-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VN4FSVd2FwJZaz6dKRRmU94Gi8hKipTg5miVpRD6T5fPuMVDaylcep3PxXOXhD1+ mtpV36mtVQSka0onrn+TyA== 0000950137-98-001239.txt : 19980330 0000950137-98-001239.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950137-98-001239 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19971227 FILED AS OF DATE: 19980327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOME PRODUCTS INTERNATIONAL INC CENTRAL INDEX KEY: 0000814457 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 364147027 STATE OF INCORPORATION: DE FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17237 FILM NUMBER: 98576550 BUSINESS ADDRESS: STREET 1: 4501 WEST 47TH ST CITY: CHICAGO STATE: IL ZIP: 60632 BUSINESS PHONE: 3128901010 MAIL ADDRESS: STREET 1: 4501 WEST 47TH STREET CITY: CHICAGO STATE: IL ZIP: 60632 FORMER COMPANY: FORMER CONFORMED NAME: SELFIX INC DATE OF NAME CHANGE: 19920703 10-K 1 ANNUAL REPORT 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required) For the Fifty Two Weeks Ended December 27, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee required) Commission File Number 0-17237 HOME PRODUCTS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-4147027 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4501 WEST 47TH STREET 60632 CHICAGO, ILLINOIS (Zip Code) (Address of principal executive offices)
(773) 890-1010 (Registrant's telephone number including area code) Securities registered pursuant to Section 12(b) of the Act: None Name of Each Exchange On Which Registered None Securities registered pursuant to Section 12(g) of the Act: Title of Each Class Common, Par Value $0.01 Per Share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Shares of common stock, par value $0.01 outstanding at March 25, 1998 -- 7,943,680. Aggregate market value of such shares held by non-affiliates as of that date -- $128,091,840. DOCUMENTS INCORPORATED BY REFERENCE. Home Products International, Inc. definitive proxy statement dated April 13, 1998 for the 1998 Annual Meeting ("Proxy Statement") -- Part III ================================================================================ 2 PART I ITEM 1. BUSINESS Home Products International, Inc. designs, manufactures and markets a broad range of quality consumer houseware products. The Company is a leading supplier to large national retailers of value-priced laundry care products and accessories, storage and organization products including storage containers, bath and shower organization products, hooks, hangers, home/closet organization products and juvenile organization products. The Company holds a significant market share in the United States in its key product categories of ironing boards, ironing board covers and pads, plastic storage containers, plastic hangers and bath and shower organization products. The Company's products are sold in the United States through most of the large national retailers, including Wal-Mart, Sam's Club, Target, Kmart, Home Depot, Toys 'R Us, Walgreens and Bed Bath & Beyond. The Company also sells its products internationally in over 40 countries. The Company is comprised of four operating subsidiaries, Tamor, which was acquired February 28, 1997, (effective as of January 1, 1997), Seymour, which was acquired December 30, 1997, Selfix and Shutters. On a consolidated pro forma basis, 1997 net sales of $222.3 million makes HPI one of the largest companies in the fragmented U.S. consumer housewares industry. References to "HPI" or the "Company" are to Home Products International, Inc., a Delaware corporation, and its wholly owned subsidiaries, Selfix, Inc., a Delaware corporation ("SELFIX"), Tamor Corporation, a Massachusetts corporation ("TAMOR"), Shutters, Inc., an Illinois corporation ("SHUTTERS"), and Seymour Housewares Corporation an Indiana corporation ("SEYMOUR"). On February 18, 1997, the Company became the holding company for, and successor registrant under the Securities Exchange Act of 1934 (the "EXCHANGE ACT") to, Selfix and Selfix became a wholly-owned subsidiary of the Company through a holding company reorganization under the General Corporation Law of Delaware. Where the context requires, certain references to the "Company" are to Home Products International, Inc., in its capacity as a holding company, or to Selfix prior to the holding company reorganization. The holding company structure is intended to provide a framework that will accommodate future growth from internal operations, acquisitions, and joint ventures, while providing for greater administrative and operational flexibility. The Company was originally founded as Selfix in 1952 as a privately held manufacturer and distributor of