EXHIBIT 10.2
On September 16, 1998, the Company entered into Note Purchase Agreements
with four separate entities. The Note Purchase Agreement between Converse and
Foothill Partners III, L.P. dated September 16, 1998 is attached hereto. The
following three Note Purchase Agreements have been omitted as exhibits in
accordance with Item 601, Instruction 2, of Regulation S-K, and are identical on
all material respects, except for the parties thereto and the differences set
forth below:
1. Note Purchase Agreement dated September 16, 1998 between the Company
and BIII Capital Partners, L.P.
A. Aggregate principal amount of Series A Secured Notes Purchased:
$6,311,920.
▇. ▇▇▇▇▇▇▇▇▇ Principal Amount of Series B Secured Notes Purchased:
$2,306,700.
C. Shares of Common Stock Purchasable upon exercise of warrants:
91,412.
▇. ▇▇▇▇ payable to purchaser in connection with the sale of Secured
Notes: $0.
2. Note Purchase Agreement dated September 16, 1998 between the Company
and DDJ Canadian High Yield Fund
▇. ▇▇▇▇▇▇▇▇▇ principal amount of Series A Secured Notes Purchased:
$4,045,408.
▇. ▇▇▇▇▇▇▇▇▇ Principal Amount of Series B Secured Notes Purchased:
$1,478,400.
C. Shares of Common Stock Purchasable upon exercise of warrants:
58,588.
▇. ▇▇▇▇ payable to purchaser in connection with the sale of Secured
Notes: $0.
3. Note Purchase Agreement dated September 16, 1998 between the Company
and Libra Investments, Inc.
▇. ▇▇▇▇▇▇▇▇▇ principal amount of Series A Secured Notes Purchased:
$4,142,931.
▇. ▇▇▇▇▇▇▇▇▇ Principal Amount of Series B Secured Notes Purchased:
$0.
C. Shares of Common Stock Purchasable upon exercise of warrants:
60,000.
▇. ▇▇▇▇ payable to purchaser in connection with the sale of Secured
Notes: $100,000.
EXHIBIT 10.2
================================================================================
CONVERSE INC.
$28,642,687
15% SENIOR SECURED NOTES
--------------------------
NOTE PURCHASE AGREEMENT
--------------------------
DATED AS OF SEPTEMBER 16, 1998
================================================================================
TABLE OF CONTENTS
SECTION PAGE
------ ----
1. THE SECURED NOTES........................................................................................................ 5
1.1. Authorization of Secured Notes....................................................................................... 5
1.2. Interest on the Secured Notes........................................................................................ 5
1.3. Initial Maturity Date; First Extended Maturity Date; Final Maturity Date............................................. 6
2. ▇▇▇▇ AND PURCHASE OF SECURED NOTES....................................................................................... 6
3. CLOSING.................................................................................................................. 7
4. CONDITIONS TO CLOSING.................................................................................................... 7
4.1. Representations and Warranties....................................................................................... 7
4.2. Performance; No Default.............................................................................................. 7
4.3. Documents Required................................................................................................... 8
4.4. Opinions of Counsel.................................................................................................. 9
4.5. Purchase Permitted by Applicable Law, etc............................................................................ 9
4.6. No Litigation or Other Proceedings................................................................................... 9
4.7. Sale of Other Secured Notes.......................................................................................... 10
4.8. No Material Adverse Change........................................................................................... 10
4.9. No Material Adverse Change to Financial Markets...................................................................... 10
4.10. Fees and Expenses................................................................................................... 10
4.11. Ancillary Documents and Perfection of Security Interest............................................................. 10
4.12. Revolving Credit Agreement.......................................................................................... 11
4.13. Proceedings and Documents........................................................................................... 11
4.14. Warrant Agreement and the Warrants.................................................................................. 11
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................................ 11
5.1. Corporate Existence; Qualification; Power; Licenses and Permits...................................................... 11
5.2. Corporate and Governmental Authorization; Contravention.............................................................. 12
5.3. Binding Effect....................................................................................................... 12
5.4. Information.......................................................................................................... 12
5.5. Litigation and Judgments............................................................................................. 13
5.6. Compliance with ERISA................................................................................................ 13
5.7. Taxes................................................................................................................ 14
5.8. Subsidiaries......................................................................................................... 15
5.9. Not an Investment Company............................................................................................ 15
5.10. No Conflicting Requirements......................................................................................... 15
5.11. Debt................................................................................................................ 16
5.12. Title to Properties and Assets...................................................................................... 16
5.13. Compliance with Law................................................................................................. 17
5.14. Compliance with Environmental Laws.................................................................................. 18
5.15. Security Interests and Liens; Inventory and Equipment............................................................... 19
5.16. Labor Relations..................................................................................................... 19
5.17. UCC Filing Information.............................................................................................. 20
5.18. Solvency............................................................................................................ 20
5.19. Fictitious Business Names........................................................................................... 20
i
5.20. Use of Proceeds..................................................................................................... 21
5.21. Margin Security..................................................................................................... 21
5.22. Survival of Representations......................................................................................... 21
5.23. Affiliate Transactions.............................................................................................. 21
5.24. Accuracy and Completeness of Information............................................................................ 21
5.25. Status of Accounts.................................................................................................. 22
6. REPRESENTATIONS OF THE PURCHASER......................................................................................... 22
6.1. Purchase for Investment.............................................................................................. 22
6.2. Source of Funds...................................................................................................... 22
6.3. Placement Agent...................................................................................................... 23
7. PREPAYMENT OF THE SECURED NOTES.......................................................................................... 24
7.1. Voluntary Prepayments................................................................................................ 24
7.2. Mandatory Prepayments................................................................................................ 24
7.3. Allocation of Partial Prepayments.................................................................................... 25
7.4. Maturity; Surrender, etc............................................................................................. 25
7.5. Purchase of Secured Notes............................................................................................ 26
8. AFFIRMATIVE COVENANTS.................................................................................................... 26
8.1. Information.......................................................................................................... 26
8.2. Payment of Obligations............................................................................................... 28
8.3. Maintenance of Property; Insurance................................................................................... 29
8.4. Compliance with Laws................................................................................................. 30
8.5. Inspection of Property, Books and Records; Change of Name, Principal Place of Business, Location of Collateral, Etc.. 30
8.6. Compliance with Note Documents....................................................................................... 31
8.7. Covenant to Mortgage After-Acquired Property......................................................................... 31
8.8. Corporate Existence.................................................................................................. 32
8.9. ERISA................................................................................................................ 32
8.10. Environmental Matters............................................................................................... 34
8.11. Collateral Records.................................................................................................. 35
8.12. Security Interests.................................................................................................. 35
8.13. Taxes............................................................................................................... 36
8.14. Collection of Accounts.............................................................................................. 36
8.15. Notice; Credit Memoranda; Returned Goods............................................................................ 37
8.16. Trademarks.......................................................................................................... 37
8.17. Patents............................................................................................................. 37
9. NEGATIVE COVENANTS....................................................................................................... 37
9.1. Debt and Guarantees.................................................................................................. 38
9.2. Restricted Payments.................................................................................................. 39
9.3. Investments.......................................................................................................... 39
9.4. Negative Pledge...................................................................................................... 40
9.5. Consolidations, Mergers and Sales of Assets.......................................................................... 41
9.6. Capital Expenditures................................................................................................. 42
9.7. Minimum EBITDA....................................................................................................... 43
9.8. Transactions with Affiliates......................................................................................... 44
9.9. Restrictions on Foreign Subsidiary Support........................................................................... 44
ii
9.10. Environmental Matters............................................................................................... 45
9.11. Amendments to Certificates of Incorporation and By-Laws and Revolving Credit Agreement.............................. 45
9.12. No Prohibited Transactions Under ERISA.............................................................................. 45
9.13. No Additional Bank Accounts......................................................................................... 46
9.14. No Additional Subsidiaries.......................................................................................... 46
10. EVENTS OF DEFAULT....................................................................................................... 47
10.1. Events of Default................................................................................................... 47
10.2. Acceleration........................................................................................................ 49
10.3. Remedies on Default................................................................................................. 50
11. REGISTRATION; EXCHANGE; SUBSTITUTION OF SECURED NOTES................................................................... 51
11.1. Registration of Secured Notes....................................................................................... 52
11.2. Transfer and Exchange of Secured Notes.............................................................................. 52
11.3. Replacement of Secured Notes........................................................................................ 53
12. PAYMENTS ON SECURED NOTES............................................................................................... 53
13. EXPENSES AND INDEMNIFICATION............................................................................................ 54
13.1. Transaction Expenses................................................................................................ 54
13.2. Indemnification..................................................................................................... 54
13.3. Survival............................................................................................................ 56
14. ENTIRE AGREEMENT........................................................................................................ 56
15. AMENDMENT AND WAIVER.................................................................................................... 56
15.1. Requirements........................................................................................................ 56
15.2. Solicitation of Holders of Secured Notes............................................................................ 57
15.3. Binding Effect, etc................................................................................................. 57
15.4. Secured Notes Held by Company, Etc.................................................................................. 57
16. NOTICES................................................................................................................. 58
17. REPRODUCTION OF DOCUMENTS............................................................................................... 58
18. CONFIDENTIAL INFORMATION................................................................................................ 59
19. SUBSTITUTION OF PURCHASER............................................................................................... 60
20. MISCELLANEOUS........................................................................................................... 60
20.1. Successors and Assigns.............................................................................................. 60
20.2. Payments Due on Non-Business Days................................................................................... 60
20.3. Satisfaction Requirement............................................................................................ 60
20.4. Severability........................................................................................................ 61
20.5. Construction........................................................................................................ 61
20.6. Counterparts........................................................................................................ 61
20.7. Governing Law....................................................................................................... 61
20.8. Consent to Jurisdiction; Release of Collateral...................................................................... 61
20.9. Waiver of Jury Trial................................................................................................ 63
iii
SCHEDULES
---------
Schedule I - Information Relating to the Purchasers
Schedule II - Defined Terms
Schedule 5.5 - Litigation and Judgments
Schedule 5.6 - Compliance with ERISA
Schedule 5.7 - Taxes
Schedule 5.8 - Subsidiaries
Schedule 5.12(a) - Real Property Owned and Leased
Schedule 5.12(b) - Patents and Trademarks
Schedule 5.14 - Compliance with Environmental Laws
Schedule 5.15 - Security Interests and Liens; Inventory and
Equipment
Schedule 5.17 - UCC Filing Information
Schedule 5.19 - Fictitious Business Names
Schedule 5.23 - Affiliate Transactions
Schedule 9.1 - Debt and Guarantees
Schedule 9.3 - Investments
Schedule 9.13 - Bank Accounts
EXHIBITS
--------
Exhibit A - Form of Secured Note
Exhibit B - Form of Security Agreement
Exhibit C - Form of Trademark Security Agreement
Exhibit D - Form of Patent Security Agreement
Exhibit E - Form of Pledge Agreement
Exhibit F - Form of Opinion of Counsel to the Company
Exhibit G - Form of Opinion of Special Counsel to the Company
Exhibit H - Form of Compliance Certificate
iv
CONVERSE INC.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
15% SENIOR SECURED NOTES
As of September 16, 1998
TO EACH OF THE PURCHASERS LISTED
ON THE ATTACHED SCHEDULE I:
Ladies and Gentlemen:
Converse Inc., a Delaware corporation (the "COMPANY"), agrees with
you, as "PURCHASER", as follows:
1. THE SECURED NOTES.
1.1. AUTHORIZATION OF SECURED NOTES.
The Company will authorize the issue and sale of $28,642,687 aggregate
principal amount of its 15% Senior Secured Notes due September 16, 2000 (the
"INITIAL MATURITY DATE"), as such due date may be extended as provided in
Section 1.3 hereof (the Notes delivered pursuant to Section 2 of this Agreement
and the Other Agreements (as hereinafter defined) and any such Note issued in
substitution therefor pursuant to Section 11 of this Agreement being,
collectively, the "SECURED NOTES"). The Secured Notes shall be issued in two
series: Series A will be in the aggregate principal amount of $24,857,587 (the
"SERIES A SECURED NOTES") and Series B will be in the aggregate principal amount
of $3,785,100 (the "SERIES B SECURED NOTES"). The Secured Notes shall be
substantially in the form set out in Exhibit A, with such changes therefrom, if
any, as may be approved by Purchaser and the Company. Certain capitalized terms
used in this Agreement are defined in Schedule II; references to a "Schedule" or
an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit
attached to this Agreement.
1.2. INTEREST ON THE SECURED NOTES.
The Company shall pay interest on the unpaid principal amount of the
Secured Notes from their respective date of issuance until such Secured Notes
are paid in full at a rate of 15% per annum, payable in arrears quarterly on
March 31, June 30, September 30 and December 31 of each year beginning on the
first such date after the respective date of issuance and on the Initial
Maturity Date (unless one or two elections have been made by the Company under
Section 1.3 hereof, in which case, and on the First Extended Maturity Date or
the Final Maturity Date, as
the case may be), provided that upon the occurrence and during the continuance
of any Event of Default, interest shall accrue on the unpaid principal amount of
the Secured Notes at a rate of 18% per annum and shall be payable from time to
time on such quarterly dates or, at the option of the Purchaser, on demand.
Interest on the Secured Notes shall be computed on the basis of a 360-day year
for the actual number of days (including the first day but excluding the last
day) occurring in the period for which such interest is payable.
1.3. INITIAL MATURITY DATE; FIRST EXTENDED MATURITY DATE; FINAL MATURITY DATE.
The Secured Notes shall be due and payable in full on the Initial
Maturity Date, provided, that not less than 60 days, and not more than 90 days,
--------
prior to the Initial Maturity Date, the Company, at its option and provided that
no Default or Event of Default is continuing at the time of such notice or of
the contemplated extension thereunder, may elect to extend the maturity date of
the Secured Notes by twelve (12) months by giving written notice to the Agent
and to the holders of the Secured Notes that the Company intends to make such an
extension to such extended maturity date (the "FIRST EXTENDED MATURITY DATE")
and the Initial Maturity Date shall be extended to the First Extended Maturity
Date provided that on or before the Initial Maturity Date the Company shall have
paid to each holder of the Secured Notes an additional amount equal to 3% of the
then outstanding principal amount of the Secured Notes held by such holder. In
addition, not less than 60 days, and not more than 90 days, prior to the First
Extended Maturity Date, the Company, at its option and provided that no Default
or Event of Default is continuing at the time of such notice or of the
contemplated extension thereunder, may elect to extend the maturity date of the
Secured Notes to May 21, 2002 (the "FINAL MATURITY DATE") by giving written
notice to the holders of the Secured Notes that it intends to make such an
extension and the First Extended Maturity Date shall be extended to the Final
Maturity Date provided that on or before the First Extended Maturity Date the
Company shall have paid to each holder of Secured Notes an additional amount
equal to 3% of the then outstanding principal amount of the Secured Notes held
by such holder.
2. SALE AND PURCHASE OF SECURED NOTES.
Subject to the terms and conditions of this Agreement, the Company
will issue and sell to Purchaser and Purchaser will purchase from the Company,
at the Closing provided for in Section 3, Series A Secured Notes in the
principal amount specified opposite Purchaser's name on Schedule I at the
purchase price of 96.55% of the principal amount thereof. Contemporaneously
with entering into this Agreement, the Company is entering into separate Note
Purchase Agreements (the "OTHER AGREEMENTS") substantially identical to this
Agreement with each of the other purchasers named in Schedule I (the "OTHER
PURCHASERS" and, together with the Purchaser, the "PURCHASERS"), providing for
the sale at such Closing to each of the Other Purchasers of Series A Secured
Notes in the principal amount specified opposite its name on Schedule I and for
the sale of the Series B Secured Notes in the principal amount of $3,785,100.
Purchaser's obligation hereunder and the obligations of the Other Purchasers
under the Other Agreements are several and not joint obligations and Purchaser
shall have no
obligation under any Other Agreement and no liability to any Person for the
performance or nonperformance by any Other Purchaser thereunder.
3. CLOSING.
The sale and purchase of the Series A Secured Notes and the sale and
purchase of the Series B Secured Notes to be purchased by the Purchasers shall
occur at the offices of Shearman & Sterling, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m., New York City time, at a closing (the "CLOSING") on
September 17, 1998 or on such other Business Day thereafter on or prior to
September 30, 1998 as may be agreed upon by the Company and the Purchasers (the
"CLOSING DATE"). At the Closing the Company will deliver to Purchaser the
Series A Secured Notes to be purchased by Purchaser in the form of a single
Secured Note (or such greater number of Secured Notes in denominations of at
least $500,000 as Purchaser may request) dated the Closing Date and registered
in Purchaser's name (or in the name of Purchaser's nominee), against delivery in
the case of the Series A Secured Notes to the Company or its order of
immediately available funds in the amount of the purchase price therefor by wire
transfer of immediately available funds for the account of the Company to such
account or accounts in the United States as shall be designated in writing by
the Company to the Purchaser and in the case of the Series B Secured Notes to
the Company of Subordinated Notes in the aggregate principal amount of
$5,735,000. If at the Closing the Company shall fail to tender such Secured
Notes to Purchaser as provided above in this Section 3, or any of the conditions
specified in Section 4 shall not have been fulfilled to Purchaser's
satisfaction, Purchaser shall, at Purchaser's election, be relieved of all
further obligations under this Agreement, without thereby waiving any rights
Purchaser may have by reason of such failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Purchaser's obligation to purchase and pay for the Series A Secured
Notes to be sold to Purchaser at the Closing is subject to the fulfillment to
Purchaser's satisfaction, prior to or at the Closing, of the following
conditions:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in this
Agreement and in each of the other Note Documents shall be correct when made and
at the time of the Closing before and after giving effect to the issue and sale
of the Secured Notes and to the application of the proceeds therefrom as
contemplated by Section 5.20.
4.2. PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all agreements and
conditions in this Agreement and the other Note Documents required to be
performed or complied with by it prior to or at the Closing and, after giving
effect to the issue and sale of the Secured Notes (and the application of the
proceeds thereof as contemplated by Section 5.20), no Default or Event of
Default shall have occurred and be continuing.
4.3. DOCUMENTS REQUIRED.
Purchaser shall have received the following documents, each dated as
of the Closing Date (except as otherwise specified below) and in the form of the
respective Exhibit attached hereto, if any, or otherwise in form and substance
satisfactory to Purchaser:
(a) Corporate Approvals. Certified copies of (i) the resolutions of
-------------------
the Board of Directors of the Company approving each Note Document to which it
is or is to be a party and the transactions contemplated hereby and thereby and
(ii) all documents evidencing other necessary corporate action with respect to
each such Note Document and each such other document and the transactions
contemplated hereby and thereby.
(b) Officers' Certificates. A certificate from the Company, signed on
----------------------
behalf of the Company by its president or a vice president and the secretary or
assistant secretary (the statements made in which certificate shall be true on
and as of the Closing Date), certifying the following: (i) true and complete
copies of the charter and by-laws of the Company as in effect on the date the
resolutions specified in clause (a) were adopted and the absence of any
amendments to the charter or by-laws since such dates; (ii) the due
incorporation and good standing of the Company in its state of incorporation and
the absence of any proceeding for the dissolution or liquidation of the Company;
(iii) the accuracy of the representations and warranties made by the Company in
the Note Documents before and after giving effect to the issue and sale of the
Secured Notes and the application of the proceeds therefrom as contemplated by
Section 5.20, as though made on and as of the Closing Date; (iv) the absence of
any event occurring and continuing, or resulting from the issue and sale of the
Secured Notes, or the consummation of the transactions contemplated hereby, that
constitutes a Default or an Event of Default; and (v) the satisfaction of all
conditions precedent by the Company to the issue and sale of the Secured Notes
on and as of the Closing Date.
(c) Incumbency Certificates. A signed copy of a certificate of the
-----------------------
secretary or an assistant secretary of the Company certifying the names and true
signatures of the officers of the Company authorized to sign each Note Document
to which it is or is to be a party, and the other documents to be delivered
hereunder and thereunder.
(d) Solvency Certificate. A certificate from the chief financial
--------------------
officer of the Company attesting to the Solvency of the Company after giving
effect to the transactions contemplated hereby.
(e) Financial Information. Copies of the following financial
---------------------
statements of the Company, each in scope, form and substance satisfactory to the
Purchaser: (A) each of the audited financial statements referred to in Section
5.4, accompanied by an unqualified opinion of the Auditors; (B) each of the
interim financial statements referred to in Section 5.4, together with a
certificate of the chief financial officer of the Company with respect thereto;
and (C) a pro forma balance sheet of the Company as of August 1, 1998, giving
effect to the transactions contemplated hereby, prepared by the Company, and
substantially in compliance with Article 11
of Regulation S-X of the Securities and Exchange Commission (assuming such pro
forma financial statements were furnished in connection with a public offering),
which pro forma financial statements shall be accompanied by a certificate of
the chief financial officer of the Company to the effect that, based on his
discussions with the Company's Auditors, such pro forma financial statements are
substantially in compliance with such Article 11.
(f) Other Documentation. Such other documents, agreements or
-------------------
information as Purchaser may reasonably request.
4.4. OPINIONS OF COUNSEL.
Purchaser shall have received favorable opinions, dated the Closing
Date,
(a) from ▇▇▇▇ ▇. ▇▇▇▇▇, General Counsel to the Company, substantially
in the form of Exhibit F;
(b) from ▇▇▇▇▇ ▇▇▇▇ LLP, special counsel to the Company, substantially
in the form of Exhibit G;
(c) from ▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.C.,
Massachusetts counsel to the Purchaser and the Other Purchasers, in a form
satisfactory to the Purchaser and the Other Purchasers; and
(d) from ▇▇▇▇▇ & ▇▇▇ ▇▇▇▇▇, North Carolina counsel to the Purchaser
and the Other Purchasers, in a form satisfactory to the Purchaser and the Other
Purchasers.
4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing, the Purchaser's purchase of and payment
for the Secured Notes to be purchased by Purchaser at the Closing (a) shall be
permitted by the laws and regulations of each jurisdiction to which Purchaser is
subject, without recourse to provisions permitting limited investments by
insurance companies without restriction as to the character of the particular
investment, (b) shall not violate any applicable law or regulation (including,
without limitation, Regulation T, U or X of the Board of Governors of the
Federal Reserve System) and (c) shall not subject Purchaser to any tax, penalty
or liability under or pursuant to any applicable law or regulation, which law or
regulation was not in effect on the date hereof. If requested by Purchaser,
Purchaser shall have received an Officer's Certificate certifying as to such
matters of fact as Purchaser may reasonably specify to enable Purchaser to
determine whether such purchase and payment are so permitted.
