in excess of
130% of that paid or accrued in the prior year.
7.17 Use of Proceeds. Use the proceeds of the Advances and the Term Loans
for any purpose other than (a) on the Closing Date, (i) to repay, (A) in full,
the outstanding principal, accrued interest, and accrued fees and expenses owing
to Existing Lender, (B) amounts owing to Subordinated Noteholders in accordance
with Section 7.1(d)(ii)(A) hereof and (ii) to pay transactional fees, costs, and
expenses incurred in connection with this Agreement, the other Loan Documents,
and the transactions contemplated hereby and thereby, and (b) thereafter,
consistent with the terms and conditions hereof, for its lawful and permitted
purposes.
7.18 Change in Location of Chief Executive Office; Inventory and Equipment
with Bailees. Relocate its chief executive office to a new location without
providing 30 days prior written notification thereof to Lender and so long as,
at the time of such written notification, Borrower or Canadian Guarantor
provides any financing statements or fixture filings necessary to perfect and
continue perfected the Lender's Liens and also provides to Lender a Collateral
Access Agreement with respect to such new location. The Inventory and Equipment
shall not at any time now or hereafter be stored with a bailee, warehouseman, or
similar party without Lender's prior written consent. Notwithstanding the
foregoing, Inventory of Borrower may not be moved to or located at the North
Carolina distribution facility of Hunt Corporation ("Hunt") unless the following
conditions have been satisfied in the determination of Lender: (a) Lender shall
have received, in form and substance satisfactory to Lender, the agreement
between Borrower and Hunt, pursuant to which Hunt will manage and distribute
Borrower's inventory out of its distribution facility in North Carolina, and (b)
Lender shall have received a Collateral Access Agreement, in form and substance
satisfactory to Lender, duly executed and delivered by Hunt.
7.19 Securities Accounts. Establish or maintain any Securities Account
unless Lender shall have received a Control Agreement in respect of such
Securities Account. Neither Borrower nor Canadian Guarantor shall transfer
assets out of any Securities Account; provided, however, that, so long as no
Event of Default has occurred and is continuing or would result therefrom,
Borrower and Canadian Guarantor, as the case may be, may use such assets (and
the proceeds thereof) to the extent not prohibited by this Agreement.
7.20 Financial Covenants.
(a) Fail to maintain:
(i) Minimum Consolidated EBITDA. Consolidated EBITDA, measured
on a fiscal month-end basis, of not less than the required amount set
forth in the following table for the applicable period set forth opposite
thereto:
-------------------------------------------------------------------------
Applicable Amount Applicable Period
-------------------------------------------------------------------------
-------------------------------------------------------------------------
$ (275,000) For the 1 month period
ending October 31, 2002
-------------------------------------------------------------------------
$ (155,000) For the 2 month period
ending November 30, 2002
-------------------------------------------------------------------------
$ 446,000 For the 3 month period
ending December 31, 2002
-------------------------------------------------------------------------
$ 286,000 For the 4 month period
ending January 31, 2003
-------------------------------------------------------------------------
$ 447,000 For the 5 month period
ending February 28, 2003
-------------------------------------------------------------------------
$ 1,175,000 For the 6 month period
ending March 31, 2003
-------------------------------------------------------------------------
$ 1,542,000 For the 7 month period
ending April 30, 2003
-------------------------------------------------------------------------
$ 2,783,000 For the 8 month period
ending May 31, 2003
-------------------------------------------------------------------------
$ 4,868,000 For the 9 month period
ending June 30, 2003
-------------------------------------------------------------------------
$ 5,988,000 For the 10 month period
ending July 31, 2003
-------------------------------------------------------------------------
$ 6,843,000 For the 11 month period
ending August 31, 2003
-------------------------------------------------------------------------
$ 7,646,000 For the 12 month period
ending September 30, 2003
-------------------------------------------------------------------------
; and for each rolling twelve (12) month period ending on the last day of
each fiscal month thereafter, in an amount to be agreed upon by Borrower
and Lender, in an amendment to this Section 7.20(a)(i), equal to 80% of the
Consolidated EBITDA for such period set forth in Borrower's Projections for
such fiscal year delivered to Lender pursuant to Section 6.3, which
Projections must be reasonably acceptable to Lender;
(ii) Minimum North American EBITDA. North American EBITDA,
measured on a fiscal month-end basis, of not less than the required amount
set forth in the following table for the applicable period set forth
opposite thereto:
-------------------------------------------------------------------------
Applicable Amount Applicable Period
-------------------------------------------------------------------------
$ (401,000) For the 1 month period
ending October 31, 2002
-------------------------------------------------------------------------
$ (676,000) For the 2 month period
ending November 30, 2002
-------------------------------------------------------------------------
$ (293,000) For the 3 month period
ending December 31, 2002
-------------------------------------------------------------------------
$ (622,000) For the 4 month period
ending January 31, 2003
-------------------------------------------------------------------------
$ (1,184,000) For the 5 month period
ending February 28, 2003
-------------------------------------------------------------------------
$ (1,285,000) For the 6 month period
ending March 31, 2003
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Applicable Amount Applicable Period
-------------------------------------------------------------------------
$ (1,712,000) For the 7 month period
ending April 30, 2003
-------------------------------------------------------------------------
$ (907,000) For the 8 month period
ending May 31, 2003
-------------------------------------------------------------------------
$ 454,000 For the 9 month period
ending June 30, 2003
-------------------------------------------------------------------------
$ 1,145,000 For the 10 month period
ending July 31, 2003
-------------------------------------------------------------------------
$ 1,916,000 For the 11 month period
ending August 31, 2003
-------------------------------------------------------------------------
$ 2,406,000 For the 12 month period
September 30, 2003
-------------------------------------------------------------------------
; and for each rolling twelve (12) month period ending on the last day of
each fiscal month thereafter, in an amount to be agreed upon by Borrower
and Lender, in an amendment to this Section 7.20(a)(ii), equal to 80% of
the North American EBITDA for such period set forth in Borrower's
Projections for such fiscal year delivered to Lender pursuant to Section
6.3, which Projections must be reasonably acceptable to Lender;
(iii) Tangible Net Worth. Tangible Net Worth of at least the
required amount set forth in the following table as of the applicable date
set forth opposite thereto:
-------------------------------------------------------------------------
Applicable Amount Applicable Period
-------------------------------------------------------------------------
$ 22,010,000 For the month ending October 31, 2002
-------------------------------------------------------------------------
$ 21,840,000 For the month ending November 30, 2002
-------------------------------------------------------------------------
$ 21,910,000 For the month ending December 31, 2002
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Applicable Amount Applicable Period
-------------------------------------------------------------------------
$ 21,620,000 For the month ending January 31, 2003
-------------------------------------------------------------------------
$ 21,470,000 For the month ending February 28, 2003
-------------------------------------------------------------------------
$ 21,600,000 For the month ending March 31, 2003
-------------------------------------------------------------------------
$ 21,530,000 For the month ending April 30, 2003
-------------------------------------------------------------------------
$ 22,170,000 For the month ending May 31, 2003
-------------------------------------------------------------------------
$ 23,070,000 For the month ending June 30, 2003
-------------------------------------------------------------------------
$ 23,500,000 For the month ending July 31, 2003
-------------------------------------------------------------------------
$ 23,770,000 For the month ending August 31, 2003
-------------------------------------------------------------------------
$ 23,990,000 For the month ending September 30, 2002
-------------------------------------------------------------------------
; and for each fiscal month in each fiscal year thereafter in an amount to
be agreed upon by Borrower and Lender, in an amendment to this Section
7.20(a)(iii), equal to 80% of Borrower's Tangible Net Worth for each such
fiscal month set forth in Borrower's Projections for such fiscal year
delivered to Lender pursuant to Section 6.3, which Projections must be
reasonably acceptable to Lender.
(iv) Minimum Excess Availability. The amount of Excess
Availability, at all times, at an amount equal to or greater than the US
Dollar Equivalent of $1,500,000; provided, that, in the event that (1) the
aggregate outstanding amount of the Term Loans is equal to or less than
$2,000,000, and (2) there have been no Defaults or Events of Default for
the immediately preceding twelve (12) months, then upon notice from Lender
to Borrower, the amount of Excess Availability, at all times, at an amount
equal to or greater than the US Dollar Equivalent of $1,000,000.
(b) Make:
(i) Capital Expenditures. Capital expenditures for the fiscal
year ending September 30, 2003, in an aggregate amount in excess of
$2,000,000; and for each fiscal year thereafter, an amount equal to 100%
of the proposed amount of capital expenditures contained in Borrower's
Projections for such fiscal year delivered to Lender pursuant to Section
6.3, but which
proposed capital expenditures for each such fiscal year must be approved by
Lender.
7.21 Consultant. Failure to retain a third party acceptable to Lender, (a
"Consultant"), at Borrower's expense, to evaluate and review Borrower, its
business, assets, operations (including personnel) and financial performance,
including but not limited to, a review of the performance of Borrower with
respect to its business plan as provided to Lender prior to the date hereof, and
to prepare such studies, plans of corporate and asset reorganization and reports
with respect thereto as Lender may specify. Borrower's retention of a Consultant
shall continue until the later to occur of the following events: (a) the date
which is ninety (90) days after the date of this Agreement, or (b) thirty (30)
days after the Lender's receipt of a report, in form and substance satisfactory
to Lender, which: (2) evidences the closing of Borrower's business operations
currently located in Sandusky, Ohio and the relocation of Borrower's
distribution center from Macon, Georgia to the Hunt Facility in Statesville,
North Carolina and (ii) details the operating cost structure of Borrower after
giving effect to the events described in clause (i) above; which operating cost
structure must be within the parameters set forth in Projections previously
provided to Lender. The scope and nature of the duties of the Consultant shall
at all times be acceptable to Lender. Borrower and each Guarantor shall, and
shall cause their respective officers, directors, employees and agents, to
cooperate with the Consultant, including promptly providing such information to
such Consultant as it may request. Borrower hereby irrevocably authorizes and
directs such Consultant to share with Lender all budgets, records, projections,
financial information, reports and other information relating to the Collateral,
or the financial condition or operations of Borrower's and its Subsidiaries
businesses. If Lender determines that the Consultant is not providing Lender
with information or access to Borrower's records as may be requested by Lender,
Borrower hereby agrees, promptly upon the request of Lender, to terminate
Consultant as Borrower's consultant and to promptly (but in any event within
five (5) Business Days after the request of Lender) retain another Consultant
from the list provided by Lender to Borrower. Borrower agrees to provide the
Consultant with complete access to all of Borrower's books and records, all of
Borrower's premises and to Borrower's management and to cooperate with
Consultant.
8. EVENTS OF DEFAULT.
- ---------------------
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrower or any Guarantor fails to pay when due and payable, or when
declared due and payable, all or any portion of the Obligations (whether of
principal, interest (including any interest which, but for the provisions of the
Bankruptcy Code, would have accrued on such amounts), fees and charges due
Lender, reimbursement of Lender Expenses, or other amounts constituting
Obligations);
8.2 If Borrower or any Guarantor fails to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in this Agreement
or in any of the other Loan Documents;
8.3 If any material portion of Borrower's or any of its Subsidiaries'
assets is attached, seized, subjected to a writ or distress warrant, levied
upon, or comes into the possession of any third Person;
8.4 If an Insolvency Proceeding is commenced by Borrower or any of its
Subsidiaries;
8.5 If an Insolvency Proceeding is commenced against Borrower, or any of
its Subsidiaries, and any of the following events occur: (a) Borrower or the
Subsidiary consents to the institution of such Insolvency Proceeding against it,
(b) the petition commencing the Insolvency Proceeding is not timely
controverted, (c) the petition commencing the Insolvency Proceeding is not
dismissed within 45 calendar days of the date of the filing thereof; provided,
however, that, during the pendency of such period, Lender shall be relieved of
its obligations to extend credit hereunder, (d) an interim trustee is appointed
to take possession of all or any substantial portion of the properties or assets
of, or to operate all or any substantial portion of the business of, Borrower or
any of its Subsidiaries, or (e) an order for relief shall have been entered
therein;
8.6 If Borrower or any of its Subsidiaries is enjoined, restrained, or in
any way prevented by court order from continuing to conduct all or any material
part of its business affairs;
8.7 If a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's or any of its Subsidiaries' assets by the United
States, or any department, agency, or instrumentality thereof, or by any state,
county, municipal, or governmental agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities becomes a Lien, whether
choate or otherwise, upon any of Borrower's or any of its Subsidiaries' assets
and the same is not paid before such payment is delinquent;
8.8 If a judgment or other claim becomes a Lien or encumbrance upon any
material portion of Borrower's or any of its Subsidiaries' assets;
8.9 If there is a default in any material agreement to which Borrower or
any of its Subsidiaries is a party (including, without limitation, the
Subordinated Debt Agreements) and such default (a) occurs at the final maturity
of the obligations thereunder, or (b) results in a right by the other party
thereto, irrespective of whether exercised, to accelerate the maturity of
Borrower's or its Subsidiaries' obligations thereunder, to terminate such
agreement, or to refuse to renew such agreement pursuant to an automatic renewal
right therein;
8.10 If Borrower or any of its Subsidiaries makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to the
payment of the Obligations, except to the extent such payment is permitted by
the terms of the subordination provisions applicable to such Indebtedness;
8.11 If any misstatement or misrepresentation exists now or hereafter in
any warranty, representation, statement, or Record made to Lender by Borrower,
its Subsidiaries, or any officer, employee, agent, or director of Borrower or
any of its Subsidiaries;
8.12 If the obligation of any Guarantor under any Guarantee is limited or
terminated by operation of law or by such Guarantor thereunder; or
8.13 If this Agreement or any other Loan Document that purports to create a
Lien, shall, for any reason, fail or cease to create a valid and perfected and,
except to the extent permitted by the terms hereof or thereof, first priority
Lien on or security interest in the Collateral covered hereby or thereby;
8.14 If the Indebtedness evidenced by the Subordinated Debt Agreements is
not refinanced in accordance the terms of Section 7.1(e) of this Agreement by no
later than one hundred eighty (180) days prior to the stated maturity date of
such Indebtedness as set forth in the Subordinated Debt Agreements (in effect on
the date hereof);
8.15 If an ERISA Event shall occur which results in or could reasonably be
expected to result in liability of Borrower or any Guarantor in an aggregate
amount in excess of $500,000;
8.16 If at any time subsequent to the initial employment by Borrower of the
Consultant, (a) Borrower terminates the employment of the Consultant, or limits
or attempts to limit the scope of the engagement of the Consultant other than as
permitted in Section 7.21 hereof, or (b) Borrower, or any member of senior
management of Borrower, shall fail to cooperate with the Consultant in
connection with its services;
8.17 If there is a breach by Subordinated Note Agent, any Subordinated
Noteholder, Borrower or any Guarantor of any of the terms or conditions of the
Intercreditor Agreement; or
8.18 Any provision of any Loan Document shall at any time for any reason be
declared to be null and void, or the validity or enforceability thereof shall be
contested by Borrower, or a proceeding shall be commenced by Borrower, or by any
Governmental Authority having jurisdiction over Borrower, seeking to establish
the invalidity or unenforceability thereof, or Borrower shall deny that Borrower
has any liability or obligation purported to be created under any Loan Document.
9. LENDER'S RIGHTS AND REMEDIES.
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9.1 Rights and Remedies. Upon the occurrence, and during the continuation,
of an Event of Default, Lender (at its election but without notice of its
election and without demand) may do any one or more of the following, all of
which are authorized by Borrower and each Guarantor.
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, under any of the Loan Documents, or under any
other agreement between Borrower and Lender;
(c) Terminate this Agreement and any of the other Loan Documents as to
any future liability or obligation of Lender, but without affecting any of the
Lender's Liens in the Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account Debtors
for amounts and upon terms which Lender considers advisable, and in such cases,
Lender will credit Borrower's Loan Account with only the net amounts received by
Lender in payment of such disputed Accounts after deducting all Lender Expenses
incurred or expended in connection therewith;
(e) Cause Borrower and each Guarantor, as the case may be, to hold all
returned Inventory in trust for Lender, segregate all returned Inventory from
all other assets of Borrower or such Guarantor, as the case may be, or in
Borrower's or such Guarantor's possession and conspicuously label said returned
Inventory as the property of Lender;
(f) Without notice to or demand upon Borrower or any Guarantor, make
such payments and do such acts as Lender considers necessary or reasonable to
protect its security interests in the Collateral. Borrower and each Guarantor
agrees to assemble the Personal Property Collateral if Lender so requires, and
to make the Personal Property Collateral available to Lender at a place that
Lender may designate which is reasonably convenient to both parties. Borrower
and each Guarantor authorizes Lender to enter the premises where the Personal
Property Collateral is located, to take and maintain possession of the Personal
Property Collateral, or any part of it, and to pay, purchase, contest, or
compromise any Lien that in Lender's determination appears to conflict with the
Lender's Liens and to pay all expenses incurred in connection therewith and to
charge Borrower's Loan Account therefor. With respect to any of Borrower's or
any Guarantor's owned or leased premises, Borrower and each Guarantor hereby
grants Lender a license to enter into possession of such premises and to occupy
the same, without charge, in order to exercise any of Lender's rights or
remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower or any Guarantor (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of Borrower or
any Guarantor held by Lender (including any amounts received in the Cash
Management Accounts), or (ii) Indebtedness at any time owing to or for the
credit or the account of Borrower or any Guarantor held by Lender;
(h) Hold, as cash collateral, any and all balances and deposits of
Borrower or any of its Subsidiaries held by Lender, and any amounts received in
the Cash Management Accounts, to secure the full and final repayment of all of
the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein) the
Personal Property Collateral. Borrower and Canadian Guarantor each hereby grants
to Lender a license or other right to use, without charge, Borrower's or
Canadian Guarantor's, as the case may be, labels, patents, copyrights, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Personal Property
Collateral, in completing production of, advertising for sale, and selling any
Personal Property Collateral and Borrower's or Canadian Guarantor's, as the case
may be, rights under all licenses and all franchise agreements shall inure to
Lender's benefit;
(j) Sell the Personal Property Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Borrower's or any
Guarantor's premises) as Lender determines is commercially reasonable. It is not
necessary that the Personal Property Collateral be present at any such sale;
(k) Lender shall give notice of the disposition of the Personal
Property Collateral as follows:
(i) Lender shall give Borrower a notice in writing of the time
and place of public sale, or, if the sale is a private sale or some other
disposition other than a public sale is to be made of the Personal Property
Collateral, the time on or after which the private sale or other
disposition is to be made; and
(ii) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in Section 12, at least 10 days
before the earliest time of disposition set forth in the notice; no notice
needs to be given prior to the disposition of any portion of the Personal
Property Collateral that is perishable or threatens to decline speedily in
value or that is of a type customarily sold on a recognized market;
(l) Lender may credit bid and purchase at any public sale; and
(m) Lender may seek the appointment of a receiver or keeper to take
possession of all or any portion of the Collateral or to operate same and, to
the maximum extent permitted by law, may seek the appointment of such a receiver
without the requirement of prior notice or a hearing;
(n) Lender shall have all other rights and remedies available at law
or in equity or pursuant to any other Loan Document;
(o) Any deficiency that exists after disposition of the Personal
Property Collateral as provided above will be paid immediately by Borrower. Any
excess will be returned, without interest and subject to the rights of third
Persons, by Lender to Borrower; and
(p) Lender may appoint or reappoint by instrument in writing, any
person or persons, whether an officer or officers or any employee or employees
of Lender or not, to be a receiver or receivers (hereinafter called a
"Receiver", which term when used herein shall include a receiver and manager) of
any Collateral of Canadian Guarantor (including any interest, income or profits
therefrom) and may remove any Receiver so appointed and appoint another in
his/her stead. Any such Receiver shall, so far as concerns responsibility for
his/her acts, be deemed the agent of Canadian Guarantor and not Lender, and
Lender shall not be in any way responsible for any misconduct, negligence or
non-feasance on the part of any such Receiver, his/her servants, agents or
employees. Subject to the provisions of the instrument appointing him/her, any
such Receiver shall have power to take possession of Collateral, to preserve
Collateral or its value, to carry on or concur in carrying on all or any part of
the business of Canadian Guarantor and to sell, lease, license or otherwise
dispose of or concur in selling, leasing, licensing or otherwise disposing of
Collateral. To facilitate the foregoing powers, any such Receiver may, to the
exclusion of all others, including Canadian Guarantor, enter upon, use and
occupy all premises owned or occupied by Canadian Guarantor wherein Collateral
may be situate, maintain Collateral upon such premises, borrow money on a
secured or unsecured basis and use Collateral directly in carrying on Canadian
Guarantor's business or as security for loans or advances to enable the Receiver
to carry on applicable Canadian Guarantor's business or otherwise, as such
Receiver shall, in its discretion, determine. Except as may be otherwise
directed by the Agent, all money received from time to time by such Receiver in
carrying out his/her appointment shall be received in trust for and paid over to
the Lender. Every such Receiver may, in the discretion of Lender be vested with
all or any of the rights and powers of Lender, as applicable. Lender may, either
directly or through its agents or nominees, exercise any or all powers and
rights given to a Receiver by virtue of the foregoing provisions of this
paragraph
9.2 Remedies Cumulative. The rights and remedies of Lender under this
Agreement, the other Loan Documents, and all other agreements shall be
cumulative. Lender shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by Lender
of one right or remedy shall be deemed an election, and no waiver by Lender of
any Event of Default shall be deemed a continuing waiver. No delay by Lender
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
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If Borrower or any of its Subsidiaries fails to pay any monies (whether
taxes, assessments, insurance premiums, or, in the case of leased properties or
assets, rents or other amounts payable under such leases) due to third Persons,
or fails to make any deposits or furnish any required proof of payment or
deposit, all as required under the terms of this Agreement, then, Lender, in its
sole discretion and without prior notice to Borrower or any Guarantor, may do
any or all of the following: (a) make payment of the same or any part thereof,
(b) set up such reserves in Borrower's Loan Account as Lender deems necessary to
protect Lender from the exposure created by such failure, or (c) in the case of
the failure to comply with Section 6.8 hereof, obtain and maintain insurance
policies of the type described in Section 6.8 and take any action with respect
to such policies as Lender deems prudent. Any such amounts paid by Lender shall
constitute Lender Expenses and any such payments shall not constitute an
agreement by Lender to make similar payments in the future or a waiver by Lender
of any Event of Default under this Agreement. Lender need not inquire as to, or
contest the validity of, any such expense, tax, or Lien and the receipt of the
usual official notice for the payment thereof shall be conclusive evidence that
the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
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11.1 Demand; Protest. Borrower and each Guarantor waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, nonpayment at maturity, release, compromise, settlement, extension,
or renewal of documents, instruments, chattel paper, and guarantees at any time
held by Lender on which Borrower or any Guarantor may in any way be liable.
11.2 Lender's Liability for Collateral. Borrower and each Guarantor hereby
agrees that: (a) so long as Lender complies with its obligations, if any, under
the Code, Lender shall not in any way or manner be liable or responsible for:
(i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring
or arising in any manner or fashion from any cause, (iii) any diminution in the
value thereof, or (iv) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person, and (b) all risk of loss, damage, or
destruction of the Collateral shall be borne by Borrower and Guarantors.