plastic hooks. After being acquired in 1962 by Meyer and Norma Ragir, the Company expanded the number of product categories it offered, as well as the product lines within each category, resulting in increased net sales and net earnings. In fiscal 1987, Selfix acquired Shutters, a manufacturer and marketer of home improvement products, primarily durable plastic exterior shutters. Selfix became a public company following an initial public offering of its Common Stock in fiscal 1988. Although net sales had increased to approximately $40.0 million in fiscal 1993, Selfix's operating profits were marginal primarily due to under performing products, some of which were acquired in two unsuccessful acquisitions in the early 1990's, and the death of the Company's chief executive officer in 1992 which caused a void in management. In addition, a lack of management controls resulted in sales of many under performing products and a significant increase in operating expenses primarily attributable to increased overhead expenses. In April, 1994, Selfix hired James Tennant, then a member of its Board of Directors with substantial marketing and management experience, to be Chairman of the Board of Directors and Chief Executive Officer. Mr. Tennant set out to restructure the Company's operations and improve its profitability. As part of this restructuring, the Company replaced its entire senior management group, focused its sales and marketing efforts, increased its distribution capabilities, upgraded its financial and systems controls, eliminated under performing product lines which resulted in a significant decrease of SKU's and reduced overhead expenses. The Company incurred operating losses of approximately $4.5 million in fiscal 1994 and $4.0 million in fiscal 1995, resulting primarily from the costs of this restructuring. The restructuring, completed in fiscal 1995, contributed to operating profits of $1.4 million in fiscal 1996 and net earnings of $0.8 million. Once the restructuring was completed, Selfix began to aggressively pursue a strategy of disciplined growth through acquisition. Effective January 1, 1997, the Company completed the acquisition of Tamor and its affiliated product distribution company, Houseware Sales, Inc., and effective December 30, 1997 the Company completed its acquisition of Seymour. 2 3 TAMOR ACQUISITION Effective January 1, 1997, the Company acquired Tamor Plastics Corporation, a privately held company founded in 1947, and its affiliated product distribution company, Houseware Sales, Inc. (the "TAMOR ACQUISITION"). (Tamor Plastics Corporation and Houseware Sales, Inc. are collectively referred to herein as "TAMOR"). Tamor designs, manufactures and markets quality plastic housewares products. If the Tamor Acquisition had occurred on January 1, 1996, the Company's 1996 net sales of $38.2 million would have been increased by $75.7 million to $113.9 million and operating profits of $1.4 million would have increased by $6.8 million to $8.2 million. See Management's Discussion and Analysis of Financial Condition and Results of Operations -- Fiscal Year 1997 as Compared to Fiscal Year 1996, for further comment on the positive impact of the Tamor Acquisition on the overall fiscal 1997 operating results. SEYMOUR ACQUISITION Effective December 30, 1997, (within the Company's 1998 fiscal year) the Company acquired Seymour Sales Corporation and its wholly owned subsidiary, Seymour Housewares Corporation, (collectively, "SEYMOUR"), a privately held company originally founded in 1942 (the "SEYMOUR ACQUISITION"). Seymour is a leading designer, manufacturer, and marketer of consumer laundry care products. Seymour produces a full line of ironing boards, ironing board covers and pads and numerous laundry related accessories. The Company believes that the Seymour Acquisition will result in significant increases in 1998 sales. If the Seymour Acquisition had occurred on January 1, 1997, the Company's 1997 net sales of $129.3 million would have been increased by $93.0 million to $222.3 million and operating profit of $12.7 million would have been increased by $2.6 million to $15.3 million. The pro forma operating profit of $15.3 million includes a charge of $2.6 million related to management's plans to consolidate and dispose of certain manufacturing operations. CONSOLIDATION STRATEGY The Company plans to take advantage of consolidation opportunities in the housewares industry, a large market comprised of a highly fragmented supplier base. To provide complete product lines to national retailers, suppliers of housewares products have begun to consolidate. The Company believes that there are a number of excellent acquisition