4.6. NO LITIGATION OR OTHER PROCEEDINGS.
There shall exist no action, suit, investigation, litigation or
proceeding pending or, to the knowledge of the Company, threatened before any
Governmental Authority (i) challenging the consummation of the transactions
contemplated hereby or by the Note Documents or (ii)
seeking to obtain, or having resulted in the entry of, any judgment, order or
injunction that (A) would restrain, prohibit or impose materially adverse
conditions on Purchaser's ability to purchase the Secured Notes to be purchased
by Purchaser on the Closing Date, (B) could be reasonably expected to have a
Material Adverse Effect (except as set forth on Schedule 5.5), or (C) purports
to affect the legality, validity or enforceability of any material provision of
this Agreement, any other Note Document, any Related Agreement or the
consummation of the transactions contemplated hereby, including, without
limitation, the Offering.
4.7. SALE OF OTHER SECURED NOTES.
Contemporaneously with the Closing, the Company shall sell to the
Other Purchasers, and the Other Purchasers shall purchase, the Secured Notes to
be purchased by them at the Closing at an aggregate purchase price of all
Secured Notes thereof as specified in Schedule I hereto, and the Company shall
have received payment in full therefor (net of all fees and expenses in
connection with the transactions contemplated by this Agreement).
4.8. NO MATERIAL ADVERSE CHANGE.
There shall not have occurred a Material Adverse Change (in
Purchaser's sole opinion) in the business, assets, operations, conditions
(financial or otherwise) or prospects of the Company since July 4, 1998.
4.9. NO MATERIAL ADVERSE CHANGE TO FINANCIAL MARKETS.
There shall have occurred no material adverse change in financial
market conditions generally from those in effect on August 19, 1998 that, in
Purchaser's reasonable judgment, would make it impracticable or inadvisable for
Purchaser to proceed with Purchaser's purchase of Secured Notes.
4.10. FEES AND EXPENSES.
Without limiting the generality of Section 13, the Company shall have
paid, or caused to have been paid, all accrued fees and expenses incurred in
connection with the transactions contemplated by this Agreement and the other
Note Documents as of the Closing, including a fee of $250,000 payable to the
Purchaser in connection with the sale of the Secured Notes.
4.11. ANCILLARY DOCUMENTS AND PERFECTION OF SECURITY INTEREST.
(a) The Company shall have executed and delivered to the Agent the
Security Agreement, the Trademark Security Agreement, the Patent Security
Agreement, the Pledge Agreement, and a mortgage on the Company's property in
North Reading, Massachusetts and Lumberton, North Carolina, and shall have taken
all actions requested by the Agent necessary or desirable to perfect the
security interests contemplated by each such agreement and instrument,
including without limitation the filing of Uniform Commercial Code financing
statements and the appropriate filings with the United States Patent and
Trademark Office.
(b) The Agent, the Purchasers and the agent under the Revolving Credit
Agreement shall have entered into the Intercreditor Agreement.
4.12. REVOLVING CREDIT AGREEMENT.
(a) The Revolving Credit Agreement shall be in full force and effect,
shall not have been amended except in accordance with Section 4.12(b) hereof
and, after giving effect to the consummation of the transactions contemplated
hereby, no default or event of default shall have occurred thereunder.
(b) The aggregate commitments of the lenders under the Revolving
Credit Agreement shall have been permanently reduced to not more than
$120,000,000, and the financial covenants in Section 7.7 thereof shall be
amended to be identical to Section 9.7 hereof. In addition, the Revolving
Credit Agreement shall be amended in a manner satisfactory to Purchaser,
including without limitation to permit the transactions contemplated by this
Agreement, including, without limitation, Sections 7.1, 7.2, and 7.4 thereof.
4.13. PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to Purchaser and Purchaser's
special counsel, and Purchaser and Purchaser's special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as Purchaser or they may reasonably request.
4.14. WARRANT AGREEMENT AND THE WARRANTS.
The Company shall have delivered to each Purchaser and each Other
Purchaser a Warrant Agreement, which will provide for the purchase of such
number of shares of Common Stock as specified in Schedule I hereto.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Purchaser that as of the date
hereof and the Closing Date (before and after giving effect to the transactions
contemplated hereby):
5.1. CORPORATE EXISTENCE; QUALIFICATION; POWER; LICENSES AND PERMITS.
The Company (i) is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
(ii) is duly qualified and is authorized to do business and is in good standing
in every jurisdiction in which the failure to be
so qualified could reasonably be expected to have a Material Adverse Effect,
(iii) has all corporate power and authority required to own its properties and
assets and to carry on its business as now conducted and (iv) has all licenses,
authorizations, consents, approvals, franchises, leases, permits, certificates,
qualifications, easements, rights of way and other rights required to carry on
its business as now conducted which the failure to so have could reasonably be
expected to have a Material Adverse Effect. The Company is not in violation of
the terms of any such license, authorization, consent, approval, franchise,
lease, permit, certificate, qualification, easement, right of way or other right
in any such case which would have a Material Adverse Effect.
5.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION.
The execution, delivery and performance by the Company of this
Agreement and the other Note Documents executed in connection herewith and
therewith and the consummation by Company of the transactions contemplated
hereby and thereby, (i) are within the Company's corporate powers, (ii) have
been duly authorized by all necessary corporate action, (iii) except as provided
in the Ancillary Documents, require no action by or in respect of, or filing
with, any governmental body, agency or official, (iv) do not contravene, or
constitute a default under, any provision of any applicable law, statute,
ordinance, regulation, rule, order or other governmental restriction or of the
Certificate of Incorporation or By-Laws of the Company, (v) do not contravene,
or constitute a default under, any agreement, judgment, injunction, order,
decree, indenture, contract, lease, instrument or other commitment to which the
Company is a party or by which the Company or any of its assets are bound and
which could reasonably be expected to have a Material Adverse Effect, and (vi)
will not result in the creation or imposition of any material Lien upon any
asset of the Company under any existing indenture, mortgage, deed of trust, loan
or credit agreement or other agreement or instrument to which the Company is a
party or by which it or any of its assets may be bound or affected (except as
contemplated herein).
5.3. BINDING EFFECT.
This Agreement is and, when executed and delivered in accordance with
the terms hereof, all of the other Note Documents are or will be the legal,
valid and binding obligations of the Company, and are or will be enforceable
against the Company in accordance with their terms.
5.4. INFORMATION.
The Company has furnished to Purchaser as of the date of this
Agreement the following financial statements (the "FINANCIALS") of the Company:
(i) combined balance sheets as of, and combined statements of earnings, changes
in consolidated shareholders' equity and changes in consolidated cash flow for
the fiscal year ended December 31, 1997 audited by independent certified public
accountants, and (ii) unaudited combined balance sheets as of the end of the
most recent fiscal quarter ending prior to the Closing Date and the related
unaudited combined statements of earnings, changes in shareholders' equity and
changes in combined cash flow for the three months then ended. The Financials
are and the historical financial statements to be furnished to Purchaser in
accordance with Section 6.1 hereof will be in accordance with the
books and records of the Company and fairly present the financial condition of
the Company at the dates thereof and the results of operations for the periods
indicated (subject, in the case of unaudited financial statements, to normal
year-end adjustments), and such financial statements have been and will be
prepared in conformity with GAAP consistently applied throughout the periods
involved.
5.5. LITIGATION AND JUDGMENTS.
Except as set forth on Schedule 5.5, there is no (i) injunction, stay,
decree, judgment, writ or order issued and outstanding by any court or
arbitrator or any governmental body, agency or official against the Company or
any of its Subsidiaries or (ii) action, suit, proceeding, litigation, contested
claim, investigation or arbitration pending, or to the knowledge of the Company
threatened, against or affecting the Company or any of its Subsidiaries which,
in either case, could reasonably be expected to have a Material Adverse Effect,
or which in any manner impairs the validity of this Agreement or any of the
other Note Documents.
5.6. COMPLIANCE WITH ▇▇▇▇▇.
As of the date of this Agreement, and except as set forth on Schedule
5.6, neither the Company nor any ERISA Affiliate maintains or contributes to any
Benefit Plan. Each Plan has been and is being maintained and funded in all
material respects in accordance with its terms and in compliance with all
provisions of ERISA and the Code applicable thereto. The Company and each ERISA
Affiliate has fulfilled in all material respects its obligations related to the
minimum funding standards of ERISA and the Code for each Plan, is in compliance
in all material respects with the currently applicable provisions of ERISA and
of the Code relating to the qualification with respect to each Plan intended to
be so qualified and has not incurred any material liability (other than routine
liability for premiums) under Title IV of ERISA. No Termination Event has
occurred which has resulted in liability which either has not been satisfied or
is not reflected on the Company's financial statements nor has any other event
occurred that is likely to result in a Termination Event which could reasonably
be expected to have a Material Adverse Effect. No event or events have occurred
in connection with which the Company, any ERISA Affiliate, or any Plan, directly
or indirectly, is likely to be subject to any liability under ERISA, the Code or
any other law, regulation or governmental order or under any agreement,
instrument, statute, rule of law or regulation pursuant to or under which any
such entity has agreed to indemnify or is required to indemnify any person
against liability incurred under, or for a violation or failure to satisfy the
requirements of, any such statute, regulation or order which could reasonably be
expected to have a Material Adverse Effect. True, correct and complete copies
of the following documents have been made available to Purchaser as of the date
of this Agreement: (i) each Plan (or, where any such plan is not in writing,
complete description thereof) (and if applicable, related trust agreements or
other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of the Company or the ERISA
Affiliates, (ii) the most recent determination letter issued by the Internal
Revenue Service with respect to each Plan, (iii) for the three most recent plan
years, Annual Reports on Form 5500 Series required to be filed with any
governmental agency for each Plan, (iv) all actuarial reports prepared for the
last three plan years for each Benefit Plan, (v) a listing of all Multiemployer
Plans, with the aggregate amount of the most recent annual contributions
required to be made by the Company or any ERISA Affiliate to each such plan and
copies of the collective bargaining agreements requiring such contributions,
(vi) any information that has been provided to the Company or any ERISA
Affiliate regarding withdrawal liability under any Multiemployer Plan and (vii)
the aggregate amount of the most recent annual payments made to former employees
of the Company or any ERISA Affiliate under any Retiree Health Plan.
5.7. TAXES.
(a) Except as set forth on Schedule 5.7, the Company and its
Subsidiaries have timely filed (inclusive of any permitted extensions) with the
appropriate taxing authorities all United States Federal income tax returns and
except as set forth on Schedule 5.7 all other material tax returns (including,
without limitation, information returns and other material information) in
respect of Taxes required to be filed through the date hereof. The information
filed is complete and accurate in all material respects. All material
deductions taken by the Company and its Subsidiaries as reflected in such income
tax returns have been taken in accordance with applicable laws and regulations.
(b) Except as set forth on Schedule 5.7, all Taxes, in respect of
periods beginning prior to the date hereof, have been timely paid, except where
the same are being contested in good faith by appropriate proceedings and
appropriate reserves therefor have been established and maintained in accordance
with GAAP for the accrual thereof as reflected on the audited financial
statements for the Company's fiscal year ended December 31, 1997, and, to the
extent such reserves are maintained for periods after December 31, 1997,
consistent with the Company's past practice.
(c) Except as set forth in Schedule 5.7, (i) no material deficiencies
for Taxes have been claimed, proposed or assessed by any taxing or other
governmental authority against the Company or any of its Subsidiaries other than
such deficiencies of which Purchaser have been notified in writing and which are
being contested in good faith by appropriate proceedings, and appropriate
reserves therefor have been established and maintained as reflected on the
audited financial statements for the Company's fiscal year ended December 31,
1997 and in accordance with GAAP, and, to the extent such reserves are
maintained for periods after December 31, 1997, consistent with the Company's
past practice and (ii) no material tax liens have been filed against any of the
Collateral other than Liens permitted under Section 9.4 of this Agreement of
which Purchaser has been notified in writing, and which are being contested in
good faith by appropriate proceedings, and appropriate reserves therefor have
been established and maintained as reflected on the audited financial statements
for the Company's fiscal year ended December 31, 1997 in accordance with GAAP
and, to the extent such reserves are maintained for periods after December 31,
1997, consistent with the Company's past practice, and to the extent such liens
have been bonded in a manner reasonably satisfactory to Purchaser. Except as
set forth in Schedule 5.7 or as otherwise disclosed to Purchaser in writing,
there are no pending or, to the best of the Company's knowledge, threatened
audits, investigations or claims for or relating to any material liability in
respect of Taxes, and there are no matters under
discussion with any governmental authorities with respect to Taxes which are
likely to result in a material additional liability for Taxes. Except as set
forth on Schedule 5.7, for all years up to and including the fiscal year ended
December 31, 1994, either the period during which any assessments may be made by
the Internal Revenue Service have expired without waiver or extension or the
federal income tax returns of the Company and its Subsidiaries have been audited
by the Internal Revenue Service and such audits have been closed.
5.8. SUBSIDIARIES.
The only respective direct or indirect Subsidiaries of the Company as
of the date of this Agreement are those listed on Schedule 5.8 attached hereto.
Except as set forth on such Schedule, the Company is the record and beneficial
owner of all of the shares of capital stock of each of its Subsidiaries listed
on such Schedule as being owned by such Company (other than directors'
qualifying shares), there are no proxies, irrevocable or otherwise, with respect
to such shares, and no equity securities of any of the Subsidiaries are or may
become required to be issued by reason of any options, warrants, scrips, rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for, shares of any
capital stock of any Subsidiary, and there are no contracts, commitments,
understandings or arrangements by which any Subsidiary is or may become bound to
issue additional shares of its capital stock or securities convertible or
exchangeable for such shares. All of such respective shares so owned by Company
are owned by it free and clear of any Liens, and all such shares are validly
issued, fully paid and non-assessable (except for statutory rights of assessment
for wages owed). No Subsidiary of the Company has guaranteed any of the
Obligations of the Company under the Revolving Credit Agreement or granted any
security interests on any of its assets to secure the payment of any such
Obligations.
5.9. NOT AN INVESTMENT COMPANY.
Neither the Company nor any of its Subsidiaries is (i) an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, (ii) a "holding company" or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," within the meaning
of the Public Utility Holding Company Act of 1935, as amended, or (iii) subject
to any other law which purports to regulate or restrict its ability to borrow
money or to consummate the transactions contemplated by this Agreement or the
other Note Documents or to perform its obligations hereunder or thereunder.
5.10. NO CONFLICTING REQUIREMENTS.
Neither the Company nor any of its Subsidiaries is in default under
any term or provision of any charter, by-law, mortgage, indenture, agreement,
instrument, statute, rule, regulation, judgment, decree, order, writ,
injunction, contract, lease or other commitment to which any of them is a party
or by which any of them is bound such that such violations or defaults in the
aggregate could reasonably be expected to have a Material Adverse Effect. The
Company knows of no dispute regarding any indenture, contract, lease, agreement,
instrument or other commitment which would individually, or when aggregated with
other such disputes, be reasonably likely to have a Material Adverse Effect.
5.11. DEBT.
The Company has no Debt that is senior, pari passu or subordinated in
right of payment to its Obligations under the Secured Notes or under this
Agreement, except for Debt permitted pursuant to Section 9.1 of this Agreement.
5.12. TITLE TO PROPERTIES AND ASSETS.
(a) Except for (i) Liens permitted pursuant to Section 9.4 hereof
and/or disclosed to the Purchaser in Schedule 5.12(a) and (ii) such
imperfections of title that represent imperfections of title or easements of
record, if any, which do not materially detract from the value or interfere with
the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations, the Company has (a) good and marketable
fee simple title to the Owned Real Property material to its business and the
Owned Real Property on which a Lien has been granted to Agent and valid
leasehold interests in all of its Leased Real Property material to its business
and (b) good and marketable title to all of its other material property and
assets owned by the Company at any time (including, without limitation, all of
its Accounts and Inventory), other than properties disposed of in any manner
permitted under this Agreement. The Company enjoys peaceful and undisturbed
possession of all its material Real Estate and there is no pending or, to the
best of its knowledge, threatened condemnation proceeding relating to any Real
Estate which could reasonably be expected to have a Material Adverse Effect. The
leases with respect to the Leased Real Property, are referred to collectively as
the "Leases." No default exists under any Lease which could reasonably be
expected to have a Material Adverse Effect. All of the Structures and other
tangible assets owned, leased or used by the Company in the conduct of its
business are (a) insured as required by the terms of this Agreement and the
other Note Documents, (b) sufficient for the operation of the business of the
Company and its Subsidiaries as presently conducted and (c) in conformity with
all applicable laws, ordinances, orders, regulations and other requirements
(including applicable zoning, environmental, motor vehicle safety, occupational
safety and health laws and regulations) relating thereto, except where the
failure to conform could not reasonably be expected to have a Material Adverse
Effect.
(b) The Company possesses adequate assets, licenses, patents, patent
applications, copyrights, service marks, trademarks, trademark applications and
tradenames to continue to conduct its business as presently conducted. Schedule
5.12(b) attached hereto sets forth as of the date of this Agreement (i) all of
the federal, state and foreign registrations of the registered trademarks of the
Company and all pending applications for any such registrations and (ii) all of
the patents of the Company and all pending applications therefor (collectively,
together with all service marks and other marks and all applications therefor,
tradenames and other trade rights of the Company, the "PROPRIETARY RIGHTS"). As
of the date of this Agreement, the Company is the owner of each of the
trademarks and patents listed on Schedule 5.12(b) as indicated on such schedule
and except as set forth on such Schedule and, except pursuant to
licenses granted in the ordinary course of business, no other Person has the
right to exploit such patents or use any of such marks in commerce either in the
identical form or in such near resemblance thereto as may be likely to cause
confusion or to cause mistake or to deceive. As of the date of this Agreement
each of the trademarks listed on Schedule 5.12(b) is a valid and subsisting
federally registered trademark of the Company having the registration number and
issue date set forth on Schedule 5.12(b) and each of the patents listed on
Schedule 5.12(b) is a valid and subsisting patent of the Company having the
patent number and issue date set forth on Schedule 5.12(b). As of the date of
this Agreement except as disclosed on Schedule 5.12(b), no Person has a right to
receive any material royalty or similar payment from the Company in respect of
any such registered Propriety Rights. As of the date of this Agreement the
Company has not granted any material license except as disclosed on Schedule
5.12(b) hereto or such licenses as were granted in the ordinary course of the
Company's business, or sold or otherwise transferred any interest in any of the
Proprietary Rights to any other person. The Company is not aware that the use of
any of the material Proprietary Rights by the Company is infringing upon or
otherwise violating the rights of any third party in or to such Proprietary
Rights which violation or infringement could reasonably be expected to result in
a material liability to the Company, and no proceeding has been instituted
against or notice received by the Company that are presently outstanding
alleging that the use of any of the material Proprietary Rights infringes upon
or otherwise violates the rights of any third party in or to any of the material
Proprietary Rights which, if successful, could reasonably be expected to
materially adversely affect the fair market value of any such material
Proprietary Rights or the rights granted therein to Purchaser including, without
limitation, the validity, priority or perfection of the security interest
granted therein to Purchaser under the Ancillary Documents or Purchaser's
remedies therein or in this Agreement. All of the material Proprietary Rights of
the Company and the Subsidiaries are valid and enforceable rights of the Company
and the Subsidiaries and will not cease to be valid and in full force and effect
by reason of the execution and delivery of this Agreement or the Note Documents
or the consummation of the transactions contemplated hereby or thereby.
(c) The capital stock of each Subsidiary (including, without
limitation, each Foreign Subsidiary, provided that for any Foreign Subsidiary
which constitutes a "Controlled Foreign Corporation" within the meaning of
Section 951 of the Code, Company shall not be required to pledge hereunder or
under the other Note Documents more than 65% of the combined voting power of all
classes of capital stock of such Foreign Subsidiary entitled to vote), in each
case which is owned directly or indirectly by the Company, has been delivered
and pledged to the Agent under the Pledge Agreements; excluding, however, the
capital stock of any Subsidiary owned directly or indirectly by a Subsidiary of
the Company one hundred percent (100%) of which is not owned directly or
indirectly by the Company. The owners of all such capital stock are parties as
pledgors under the Pledge Agreements.
5.13. COMPLIANCE WITH LAW.
Neither the Company nor any of its Subsidiaries has violated or failed
to comply with any statute, law, ordinance, regulation, rule or order of any
foreign, federal, state or local government or any other governmental department
or agency or any self regulatory organization, or any judgment, decree or order
of any court, applicable to its business or operations except
where the aggregate of all such violations or failures to comply would not have
a Material Adverse Effect. The conduct of the businesses of the Company and each
of its Subsidiaries is in conformity with all securities, commodities, energy,
public utility, zoning, building code, health, OSHA and environmental
requirements and all other foreign, federal, state and local governmental and
regulatory requirements and requirements of any self regulatory organizations,
except where the aggregate of all such non-conformities could not reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries has received any notice to the effect that, or otherwise been
advised that, it is not in compliance with, and neither the Company nor any of
its Subsidiaries has any reason to anticipate that any presently existing
circumstances are likely to result in the violation of, any such statute, law,
ordinance, regulation, rule, judgment, decree or order which failure or
violation could reasonably be expected to have a Material Adverse Effect.
5.14. COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) The Company and each of its Subsidiaries have complied with and
are currently in compliance with any Environmental Laws, except where
noncompliance could not reasonably be expected to have a Material Adverse
Effect.
(b) No solid or hazardous or toxic wastes or hazardous substances (as
defined in the Comprehensive Environmental Response Compensation and Liability
Act, the Resources Conservation and Recovery Act and the Superfund Amendments
and Reauthorization Act of 1986, as amended or under any successor or similar
law or any applicable state or local law), are processed, discharged, stored,
treated, disposed of, or managed at any facility owned, leased or operated by
the Company or any Subsidiary thereof or, at the request or behest of the
Company or any Subsidiary thereof, at any adjoining site, so as to require a
license, permit or authorization of any type from any governmental authority,
other than licenses, permits and authorizations which have been obtained and are
in full force and effect or where the failure to obtain such a license, permit
or authorization could not reasonably be expected to have a Material Adverse
Effect. Except as set forth on Schedule 5.14 hereto, as of the date of this
Agreement no governmental or private actions to enforce environmental or
pollution control laws are pending against the Company or any Subsidiary
thereof, or against or with respect to any facility owned, operated or leased by
the Company or any Subsidiary thereof. Except as disclosed on Schedule 5.14 and
except where any of the following, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect: (i) neither the
Company nor any of its Subsidiaries has received any complaint, notice of
violation, alleged violation, investigation or advisory action or of potential
liability or of potential responsibility regarding environmental protection
matters or permit compliance, and (ii) neither the Company nor any of its
Subsidiaries have any contingent liability of which the Company has knowledge in
connection with any release of any hazardous or toxic waste, substance or
constituent, or other substance into the environment, nor has the Company or any
Subsidiary received any notice, letter or other indication of potential
liability arising from the disposal of any hazardous or toxic waste, substance
or constituent or other substance into the environment.