11.3 Indemnification. Borrower and each Guarantor, jointly and severally,
shall pay, indemnify, defend, and hold the Lender-Related Persons, each
Participant, and each of their respective officers, directors, employees,
agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to the
fullest extent permitted by law) from and against any and all claims, demands,
suits, actions, investigations, proceedings, and damages, and all reasonable
attorneys fees and disbursements and other costs and expenses actually incurred
in connection therewith (as and when they are incurred and irrespective of
whether suit is brought), at any time asserted against, imposed upon, or
incurred by any of them (a) in connection with or as a result of or related to
the execution, delivery, enforcement, performance, or administration of this
Agreement, any of the other Loan Documents, or the transactions contemplated
hereby or thereby, and (b) with respect to any investigation, litigation, or
proceeding related to this Agreement, any other Loan Document, or the use of the
proceeds of the credit provided hereunder (irrespective of whether any
Indemnified Person is a party thereto), or any act, omission, event, or
circumstance in any manner related thereto (all the foregoing, collectively, the
"Indemnified Liabilities"). The foregoing to the contrary notwithstanding,
Borrower shall have no obligation to any Indemnified Person under this Section
11.3 with respect to any Indemnified Liability that a court of competent
jurisdiction finally determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations. If any
Indemnified Person makes any payment to any other Indemnified Person with
respect to an Indemnified Liability as to which Borrower and Guarantors were
required to indemnify the Indemnified Person receiving such payment, the
Indemnified Person making such payment is entitled to be indemnified and
reimbursed by Borrower and Guarantors with respect thereto. WITHOUT LIMITATION,
THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO
INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART CAUSED BY OR ARISE OUT OF ANY
NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.
12. NOTICES.
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Unless otherwise provided in this Agreement, all notices or demands by
Borrower, Guarantors or Lender to the other relating to this Agreement or any
other Loan Document shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by registered or certified mail
(postage prepaid, return receipt requested), overnight courier, electronic mail
(at such email addresses as Borrower (on behalf of itself and the Guarantors) or
Lender, as applicable, may designate to each other in accordance herewith), or
telefacsimile to Borrower or Lender, as the case may be, at its address set
forth below:
If to Borrower or DIXON TICONDEROGA COMPANY
Guarantors: 195 International Parkway
Heathrow, Florida 32746
Attn: Chief Financial Officer
Fax No. (407) 829-2570
With copies to: SIMS, MOSS, KLINE & DAVIS, LLP
Three Ravinia Drive
Suite 1700
Atlanta, Georgia 30346
Attn: Jerry L. Sims, Esq.
Fax No. (770) 481-7210
If to Lender: FOOTHILL CAPITAL CORPORATION
2450 Colorado Avenue
Suite 3000 West
Santa Monica, California 90404
Attn: Business Finance Division Manager
Fax No. (310) 453-7413
and
FOOTHILL CAPITAL CORPORATION
1000 Abernathy Road
Suite 1450
Atlanta, Georgia 30328
Attn: Business Finance Division Manager
Fax No. (770) 508-1374
with copies to: OTTERBOURG, STEINDLER, HOUSTON & ROSEN, P.C.
230 Park Avenue
New York, New York 10169
Attn: Valerie S. Mason, Esq.
Fax No. (212) 682-6104
Lender and Borrower (on behalf of itself and Guarantors) may change the
address at which they are to receive notices hereunder, by notice in writing in
the foregoing manner given to the other party. All notices or demands sent in
accordance with this Section 12, other than notices by Lender in connection with
enforcement rights against the Collateral under the provisions of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3
Business Days after the deposit thereof in the mail. Borrower and each Guarantor
acknowledges and agrees that notices sent by Lender in connection with the
exercise of enforcement rights against Collateral under the provisions of the
Code shall be deemed sent when deposited in the mail or personally delivered,
or, where permitted by law, transmitted by telefacsimile or any other method set
forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
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(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT
OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT
HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION
WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED
ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF
NEW YORK, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY
COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER'S OPTION, IN THE COURTS
OF ANY JURISDICTION HAVING PERSONAL JURISDICTION OVER BORROWER OR ANY GUARANTOR
OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWER, EACH
GUARANTOR, AND LENDER WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
13(b).
BORROWER, EACH GUARANTOR, AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY
OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. BORROWER, EACH GUARANTOR, AND LENDER REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A
COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
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14.1 Assignments and Participations.
(a) Lender may assign and delegate to one or more assignees (each an
"Assignee") all, or any ratable part of all, of the Obligations and the other
rights and obligations of Lender hereunder and under the other Loan Documents as
provided in Section 14.1(g) below; provided, however, that Borrower may continue
to deal solely and directly with Lender in connection with the interest so
assigned to an Assignee until (i) written notice of such assignment, together
with payment instructions, addresses, and related information with respect to
the Assignee, have been given to Borrower by Lender and the Assignee, and (ii)
Lender and its Assignee have delivered to Borrower an appropriate assignment and
acceptance agreement.
(b) From and after the date that Lender provides Borrower with such
written notice and executed assignment and acceptance agreement, (i) the
Assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such assignment and
acceptance agreement, shall have the assigned and delegated rights and
obligations of Lender under the Loan Documents, and (ii) Lender shall, to the
extent that rights and obligations hereunder and under the other Loan Documents
have been assigned and delegated by it pursuant to such assignment and
acceptance agreement, relinquish its rights (except with respect to Section 11.3
hereof) and be released from its obligations under this Agreement (and in the
case of an assignment and acceptance covering all or the remaining portion of
Lender's rights and obligations under this Agreement and the other Loan
Documents, Lender shall cease to be a party hereto and thereto), and such
assignment shall affect a novation between Borrower and the Assignee.
(c) Immediately upon Borrower's receipt of such fully executed
assignment and acceptance agreement, this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of the Assignee and the resulting adjustment of the rights and duties of Lender
arising therefrom.
(d) Lender may at any time sell to one or more commercial banks,
financial institutions, or other Persons not Affiliates of such Lender (a
"Participant") participating interests in the Obligations and the other rights
and interests of Lender hereunder and under the other Loan Documents as provided
in Section 14.1(g) below; provided, however, that (i) Lender shall remain the
"Lender" for all purposes of this Agreement and the other Loan Documents and the
Participant receiving the participating interest in the Obligations and the
other rights and interests of Lender shall not constitute a "Lender" hereunder
or under the other Loan Documents and Lender's obligations under this Agreement
shall remain unchanged, (ii) Lender shall remain solely responsible for the
performance of such obligations, (iii) Borrower, Guarantors and Lender shall
continue to deal solely and directly with each other in connection with Lender's
rights and obligations under this Agreement and the other Loan Documents, (iv)
Lender shall not transfer or grant any participating interest under which the
Participant has the right to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent
such amendment to, or consent or waiver with respect to this Agreement or of any
other Loan Document would (A) extend the final maturity date of the Obligations
hereunder in which such Participant is participating, (B) reduce the interest
rate applicable to the Obligations hereunder in which such Participant is
participating, (C) release all or a material portion of the Collateral or
guaranties (except to the extent expressly provided herein or in any of the Loan
Documents) supporting the Obligations hereunder in which such Participant is
participating, (D) postpone the payment of, or reduce the amount of, the
interest or fees payable to such Participant through Lender, or (E) change the
amount or due dates of scheduled principal repayments or prepayments or
premiums, and (v) all amounts payable by Borrower and Guarantors hereunder shall
be determined as if Lender had not sold such participation, except that, if
amounts outstanding under this Agreement are due and unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall be deemed to have the right of set-off in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as Lender under this Agreement. The rights of any Participant
only shall be derivative through Lender and no Participant shall have any rights
under this Agreement or the other Loan Documents or any direct rights as to
Borrower, any Guarantor, the Collections, the Collateral, or otherwise in
respect of the Obligations. No Participant shall have the right to participate
directly in the making of decisions by Lender.
(e) In connection with any such assignment or participation or
proposed assignment or participation, a Lender may disclose all documents and
information which it now or hereafter may have relating to Borrower or
Borrower's business.
(f) Any other provision in this Agreement notwithstanding, Lender may
at any time create a security interest in, or pledge, all or any portion of its
rights under and interest in this Agreement in favor of any Federal Reserve Bank
in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury
Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law.
(g) Lender may, after notice to Borrower, assign its rights and
delegate its obligations whether pursuant to the making of an assignment or the
selling of a participation under this Agreement and the other Financing
Agreements (i) to any of its present and future Subsidiaries or Affiliates or
(ii) to any commercial banks or other financial institutions with the consent of
Borrower which shall not be unreasonably withheld, delayed or conditioned, (iii)
upon the merger, consolidation, sale, transfer or other disposition of all or
any substantial portion of its business, loan portfolio or other assets, or (iv)
at any time after an Event of Default shall exist or have occurred and be
continuing without the consent of Borrower or any Guarantors.
14.2 Successors. This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided, however,
neither Borrower nor any Guarantor may assign this Agreement or any rights or
duties hereunder without Lender's prior written consent and any prohibited
assignment shall be absolutely void ab initio. No consent to assignment by
Lender shall release Borrower or any Guarantor from its Obligations. Lender may
assign this Agreement and the other Loan Documents and its rights and duties
hereunder and thereunder pursuant to Section 14.1 hereof and, except as
expressly required pursuant to Section 14.1 hereof, no consent or approval by
Borrower or any Guarantor is required in connection with any such assignment.
15. AMENDMENTS; WAIVERS.
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15.1 Amendments and Waivers. No amendment or waiver of any provision
of this Agreement or any other Loan Document, and no consent with respect to any
departure by Borrower therefrom, shall be effective unless the same shall be in
writing and signed by Lender and Borrower and then any such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
15.2 No Waivers; Cumulative RemediesError! Bookmark not defined.. No
failure by Lender to exercise any right, remedy, or option under this Agreement
or any other Loan Document, or delay by Lender in exercising the same, will
operate as a waiver thereof. No waiver by Lender will be effective unless it is
in writing, and then only to the extent specifically stated. No waiver by Lender
on any occasion shall affect or diminish Lender's rights thereafter to require
strict performance by Borrower or Guarantors, as the case may be, of any
provision of this Agreement. Lender's rights under this Agreement and the other
Loan Documents will be cumulative and not exclusive of any other right or remedy
that Lender may have.
16. GENERAL PROVISIONS.
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16.1 Effectiveness. This Agreement shall be binding and deemed
effective when executed by Borrower, Guarantors and Lender.
16.2 Section Headings. Headings and numbers have been set forth herein
for convenience only. Unless the contrary is compelled by the context,
everything contained in each Section applies equally to this entire Agreement.
16.3 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed against Lender or Borrower, whether under
any rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to accomplish fairly the purposes and
intentions of all parties hereto.
16.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
16.5 Withholding Taxes. All payments made by Borrower or any Guarantor
hereunder or under any note or other Loan Document will be made without setoff,
counterclaim, or other defense, except as required by applicable law other than
for Taxes (as defined below). All such payments will be made free and clear of,
and without deduction or withholding for, any present or future taxes, levies,
imposts, duties, fees, assessments or other charges of whatever nature now or
hereafter imposed by any jurisdiction (other than the United States) or by any
political subdivision or taxing authority thereof or therein (other than of the
United States) with respect to such payments (but excluding, any tax imposed by
any jurisdiction or by any political subdivision or taxing authority thereof or
therein (i) measured by or based on the net income or net profits of Lender, or
(ii) to the extent that such tax results from a change in the circumstances of
Lender, including a change in the residence, place of organization, or principal
place of business of Lender, or a change in the branch or lending office of
Lender participating in the transactions set forth herein) and all interest,
penalties or similar liabilities with respect thereto (all such non-excluded
taxes, levies, imposts, duties, fees, assessments or other charges being
referred to collectively as "Taxes"). If any Taxes are so levied or imposed,
Borrower agrees to pay the full amount of such Taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under this
Agreement or under any note, including any amount paid pursuant to this Section
16.5 after withholding or deduction for or on account of any Taxes, will not be
less than the amount provided for herein; provided, however, that neither
Borrower nor any Guarantor shall be required to increase any such amounts
payable to Lender if the increase in such amount payable results from Lender's
own willful misconduct or gross negligence. Borrower (for itself and each of its
Subsidiaries) will furnish to Lender as promptly as possible after the date the
payment of any Taxes is due pursuant to applicable law certified copies of tax
receipts evidencing such payment by Borrower or such Subsidiary, as the case may
be.
16.6 Currency Indemnity. If, for the purposes of obtaining judgment in any
court in any jurisdiction with respect to this Agreement or any of the other
Loan Documents, it becomes necessary to convert into the currency of such
jurisdiction (the "Judgment Currency") any amount due under this Agreement or
under any of the other Loan Documents in any currency other than the Judgment
Currency (the "Currency Due"), then conversion shall be made at the Exchange
Rate at which Lender is able, on the relevant date, to purchase the Currency
Date with the Judgment Currency prevailing on the Business Day before the day on
which judgement is given. In the event that there is a change in the rate of
Exchange Rate prevailing between the Business Day before the day on which the
judgment is given and the date of receipt by Lender of the amount due, Borrower
will, on the date of receipt by Lender, pay such additional amounts, if any, or
be entitled to receive reimbursement of such amount, if any, as may be necessary
to ensure that the amount received by Lender on such date is the amount in the
Judgment Currency which when converted at the rate of exchange prevailing on the
date of receipt by Lender is the amount then due under this Agreement or such
other of the Loan Documents in the Currency Due. If the amount of the Currency
Due which Lender is able to purchase is less than the amount of the Currency Due
originally due to it, Borrower and Guarantors shall indemnify and save Lender
harmless from and against loss or damage arising as a result of such deficiency.
The indemnity contained herein shall constitute an obligation separate and
independent from the other obligations contained in this Agreement and the other
Loan Documents, shall give rise to a separate and independent cause of action,
shall apply irrespective of any indulgence granted by Lender from time to time
and shall continue in full force and effect notwithstanding any judgment or
order for a liquidated sum in respect of an amount due under this Agreement or
any of the other Loan Documents or under any judgment or order.
16.7 Amendments in Writing. This Agreement only can be amended by a writing
signed by Lender, Borrower and Guarantors.
16.8 Counterparts; Telefacsimile Execution. This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document mutatis
mutandis.
16.9 Revival and Reinstatement of ObligationsError! Bookmark not defined.
If the incurrence or payment of the Obligations by Borrower or any Guarantor or
the transfer to Lender of any property should for any reason subsequently be
declared to be void or voidable under any state or federal law relating to
creditors' rights, including provisions of the Bankruptcy Code relating to
fraudulent conveyances, preferences, or other voidable or recoverable payments
of money or transfers of property (collectively, a "Voidable Transfer"), and if
Lender is required to repay or restore, in whole or in part, any such Voidable
Transfer, or elects to do so upon the reasonable advice of its counsel, then, as
to any such Voidable Transfer, or the amount thereof that Lender is required or
elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Lender related thereto, the liability of Borrower or such
Guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
16.10 Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
16.11 Choice of Language. The parties hereto confirm that they have
requested that this Agreement and all documents related hereto be drafted in
English. Les parties aux presentes ont exige que cette convention ainsi que tout
document connexe soient rediges en anglais.
[Signature page to follow.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
FOOTHILL CAPITAL CORPORATION, DIXON TICONDEROGA COMPANY,
a California corporation a Delaware corporation, as Borrower
By: /s/ Kathy Plisko By: /s/ Richard A. Asta
---------------- -------------------
Title: Senior Vice President Title: Treasurer
---------------------- ---------
DIXON TICONDEROGA INC., as Guarantor
By: /s/ Richard A. Asta
-------------------
Title: Treasurer
---------
DIXON EUROPE, LIMITED, as Guarantor
By: /s/ Richard A. Asta
-------------------
Title: Secretary
---------
GRUPO DIXON, S.A. de C.V., as Guarantor
By: /s/ Richard A. Asta
-------------------
Title: Attorney-In-Fact
----------------
DIXON COMERCIALIZADORA, S.A. de C.V.,
as Guarantor
By: /s/ Richard A. Asta
-------------------
Title: Attorney-In-Fact
----------------
DIXON INDUSTRIAL MEXICO,
S.A. de C.V., as Guarantor
By: /s/ Jose Noe Covarrubias
-----------------------
Title: Liquidator
----------
SERVIDIX, S.A. de C.V., as Guarantor
By: /s/ Richard A. Asta
-------------------
Title: Attorney-In-Fact
----------------
DIXON TICONDEROGA DE
MEXICO, S.A. de C.V., as Guarantor
By: /s/ Richard A. Asta
-------------------
Title: Attorney-In-Fact
----------------
BEIJING DIXON TICONDEROGA
STATIONERY COMPANY LIMITED, as Guarantor
By: /s/ Gino N. Pala
-------------------
Title:
-------------------
TICONDEROGA GRAPHITE INC., as Guarantor
By: /s/ Richard A. Asta
-------------------
Title: Treasurer
---------
Exhibit (10) o.
---------------
Dixon Ticonderoga Company
--------------------------
Amended and Restated Note and Warrant Purchase Agreement,
---------------------------------------------------------
12.5% Senior Subordinated Notes, due October 3, 2005.
-----------------------------------------------------
EXECUTION VERSION
DIXON TICONDEROGA COMPANY
AMENDED AND RESTATED NOTE AND
WARRANT PURCHASE AGREEMENT
DATED AS OF OCTOBER 3, 2002
12.5% SENIOR NOTES DUE OCTOBER 3, 2005
AMENDED AND RESTATED NOTE AND WARRANT PURCHASE AGREEMENT
--------------------------------------------------------
AMENDED AND RESTATED NOTE AND WARRANT PURCHASE AGREEMENT (this "Agreement"
or the "Restated Note Agreement"), dated as of October 3, 2002, among DIXON
TICONDEROGA COMPANY, a Delaware corporation (the "Company"), and each of THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, JOHN HANCOCK LIFE
INSURANCE COMPANY (formerly known as John Hancock Mutual Life Insurance Company)
and SIGNATURE 1A (CAYMAN), LTD. (collectively, the "Noteholders"), amends and
restates in its entirety that certain Note and Warrant Purchase Agreement, dated
as of September 26, 1996, among the Company and the Noteholders (such Note and
Warrant Purchase Agreement as amended, prior to giving effect to the amendment
and restatement thereof pursuant to this Agreement, being hereinafter referred
to as the "Existing Note Agreement").
RECITALS
--------
WHEREAS, pursuant to the Existing Note Agreement the Noteholders purchased
from the Company Sixteen Million Five Hundred Thousand Dollars ($16,500,000) in
original aggregate principal amount of the Company's 12% Senior Subordinated
Notes due September 26, 2003 (such notes, prior to giving effect to the
amendment and restatement thereof pursuant to this Agreement, being hereinafter
referred to as the "Existing Notes"; the Existing Notes, as amended and restated
pursuant to this Agreement, together with all notes issued in exchange or
substitution for any such amended and restated notes, in each case in accordance
with this Agreement, are hereinafter referred to as the "Restated Notes"); and
WHEREAS, the Company and the Noteholders have agreed (a) to amend and
restate the Existing Note Agreement to be in the form of this Agreement and (b)
to amend and restate each of the Existing Notes to be substantially in the form
of Exhibit A hereto; and
WHEREAS, the Company and the Noteholders wish to more fully set forth their
agreement herein;
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties to this Agreement hereby agree as follows:
1. AMENDMENTS, RESTATEMENTS AND EXCHANGE OF SECURITIES
- ------------------------------------------------------
1.1 Amendment; Restatement.
Subject to complete satisfaction of the conditions set forth in Section 4
of this Agreement:
(a) the Existing Note Agreement is hereby amended and restated to be
in the form of this Agreement; and
(b) the form of each of the Existing Notes is hereby amended and
restated to be in the form of Exhibit A hereto.
1.2 The Closing.
The closing (the "Closing") of the transactions contemplated by Section 1.1
will take place at the offices of Otterbourg, Steindler, Houston & Rosen, P.C.
in New York, New York on October 3, 2002. At the Closing:
(a) the Company will deliver to each Noteholder one or more Restated
Notes (as set forth below such Noteholder's name on Annex 1), in the
denominations indicated on Annex 1, dated the Restatement Date and
registered in the name of the holder indicated on Annex 1;
(b) each Noteholder will deliver to the Company each Existing Note
held by such Noteholder. All amounts owing under, and evidenced by, the
Existing Notes as of the Effective Date shall continue to be outstanding
under, and shall after the Effective Date be evidenced by, the Restated
Notes, and shall be repayable in accordance with this Agreement and the
Restated Notes. The Company shall cancel, and shall not reissue, the
Existing Notes delivered to it pursuant to Section 1.2(b).
(c) the Company will deliver to each Noteholder one March 2004 2.5%
Warrant, one March 2005 2.5% Warrant and one 9.5% Warrant, in each case
registered in the name of such Noteholder (for the respective number of
shares of Common Stock set forth below such Noteholder's name on Annex 1),
dated the Restatement Date.
1.3 Original Issue Discount; Redemption Premium.
You and the Company agree that, as a result of the delivery of the Warrants
in accordance with the terms of this Agreement, any original issue discount
attributable to any Note is less than the product of
(A) one-quarter of one percent (.25%), multiplied by
(B) the product of the weighted average maturity of
such Note multiplied by the stated redemption price at
maturity of such Note (as determined in accordance with
section 1273 of the IRC); and
You and the Company agree to consistently use the foregoing assumptions as
to original issue discount and redemption premium for all United States federal,
state and local income tax purposes with respect to the transactions
contemplated by the Financing Documents unless the IRS or a change in law
requires otherwise. You and the Company acknowledge that the Fair Market Value
of such Warrants as of the Restatement Date is no greater than the amount
determined immediately above.
1.4 Consent to Senior Credit Documents.
Subject to complete satisfaction of the conditions set forth in Section 4
of this Agreement, the Noteholders consent to the Company entering into the
Senior Credit Documents,
consent to the terms and provisions therein contained, consent to the incurrence
of the Indebtedness evidenced thereby and the Liens securing such Indebtedness.
2. WARRANTIES AND REPRESENTATIONS OF THE COMPANY
To induce each Noteholder to enter into this Agreement, the Company
warrants and represents, as of the Restatement Date, as follows:
2.1 Nature of Business.
Part 2.1 of Annex 2 sets forth the principal business locations and
properties of the Company as of the Restatement Date.
2.2 Financial Statements; Indebtedness; Material Adverse Change.
(a) Indebtedness. Part 2.2(a) of Annex 2 lists all Indebtedness of the
Company and its Subsidiaries and Affiliates as of the Restatement Date,
after giving effect to the transactions contemplated by the Transaction
Documents, and provides, as appropriate, the following information with
respect to each item of such Indebtedness: the obligor, each guarantor
thereof and each other Person similarly liable in respect thereof, the
holder thereof, the outstanding amount, the current portion of the
outstanding amount, the final maturity, required sinking fund payments, and
a description of the collateral securing such Indebtedness. Part 2.2(a)
also identifies the financial statements of the Company that were
most-recently delivered to the Noteholders.
(b) Liens. Part 2.2(b) of Annex 2 lists all Liens securing
Indebtedness of the Company in existence as of the Restatement Date, after
giving effect to the transactions contemplated by the Transaction
Documents, and provides the following information with respect to each
Lien: the holder thereof, the outstanding amount secured, the nature of the
Indebtedness and a description of the collateral receiving such
Indebtedness.
(c) Contingent Obligations. There are no Guaranties or other
contingent obligations in respect of which disclosure is required, or for
which provisions is required to be made, in the financial statements of the
Company and its Subsidiaries in accordance with GAAP, other than those so
disclosed, and for which such provision has been made, in the financial
statements referred to in Section 2.2(a).
(d) Material Adverse Change. Except as reflected in the Projections
delivered to the Noteholders, there has been no change in the business,
operations, profits, financial condition, Properties or business prospects
of the Company since September 30, 2001, that, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
2.3 Subsidiaries and Affiliates.
(a) Ownership of Subsidiaries. The Company has no Subsidiaries other
than those listed on Part 2.3(a)(i) of Annex 2.