(c) Except as disclosed on Schedule 5.14 and other than any pending
workers' compensation claims which individually and in the aggregate are not
significant to the Company, no action, suit or proceeding brought by any
employee of the Company or any Subsidiary thereof or any other Person involving
(i) a claim for damages in excess of $100,000 or (ii) claims for damages under
$100,000 and which, in either such case, in the aggregate could reasonably be
expected to have a Material Adverse Effect, in each case based on alleged damage
to health caused by any such hazardous or toxic substance or by any waste or by-
product thereof, is pending before any court or arbitrator or any governmental
body, agency or official.
5.15. SECURITY INTERESTS AND LIENS; INVENTORY AND EQUIPMENT.
There are no Liens in favor of third parties with respect to any of
the Collateral, including, without limitation, with respect to the Inventory,
wherever located, other than Liens permitted pursuant to Section 9.4 hereof. To
the best of the Company's knowledge, no lessor, warehouseman, filler, processor
or packer of the Company or any of its Subsidiaries (other than Foreign
Subsidiaries) has granted any Lien with respect to the Inventory maintained by
the Company or any of its Subsidiaries (other than Foreign Subsidiaries) at the
property of any such lessor, warehousemen, filler, processor or packer. Upon the
proper filing of financing statements and the proper recordation of other
applicable documents with the appropriate filing or recordation offices in each
of the necessary jurisdictions, the security interests granted pursuant to the
Note Documents on the Filing Assets and the Real Estate with respect to which
Mortgages have been filed constitute and shall at all times constitute the valid
and enforceable perfected Liens on such Collateral, subject only to prior Liens
existing on the Closing Date and set forth on Schedule 5.15 hereto and Liens
permitted pursuant to Section 9.4 hereof. The Company is or will be at the time
additional Collateral is acquired by it, the absolute owners of the Collateral
with full right to pledge, sell, consign, transfer and create a Lien therein,
free and clear of any and all Liens in favor of third parties, except for Liens
permitted pursuant to Section 9.4 hereof. No consents, filings or recordings are
required in order to perfect the security interests created by the Pledge
Agreements.
5.16. LABOR RELATIONS.
The Company is not engaged in any material unfair labor practices
which could reasonably be expected to result in a material liability to the
Company, materially increase the costs of operations or materially decrease the
revenue generated from the Company's operations or which could otherwise
reasonably be expected to have a Material Adverse Effect. There is (i) no unfair
labor practice complaint pending against the Company or, to the best knowledge
of the Company, threatened against it, before the National Labor Relations
Board, and no material grievance or significant arbitration proceeding arising
out of or under collective bargaining agreements is so pending against the
Company or, to the best knowledge of the Company, threatened against it, (ii) no
strike, labor dispute, slowdown or stoppage pending against the Company or, to
the best knowledge of the Company, threatened against it which, in the case of
the items described in the preceding clauses (i) and (ii) could reasonably be
expected to result in a material liability to the Company, materially increase
the costs of the Company's operations or
materially decrease the revenue generated from the Company's operations or which
could otherwise reasonably be expected to have a Material Adverse Effect, and
(iii) no union representation question with respect to the employees of the
Company and no union organizing activities which representation question or
organizing activity could reasonably be expected to have a Material Adverse
Effect. There are no controversies pending or, to the best knowledge of the
Company, threatened between the Company and any of its employees, other than (i)
employee grievances and other controversies arising in the ordinary course of
business which could not, in the aggregate, be reasonably expected to have a
Material Adverse Effect and (ii) employee grievances and other controversies
arising outside the ordinary course of business of which Purchaser have received
written notice and could not reasonably be expected to have a Material Adverse
Effect.
5.17. UCC FILING INFORMATION.
As of the date of this Agreement the chief executive office and
principal place of business of the Company is as set forth on Schedule 5.17,
which office is the place where the Company is "located" for the purposes of
Section 9-103(3)(d) of the UCC. As of the date of this Agreement the places
where the Company keeps its books, chattel paper and records concerning its
respective Accounts or regularly keeps any Inventory are also identified on
Schedule 5.17. As of the date of this Agreement there is no jurisdiction located
in the United States in which the Company or any of its Subsidiaries have any
assets, equipment or Inventory (except for vehicles, Inventory in transit for
processing in the ordinary course of business, or immaterial items) other than
those jurisdictions listed on Schedule 5.17. Schedule 5.17 is a true, correct
and complete list as of the date of this Agreement of (i) the address of all
offices where records and books of account of the Company and each of its
Subsidiaries are kept, and (ii) to the best knowledge of Company, the legal
names and addresses of each warehouseman, filler, processor and packer at which
Inventory is stored as of the date of this Agreement. None of the receipts
received by the Company from any warehouseman, filler, processor or packer
states that the goods covered thereby are to be delivered to bearer or to the
order of a named person or to a named person and such named person's assignees.
5.18. SOLVENCY.
On and at all times after the Closing Date the fair saleable value of
the Company's assets exceeds all probable liabilities, including those to be
incurred pursuant to this Agreement. On and at all times after the Closing
Date, the Company (i) does not have unreasonably small capital in relation to
the business in which it is or proposes to be engaged and (ii) has not incurred,
and does not believe that it will incur after giving effect to the transactions
contemplated by this Agreement, debts beyond its ability to pay such debts as
they become due.
5.19. FICTITIOUS BUSINESS NAMES.
Neither the Company nor any of its Subsidiaries has conducted any
material amount of business on or after August 1, 1993 under any corporate or
fictitious name other than
the corporate name shown on its or such Subsidiary's Articles or Certificate of
Incorporation, as disclosed on Schedule 5.19 or as disclosed to Purchaser in
writing from time to time.
5.20. USE OF PROCEEDS.
All proceeds of the sale of the Series A Secured Notes to Purchasers
have been or will be used only to repay a portion of the outstanding borrowings
under the Revolving Credit Agreement and to pay certain fees and expenses
associated with the sale of the Series A Secured Notes.
The Series B Secured Notes will be issued in exchange for Subordinated
Notes in aggregate principal amount of $5,735,000.
5.21. MARGIN SECURITY.
The Company does not own any margin security and none of the proceeds
of the sale of the Secured Notes have been used for the purpose of purchasing or
carrying any margin securities of for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase any margin securities or
for any other purpose not permitted by Regulation U or X of the Board of
Governors of the Federal Reserve System.
5.22. SURVIVAL OF REPRESENTATIONS.
All representations made by the Company in this Agreement and in any
other Note Document executed and delivered in connection herewith shall survive
the execution and delivery hereof and thereof.
5.23. AFFILIATE TRANSACTIONS.
Except as set forth on Schedule 5.23 hereto, neither the Company nor
any Subsidiary is a party to or bound by any agreement or arrangement (whether
oral or written) to which any Affiliate of the Company or any Subsidiary is a
party except as permitted pursuant to Section 9.8 hereof.
5.24. ACCURACY AND COMPLETENESS OF INFORMATION.
All factual information heretofore, contemporaneously or hereafter
furnished by or on behalf of the Company or any of its Subsidiaries in writing
to Purchaser or the Auditors for purposes of or in connection with this
Agreement or any Note Documents, or any transaction contemplated hereby or
thereby is or 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 material fact necessary to make such information not misleading at
such time. There is no fact now known to any officer of the Company or any of
its Subsidiaries which has, or would have, a Material Adverse Effect which fact
has not been set forth herein, in the Financial Statements, or some certificate,
opinion or other written statement made or furnished by the Company to
Purchaser.
5.25. STATUS OF ACCOUNTS.
The Company confirms to the Purchaser that any or all taxes or fees
relating to its business, its sales, the Accounts or the goods relating thereto,
are its sole responsibility and that all such material taxes will be paid by the
Company when due (unless duly contested and adequately reserved for) and that
none of such taxes or fees (including any immaterial taxes or fees) is or will
become a Lien (other than a Permitted Lien) on or claim against the Accounts.
The Company's books and records are marked to reflect the Purchaser's interest
in the Accounts.
6. REPRESENTATIONS OF THE PURCHASER.
6.1. PURCHASE FOR INVESTMENT.
Purchaser represents that Purchaser (a) is purchasing the Secured
Notes and the Warrants for Purchaser's own account or for one or more separate
accounts maintained by Purchaser or for the account of one or more pension or
trust funds and not with a view to the distribution thereof in violation of the
securities laws of the United States or any state thereof, provided that the
disposition of Purchaser's property shall at all times be within Purchaser's
control, and (b) is an "accredited investor" as defined in Rule 501(a) of the
Securities Act and able to evaluate the merits and risks, including
illiquididty, of the investment. Purchaser understands that the Secured Notes
and the Warrants have not been registered under the Securities Act and may be
resold only if registered pursuant to the provisions of the Securities Act or if
an exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that the
Company is not required to register the Secured Notes.
6.2. SOURCE OF FUNDS.
Purchaser represents that at least one of the following statements is
an accurate representation as to each source of funds (a "FUNDS SOURCE") to be
used by Purchaser to pay the purchase price of the Secured Notes to be purchased
by Purchaser hereunder:
(a) the Funds Source does not constitute the assets of an Employee
Benefit Plan;
(b) the Funds Source will constitute assets of an insurance company
general account (as such term is used in PTCE 95-60 issued by the United States
Department of Labor) and the purchase of the Secured Notes by Purchaser is
entitled to the exemption granted by PTCE 95-60; provided that the Company is
not Purchaser's "affiliate" (within the meaning of Section V(a) of PTCE 95-60);
(c) if any part of any Funds Source will be from the assets of any
separate account maintained by Purchaser in which any Employee Benefit Plan (or
its related trust) has an interest, at least one of the following statements
with respect to such Funds Source is accurate:
(i) such separate account is maintained solely in connection
with Purchaser's fixed contractual obligations under which amounts payable
or credited to such Employee Benefit Plan and to any participant or
beneficiary thereof (including any annuitant) are not affected in any
manner by the investment performance of the separate account; or
(ii) the Funds Source will constitute assets of a "pooled
separate account" (as such term is used in PTCE 90-1 issued by the United
States Department of Labor) and the purchase of the Secured Notes by
Purchaser is entitled to the exemption granted under PTCE 90-1; provided
that the Company is not Purchaser's "affiliate" (within the meaning of PTCE
90-1);
(d) the Funds Source will constitute assets of a "bank collective
fund" (as such term is used in PTCE 91-38 issued by the United States Department
of Labor) and either (A) prior to the Closing Date, Purchaser shall have
disclosed to Apollo the name of each Employee Benefit Plan whose assets in such
bank collective fund exceed or are expected to exceed 10% of the total assets of
such fund as of the Closing Date or (B) the purchase of Secured Notes by
Purchaser is entitled to the exemption granted under PTCE 91-38; provided that
the Company is not Purchaser's "affiliate" (within the meaning of PTCE 91-38);
or
(e) the Funds Source will constitute assets of an "investment fund"
managed by a "qualified plan asset manager" (as both such terms are defined in
Part V of PTCE 84-14 issued by the United States Department of Labor) (a
"AQPAM"); the QPAM and the Employee Benefit Plans on whose behalf the QPAM is
acting have been disclosed to Apollo and the purchase of Secured Notes by
Purchaser is entitled to the exemption granted under PTCE 84-14; provided that
the Company nor any "affiliate" (within the meaning of PTCE 84-14) thereof, has,
as of the Closing Date, or has exercised during the calendar year immediately
preceding the Closing Date, the authority to (A) appoint or terminate the QPAM
on behalf of any such Employee Benefit Plan or (B) negotiate on behalf of any
such Employee Benefit Plan the terms of its management agreement with the QPAM
(including, without limitation, any renewals or modifications thereof).
For purposes of paragraphs (c) and (d) of this Section 6.2, all
Employee Benefit Plans maintained by the same employer or employee organization
are deemed to be a single plan.
6.3. PLACEMENT AGENT.
Purchaser acknowledges that no representation or warranty, express or
implied, is made by the Placement Agent or its representatives as to the
accuracy or completeness of the information set forth herein or in the Private
Placement Memorandum (the "PRIVATE PLACEMENT MEMORANDUM"), dated August 1998,
relating to the sale of the Secured Notes and the Warrants,
and nothing contained herein or in the Private Placement Memorandum is, or shall
be relied upon as, a promise or representation of the Placement Agent or its
representatives, whether as to the past or future. Neither the Placement Agent
nor its representatives has independently verified any of such information, and
neither the Placement Agent nor its representatives assumes any responsibility
for the accuracy or completeness of this Agreement or the Private Placement
Memorandum.
7. PREPAYMENT OF THE SECURED NOTES.
7.1. VOLUNTARY PREPAYMENTS.
The Company may, upon not less than fifteen Business Days' notice to
the holders of Secured Notes, prepay the unpaid principal amount of the Secured
Notes, in whole or in part, together with accrued interest thereon to the date
of such prepayment on the principal amount prepaid; provided that each partial
prepayment shall be in an aggregate principal amount of not less than
$1,000,000.
7.2. MANDATORY PREPAYMENTS.
(a) Upon receipt by the Company of the Net Cash Proceeds from any
Asset Disposition which exceeds $250,000 individually or which, together with
the Net Cash Proceeds from other Asset Dispositions during the same fiscal year,
exceeds $1,000,000 in the aggregate, the Company shall prepay the Secured Notes
in an amount equal to the lesser of (i) the then outstanding aggregate principal
amount of the Secured Notes and (ii) the amount of such excess Net Cash Proceeds
less, in either case, the portion, if any, of such excess proceeds required to
----
be applied to the repayment of indebtedness and other obligations outstanding
under the Revolving Credit Agreement in accordance with the terms and conditions
thereof, in either case together with accrued interest to the date of such
prepayment on the principal amount of the Secured Notes so prepaid and all fees,
expenses and other payments due to the holders of the Secured Notes under the
Note Documents; provided, however, to the extent such excess Net Cash Proceeds
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otherwise required to be applied to prepayment of the Secured Notes as hereabove
set forth will be used within 180 days of such Asset Disposition to purchase
replacement assets or other capital assets (as certified by the Company to the
Purchaser), no such prepayment of the Secured Notes shall be required unless any
of such excess Net Cash Proceeds shall remain unused at the end of such 180 day
period, in which case the Company shall, at the end of such 180 day period,
certify to the Purchaser the amount of such excess Net Cash Proceeds not so
used, and shall prepay the Secured Notes on the first Business Day after the end
of such period in an amount equal to the lesser of (i) the then outstanding
aggregate principal amount of the Secured Notes and (ii) the amount of such
excess Net Cash Proceeds from such sale, lease, transfer or other disposition
not used to purchase replacement assets or other capital assets, in either case
together with accrued interest to the date of such prepayment on the principal
amount of Secured Notes so prepaid and all fees, expenses and other payments due
to the holders of the Secured Notes under the Note Documents. To the extent
necessary, any prepayment provided for herein shall be made with the proceeds of
advances under the Revolving Credit Agreement.
(b) Upon receipt of any Equity Offering Proceeds, the Company shall
prepay the Secured Notes in an amount equal to the lesser of (i) the then
outstanding aggregate principal amount of the Secured Notes and (ii) twenty-five
percent (25%) of such Equity Offering Proceeds, regardless of whether received
from the issuance of Common Stock (or warrants or options to acquire the same)
or received from the issuance of preferred stock (or warranty or options to
acquire the same), in either case together with accrued interest to the date of
such prepayment on the principal amount of the Secured Notes so prepaid and all
fees, expenses and other payments due to the holders of the Secured Notes under
the Note Documents. To the extent necessary, any prepayment provided for herein
shall be made with advances under the Revolving Credit Agreement.
(c) Upon receipt of the proceeds (after deduction for fees, taxes,
costs and expenses reasonably incurred or to be incurred in connection
therewith) of any issuance of Debt permitted by Section 9.1(f), the Company
shall prepay the Secured Notes in an amount equal to the lesser of (i) the then
outstanding aggregate principal amount of the Secured Notes and (ii) the net
amount of such proceeds less, in either case, the portion, if any, of such
----
proceeds required to be applied to repayment of the indebtedness and other
obligations outstanding under the Revolving Credit Agreement in accordance with
the terms and conditions thereof, in either case together with accrued interest
to the date of such prepayment on the principal amount of the Secured Notes so
prepaid and all fees, expenses and other payments due to the holders of the
Secured Notes under the Note Documents. To the extent necessary, any prepayment
provided for herein shall be made with the proceeds of advances under the
Revolving Credit Agreement.
7.3. ALLOCATION OF PARTIAL PREPAYMENTS.
Each partial prepayment of the Secured Notes pursuant to Section 7.1
or 7.2 shall be allocated (in integral multiples of $1,000) first among all of
the Series A Secured Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid principal amounts thereof not theretofore
called for prepayment, with adjustments to the extent applicable to compensate
for any prior prepayments not made exactly in such proportion. After all Series
A Secured Notes are paid in full, each partial prepayment of the Secured Notes
pursuant to Section 7.1 or 7.2 shall be allocated (in integral multiples of
$1,000) first among all of the Series B Secured Notes at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid principal amounts
thereof not theretofore called for prepayment, with adjustments to the extent
applicable to compensate for any prior prepayments not made exactly in such
proportion
7.4. MATURITY; SURRENDER, ETC.
In the case of each prepayment of Secured Notes pursuant to Section
7.1 or 7.2, the principal amount of each Secured Note to be so prepaid or
repurchased shall mature and become due and payable on the date fixed for such
prepayment or repurchase, together with interest on such principal amount
accrued to such date. From and after such date, unless the Company shall fail
to pay such principal amount when so due and payable, together with the
interest, as aforesaid, interest on such principal amount shall cease to accrue.
Any Secured Note paid or prepaid in full shall be surrendered to the Company and
canceled and shall not be
reissued, and no Secured Note shall be issued in lieu of any prepaid or
repurchased principal amount of any Secured Note.
7.5. PURCHASE OF SECURED NOTES.
The Company will not purchase, redeem, prepay or otherwise acquire,
directly or indirectly, any of the outstanding Secured Notes except in
accordance with the terms of this Agreement and the Secured Notes. The Company
will promptly cancel all Secured Notes acquired by it pursuant to any payment,
prepayment or purchase of Secured Notes pursuant to any provision of this
Agreement and no Secured Notes may be issued in substitution or exchange for any
such Secured Notes; provided, however, that the Company shall not purchase,
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redeem, prepay or otherwise acquire, directly or indirectly, any of the
outstanding Series B Secured Notes if at the time thereof there are outstanding
any Series A Secured Notes.
8. AFFIRMATIVE COVENANTS.
The Company covenants and agrees that, so long as any of the Secured
Notes are outstanding, the Company shall perform all covenants in this Section
8.
8.1. INFORMATION.
(a) The Company will deliver to Purchaser:
(i) promptly upon the filing thereof, copies of all
registration statements (other than the exhibits thereto unless the
securities, covered thereby are held or distributed by the Company, other
than any registration statement on Form S-3 to the extent that it relates
to a secondary offering, and other than any registration statement on Form
S-8 or its equivalent) and reports on Form 10-K, 10-Q and 8-K (or their
equivalents) which the Company shall have filed with the SEC, and promptly
upon the mailing thereof to the shareholders of the Company generally,
copies of all financial statements, reports and proxy statements so mailed;
(ii) no later than 45 days after the end of each of the end of
each of the first three quarters of each fiscal year and no later than 90
days after the end of each fiscal year, (A) a certificate of the chief
financial officer or client accounting officer of the Company setting forth
in reasonable detail any calculations required to establish whether the
Company was in compliance with the requirements of Sections 9.5, 9.6 and
9.7 hereof as of the end of such quarter or year, a the case may be, and
(B) a compliance certificate in the form of Exhibit H attached hereto (the
"Compliance Certificate");
(iii) within three Business Days of any officer of the Company
obtaining knowledge of any Event of Default or any Default, if such Default
is then continuing, a certificate of the chief financial officer or the
chief accounting officer of the Company setting forth the details thereof
and the action which the Company is taking or proposes to take with respect
thereto;
(iv) prompt notice, in reasonable detail, of any material change
relating to the type, quarterly or quantity of any material portion of the
Collateral, or any event which could have a material adverse effect on the
value of the Collateral or any event affecting the validity or priority of
the security interests granted to the Agent and the Purchasers in the
Collateral; and
(v) within three Business Days of the chief executive officer,
chief financial officer, chief accounting officer, controller or other
senior financial officer of the Company obtaining knowledge of any Material
Adverse Effect, a certificate of the chief financial officer or accounting
officer of the Company setting forth details thereof and the action which
the Company is taking or proposes to take with respect thereto.
(b) In addition, at the written request of the Purchaser, the Company
will deliver:
(i) as soon as available and in any event within 90 days after
the end of each fiscal year of the Company, consolidated and consolidating
balance sheets of the Company and its Consolidated Subsidiaries as of the
end of such fiscal year and the related consolidated and consolidating
statements of earnings, changes in consolidated shareholders equity and
changes in consolidated cash flow for such fiscal year, setting forth in
the case of each consolidated financial statement in comparative form the
figures for the previous fiscal year, including the previous fiscal year
budget; all (except for the consolidating statements) accompanied by an
opinion of the Auditors unqualified as to scope of audit and stating that
such financial statements present fairly in all material respects the
financial position of the Company and its Consolidated Subsidiaries and the
results of their operations and cash flows for such fiscal year in
conformity with generally accepted accounting principles and otherwise
reported on in a manner acceptable to the Securities and Exchange
Commission, accompanied by a written statement signed by the Auditors as to
whether in the course of such firm's audit anything of a financial or
accounting nature has come to its attention to cause it to believe that any
Default or Event of Default existed on the date of such statements and
stating whether anything has come to its attention to cause it to believe
the calculations set forth in the officers certificate delivered pursuant
to subsection (c) below were not prepared in accordance with the terms
hereof;
(ii) as soon as available and in any event within 45 days after
the end of each of the first three quarters of each fiscal year of the
Company, consolidated and consolidating balance sheets of the Company and
its Consolidated Subsidiaries as of the end of such quarter and the related
consolidated and consolidating statements of earnings, changes in
consolidated shareholders equity and changes in consolidated cash flow for
such quarter and for the portion of the Company's fiscal year ended at the
end of such quarter, setting forth in the case of each consolidated
financial statement in comparative form the figures for the corresponding
quarter and the corresponding portion of the Company's previous fiscal
year, including the previous fiscal year budget, all certified
(subject to normal year-end adjustments) as to fairness of presentation,
GAAP and consistency by the chief financial officer or the chief accounting
officer of the Company;
(c) as soon as available and in any event within 30 days after the end
of each of the first two months of each fiscal quarter (45 days in the case of
the last month of each fiscal year of the Company), statements of earnings and
consolidated and consolidating balance sheets of the Company and its
Consolidated Subsidiaries as of the end of such month, and related changes in
consolidated cash flow for such month and for the portion of the Company's
fiscal year ended at the end of such month, all certified (subject to normal
year-end adjustments) as to fairness of presentation, GAAP and consistency by
the chief financial officer or chief accounting officer of the Company;
(d) as soon as available and in any event no later than 60 days after
the last day of each fiscal year of the Company, copies of annual budgets and
other similar materials prepared by or for the Company and any of its
Subsidiaries, which budgets and other information shall be presented on a
monthly basis for the then current fiscal year and on an annual basis for each
subsequent fiscal year;
(e) if and when any ERISA Affiliate (i) gives or is required to give
notice to the PBGC of any Reportable Event with respect to any Plan which could
reasonably be expected to constitute grounds for a termination of such Plan
under Title IV of ERISA, or knows that the plan administrator of any Plan has
given or is required to give notice of any such Reportable Event, a copy of the
notice of such Reportable Event given or required to be given to the PBGC; (ii)
receives notice of complete or partial withdrawal liability under Title IV of
ERISA, a copy of such notice; or (iii) receives notice from the PBGC under Title
IV of ERISA of an intent to terminate or appoint a trustee to administer any
Plan, a copy of such notice;
(f) within three Business Days of any officer of the Company obtaining
knowledge of (i) any litigation or proceeding affecting the Company or any
Subsidiary in which the amount involved is $3,000,000 or more and is not covered
by insurance or in which injunctive or similar relief is sought, or (ii) any
order, judgment or decree in excess of $1,000,000 which shall have been entered
against the Company or any Subsidiary or any of their respective properties or
assets, a certificate of the chief financial officer or accounting officer of
the Company setting forth details thereof and the action which the Company is
taking or proposes to take with respect thereto;
(g) prompt notice of any notification of a violation of any law or
regulation received by the Company or any Subsidiary from any local, state,
federal or foreign governmental authority or agency which violation could
reasonably be expected to have a Material Adverse Effect; and
(h) from time to time such additional information regarding the
financial position or business of the Company or any Subsidiary as Purchaser may
reasonably request.