(ii) Each of the Company's Subsidiaries identified on Part
2.3(a)(ii) of Annex 2 hereof (a) has no material assets or (b)
has been dissolved or liquidated.
(b) Affiliates. Part 2.3(b) of Annex 2 sets forth the name of each
Affiliate (other than members of the families of officers and directors of
the Company) and the nature of the affiliation of such Affiliate.
2.4 Title to Properties.
(a) General. Each of the Company and its Subsidiaries has good and
marketable title to all of the Property reflected in the most recent
balance sheet referred to in Section 2.2 (except as sold or otherwise
disposed of in the ordinary course of business), free from Liens not
otherwise permitted by provisions of the Restated Note Agreement.
(b) Leases. All leases necessary for the conduct of the business of
the Company and its Subsidiaries are valid and subsisting and are in full
force and effect, except for such failures to be valid and subsisting that,
in the aggregate for all such failures, could not reasonably be expected to
have a Material Adverse Effect.
(c) Intellectual Property. Each of the Company and its Subsidiaries
owns, possesses or has the right to use all of the licenses, permits,
franchises, patents, copyrights, trademarks, service marks and trade names
necessary for the present and currently planned future conduct of its
business, without any known conflict with the rights of others, except for
such failures to own, possess, or have the right to use, that, in the
aggregate for all such failures, could not reasonably be expected to have a
Material Adverse Effect. No intellectual property at any time used by the
Company or Dixon Ticonderoga Inc., as the case may be, which is owned by
another person or owned by the Company or Dixon Ticonderoga Inc., as the
case may be, subject to any security interest, lien, charge, collateral
assignment, pledge, hypothec or other encumbrance in favor of any person
other than the Noteholders is used in connection with the sale of any
Inventory except to the extent permitted under the terms of a valid and
enforceable license agreement between the Company or Dixon Ticonderoga
Inc., as the case may be, and the owner of such Intellectual Property
(collectively, together with any such agreements or arrangements entered
into by the Company or Dixon Ticonderoga Inc. after the date hereof, the
"License Agreements", sometimes being referred to herein individually as a
"License Agreement").
2.5 Taxes.
(a) Returns Filed; Taxes Paid. All tax returns required to be filed by
the Company and each other Person with which the Company files or has filed
a consolidated return in any jurisdiction have in fact been filed on a
timely basis. All taxes, assessments, fees and other governmental charges
upon the Company and any such Person, and upon any of their respective
Properties, income or franchises, that are due and payable have
been paid, except for such failures to pay that, in the aggregate for all
such Persons, could not reasonably be expected to have a Material Adverse
Effect. The Company knows of no proposed additional tax assessment against
it or any such Person that could reasonably be expected to have a Material
Adverse Effect.
(b) Book Provisions Adequate. Except as disclosed in Part 2.5(b) of
Annex 2, the amount of the liability for taxes reflected in the most recent
statement of financial condition referred to in Section 2.2(a) is in each
case an adequate provision for taxes as of the dates of such statements of
financial condition (including, without limitation, any payment due
pursuant to any tax sharing agreement) as are or may become payable by any
one or more of the Company and the other Persons consolidated with the
Company in such financial statements in respect of all tax periods ending
on or prior to such dates.
2.6 Pending Litigation.
(a) Pending Litigation. Other than that litigation disclosed on Part
2.6(a) of Annex 2, there are no proceedings, actions or investigations
pending or, to the knowledge of the Company, threatened, against or
affecting the Company or any Subsidiary in any court or before any
Governmental Authority or arbitration board or tribunal, that, in the
aggregate for all such proceedings, actions and investigations, could
reasonably be expected to have a Material Adverse Effect.
(b) No Violations. Neither the Company nor any Subsidiary is in
violation of any judgment, order, writ, injunction or decree of any court,
Governmental Authority, arbitration board or tribunal that, in the
aggregate for all such violations, could reasonably be expected to have a
Material Adverse Effect.
2.7 Corporate Organization and Authority.
Each of the Company and its Subsidiaries:
(a) is an entity duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization;
(b) has all power and authority necessary to own and operate its
Properties and to carry on its business as now conducted and as presently
proposed to be conducted;
(c) has all licenses, certificates, permits, franchises and other
governmental authorizations necessary to own and operate its Properties and
to carry on its business as now conducted and as presently proposed to be
conducted, except where the failure to have such licenses, certificates,
permits, franchises and other governmental authorizations, in the aggregate
for all such failures, could not reasonably be expected to have a Material
Adverse Effect; and
(d) has duly qualified or has been duly licensed, and is authorized to
do business and is in good standing, in each state in the United States of
America and in
each other jurisdiction where it is required to do so, except where the
failure to be so qualified or licensed and authorized and in good
standing, in the aggregate for all such failures, could not reasonably be
expected to have a Material Adverse Effect.
2.8 Charter Instruments, Other Agreements.
Neither the Company nor any of its Subsidiaries is in violation in any
respect of:
(a) any term of any constitutive document or bylaw; or
(b) any term in any agreement or other instrument to which it is a
party or by which it or any of its Property may be bound, except for such
violations that, in the aggregate for all such violations, could not
reasonably be expected to have a Material Adverse Effect.
2.9 Restrictions on the Company and Subsidiaries.
Neither the Company nor any of its Subsidiaries:
(a) is a party to any contract or agreement, or subject to any charter
or other corporate restriction that, in the aggregate for all such
contracts, agreements, and charter and corporate restrictions, is
reasonably likely to have a Material Adverse Effect;
(b) is a party to any contract or agreement that restricts its right
or ability to incur Indebtedness or to issue Rights of the Company, as the
case may be, other than the agreements listed on Part 2.9(b) of Annex 2,
none of which restricts the execution and delivery of, or compliance with
this Agreement or the other Transaction Documents; and
(c) has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its Property, whether now
owned or hereafter acquired, to be subject to a Lien not permitted by the
provisions of this Restated Note Agreement.
True, correct and complete copies of each of the agreements, if any, listed
on Part 2.9(b) of Annex 2 have been provided to the Noteholders.
2.10 Compliance with Law.
Neither the Company nor any of it Subsidiaries is in violation of any law,
ordinance, governmental rule or regulation to which it is subject, except for
such violations that, in the aggregate, could not reasonably be expected to have
a Material Adverse Effect.
2.11 Pension Plans.
(a) Operation of Plans; Liabilities. The Company, its Subsidiaries and
each ERISA Affiliate have operated and administered each Plan in compliance
with all applicable laws except for such instances of noncompliance as have
not resulted in and could not reasonably be expected to result in a
Material Adverse Effect. Neither the
Company, its Subsidiaries nor any ERISA Affiliate has incurred any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the IRC relating to employee benefit plans (as defined in
section 3 of ERISA), and no event, transaction or condition has occurred
or exists that could reasonably be expected to result in the incurrence of
any such liability by the Company, its Subsidiaries or any ERISA
Affiliate, or in the imposition of any Lien on any of the rights,
Properties or assets of the Company, its Subsidiaries or any ERISA
Affiliate, in either case pursuant to Title I or IV of ERISA or to such
penalty or excise tax provisions or to section 401(a)(29) or 412 of the
IRC, other than such liabilities or Liens as individually or in the
aggregate would not have a Material Adverse Effect.
(b) Relationship of Benefit Liabilities to Plan Assets. Except as
disclosed in Part 2.11(b) of Annex 2, the present value of the aggregate
benefit liabilities under each of the Plans (other than Multiemployer
Plans), determined as of the end of such Plan's most recently ended plan
year on the basis of the actuarial assumptions specified for funding
purposes in such Plan's most recent actuarial valuation report, did not
exceed the aggregate current value of the assets of such Plan allocable to
such benefit liabilities. The term "benefit liabilities" has the meaning
specified in section 4001 of ERISA and the terms "current value" and
"present value" have the meaning specified in section 3 of ERISA.
(c) Withdrawal Liabilities. Except as disclosed in Part 2.11(b) of
Annex 2, the Company, its Subsidiaries and its ERISA Affiliates have not
incurred withdrawal liabilities (and are not subject to contingent
withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans, other than such liabilities as individually or in the
aggregate would not have a Material Adverse Effect.
(d) Postretirement Benefit Obligations. The expected postretirement
benefit obligation (determined as of the last day of the Company's most
recently ended fiscal year in accordance with Financial Accounting
Standards Board Statement No. 106, without regard to liabilities
attributable to continuation coverage mandated by section 4980B of the IRC)
of the Company or its Subsidiaries will not have a Material Adverse Effect.
2.12 Environmental Compliance.
(a) Compliance. Each of the Company and its Subsidiaries is in
compliance with all Environmental Protection Laws in effect in each
jurisdiction where it is presently doing business or is located, other than
any non-compliance which could not reasonably be expected to have a
Material Adverse Effect.
(b) Liability. Neither the Company nor its Subsidiaries is subject to
any liability under any Environmental Protection Law that, individually or
in the aggregate, could be reasonably expected to have a Material Adverse
Effect.
(c) Notices. Except as disclosed on Part 2.12(c) of Annex 2, neither
the Company nor its Subsidiaries has received any:
(i) written notice from any Governmental Authority by which
any of its present or previously-owned or leased real Properties
has been designated, listed, or identified in any manner by any
Governmental Authority charged with administering or enforcing
any Environmental Protection Law as a hazardous substance
disposal or removal site, "Super Fund" clean-up site, or
candidate for removal or closure pursuant to any Environmental
Protection Law;
(ii) written notice of any Lien arising under or in
connection with any Environmental Protection Law that has
attached to any revenues of, or to, any of its owned or leased
real Properties; or
(iii) summons, citation, notice, directive, letter, or other
written communication from any Governmental Authority concerning
any intentional or unintentional action or omission by the
Company or any Subsidiary in connection with its ownership or
leasing of any real Property resulting in the releasing,
spilling, leaking, pumping, pouring, emitting, emptying, dumping,
or otherwise disposing of any hazardous substance into the
environment resulting in any material violation of any
Environmental Protection Law;
which, in any such case, relates to or makes reference to an event or
condition which could reasonably be expected to have a Material Adverse Effect.
2.13 Due Authorization; Enforceability.
(a) Amendment and Restatement Authorized. The execution and delivery
by the Company and each Subsidiary of the Transaction Documents to which it
is a party and the compliance by the Company and each such Subsidiary with
all of the provisions of each Transaction Document to which it is a party:
(i) is within the powers of the Company and its
Subsidiaries, as the case may be; and
(ii) does not conflict with, result in any breach of any of
the provisions of, constitute a default under, or result in the
creation of any Lien (other than Liens in favor of the Collateral
Agent) upon any Property of the Company or its Subsidiaries under
the provisions of:
(A) any governing document, charter instrument, bylaw or
other agreement to which the Company or any Subsidiary is a
party or by which the Company or any Subsidiary is or may be
bound;
(B) any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to the Company
or any of its Subsidiaries or any of their respective
Property; or
(C) any statute or other rule or regulation of any
Governmental Authority applicable to the Company or any
Subsidiary or any of their respective Property.
(b) Obligations are Enforceable. Each of the Company and its
Subsidiaries has duly authorized by all necessary action on its part each
of the Transaction Documents to which it is a party. Each of the
Transaction Documents has been executed and delivered by one or more duly
authorized officers of the Company and its Subsidiaries, as the case may
be, and constitutes a legal, valid and binding obligation of the Company or
its Subsidiaries, as the case may be, enforceable in accordance with its
terms, except that:
(i) the enforceability thereof may be limited by applicable
bankruptcy, reorganization, arrangement, insolvency, moratorium,
or other similar laws affecting the enforceability of creditors'
rights generally and subject to the availability of equitable
remedies; and
(ii) rights to indemnity and contribution contained therein
may be limited by applicable law or public policy.
2.14 Governmental Consent.
(a) Neither the nature of the Company and its Subsidiaries nor of any
of their businesses or Properties, nor any relationship between the Company
or its Subsidiaries and any other Person, nor any circumstance in
connection with the execution and delivery of any Transaction Document, nor
the performance of the obligations of the Company and its Subsidiaries
thereunder, is such as to require a consent, approval or authorization of,
or pre-filing, registration or qualification with, any Governmental
Authority on the part of the Company or its Subsidiaries as a condition
thereto.
(b) Each of the execution and delivery of the Transaction Documents
and the performance of the obligations of the Company and its Subsidiaries
hereunder and thereunder, by the Company and its Subsidiaries:
(i) is not subject to regulation under the Investment
Company Act of 1940, as amended, the Public Utility Holding
Company Act of 1935, as amended, the Transportation Acts of the
United States of America (49 U.S.C.), as amended, or the Federal
Power Act, as amended; and
(ii) does not violate any provision of any statute or other
rule or regulation of any Governmental Authority applicable to
the Company or its Subsidiaries.
2.15 No Defaults.
Immediately after giving effect to this Agreement, no Default or Event of
Default shall exist.
2.16 Margin Regulations; Enemy Status.
(a) Margin Regulations. None of the transactions contemplated in any
of the Transaction Documents violates, will violate or will result in a
violation of section 7 of the Exchange Act, or any regulation issued
pursuant thereto, including, without
limitation, Regulation U, Regulation T or Regulation X of the Board of
Governors of the Federal Reserve System, 12 C.F.R., Chapter II.
(b) Absence of Foreign or Enemy Status. Neither the issuance of the
Restated Notes nor the issuance of the Warrants will result in a violation
of any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended), or any
ruling issued thereunder or any enabling legislation or Presidential
Executive Order in connection therewith.
2.17 Capitalization.
(a) Capitalization. Part 2.17(a) of Annex 2 correctly sets forth,
after giving effect to the consummation of all transactions contemplated by
this Agreement on the Restatement Date, for the Company and its
Subsidiaries:
(i) the authorized and outstanding shares of the Capital
Stock and other Securities of such Person (specifying the type,
class or series of all such Capital Stock and other Securities
and whether such Capital Stock and other Securities are voting or
non-voting);
(ii) each legal and beneficial holder of more than ten
percent (10%) of such Person's Capital Stock, the identity of
such holder, the number of shares of each class of Capital Stock
held by such holder and the percentage of the shares of each
class so held;
(iii) all rights, warrants, options or obligations to
convert other Securities into, or exchange other Securities for,
Capital Stock of such Person, together with descriptions of the
terms thereof; and
(iv) all obligations (contingent or otherwise) of such
Person to repurchase or otherwise acquire or retire any shares of
Capital Stock or rights, warrants, options or convertible or
exchangeable Securities of the such Person.
All such outstanding shares of Capital Stock have been duly authorized and
validly issued and are fully paid, non-assessable and free and clear of any Lien
(other than as specified in Part 2.17(a) of Annex 2). There are no preemptive
rights, subscription rights, or other contractual rights similar in nature to
preemptive rights with respect to any Capital Stock of the Company or any of its
Subsidiaries.
(b) Reservation of Treasury Stock. The Company currently holds and has
reserved for issuance upon exercise of the Warrants, a sufficient number of
shares of Common Stock as treasury shares to permit, after giving effect to
the transactions contemplated by the Transaction Documents, the exercise of
all of the Warrants. Each share of Common Stock reserved for issuance upon
exercise of the Warrants, when issued, will be fully paid and
nonassessable, free and clear of any Lien and not subject to any preemptive
rights.
2.18 Solvency.
With respect to each of the Company, its Subsidiaries and the Company and
its Subsidiaries on a consolidated basis:
(a) Assets Greater than Liabilities. The fair value of the business
and assets of such Person(s) exceeds the amount that will be required to
pay the liabilities of such Person including, without limitation,
contingent, subordinated, unmatured and unliquidated liabilities, as such
liabilities may become absolute and matured.
(b) Meeting Liabilities. After giving effect to the transactions
contemplated by the Transaction Documents, such Person(s):
(i) will not be engaged in any business or transaction, or
about to engage in any business or transaction, for which such
Person(s) has unreasonably small assets or capital (within the
meaning of the Uniform Fraudulent Transfer Act, the Uniform
Fraudulent Conveyance Act and section 548 of the Federal
Bankruptcy Code); and
(ii) will be able to pay its debts as they mature.
(c) Intent. Each Person entering into the Transaction Documents does
so with no intent to hinder, delay, or defraud either current creditors or
future creditors of the Company or its Subsidiaries.
2.19 Senior Credit Documents.
The Company has provided to the Noteholders true, correct and complete
copies of the Senior Credit Agreement and each other Senior Credit Document, and
there is no agreement or understanding between the Company and the Senior Lender
except as set forth in the Senior Credit Documents. Each and every
representation and warranty contained in the Senior Credit Documents is true and
correct and each such representation and warranty is deemed incorporated herein
by reference mutatis mutandis as if fully set forth herein.
2.20 Full Disclosure.
Neither the statements made in this Agreement, the financial statements
referred to in Section 2.2, nor any other written statement furnished by or on
behalf of the Company to you in connection with the transactions contemplated
hereby, taken as a whole, contain any untrue statement of a material fact or
omit a material fact necessary to make the statements contained therein and
herein, taken as a whole, not misleading. There is no fact that the Company has
not disclosed to you in writing that has had or, so far as the Company can now
reasonably foresee, could reasonably be expected to have, a Material Adverse
Effect.
3. REPRESENTATIONS OF THE NOTEHOLDERS
Each Noteholder, severally and not jointly, represents to the Company that
it is a financially sophisticated institutional investor that is experienced in
financial matters and is acquiring the Restated Notes and the Warrants listed on
Annex 1 below its name for its own
account, or for the account of one or more separate accounts maintained by it,
for investment and with no present intention of, or view to, distributing such
Restated Notes or the Warrants or any part thereof, except in compliance with
the Securities Act, but without prejudice to its right at all times to:
(a) sell or otherwise dispose of all or any part of the Restated Notes
or the Warrants under a registration statement filed under the Securities
Act, or in a transaction exempt from the registration requirements of such
Act, including a transaction pursuant to Rule 144A; and
(b) have control over the disposition of all of its assets to the
fullest extent required by any applicable law.
It is understood that, in making the representations set out in Section 2
hereof, the Company is relying, to the extent applicable, upon the
representation as aforesaid.
4. CLOSING CONDITIONS
This Agreement shall become effective on the date (the "Restatement Date")
upon which all of the following conditions precedent have been satisfied, such
satisfaction to be evidenced by the execution and delivery of this Agreement:
4.1 Noteholder Consent.
Holders of 100% of the outstanding principal amount of the Existing Notes
shall have executed a counterpart of this Restated Note Agreement.
4.2 Accrued Interest
All interest due and owing on the Existing Notes as of the Restatement Date
(other than capitalized interest represented by the PIK Notes) shall have been
paid in full in cash on the Restatement Date. PIK Notes in the aggregate amount
of $571,466.00, each dated as of the Restatement Date, shall have been delivered
to the Noteholders in the respective principal amounts set forth below such
Noteholder's name on Annex 1.
4.3 Opinion of Counsel.
Each Noteholder shall have received from Smith, Moss, Kline & Davis, LLP,
counsel for the Company and its Subsidiaries, a closing opinion, dated as of the
Restatement Date and substantially in the form set forth in Exhibit B. This
Section 4.3 shall constitute direction by the Company to such counsel to deliver
such closing opinion to the Noteholders.
4.4 Warranties and Representations True; Compliance.
(a) Warranties and Representations True. The warranties and
representations contained in Section 2 shall be true on the Restatement
Date with the same effect as though made on and as of that date.
(b) Compliance with this Agreement and the Transaction Documents. The
Company shall have performed and complied with all agreements and
conditions
contained herein and in the other Transaction Documents that are required
to be performed or complied with by the Company on or prior to the
Restatement Date, and such performance and compliance shall remain in
effect on the Restatement Date.
1.1 Secretary's Certificates.
Each Noteholder shall have received certificates, in form and substance
acceptable to the Noteholders and their special counsel, dated the Restatement
Date and signed by the Secretary or an Assistant Secretary of the following
entities:
(i) the Company,
(ii) Dixon Ticonderoga Inc.,
(iii) Dixon Europe, Limited,
(iv) Beijing Dixon Ticonderoga Stationery Company Limited,
(v) Ticonderoga Graphite Inc.,
(vi) Grupo Dixon, S.A. de C.V.,
(vii) Dixon Comercializadora, S.A. de C.V.,
(viii) Servidix, S.A. de C.V., and
(ix) Dixon Ticonderoga de Mexico, S.A. de C.V.
1.2 Legality.
The Restated Notes shall on the Restatement Date qualify as a legal
investment for each Noteholder under applicable insurance law (without regard to
any "basket" or "leeway" provisions), the acquisition thereof shall not subject
any Noteholder to any penalty or other onerous condition pursuant to any such
law or regulation, and each Noteholder shall have received such evidence as the
Noteholders or their special counsel may reasonably request to establish
compliance with this condition.
1.3 Restated Notes.
The Company shall have executed and delivered to each Noteholder a
counterpart of this Restated Note Agreement, and shall have issued the Restated
Notes (in the respective principal amounts set forth below such Noteholder's
name on Annex 1) to each Noteholder.
1.4 Reaffirmation of Subsidiary Guaranties.
Each of the Subsidiary Guarantors shall have executed a Reaffirmation of
Subsidiary Guarantee in the form of Exhibit F-1 or F-2 hereto.
1.5 Senior Debt.
Each Noteholder shall have received from the Company a copy of the Senior
Credit Agreement which shall:
(a) be in full force and effect and be certified as true and correct
by a Senior Officer;
(b) provide for committed loan facilities aggregating Twenty-Eight
Million Dollars ($28,000,000);
(c) provide for borrowing availability subject to reserves and other
limitations of (i) up to at least 85% of eligible accounts receivable, and
(ii) the lowest of (x) 70% of US and Canadian finished goods inventory and
25% eligible US and Canadian raw materials, (y) 80% of the appraised net
orderly liquidation value of eligible finished goods and raw material
inventories, and (z) $15,000,000; and
(d) be otherwise acceptable to the Noteholders.
1.6 Collateral.
Each of the Company and Dixon Ticonderoga Inc. shall have executed and
delivered to the Collateral Agent each of the Collateral Documents to which it
is stated to be a party, in form and substance satisfactory to the Noteholders,
and the Collateral Documents shall be in full force and effect and create in
favor of the Collateral Agent valid and enforceable Liens and security interests
upon the collateral purported to be encumbered thereby. All filings, recordings
and other actions necessary to perfect the Liens and security interests of the
Collateral Agent upon the Collateral shall have been duly made or taken, and
such Liens and security interests shall constitute perfected Liens and security
interests, senior to all Liens other than Permitted Liens.
1.7 Intercreditor Agreement.
Each of the Noteholders, the Collateral Agent and the Senior Lender shall
have entered into the Intercreditor Agreement, and the Company and Dixon
Ticonderoga Inc. shall have acknowledged and agreed to same.
1.8 Warrants
The Company shall have executed and delivered to each Noteholder the 2.5%
Warrants and the 9.5% Warrants, in each case for the number of shares set forth
below such Noteholder's name on Annex 1 hereto.
1.9 Expenses of Noteholders.
All fees and disbursements required to be paid pursuant to Section 12.6 of
this Agreement shall have been paid in full, including the fees and expenses of
Bingham McCutchen LLP and the Collateral Agent.
1.10 Proceedings Satisfactory.
All proceedings taken in connection with the Transaction Documents and all
documents and papers relating thereto shall be satisfactory to the Noteholders
and their special counsel. The Noteholders and their special counsel shall have
received copies of such documents and papers as they may reasonably request in
connection therewith, all in form and substance satisfactory to the Noteholders
and their special counsel. 1.11 Conditions Subsequent to Closing
The Company shall comply with (i) the conditions subsequent to the closing
and extension of initial credit as set forth in the Section 3.2 of the Senior
Credit Agreement and (ii) the terms of that certain closing side letter dated as
of the date hereof from the Company addressed to the Noteholders, in each case
within the time provided for each action therein and shall provide to the
Noteholders, c/o Bingham McCutchen LLP, Attn: Renee M. Dailey, Esq., One State
Street, Hartford, CT 06103, copies of all documents, reports, agreements and
proof of compliance with same as provided for in same.
2. PAYMENTS
2.1 Interest Payments.
Interest (computed on the basis of a 360-day year of twelve 30-day months)
shall accrue on the unpaid principal balance of each of the Restated Notes from
and including the date of such Restated Note at the rate of 12.50% per annum,
payable quarterly in arrears on the first day of each July, October, January and
April in each year (each an "Interest Payment Date"), commencing with the
Interest Payment Date next succeeding the date of such Restated Note, until the
principal amount thereof shall have become due and payable. Overdue payments of
principal, interest and Prepayment Compensation Amount shall bear interest,
payable on demand, at a rate per annum equal to the lesser of:
(i) the highest rate allowed by applicable law; and
(ii) the greater of:
(A) 14.5% per annum; and
(B) the sum of two percent (2%) plus the rate of
interest publicly announced from time to time by Morgan
Guaranty Trust Company of New York in New York, New York as
its "base" or "prime" rate.
2.2 Required Principal Payments.
Closing Payment. The Company shall make a payment of principal on
the Restatement Date in the amount of One Million Dollars ($1,000,000).
Monthly Payment. The Company shall make payments of principal on the
first day of each month as follows:
(i) in calendar year 2002, $50,000 per month beginning
October 1, 2002;
(ii) in calendar year 2003, $50,000 per month; and
(iii) in calendar year 2004 and for the period from January
2005 through and including May 2005, $150,000 per month.
Payments in Respect of Liquidity Events. On each date of receipt of
proceeds from the occurrence of any Liquidity Event, the Company shall pay
to the Noteholders, in respect of the principal amount of the Restated
Notes, an amount equal to fifty-percent (50%) of such proceeds or such
lesser amount as at the time is permitted by the terms of Section
7.1(d)(ii)(H) of the Senior Credit Agreement as in effect on the
Restatement Date.
Sweep Payments. On the final day of December and June of each year,
the Company shall pay to the Noteholders, in respect of the principal
amount of the Restated Notes, an amount equal to the maximum amount then
permitted to be paid in respect of the Restated Notes under by Section
7.1(d)(ii)(G) of the Senior Credit Agreement as in effect on the
Restatement Date.
Maturity Date. The entire principal of the Restated Notes and the
PIK Notes remaining outstanding on the Maturity Date, together with all
interest accrued thereon and all other amounts owing in respect thereof,
shall be due and payable on such date.
2.3 Optional Principal Payments.
Optional Principal Payments with Prepayment Compensation Amount. The
Company may pay the principal amount of the Restated Notes, in whole or in
part, at any time in multiples of One Hundred Thousand Dollars ($100,000)
(or, if the aggregate outstanding principal amount of the Restated Notes
is less than One Hundred Thousand Dollars ($100,000) at such time, then
such principal amount), together with:
(i) interest on such principal amount then being paid
accrued to the payment date; and
(ii) an amount equal to the Prepayment Compensation Amount
due at such time in respect of the principal amount of the
Restated Notes being so paid;
Notice of Optional Payment. The Company will give notice of any
optional payment of the Restated Notes to each holder of Restated Notes
not less than ten (10) days nor more than thirty (30) days before the date
the Company intends to make such optional prepayment (each a "Specified
Payment Date"), stating:
(i) the Specified Payment Date;
(ii) that such payment is to be made pursuant to this
Section 5.3;
(iii) the principal amount of each Restated Note to be paid
on such date;
(iv) the interest to be paid on each such Restated Note,
accrued to the Specified Payment Date; and
(v) the calculation (with details) of an estimated
Prepayment Compensation Amount, if any (calculated as if the date
of such notice was the date of payment), due in connection with
such payment.
Notice of payment having been so given, the aggregate principal amount of
the Restated Notes to be paid as stated in such notice, together with the
Prepayment Compensation Amount determined as of the Specified Payment
Date, if any, and interest thereon accrued to the Specified Payment Date,
shall become due and payable on the Specified Payment Date. Two (2)
Business Days prior to the making of such payment, the Company shall
deliver to each holder of Restated Notes by facsimile transmission
(confirmed by nationwide overnight courier) a certificate of a Senior
Financial Officer specifying the details of the calculation of such
Prepayment Compensation Amount as of the Specified Payment Date, and
including a copy of the source of interest rate information used in the
calculation thereof.
2.4 Delivery of Restated Notes in Payment of Warrant Purchase Price.
The Warrants provide that a holder of thereof may tender Restated Notes in
partial or complete payment of the purchase price for the Common Stock issued
upon exercise of any Warrants. Promptly following the receipt of any Restated
Note so tendered, the Company shall promptly cancel and retire such surrendered
Restated Note (and no such Restated Note shall be reissued), and shall issue to
the holder thereof a new Restated Note in the principal amount of such tendered
Restated Note remaining, if any, after deduction of the principal amount thereof
applied to payment of the purchase price for the Common Stock. For purposes of
Rule 144 under the Securities Act, 17 CFR ss.230.144, the Company and the
Noteholders agree that a tender of Restated Notes in payment of the exercise
price in respect of the Warrants shall not be deemed a prepayment of the
Restated Notes, but rather a conversion of such Restated Notes, pursuant to the
terms of this Agreement and the Warrants, into Common Stock. The Company hereby
agrees to take all of the actions required of it by under the relevant
provisions of the Warrants.
2.5 Payments Among Noteholders.
Each required or optional payment of principal or interest shall be
allocated among the Restated Notes at the time outstanding pro rata in
proportion to the respective unpaid principal amounts of each. Partial
prepayments made pursuant to Section 5.3 shall be applied to principal in the
order of maturity.
2.6 Notation of Restated Notes on Payment.
Upon any partial payment of a Restated Note the holder of such Restated
Note may (but shall not be required to), at its option:
(i) surrender such Restated Note to the Company pursuant to
Section 6.2 in exchange for a new Restated Note in a principal
amount equal to the principal amount remaining unpaid on the
surrendered Restated Note;
(ii) make such Restated Note available to the Company for
notation thereon of the portion of the principal so paid; or
(iii) mark such Restated Note with a notation thereon of the
portion of the principal so paid.
In case the entire principal amount of any Restated Note is paid, such Restated
Note shall be upon written request surrendered to the Company for cancellation
and shall not be reissued, and no Restated Note shall be issued in lieu of the
paid principal amount of any Restated Note.
2.7 No Other Payments of Principal; Acquisition of Restated Notes.
Except for payments of principal made in accordance with this Section 5,
the Company may not make any payment of principal in respect of the Restated
Notes. The Company will not, and will not permit any Subsidiary or any Affiliate
to, directly or indirectly, acquire or make any offer to acquire any Restated
Notes.
2.8 Manner of Payments.
Manner of Payment. The Company shall pay all amounts payable with
respect to each Restated Note (without any presentment of such Restated
Notes and without any notation of such payment being made thereon) by
crediting, by federal funds bank wire transfer, the account of the holder
thereof in any bank in the United States of America as may be designated
in writing by such holder, or in such other manner as may be reasonably
directed or to such other address in the United States of America as may
be reasonably designated in writing by such holder. Annex 1 shall be
deemed to constitute notice, direction or designation (as appropriate) by
the Noteholder to the Company with respect to payments to be made to the
Noteholder as aforesaid. In the absence of such written direction, all
amounts payable with respect to each Restated Note shall be paid by check
mailed and addressed to the registered holder of such Restated Note at the
address shown in the register maintained by the Company pursuant to
Section 6.1.
Payments Due on Non-Business Days. If any payment due on, or with
respect to, any Restated Note shall fall due on a day other than a
Business Day, then such payment shall be made on the first Business Day
following the day on which such payment shall have so fallen due; provided
that if all or any portion of such payment shall consist of a payment of
interest, for purposes of calculating such interest, such payment shall be
deemed to have been originally due on such first following Business Day,
such interest shall accrue and be payable to (but not including) the
actual date of payment, and the amount of the next succeeding interest
payment shall be adjusted accordingly.
Payments, When Received. Any payment to be made to the holders of
Restated Notes hereunder or under the Restated Notes shall be deemed to
have been made on the Business Day such payment actually becomes available
at such holder's bank prior to the close of business of such bank,
provided that interest for one day at the non-default interest rate of the
Restated Notes shall be due on the amount of any such payment that
actually becomes available to such holder at such holder's bank after
12:00 noon (local time of such bank).
3. REGISTRATION; EXCHANGE; SUBSTITUTION OF RESTATED NOTES
3.1 Registration of Restated Notes.
The Company will keep at its office, maintained pursuant to Section 7.3, a
register for the registration and transfer of Restated Notes. The name and
address of each holder of one or more Restated Notes, each transfer thereof made
in accordance with Section 6.2 and the name and address of each transferee of
one or more Restated Notes shall be registered in such register. The Person in
whose name any Restated Note shall be registered shall be deemed and treated as
the owner and holder thereof for all purposes hereof, and the Company shall not
be affected by any notice or knowledge to the contrary, other than in accordance
with Section 6.2.
3.2 Exchange of Restated Notes.
Exchange of Restated Notes. Subject to Section 6.2(b), upon
surrender of any Restated Note at the office of the Company maintained
pursuant to Section 7.3 duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of such
Restated Note or such holder's attorney duly authorized in writing, the
Company will execute and deliver, at the Company's expense (except as
provided in Section, (c) a new Restated Note or Restated Notes in exchange
therefor, in an aggregate principal amount equal to the unpaid principal
amount of the surrendered Restated Note. Each such new Restated Note shall
be registered in the name of such Person as such holder may request and
shall be substantially in the form of Exhibit A. Each such new Restated
Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Restated Note or dated the date of
the surrendered Restated Note if no interest shall have been paid thereon.
Each such new Restated Note shall carry the same rights to unpaid interest
and interest to accrue that were carried by the Restated Note so exchanged
or transferred. Restated Notes shall not be transferred in denominations
of less than One Hundred Thousand Dollars ($100,000), provided that a
holder of Restated Notes may transfer its entire holding of Restated Notes
regardless of the principal amount of such holder's Restated Notes.
Costs. The Company will pay the cost of delivering to or from such
holder's home office or custodian bank from or to the Company, insured to
the reasonable satisfaction of such holder, the surrendered Restated Note
and any Restated Note issued in substitution or replacement for the
surrendered Restated Note. The Company may require payment of a sum
sufficient to cover any stamp tax or governmental charge (in each case,
other than any Florida Excise Tax, to the extent any becomes payable or is
charged) imposed in respect of any such transfer of Restated Notes. The
Company shall pay and hold each holder of Restated Notes harmless against
any Florida Excise Tax, should any tax be determined to be due in respect
of the Restated Notes upon or in connection with any transfer or exchange
thereof.
3.3 Replacement of Restated Notes.
Upon receipt by the Company from the registered holder of a Restated Note
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any Restated Note (which evidence shall be, in the
case of an institutional investor, an affidavit from such institutional investor
of such loss, theft, destruction or mutilation), and:
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to the Company; provided, however, that if the holder of such
Restated Note is a Noteholder, an institutional investor or a nominee of
either, the unsecured agreement of indemnity of such Noteholder or such
institutional investor (but not of any nominee therefor) shall be deemed to
be satisfactory; or
(b) in the case of mutilation, upon surrender and cancellation
thereof;
the Company at its own expense will execute and deliver, in lieu thereof, a
replacement Restated Note, dated and bearing interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or mutilated
Restated Note or dated the date of such lost, stolen, destroyed or mutilated
Restated Note if no interest shall have been paid thereon.
3.4 Issuance Taxes.
The Company will pay all taxes (if any) due (but not, in any event, income
taxes) in connection with and as the result of the initial issuance and sale of
the Restated Notes and in connection with any modification, waiver or amendment
of this Agreement or the Restated Notes and shall save each holder of Restated
Notes harmless without limitation as to time against any and all liabilities
with respect to all such taxes.
7. GENERAL COVENANTS
- ------------------------
The Company covenants that on and after the Restatement Date and so long
as any of the Restated Notes shall be outstanding:
7.1 Payment of Taxes and
Claims.
The Company will, and will cause each Subsidiary to, pay before they
become delinquent:
(a) all taxes, assessments and governmental charges or levies imposed
upon it or its Property; and
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, vendors, landlords and other like Persons that, if unpaid,
might result in the creation of a statutory, regulatory or common law Lien
upon its Property;
provided, that items of the foregoing description need not be paid so long as
such items are being actively contested in good faith and by appropriate
proceedings, reasonable book reserves in accordance with GAAP have been
established and maintained with respect thereto, and such items, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
7.2 Maintenance of Properties; Corporate Existence.
The Company will, and will cause each Subsidiary to:
Property -- maintain its Property in good condition, ordinary wear
and tear and obsolescence excepted, and make all necessary renewals,
replacements, additions, betterments and improvements thereto; provided,
however, that this Section 7.2(a) shall not prevent the Company or any
Subsidiary from discontinuing the operation and the maintenance of any of
its Properties if such discontinuance is desirable in the conduct of its
business and such discontinuance could not reasonably be expected to have
a Material Adverse Effect;
Insurance -- maintain, with financially sound and reputable
insurers, insurance with respect to its Property and business against such
casualties and contingencies, of such types and in such amounts as is
customary in the case of corporations of established reputations engaged
in the same or a similar business and similarly situated;
Financial Records -- keep proper books of record and account, in
which full and correct entries shall be made of all dealings and
transactions of or in relation to the Properties and business thereof, and
which will permit the production of financial statements in accordance
with GAAP;
Corporate Existence and Rights -- do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate
existence, corporate rights (charter and statutory) and corporate
franchises; and
Compliance with Law -- comply with all laws, ordinances and
governmental rules and regulations to which it is subject (including,
without limitation, any environmental protection law) and obtain all
licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of its Properties and the
conduct of its business except for such violations and failures to obtain
that, in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
7.3 Payment of Restated Notes and Maintenance of Office.
The Company will punctually pay, or cause to be paid, the principal of and
interest (and Prepayment Compensation Amount, if any) on, the Restated Notes, as
and when the same shall become due according to the terms hereof and of the
Restated Notes, and will maintain an office at the address of the Company set
forth in Annex 2 where notices, presentations and demands in respect hereof or
the Restated Notes may be made upon it. Such office will be maintained at such
address until such time as the Company notifies the holders of the Restated
Notes of any change of location of such office, which will in any event be
located within the United States of America.
7.4 Pension Plans.
(a) The Company shall, and shall cause each of its ERISA Affiliates,
to: (a) maintain each Plan in compliance in all material respects with the
applicable provisions of ERISA, the Code and other Federal and State law;
(b) cause each Plan which is qualified under Section 401(a) of the Code to
maintain such qualification; (c) not terminate any of such Plans so as to
incur any material liability to the Pension Benefit Guaranty Corporation;
not allow or suffer to exist any prohibited transaction involving any of
such Plans or any trust created thereunder which would subject the Company,
or such ERISA Affiliate to a material tax or penalty or other liability on
prohibited transactions imposed under Section 4975 of the Code or ERISA;
(d) make all required contributions to any Plan which it is obligated to
pay under Section 302 of ERISA, Section 412 of the Code or the terms of
such Plan; not allow or suffer to exist any accumulated funding deficiency,
whether or not waived, with respect to any such Plan; or (e) allow or
suffer to exist any occurrence of a reportable event or any other event or
condition which presents a material risk of termination by the Pension
Benefit Guaranty Corporation of any such Plan that is a single employer
plan, which termination could result in any material liability to the
Pension Benefit Guaranty Corporation.
(b) With respect to any Canadian Pension Plan, the Company or Dixon
Ticonderoga Inc.: (i) shall administer such Canadian Pension Plan in all
material respects in accordance with the requirements of the applicable
pension plan texts, funding agreements, the Income Tax Act (Canada) and
applicable federal or provincial pension benefits legislation, (ii) shall
use its best efforts to deliver to Lender an undertaking of the funding
agent for each Canadian Pension Plan stating that the funding agent will
notify the Noteholders within seven (7) days of the Company's or Dixon
Ticonderoga Inc.'s, as applicable, failure to make any required
contribution to the applicable Canadian Pension Plan, (iii) without the
prior written consent of the Noteholders, shall not terminate, or cause to
be terminated, subject to compliance with applicable provincial or federal
pension benefits legislation and the Income Tax Act (Canada), any Canadian
Pension Plan, if such plan would have a solvency deficiency on termination,
(iv) shall promptly provide the Noteholders with any documentation relating
to any Canadian Pension Plan as the Noteholders may reasonably request,
subject to compliance with applicable legislation governing privacy of
information, (v) shall notify the Noteholders within thirty (30) days of
(A) the establishment of a Canadian Pension Plan, and (B) the commencement
of payment of contributions to a Canadian Pension Plan to which the Company
or Dixon Ticonderoga Inc. had not previously been contributing.
7.5 Delivery of Projections.
The Company will deliver to the Senior Lender, with a copy to each of the
Noteholders, projections required under section 7.1(d)(ii)(G) of the Senior
Credit Agreement in the time and manner provided for therein.
8. negative covenants.
- -------------------------
The Company covenants and agrees that, so long as any of the Restated
Notes are outstanding, the Company will not and will not permit any of its
Subsidiaries to do any of the following:
8.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise become
or remain, directly or indirectly, liable with respect to any Indebtedness,
except:
(a) Indebtedness evidenced by this Agreement and the other Transaction
Documents,
(b) Indebtedness evidenced by the Senior Credit Documents,
(c) Indebtedness set forth on Schedule 5.20 of the Senior Credit
Agreement,
(d) Permitted Purchase Money Indebtedness,
(e) refinancings, renewals, or extensions of Indebtedness permitted
under clauses (b), (c) and (d) of this Section 8.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the
terms and conditions of such refinancings, renewals, or extensions do not,
in the Noteholders' judgment, materially impair the prospects of repayment
of the Restated Notes by the Company or materially impair Company's
creditworthiness, (ii) such refinancings, renewals, or extensions do not
result in an increase in the principal amount of, or interest rate with
respect to, the Indebtedness so refinanced, renewed, or extended, (iii)
such refinancings, renewals, or extensions do not result in a shortening of
the average weighted maturity of the Indebtedness so refinanced, renewed,
or extended, nor are they on terms or conditions that, taken as a whole,
are materially more burdensome or restrictive to the Company, and (iv) if
the Indebtedness that is refinanced, renewed, or extended was subordinated
in right of payment to the Restated Notes, then the terms and conditions of
the refinancing, renewal, or extension Indebtedness must include
subordination terms and conditions that are at least as favorable to the
Noteholders as those that were applicable to the refinanced, renewed, or
extended Indebtedness; provided that any refinancing of the Indebtedness of
the Company which is currently secured by the Heathrow Facility shall
permit the Noteholders to have a third lien on the Heathrow Facility,
(f) Indebtedness of Subsidiaries listed on Part 2.2(a) of Annex 2, and
Indebtedness of Subsidiaries of the Company (other than Indebtedness
evidenced by the Transaction Documents) created after the date hereof,
provided, that, the aggregate principal amount of all such Indebtedness
outstanding at any time shall not exceed the US Dollar Equivalent of
$20,000,000; and
(g) Indebtedness consisting of Permitted Investments.
8.2 Liens.
Create, incur, assume, or permit to exist, directly or indirectly, any
Lien on or with respect to any of its assets, of any kind, whether now owned or
hereafter acquired, or any income or profits therefrom, except for liens set
forth on Part 8.2 of Annex 2 and other Permitted Liens (including Liens that are
replacements of Permitted Liens to the extent that the original Indebtedness is
refinanced, renewed, or extended under Section 8.1(e) and so long as the
replacement Liens only encumber those assets that secured the refinanced,
renewed, or extended Indebtedness).
8.3 Restrictions on Fundamental Changes.
(a) enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its Capital Stock,
(b) liquidate, wind up, or dissolve itself (or suffer any liquidation
or dissolution), or
(c) convey, sell, lease, license, assign, transfer, or otherwise
dispose of, in one transaction or a series of transactions, all or any
substantial part of its assets.
8.4 Disposal of Assets.
Convey, sell, lease, license, assign, transfer, or otherwise dispose of
any assets except (a) Permitted Dispositions, and (b) the sale of the NCR
Division, provided, that in the case of a sale of the NCR Division, each of the
following conditions is satisfied in the determination of the Required
Noteholders: (i) the Noteholders have received a copy of the purchase and sale
agreement which is in form and substance satisfactory to the Noteholders, (ii)
the purchase price for the NCR Division is at least $2,500,000, (iii) any
promissory note to be made by NCR Buyer in favor of the Company in respect of
the purchase price shall not exceed $750,000, shall bear interest at a per annum
rate of not less than ten (l0%) percent, which interest shall be payable no less
frequently than quarterly, and shall provide for at least annual principal
payments ( the "Seller Note") and shall be secured by a lien on all of the
assets being sold as part of the NCR Division, and (iv) the Collateral Agent
shall have received a third Lien upon the Company's right, title and interest in
and to the Seller Note.
8.5 Change Name.
Change the Company's or any Guarantor's name, corporate structure, or
identity, or add any new or fictitious name; provided, however, that the Company
or any Guarantor may change its name upon at least 30 days prior written notice
to the Collateral Agent of such change and so long as, at the time of such
written notification, the Company or the Guarantor provides any financing
statements or fixture filings necessary to perfect and continue perfected the
Liens for the benefit of the Noteholders.
8.6 Guarantee.
Guarantee or otherwise become in any way liable with respect to the
obligations of any Person except by (a) endorsement of instruments or items of
payment for deposit to the account of Company or for collection in the ordinary
course of business, (b) the Subsidiary Guaranties, and (c) guarantees of the
Senior Credit Obligations.
8.7 Nature of Business.
Make any change in the principal nature of its business.
8.8 Change of Control.
Cause, permit, or suffer, directly or indirectly, any Change of Control.
8.9 Distributions.
Make any distribution or declare or pay any dividends (in cash or other
property, other than Common Stock) on, or purchase, acquire, redeem, or retire
any of Company's Capital Stock, of any class, whether now or hereafter
outstanding.
8.10 Investments.
Except for Permitted Investments, directly or indirectly, make or acquire
any Investment or incur any liabilities (including contingent obligations) for
or in connection with any Investment.
8.11 Transactions with Affiliates.
Directly or indirectly enter into or permit to exist any transaction with
any Affiliate except for transactions that are in the ordinary course of
business, upon fair and reasonable terms, that are fully disclosed to the
Noteholders, and that are no less favorable to the Company or such Subsidiary
than would be obtained in an arm's length transaction with a non-Affiliate.
8.12 Suspension.
Suspend or go out of a substantial portion of its business.
8.13 Compensation.
Increase the annual fee or per-meeting fees paid to the members of its
Board of Directors during any year by more than 15% over the prior year; pay or
accrue total cash compensation, during any year, to its officers and senior
management employees in an aggregate amount in excess of 130% of that paid or
accrued in the prior year.
8.14 Change in Location of Chief Executive Office; Inventory and Equipment
with Bailees.