8.2. PAYMENT OF OBLIGATIONS.
The Company will pay and discharge, and will cause each of its
Subsidiaries to pay and discharge, at or before maturity, all of their
respective material obligations and liabilities, including, without limitation,
tax liabilities, except where the same may be contested in good faith by
appropriate proceedings, and will maintain, and will cause each of its
Subsidiaries to maintain, in accordance with GAAP, appropriate reserves for the
accrual of any of the same.
8.3. MAINTENANCE OF PROPERTY; INSURANCE.
(a) The Company will keep, and will cause each of its Subsidiaries
(other than Foreign Subsidiaries) to keep, all material property useful and
necessary in their businesses in good working order and condition (ordinary wear
and tear, casualty and condemnation excepted) and not commit or suffer any waste
with respect to any of its material properties.
(b) The Company agrees to maintain, and to cause each of its
Subsidiaries (other than Foreign Subsidiaries) to maintain, public liability
insurance, third party property damage and replacement cost insurance on the
Collateral under such policies of insurance, with such insurance companies, in
such amounts and covering such risks as shall be customary for corporations
similarly situated in the industry. Such insurance may include levels of self
insurance comparable to those in place on the date of this Agreement or as shall
be customary for corporations similarly situated in the industry. All policies
covering the Collateral are to name the Company and the Agent as additional
insureds and loss payees in case of loss, as their interests may appear, and are
to contain such other provisions as the Agent may reasonably require to fully
protect the Agent's interest in the Collateral and to any payments to be made
under such policies. Certificates of all insurance policies are to be delivered
to the Agent (with true copies of such policies to be made available to Agent)
on or prior to the Closing Date, and such policies shall have all premiums with
respect thereto currently paid and contain loss payable endorsements in the
Agent's favor, and shall provide for not less than ten (10) days prior written
notice to the Agent, of the exercise of any right of cancellation. In the event
the Company or any of its Subsidiaries (other than Foreign Subsidiaries) fail to
respond in a timely and appropriate manner (as determined by the Agent in its
reasonable discretion) with respect to collecting under any insurance policies
required to be maintained under this Section 8.3, the Agent shall have the
right, in the name of the Company or any Subsidiary (other than a Foreign
Subsidiary) of the Company, to file claims under such insurance policies, to
receive and give acquittance for any payments that may be payable thereunder,
and to execute any and all endorsements, receipts, releases, assignments,
reassignments or other documents that may be necessary to effect the collection,
compromise or settlement of any claims under any such insurance policies. The
Company shall provide written notice to the Agent of the occurrence of any of
the following events within five (5) Business Days after the occurrence of such
event: any material asset or property owned or used by any Company or any of the
Company's Subsidiaries (other than a Foreign Subsidiary) (i) is damaged or
destroyed, or suffers any other loss, or (ii) is, or the Company receives notice
of the institution of any proceeding pursuant to which any such asset or
property could reasonably be expected to be, condemned, confiscated or otherwise
taken, in whole or in part, or the use thereof is otherwise diminished so as to
render impracticable or
unreasonable the use of such asset or property for the purposes to which such
asset or property were used immediately prior to such condemnation, confiscation
or taking, by exercise of the powers of condemnation or eminent domain or
otherwise, and in either case the amount of the damage, destruction, loss or
diminution in value is in excess of $1,000,000 (collectively, a "CASUALTY
LOSS"). The Company shall diligently file and prosecute its claim or claims for
any award or payment in connection with a Casualty Loss. In the event of a
Casualty Loss with respect to any of the Collateral, the Company shall pay to
the Agent, promptly upon receipt thereof, any and all insurance proceeds and
payments received by the Company or any of its Subsidiaries on account of
damage, destruction, loss, condemnation or eminent domain proceedings
(excluding, however, business interruption insurance and the proceeds thereof)
less, in either case, the portion, if any, of such proceeds required to be
----
applied to the repayment of indebtedness and other obligations outstanding under
the Revolving Credit Agreement in accordance with the terms and conditions
thereof. So long as no Default or Event of Default shall have occurred and be
continuing, the Company may use such proceeds and payments to repair, replace or
rebuild the asset or property or portion thereof that was the subject of the
Casualty Loss or, if such asset or property is not material to the operations of
Company, may use such proceeds and payments as otherwise permitted pursuant to
the terms of this Agreement and after the occurrence and during the continuance
of any Default or Event of Default the Agent may, at its election in its sole
discretion either (a) apply ratably the proceeds realized from Casualty Losses
to payment of accrued and unpaid interest or outstanding principal under the
Secured Notes less, in either case, the portion, if any, of such excess proceeds
----
required to be applied to the repayment of indebtedness and other obligations
outstanding under the Revolving Credit Agreement in accordance with the terms
and conditions thereof or (b) pay such proceeds to the Company to be used to
repair, replace or rebuild the asset or property or portion thereof that was the
subject of the Casualty Loss. After the occurrence and during the continuance of
an Event of Default, (i) no settlement on account of any such Casualty Loss
shall be made without the Agent's consent and (ii) the Agent may participate in
any such proceedings and the Company shall deliver to the Agent such documents
as may be requested by the Agent to permit such participation and shall consult
with the Agent, the Agent's attorneys and agents in the making and prosecution
of such claim or claims.
8.4. COMPLIANCE WITH LAWS.
The Company will comply, and cause each of its Subsidiaries to comply
with all acts, regulations, orders, directions and ordinances of any
legislative, administrative or judicial body or official, applicable to the
Collateral or any part thereof, or to the operation of their business
(including, without limitation ERISA and the rules and regulations thereunder)
except where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect.
8.5. INSPECTION OF PROPERTY, BOOKS AND RECORDS; CHANGE OF NAME, PRINCIPAL PLACE
OF BUSINESS, LOCATION OF COLLATERAL, ETC.
The Company will keep, and will cause each of its Subsidiaries to
keep, proper books of record and account in which full, true and correct entries
in conformity with GAAP
shall be made of all dealings and transactions in relation to their businesses
and activities; the Company shall make no significant change in its accounting
practices except as permitted or required by GAAP. The Company shall have the
right, however, to change its fiscal year on one occasion, provided, however, as
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a condition precedent thereto, the Company shall, at the request of the Agent,
enter into an amendment of this Agreement and each of the Other Agreements,
sufficient to make this Agreement and the Other Agreements (and the terms
contained herein and therein), after effectuation of such proposed change in
fiscal year, financially and economically equivalent to this Agreement and the
Other Agreement as it and they existed prior to the effectuation of such
proposed change. The Company agrees that the Agent or its agents may enter upon
the premises of the Company or any of its Subsidiaries at any time and from time
to time, during normal business hours and upon reasonable prior notice, and at
any time at all and without notice on and after the occurrence and during the
continuance of an Event of Default, for the purpose of (i) inspecting the
Collateral, (ii) inspecting and/or copying (at Company's expense) any and all
records pertaining thereto, and (iii) discussing the affairs, finances and
business of the Company with any officers, employees and directors of the
Company or with the Auditors. The Purchaser may accompany the Agent on any such
visit at the Purchaser's own expense. The Company agrees to afford the Agent ten
(10) Business Days prior written notice of (a) any new or additional location of
any Collateral at which location Collateral having an aggregate value in excess
of $1,000,000 will be located, (b) any change in the location of its chief
executive office or any new or additional places of business (other than new
retail locations for which the Company shall give Agent written notice within
fifteen (15) days after the opening thereof) from the locations specified in
Schedule 5.17, and (c) any change in its corporate name and, in each such case,
the Company further agrees to execute in advance of such addition or change and
cause to be filed and/or delivered to the Agent any financing statements or
other documents required by the Agent.
8.6. COMPLIANCE WITH NOTE DOCUMENTS.
The Company will comply, and will cause each of its Subsidiaries to
comply, with the terms of each of the Note Documents.
8.7. COVENANT TO MORTGAGE AFTER-ACQUIRED PROPERTY.
With respect to any real property, acquired and held in fee or owned
by the Company at any time after the date hereof, and having a gross cost
individually in excess of $2,500,000, as soon as possible and in no event later
than 90 days after the relevant acquisition date and/or construction completion
date, whichever is later, the Company shall grant to the Agent, for the benefit
of the Purchasers, a Lien on all such property, subject to the Liens granted to
secure the indebtedness under the Revolving Credit Agreement and the Permitted
Liens, upon the terms set forth in the Mortgage, as appropriate, and
satisfactory in form and substance to the Agent; provided, however, that in the
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event (i) such real property is encumbered with a purchase money mortgage
permitted pursuant to Section 9.4(f) hereof or any extensions, modifications and
replacements thereof permitted pursuant to Section 9.4(i), (ii) the holder of
such ▇▇▇▇ and the Agent have entered into an intercreditor agreement reasonably
satisfactory to the Agent permitting the Agent access to such real property for
a reasonable period of time to the extent
necessary to assemble, complete and sell any Collateral located thereon and
(iii) no Event of Default shall have occurred and be continuing, the Company
shall not be required to grant the Agent a Lien on such real property. The
Company, at its own expense, shall execute, acknowledge and deliver, or cause
the execution, acknowledgment and delivery of, and thereafter register, file or
record in the appropriate governmental office, any document or instrument
reasonably deemed by the Agent to be necessary or desirable for the creation and
perfection of the foregoing Liens.
8.8. CORPORATE EXISTENCE.
The Company (i) except as otherwise permitted pursuant to Section 9.5,
shall maintain its corporate existence, shall maintain in full force and effect
all material licenses, bonds, franchise, leases, qualifications to do business,
trademarks, patents, contracts and other rights necessary for the conduct of its
businesses, (ii) shall continue in, and limit its operations to, the same
general lines of business as that presently conducted by it and reasonable
extensions thereof and (iii) shall comply with all applicable laws and
regulations of any federal, state or local governmental authority, except in
each case when noncompliance with the foregoing would not, in the aggregate,
have a Material Adverse Effect.
8.9. ERISA.
The Company shall deliver to the Agent, at the Company's expense, the
following information at the times specified below:
(a) within twenty (20) Business Days after the Company or any ERISA
Affiliate knows that a Termination Event has occurred which could reasonably be
expected to result in a liability to the Company of $1,000,000 or more, a
written statement of the chief financial officer of the Company describing such
Termination Event and the action, if any, which the Company or any other
entities have taken, are taking or propose to take with respect thereto, and
when known, any action taken or threatened by the Internal Revenue Service, DOL
or PBGC with respect thereto;
(b) within sixty (60) Business Days after the Company or any ERISA
Affiliate knows that a prohibited transaction (as defined in Sections 406 of
ERISA and 4975 of the Code) has occurred which could reasonably be expected to
result in a liability to the Company of $1,000,000 or more, a statement of the
chief financial officer of the Company describing such transaction and the
action which the Company or other such entities have taken, are taking or
propose to take with respect thereto;
(c) at any time that the Agent may reasonably request, copies of each
annual report (form 5500 series), including Schedule 8.9 thereto, filed with
respect to each Benefit Plan;
(d) at any time that the Agent may reasonably request, copies of each
actuarial report for any Benefit Plan or Multiemployer Plan and each annual
report for any Multiemployer Plan;
(e) within three (3) Business Days after the filing thereof with the
Internal Revenue Service, a copy of each funding waiver request filed with
respect to any Benefit Plan with respect to any funding of $1,000,000 or more
and all communications received by the Company or any ERISA Affiliate with
respect to such request;
(f) within twenty (20) Business Days upon the occurrence thereof,
notification of any increase in the benefits of any existing Plan or the
establishment of any new Plan or the commencement of contributions to any Plan
to which any Company or any ERISA Affiliate was not previously contributing, in
either case, which could reasonably be expected to result in an increase in the
annual contributions necessary to satisfy the minimum funding requirements of
ERISA or the terms of such Plan to any of the Company of $1,000,000 or more;
(g) within three (3) Business Days after receipt by the Company or any
ERISA Affiliate of the PBGC's intention to terminate a Benefit Plan or to have a
trustee appointed to administer a Benefit Plan, in either case which could
reasonably be expected to result in a liability to the Company of $1,000,000 or
more, copies of each such notice;
(h) within ten (10) Business Days after receipt by the Company or any
ERISA Affiliate of any unfavorable determination letter from the Internal
Revenue Service regarding the qualification of a Plan under Section 401(a) of
the Code which could reasonably be expected to result in a liability to the
Company of $1,000,000 or more, copies of each such letter;
(i) within ten (10) Business Days after receipt by the Company or any
ERISA Affiliate of a notice regarding the imposition of withdrawal liability of
$1,000,000 or more under Section 4203, 4204 or 4205 of ERISA, copies of each
such notice;
(j) within ten (10) Business Days after the Company or any ERISA
Affiliate fails to make a required installment or any other required payment of
$1,000,000 or more under Section 412 of the Code on or before the due date for
such installment or payment, a notification of such failure; and
(k) within ten (10) Business Days after the Company or any ERISA
Affiliate knows (a) a Multiemployer Plan has been terminated, (b) the
administrator or plan sponsor of a Multiemployer Plan intends to terminate a
Multiemployer Plan, or (c) the PBGC has instituted or will institute proceedings
under Section 4042 of ERISA to terminate a Multiemployer Plan, in any such case,
which could reasonably be expected to result in a liability to the Company of
$1,000,000 or more, a written statement setting forth any such event or
information.
For purposes of this Section 8.9, the Company and any ERISA Affiliate
shall be deemed to know all facts known by the administrator of any Plan of
which such entity is the plan sponsor.
The Company shall establish, maintain and operate all Plans to comply
with the applicable provisions of ERISA, Code, and all other applicable laws,
other than to the extent that the Company is in good faith contesting by
appropriate proceedings the validity or application of any such provision or
law, except to the extent failure to so comply could not reasonably be expected
to result in the Company incurring a liability, individually or in the aggregate
equal to or in excess of $2,500,000.
8.10. ENVIRONMENTAL MATTERS.
(a) The Company will use its best efforts to conduct its business and
the businesses of each of its Subsidiaries so as to comply with all
Environmental Laws in all jurisdictions in which any of them is or may at any
time be doing business, except to the extent that the Company or any of its
Subsidiaries are contesting, in good faith by appropriate legal proceedings, any
such Environmental Law or interpretation thereof or application thereof and
except where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect; provided, further, that the Company and each of its
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Subsidiaries shall comply with the order of any court or other governmental body
or applicable jurisdiction relating to such Environmental Laws unless the
Company or Subsidiary shall currently be prosecuting an appeal or proceedings
for review and shall have secured a stay of enforcement or execution or other
arrangement postponing enforcement or execution pending such appeal or
proceedings for review. If the Company or any Subsidiary of the Company shall
(a) receive notice that any violation of any Environmental Law may have been
committed or is about to be committed by the Company or any such Subsidiary, (b)
receive notice that any administrative or judicial complaint or order has been
filed or is about to be filed against the Company or any such Subsidiary
alleging violations of any Environmental Law or requiring the Company or any
such Subsidiary to take any action in connection with the release of Hazardous
Substances into the environment or (c) receive any notice from a federal, state,
or local governmental agency or private party alleging that the Company or
Subsidiary may be liable or responsible for costs associated with a response to
or cleanup of a release of a Hazardous Substance into the environment or any
damages caused thereby, the Company shall provide the Agent with a copy of such
notice within thirty (30) days after the receipt thereof by the Company or such
Subsidiary. The Company shall promptly take all actions necessary to prevent the
imposition of any Liens on any of its properties or any of the properties of any
of its Subsidiaries arising out of or related to any environmental matters.
(b) In the event that any investigation, site monitoring, containment,
cleanup, removal, restoration or other remedial work of any kind or nature (the
"REMEDIAL WORK") with respect to any real property owned, operated or leased by
the Company or any of its Subsidiaries is required to be performed by the
Company or any of the Subsidiaries under any applicable local, state or federal
law or regulation, any judicial order, or by any governmental or nongovernmental
entity or Person because of, or in connection with, the current or future
presence, suspected presence, release or suspected release of a Hazardous
Substance in or into the air, soil, groundwater, surface water or soil vapor on,
about, under or within the property (or any portion thereof), the Company or
such Subsidiary shall within 30 days after written demand
for performance thereof by Purchaser (or such shorter period of time as may be
required under any applicable law, regulation, order or agreement), commence and
thereafter diligently prosecute to completion, all such Remedial Work unless the
requirement to perform such Remedial Work is being contested in good faith by
the Company.
8.11. COLLATERAL RECORDS.
The Company agrees to promptly execute and deliver, and to cause each
of its Subsidiaries to execute and deliver, to the Agent, from time to time,
solely for the Agent's convenience in maintaining a record of the Collateral,
such written statements and schedules as the Agent may reasonably require,
including without limitation those described in Section 8.1 of this Agreement,
designating, identifying or describing the Collateral pledged to the Agent for
the benefit of the Purchasers. The Company's or any of its Subsidiaries'
failure, however, to promptly give the Agent such statements or schedules shall
not affect, diminish, modify or otherwise limit the Agent's security interests
in the Collateral. In addition, upon the Agent's reasonable request, the Company
will make available to the Agent copies of agreements with, or purchase orders
from, the customers of the Company and its Subsidiaries, and copies of invoices
to customers, proof of shipment or delivery and such other documentation and
information relating to said Collateral as the Agent may reasonably require.
Failure to provide the Agent with any of the foregoing shall in no way affect,
diminish, modify or otherwise limit the security interests granted herein. The
Company hereby authorizes the Agent to regard its or any of its Subsidiaries'
printed name or rubber stamp signature on assignment schedules or invoices as
the equivalent of a manual signature by such Person's authorized officers or
agents.
8.12. SECURITY INTERESTS.
The Company will defend the Collateral against all claims and demands
of all Persons at any time claiming the same or any interest therein which
claims or demands are in excess of $500,000 or otherwise affect a material
portion of the Collateral (provided, however, that the failure to be successful
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in such defense shall only be an Event of Default hereunder to the extent set
forth in Section 10.1(g) below). The Company agrees to comply, and to cause
each of its Subsidiaries to comply, with the requirements of all state and
federal laws in order to grant to the Agent and the Purchasers valid and
perfected security interests in the Collateral (other than Collateral located
outside the United States and, except as required by the Security Agreement,
motor vehicles and other equipment covered by a certificate of title statute),
subject only to prior Liens permitted pursuant to Section 9.4(a), Section
9.4(e), Section 9.4(f), Section 9.4(h), Section 9.4(i) and Permitted Liens prior
to Purchasers' security interest by operation of law and other Liens permitted
pursuant to Section 9.4 hereof, and except to the extent the Agent's Lien in
cash held by the Company as ▇▇▇▇▇ cash or till cash in the ordinary course of
its business consistent with past practice shall not remain perfected. Without
limiting the generality of the foregoing, the Company shall promptly, upon the
request of the Purchaser, at the Company's expense, execute, acknowledge and
deliver, or cause the execution, acknowledgment and delivery of, and thereafter
register, file or record, or cause to be registered, filed or recorded, in an
appropriate governmental office, any document or instrument supplemental to or
confirmatory of the Ancillary Documents or otherwise deemed by the Agent
necessary or reasonably desirable
for the continued validity, perfection and priority of the Liens on the
Collateral covered thereby to the extent required by the immediately preceding
sentence. The Agent is hereby authorized by the Company to file any financing
statements covering the Collateral whether or not the Company's signatures
appear thereon. The Company agrees to do, and to cause each of its Subsidiaries
to do, whatever the Agent may reasonably request, from time to time, by way of:
filing notices of liens, financing statements, fixture filings and amendments,
renewals and continuations thereof; cooperating with the Agent's custodians;
keeping stock records; using best efforts to obtain waivers from landlords and
mortgagees and from warehousemen, fillers, processors and packers and their
respective landlords and mortgagees; paying claims, which might if unpaid,
become a Lien on the Collateral; and performing such further acts as the Agent
may reasonably require in order to effect the purposes of this Agreement and the
other Note Documents. Any and all fees, costs and expenses, of whatever kind and
nature (including any Taxes, attorneys' fees or costs for insurance of any
kind), which Purchaser or the Agent may incur with respect to the Collateral of
the Obligations under the Note Documents; in filing public notices; in preparing
or filing documents; making title examinations or rendering opinions; in
protecting, maintaining, or preserving the Collateral or its interest therein;
in enforcing or foreclosing the Liens hereunder, whether through judicial
procedures or otherwise; or in defending or prosecuting any actions or
proceedings arising out of or relating to its transactions with the Company or
any of its Subsidiaries under this Agreement or any other Note Document, shall
be borne and paid by the Company. If same are not promptly paid by the Company,
the Agent may pay same on the Company's behalf, and the amount thereof shall be
an Obligation secured under the Ancillary Documents and due to the Agent on
demand.
The Company will cause to be delivered to the Purchaser and the Other
Purchasers title insurance policies, in a form satisfactory to the Agent, with
respect to the Mortgages delivered hereunder at the Closing, as soon as
practicable after the Closing, if and to the extent title insurance policies
shall be required to be delivered under the Revolving Credit Agreement with
respect to the mortgages granted pursuant to the Revolving Credit Agreement.
8.13. TAXES.
The Company agrees to pay, when due, and to cause each of its
Subsidiaries to pay when due, all Taxes lawfully levied or assessed against the
Company, any of its Subsidiaries or any of the Collateral; provided, however,
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that, unless such Taxes have become a federal tax or ERISA Lien on any of the
assets of such Person, no such Tax need be paid if the same is being contested,
in good faith, by appropriate proceedings promptly instituted and diligently
conducted and if an adequate reserve or other appropriate provision shall have
been made therefor as reflected on the audited financial statements for the
fiscal year ended December 31, 1997 in accordance with GAAP, and, to the extent
such reserves shall be taken thereafter, consistent with the Company's past
practice.
8.14. COLLECTION OF ACCOUNTS.
Unless an Event of Default has occurred and shall not have been
waived, the Company may and will enforce and collect in accordance with its
credit and collection policy, all amounts owing on the Accounts, for the
Purchasers' benefit and on the Purchasers' behalf, but at the Company's expense
in accordance with the provisions of Section 13.1 hereof; such privilege shall
terminate automatically, however, upon the occurrence and during the continuance
of any Event of Default after notice from the Agent. Subject to the rights of
the lenders under the Revolving Credit Agreement, any checks, cash, notes or
other instruments or property received by the Company or any Subsidiary with
respect to any Accounts shall be immediately deposited with the Agent. No
checks, drafts or other instruments received by the Agent shall constitute final
payment unless and until such instruments have actually been collected.
8.15. NOTICE; CREDIT MEMORANDA; RETURNED GOODS.
The Company agrees to issue credit memos promptly (with copies made
available to the Purchasers upon request) upon accepting returns or granting
allowances, and may continue to do so until after the occurrence and during the
continuance of an Event of Default and notice from the Agent. After the
occurrence and during the continuance of an Event of Default and notice from the
Agent, the Company agrees that all returned, reclaimed or repossessed
merchandise or goods shall be set aside by the Company, marked with the name of
the Agent and held by the Company for the account of the Agent, all lenders
under the Revolving Credit Agreement (if required by the terms thereof or the
other documents relating to the same) and the Purchasers as owners and
assignees.
8.16. TRADEMARKS.
The Company shall do and cause to be done all things necessary to
preserve and keep in full force and effect all registrations of trademarks,
service marks and other marks, trade names or other trade rights unless any of
the foregoing is no longer in use or is of immaterial value. Promptly after
obtaining any federal registration of any trademark, trade name or other trade
right or the filing of any application therefor, the Company shall deliver to
Agent for the benefit of the Purchasers an undated Trademark Security Agreement,
executed in blank, with respect to each such registration and application.
8.17. PATENTS.
The Company shall do and cause to be done all things necessary to
preserve and keep in full force and effect all patents and patent applications
unless any of the foregoing is no longer in use or of immaterial value.
Promptly after obtaining any federal registration of any patent or the filing of
any application therefor, the Company shall deliver to Agent for the benefit of
the Purchasers an undated Patent Security Agreement, executed in blank, with
respect to each such registration or application.
9. NEGATIVE COVENANTS.
The Company covenants and agrees that, so long as any of the Secured
Notes is outstanding, the Company shall perform all covenants in this Section 9.
9.1. DEBT AND GUARANTEES.
The Company shall not, and shall not permit any of its Subsidiaries
to, create, incur, assume or permit to be outstanding any Debt of Company other
than:
(a) Debt incurred pursuant to this Agreement and the Other
Agreements;
(b) Debt outstanding on the Closing Date and identified on Schedule
9.1;
(c) Debt incurred under the Revolving Credit Agreement, provided that
the outstanding principal amount of the Debt under the Revolving Credit
Agreement shall not exceed $120,000,000;
(d) Debt in aggregate outstanding principal amount not in excess of
$25,000,000 of any Foreign Subsidiaries and Guarantees thereof;
(e) [INTENTIONALLY OMITTED];
(f) Any other Funded Debt not described in clauses (a) through (d)
above (the "ADDITIONAL PERMITTED DEBT") which, when aggregated with the Funded
Debt of Company under clauses (a), (b) and (c) above then outstanding, shall not
exceed the principal sum of $225,000,000 provided that the terms of such Debt
are not more restrictive or burdensome in any material respect on the Company
than those set forth herein;
(g) Debt created in connection with the refinancing of any Debt
permitted under clauses (a) through (c) and clause (f) above in an amount not
greater than the amount required to pay the Debt so refinanced, provided such
Debt shall contain terms substantially equivalent to (or more favorable to the
Company than) the terms of the Debt being refinanced, and without limiting the
foregoing, any principal payment dates (including sinking fund payments) of the
debt created cannot be earlier than the Debt refinanced; and any such Debt
created to refinance any Debt subordinated to the Obligations under the Note
Documents (or any part thereof) shall be expressly subordinated to such
Obligations and contain subordination terms and such other terms and conditions
which, in each case in the reasonable judgment of Purchaser and the Other
Purchasers, are substantially equivalent (or more favorable to Purchasers) to
those contained in the Debt being refinanced. Any Debt originally permitted
under clause (f) above which is subsequently refinanced as permitted by this
clause (g) will constitute usage of the dollar amount limitations provided in
such clause and, will, but only to the extent and in the amounts outstanding,
reduce the amounts otherwise permitted thereunder; and
(h) To the extent that any Subsidiary of the Company guarantees the
obligations of the Company otherwise permitted hereunder pursuant to Section
9.14, Debt of the Company to such Subsidiaries.
9.2. RESTRICTED PAYMENTS.
The Company will not, directly or indirectly, (i) except with (a)
unused Unrestricted Proceeds, and (b) cumulative unused Excess Consolidated Net
Income and, in each case only so long as no Default or Event of Default shall
have occurred and be continuing, declare or pay any dividend or make any
distribution on its capital stock or to the holders of its capital stock (other
than (x) dividends or distributions payable in its capital stock or rights to
acquire its capital stock and (y) so long as no Default or Event of Default
shall have occurred and be continuing or would result therefrom, cash dividends
on preferred stock), (ii) except with (a) unused Unrestricted Proceeds and (b)
cumulative unused Excess Consolidated Net Income and, in each case only so long
as no Default or Event of Default shall have occurred and be continuing, redeem,
repurchase or otherwise acquire or retire for value, or permit any Subsidiary
to, directly or indirectly, redeem, purchase or otherwise acquire or retire for
value, any such capital stock (except shares acquired upon the conversion
thereof into other shares of capital stock or rights to acquire such capital
stock, odd lot shares, and except for the repurchase or acquisition of such
capital stock held by directors, officers or employees of the Company or any
domestic Subsidiary upon death, disability, retirement or termination of
employment not to exceed $1,500,000 in the aggregate in any fiscal year) or
rights to acquire such capital stock or (iii) except with (a) unused
Unrestricted Proceeds, and (b) cumulative unused Excess Consolidated Net Income,
in each case only so long as no Default or Event of Default shall have occurred
and be continuing, redeem, repurchase, defease or otherwise acquire or retire
for value, or permit any Subsidiary to, directly or indirectly, redeem,
repurchase, defease or otherwise acquire or retire for value, prior to any
scheduled or mandatory maturity, scheduled or mandatory repayment or scheduled
sinking fund payment (after giving effect to the exercise of any and all
unconditional (other than as to the giving of notice) options to extend the
maturity), Debt of the Company or any of such Subsidiaries (other than Debt
pursuant to this Agreement or the Revolving Credit Agreement and the refinancing
of Debt permitted by Section 9.1 (g) hereof); provided, however that so long as
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any of the Obligations remain outstanding hereunder neither Company nor any
Subsidiary shall be permitted to use in excess of $5,000,000 in the aggregate
to, directly or indirectly, redeem, repurchase, defease or otherwise acquire or
retire for value, any of the Subordinated Notes.
9.3. INVESTMENTS.
The Company will not, and will not permit any of its Subsidiaries to,
make or acquire any Investment in any Person other than:
(a) Investments in Subsidiaries existing on the Closing Date and
disclosed on Schedule 9.3 and Investments in Subsidiaries in the form of loans
and advances permitted under Section 9.1(h) hereof;
(b) Permitted Investments;
(c) Investments consisting of purchase money notes received in
connection with the sale or disposition of any asset, provided that such sale or
disposition was made in accordance with the terms of this Agreement;
(d) Financial support permitted pursuant to Section 9.9 hereof; and
(e) Investments in new Subsidiaries, including new Foreign
Subsidiaries created after the date hereof, in an aggregate amount not to
exceed, at any one time, the sum of (i) $7,000,000 plus, without duplication,
(ii) unused Unrestricted Proceeds, and (iii) unused Excess Consolidated Net
Income.
9.4. NEGATIVE PLEDGE.
Neither the Company nor any Subsidiary will create, assume or suffer
to exist any Lien on any asset now owned or hereafter acquired by it, except:
(a) Liens existing on the Closing Date and listed in Schedule 5.15
hereto securing Debt outstanding on the Effective Date;
(b) any Lien arising pursuant to any order of attachment, distraint
or similar legal process arising in connection with court proceedings so long as
the execution or other enforcement thereof is effectively stayed and the claims
secured thereby are being contested in good faith by appropriate proceedings and
adequate reserves in accordance with GAAP have been set aside;
(c) any Lien on an asset of a Subsidiary, securing Debt owed to the
Company;
(d) Liens created by and existing under the Ancillary Documents;
(e) [INTENTIONALLY OMITTED];
(f) Liens securing Debt incurred pursuant to Section 9.1(f) incurred
or assumed, in either case, for the purpose of financing all or any part of the
cost of acquiring an asset (other than Inventory), provided that such Lien
attaches only to such asset and attaches concurrently with or within 90 days
after the acquisition thereof;
(g) any Permitted Liens;
(h) Liens securing Debt under the Revolving Credit Agreement;
(i) any extension, renewal or substitution of or for any of the
foregoing Liens described in clauses (a), (f), and (g) above or this clause (i);
provided in each case that (i) the
Debt or other obligation or liability secured by the applicable Lien shall not
exceed the Debt or other obligation or liability existing immediately prior to
such extension, renewal or substitution and (ii) the Lien securing such Debt or
other obligation or liability shall be limited to the property which,
immediately prior to such extension, renewal or substitution, secured such Debt
or other obligation or liability, and improvements on or additions to such
property.
9.5. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS.
(a) The Company may sell, convey, lease or otherwise transfer, or
cause or permit any of its Subsidiaries to sell, convey, lease or otherwise
transfer, directly or indirectly, in whole or in part, any assets as permitted
herein: (i) Inventory in the ordinary course of business, (ii) surplus,
obsolete or worn out property disposed of in the ordinary course of business,
(iii) Accounts supported by letters of credit discounted on a commercially
reasonable basis, (iv) Cash Equivalents in the ordinary course of business, (v)
fixed assets valued at up to $100,000 per year for less than fair consideration
and (vi) other assets, provided that (a) such dispositions of other assets under
clause (vi) shall be for fair value and (b) the Net Cash Proceeds thereof shall
be used to repay the Secured Notes as expressly provided in Section 7.2,
provided no such transaction can be consummated (except the sale of Inventory in
the ordinary course of business) if at the time of or by reason of or after
giving effect to such transaction, a Default or Event of Default shall exist;
provided however, that, without the written consent of the Required Holders, the
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Company shall not sell, convey, lease or otherwise transfer, directly or
indirectly, in whole or in part, any Proprietary Rights or interests therein.
(b) The Company shall continue to maintain the operating integrity of
its business and shall continue to operate only in the same general types of
businesses as now conducted thereby and reasonable extensions thereof, and shall
continue to preserve, renew and keep in full force and effect, its corporate
existence and all material rights, privileges and franchises necessary or
desirable in the normal conduct of its business, provided, however, that asset
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sales, mergers, consolidations and liquidations shall be allowed as permitted
under Sections 9.5(a) and (c) (so long as the Company shall continue to be
operated only in the same general types of businesses as now conducted and
reasonable extensions thereof).
(c) The Company will not and will not permit any Subsidiary (except
as otherwise permitted herein and excluding, in any case, a Foreign Subsidiary)
to consolidate or merge with or into any other Person, provided that (i) the
Company may merge with or into another Subsidiary if the Company is the
corporation surviving such merger, (ii) any Subsidiary may merge with or into
any other Person provided that (x) following the merger the surviving
corporation shall be a wholly-owned Subsidiary of the Company engaged in the
same or similar general type of business as conducted by such Subsidiary prior
to such merger, (y) if such Person shall be the corporation surviving such
merger, and such Person is required by Section 9.14 hereof to guarantee the
Obligations of the Company hereunder such person executes such guarantee, and
(z) prior to completing the merger Purchaser receive such Acknowledgment
Agreements as Purchaser may reasonably request from any mortgagee or lessor of
property on which any Collateral is stored or otherwise located or any
warehouseman, filler, processor or packer at which any Collateral is stored or
otherwise located, and (iii) any Subsidiary may
liquidate and transfer substantially all its assets to, or consolidate with, or
merge into, the Company (so long as the provisions of Section 9.5(b) shall be
observed); and provided further, however, that no such consolidations or mergers
-------- ------- -------
may be done at such time as there shall be an Event of Default hereunder or if
either by reason of, or after giving effect to such transaction there would be a
Default or an Event of Default. In the event of any such permitted consolidation
or merger, the Agent and the Purchaser shall be given at least (i) ten (10)
Business Days' advance notice for any consolidation or merger of the Company
into any other Person and (ii) notice within five (5) Business Days of any other
consolidation or merger, and the Company shall, in connection with any such
consolidation or merger, execute, record and file such instruments and
certificates, if any, as may be necessary to continue the perfection and
relative priorities of the Liens of the Agent and the Purchasers in the
Collateral (including the assets being acquired by the Company by virtue of such
merger). In addition, the assets of any Subsidiary becoming a guarantor as
contemplated by Section 9.14 hereof may be disposed of through a merger or
consolidation of such Subsidiary with and into another Person that is not an
Affiliate of such Subsidiary or by a sale of 100% of the capital stock of any
such Subsidiary to another such Person, if, and only if the disposition of
assets resulting from such merger, consolidation or stock sale, if completed as
an asset sale, would be permitted pursuant to Section 9.5(a) hereof, including,
to the extent applicable, compliance with the requirements for a permitted asset
sale set forth therein.
(d) Subject to any other applicable provision of this Agreement, the
Company will not and will not permit any Subsidiary to purchase or otherwise
acquire all or substantially all of the assets of any Person or all or
substantially all of the capital stock or other ownership interests of any
Person if at such time there shall be an Event of Default hereunder or if either
by reason of, or after giving effect to, any such transaction there would be a
Default or Event of Default.
9.6. CAPITAL EXPENDITURES.
Consolidated Capital Expenditures shall not, for any fiscal year of
the Company, exceed $11,000,000, subject to the additional provisions of this
Section 9.6. To the extent Consolidated Capital Expenditures in any fiscal year
are less than the maximum permitted amount of Consolidated Capital Expenditures
determined pursuant to this Section 9.6 for such fiscal year, the amount of such
difference may be carried forward and used to determine the maximum permitted
amount of Consolidated Capital Expenditures in succeeding fiscal years of the
Company, provided that the maximum amount carried forward to any fiscal year
pursuant hereto shall not exceed an amount equal to 50% of the amount of the
maximum Consolidated Capital Expenditures so determined for the immediately
preceding fiscal year.
As an addition to the maximum permissible amounts of Consolidated
Capital Expenditures for each fiscal year as set forth above, the Company and
its Consolidated Subsidiaries may incur additional Consolidated Capital
Expenditures out of any Insurance Proceeds, unused Unrestricted Proceeds, and
unused Excess Consolidated Net Income from the preceding fiscal year. The
Company may also incur additional Consolidated Capital
Expenditures not to exceed the aggregate amount of $2,500,000 during the term
hereof for or in connection with costs of compliance or remediation measures
relating to Environmental Laws.
9.7. MINIMUM EBITDA.
The Company shall not permit EBITDA for each of the periods ending on
the dates set forth below to be less than the amount set forth for such period:
Period Ending Minimum EBITDA
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The 12 month period ending ($2,000,000)
December 31, 1998
The 3 month period ending $ 2,250,000
March 31, 1999
The 6 month period ending $ 5,250,000
June 30, 1999
The 9 month period ending $ 9,250,000
September 30, 1999
The 12 month period ending $14,000,000
December 31, 1999
The 12 month period ending $15,100,000
March 31, 2000
The 12 month period ending $16,000,000
June 30, 2000
The 12 month period ending $17,250,000
September 30, 2000
The 12 month period ending $18,500,000
December 31, 2000
The 12 month period ending $21,000,000
March 31, 2001
The 12 month period ending $23,500,000
June 30, 2001
The 12 month period ending $26,500,000
September 30, 2001
The 12 month period ending $28,000,000
December 31, 2001
9.8. TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay any funds to or for the account of, make any
Investment (whether by acquisition of stock or indebtedness, by loan, advance,
transfer of property, guarantee or other agreement to pay, purchase or service,
directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, to, or participate in,
or effect any other transaction with, or render to or receive any service from,
any Affiliate provided, however, that the foregoing provisions of this Section
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9.8 shall not prohibit, (a) the Company or any Subsidiary from making sales to
or purchases from any Affiliate and, in connection therewith, extending credit
or making payments, or from making payments for services rendered by any
Affiliate, or from effecting any other transactions with an Affiliate, if such
sales or purchases are made or such services are rendered, or such other
transactions are effected, on terms and conditions at least as favorable and
reasonable to the Company or such Subsidiary as the terms and conditions which
would apply in a similar transaction on an arm's length basis with a Person not
an Affiliate and will not have a material adverse effect on the Collateral taken
as a whole, (b) the preparation and filing of one or more registration
statements with respect to securities of the Company owned by Apollo or a
Controlled Account or an Affiliate of a Controlled Account, and the payment of
reasonable expenses associated therewith other than underwriting discounts and
commissions so long as no Default or Event of Default shall have occurred and be
continuing, (c) the Company or any Subsidiary from participating in, or
effecting, any other transaction in connection with, any joint enterprise or
other joint arrangement with, any Affiliate if the Company or such Subsidiary
participates on a basis no less advantageous than the basis on which such
Affiliate participates on terms and conditions which would apply in a similar
transaction on an arm's length basis with a Person not an Affiliate, (d) payment
of fees in the aggregate amount not to exceed $1,000,000 to Apollo, a Controlled
Account or an Affiliate of Apollo or of a Controlled Account and Furniture
Brands in any fiscal year in respect of services rendered provided such fees are
approved by the Board of Directors of the Company and no Default or Event of
Default shall have occurred and be continuing on the date of such payment or
occasioned thereby; and (e) payments due to Furniture Brands with respect to the
Tax Sharing Agreement dated as of November 17, 1994, so long as no Default or
Event of Default shall have occurred and be continuing on the date of such
payment or occasioned thereby. For purposes of this Section 9.8, the term
"Affiliate" shall not include Subsidiaries of the Company.
The foregoing restrictions shall not apply to reasonable fees paid to
and indemnity provided on behalf of the Directors and officers of the Company or
any of its Subsidiaries in the ordinary course of business and consistent with
past practices.
9.9. RESTRICTIONS ON FOREIGN SUBSIDIARY SUPPORT.
The Company will not permit to exist any open account sales, transfers
by the Company of goods of any kind, or any other financial support, and will
not permit any of its Subsidiaries to do any of the foregoing, to any Foreign
Subsidiary, if, when aggregated with the then outstanding open account sales,
transfers of goods, or other financial support by the Company to all Foreign
Subsidiaries, the fair value thereof, as reasonably determined by the Company,
would exceed $110,000,000 at any one time; provided that no such financial
support shall be deemed an "Investment" for purposes of this Agreement.
9.10. ENVIRONMENTAL MATTERS.
The Company, will not, and will not permit any of the Subsidiaries to,
use, generate, manufacture, produce, store, release, discharge or dispose of,
on, under or about any real property owned, operated or leased by the Company or
any of its Subsidiaries, or transport to or from any such property, any
Hazardous Substance, or (to the extent within the Company's or any such
Subsidiary's control) permit any other person to do so, where such could
reasonably be expected to have a Material Adverse Effect.
9.11. AMENDMENTS TO CERTIFICATES OF INCORPORATION AND BY-LAWS AND REVOLVING
CREDIT AGREEMENT.
The Company shall not, nor shall it permit any of its Subsidiaries to,
alter or modify their respective Articles or Certificate of Incorporation or By-
Laws in any manner which could reasonably be expected to have a Material Adverse
Effect. The Company shall not change its corporate name, mailing address,
principal place of business or structure, unless it shall have complied with the
requirements of Section 8.5 hereof. The Company shall not enter into any
amendment or modification of the Revolving Credit Agreement which would result
in, or have the effect of causing, (i) the covenants and default provisions
thereof to be more restrictive or burdensome in any material respect on the
Company than those set forth herein on the date hereof, (ii) any change in any
of the percentages in the definition of "borrowing base" in the Revolving Credit
Agreement or the $10,000,000, $360,000 or $1,000,000 amounts in paragraph (D) or
the $15,000,000 amount in paragraph (E) of the definition of "borrowing base"
in the Revolving Credit Agreement or any change in the definition of "eligible
accounts receivable", "eligible inventory" or "eligible retail inventory" in the
Revolving Credit Agreement, (iii) the mandatory prepayment provisions thereof to
provide for a smaller portion of the proceeds of the transactions contemplated
thereby to be applied to the Company's Obligations under the Secured Notes and
this Agreement or (iv) any other change in the terms and provisions of the
Revolving Credit Agreement in a manner that would be materially detrimental to
the Company.
9.12. NO PROHIBITED TRANSACTIONS UNDER ERISA.
The Company shall not do any of the following if such action could
reasonably be expected to result in the Company incurring a liability,
individually or in the aggregate equal to or in excess of $2,500,000:
(a) Engage, or permit any ERISA Affiliate to engage, in any
prohibited transaction which could result in a civil penalty or excise tax
described in Sections 502(i) of ERISA or 4975 of the Code for which a statutory
or class exemption is not available or a private exemption has not been
previously obtained from the DOL;
(b) permit to exist with respect to any Benefit Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the Code),
whether or not waived;
(c) fail, or permit any ERISA Affiliate to fail, to pay timely
required contributions or annual installments due with respect to any waived
funding deficiency to any Benefit Plan;
(d) terminate, or permit any ERISA Affiliate to terminate, any
Benefit Plan;
(e) fail, or permit any ERISA Affiliate to fail, to make any required
contribution or payment to any Multiemployer Plan;
(f) fail, or permit any ERISA Affiliate to fail, to pay any required
installment or any other payment required under Section 412 of the Code on or
before the due date for such installment or other payment;
(g) amend, or permit any ERISA Affiliate to amend, a Benefit Plan
resulting in an increase in current liability for the plan year such that any
Company or any ERISA Affiliate is required to provide security to such Plan
under Section 401(a)(29) of the Code; or
(h) withdraw, or permit any ERISA Affiliate to withdraw, from any
Multiemployer Plan.