Relocate its chief executive office to a new location unless it provides
(i) 30 days prior written notification thereof to the Collateral Agent (ii) any
financing statements or fixture filings necessary to perfect and continue
perfected the Collateral Agent's Liens, and (iii) to the Collateral Agent a
collateral access agreement, acceptable to the Collateral Agent, with respect to
such new location.
8.15 Securities Accounts.
Establish or maintain any Securities Account unless the Collateral Agent
shall have received a control agreement in respect of such Securities Account.
The Company shall not transfer assets out of any Securities Account; provided,
however, that, so long as no Event of Default has occurred and is continuing or
would result therefrom, the Company may use such assets (and the proceeds
thereof) to the extent not prohibited by this Agreement.
8.16 Financial Covenants.
(a) Fail to maintain:
(i) Minimum Consolidated EBITDA. Consolidated EBITDA,
measured on a fiscal month-end basis, of not less than the
required amount set forth in the following table for the
applicable period set forth opposite thereto;
- -------------------------------------------------------------------------------
Applicable Amount Applicable Period
- -------------------------------------------------------------------------------
$ (275,000) For the 1 month period
ending October 31, 2002
- -------------------------------------------------------------------------------
$ (155,000) For the 2 month period
ending November 30, 2002
- -------------------------------------------------------------------------------
$ 446,000 For the 3 month period
ending December 31, 2002
- -------------------------------------------------------------------------------
$ 286,000 For the 4 month period
ending January 31, 2003
- -------------------------------------------------------------------------------
$ 447,000 For the 5 month period
ending February 28, 2003
- -------------------------------------------------------------------------------
$ 1,175,000 For the 6 month period
ending March 31, 2003
- -------------------------------------------------------------------------------
$ 1,542,000 For the 7 month period
Ending April 30, 2003
- -------------------------------------------------------------------------------
$ 2,783,000 For the 8 month period
Ending May 31, 2003
- -------------------------------------------------------------------------------
$ 4,868,000 For the 9 month period
Ending June 30, 2003
- -------------------------------------------------------------------------------
$ 5,988,000 For the 10 month period
Ending July 31, 2003
- -------------------------------------------------------------------------------
$ 6,843,000 For the 11 month period
Ending August 31, 2003
- -------------------------------------------------------------------------------
$ 7,646,000 For the 12 month period
ending September 30, 2003
- -------------------------------------------------------------------------------
;and for each rolling twelve (12) month period ending on the last day of each
fiscal month thereafter, in an amount to be agreed upon by the Company and the
Noteholders, in an amendment to this Section 8.16(a)(i), equal to 80% of the
Consolidated EBITDA for such period set forth in the Company's Projections for
such fiscal year delivered to the Noteholders pursuant to Section 9.1(k), which
projections must be reasonably acceptable to the Noteholders;
(ii) Minimum North America EBITDA. North American EBITDA,
measured on a fiscal month-end basis, of not less than the
required amount set forth in the following table for the
applicable period set forth opposite thereto;
- -------------------------------------------------------------------------------
Applicable Amount Applicable Period
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ (401,000) For the 1 month period
ending October 31, 2002
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ (676,000) For the 2 month period
ending November 30, 2002
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ (293,000) For the 3 month period
ending December 31, 2002
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ (622,000) For the 4 month period
ending January 31, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ (1,184,000) For the 5 month period
ending February 28, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ (1,285,000) For the 6 month period
Ending March 31, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ (1,712,000) For the 7 month period
Ending April 30, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ (907,000) For the 8 month period
Ending May 31, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ (454,000) For the 9 month period
Ending June 30, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 1,145,000 For the 10 month period
Ending July 31, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 1,916,000 For the 11 month period
Ending August 31, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 2,406,000 For the 12 month period
September 30, 2003
- -------------------------------------------------------------------------------
;and for each rolling twelve (12) month period ending on the last day of each
fiscal month thereafter, in an amount to be agreed upon by the Company and the
Noteholders, in an amendment to this Section 8.16(a)(ii), equal to 80% of the
North American EBITDA for such period set forth in the Company's Projections
for such fiscal year delivered to the Noteholders pursuant to Section 9.1(k),
which projections must be reasonably acceptable to the Noteholders;
(iii) Tangible Net Worth. Tangible Net Worth of at least the
required amount set forth in the following table as of the
applicable date set forth opposite thereto:
- -------------------------------------------------------------------------------
Applicable Amount Applicable Date
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 22,010,000 For the month ending October 31, 2002
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 21,840,000 For the month ending November 30, 2002
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 21,910,000 For the month ending December 31, 2002
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 21,620,000 For the month ending January 31, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 21,470,000 For the month ending February 28, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 21,600,000 For the month ending March 31, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 21,530,000 For the month ending Apri1 30, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 22,170,000 For the month ending May 31, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 23,070,000 For the month ending June 30, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 23,500,000 For the month ending July 31, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 23,770,000 For the month ending August 31, 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$ 23,990,000 For the month ending September 30, 2003
- -------------------------------------------------------------------------------
;and for fiscal month in each fiscal year thereafter in an amount to be agreed
upon by the Company and the Noteholders, in an amendment to this Section
8.16(a)(iii), equal to 80% of the Company's Tangible Net Worth for each such
fiscal months set forth in the Company's projections for such fiscal year
delivered to the Noteholders pursuant to Section 9.1(k), which projections must
be reasonably acceptable to the Noteholders.
(iv) Minimum Excess Availability. The amount of Excess
Availability, at all times, at an amount equal to or greater than
the US Dollar Equivalent of $1,500,000; provided, that, in the
event that (A) the aggregate outstanding amount of the Term Loans
is equal to or less than $2,000,000, and (B) there have been no
Defaults or Events of Default for the immediately preceding
twelve (12) months, then upon notice from Lender to the Company,
the amount of Excess Availability, at all times, at an amount
equal to or greater than the US Dollar Equivalent of $1,000,000.
(b) Make:
(i) Capital Expenditures. Capital Expenditures, for the fiscal
year ending September 30, 2003, in an aggregate amount in excess of
$2,000,000 (exclusive of amounts attributed to the value of any
Equipment traded in with respect to any such capital expenditures);
and for each fiscal year thereafter, an amount equal to 100% of the
proposed amount of capital expenditures contained in the Company's
Projections for such fiscal year delivered to the Noteholders
pursuant to Section 9.1(k), but which proposed capital expenditures
for each such fiscal year must be approved by the Noteholders.
8.17 Consultant.
Failure to retain a third party acceptable to Noteholders, (a "Chief
Restructuring Officer"), at the Company's expense, to evaluate and review the
Company's and its Subsidiaries' business, assets, operations (including
personnel) and financial performance, including but not limited to, a review of
the performance of the Company with respect to its business plan as provided to
the Noteholders prior to the date hereof, and to prepare such studies, plans of
corporate and asset reorganization and reports with respect thereto as the
Noteholders may specify. The Company's retention of a Chief Restructuring
Officer shall continue until the later to occur of the following events: (a) the
date which is ninety (90) days after the date of this Agreement, or (b) thirty
(30) days after the Noteholders receipt of a report, in form and substance
satisfactory to the Noteholders which (i) evidences the closing of the Company's
business operations currently located in Sandusky, Ohio, and the relocation of
the Company's distribution center from Macon, Georgia to the Hunt Facility in
Statesville, North Carolina and (ii) details the operating cost structure of the
Company after giving effect to the events described in clause (i) above; which
operating cost structure must be within the parameters set forth in Projections
previously provided to the Noteholders. The scope and nature of the duties of
the Chief Restructuring Officer shall at all times be acceptable to the
Noteholders. The Company and each Guarantor shall, and shall cause their
respective officers, directors, employees and agents, to cooperate with the
Chief Restructuring Officer, including promptly providing such information to
such Chief Restructuring Officer as it may request. The Company hereby
irrevocably authorizes and directs such Chief Restructuring Officer to share
with the Noteholders all budgets, records, projections, financial information,
reports and other information relating to the Collateral, or the financial
condition or operations of the Company's and its Subsidiaries businesses. If the
Noteholders determine that the Chief Restructuring Officer is not providing the
Noteholders with information or access to the Company's records as may be
requested by the Noteholders, the Company hereby agrees, promptly upon the
request of the Noteholders, to terminate Chief Restructuring Officer as the
Company's consultant and to promptly (but in any event within five (5) Business
Days after the request of the Noteholders) retain another Chief Restructuring
Officer from the list provided by the Noteholders to the Company and reasonably
agreeable to the Senior Lender. The Company agrees to provide the Chief
Restructuring Officer with complete access to all of the Company's books and
records, all of the Company's premises and to the Company's management and to
cooperate with Chief Restructuring Officer.
8.18 Maintenance of Most Favored Lender Status. The Company and the holders
of the Restated Notes hereby acknowledge and agree that if the Company shall
enter into any amendment to the Senior Credit Agreement with the Senior Lenders
or enter into any other agreement with the Senior Lenders which provides for the
benefit of the Senior Lenders any Financial Covenants which are more favorable
to the Senior Lenders than the Financial Covenants in this Agreement, then, and
in each and any such event, the Financial Covenants in this Agreement shall,
notwithstanding the provisions of Section 12.5 and without any further action on
the part of the Company or any Person being necessary or required be, and shall
be deemed to be, amended to afford to the holders of Restated Notes the same
benefits and rights as such amendments to, or other agreements in respect of,
the Financial Covenants of the Senior Credit Agreement afford to the Senior
Lenders.
8.19 Maintenance of Treasury Stock.The Company shall not, at any time, take
any action that would cause the aggregate number of shares of Common Stock
issuable at such time pursuant to the 2.5% Warrants, the 9.5% Warrants and the
Existing Warrants (as such number may be adjusted from time to time pursuant to
the terms of such Warrants), to exceed the number of shares of Common Stock held
by the Company as treasury stock and reserved for the exercise of the Warrants
at such time.
8.20 Transactions with Subsidiaries
(a) The Company shall not allow Grupo Dixon S.A. de C.V. or its
subsidiaries (collectively, "Grupo") to increase its profit on sales of
goods to the Company or Dixon Ticonderoga Inc. to exceed fifteen (15%)
percent of the cost of such Inventory to Grupo, or pay Grupo in respect of
any goods purchased from Grupo more than Grupo's cost for such goods plus
15%.
(b) The Company shall not sell, transfer or otherwise convey any asset
to a Subsidiary, unless such transfer is for reasonably equivalent value in
cash, reduction of indebtedness owed by the Company to such Subsidiary, or
a promissory note which is promptly endorsed in blank and delivered as
additional collateral to the Senior Lender (so long as any Senior
Obligations are outstanding or the Senior Lender is obligated to make
advances under the Senior Credit Documents) or to the Collateral Agent
(thereafter).
9. REPORTING COVENANTS
- ----------------------
9.1 Financial and Business Information.
The Company shall deliver to each holder of Restated Notes:
Quarterly Financial Statements -- as soon as practicable after the end of
each quarterly fiscal period in each fiscal year of the Company (other than
the last quarterly fiscal period of each such fiscal year), and in any
event within forty-five (45) days thereafter or such later date as
permitted by an extension of time granted by the United States Securities
and Exchange Commission with respect to the Company's reporting
requirements for such period:
(i) a consolidated balance sheet as at the end of such
quarter; and
(ii) consolidated statements of income for such quarter and
(in the case of the second and third quarters) for the portion of
the fiscal year ending with such quarter;
for the Company and the Subsidiaries, setting forth in each case, in
comparative form, the financial statements for the corresponding periods in
the previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP applicable to quarterly financial statements generally, and
certified as complete and correct by a Senior Financial Officer, and
accompanied by the certificate required by Section 6.2; provided, that,
should the Company become subject to or agree with any Person to comply
with the provisions of section 13 of the Exchange Act, delivery of copies
of the Company's Quarterly Report on Form 10-Q filed with the SEC within
the time period specified above shall be deemed to satisfy the requirements
of this Section (a) so long as such Quarterly Report contains or is
accompanied by the information specified in this Section 9.2(a);
(b) Annual Financial Statements -- as soon as practicable after the
end of each fiscal year of the Company, and in any event within one hundred
twenty (120) days thereafter:
(i) consolidated and consolidating balance sheets and income
statements as at the end of such year; and
(ii) consolidated changes in shareholders' equity and cash
flows for such year;
for the Company and the Subsidiaries, setting forth in the case of each
consolidated financial statement, in comparative form, the financial
statement for the previous fiscal year, all in reasonable detail, prepared
in accordance with GAAP, and accompanied by:
(A) in the case of such consolidated financial
statements, an audit report thereon of independent certified
public accountants of recognized national standing, which
report shall state without qualification (including, without
limitation, qualifications related to the scope of the
audit, the compliance of the audit with generally accepted
auditing standards, or the ability of the Company or a
material Subsidiary thereof to continue as a going concern),
that such financial statements have been prepared and are in
conformity with GAAP;
(B) a certification by a Senior Financial Officer that
such consolidated and consolidating statements are complete
and correct; and
(C) the certificates required by Section 6.2 and
Section 6.3;
provided, that, should the Company become subject to or agree with any
Person to comply with the provisions of section 13 of the Exchange
Act, the delivery of the Company's Annual Report on Form 10-K for such
fiscal year filed with the SEC within the time period specified above
shall be deemed to satisfy the requirements of this Section 5.1(b) so
long as such Annual Report contains or is accompanied by the reports
and other information otherwise specified in this Section 0;
(c) SEC and Other Reports -- promptly upon their becoming available:
(i) each financial statement, report, notice or proxy
statement sent by the Company or any Subsidiary to stockholders
generally;
(ii) each regular or periodic report (including, without
limitation, each Form 10-K, Form 10-Q and Form 8-K), any
registration statement which shall have become effective, and
each final prospectus and all amendments thereto filed by the
Company or any Subsidiary with the SEC; and
(iii) all press releases and other statements made available
by the Company or any Subsidiary to the public concerning
material developments in the business of the Company or the
Subsidiaries;
(d) Notice of Default or Event of Default -- within three (3) Business
Days of becoming aware:
(i) of the existence of any condition or event which
constitutes a Default or an Event of Default; or
(ii) that the holder of any Restated Note, or of any
Indebtedness, shall have given notice or taken any other action
with respect to a claimed Default, Event of Default or default or
event of default;
a notice specifying the nature of the claimed Default, Event of Default or
default or event of default and the notice given or action taken (if any)
by such holder and what action the Company is taking or proposes to take
with respect thereto;
(e) ERISA--
(i) within three (3) Business Days of becoming aware of the
occurrence of any "reportable event" (as such term is defined in
section 4043 of ERISA) for which notice thereof has not been
waived pursuant to regulations of the DOL or "prohibited
transaction" (as such term is defined in section 406 of ERISA or
section 4975 of the IRC) in connection with any Plan or any trust
created thereunder, a notice specifying the nature thereof, what
action the Company is taking or proposes to take with respect
thereto, and, when known, any action taken by the Internal
Revenue Service, the DOL or the PBGC with respect thereto; and
(ii) prompt notice of and, where applicable, a description
of:
(A) any notice from the PBGC in respect of the
commencement of any proceedings pursuant to section 4042 of
ERISA to terminate any Plan or for the appointment of a
trustee to administer any Plan, and any distress termination
notice delivered to the PBGC under section 4041 of ERISA in
respect of any Plan, and any determination of the PBGC in
respect thereof;
(B) the placement of any Multiemployer Plan in
reorganization status under Title IV of ERISA, any
Multiemployer Plan becoming "insolvent" (as such term is
defined in section 4245 of ERISA) under Title IV of ERISA,
or the whole or partial withdrawal of the Company or any
ERISA Affiliate from any Multiemployer Plan and the
withdrawal liability incurred in connection therewith; or
(C) the occurrence of any event, transaction or
condition that could result in the incurrence of any
liability of the Company or any ERISA Affiliate or the
imposition of a Lien on the Property of the Company or any
ERISA Affiliate, in either case pursuant to Title I or Title
IV of ERISA or pursuant to the penalty or excise tax or
security provisions of the IRC;
provided, however, that the Company shall not be required to deliver
any such notice at any time when the aggregate amount of the actual
or potential liability of the Company and the Subsidiaries in
respect of all such events at such time could not reasonably be
expected to have a Material Adverse Effect;
(f) Auditor's Reports -- each report or management letter submitted to
the Company or any Subsidiary by independent accountants in connection with
any annual, interim or special audit made of the books of the Company or
any Subsidiary;
(g) Actions, Proceedings -- promptly after the commencement of any
action or proceeding relating to the Company or any Subsidiary in any court
or before any governmental authority or arbitration board or tribunal as to
which there is a reasonable possibility of an adverse determination and
that, if adversely determined, is reasonably likely to have a Material
Adverse Effect, a notice specifying the nature and period of existence
thereof and what action the Company is taking or proposes to take with
respect thereto;
(h) Other Creditors -- promptly upon the reasonable request of any
holder of Restated Notes, copies of any statement, report or certificate
furnished to any holder of Indebtedness to the extent that the information
contained in such statement, report or certificate has not already been
delivered to each holder of Restated Notes;
(i) Rule 144A -- promptly upon the reasonable request of any holder of
Restated Notes, information required to permit the holder to comply with 17
C.F.R. ss.230.144A, as amended from time to time, in connection with a
transfer of any Restated Note; and
(j) Requested Information -- with reasonable promptness, such other
data and information (including, without limitation, if requested by any
holder of Restated Notes, quarterly statements of changes in shareholders'
equity and cash flows, and any reports provided to Senior Lender) as from
time to time may be reasonably requested by any holder of Restated Notes.
(k) Company Projections - as soon as available, but in any event
within 30 days prior to the start of each of the Company's fiscal years,
copies of the Company's Projections, in form and substance (including as to
scope and underlying assumptions) satisfactory to the Noteholders, in their
sole discretion, for the forthcoming 3 years, year by year, and for the
forthcoming fiscal year, month by month, certified by the chief financial
officer of the Company as being such officer's good faith best estimate of
the financial performance of the Company during the period covered thereby.
9.2 Officer's Certificates.
Each set of financial statements delivered to each holder of Restated
Notes pursuant to Section 0 or Section 0 shall be accompanied by a certificate
of a Senior Financial Officer, setting forth:
(a) Covenant Compliance -- the financial information (including
detailed calculations) required in order to establish whether the Company
was in compliance with the requirements of Section 8 (in each case where
such Section imposes numerical financial requirements) as of the end of the
period covered by the financial statements then being furnished (including
with respect to such Section, where applicable, the calculations of the
maximum or minimum amount, ratio or percentage, as the case may be,
permissible under the terms of such Section, and the calculation of the
amount, ratio or percentage then in existence); and
(b) Event of Default -- a statement that the signer has reviewed the
relevant terms hereof and has made, or caused to be made, under his or her
supervision or authority, a review of the transactions and conditions of
the Company and the Subsidiaries from the beginning of the accounting
period covered by the income statements being delivered therewith to the
date of the certificate and that such review shall not have disclosed the
existence during such period of any condition or event that constitutes a
Default or an Event of Default or, if any such condition or event existed
or exists, specifying the nature and period of existence thereof and what
action the Company shall have taken or proposes to take with respect
thereto.
9.3 Accountants' Certificates.
Each set of annual financial statements delivered pursuant to Section
5.1(b) shall be accompanied by a certificate of the accountants who were engaged
to audit such financial statements, stating that they have reviewed this
Agreement and stating further, whether, in making their audit, such accountants
have become aware of any condition or event that then constitutes a Default or
an Event of Default, and, if such accountants are aware that any such condition
or event then exists, specifying the nature and period of existence thereof.
9.4 Inspection.
The Company will permit the representatives of each holder of Restated
Notes to visit and inspect any of the Properties of the Company or any of the
Subsidiaries, to examine all their respective books of account, records, reports
and other papers, to make copies and extracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective officers,
employees and independent public accountants (and by this provision the Company
authorizes said accountants to discuss the finances and affairs of the Company
and the Subsidiaries) all at such reasonable times and as often as may be
reasonably requested. All reasonable expenses incurred by the holders of the
Restated Notes in connection with this Section 6.4 shall be paid in accordance
with Section 12.6.
9.5 Confidentiality.
Each holder of Restated Notes shall keep confidential, and not disclose,
Confidential Information delivered to it in accordance with procedures adopted
by such holder generally to protect confidential information of third parties
delivered to it. Notwithstanding the foregoing, a holder of Restated Notes may
disclose any Confidential Information (in any form, including copies of
documents) to:
(a) such holder's directors, trustees, officers, employees, partners,
agents and professional consultants;
(b) any other holder of any Restated Notes or Warrants;
(c) any Person to which such holder offers to sell such Restated Note
or any part thereof or participation therein, provided that such Person
first agrees in writing for the benefit of the Company to be subject to the
requirements of this Section 6.5;
(d) any federal or state regulatory authority having jurisdiction over
such holder, and the National Association of Insurance Commissioners or any
similar self-regulatory organization;
(e) Standard & Poor's Corporation, Moody's Investor Services, Inc., or
other nationally recognized financial rating service, which is reviewing
the credit rating of any holder of Restated Notes; and
(f) any other Person to which such delivery or disclosure may be
necessary or appropriate in compliance with any law, rule, regulation or
order applicable to such holder, in response to any subpoena or other legal
process, in connection with any litigation to which such holder is a party,
or in order to protect such holder's investment in such Restated Note or
enforce such holder's rights.
10. EVENTS OF DEFAULT
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10.1 Events of Default.
An "Event of Default" shall exist at any time if any of the following
occurs and is continuing for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or otherwise):
(a) Payments on Restated Notes
(i) Principal Payments --- The Company fails to make any
payment of principal or Prepayment Compensation Amount on any
Restated Note on or before the date such payment is due;
provided, however, that an Event of Default arising from a
failure to comply with Section 5.2(b) will occur only upon the
earlier of:
(1) the monthly payment date following three consecutive
missed monthly payments (provided that same shall not
constitute an Event of Default if all three of such payments
have been made prior to such date); or
(2) ninety (90) days following the required payment date of a
missed monthly principal payment (provided that same shall
not constitute an Event of Default if such payment and the
next two required monthly payments have been made prior to
such date).
For purposes of this Section 10.1(a)(i), the Company shall be deemed
not to have failed to make a monthly payment required by Section
5.2(b) if, on the date such payment is due, (x) the Company makes a
principal payment of at least $50,000, or (y) the Company shall have
satisfied the minimum Target Payment for the then current Target
Period.
(ii) Interest Payments --- the Company fails to make any
payment of interest on any Restated Note on or before the date
such payment is due (the "Missed Payment Date"); provided,
however, that an Event of Default arising from the failure to
comply with Section 5.1 with respect to any Missed Payment Date
will not occur unless and until (a) the next Interest Payment
Date shall have arrived, and (b) the Company shall have failed to
make the interest payment which was due on the Missed Payment
Date or the interest payment due on such next Interest Payment
Date..