9.13. NO ADDITIONAL BANK ACCOUNTS.
The Company will not, and shall not permit any of its domestic
Subsidiaries to, directly or indirectly, open, maintain or otherwise have any
checking, savings or other accounts at any bank or other financial institution,
or any other account where money is or may be deposited or maintained with any
Person, other than the accounts set forth on Schedule 9.13, except to the extent
the Company shall give Purchasers and the Agent prior written notice thereof.
9.14. NO ADDITIONAL SUBSIDIARIES.
The Company will not, and shall not permit any of its Subsidiaries
(other than Foreign Subsidiaries) to, directly or indirectly, form or acquire
any new Subsidiaries, including Foreign Subsidiaries, unless, and subject to the
limitations of Section 9.3 hereof, (i) with respect to Foreign Subsidiaries, the
capital stock thereof owned by the Company shall be pledged as part of the
Collateral except in the case of Foreign Subsidiaries constituting "Controlled
Foreign Corporations" as referenced in Section 5.12(c) hereof, in which case
Company shall not be
required to pledge hereunder or under the other Note Documents more than 65% of
the total combined voting power of all classes of capital stock of such Foreign
Subsidiary entitled to vote, and (ii) with respect to all other Subsidiaries,
the capital stock thereof shall be pledged as part of the Collateral. Not later
than the time any Subsidiary of the Company becomes obligated in any manner for
any of the Obligations of the Company under the Revolving Credit Agreement or
grants a security interest in any of its assets to secure any such Obligations,
the Company shall cause such Subsidiary to guaranty the Obligations of the
Company under this Agreement pursuant to a guaranty in form and substance
satisfactory to the Purchaser and to enter into one or more security agreements
in form and substance satisfactory to the Purchaser to secure such Subsidiary's
Obligations under such guaranty. Notwithstanding anything herein to the
contrary, the covenants of this Section 9.14 shall not restrict the formation
of, and shall not apply with respect to, any Subsidiary formed as a "bankruptcy
remote" subsidiary or trust in connection with a Royalties Securitization.
10. EVENTS OF DEFAULT.
10.1. EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an
"EVENT OF DEFAULT" hereunder:
(a) failure of the Company to pay any principal, interest, fees or
expenses or other Obligations when due, whether at stated maturity, by
acceleration or otherwise;
(b) (i) failure of the Company to perform, comply with or observe
any term, covenant or agreement applicable to it contained in Sections 5.20,
9.1, 9.2, 9.4, 9.5, 9.6, 9.7, 9.8, or 9.9;
(ii) failure of the Company to perform, comply with or observe
any term, covenant or agreement applicable to it in Section 8.1(f), (j),
(k)(i)(A), (k)(ii), or (p) and the failure shall continue unremedied until
two (2) Business Days after a senior officer of the Company knowledgeable
of the requirements of this Agreement (including, without limitation, the
chief financial officer or controller or chief accounting officer of the
Company) knows of such failure (provided that this clause (ii) shall not be
deemed to place any additional obligations on any such officer to be so
knowledgeable);
(iii) failure of the Company to perform, comply with or observe
any term, covenant or agreement applicable to it in Section 8.1 (other than
a provision of Section 8.1 covered by subparagraph (ii) above), 8.3, 8.9,
8.12, or 9.3 and the failure shall continue unremedied until two (2)
Business Days after the delivery by the Agent and/or the Purchaser of
notice to the Company of such failure;
(iv) failure of the Company to perform, comply with or observe
any term, covenant or agreement applicable to it in Sections 8 or 9 hereof
(other than a
provision covered by subparagraphs (i), (ii) or (iii) above) and the
failure shall continue unremedied until ten (10) Business Days after the
delivery by the Agent and/or the Purchaser of notice to the Company of such
failure;
(c) breach by the Company of any representation or warranty, or
failure to comply with any covenant, contained in this Agreement (other than
under a provision covered by subsection (a) or (b) above), the other Note
Documents or any other agreement, document, instrument or certificate among the
Company, Purchaser and/or Agent or executed by the Company in favor of Purchaser
and/or the Agent, which breach or failure shall continue unremedied more than
ten (10) Business Days after the Agent's and/or the Purchaser's delivery of
notice to the Company of such breach (such grace period to apply only to the
extent such breach or failure is curable within such ten (10) Business Day
period);
(d) (i) the Company or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Company or any
of its Subsidiaries shall make a general assignment for the benefit of
creditors; or (ii) there shall be commenced against the Company or any of its
Subsidiaries any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for 60 days after the entry thereof; or (iii) there shall be commenced
against the Company or any of its Subsidiaries any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal for 60 days;
(e) a Change in Control shall have occurred;
(f) the Company or any of its Subsidiaries shall (i) default in any
payment of principal of or interest on any Debt or in the payment of any
Guarantee the aggregate principal amount of the series of Debt under which such
Debt is issued and the aggregate principal amount of the obligation guaranteed
by such Guarantee equals or exceeds $3,000,000; or (ii) default in the
observance or performance of any other agreement or condition relating to any
such Debt or Guarantee or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition exist,
the effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Debt or beneficiary or beneficiaries of
such Guarantee (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice if required,
such Debt to become due prior to its stated maturity or such Guarantee to become
due prior to its stated maturity or such Guarantee to become payable;
(g) (i) any material covenant, agreement or obligation of any party
contained in or evidenced by any of the Note Documents shall cease to be
enforceable in accordance with its terms, or any party (other than Purchasers)
to any Note Document shall deny or disaffirm it obligations under any of the
Note Documents, or any Note Document shall be cancelled, terminated, revoked or
rescinded without the express prior written consent of Purchasers, (ii) any of
the Note Documents shall cease for any reason to be in full force and effect
(other than in accordance with the terms hereof or thereof) or any action or
proceeding shall have been commenced by any Person (other than other than
Purchasers) seeking to cancel, revoke, rescind or disaffirm the obligations of
any party to any Note Document, (iii) any court or other governmental authority
shall issue a final judgment, order, decree or ruling for the payment of money
(a "JUDGMENT") and such Judgment is in an amount (determined after an allowance
for the application of any insurance proceeds to such Judgment) in excess of
$1,000,000 and enforcement proceedings shall have been commenced upon any such
Judgment or any such Judgment shall remain unpaid after a period of ten (10)
consecutive days during which a stay of such enforcement of any such Judgment,
including, without limitation, by reason of a pending appeal or otherwise, shall
not be in effect, or (iv) any security interest or lien purported to be created
by the Ancillary Documents shall cease to be valid and (to the extent required
by the Ancillary Documents) perfected or the Company shall so have asserted,
except that the failure of any security interest or lien purported to be created
by the Ancillary Documents to be valid and perfected shall not in itself
constitute a default hereunder if the value of the Collateral purported to be
covered thereby is, in the aggregate, not in excess of $1,000,000; and
(h) the Company shall have failed to file with the SEC the
registration statement relating to the Underlying Common Stock, or such
registration statement shall have failed to have been declared effective by the
SEC, in either case, on or prior to the 270th day after the Closing Date.
10.2. ACCELERATION.
Upon the occurrence of an Event of Default which has not been waived
by the Purchaser, the Purchaser, by delivery of written notice to the Company
from Purchaser and/or the Agent, may take any or all of the following actions,
without prejudice to the rights of the Agent or the Purchaser to enforce its
claims against the Company: declare all or any part of the Obligations hereunder
to be immediately due and payable (except with respect to any Event of Default
set forth in Section 13.1(d) hereof, in which case all such Obligations shall
automatically become immediately due and payable without the necessity of any
notice or other demand) without presentment, demand, protest or any other action
or obligation of Purchaser or the Agent; provided, however, that the Purchaser
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agrees to grant to the Company a waiver of compliance by the Company for one
quarter only with Section 9.7 if and only if the appropriate lenders under the
Revolving Credit Agreement have at such time granted a similar waiver to the
Company and no other Default or Event of Default has occurred and is existing at
such time; provided, however, the Purchasers of the Series B Secured Notes can
-------- -------
exercise their rights under this Section 10.2 only if at such time either there
are no outstanding Series A Secured Notes or all Obligations with respect to the
Series A Secured Notes have theretofore been declared due and payable (or
automatically became due and payable) as provided in this Agreement.
If at any time after acceleration of the maturity of the Secured Notes
held by the Purchaser, the Company shall pay all arrears of interest and all
payments on account of principal of such Secured Notes which shall have become
due otherwise than by acceleration (with interest on principal and, to the
extent permitted by law, on overdue interest, at the rates specified in this
Agreement) and all Events of Default and Defaults (other than nonpayment of
principal of and accrued interest on such Secured Notes and other Obligations
hereunder due and payable solely by virtue of acceleration) shall be remedied or
waived, then by written notice to the Company, the Purchaser may elect, in its
sole discretion, to rescind and annul the acceleration and its consequences; but
such action shall not affect any subsequent Default or Event of Default or
impair any right or remedy consequent thereon. The provisions of the preceding
sentence are intended merely to bind Purchaser to a decision which may be made
at the election of the Purchaser; they are not intended to benefit the Company
and do not give the Company the right to require Purchaser to rescind or annul
any acceleration hereunder, even if the conditions set forth herein are met.
10.3. REMEDIES ON DEFAULT.
Immediately upon the occurrence of any Event of Default which has not
been waived as provided in this Agreement, the Agent, as provided in the
Intercreditor Agreement, may:
(a) remove from any premises where same may be located any and all
documents, instruments, files and records (including the copying of any computer
records), and any receptacles or cabinets containing same, relating to the
Accounts, or the Agent may use (at the expense of the Company) such of the
supplies or space of the Company at the Company's place of business or
otherwise, as may be necessary to properly administer and control the Accounts
or the handling of collections and realizations thereon;
(b) bring suit, in the name of the Company or Purchaser and generally
shall have all other rights respecting said Accounts, including without
limitation the right to: accelerate or extend the time of payment, settle,
compromise, release in whole or in part any amounts owing on any Accounts and
issue credits in the name of the Company or Purchaser;
(c) sell, assign and deliver the Accounts and any returned, reclaimed
or repossessed merchandise, with or without advertisement, at public or private
sale, for cash, on credit or otherwise, at the Agent's sole option and
discretion, and Purchaser may bid or become a purchaser at any such sale, free
from any right of redemption, which right is hereby expressly waived by the
Company;
(d) foreclose the security interests created pursuant to the Note
Documents by any available judicial procedure, or to take possession of any or
all of the Inventory and equipment without judicial process and enter any
premises where any Inventory and equipment may be located for the purpose of
taking possession of or removing the same; and
(e) revise, update, amend and otherwise complete the Trademark
Security Agreement as Purchaser the Agent may determine to be necessary or
desirable to, and file, record and register any or all of the Trademark Security
Agreement and Patent Security Agreement with the United States Patent and
Trademark Office in order to, assign and transfer the trademarks and patents
covered thereby to any Person, including, without limitation, the Agent and/or
the Purchaser.
The Agent and the Purchaser shall have the right, without notice of
advertisement, to sell, lease, or otherwise dispose of all or any part of the
Inventory and equipment, whether in its then condition or after further
preparation or processing, in the name of the Company or Purchaser, or in the
name of such other party as the Agent may designate, either at public or private
sale or at any broker's board, in lots or in bulk, for cash or for credit, with
or without warranties or representations, and upon such other terms and
conditions as the Agent in its sole discretion may deem advisable, and Agent or
the Purchaser shall have the right to purchase at any such sale. If any
Inventory and equipment shall require rebuilding, repairing, maintenance or
preparation, the Agent shall have the right, at its option, to do such of the
aforesaid as is necessary, for the purpose of putting the Inventory and
equipment in such saleable form as Agent shall deem appropriate.
The Company agrees, at the request of the Agent, to assemble the
Inventory and equipment and to make it available to the Agent at places which
the Agent shall select, whether at the premises of the Company or elsewhere, and
to make available to the Agent the premises and facilities of the Company or any
Subsidiary for the purpose of the Agent's taking possession of, removing or
putting the Inventory and equipment in saleable form. However, if notice of
intended disposition of any Collateral is required by law, it is agreed that
five (5) days notice shall constitute reasonable notification and full
compliance with the law. The Agent shall be entitled to use all Proprietary
Rights and computer software programs and data bases used by the Company and its
Subsidiaries in connection with their respective businesses or in connection
with the Collateral.
The net cash proceeds resulting from the Agent's exercise of any of
the foregoing rights (after deducting all charges, costs and expenses, including
reasonable attorneys' fees) shall be applied ratably to the payment of the
Company's Obligations to Purchasers, whether due or to become due, in such order
as the Agent may elect. The Company shall remain liable to Purchaser for any
deficiencies, and ▇▇▇▇▇▇▇▇▇ in turn agrees to remit to the Company or its
successors or assigns, any surplus resulting therefrom to the extent any such
surplus is paid to the Purchaser and it has the legal right to retain it.
The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise of any
other rights, all of which shall be cumulative.
11. REGISTRATION; EXCHANGE; SUBSTITUTION OF SECURED NOTES.
11.1. REGISTRATION OF SECURED NOTES.
The Company shall keep at its principal executive office a register
for the registration and registration of transfers of Secured Notes. The name
and address of each holder of one or more Secured Notes, each transfer thereof
and the name and address of each transferee of one or more Secured Notes shall
be registered in such register. Prior to due presentment for registration of
transfer, the Person in whose name any Secured 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.
The Company shall give to any holder of a Secured Note that is an Institutional
Investor promptly upon request therefor, a complete and correct copy of the
names and addresses of all registered holders of Secured Notes.
11.2. TRANSFER AND EXCHANGE OF SECURED NOTES.
(a) Upon surrender of any Secured Note at the principal executive
office of the Company for registration of transfer or exchange (and, in the case
of a surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Secured Note or his attorney duly authorized in writing and accompanied by the
address for notices of each transferee of such Secured Note or part thereof),
the Company shall execute and deliver, at the Company's expense (except as
provided below), one or more new Secured Notes (as requested by the holder
thereof) in exchange therefor, in an aggregate principal amount equal to the
unpaid principal amount of the surrendered Secured Note. Each such new Secured
Note shall be payable to such Person or Persons as such holder may request and
shall be substantially in the form of Exhibit A hereto in the case of Secured
Notes. Each such new Secured Note shall be dated and bear interest from the date
to which interest shall have been paid on the surrendered Secured Note or dated
the date of the surrendered Secured Note if no interest shall have been paid
thereon. The Company may require payment of a sum sufficient to cover any stamp
tax or governmental charge imposed in respect of any such transfer of Secured
Notes. Secured Notes shall not be transferred by any holder of Secured Notes to
any person other than an Affiliate of such holder in denominations of less than
$1,000,000, provided that, if necessary to enable the registration of transfer
by a holder of its entire holding of Secured Notes, one Secured Note may be in a
denomination of less than $1,000,000.
(b) Any transferee, by its acceptance of a Secured Note registered in
its name (or the name of its nominee), shall be deemed (i) to have made the
representations set forth in Sections 6.1 and 6.2 and (ii) to confirm to and
agree with the transferor and the other parties hereto as follows: (A) other
than as provided in any written instrument of transfer executed by the
transferor and such transferee, such transferor makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
any other Note Document or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of, this Agreement or any other Note Document
or any other instrument or document furnished pursuant hereto or thereto; (B)
such transferor makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Company or the
performance or observance by the Company of any of
its obligations under any Note Document or any other instrument or document
furnished pursuant thereto; (C) such transferee confirms that it has received a
copy of this Agreement, together with copies of the financial statements
referred to in Section 8.1 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to purchase the
Secured Note; (iv) such transferee will, independently and without reliance upon
the transferor or any other holder of Secured Notes and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement; and
(v) such transferee agrees that it will perform in accordance with their terms
all of the obligations which by the terms of this Agreement are required to be
performed by it as a holder of a Secured Note.
11.3. REPLACEMENT OF SECURED NOTES.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the ownership of and the loss, theft, destruction or mutilation of any
Secured Note (which evidence shall be, in the case of an Institutional Investor,
notice from such Institutional Investor of such ownership and such loss, theft,
destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it; provided that if the holder of such Secured Note
is, or is a nominee for, an original Purchaser or any other Institutional
Investor, such Person's own unsecured agreement of indemnity shall be deemed to
be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof, the Company, at its own expense, shall execute and deliver, in lieu
thereof, a new Secured Note, dated and bearing interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or mutilated
Secured Note or dated the date of such lost, stolen, destroyed or mutilated
Secured Note if no interest shall have been paid thereon.
12. PAYMENTS ON SECURED NOTES.
So long as Purchaser or Purchaser's nominee shall be the holder of any
Secured Note, the Company will pay all sums becoming due on such Secured Note
for principal and interest by the method and at the address specified for such
purpose below Purchaser's name in Schedule I attached hereto, or by such other
method or at such other address as Purchaser shall have from time to time
specified to the Company in writing for such purpose, without the presentation
or surrender of such Secured Note or the making of any notation thereon, except
that upon written request of the Company made concurrently with or reasonably
promptly after payment or prepayment in full of any Secured Note, Purchaser
shall surrender such Secured Note for cancellation, reasonably promptly after
any such request, to the Company at its principal executive office. Prior to
any permitted sale, transfer or other disposition of any Secured Note held by
Purchaser or Purchaser's nominee, Purchaser will, at Purchaser's election,
either endorse thereon the amount of principal paid thereon and the last date to
which interest has been paid thereon or surrender such Secured Note to the
Company in exchange for a new Secured Note or
Secured Notes pursuant to Section 11.2. The Company will afford the benefits of
this Section 12 to any Institutional Investor that is the direct or indirect
transferee of any Secured Note purchased by Purchaser under this Agreement and
that has made the same agreement relating to such Secured Note as Purchaser have
made in this Section 12.
13. EXPENSES AND INDEMNIFICATION.
13.1. TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are consummated,
the Company will pay all reasonable costs and expenses of ▇▇▇▇▇▇▇▇ & Sterling,
special counsel to the Purchasers, of Massachusetts and North Carolina special
counsel to the Purchasers, and of the Agent and its counsel in connection with
the preparation, execution and delivery of the Note Documents and the perfection
of the Liens under the Ancillary Documents, and the Intercreditor Agreement, and
all costs and expenses (including reasonable attorney's fees of a special
counsel and, if reasonably required, local or other counsel) incurred by the
Purchaser and each Other Purchaser or holder of a Secured Note in connection
with the administration of the Note Documents and the Ancillary Documents,
including (a) the costs and expenses of any amendments, waivers or consents
under or in respect of this Agreement or the Secured Notes (whether or not such
amendment, waiver or consent becomes effective), (b) the costs and expenses
incurred in enforcing, exercising any remedies against any Collateral or
defending (or determining whether or how to enforce or defend) any rights under
this Agreement, the Secured Notes or any of the other Note Documents or in
responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement, the Secured Notes or any of the
other Note Documents, or by reason of being a holder of any Secured Note, (c)
the costs and expenses, including financial advisors' fees, incurred in
connection with the insolvency or bankruptcy of the Company or in connection
with any work-out, renegotiation or restructuring of the transactions
contemplated hereby, by the Secured Notes and by the other Note Documents and
(d) the costs and expenses of the Agent (including the fees and expenses of its
counsel) with respect to the Intercreditor Agreement and the Ancillary
Documents. The Company will pay, and will save Purchaser and each other holder
of a Secured Note harmless from, all claims in respect of any fees, costs or
expenses if any, of brokers and finders (other than those retained by
Purchaser). The Placement Agent will receive from the Company certain
compensation upon successful completion of the sale of the Secured Notes,
consisting of a cash fee equal to 4% of the gross proceeds from the sale of the
Series A Secured Notes to the Purchaser and the Other Purchasers and 2% of the
aggregate principal amount upon issuance of the Series B Secured Notes. Such
compensation is payable only upon successful completion of the transaction. On
the Closing Date, the Company will pay the Purchaser a fee of $250,000.
13.2. INDEMNIFICATION.
(a) In the event that Purchaser or any Other Purchaser or holder of a
Secured Note becomes involved in any capacity in any action, proceeding or
investigation in connection with any matter contemplated by this Agreement or
any other Note Document, the Company will
reimburse Purchaser and each holder of a Secured Note for legal and other
expenses (including the cost of any investigation and preparation) as they are
incurred by Purchaser and such holders whether or not such investigation,
litigation, or proceeding is brought by the Company, its directors, shareholders
or creditors or an Indemnified Party (as defined below), or an Indemnified Party
is otherwise a party thereto. The Company also agrees to indemnify and hold
harmless Purchaser and each Other Purchaser and each holder of a Secured Note
and their respective affiliates and their respective directors, officers,
employees and agents of such parties (the "INDEMNIFIED PARTIES") from and
against any and all losses, claims, damages and liabilities, joint or several,
related to or arising out of any matters contemplated by this Agreement, unless
and only to the extent that it shall be finally judicially determined by a court
of competent jurisdiction that such losses, claims, damages or liabilities
resulted primarily from Purchaser's gross negligence or willful misconduct and,
in the event Purchaser are found in any action, proceeding or investigation to
have acted with gross negligence or willful misconduct, the Indemnified Parties
shall repay to the Company any portion of the amounts paid by the Company
pursuant to this paragraph that is attributable to such action which is the
subject of such finding. The Indemnified Parties will promptly notify the
Company upon receipt of written notice of any claim or threat to institute a
claim; provided that any failure by the Indemnified Parties to give such notice
shall not relieve the Company from the obligation to indemnify the Indemnified
Parties.
(b) If any action, claim, investigation or other proceeding is
instituted or threatened against any Indemnified Parties in respect of which
indemnity may be sought hereunder, the Company shall be entitled to assume the
defense thereof with counsel selected by the Company (which counsel shall be
reasonably satisfactory to such Indemnified Parties) and after notice from the
Company to such Indemnified Parties of its election so to assume the defense
thereof, the Company will not be liable to such Indemnified Parties hereunder
for any legal or other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof other than reasonable costs of
investigation; provided that (i) if counsel for such Indemnified Parties
determines in good faith that there is a conflict which requires separate
representation for the Company and such Indemnified Parties, or (ii) the Company
fails to assume or proceed in a timely and reasonable manner with the defense of
such action or fails to employ counsel reasonably satisfactory to such
Indemnified Parties in any such action, then in either such event such
Indemnified Parties shall be entitled to select one primary counsel and, if
necessary, one local counsel, of their own choice to represent such Indemnified
Parties and the Company shall not, or no longer, be entitled to assume the
defense thereof on behalf of such Indemnified Parties and such Indemnified
Parties shall be entitled to indemnification for the reasonable expenses
(including reasonable fees and expenses of such counsel) to the extent provided
in the preceding paragraph. Such counsel shall, to the fullest extent
consistent with its professional responsibilities, cooperate with the Company
and any counsel designated by the Company. Nothing contained herein shall
preclude parties, at their own expense, from retaining additional counsel to
represent such Indemnified Parties in any action with respect to which indemnity
may be sought from the Company hereunder. The Company shall not be liable under
this agreement for any settlement made by any Indemnified Parties without the
Company's prior written consent, which consent shall not be unreasonably
withheld, and the Company agrees to indemnify and hold harmless any Indemnified
Parties from and against any loss or liability by
reason of the settlement of any claim or action with the consent of the Company.