(b) Other Defaults
(i) Financial Covenant Defaults --- the Company or any
Subsidiary fails to comply with any provision of Article 8 and
such failure is not remedied within two Business Days after the
earlier of (A) a Senior Officer's knowledge of such failure and
(B) the Company receiving written notice of such failure; or
(ii) Other Defaults --- the Company or any Subsidiary fails
to comply with any other provision hereof or of any other
Transaction Document, and such failure continues for more than
thirty (30) days after such failure shall first become known to
any Senior Officer;
(c) Warranties or Representations -- any warranty, representation or other
statement by or on behalf of the Company contained in any Transaction Document,
in any written amendment, supplement, modification or waiver with respect to any
Transaction Document, or in any instrument furnished in compliance herewith or
in reference hereto, shall have been false or misleading in any material respect
when made;
(d) Default in Respect of Other Indebtedness
(i) the Company or any Subsidiary fails to make, when due,
at maturity or otherwise, any payment or payments in respect of
any Indebtedness
(ii) any event shall occur or any condition shall exist in
respect of Indebtedness, or under any agreement securing or
relating to Indebtedness, of the Company or any Subsidiary:
(A) as a result of which the maturity of such
Indebtedness, or a portion thereof, is accelerated; or
(B) that permits any one or more of the holders thereof
or a trustee therefor to require the Company or any
Subsidiary to repurchase such Indebtedness from the holders
thereof, and any such trustee or holder exercises such
option;
(e) Insolvency
(i) Involuntary Bankruptcy Proceedings
(A) a receiver, liquidator, custodian or trustee of the
Company or any Subsidiary, or of all or any substantial part
of the Property of either, is appointed by court order; or
an order for relief is entered with respect to the Company
or any Subsidiary, or the Company or any Subsidiary is
adjudicated a bankrupt or insolvent;
(B) all or any substantial part of the Property of the
Company or any Subsidiary is sequestered by court order; or
(C) a petition is filed against the Company or any
Subsidiary under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution
or liquidation law of any jurisdiction, whether now or
hereafter in effect, and is not dismissed within sixty (60)
days after such filing;
(ii) Voluntary Petitions -- the Company or any Subsidiary
files a petition in voluntary bankruptcy or seeks relief under
any provision of any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law
of any jurisdiction, whether now or hereafter in effect, or
consents to the filing of any petition against it under any such
law; or
(iii) Assignments for Benefit of Creditors, etc. -- the
Company or a Subsidiary makes an assignment for the benefit of
its creditors, or admits in writing its inability, or fails, to
pay its debts generally as they become due, or consents to the
appointment of a receiver, liquidator or trustee of the Company
or a Subsidiary or of all or a substantial part of its Property;
or
(f) Undischarged Final Judgments -- a final, non-appealable judgment
or final, non-appealable judgments for the payment of money aggregating in
excess of Five Hundred Thousand Dollars ($500,000) is or are outstanding
against the Company or any Subsidiary, and any one of such judgments shall
have been outstanding for more than sixty (60) days from the date of its
entry and shall not have been discharged in full or stayed.
(g) Limitation or Termination of Guaranty -- if the obligation of any
Subsidiary Guarantor is limited or terminated by operation of law or by
such Subsidiary Guarantor thereunder; or
(h) Limitation or Termination of Transaction Document -- if any
Transaction Document that purports to create a Lien, shall, for any reason,
fail or cease to create a valid and perfected and, except to the extent
permitted by the terms hereof or thereof, second priority Lien on or
security interest in the Collateral covered hereby or thereby;
10.2 Default Remedies.
Acceleration of Maturity of Restated Notes.
(i) Acceleration on Event of Default.
A. Automatic. If any Event of Default specified in
Section 10.1(e) shall exist, all of the Restated Notes at
the time outstanding shall automatically become due and
payable together with interest accrued thereon and, to the
extent permitted by law, the Prepayment Compensation Amount
at such time with respect to the principal amount of such
Restated Notes, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly
waived.
B. By Action of Holders. If any Event of Default other
than those specified in Section 10.1(e) shall exist, the
holders of a majority in principal amount of the Restated
Notes at the time outstanding (exclusive of Restated Notes
then owned by any one or more of the Company, any Subsidiary
or any Affiliate) may exercise any right, power or remedy
permitted to such holder or holders by law, and shall have,
in particular, without limiting the generality of the
foregoing, the right to declare the entire principal of, and
all interest accrued on, all the Restated Notes then
outstanding to be, and such Restated Notes shall thereupon
become, forthwith due and payable, without any presentment,
demand, protest or other notice of any kind, all of which
are hereby expressly waived, and the Company shall forthwith
pay to the holders of the Restated Notes then outstanding
the entire principal of and interest accrued on the Restated
Notes and, to the extent permitted by law, the Prepayment
Compensation Amount at such time with respect to such
principal amount of such Restated Notes.
(ii) Acceleration on Payment Default. Subject to Section
10.3, during the existence of an Event of Default described in
Section 0, and irrespective of whether the Restated Notes then
outstanding shall have become due and payable pursuant to Section
10.2(a)(i)(B), any holder of Restated Notes who or which shall
have not consented to waiver with respect to such Event of
Default may, at his or its option, by notice in writing to the
Company, declare the Restated Notes then held by such holder to
be, and such Restated Notes shall thereupon become, forthwith due
and payable together with all interest accrued thereon, without
any presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived, and the Company shall
forthwith pay to such holder the entire principal of and interest
accrued on such Restated Notes and, to the extent permitted by
law, the Prepayment Compensation Amount at such time with respect
to such principal amount of such Restated Notes.
(b) Valuable Rights. The Company acknowledges, and the parties hereto
agree, that the right of each holder to maintain its investment in the
Restated Notes free from repayment by the Company (except as herein
specifically provided for) is a valuable right and that the provision for
payment of a Prepayment Compensation Amount by the Company in the event
that the Restated Notes are prepaid or are accelerated as a result of an
Event of Default is intended to provide compensation for the deprivation of
such right under such circumstances.
(c) Other Remedies. During the existence of an Event of Default and
irrespective of whether the Restated Notes then outstanding shall become
due and payable and irrespective of whether any holder of Restated Notes
then outstanding shall otherwise have pursued or be pursuing any other
rights or Remedies, any holder of Restated Notes may proceed to protect and
enforce its
rights hereunder and under such Restated Notes by exercising such Remedies
as are available to such holder in respect thereof under applicable law,
either by suit in equity or by action at law, or both, whether for specific
performance of any agreement contained herein or in aid of the exercise of
any power granted herein; provided, however, that the maturity of such
holder's Restated Notes may be accelerated only in accordance with Section
10.2(a).
(d) Nonwaiver; Remedies Cumulative. No course of dealing on the part
of any holder of Restated Notes nor any delay or failure on the part of any
holder of Restated Notes to exercise any right shall operate as a waiver of
such right or otherwise prejudice such holder's rights, powers and
Remedies. All rights and Remedies of each holder of Restated Notes
hereunder and under applicable law are cumulative to, and not exclusive of,
any other rights or remedies any such holder of Restated Notes would
otherwise have.
(e) Subordination. The Senior Lender and the holders of the Restated
Notes have, solely as between themselves, reached certain agreements
regarding the allocation of payments in respect of this Agreement and the
Restated Notes, and the exercise of Remedies, all as set forth in the
Intercreditor Agreement; provided, however, that Rights as between the
holders of the Restated Notes and the Company are set forth and governed by
this Agreement.
10.3 Annulment of Acceleration of Restated Notes.
If a declaration is made pursuant to Section 10.2(a)(i)(B), then and in
every such case, the holders of more than a majority in principal amount of the
Restated Notes at the time outstanding (exclusive of Restated Notes then owned
by any one or more of the Company, any Subsidiary or any Affiliate) may, by
written instrument filed with the Company, rescind and annul such declaration,
and the consequences thereof; provided, however, that at the time such
declaration is annulled and rescinded:
(a) no judgment or decree shall have been entered for the payment of
any moneys due on or pursuant hereto or the Restated Notes;
(b) all arrears of interest upon all of the Restated Notes and all
other sums payable hereunder and under the Restated Notes (except any
amount which shall have become due and payable solely by reason of such
declaration under Section 10.2(a)(i)(B)) shall have been duly paid; and
(c) each and every other Default and Event of Default shall have been
waived pursuant to Section 9.5 or otherwise made good or cured;
and provided further that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereon.
11. INTERPRETATION OF THIS AGREEMENT
- -------------------------------------
11.1 Terms Defined.
As used herein, the following terms have the respective meanings set forth
below or set forth in the Section hereof following such term:
2.5% Warrants -- means those certain warrants, in the form of Exhibit D-1
hereto (the "March 2004 2.5% Warrants") or Exhibit D-2 hereto (the "March 2005
2.5% Warrants"), entitling the Noteholders to purchase Common Stock of the
Company upon the terms and conditions therein set forth.
9.5% Warrants -- means those certain warrants in the form of Exhibit C
hereto entitling the Noteholders to purchase Common Stock of the Company upon
the terms and conditions therein set forth.
Affiliate -- means, with respect to any Person, (a) each Person that,
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, five percent (5%) or more of the Capital Stock
having ordinary voting power in the election of directors of such Person, (b)
each Person that controls, is controlled by or is under common control with such
Person, (c) each of such Person's officers, directors, joint venturers and
partners or (d) in the case of the Company, the immediate family members,
spouses and lineal descendants of individuals who are Affiliates of the Company;
provided, however, that none of the Noteholders nor any affiliate of any
Noteholder shall be deemed to be an "Affiliate," and no Person holding any one
or more of the Restated Notes or Warrants shall be deemed to be an "Affiliate"
solely by virtue of the ownership of such securities. For the purposes of this
definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise. Unless the context otherwise clearly requires, any reference to an
"Affiliate" is a reference to an Affiliate of the Company.
Agreement, this -- and references thereto shall mean this Amended and
Restated Note and Warrant Purchase Agreement as it may from time to time be
amended or supplemented.
Applicable Interest Law -- means any present or future law (including,
without limitation, the laws of the State of New York and the United States of
America) which has application to the interest and other charges pursuant to
this Agreement and the Restated Notes.
Board of Directors -- means the Board of Directors of the Company.
Business Day -- means a day other than a Saturday, a Sunday or a day on
which banks in the State of New York or Florida are required or permitted by law
(other than a general banking moratorium or holiday for a period exceeding four
(4) consecutive days) to be closed.
Canadian Pension Plan -- means any plan, program or arrangement that is a
pension plan for the purposes of any applicable pension benefits legislation or
any tax laws of Canada or a province thereof, whether or not registered under
any such laws, which is maintained or contributed to by, or to which there is an
obligation to contribute by, the Company or Dixon Ticonderoga Inc. in respect of
any Person's employment in Canada with the Company or Dixon Ticonderoga Inc.
which, for greater certainty, does not include the Canada Pension Plan or any
other plans maintained by the Government of Canada or by a government of any
Province of Canada.
Canadian Pledge and Security Agreement -- means that certain Pledge and
Security Agreement by and between Dixon Ticonderoga Inc. and the Collateral
Agent and dated as of the Restatement Date.
Canadian Trademark Security Agreement -- means that certain Trademark
Security Agreement by and between Dixon Ticonderoga Inc. and the Collateral
Agent and dated as of the Restatement Date.
Capital Expenditures -- means, with respect to any Person, all expenditures
(by the expenditure of cash or the incurrence of Indebtedness) by such Person
during any measuring period for any fixed assets or improvements or for
replacements, substitutions or additions thereto that have a useful life of more
than one year and that are required to be capitalized under GAAP.
Capital Lease -- means, with respect to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, would be required to be classified and accounted for as a
capital lease on a balance sheet of such Person.
Capital Lease Obligation -- means, with respect to any Capital Lease of any
Person, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease.
Capital Stock -- means any class of preferred, common or other capital
stock, share capital or similar equity interest of a Person including, without
limitation, any partnership interest in any partnership or limited partnership
and any membership interest in any limited liability company.
Change of Control --means (a) any "person" or "group" (within the meaning
of Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders,
becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 10%, or more, of the Stock of the Company having the
right to vote for the election of members of the Board of Directors, or (b) a
majority of the members of the Board of Directors do not constitute Continuing
Directors, or (c) the Company ceases to directly own and control 100% of the
outstanding capital Stock of each of its Subsidiaries (except for Dixon
Industrial Mexico, S.A. de C.V., in which case it shall be deemed a "Change of
Control" if the Company ceases to directly own and control at least 97% of the
Capital Stock of such Subsidiary) existing as of the Restatement Date.
Charges -- mean all federal, state, county, city, municipal, local, foreign
or other governmental taxes (including taxes owed to the PBGC at the time due
and payable), levies, assessments, charges, liens, claims or encumbrances upon
or relating to (a) the Collateral, (b) the Senior Obligations or the obligations
evidenced by the Restated Notes, (c) the employees, payroll, income or gross
receipts of any Person, (d) any Person's ownership or use of any properties or
other assets, or (e) any other aspect of any Person's business.
Chief Restructuring Officer -- has the meaning set forth in Section 8.17.
Closing -- has the meaning set forth in Section 1.2.
Collateral -- means any and all property, real or personal, tangible or
intangible, now existing or hereafter acquired, that may at any time be or
become subject to a security interest or Lien in favor of the Collateral Agent,
on behalf of the Noteholders, to secure the Restated Notes or a Subsidiary
Guarantee.
Collateral Agent-- means State Street Bank and Trust, N.A., a Massachusetts
Trust Company.
Collateral Assignment of Notes -- means that certain Collateral Assignment
of Notes by and between the Company and the Collateral Agent and dated as of the
Restatement Date.
Collateral Documents -- The Collateral Agency and Intercreditor Agreement,
the Security Agreement, the Pledge and Security Agreement, the Trademark
Collateral Security Agreement, the Patent Collateral Security Agreement, the
Copyright Collateral Security Agreement, the Collateral Assignment of Notes, the
Mortgages, Canadian Pledge and Security Agreement, the Canadian Trademark
Security Agreement and each Reaffirmation of Guarantee.
Common Stock -- means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including common stock, preferred stock, or
any other "equity security" (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the SEC under the Exchange Act).
Company -- has the meaning set forth in the introductory paragraph.
Confidential Information -- means, at any time, written information
delivered to a holder of Restated Notes by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by or otherwise
pursuant to this Agreement that is proprietary in nature and that was adequately
marked or labeled or otherwise adequately identified when received by such
holder as being confidential information of the Company or such Subsidiary, and
that has not become:
(i) publicly known other than by an act or omission by such
holder or a Person acting on such holder's behalf; or
(ii) known to such holder from sources other than the
Company or a Subsidiary prior to the time of such disclosure.
Consolidated EBITDA -- means, with respect to any fiscal period,
consolidated net earnings (or loss) of the Company and its Subsidiaries minus
extraordinary gains, plus interest expense, income taxes, and depreciation and
amortization plus non-recurring non-cash losses for such period, as determined
in accordance with GAAP.
Continuing Director -- means (a) any member of the Board of Directors who
was a director (or comparable manager) of the Company on the Restatement Date,
and (b) any individual who becomes a member of the Board of Directors after the
Restatement Date if such individual was appointed or nominated for election to
the Board of Directors by a majority of the Continuing Directors, but excluding
any such individual originally proposed for election in opposition to the Board
of Directors in office at the Restatement Date in an actual or threatened
election contest relating to the election of the directors (or comparable
managers) of the Company (as such terms are used in Rule 14a-11 under the
Exchange Act) and whose initial assumption of office resulted from such contest
or the settlement thereof.
Copyright Collateral Security Agreement -- means that certain Copyright
Collateral Security Agreement by and between the Company and the Collateral
Agent and dated as of the Restatement Date.
Default -- means any event which, with the giving of notice or the passage
of time, or both, would become an Event of Default.
Deer Lake Note and Mortgage -- means collectively, (a) the Promissory Note,
dated May 15, 2001, in the principal amount of $1,640,000 made by SMT Holdings,
LLC in favor of the Company, (b) the Mortgage, dated May 15, 2001 by and between
SMT Holdings, LLC in favor of the Company covering real property located in West
Brunswick, Township, Pennsylvania, (c) the Guaranty made by Anex Warehouse and
Distribution Company, Inc. of the obligations of SMT Holdings, LLC arising under
the Promissory Note referred to in clause (a) hereof, and (d) all documents and
instruments and other agreements delivered in connection with the foregoing, as
the same may be modified, amended, restated or otherwise supplemented from time
to time.
DOL -- means the United States Department of Labor and any successor
agency.
Dollars or $ -- means lawful currency of the United States of America.
Environmental Laws-- means all applicable federal, state, local and foreign
laws, statutes, ordinances, codes, rules, standards and regulations, now or
hereafter in effect, and any applicable judicial or administrative
interpretation thereof, including any applicable judicial or administrative
order, consent decree, order or judgment, imposing liability or standards of
conduct for or relating to the regulation and protection of human health,
safety, the environment and natural resources (including ambient air, surface
water, groundwater, wetlands, land surface or subsurface strata, wildlife,
aquatic species and vegetation). Environmental Laws include the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (42
U.S.C.ss.ss.9601 et seq.) ("CERCLA"); the Hazardous Materials Transportation
Authorization Act of 1994 (49 U.S.C.ss.ss.5101 et seq.); the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.ss.ss.136 et seq.); the
Solid Waste Disposal Act (42 U.S.C.ss.ss.6901 et seq.); the Toxic Substance
Control Act (15 U.S.C.ss.ss.2601 et seq.); the Clean Air Act (42
U.S.C.ss.ss.7401 et seq.); the Federal Water Pollution Control Act (33
U.S.C.ss.ss.1251 et seq.); the Occupational Safety and Health Act (29
U.S.C.ss.ss.651 et seq.); and the Safe Drinking Water Act (42 U.S.C.ss.ss.300(f)
et seq.), and any and all regulations promulgated thereunder, and all analogous
state, local and foreign counterparts or equivalents and any transfer of
ownership notification or approval statutes.
Environmental Liabilities -- means, with respect to any Person, all
liabilities, obligations, responsibilities, response, remedial and removal
costs, investigation and feasibility study costs, capital costs, operation and
maintenance costs, losses, damages, punitive damages, property damages, natural
resource damages, consequential damages, treble damages, costs and expenses
(including all fees, disbursements and expenses of counsel, experts and
consultants), fines, penalties, sanctions and interest incurred as a result of
or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law, arising under or related to
any Environmental Laws, Environmental Permits, or in connection with any Release
or threatened Release or presence of a Hazardous Material whether on, at, in,
under, from or about or in the vicinity of any real or personal property.
Environmental Permits -- means all permits, licenses, authorizations,
certificates, approvals or registrations required by any Governmental Authority
under any Environmental Laws.
ERISA -- means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulations promulgated thereunder.
ERISA Affiliate -- means, with respect to the Company and any of its
Subsidiaries, any trade or business (whether or not incorporated) that, together
with such Company and any of its Subsidiaries, is treated as a single employer
under section 414 of the IRC.
ERISA Event -- shall mean (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder, with respect to a Benefit
Plan; (b) the adoption of any amendment to a Benefit Plan that would require the
provision of security pursuant to Section 401(a)(29) of the Code or Section 307
of ERISA; (c) the existence with respect to any Benefit Plan of an "accumulated
funding deficiency" (as defined in Section 412 of the Code or Section 302 of
ERISA), whether or not waived; (d) the filing pursuant to Section 412 of the
Code or Section 303(d) of ERISA of an application for a waiver of the minimum
funding standard with respect to any Benefit Plan; (e) the occurrence of a
"prohibited transaction" with respect to which Borrower or any of its
Subsidiaries is a "disqualified person" (within the meaning of Section 4975 of
the Code) or with respect to which the Company or any of its Subsidiaries could
otherwise be liable for amounts in excess of $500,000; (f) a complete or partial
withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or a
cessation of operations which is treated as such a withdrawal or notification
that a Multiemployer Plan is in reorganization; (g) the filing of a notice of
intent to terminate, the treatment of a Benefit Plan amendment as a termination
under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the
Pension Benefit Guaranty Corporation to terminate a Benefit Plan or
Multiemployer Plan; (h) an event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan;
(i) the imposition of any liability under Title IV of ERISA, other than the
Pension Benefit Guaranty Corporation premiums due but not delinquent under
Section 4007 of ERISA, upon the Company or any ERISA Affiliate; and (j) any
other event or condition with respect to a Benefit Plan or Multiemployer Plan or
any Benefit Plan subject to Title IV of ERISA maintained, or contributed to, by
any ERISA Affiliate that could reasonably be expected to result in liability of
the Company or any of its Subsidiaries for amounts in excess of $500,000.
Event of Default -- has the meaning set forth in Section 10.1.
Exchange Act -- means the Securities Exchange Act of 1934, as amended,
together with the rules and regulations of the SEC thereunder.
Existing Note Agreement -- has the meaning specified in the introductory
sentence.
Existing Notes -- has the meaning specified in the first recital of this
Agreement.
Existing Transaction Documents -- means the Existing Note Agreement the
Existing Notes, and the Existing Warrants, as such documents are in effect
immediately prior to the Restatement Date.
Existing Warrants -- those certain warrants, issued pursuant to the
Existing Note Agreement, entitling the Noteholders to purchase up to an
aggregate of 300,000 shares of Common Stock of the Company.
Fair Market Value -- means, with respect to any Property, the sale value of
such Property that would be realized in an arm's-length sale at such time
between an informed and willing buyer, and an informed and willing seller, under
no compulsion to buy or sell, respectively.
Financial Covenant -- means any covenant (or substantially equivalent
default provision) which requires any one or more of the Company or any of its
Subsidiaries to attain or maintain a prescribed level of financial condition or
financial achievement, including, without limitation, covenants of the type
contained in Section 8 of this Agreement.
Financial Statements -- means the consolidated and consolidating income
statements, statements of cash flows and balance sheets of the Company delivered
in accordance with Section 9.
Foreign Pension Plan -- means any plan, fund or other similar program:
(a) established or maintained outside of the United States of America
by the Company primarily for the benefit of the employees (substantially
all of whom are aliens not residing in the United States of America) of the
Company, which plan, fund or other similar program provides for retirement
income for such employees or results in a deferral of income for such
employees in contemplation of retirement; and
(b) not otherwise subject to ERISA.
Funded Debt -- means, with respect to any Person, without duplication, all
Indebtedness of such Person for borrowed money evidenced by notes, bonds,
debentures or similar evidences of Indebtedness that by its terms matures more
than one year from, or is directly or indirectly renewable or extendible at such
Person's option under a revolving credit or similar agreement obligating the
lender or lenders to extend credit over a period of more than one year from the
date of creation thereof, and specifically including Capital Lease Obligations,
current maturities of long-term debt, revolving credit and short-term debt
extendible beyond one year at the option of the debtor, and also including, in
the case of the Company, the obligations of the Company evidenced by the
Restated Notes and the Senior Credit Documents and guaranties of Funded Debt of
other Persons.
GAAP -- means generally accepted accounting principles as in effect from
time to time in the United States, as set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board which are applicable to the circumstances
as of the date of determination consistently applied, except, that, if any
change in generally accepted accounting principles after the date hereof affects
the calculation of compliance with the financial covenants in Section 8.16 such
that such change would cause the Company to be in default of any such financial
covenant(s), the Company may by notice to the Noteholders, provide the
Noteholders with new financial projections, in form and substance satisfactory
to the Noteholders, incorporating such changes, and the Noteholders shall, in
their discretion, reset such covenant(s) thereafter in accordance with generally
accepted accounting principles as then in effect.
Governmental Authority means
(a) the government of
(i) the United States of America or any state or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or that asserts
jurisdiction over any properties of the Company or any
Subsidiary, or
(b) any entity exercising executive, legislative, judicial, regulatory
or administrative functions of, or pertaining to, any such government.
Grupo-- has the meaning set forth in Section 8.20
Guaranteed Indebtedness -- means, as to any Person, any obligation of such
Person guaranteeing any indebtedness, lease, dividend, or other obligation
("primary obligation") of any other Person (the "primary obligor") in any
manner, including any obligation or arrangement of such Person to (a) purchase
or repurchase any such primary obligation, (b) advance or supply funds (i) for
the purchase or payment of any such primary obligation or (ii) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet condition of the primary
obligor, (c) purchase property, securities or services primarily for the purpose
of assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation, or (d) indemnify the
owner of such primary obligation against loss in respect thereof. The amount of
any Guaranteed Indebtedness at any time shall be deemed to be an amount equal to
the lesser at such time of (x) the stated or determinable amount of the primary
obligation in respect of which such Guaranteed Indebtedness is incurred and (y)
the maximum amount for which such Person may be liable pursuant to the terms of
the instrument embodying such Guaranteed Indebtedness or, if not stated or
determinable, the maximum reasonably anticipated liability (assuming full
performance) in respect thereof.