The Company shall not settle any such claim or action without the prior written
consent of the Indemnified Parties unless such settlement provides for a full
release of claims against the Indemnified Parties.
(c) If the indemnification provided for herein is unavailable to an
Indemnified Party in respect of any losses, claims, damages, liabilities or
judgments referred to therein, then the Company, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, liabilities and
expenses (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and Purchaser on the other from
this Agreement or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and Purchaser on the other in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations.
13.3. SURVIVAL.
The obligations of the Company under this Section 13 will survive the
payment or transfer of any Secured Note, the enforcement, amendment or waiver of
any provision of this Agreement, the Secured Notes or any other Note Document,
and the termination of this Agreement.
14. ENTIRE AGREEMENT.
All statements contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant to this Agreement or any other
Note Document shall be deemed representations and warranties of the Company
under this Agreement. Subject to the preceding sentence, this Agreement, the
Secured Notes and the other Note Documents embody the entire agreement and
understanding between Purchaser and the Company and supersede all prior
agreements and understandings relating to the subject matter hereof.
15. AMENDMENT AND WAIVER.
15.1. REQUIREMENTS.
This Agreement and the Secured Notes may be amended, and the
observance of any term hereof or of the Secured Notes may be waived (either
retroactively or prospectively), with and only with the written consent of the
Company and the Required Holders, except that (a) no amendment or waiver of any
of the provisions of Section 1, 2, 3, 4, 5, 6, or 19 hereof, or any defined term
as it is used therein, will be effective as to Purchaser unless consented to in
writing by ▇▇▇▇▇▇▇▇▇, and (b) no such amendment or waiver may, without the
written consent of the holder of each Secured Note at the time outstanding
affected thereby, (i) subject to the provisions of Section 10 relating to
acceleration or rescission, change the amount or time of any
prepayment, repurchase or payment of principal of, or reduce the rate, or change
the time fixed for any payment or change the method of computation of interest
on, the Secured Notes, (ii) change the percentage of the aggregate principal
amount of the Secured Notes the holders of which are required to consent to any
such amendment or waiver, or (iii) amend any of Sections 7.5, 10 or 15.
15.2. SOLICITATION OF HOLDERS OF SECURED NOTES.
(a) Solicitation. The Company will provide each holder of the
------------
Secured Notes (irrespective of the amount of Secured Notes then owned or
otherwise held by it at the time) with sufficient information, sufficiently far
in advance of the date a decision is required, to enable such holder to make an
informed and considered decision with respect to any proposed amendment, waiver
or consent in respect of any of the provisions hereof or of the other Note
Documents. The Company will deliver executed or true and correct copies of each
amendment, waiver or consent effected pursuant to the provisions of this Section
15 to each holder of outstanding Secured Notes promptly following the date on
which it is executed and delivered by, or receives the consent or approval of,
the requisite holders of Secured Notes.
(b) Payment. The Company will not 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 Secured
Notes as consideration for or as an inducement to the entering into by any
holder of Secured Notes or any waiver or amendment of any of the terms and
provisions hereof or of the other Note Documents unless such remuneration is
concurrently paid, or security is concurrently granted, on the same terms,
ratably to each holder of Secured Notes then outstanding even if such holder did
not consent to such waiver or amendment.
15.3. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this Section 15
applies equally to all holders of Secured Notes and is binding upon them and
upon each future holder of any Secured Note and upon the Company without regard
to whether such Secured Note has been marked to indicate such amendment or
waiver. No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or waived
or impair any right, power or remedy consequent thereon. No course of dealing
nor any delay on the part of any holder of any Secured Note in exercising any
right, power or remedy hereunder or under any other Note Document shall operate
as a waiver of any right, power or remedy of any such Secured Note; nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy. The remedies provided under this Agreement and the other Note Documents
are cumulative and not exclusive of any rights, power or remedies provided by
applicable law.
15.4. SECURED NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Secured Notes then
outstanding approved or
consented to any amendment, waiver or consent to be given under this Agreement
or any other Note Document, or have directed the taking of any action provided
herein or in any other Note Document to be taken upon the direction of the
holders of a specified percentage of the aggregate principal amount of Secured
Notes then outstanding, Secured Notes directly or indirectly owned by the
Company or any of its Affiliates shall be deemed not to be outstanding.
16. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by facsimile if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to Purchaser or Purchaser's nominee, to Purchaser or it
at the address specified for such communications in Schedule I hereto, or
at such other address as Purchaser or it shall have specified to the
Company in writing,
(ii) if to any other holder of any Secured Note, to such holder
at such address as such other holder shall have specified to the Company in
writing, or
(iii) if to the Company, to the Company at its address Converse
Inc., ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: Senior Vice
President and General Counsel, Facsimile No. (▇▇▇) ▇▇▇-▇▇▇▇, or at such
other address as the Company shall have specified to the holder of each
Secured Note in writing.
All notices and other communications provided for under this Section
16 will be deemed given and effective only when actually received.
17. REPRODUCTION OF DOCUMENTS.
This Agreement, each of the other Note Documents and all documents
relating thereto, including, without limitation, (a) amendments, waivers and
consents of this Agreement or any other Note Document that may hereafter be
executed, (b) documents received by Purchaser at the Closing (except the Secured
Notes themselves) and (c) financial statements, certificates and other
information previously or hereafter furnished to Purchaser, may be reproduced by
Purchaser by any photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and Purchaser may destroy any original
document so reproduced. The Company agrees and stipulates that, to the extent
permitted by applicable law, 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 Purchaser in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence. This Section 17 shall not prohibit the
Company or any other holder of Secured Notes from
contesting any such reproduction to the same extent that it could contest the
original, or from introducing evidence to demonstrate the inaccuracy of any such
reproduction.
18. CONFIDENTIAL INFORMATION.
For the purposes of this Section 18, "CONFIDENTIAL INFORMATION" means
materials, documents and other information delivered to Purchaser by or on
behalf of the Company in connection with the transactions contemplated by or
otherwise pursuant to this Agreement, whether before or after the Closing, that
is proprietary in nature and that was clearly marked or labeled or otherwise
adequately identified when received by Purchaser as being confidential
information of the Company, provided that such term does not include information
that (a) was publicly known or otherwise known to Purchaser prior to the time of
such disclosure, (b) subsequently becomes publicly known through no act or
omission by Purchaser or any person acting on Purchaser's behalf in violation of
this Section 18, (c) otherwise becomes known to Purchaser other than through
disclosure by the Company or (d) constitutes financial statements delivered to
Purchaser under Section 5.4 that are otherwise publicly available. Purchaser
will maintain the confidentiality of such Confidential Information in accordance
with procedures adopted by Purchaser in good faith to protect confidential
information of third parties delivered to Purchaser, provided that Purchaser may
deliver or disclose Confidential Information to (i) Purchaser's directors,
officers, employees, agents, attorneys and affiliates (to the extent such
disclosure reasonably relates to the administration of the investment
represented by Purchaser's Secured Notes), (ii) Purchaser's financial advisors
and other professional advisors who agree to hold confidential the Confidential
Information substantially in accordance with the terms of this Section 18, (iii)
any other holder of any Secured Note, (iv) any Institutional Investor to which
Purchaser sells or offers to sell such Secured Note or any part thereof or any
participation therein (if such Person has agreed in writing prior to its receipt
of such Confidential Information to be bound by the provisions of this Section
18), (v) any Person from which Purchaser offers to purchase any security of the
Company (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 18), (vi)
any federal or state regulatory authority having jurisdiction over Purchaser,
(vii) the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires access to
information about Purchaser's investment portfolio or any other regulatory
authority, or (viii) any other Person to which such delivery or disclosure may
be necessary or appropriate (A) to effect compliance with any law, rule,
regulation or order applicable to Purchaser, (B) in response to any subpoena or
other legal process, (C) in connection with any litigation to which Purchaser
are a party or (D) if an Event of Default shall have occurred and be continuing,
to the extent Purchaser may reasonably determine such delivery and disclosure to
be necessary or appropriate in the enforcement or for the protection of the
rights and remedies under Purchaser's Secured Notes, this Agreement and the
other Note Documents. Each holder of a Secured Note, by its acceptance of a
Secured Note, will be deemed to have agreed to be bound by and to be entitled to
the benefits of this Section 18 as though it were an original party to this
Agreement. On the reasonable request of the Company in connection with the
delivery to any holder of a Secured Note of information required to be delivered
to such holder under this Agreement or requested by such holder (other than a
holder that is a party to this Agreement or
its nominee), such holder will enter into an agreement with the Company
embodying the provisions of this Section 18.
19. SUBSTITUTION OF PURCHASER.
Purchaser shall have the right to substitute any one of Purchaser's
Affiliates that constitutes an Institutional Investor as the purchaser of the
Secured Notes that Purchaser have agreed to purchase hereunder, by written
notice to the Company, which notice shall be signed by both Purchaser and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "Purchaser" is used in this Agreement (other
than in this Section 19), such word shall be deemed to refer to such Affiliate
in lieu of Purchaser. In the event that such Affiliate is so substituted as a
purchaser hereunder and such Affiliate thereafter transfers to Purchaser all of
the Secured Notes then held by such Affiliate, upon receipt by the Company of
notice of such transfer, wherever the word "Purchaser" is used in this Agreement
(other than in this Section 19), such word shall no longer be deemed to refer to
such Affiliate, but shall refer to Purchaser, and Purchaser shall have all the
rights of an original holder of the Secured Notes under this Agreement.
20. MISCELLANEOUS.
20.1. SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement or any
of the other Note Documents by or on behalf of any of the parties hereto bind
and inure to the benefit of their respective successors and assigns (including,
without limitation, any subsequent holder of a Secured Note) whether so
expressed or not.
20.2. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Secured Notes to the contrary
notwithstanding, any payment of principal of, or interest on, any Secured Note
that is due on a date other than a Business Day shall be made on the next
succeeding Business Day without including the additional days elapsed in the
computation of the interest payable on such next succeeding Business Day.
20.3. SATISFACTION REQUIREMENT.
Except as otherwise provided herein or in any other Note Document, if
any agreement, certificate or other writing, or any action taken or to be taken,
is by the terms of this Agreement or any other Note Document required to be
satisfactory to Purchaser or to the Required Holders, the determination of such
satisfaction shall be made by Purchaser or the Required Holders, as the case may
be, in the sole and exclusive judgment (exercised reasonably and in good faith)
of the Person or Persons making such determination.
20.4. SEVERABILITY.
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
20.5. CONSTRUCTION.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant contained
herein, so that compliance with any one covenant shall not (absent such an
express contrary provision) be deemed to excuse compliance with any other
covenant. 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.
20.6. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument. Each counterpart may
consist of a number of copies hereof, each signed by less than all, but together
signed by all, of the parties hereto.
20.7. GOVERNING LAW.
This Agreement and each Secured Note shall be governed by, and
construed in accordance with, the laws of the State of New York.
20.8. CONSENT TO JURISDICTION; RELEASE OF COLLATERAL.
(a) Consent to Jurisdiction.
-----------------------
(i) The Company hereby irrevocably submits to the jurisdiction
of any New York State or Federal court sitting in The City of New York, New
York County, in any action or proceeding arising out of or relating to this
Agreement or any other Note Document, and the Company hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard
and determined in such New York State court or such Federal court. The
Company hereby irrevocably waives, to the fullest extent it may effectively
do so, the defense of an inconvenient forum to the maintenance of such
action or proceeding. The Company hereby irrevocably consents to the
service of copies of any summons and complaint and any other process which
may be served in any such action or proceeding by certified mail, return
receipt requested, or by delivering a copy of such process to the Company,
at its address specified in Section 19 or by any other method permitted by
law. The Company agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment or by any other manner provided by law.
(ii) Nothing in this Section 20.8(a) shall affect the right of
any holder of Secured Notes to serve legal process in any other manner
permitted by law or affect the right of any such holder to bring any action
or proceeding against the Company or its property in the courts of other
jurisdictions.
(b) Release of Collateral.
---------------------
(i) Upon repayment of all Obligations under the Secured Notes
issued to the Purchaser, Purchaser shall direct the Agent to release any
liens and security interests for its benefit granted to or held by the
Agent with respect to any Collateral pursuant to the Ancillary Documents.
(ii) Purchaser agrees that the liens and security interest in
favor of the Agent under the Ancillary Documents in any property sold or
disposed of in accordance with the provisions of Section 9.5 hereof shall,
if no Default or Event of Default shall then exist, be automatically
released except to the extent a written release or consent is expressly
required pursuant to Section 9.5; provided, however, that the liens and
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security interests in favor of Agent shall attach to and continue in the
proceeds and products of such property arising from any such sale or
disposition.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
20.9. WAIVER OF JURY TRIAL.
EACH OF THE COMPANY AND THE HOLDERS OF SECURED NOTES HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO ANY OF THE NOTE DOCUMENTS, ANY DOCUMENT DELIVERED UNDER THE NOTE
DOCUMENTS OR THE ACTIONS OF ANY HOLDER OF SECURED NOTES IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
* * * * *
If Purchaser is in agreement with the foregoing, please sign the form
of agreement on the accompanying counterpart of this Agreement and return it to
the Company, whereupon the foregoing shall become a binding agreement between
Purchaser and the Company.
Very truly yours,
CONVERSE INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
Title: Sr. Vice President
-------------------------------
The foregoing is hereby
agreed to as of the
date hereof:
FOOTHILL PARTNERS III, L.P.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
Title: Vice President
-------------------------------
Foothill Group, Inc.
-------------------------------
SCHEDULE I
----------
INFORMATION RELATING TO THE PURCHASERS
--------------------------------------
Name of Purchaser: Foothill Partners III, L.P.
Aggregate Principal Amount of Series A Secured Notes Purchased (in dollars):
$10,357,328
Aggregate Principal Amount of Series B Secured Notes Purchased (in dollars): $0
Shares of Common Stock Purchasable (number) upon Exercise of Warrants: 150,000
Name(s) for Registration of Secured Notes Purchased: Foothill Partners III,
L.P.
Mailing Address: Foothill Partners III, L.P.
c/o Foothill Capital Corporation
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Wire Instructions (including ABA No. and Account No.) for Payment of Principal
and Interest:
1. Chase Manhattan Bank, New York, NY
2. ABA #: ▇▇▇-▇▇▇-▇▇▇
3. Acct. #: 323-214711
4. Credit to: Foothill Partners III
5 Ref: FPIII/Converse
6. Attention: ▇▇▇ ▇▇▇▇▇▇▇▇; ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
United States Tax Identification No. (if any): ▇▇-▇▇▇▇▇▇▇
Physical Delivery Instructions: Foothill Partners III, L.P.
c/o Foothill Capital Corporation
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇
Attention: General Counsel
SCHEDULE II
-----------
DEFINED TERMS
-------------
As used in the Agreement, the following terms have the respective meanings
set forth below or set forth in the Section hereof following such term:
"ACCEPTANCE" means a draft of the Company accepted pursuant to the
Revolving Credit Agreement.
"ACCOUNT" or "ACCOUNTS" means all of the Company's accounts, whether now
existing or existing in the future, including, without limitation, all (i)
accounts receivable (whether or not specifically listed on schedules furnished
to the Agent), including, without limitation, all accounts created by or arising
from all of the Company's sales of goods or rendition of services made under any
of the Company's trade names or styles, or through any of the Company's
divisions; (ii) unpaid or unexercised seller's rights (including any right of
rescission, replevin, reclamation and stopping in transit) relating to the
foregoing or arising therefrom; (iii) rights to any goods represented by any of
the foregoing, including returned or repossessed goods; (iv) reserves and credit
balances held by the Company with respect to any such accounts receivable or
account debtors; (v) guarantees or collateral for any of the foregoing; (vi)
insurance policies; or (vii) rights relating to any of the foregoing.
"ACKNOWLEDGMENT AGREEMENT" means any acknowledgment agreement required
to be delivered by the Company to the Agent pursuant to which any mortgagee or
lessor of property on which Collateral is stored or otherwise located, or
pursuant to which any warehouseman, filler, processor or packer of any Inventory
acknowledges the Liens and security interests of the Agent and, in the case of
any real property leased by the Company or subject to a mortgage executed by the
Company, provides the Agent access to such real property for a reasonable period
of time to assemble, complete and sell any Collateral located thereon.
"ADDITIONAL PERMITTED DEBT" shall have the meaning given to such term in
Section 9.1 hereof.
"AFFILIATE" or "AFFILIATES" means (i) a Controlling Person or any Person
which is controlled by or is under common control with a Controlling Person and
(ii) any other Person who is a director, officer or member of management of the
Company, any of its Subsidiaries or any Controlling Person. For purposes of the
Agreement, control of a Person means the power, direct or indirect, (a) to vote
20% or more of the outstanding stock or other ownership interests having
ordinary voting power for the election of directors of such Person or (b) to
direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"AGENT" means BT Commercial Corporation, or any successor thereto, as agent
for the Purchasers and its successors appointed in accordance with the terms of
the Intercreditor Agreement.
"AGREEMENT" means this Note Purchase Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
"ANCILLARY DOCUMENTS" means any Proprietary Rights Collateral Documents,
any Security Agreements, any Pledge Agreements, any Mortgages and any Collateral
Assignments.
"APOLLO" means Apollo Investment Fund, L.P., Lion Advisors, L.P. and
Affiliates.
"ASSET DISPOSITION" means any sale, transfer, lease, assignment or other
disposition of any asset by the Company or any Subsidiary thereof (other than a
disposition to any other Subsidiary of the Company), excluding, however, any
sale or disposition by a Company or Subsidiary in the ordinary course of
business of Inventory.
"AUDITORS" means a nationally-recognized firm of independent public
accountants selected by the Company and satisfactory to the Purchaser in its
reasonable discretion. For purposes of this Agreement, any of the current so-
called "Big Five" firms of independent public accountants shall be deemed to be
satisfactory to the Purchaser.
"BENEFIT PLAN" means a defined benefit plan as defined in Section 3(35) of
ERISA (other than a Multiemployer Plan) in respect of which the Company or any
ERISA Affiliate is, or within the immediately preceding six (6) years was, an
"employer" as defined in Section 3(5) of ERISA.
"BUSINESS DAY" means any day other than a Saturday, Sunday or any other day
on which commercial banks are required by law or authorized to close in New York
City.
"CAPITAL LEASE" means any lease of property, real or personal, the
obligation of the lessee in respect of which is required in accordance with GAAP
to be capitalized on the balance sheet of the lessee.
"CASH EQUIVALENTS" means, as to any Person, (i) direct obligations of the
United States or any agency thereof, or obligations guaranteed by the United
States or any agency thereof, (ii) commercial paper rated in the highest grade
by a nationally recognized credit rating agency, (iii) time deposits with,
including certificates of deposit issued by, the Agent or any office located in
the United States of any bank or trust company the senior debt securities of
which are rated in one of the two highest categories by a nationally recognized
credit rating agency, provided in each case that such securities or other
obligations described in subsections (i), (ii) and (iii) above mature within one
year from the date of acquisition thereof by the Company or a Subsidiary, (iv)
repurchase
obligations with a term of not more than ten (10) days of underlying securities
of the type described in clause (i) entered into with any bank of the type
described in clause (iii), (v) investments in money market funds that are
registered under the Investment Company Act of 1940, which have net assets of at
least $100,000,000 and at least eighty-five percent (85%) of whose assets
consist of securities and other obligations of the type described in clauses (i)
through (iv) above, and (vi) investments in any other money market mutual fund
the underlying assets of which are rated at least AAA or the equivalent by
Standard & Poor's, a division of The ▇▇▇▇▇▇-▇▇▇▇ Companies, Inc. or at least Aaa
or the equivalent thereof by ▇▇▇▇▇'▇ Investors Service, Inc., including, without
limitation, any managed or advised by Agent or lenders party to the Revolving
Credit Agreement. All such Cash Equivalents must be denominated solely for
payment in U.S. Dollars.
"CASUALTY LOSS" shall have the meaning given to such term in Section 8.3
hereof.
"CHANGE IN CONTROL" means the occurrence of any of the following: (i) the
sale or other transfer of all or substantially all of the assets of the Company
to any person other than Apollo, any account managed by ▇▇▇▇▇▇ for so long as it
exercises power of disposition and voting with respect thereto (a "CONTROLLED
ACCOUNT"), or an Affiliate of Apollo or of a Controlled Account, (ii) any
transaction (including a merger or consolidation) the result of which is that
any "PERSON" or "GROUP" (within the meaning of Section 13(d) and 14(d)(2) of the
Exchange Act) becomes the "BENEFICIAL OWNER" (within the meaning of Rule 13d-3
under the Exchange Act) of more than thirty-five percent (35%) (calculated on a
fully diluted basis) of the voting power of all classes of Voting Stock of the
Company and/or warrants or options to acquire such Voting Stock and, at such
time, such person or group is the beneficial owner of a greater percentage of
the voting power of the Voting Stock of the Company than that which is then
beneficially owned (calculated on a fully diluted basis) by Apollo, a Controlled
Account or an Affiliate of Apollo or a Controlled Account, (iii) the adoption of
a plan relating to the liquidation or dissolution of the Company, and (iv) the
first day on which a majority of the members of the Board of Directors of the
Company cease to be Continuing Directors (meaning the directors of the Company
on the date hereof and each other director, if such director's nomination for
election to the Board of Directors of the Company is recommended by a majority
of the Continuing Directors at the time of such nomination or election).
"CLOSING" has the meaning specified in Section 3.
"CLOSING DATE" has the meaning specified in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time,
and any successor statute.
"COLLATERAL" means any and all assets and rights and interests in or to
property of the Company pledged from time to time as security for the
Obligations pursuant to the Ancillary Documents whether now owned or hereafter
acquired, including, without limitation, all of the Accounts, Inventory,
Equipment, Intellectual Property, Intangibles and Real Estate of the Company, as
defined in any Security Agreement, any Mortgage, any Pledge Agreement or any
Proprietary Rights Collateral Document (excluding any property expressly
excluded from the pledge or grant under any Ancillary Document).
"COMMON STOCK" means the Common Stock, stated value $1.00 per share, of the
Company and any other capital stock of the Company into which such common stock
may be converted or reclassified or that may be issued in respect of, in
exchange for, or in substitution of, such common stock by reason of any stock
splits, stock dividends, distributions, mergers, consolidations or other like
events.
"COMPLIANCE CERTIFICATE" shall have the meaning given to such term in
Section 8.1(c) hereof.
"CONFIDENTIAL INFORMATION" has the meaning specified in Section 18.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the additions to
property, plant and equipment and other capital expenditures of the Company and
its Consolidated Subsidiaries for such period, as the same are (or, in
accordance with GAAP, would be) set forth in the consolidated statement of cash
flows of the Company and its Consolidated Subsidiaries for such period.