Guaranty -- means with respect to any Person (for the purposes of this
definition, the "Guarantor") any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend
or other obligation of any other Person (the "Primary Obligor") in any manner,
whether directly or indirectly, including, without limitation, obligations
incurred through an agreement, contingent or otherwise, by the Guarantor:
(a) to purchase such indebtedness or obligation or any Property
constituting security therefor;
(b) to advance or supply funds
(i) for the purchase or payment of such indebtedness,
dividend or obligation; or
(ii) to maintain working capital or other balance sheet
condition or any income statement condition of the Primary
Obligor or otherwise to advance or make available funds for the
purchase or payment of such indebtedness, dividend or obligation;
(c) to lease Property or to purchase securities or other Property or
services primarily for the purpose of assuring the owner of such
indebtedness or obligation of the ability of the Primary Obligor to make
payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of the indebtedness or obligation of
the Primary Obligor against loss in respect thereof.
For purposes of computing the amount of any Guaranty, in connection with
any computation of indebtedness or other liability:
(i) in each case where the obligation that is the subject of
such Guaranty is in the nature of indebtedness for money borrowed
it shall be assumed that the amount of the Guaranty is the amount
of the direct obligation then outstanding; and
(ii) in each case where the obligation that is the subject
of such Guaranty is not in the nature of indebtedness for money
borrowed it shall be assumed that the amount of the Guaranty is
the amount (if any) of the direct obligation that is then due.
Hazardous Material -- means any substance, material or waste that is
regulated by, or forms the basis of liability now or hereafter under, any
Environmental Laws, including any material or substance that is (a) defined as a
"hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste," "restricted hazardous waste," "pollutant," "contaminant,"
"hazardous constituent," "special waste," "toxic substance" or other similar
term or phrase under any Environmental Laws, or (b) petroleum or any fraction or
by-product thereof, asbestos, polychlorinated biphenyls (PCB's), or any
radioactive substance.
Heathrow Facility -- means the property located at 195 International
Parkway, Heathrow, Florida 32746.
Indebtedness -- means, with respect to any Person, without duplication, (a)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property payment for which is deferred six months or more, but
excluding obligations to trade creditors incurred in the ordinary course of
business that are unsecured and not overdue by more than six months unless being
contested in good faith, (b) all reimbursement and other obligations with
respect to letters of credit, bankers' acceptances and surety bonds, whether or
not matured, (c) all obligations evidenced by notes, bonds, debentures or
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all Capital Lease Obligations and the present
value (discounted at the Index Rate (as defined in the Senior Credit Agreement)
as in effect on the Restatement Date) of future rental payments under all
synthetic leases, (f) all obligations of such Person under commodity purchase or
option agreements or other commodity price hedging arrangements, in each case
whether contingent or matured, (g) all obligations of such Person under any
foreign exchange contract, currency swap agreement, interest rate swap, cap or
collar agreement or other similar agreement or arrangement designed to alter the
risks of that Person arising from fluctuations in currency values or interest
rates, in each case whether contingent or matured, (h) all Indebtedness referred
to above secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon or in
property or other assets (including accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness, (i) the obligations of the Company under the Senior Credit
Documents and (j) the obligations of the Company evidenced by the Restated
Notes.
Intercreditor Agreement -- means that certain Intercreditor and
Subordination Agreement by and among the Company, the Noteholders, the
Collateral Agent and the Senior Lender dated as of the Restatement Date.
Interest Expense -- means, with respect to any Person for any fiscal
period, interest expense (whether cash or non-cash) of such Person determined in
accordance with GAAP for the relevant period ended on such date, including
interest expense with respect to any Funded Debt of such Person and interest
expense for the relevant period that has been capitalized on the balance sheet
of such Person.
Interest Payment Date -- has the meaning set forth in Section 5.1.
Investments -- means all investments, made in cash or by delivery of
Property, by the Company and the Subsidiaries:
(a) in any Person, whether by acquisition of stock, Indebtedness or
other obligation or Security, or by loan, Guaranty, advance or capital
contribution, or otherwise; or
(b) in any Property;
provided, however, that "Investments" shall not include any advances to
officers, directors or employees of the Company or any Subsidiary in respect of
travel or other similar expenses relating to the business of the Company and the
Subsidiaries which such officers, directors or employees expect to incur, which
advances are made in the ordinary course of business.
IRC -- means the Internal Revenue Code of 1986, together with all rules and
regulations promulgated pursuant thereto, as amended from time to time.
IRS -- means the United States Internal Revenue Service and any successor
agency.
Lien -- means any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property (for purposes of this
definition, the "Owner"), whether such interest is based on the common law,
statute or contract, and includes but is not limited to:
(a) the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes, and the filing of any financing statement
under the Uniform Commercial Code of any jurisdiction, or an agreement to
give any of the foregoing;
(b) reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions, leases and other title exceptions and
encumbrances affecting real Property;
(c) stockholder agreements, voting trust agreements, buy-back
agreements and all similar arrangements affecting the Owner's rights in
stock owned by the Owner; and
(d) any interest in any Property held by the Owner evidenced by a
conditional sale agreement, Capital Lease or other arrangement pursuant to
which title to such Property has been retained by or vested in some other
Person for security purposes.
The term "Lien" does not include negative pledge clauses in loan agreements
and equal and ratable security clauses in loan agreements.
License Agreement -- has the meaning set forth in Section 2.4(c).
Liquidity Event -- means the occurrence of any of the following events: (a)
the Company's receipt of any income tax refund(s) for federal taxes paid prior
to the year 2002, (b) the Company's receipt of any imported pencil duty rebates,
(c) the receipt of any principal payment in respect of the Deer Lake Note and
Mortgage, or (d) the consummation of a sale/leaseback or mortgage refinancing
with respect to the Heathrow Facility.
March 2004 2.5% Warrants -- is defined in the definition of 2.5% Warrants.
March 2005 2.5% Warrants -- is defined in the definition of 2.5% Warrants.
Material Adverse Effect -- means, with respect to any event or circumstance
(either individually or in the aggregate with all other events and
circumstances), an effect caused thereby or resulting therefrom that would be
materially adverse as to, or in respect of:
(a) the business, operations, profits, financial condition, Properties
or business prospects of the Company or any Subsidiary;
(b) the ability of the Company to perform its obligations under any
Transaction Document; or
(c) the validity or enforceability of any of the Transaction
Documents.
Maturity Date -- means October 3, 2005.
Maximum Legal Rate of Interest -- means the maximum rate of interest that a
holder of Restated Notes may from time to time legally charge the Company by
agreement and in regard to which the Company would be prevented successfully
from raising the claim or defense of usury under the Applicable Interest Law as
now or hereafter construed by courts having appropriate jurisdiction.
Mortgages -- has the meaning as set forth in the Security Agreement.
Multiemployer Plan -- means any "multiemployer plan" (as defined in section
4001(a)(3) of ERISA), and to which the Company, any of its Subsidiaries or ERISA
Affiliate is making, is obligated to make, or has made or been obligated to
make, contributions on behalf of participants who are or were employed by any of
them.
NCR Buyer-- means New Castle Refractories Company, Inc., a Pennsylvania
corporation, and its successors and assigns.
NCR Division -- means the assets of the Company constituting its New Castle
Refractories division located in New Castle, Lawrence County, Pennsylvania,
Newell, Hancock County, West Virginia, and Masillon (Townships of Lawrence and
Tuscarawas) Stark County, Ohio.
Net Borrowing Availability -- has the meaning assigned to such term in the
Senior Credit Agreement.
Net Worth -- means, with respect to any Person, at any time, the net worth
of such Person as would be reflected on a balance sheet of such Person prepared
in accordance with GAAP at such time; provided, however, that minority interest,
shall not be included in Net Worth of any Person.
NCR Properties -- shall mean the Real Property of the Company constituting
its New Castle Refractories division located in New Castle, Lawrence County,
Pennsylvania, Newell, Hancock County, West Virginia, and Masillon (Townships of
Lawrence and Tuscarawas) Stark County, Ohio.
North American EBITDA -- means, with respect to any fiscal period, the
Company's and its Subsidiaries United States and Canadian operations net
earnings (or loss), minus extraordinary gains, plus interest expense, income
taxes, and depreciation and amortization plus non-recurring non-cash
extraordinary losses, for such period, as determined in accordance with GAAP.
Noteholder(s) -- has the meaning set forth in the introductory paragraph.
Operating Lease -- means, with respect to any Person, any lease other than
a Capital Lease.
Patent Collateral Security Agreement -- means that certain Patent
Collateral Security Agreement by and between the Company and the Collateral
Agent and dated as of the Restatement Date.
PBGC -- means the Pension Benefit Guaranty Corporation, or any other
Person succeeding to the duties thereof.
Pension Plan -- means a Plan described in section 3(2) of ERISA.
Permitted Dispositions -- means (a) sales or other dispositions by the
Company and its Subsidiaries of Equipment that is substantially worn, damaged,
or obsolete, in the ordinary course of business, (b) sales by the Company and
its Subsidiaries of Inventory to buyers in the ordinary course of business, (c)
the use or transfer of money or Cash Equivalents by the Company or its
Subsidiaries in a manner that is not prohibited by the terms of this Agreement
or the other Transaction Documents, (d) the licensing by the Company and its
Subsidiaries, on a non-exclusive basis, of patents, trademarks, copyrights, and
other intellectual property rights in the ordinary course of business; (e) the
sale by the Company of Equipment to Grupo provided, that, each of the following
conditions has been satisfied in the determination of the Noteholders: (i) the
Company shall have sent written notice to the Noteholders of such intended
disposition no later than thirty (30) days prior to the date of sale, which
notice shall identify each of the items of Equipment to be sold to the appraisal
referred to in Section 3.1(w) of the Senior Credit Agreement, (ii) such
Equipment shall have a value in the aggregate, not in excess of $300,000, (iii)
such Equipment is currently located at the Company's Sandusky, Ohio, location,
(iv) the Company shall only accept cash consideration from Grupo, in an amount
not less than $300,000, which shall be immediately paid or delivered, or caused
to paid or delivered to Senior Lender, (v) the sale shall have been consummated
no later than December 31, 2002; and (vi) on the date of such sale and after
giving effect thereto, no Event of Default shall exist or have occurred and be
continuing, and (f) the sale of all of the Company's right, title and interest
in and to the Deer Lake Note and Mortgage, provided, that, each of the following
conditions has been satisfied in the determination of the Noteholders: (i) the
Company shall have sent written notice to the Noteholders of such intended
disposition no later than thirty (30) days prior to the date of sale, which
notice shall identify, among other things, the outstanding principal amount of
such Note and the intended purchaser thereof, and (ii) the Company shall only
accept cash consideration from such purchaser, in an amount equal to not less
than eighty (80%) percent of the then outstanding principal amount of the Note,
which consideration shall be immediately paid or delivered, or caused to paid or
delivered to the Noteholders in accordance with the with Section 5.2(c) hereof,
provided however that Permitted Dispositions shall not include item (d) of the
definition of Liquidity Event
Permitted Holder -- means (i) Mr. Gino N. Pala, having an address at c/o
Dixon Ticonderoga Company, 195 International Parkway, Heathrow, Florida, 32746,
and (ii) Mr. Richard F. Joyce, having an address at c/o Dixon Ticonderoga
Company, 195 International Parkway, Heathrow, Florida, 32746, and their
respective Family Members, and Family Trusts and (iii) the Noteholders, and any
future holder that is an institutional investor that is also a holder of the
Restated Notes.
Permitted Investments -- means (a) investments by the Company or Dixon
Ticonderoga Inc. in Cash Equivalents, (b) investments by the Company in
negotiable instruments for collection, (c) advances made by the Company in
connection with purchases of goods or services in the ordinary course of
business, (d) loans by the Company or Dixon Ticonderoga Inc. after the date
hereof, provided, that, as to all of such loans, (i) within thirty (30) days
after the end of each fiscal month, the Company shall provide to the Noteholders
a report in form and substance satisfactory to the Noteholders of the
outstanding amount of such loans as of the last day of the immediately preceding
month and indicating any loans made and payments received during the immediately
preceding month, (ii) the Indebtedness arising pursuant to any such loan shall
not be evidenced by a promissory note or other instrument, unless the single
original of such note or other instrument is promptly delivered to Senior Lender
to hold as part of the Collateral, with such endorsement and/or assignment by
the payee of such note or other instrument as Senior Lender and then Noteholders
may require, (iii) as of the date of any such loan and after giving effect
thereto, the Company shall be Solvent, and (iv) as of the date of any such loan
and after giving effect thereto, no Default or Event of Default shall exist or
have occurred and be continuing.
Permitted Liens -- means (a) Liens provided for under the Security
Agreement (b) Liens held by Senior Lender, (c) Liens for unpaid taxes that
either (i) are not yet delinquent, or (ii) do not constitute an Event of Default
hereunder and are the subject of Permitted Protests, (d) Liens set forth on Part
2.2(b) of Annex 2 and Part 8.2 of Annex 2, (e) the interests of lessors under
operating leases, (f) purchase money Liens or the interests of lessors under
Capital Leases to the extent that such Liens or interests secure Permitted
Purchase Money Indebtedness and so long as such Lien attaches only to the asset
purchased or acquired and the proceeds thereof, (g) Liens arising by operation
of law in favor of warehousemen, landlords, carriers, mechanics, materialmen,
laborers, or suppliers, incurred in the ordinary course of business and not in
connection with the borrowing of money, and which Liens either (1) are for sums
not yet delinquent, or (2) are the subject of Permitted Protests, (h) Liens
arising from deposits made in connection with obtaining worker's compensation or
other unemployment insurance, (i) Liens or deposits to secure performance of
bids, tenders, or leases incurred in the ordinary course of business and not in
connection with the borrowing of money, (j) Liens granted as security for surety
or appeal bonds in connection with obtaining such bonds in the ordinary course
of business, (k) Liens resulting from any judgment or award that is not an Event
of Default hereunder, (l) Liens with respect to the Real Property Collateral
that are exceptions to the commitments for title insurance issued in connection
with the Mortgages, as accepted by Lender, (m) liens and security interests of
Ohio National Life Insurance Company on the Heathrow Facility to secure
Indebtedness to Ohio National Life Insurance Company permitted under Section 7.2
(c) hereof, and (n) with respect to any Real Property that is not part of the
Real Property Collateral, easements, rights of way, and zoning restrictions that
do not materially interfere with or impair the use or operation thereof.
Permitted Purchase Money Indebtedness -- means, as of any date of
determination, Purchase Money Indebtedness incurred after the Restatement Date
in an aggregate principal amount outstanding at any one time not in excess of
$500,000.
Person -- means an individual, partnership, corporation, limited liability
company, joint venture, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
PIK Notes -- means the promissory notes, in the form of Exhibit E hereto,
evidencing accrued interest on the Existing Notes for the period July 10, 2000
through and including March 31, 2002, issued to the Noteholders pursuant to
Section 4.2.
Plan -- means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
Pledge and Security Agreement -- that certain Pledge and Security Agreement
by and between the Company and the Collateral Agent and dated as of the
Restatement Date.
Prepayment Compensation Amount -- means, with respect to any Prepaid
Principal and the date of payment thereof (a "Payment Date"), an amount equal to
the excess (if any) of the Present Value of the Prepaid Cash Flows over the
amount of such Prepaid Principal, determined in respect of such Prepaid
Principal as of such Payment Date.
As used in this definition:
Prepaid Principal -- means any principal amount of Restated
Notes being paid (or otherwise retired) for any reason
(including, without limitation, acceleration, optional payment or
mandatory purchase required because of the occurrence of a
contingency) prior to its regularly scheduled maturity date;
provided, however, that only the aggregate principal amount paid
or retired in excess of $11,000,000 in the aggregate during the
period from the Restatement Date through September 26, 2003 shall
constitute Prepaid Principal.
Present Value of the Prepaid Cash Flows -- means the sum of
the present values of the then remaining required payments of
principal and interest that would have been payable in respect of
such Prepaid Principal but that are no longer payable as a result
of the early payment of such Prepaid Principal. In determining
such present values:
(a) the amount of interest accrued through and
including the day immediately preceding such Payment Date on
such Prepaid Principal since the scheduled interest payment
date immediately preceding such Payment Date shall be
deducted from the first of such payments of interest;
(b) each required principal payment shall be deemed payable on the
last date before which such payment would be overdue; and
(c) a discount rate per annum equal to the Make-Whole Discount Rate
determined with respect to such Prepaid Principal and such Payment Date
divided by four (4), and a discount period of three (3) months of thirty
(30) days each, shall be used.
Make-Whole Discount Rate -- means the sum of:
(a) one half of one percent (0.50%) per annum; and
(b) the per annum percentage rate (rounded to the nearest three (3)
decimal places) equal to the bond equivalent yield to maturity derived from
the Applicable Treasury Rate determined as of the date that is two (2)
Business Days prior to such Payment Date.
Applicable Treasury Rate -- means, at any time:
(a) the Bloomberg Rate;
(b) if the Bloomberg Financial Markets System is not then quoting
yields on United States government securities, then the Telerate Rate;
(c) if neither the Bloomberg Financial Markets System nor Telerate
Service is then quoting yields on United States government securities, then
the per annum yield reported on such other electronic quotation service
selected by the Company and agreed to by the Required Noteholders at 10:00
a.m. (New York time) on the second (2nd) Business Day preceding such
Payment Date for United States government securities having a maturity
(rounded to the nearest month) corresponding to the Weighted Average Life
to Maturity of such Prepaid Principal; and
(d) if neither the Bloomberg Financial Markets System nor Telerate
Service is then quoting yields on United States government securities and
the Company and the Required Noteholders cannot agree on another electronic
quotation service, then the Applicable H.15 Rate.
In each such case, If no such United States Treasury obligation with a
Treasury Constant Maturity corresponding exactly to such Weighted Average Life
to Maturity is listed, then the yields for the two (2) then most current
hypothetical United States Treasury obligations with Treasury Constant
Maturities most closely corresponding to such Weighted Average Life to Maturity
(one (1) with a longer maturity and one (1) with a shorter maturity, if
available) shall be calculated pursuant to the immediately preceding sentence
and the Make-Whole Discount Rate shall be interpolated or extrapolated from such
yields on a straight-line basis.
Applicable H.15 -- means, at any time, the United States Federal Reserve
Statistical Release H.15(519) then most recently published and available to the
public, or if such publication is not available, then any other source of
current information in respect of interest rates on securities of the United
States of America that is generally available and, in the judgment of the
Required Noteholders, provides information reasonably comparable to the
H.15(519) report.
Applicable H.15 Rate -- means, at any time, the then most current annual
yield to maturity of the hypothetical United States Treasury obligation listed
in the Applicable H.15 with a equal to the Weighted Average Life to Maturity of
such Prepaid Principal.
Bloomberg Rate -- means the per annum yield reported on the Bloomberg
Financial Markets System at 10:00 a.m. (New York time) on the second (2nd)
Business Day preceding such Payment Date for United States Treasury obligations
having a Treasury Constant Maturity corresponding to the Weighted Average Life
to Maturity of such Prepaid Principal. Page USD shall be used as the source of
such yields, or if not then available, such other screen available on the
Bloomberg Financial Markets System as shall, in the opinion of the Required
Noteholders, provide equivalent information.
Telerate Rate -- means the per annum yield reported on Bridge Telerate at
10:00 a.m. (New York time) on the second (2nd) Business Day preceding such
Payment Date for United States Treasury obligations having a Treasury Constant
Maturity (rounded to the nearest month) corresponding to the Weighted Average
Life to Maturity of such Prepaid Principal. Page 678 shall be used as the source
of such yields, or if not then available, such other screen available on the
Telerate Service as shall, in the opinion of the Required Noteholders, provide
equivalent information.
Treasury Constant Maturity -- has the meaning specified in the Applicable
H.15.
Weighted Average Life to Maturity -- means the number of years (calculated
to the nearest one-twelfth (1/12th)) obtained by dividing the Remaining
Dollar-Years of such Prepaid Principal by such Prepaid Principal, determined as
of such Payment Date.
Remaining Dollar-Years -- means the result obtained by:
(a) multiplying, in the case of each then remaining scheduled payment
of principal that would have been payable in respect of Prepaid Principal
but is no longer payable as a result of the payment of such Prepaid
Principal;
(i) an amount equal to such scheduled payment of principal;
by
(ii) the number of years (calculated to the nearest
one-twelfth) that will elapse between such Payment Date and the
date such scheduled principal payment would be due if such
Prepaid Principal had not been so prepaid; and
(b) calculating the sum of each of the products obtained in the
preceding subsection (a).
Projections -- means Borrower's and its Subsidiaries, consolidated and
consolidating forecasted (a) balance sheets, (b) profit and loss statements, and
(c) cash flow statements, all prepared on a basis consistent with Borrower's
historical financial statements, together with appropriate supporting details
and a statement of underlying assumptions.
Property -- means any interest in any kind of property or asset, whether
real, personal or mixed, and whether tangible or intangible.
Qualified Plan -- means a Pension Plan that is intended to be tax-qualified
under Section 401(a) of the IRC.
Reaffirmation of Guarantee -- Section 4.8 and Exhibit F-1 and F-2 hereto.
Release -- means any release, threatened release, spill, emission, leaking,
pumping, pouring, emitting, emptying, escape, injection, deposit, disposal,
discharge, dispersal, dumping, leaching or migration of Hazardous Material in
the indoor or outdoor environment, including the movement of Hazardous Material
through or in the air, soil, surface water, ground water or property.
Remedies -- means and includes, with respect to any Indebtedness:
(a) the acceleration of the maturity of any of such Indebtedness;
(b) the exercise of any put right or other similar right to require
the Company or any Subsidiary to repurchase any of such Indebtedness prior
to the stated maturity thereof;
(c) the collection or commencement of proceedings against the Company,
any Subsidiary or any other Person obligated on such Indebtedness or any of
their respective Property, to enforce or collect any of such Indebtedness;
(d) taking possession of or foreclosing upon (whether by judicial
proceedings or otherwise) any Liens or other collateral security for such
Indebtedness; or causing a marshalling of any Property of the Company or
any Subsidiary;
(e) the making of a demand in respect of any Guaranty given by the
Company or any Subsidiary of such Indebtedness;
(f) exercising any other remedies with respect to such Indebtedness or
any claim with respect thereto; or
(g) the taking of any action against the Company, any Subsidiary or an
other Person obligated on or for such Indebtedness, or any of their
respective assets, pursuant to the agreements governing such Indebtedness,
in connection with the collection of such Indebtedness or the enforcement
of the Liens, if any, securing such Indebtedness.
Required Noteholders -- means, at any time, the holders of sixty-six and
two-thirds percent (66-2/3%) in principal amount of the Restated Notes at the
time outstanding (exclusive of Restated Notes then owned by any one or more of
the Company, any Subsidiary or any Affiliate).
Restated Documents-- means the Restated Note Agreement and the Restated
Notes.
Restated Note Agreement -- has the meaning set forth in the introductory
paragraph of this Agreement.
Restated Notes -- has the meaning set forth in the Recitals of this
Agreement.
Restatement Date -- means October 3, 2002.
Rights -- means, with respect to any Person, any right, warrant, option or
other similar right to purchase or receive Capital Stock of such Person.
SEC -- means, at any time, the Securities and Exchange Commission or any
other federal agency at such time administering the Securities Act.
Securities Act -- means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Security -- means "security" as defined by section 2(1) of the Securities
Act.
Security Agreement -- means that certain Security Agreement by and between
the Company and the Collateral Agent and dated as of the Restatement Date.
Seller Note -- has the meaning set forth in Section 8.4.
Senior Credit Agreement -- means the Loan and Security Agreement, dated as
of October 3, 2002, among the Company and the Senior Lender, as amended from
time to time.
Senior Credit Documents -- means the Senior Credit Agreement and all other
agreements, instruments, documents and certificates executed in connection
therewith or executed and delivered to, or in favor of, the Senior Lender and
including all other pledges, powers of attorney, consents, assignments,
contracts, notices, and all other written matter whether heretofore, now or
hereafter executed by or on behalf of the Company or any of its Subsidiaries, or
any employee of the Company or any of its Subsidiaries, and delivered to the
Senior Lender in connection with the Senior Credit Agreement or the transactions
contemplated thereby, and including all appendices, exhibits or schedules
thereto, and all amendments, restatements, supplements or other modifications
thereto, as the same may be in effect at any and all times.
Senior Financial Officer -- means any one of the chief financial officer,
the treasurer and the principal accounting officer of the Company.
Senior Lender-- means Foothill Capital Corporation.
Senior Obligations -- means all loans, advances, debts, liabilities and
obligations for the performance of covenants, tasks or duties or for payment of
monetary amounts (whether or not such performance is then required or
contingent, or such amounts are liquidated or determinable) owing by the Company
or any of its Subsidiaries to the Senior Lender, and all covenants and duties
regarding such amounts, of any kind or nature, present or future, whether or not
evidenced by any note, agreement or other instrument, arising under the Senior
Credit Agreement or any of the other Senior Credit Documents. This term includes
all principal, interest (including all interest that accrues after the
commencement of any case or proceeding by or against the Company or any of its
Subsidiaries in bankruptcy, fees, Charges, expenses, attorneys' fees and any
other sum chargeable to the Company and any of its Subsidiaries under the Senior
Credit Agreement or any of the other Senior Credit Documents.
Senior Officer -- means any one of the chairman of the Board of Directors,
the chief executive officer, the chief operating officer, the chief financial
officer and the president, of the Company, and in addition, with respect to
Dixon Ticonderoga Inc., treasurer.
Specified Payment Date - has the meaning set forth in Section 5.3(b)
Stockholder -- means, with respect to any Person, each holder of Capital
Stock of such Person.
Subsidiary -- means, at any time, each corporation, association, limited
liability company or other business entity which qualifies as a Subsidiary of
the Company that is properly included in a consolidated financial statement of
the Company and its Subsidiaries in accordance with GAAP at such time.
Subsidiary Guaranties-- means the (i) Guarantee dated as of September 26,
1996 and executed by Dixon Ticonderoga, Inc., Dixon Europe, Limited, Dixon
Ticonderoga De Mexico, S.A. De C.V., Bryn Mawr Ocean Resorts Inc. and
Ticonderoga Graphite Inc., and (ii) Guarantee dated as of August 4, 2000 and
executed by Dixon Ticonderoga, Inc., Dixon Europe, Limited, Grupo Dixon, S.A. De
C.V. (formerly known as Dixon Ticonderoga Company De Mexico, S.A. De C.V.),
Vinci De Mexico, S.A. De C.V., Vinci Manufactura, S.A. De C.V., Comercializadora
Dixon, S.A. De C.V. Servidix, S.A. De C.V., Dixon Industrial Mexico, S.A. De
C.V., Dixon Ticonderoga De Mexico, S.A. De C.V. and Ticonderoga Graphite Inc.,
in each case as reaffirmed pursuant hereto.
Subsidiary Guarantors -- means, Dixon Ticonderoga Inc., Dixon Europe,
Limited, Grupo Dixon, S.A. de C.V., Dixon Comercializadora, S.A. de C.V.,
Servidix, S.A. de C.V., Dixon Ticonderoga de Mexico, S.A. de C.V., Dixon
Industrial Mexico, S.A. de C.V., Beijing Dixon Ticonderoga Stationery Company
Limited and Ticonderoga Graphite Inc., each sometimes referred to herein
individually as a Subsidiary Guarantor.
Tangible Net Worth -- means, as of any date of determination, the result of
(a) the Company's (on a consolidated basis with its Subsidiaries) total
stockholder's equity, minus (b) the sum of (i) all Intangible Assets of the
Company (on a consolidated basis with its Subsidiaries), (ii) all of the
Company's prepaid expenses (on a consolidated basis with its Subsidiaries) and
(iii) all amounts due to the Company from Affiliates, plus (c) other
comprehensive loss items, minus (d) other comprehensive income items.
Target Payment -- means, at any time with respect to any period beginning
on October 3, 2002 and ending on a date set forth below (each, a "Target
Period"), an aggregated principal amount paid in respect of the Restated Notes
equal to the US Dollar amount set forth opposite such Target Period:
--------------------------------------------------------------------
Target Period Ending Date: Target Payment:
--------------------------------------------------------------------
December 31, 2002 $1,500,000
--------------------------------------------------------------------
December 31, 2003 $3,500,000
--------------------------------------------------------------------
December 31, 2004 $5,500,000
--------------------------------------------------------------------
October 3, 2005 $6,500,000
--------------------------------------------------------------------
Target Period -- is defined in the definition of "Target Payment" in this
Section 11.1.
Taxes -- means taxes, levies, imposts, deductions, Charges or withholdings,
and all liabilities with respect thereto, excluding taxes imposed on or measured
by net income or gross receipts by the jurisdictions under the laws of which the
Senior Lenders and the holders of the Restated Notes are organized or in which
the Senior Lenders and the holders of the Restated Notes are doing business or
by any political subdivision thereof.
Title IV Plan -- means a Pension Plan (other than a Multiemployer Plan)
that is covered by Title IV of ERISA and that the Company, any of its
Subsidiaries or ERISA Affiliate maintains, contributes to or has an obligation
to contribute to on behalf of participants who are or were employed by any of
them.
Trademark Collateral Security Agreement -- means that certain Trademark
Collateral Security Agreement by and between the Company and the Collateral
Agent and dated as of the Restatement Date.
Transaction Documents means and includes this Agreement, the Restated
Notes, the 2.5% Warrants, the 9.5% Warrants, each Collateral Document, and all
other documents, certificates and instruments to be executed pursuant to the
terms of the foregoing, as each may be amended, restated or otherwise modified
from time to time.
Warrants means the 2.5% Warrants, the 9.5% Warrants, and the Existing
Warrants.
11.2 Accounting Principles.
(a) Generally. Unless otherwise provided herein, all financial
statements delivered in connection herewith will be prepared in accordance
with GAAP. Where the character or amount of any asset or liability or item
of income or expense, or any consolidation or other accounting computation
is required to be made for any purpose hereunder, it shall be done in
accordance with GAAP; provided, however, that if any term defined herein
includes or excludes amounts, items or concepts that would not be included
in or excluded from such term if such term were defined with reference
solely to GAAP, such term will be deemed to include or exclude such
amounts, items or concepts as set forth herein.
(b) Consolidation. Whenever accounting amounts of a group of Persons
are to be determined "on a consolidated basis" it shall mean that, as to
balance sheet amounts to be determined as of a specific time, the amount
that would appear on a consolidated balance sheet of such Persons prepared
as of such time, and as to income statement amounts to be determined for a
specific period, the amount that would appear on a consolidated income
statement of such Persons prepared in respect of such period, in each case
with all transactions among such Persons eliminated, and prepared in
accordance with GAAP except as otherwise required hereby.
(c) Currency. With respect to any determination, consolidation or
accounting computation required hereby, any amounts not denominated in the
currency in which this Agreement specifies shall be converted to such
currency in accordance with the requirements of GAAP (as such requirements
relate to such determination, consolidation or computation) and, if no such
requirements shall exist, converted to such currency in accordance with
normal banking procedures, at the closing rate as reported in The Wall
Street Journal published most recently as of the date of such
determination, consolidation or computation or, if no such quotation shall
then be available, as quoted on such date by any bank or trust company
reasonably acceptable to the Required Noteholders.
11.3 Directly or Indirectly.
Where any provision herein refers to action to be taken by any Person, or
which such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person, including
actions taken by or on behalf of any partnership in which such Person is a
general partner.
11.4 Section Headings and Table of Contents and Construction.
(a) Section Headings and Table of Contents, etc. The titles of the
Sections of this Agreement and the Table of Contents of this Agreement
appear as a matter of convenience only, do not constitute a part hereof and
shall not affect the construction hereof. The words "herein," "hereof,"
"hereunder" and "hereto" refer to this Agreement as a whole and not to any
particular Section or other
subdivision. References to Sections are, unless otherwise specified,
references to Sections of this Agreement. References to Annexes and
Exhibits are, unless otherwise specified, references to Annexes and
Exhibits attached to this Agreement.
(b) Independent Construction. Each covenant contained herein shall be
construed (absent an express contrary provision herein) as being
independent of each other covenant contained herein, and compliance with
any one covenant shall not (absent such an express contrary provision) be
deemed to excuse compliance with one or more other covenants.
11.5 Governing Law.
THIS AGREEMENT AND THE RESTATED NOTES SHALL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. IN
ADDITION, THE PARTIES HERETO SELECT, TO THE EXTENT THEY MAY LAWFULLY DO SO, THE
INTERNAL LAWS OF THE STATE OF NEW YORK AS THE APPLICABLE INTEREST LAW.
11.6 General Interest Provisions.
It is the intention of the Company and the Noteholders to conform strictly
to the Applicable Interest Law. Accordingly, it is agreed that, notwithstanding
any provisions to the contrary in this Agreement or in the Restated Notes, the
aggregate of all interest, and any other charges or consideration constituting
interest under the Applicable Interest Law that is taken, reserved, contracted
for, charged or received pursuant to this Agreement or the Restated Notes shall
under no circumstances exceed the maximum amount of interest allowed by the
Applicable Interest Law. If any such excess interest is ever charged, received
or collected on account of or relating to this Agreement and the Restated Notes
(including any charge or amount which is not denominated as "interest" but is
legally deemed to be interest under Applicable Interest Law), then in such
event:
(a) the provisions of this Section 11.6 shall govern and control;
(b) the Company shall not be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum amount of
interest allowed by the Applicable Interest Law;
(c) any excess shall be deemed a mistake and cancelled automatically
and, if theretofore paid, shall be credited to the principal amount of the
Restated Notes by the holders thereof, and if the principal balance of the
Restated Notes is paid in full, any remaining excess shall be forthwith
paid to the Company; and
(d) the effective rate of interest shall be automatically subject to
reduction to the Maximum Legal Rate of Interest.
If at any time thereafter, the Maximum Legal Rate of Interest is increased,
then, to the extent that it shall be permissible under the Applicable Interest
Law, the Company shall forthwith pay to the holders of the Restated Notes, on a
pro rata basis, all amounts of such excess interest that the holders of the
Restated Notes would have been entitled to receive pursuant to the terms of this
Agreement and the Restated Notes had such increased Maximum Legal Rate of
Interest been in effect at all times when such excess interest accrued. To the
extent permitted by the Applicable Interest Law, all sums paid or agreed to be
paid to the holders of the Restated Notes for the use, forbearance or detention
of the indebtedness evidenced thereby shall be amortized, prorated, allocated
and spread throughout the full term of the Restated Notes.
12. Miscellaneous
12.1 Communications.
(a) Method; Address. All communications hereunder or under the
Restated Notes shall be in writing and shall be delivered either by
nationwide overnight courier or by facsimile transmission (confirmed by
delivery by nationwide overnight courier sent on the day of the sending of
such facsimile transmission). Communications to the Company shall be
addressed as set forth on Annex 2, or at such other address of which the
Company shall have notified each holder of Restated Notes. Communications
to the holders of the Restated Notes shall be addressed as set forth on
Annex 1 by such holder, or at such other address of which such holder shall
have notified the Company (and the Company shall record such address in the
register for the registration and transfer of Restated Notes maintained
pursuant to Section 6.1).
(b) When Given. Any communication addressed and delivered as herein
provided shall be deemed to be received when actually delivered to the
address of the addressee (whether or not delivery is accepted) or received
by the telecopy machine of the recipient. Any communication not so
addressed and delivered shall be ineffective.
(c) Service of Process. Notwithstanding the foregoing provisions of
this Section 12, service of process in any suit, action or proceeding
arising out of or relating to this agreement or any document, agreement or
transaction contemplated hereby, or any action or proceeding to execute or
otherwise enforce any judgment in respect of any breach hereunder or under
any document or agreement contemplated hereby, shall be delivered in the
manner provided in Section 12.7(c).
12.2 Reproduction of Documents.
This Agreement and all documents relating hereto, including, without
limitation, consents, waivers and modifications that may hereafter be executed,
documents received by you at the closing of your purchase of the Restated Notes
(except the Restated Notes themselves and the Warrants), and financial
statements, certificates and other information previously or hereafter furnished
to any holder of Restated Notes, may be reproduced by the Company or any holder
of Restated Notes by any photographic, photostatic, microfilm, micro-card,
miniature photographic, digital or other similar process and each holder of
Restated Notes may destroy any original document so reproduced. Any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by the Company or such
holder of Restated Notes in the regular course of business) and any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence. Nothing in this Section 12.2 shall prohibit the Company
or any holder of Restated Notes from contesting the accuracy or validity of any
such reproduction.
12.3 Survival; Entire Agreement.
All warranties, representations, certifications and covenants contained
herein or in any certificate or other instrument delivered hereunder shall be
considered to have been relied upon by the other parties hereto and shall
survive the delivery to you of the Restated Notes regardless of any
investigation made by or on behalf of any party hereto. All statements in any
certificate or other instrument delivered pursuant to the terms hereof shall
constitute warranties and representations hereunder. All obligations hereunder
(other than payment of the Restated Notes, but including, without limitation,
reimbursement obligations in respect of costs, expenses and fees) shall survive
the payment of the Restated Notes and the termination hereof. Subject to the
preceding sentence, this Agreement, the Restated Notes and the other Transaction
Documents embody the entire agreement and understanding among the Company and
the Noteholders, and supersede all prior agreements and understandings, relating
to the subject matter hereof.
12.4 Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto. The provisions hereof are
intended to be for the benefit of all holders, from time to time, of Restated
Notes, and shall be enforceable by any such holder whether or not an express
assignment to such holder of rights hereunder shall have been made by you or
your successor or assign. Anything contained in this Section 12.4
notwithstanding, the Company may not assign any of its respective rights, duties
or obligations hereunder or under any of the other Transaction Documents without
the prior written consent of all holders of Restated Notes.
12.5 Amendment and Waiver.
(a) Requirements. This Agreement may be amended, and the observance of
any term hereof may be waived, with (and only with) the written consent of
the Company and the Required Noteholders; provided, however, that no such
amendment or waiver shall, without the written consent of the holders of
all Restated Notes (exclusive of Restated Notes held by the Company, any
Subsidiary or any Affiliate) at the time outstanding;
(i) change the amount or time of any prepayment or payment
of principal or Prepayment Compensation Amount or reduce the rate
of interest or decrease the frequency of interest payments;
(ii) amend or waive the provisions of Section 10.1, Section
6.2, Section 10.3 or amend or waive any defined term to the
extent used therein;
(iii) amend or waive the definition of "Required
Noteholders;" or
(iv) amend or waive this Section 9.5 or amend or waive any
defined term to the extent used herein.
The holder of any Restated Note may specify that any such written consent
executed by it shall be effective only with respect to a portion of the
Restated Notes held by it (in which case it shall specify, by dollar
amount, the aggregate principal amount of Restated Notes with respect to
which such consent shall be effective) and in the event of any such
specification such holder shall be deemed to have executed such written
consent only with respect to the portion of the Restated Notes so
specified.
(b) Solicitation of Noteholders.
(i) Solicitation. Each holder of the Restated Notes
(irrespective of the amount of Restated Notes then owned by it)
shall be provided by the Company with all material information
provided by the Company to any other holder of Restated Notes
with respect to any proposed waiver or amendment of any of the
provisions hereof or the Restated Notes. Executed or true and
correct copies of any amendment or waiver effected pursuant to
the provisions of this Section 12.5 shall be delivered by the
Company to each holder of outstanding Restated Notes forthwith
following the date on which such amendment or waiver becomes
effective.
(ii) Payment. The Company shall not, nor shall any
Subsidiary or Affiliate, directly or indirectly, pay or cause to
be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to
any holder of Restated Notes as consideration for or as an
inducement to the entering into by any holder of Restated Notes
of any waiver or amendment of any of the provisions hereof or of
the Restated Notes unless such remuneration is concurrently paid,
or security is concurrently granted, on the same terms, ratably
to the holders of all Restated Notes then outstanding.
(iii) Scope of Consent. Any amendment or waiver made
pursuant to this Section 9.5 by a holder of Restated Notes that
has transferred or has agreed to transfer its Restated Notes to
the Company or any Subsidiary or Affiliate of the Company and has
provided or has agreed to provide such amendment or waiver as a
condition to such transfer shall be void and of no force and
effect except solely as to such holder, and any amendments
effected or waivers granted that would not have been or would not
be so effected or granted but for such amendment or waiver (and
the amendments or waivers of all other holders of Restated Notes
that were acquired under the same or similar conditions) shall be
void and of no force and effect, retroactive to the date such
amendment or waiver initially took or takes effect, except solely
as to such holder.
(iv) Binding Effect. Except as provided in Section
9.5(b)(iii), any amendment or waiver consented to as provided in
this Section 9.5 shall apply equally to all holders of Restated
Notes and shall be binding upon them and upon each future holder
of any Restated Note and upon the Company whether or not such
Restated Note shall have been marked to indicate such -amendment
or waiver. No such amendment or waiver shall extend to or affect
any obligation, covenant, agreement, Default or Event of Default
not expressly amended or waived or impair any right consequent
thereon.
12.6 Expenses.
(a) Transaction Expenses. The Company shall pay, at the closing of the
transactions contemplated by this Agreement, all reasonable fees, expenses
and costs incurred by the Noteholders relating hereto, including, without
limitation, the initial setup fee and first year fee of the Collateral
Agent and fees and disbursements of the Noteholders' special counsel. The
Company shall also pay each additional statement for reasonable fees and
expenses (promptly upon receipt thereof) of their special counsel rendered
after such closing in connection with the Transaction Documents and the
transactions contemplated thereby.
(b) Amendments and Waivers. The Company shall pay when billed the
reasonable costs and expenses (including reasonable attorneys' fees)
incurred by the holders of the Restated Notes in connection with the
consideration, negotiation, preparation or execution of any amendments,
waivers, consents, standstill agreements and other similar agreements with
respect to this Agreement or any other Transaction Document (whether or not
any such amendments, waivers, consents, standstill agreements or other
similar agreements are executed).
(c) Restructuring and Workout, Inspections. At any time when the
Company and the holders of Restated Notes are conducting restructuring or
workout negotiations in respect hereof, or a Default or Event of Default
exists, the Company shall pay when billed the reasonable costs and expenses
(including reasonable attorneys' fees and the fees of professional
advisors) incurred by the holders of the Restated Notes in connection with
the assessment, analysis or enforcement of any rights or remedies that are
or may be available to the holders of Restated Notes, including, without
limitation, in connection with inspections made pursuant to Section 6.4;
provided, however, that at all other times inspections will be at the
expense of the inspecting holder of Restated Notes.
(d) Collection. If the Company shall fail to pay when due any
principal of, or Prepayment Compensation Amount or interest on, any
Restated Note, the Company shall pay to each holder of Restated Notes, to
the extent permitted by law, such amounts as shall be sufficient to cover
the costs and expenses, including but not limited to reasonable attorneys'
fees, incurred by such holder in collecting any sums due on such Restated
Note.
12.7 Waiver of Jury Trial; Consent to Jurisdiction; Etc.
(a) Waiver of Jury Trial. THE PARTIES HERETO VOLUNTARILY AND INTENTIONALLY
WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF
THE DOCUMENTS, AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY.
(b) Consent to Jurisdiction. ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THIS AGREEMENT, OR ANY OF THE DOCUMENTS, AGREEMENTS OR
TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION OR PROCEEDING TO EXECUTE OR
OTHERWISE ENFORCE ANY JUDGMENT IN RESPECT OF ANY BREACH UNDER THIS AGREEMENT OR
ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY MAY BE BROUGHT BY SUCH PARTY IN
ANY FEDERAL DISTRICT COURT LOCATED IN NEW YORK CITY, NEW YORK, OR ANY NEW YORK
STATE COURT LOCATED IN NEW YORK CITY, NEW YORK AS SUCH PARTY MAY IN ITS SOLE
DISCRETION ELECT, AND BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMIT TO THE NON-EXCLUSIVE IN
PERSONAM JURISDICTION OF EACH SUCH COURT, AND EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES AND AGREES NOT TO ASSERT IN ANY PROCEEDING BEFORE ANY
TRIBUNAL, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, ANY CLAIM THAT IT IS NOT
SUBJECT TO THE IN PERSONAM JURISDICTION OF ANY SUCH COURT. IN ADDITION, EACH OF
THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY BROUGHT IN ANY SUCH
COURT, AND HEREBY IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) Service of Process. EACH PARTY HERETO IRREVOCABLY AGREES THAT PROCESS
PERSONALLY SERVED OR SERVED BY U.S. REGISTERED MAIL AT THE ADDRESSES PROVIDED
HEREIN FOR NOTICES SHALL CONSTITUTE, TO THE EXTENT PERMITTED BY LAW, ADEQUATE
SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY DOCUMENT, AGREEMENT OR TRANSACTION CONTEMPLATED HEREBY,
OR ANY ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT IN
RESPECT OF ANY BREACH HEREUNDER OR UNDER ANY DOCUMENT OR AGREEMENT CONTEMPLATED
HEREBY. RECEIPT OF PROCESS SO SERVED SHALL BE CONCLUSIVELY PRESUMED AS EVIDENCED
BY A DELIVERY RECEIPT FURNISHED BY THE UNITED STATES POSTAL SERVICE OR ANY
COMMERCIAL DELIVERY SERVICE.
(d) Other Forums. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE
ABILITY OF ANY HOLDER OF RESTATED NOTES TO SERVE ANY WRITS, PROCESS OR SUMMONSES
IN ANY MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER THE
COMPANY IN SUCH OTHER JURISDICTION, AND IN SUCH OTHER MANNER, AS MAY BE
PERMITTED BY APPLICABLE LAW.
12.8 Execution in Counterpart.
This Agreement may be executed in one or more counterparts and shall be
effective when at least one counterpart shall have been executed by each party
hereto, and each set of counterparts that, collectively, show execution by each
party hereto shall constitute one duplicate original.
[Remainder of page intentionally blank. Next page is signature page]
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered by one of its duly authorized officers or
representatives.
DIXON TICONDEROGA COMPANY
By: /s/ Richard A. Asta
-------------------------------
Name: Richard A. Asta
Title: Treasurer
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By: /s/ James Pendergast
-------------------------------
Name: James Pendergast
JOHN HANCOCK LIFE INSURANCE
COMPANY
By: /s/ Gary Pelletier
-------------------------------
Name: Gary Pelletier
SIGNATURE 1A (CAYMAN), LTD.
By: John Hancock Life Insurance Company,
as Portfolio Advisor
By: /s/ Gary Pelletier
-------------------------------
Name: Gary Pelletier