"CONSOLIDATED NET INCOME" means, for any period, the consolidated net
income (or loss) of the Company and its Consolidated Subsidiaries for such
period, excluding (i) gains or losses from dispositions of assets, (ii) any
extraordinary items, and (iii) other non-recurring items not related to
operations.
"CONSOLIDATED SUBSIDIARY" of any Person means at any date any Subsidiary or
other entity the accounts of which in accordance with GAAP would be consolidated
with those of such Person in its consolidated financial statements as of such
date.
"CONTRACTUAL OBLIGATION" means, with respect to any Person, any term or
provision of any securities issued by such Person, or any indenture, mortgage,
deed of trust, contract, undertaking, document, instrument or other agreement to
which such Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject.
"CONTROLLING PERSON" means any Person that is in control of the Company or
any of its Subsidiaries (such control being the power to direct or cause the
direction of the management and policies of the Company or any such Subsidiary,
whether through the ownership of voting stock, by contract or otherwise).
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement, futures contract, option contract, synthetic cap or other similar
agreement or arrangements.
"DEBT" means of any Person at any date, without duplication, (a) all
obligations of such Person and its Consolidated Subsidiaries for borrowed money,
(b) all obligations of such Person and its Consolidated Subsidiaries evidenced
by bonds, debentures, notes or other similar instruments, (c) all obligations of
such Person and its Consolidated Subsidiaries to pay the deferred purchase price
of property or services, except non-intercompany trade accounts payable arising
in the ordinary course of business representing the deferred purchase price of
property or services and having a maturity equal to or less than 360 days, (d)
all obligations of such Person and its Consolidated Subsidiaries under Capital
Leases, (e) all contingent or non-contingent obligations of such Person and its
Consolidated Subsidiaries to reimburse any Person in respect of amounts paid or
payable (currently or in the future, on a contingent or non-contingent basis)
under a letter of credit or similar instrument, (f) all Debt of others secured
by a Lien on any asset of such Person or a Consolidated Subsidiary, and (g) all
Debt of others Guaranteed by such Person or a Consolidated Subsidiary.
"DEFAULT" means an event, condition or default which with the giving of
notice, the passage of time or both would be an Event of Default.
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like account
with a bank, savings and loan association, credit union or like organization,
other than an account evidenced by a negotiable certificate of deposit.
"DOL" means the United States Department of Labor and any successor
department or agency.
"EBITDA" with respect to any period, means Consolidated Net Income for such
period before payment or provision of taxes measured by income plus, without
duplication, all interest charges (to the extent deducted in computing
Consolidated Net Income), all fees payable in connection with this Agreement,
amortization and depreciation expense (including any amortization and
depreciation associated with "fresh start accounting") and other non-cash items
reducing Consolidated Net Income for such period, in each case determined on a
consolidated basis for the Company and its Consolidated Subsidiaries.
"EMPLOYEE BENEFIT PLAN" means an "employee benefit plan" as defined in
Section 3(3) of ERISA, maintained or contributed by the Company or with respect
to which the Company may incur liability.
"ENVIRONMENTAL LAW" means any federal, state or local law, statute,
ordinance, or regulation pertaining to health, industrial hygiene, or the
environmental conditions on, under or about any real property owned, operated or
leased by the Company or any Subsidiary thereof.
"EQUITY OFFERING PROCEEDS" means the aggregate amount of cash received by
the Company from a public offering or private placement of equity securities
(including, without limitation, common stock, preferred stock and warrants and
options to acquire the same) of such Company minus, but without duplication, all
underwriting discounts and commissions, placement fees and other professional
fees, expenses and taxes incurred in connection with such offering or placement.
For purposes of this definition, if any such discounts, commissions, fees,
expenses or taxes payable in connection with such offering or placement are not
known as of the date of the distribution of the proceeds thereof, then such
discounts, commissions, fees, expenses or taxes shall be estimated in good faith
by the Company and such estimated amounts shall be deducted from the calculation
of Equity Offering Proceeds.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute thereto and all final or
temporary regulations promulgated thereunder, and all published, generally
applicable rulings entitled to precedential effect.
"ERISA AFFILIATE" means any (i) corporation which is or was at any time
during the immediately preceding six years a member of the same controlled group
of corporations (within the meaning of Section 414(b) of the Code) as the
Company; (ii) partnership or other trade or business (whether or not
incorporated) at any time during the immediately preceding six years under
common control (within the meaning of Section 414(c) of the Code) with the
Company; and (iii) member of the same affiliated service group (within the
meaning of Section 414(m) of the Code) as the Company, any corporation described
in clause (i) above, or any partnership or trade or business described in clause
(ii) above.
"EVENT OF DEFAULT" or "EVENTS OF DEFAULT" shall have the meaning provided
for in Section 10 of this Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCESS CONSOLIDATED NET INCOME" means, for any fiscal year, fifty percent
(50%) of the amount of the Company's Consolidated Net Income in excess of the
amounts set forth below for the corresponding fiscal year:
1998 $20,000,000
1999 and each fiscal year thereafter during
the term of the Agreement $30,000,000
"FILING ASSETS" means all property and assets comprising Collateral which
constitute Inventory, Accounts, equipment (excluding motor vehicles and other
equipment covered by a certificate of title or similar statute), general
intangibles or chattel paper other than any of the foregoing located outside of
the United States.
"FINANCIAL STATEMENTS" means the consolidated and consolidating balance
sheets, consolidated and consolidating statements of operations, consolidated
statements of changes in cash flows and consolidated statements of changes in
stockholders' equity of the Company and its Consolidated Subsidiaries for the
period specified prepared in accordance with GAAP and consistent with prior
practices.
"FINANCIALS" has the meaning specified in Section 5.4 hereof.
"FOREIGN EXCHANGE CONTRACT" means any contract (other than government
contracts) of the Company entered into pursuant to the terms of the Revolving
Credit Agreement and that requires payment or delivery of currency other than
U.S. Dollars.
"FOREIGN SUBSIDIARY" means any Subsidiary of a Person not incorporated in
or having material assets or operations in the United States.
"FUNDED DEBT" means, with respect to any Person, all Debt of such Person
which by the terms of the agreement governing, or instrument evidencing, such
Debt matures more than one year from, or is directly or indirectly renewable or
extendable at the option of the debtor 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, including current
maturities of long-term Debt, revolving credit and short-term Debt extendable
beyond one year at the option of the debtor and, in respect of the Company, but
excluding Acceptances, Foreign Exchange Contracts and Letters of Credit.
"FURNITURE BRANDS" means Furniture Brands International, Inc.
"GAAP" means generally accepted accounting principles in the United States
of America, as in effect from time to time.
"GOVERNMENTAL AUTHORITY" means any government or political subdivision or
any agency, authority, board, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic, or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"GUARANTEE" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to keep-
well, to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered into for
the purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part), provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"HAZARDOUS SUBSTANCE" means those substances included within the
definitions of "HAZARDOUS SUBSTANCES", "HAZARDOUS MATERIALS", "TOXIC
SUBSTANCES", or "SOLID WASTE" under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. (s) 9601 et seq.,
the Resource Conservation and Recovery Act of 1976, 42 U.S.C. (s) 6901 et seq.
and the Hazardous Materials Transportation Act, 49 U.S.C. (s) 1801 et seq., and
in the regulations promulgated pursuant to said laws, and such other substances,
materials and wastes which are or become regulated under applicable local, state
or federal law, or which are classified as hazardous or toxic under federal,
state or local laws or regulations.
"INDEMNIFIED PARTIES" has the meaning specified in Section 16.2(a).
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note,
(b) any Other Purchaser, or (b) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer or any other similar
financial institution or entity, regardless of legal form.
"INSURANCE PROCEEDS" means the proceeds of any insurance or any judgments
or settlements made in lieu thereof resulting from a casualty with respect to
the Collateral or any part thereof.
"INTERCREDITOR AGREEMENT" means the Collateral Agency and Intercreditor
Agreement, dated as of the date hereof, among the Agent, the Purchasers and the
agent under the Revolving Credit Agreement.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement or
arrangement.
"INTERNAL REVENUE SERVICE" means the Internal Revenue Service and any
successor agency.
"INVENTORY" means all of the Company's inventory, including without
limitation: (i) all raw materials, work in process, parts, components,
assemblies, supplies and materials used or consumed in the Company's business;
(ii) all goods, wares and merchandise, finished or unfinished, held for sale or
lease or leased or furnished or to be furnished under contracts of service; and
(iii) all goods returned or repossessed by the Company.
"INVESTMENT" means any investment in any Person, whether by means of share
purchase, capital contribution, loan, advance, time deposit or otherwise.
"LEASED REAL PROPERTY" means all of the real property leased by the Company
at any time, including, without limitation, all of the material real property
leased by the Company as of the date of this Agreement as set forth on Schedule
5.12 hereto.
"LEASES" shall have the meaning given to such term in Section 5.12 hereof.
"LETTERS OF CREDIT" means all letters of credit (whether commercial or
stand-by and whether for the purchase of inventory, equipment or otherwise)
issued pursuant to the Revolving Credit Agreement.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of the Agreement, the Company or any Subsidiary shall be deemed
to own subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, Capital
Lease or other title retention agreement relating to such asset.
"MATERIAL ADVERSE CHANGE" means a material adverse change (i) in the
business, operations, results of operations, assets, liabilities or condition
(financial or otherwise) of the Company and its Consolidated Subsidiaries taken
as a whole, or (ii) in the value of the Collateral taken as a whole or the
amount which the Agent and the Purchasers would be likely to receive (after
giving consideration to delays in payment and costs of enforcement) in the
liquidation of such Collateral.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, operations, results of operations, assets, liabilities or condition
(financial or otherwise) of the Company and its Consolidated Subsidiaries taken
as a whole, (ii) the value of the Collateral taken as a whole or the amount
which the Agent and the Purchasers would be likely to receive (after giving
consideration to delays in payment and costs of enforcement) in the liquidation
of such Collateral, (iii) the Company's ability to perform its obligations under
the Note Documents, or (iv) the rights and remedies of the Purchasers under the
Note Documents.
"MORTGAGE" means, with respect to real property owned by the Company, each
mortgage or deed of trust executed and delivered on the date hereof or hereafter
delivered from time to time pursuant to the terms hereof, and with respect to
real property leased by the Company, each leasehold mortgage or leasehold deed
of trust, if any, executed and delivered on the date hereof or hereafter
delivered from time to time pursuant to the terms hereof, as any of the same may
be amended, modified, supplemented, extended or renewed from time to time.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA and (i) which is, or within the immediately preceding six
(6) years was, contributed to by the Company or any ERISA Affiliate or (ii) with
respect to which the Company or any ERISA Affiliate may incur any liability.
"MULTIPLE EMPLOYER PLAN" means a single employer plan (as defined in
Section 4001(a)(15) of ERISA) that (a) is maintained for employees of the
Company or any ERISA Affiliate and at least one Person other than the Company
and the ERISA Affiliates or (b) was so maintained and in respect of which the
Company or any ERISA Affiliate could have liability under Section 4064 or 4069
of ERISA in the event such plan has been or were to be terminated.
"NET CASH PROCEEDS" means, with respect to the sale or disposition of any
asset, the aggregate amount of cash received by the Company (including cash
payments received in respect of deferred payment pursuant to any note or
installment receivable or otherwise and state or federal income tax refunds
attributable to such sale or disposition, but in each case only as and when
received) in respect of such sale or disposition minus (i) all fees,
commissions, expenses and taxes incurred in connection with such sale or
disposition, (ii) the principal amount of Debt of the Company which is senior
(in lien priority) to the Debt under the Agreement and which by its terms is
required to be and is repaid, and (iii) any amount considered appropriate by the
Company, in good faith, to provide reserves for payment of indemnities or
liabilities that may be incurred in connection with such sale or disposition.
For purposes of this definition, if taxes or other expenses payable in
connection with the sale or disposition of any asset are not known as of the
date of such sale or disposition, then such fees, commissions, expenses or taxes
shall be estimated by the Company, in good faith, and such estimated amounts
shall be deducted therefrom.
"NOTE DOCUMENTS" means this Agreement, the Other Agreements, the Secured
Notes, the Warrant Agreement, the Intercreditor Agreement, each of the Ancillary
Documents and all other documents, agreements, instruments, opinions and
certificates executed in connection therewith, as the same may be modified,
amended, extended, restated or supplemented from time to time.
"OBLIGATION" means, with respect to any Person, any obligation of such
Person of any kind, including, without limitation, any liability of such Person
on any claim, whether or not the right of any creditor to payment in respect of
such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, disputed, undisputed, legal, equitable, secured or unsecured, and
whether or not such claim is discharged, stayed or otherwise affected by any
proceeding referred to in Section 10.1(g). Without limiting the generality of
the foregoing, the Obligations of the Company under the Note Documents include
the obligation to pay principal, interest, charges, expenses, fees, attorneys'
fees and disbursements, indemnities and other amounts payable by the Company
under any Note Document.
"OSHA" means the Occupational Safety and Health Act, as amended from time
to time, and any successor statute thereto and all final or temporary
regulations promulgated thereunder, and all published, generally applicable
rulings entitled to precedential effect.
"OTHER AGREEMENTS" has the meaning specified in Section 2.
"OTHER PURCHASERS" has the meaning specified in Section 2.
"OWNED REAL PROPERTY" means the real property owned by the Company at any
time, including, without limitation, all of the material real property owned by
the Company as of the date of the Agreement as set forth on Schedule D thereto.
"PATENT SECURITY AGREEMENT" means, collectively, the Patent Security
Agreements executed by the Company in favor of the Agent in the form attached as
Exhibit D to the Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"PERMITTED INVESTMENTS" means (i) Cash Equivalents, (ii) interest-bearing
demand or time deposits (including certificates of deposit) which are insured by
the Federal Deposit Insurance Corporation ("FDIC") or a similar federal
insurance program; provided, however, that the Company may, in the ordinary
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course of its business, maintain in the Loan Disbursement Account from time to
time amounts in excess of then applicable FDIC or other program insurance
limits, (iii) securities distributed in connection with the confirmation of a
plan of reorganization following the bankruptcy of any Person indebted to the
distributee at the time such bankruptcy is filed, (iv) any reinvestment of
dividends paid by a Foreign Subsidiary or a foreign Affiliate in such Foreign
Subsidiary or such foreign Affiliate and (v) such other investments as the Agent
may approve in its sole discretion.
"PERMITTED LIENS" means, without duplication:
(a) Liens for taxes, assessments, governmental charges or levies not yet
due or which are being contested in good faith and by appropriate proceedings if
adequate reserves with respect thereto are maintained on the books of the
Company or the appropriate Subsidiary, as the case may be, in accordance with
GAAP;
(b) statutory Liens of landlords and carriers', or other warehousemen's,
mechanics', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business which are not overdue for a period of more than 60
days or which are being contested in good faith and by appropriate proceedings
in a manner which will not jeopardize or diminish the interest of the Purchasers
or the Agent in any of the Collateral subject to the Ancillary Documents or
interfere with the ordinary conduct of the business of the Company or any
Subsidiary;
(c) pledges or deposits and Liens (other than any Lien imposed by ▇▇▇▇▇)
under bonds required in connection with workers compensation, unemployment
insurance and other social security legislation;
(d) ▇▇▇▇▇ (other than any Lien imposed by ERISA or by Environmental Laws)
incurred on deposits to secure the performance of tenders, bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance and return-of-money bonds and other obligations of a
like nature incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which do not substantially detract
from the value of the property subject thereto or interfere with the ordinary
conduct of the business of the Company or any Subsidiary;
(f) Liens affecting assets existing at the time such assets are acquired
provided that such Liens are not created in contemplation of such acquisition;
(g) Liens affecting the assets of any of the Company's Subsidiaries at the
time such Subsidiaries are acquired provided such Liens are not created in
contemplation of such acquisition; and
(h) Liens affecting the assets of any Foreign Subsidiary.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
institution, entity, party or government (including any division, agency or
department thereof), and, as applicable, the successors, heirs and assigns of
each.
"PLAN" means any "employee benefit plan" as defined in Section 3(3) of
ERISA, maintained or contributed to by the Company or with respect to which the
Company may incur liability.
"PLACEMENT AGENT" means Libra Investments, Inc.
"PLEDGE AGREEMENT" means, collectively, the Pledge Agreements executed by
the Company in favor of the Agent, in the form attached to the Agreement as
Exhibit E.
"PROPRIETARY RIGHTS" shall have the meaning given to such term in Section
5.12 of this Agreement.
"PROPRIETARY RIGHTS COLLATERAL DOCUMENTS" means the Trademark Security
Agreement and the Patent Security Agreement.
"PURCHASERS" means the Purchaser and the Other Purchasers.
"REAL ESTATE" means, collectively, the Owned Real Property and the Leased
Real Property.
"RENTALS" of any Person shall mean at any date, without duplication, (i)
all obligations of such Person under any lease (excluding any Capital Lease)
having, as of such date, an unexpired term (including any renewals at the option
of the lessor) of one year or more, plus (ii) all Rentals of others Guaranteed
----
by, or secured by a Lien on any asset of, such Person.
"REPORTABLE EVENT" means any of the events described in Section 4043 of
ERISA and the regulations thereunder.
"REQUIRED HOLDERS" means, at any time while there are outstanding Series A
Secured Notes, the holders of at least a majority in interest of the aggregate
principal amount of the Series A Secured Notes, and at any time while there are
no outstanding Series A Secured Notes, the holders of at least a majority in
interest of the aggregate principal amount of the Series B Secured Notes, in
either case, excluding from any calculation thereof any Secured Notes then owned
or held by the Company.
"RETIREE HEALTH PLAN" means an "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA that provides health care benefits to persons
after termination of employment, other than as required by Section 601 of ERISA.
"REVOLVING CREDIT AGREEMENT" means the Credit Agreement dated as of May 21,
1997, as amended, among the Company, as borrower, certain banks and other
financial institutions, as lenders, and BT Commercial Corporation, as Agent.
"ROYALTIES SECURITIZATION" means a securitization transaction in which the
Company sells, borrows against or otherwise monetizes its Proprietary Rights or
interest therein, excluding the indebtedness under the Revolving Credit
Agreement and the Note Documents.
"SEC" means the Securities and Exchange Commission.
"SECURED NOTES" has the meaning specified in Section 1.
"SECURITY AGREEMENT" means the Security Agreement between the Agent and the
Company, in the form attached to the Agreement as Exhibit B.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERIES A SECURED NOTES" has the meaning specified in Section 1.
"SERIES B SECURED NOTES" has the meaning specified in Section 1.
"SOLVENT" and "SOLVENCY" mean, with respect to any Person on a particular
date, that on such date (a) the fair value of the property of such Person is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair saleable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (c) such Person does not intend to, and does not believe that it
will, incur debts and liabilities beyond such Person's ability to pay as such
debts and liabilities mature and (d) such Person is not engaged in a business or
a transaction, and is not about to engage in a business or a transaction, for
which such Person's property would constitute an unreasonably small capital.
"STRUCTURES" means all plants, offices, manufacturing facilities,
warehouses, administration buildings and related facilities of the Company
located at the Owned Real Property.
"SUBORDINATED NOTE INDENTURE" means that certain Indenture dated May 21,
1997 by and between Company and First Union National Bank, as trustee, governing
the issuance of the Subordinated Notes, as the same may be amended,
supplemented, restated or otherwise modified from time to time.
"SUBORDINATED NOTES" means those certain 7% Convertible, Subordinated Notes
in the aggregate principal amount of up to $80,000,000, due June 1, 2004, issued
by Company pursuant to the Subordinated Note Indenture.
"SUBSIDIARY" means, with respect to any Person, a corporation, partnership
or other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests having
such power only by reason of the happening of a contingency) to elect a majority
of the board of directors or other persons performing similar functions are at
the time, directly or indirectly through one or more intermediaries, or both,
owned or controlled, by such Person. Unless otherwise expressly indicated to the
contrary herein, all references to a "SUBSIDIARY" or to "SUBSIDIARIES" in this
Agreement shall refer to a Subsidiary or Subsidiaries of the Company.
"TERMINATION EVENT" means (i) a Reportable Event with respect to any
Benefit Plan or Multiemployer Plan which is likely to constitute grounds for
termination of such Benefit Plan or Multiemployer Plan; (ii) the withdrawal
(within the meaning of Section 4063 of ERISA) of the Company or any ERISA
Affiliate from a Benefit Plan during a plan year in which such entity was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA; (iii) the
providing of notice of intent to terminate a Benefit Plan in a distress
termination described in Section 4041(c) of ERISA; (iv) the institution by the
PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan; (v) any
event or condition (a) described in Section 4042(a) of ERISA and which could
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, or (b) described in Section 4041A(a) of ERISA and that
could reasonably be expected to result in termination of a Multiemployer Plan
pursuant to Section 4041A of ERISA; or (vi) the partial or complete withdrawal
within the meaning of Sections 4203 and 4205 of ERISA, of any Company or any
ERISA Affiliate from a Multiemployer Plan.
"TRADEMARK SECURITY AGREEMENT" means, collectively, each of the Trademark
Security Agreements executed by the Company in favor of the Agent in the form
attached to the Agreement as Exhibit C.
"UNDERLYING COMMON STOCK" means the shares of Common Stock issuable or
issued upon the exercise of the Warrants.
"UNRESTRICTED DEBT PROCEEDS" means the sum of (i) that portion of the
proceeds of any Debt permitted pursuant to Section 9.1(v) hereof, and (ii) that
portion of the proceeds of any Additional Permitted Debt, each which are not
required to be applied to the repayment of the Secured Notes pursuant to Section
7.2 of the Agreement or to be applied pursuant to Section 3.5 of the Revolving
Credit Agreement to the repayment of the indebtedness thereunder.
"UNRESTRICTED EQUITY PROCEEDS" means that portion of Equity Offering
Proceeds which are not required to be applied to the repayment of the Secured
Notes pursuant to Section 7.2 of the Agreement or to be applied pursuant to
Section 3.5 of the Revolving Credit Agreement to the repayment of the
indebtedness thereunder. Upon final determination of all discounts, commissions,
fees, expenses and taxes paid or payable in connection with any transaction
giving rise to any Unrestricted Equity Proceeds, to the extent such discounts,
commissions, fees, expenses and taxes shall exceed the amounts estimated by the
Company in good faith in connection with such transaction, the amount of
Unrestricted Equity Proceeds shall be reduced by such excess.
"UNRESTRICTED PROCEEDS" means the sum of (i) Unrestricted Debt Proceeds and
(ii) Unrestricted Equity Proceeds.
"VOTING STOCK" means stock of a company of the class or classes having
general voting power under ordinary circumstances to elect at least a majority
of the board of directors of such company (irrespective of whether or not at the
time stock of any other class or classes shall have or might have voting power
by reason of the happening of any contingency).
"WARRANT AGREEMENT" means collectively the Warrant Agreements, each dated
as of the date hereof, between the Company and each Purchaser.
"WARRANTS" means the warrants to acquire shares of Common Stock issued
pursuant to the Warrant Agreement.