candidates because the suppliers of consumer houseware products are highly fragmented with no single supplier accounting for more than 5% of the total sales. The Company believes it is well-positioned to pursue its strategy of growth through acquisition given its access to the capital markets and its increased visibility from the recent acquisitions of Tamor and Seymour. To improve margins and operating efficiencies, the Company believes large national retailers are continuing to reduce the number of suppliers of housewares products. These retailers are forming key partnerships with suppliers that can provide complete product lines within product categories, profitable fast-turning products, timely delivery and merchandising support. With its numerous product lines and strong relationships with these retailers, the Company believes it is well positioned to continue to meet their needs. The Company intends to aggressively pursue a strategy of disciplined growth through acquisitions. By consolidating product lines and channels of distribution through acquisitions, the Company believes it can successfully gain market share and increase sales in its key product categories of ironing boards, ironing board pads and covers, plastic storage containers, plastic hangers and bath and shower organization products. GENERAL HPI currently operates in two industry segments: 1) The design, manufacture, marketing, and distribution of high quality HOUSEWARES products is accomplished through its wholly owned subsidiaries, Selfix, Tamor and Seymour. These products, generally branded as "Selfix", "Tamor" or "Seymour" products, are sold principally through mass market trade channels: discount, variety, supermarket, drug, hardware/home center, and specialty stores. Selfix and Tamor products generally retail from $1 to $20, with a substantial majority retailing for under $10. Seymour products generally retail from $2 to $40. The Company believes it is a leading manufacturer of 3 4 high-quality, value-priced, and high-volume, bath and shower organizer products, storage containers, home organization products, and consumer laundry care products. 2) The design, manufacture, and marketing of quality HOME IMPROVEMENT PRODUCTS is accomplished through its wholly owned subsidiary, Shutters. These products, generally branded as "Shutters, Inc." products, are sold principally through wholesalers that service the residential construction, repair and remodeling industry. The Company believes that Shutters is a leading manufacturer of durable, plastic exterior shutters. PRODUCTS Gross Sales by Product Category -- Historical. The following table sets forth the amounts and percentages of the Company's historical gross sales by product categories, for the periods indicated. These sales do not reflect the historical sales of Tamor (pre 1997 sales), nor does it include sales figures for Seymour. GROSS SALES
1997 1996 1995 --------------- -------------- -------------- SALES % SALES % SALES % ----- - ----- - ----- - (IN THOUSANDS, EXCEPT PERCENTAGES) Home/Closet Organization........................ $ 54,172 40% $ 8,527 21% $12,789 29% Storage Containers.............................. 47,275 34 -- -- -- -- Bath and Shower Organization.................... 16,646 12 15,479 38 15,071 35 Juvenile Products............................... 11,652 8 7,369 18 6,683 15 -------- --- ------- --- ------- --- Housewares Products........................... $129,745 94% $31,375 77% $34,543 79% Home Improvement Products..................... 8,385 6 9,457 23 8,993 21 -------- --- ------- --- ------- --- Total Gross Sales............................... $138,130 100% $40,832 100% $43,536 100% === === === Allowances...................................... (8,806) (2,632) (2,497) -------- ------- ------- Total Net Sales................................. $129,324 $38,200 $41,039 ======== ======= =======
The following table sets forth consolidated pro forma gross sales by product category as if the acquisition of Seymour and Tamor had occurred on January 1, 1995. This table is provided in order to show sales trends by product category. PRO FORMA GROSS SALES
1997 1996 1995 --------------- --------------- --------------- SALES % SALES % SALES % ----- - ----- - ----- - (IN THOUSANDS, EXCEPT PERCENTAGES) Ironing Boards, Covers, and Pads.............. $ 75,370 32% $ 73,025 32% $ 76,695 36% Home/Closet Organization...................... 55,874 23 48,859 22 49,332 23 Storage Containers............................ 47,275 20 39,050 17 24,243 11 Laundry Accessories........................... 17,562 7 21,603 10 20,200 10 Bath and Shower Organization.................. 16,646 7 15,479 7 15,071 7 Juvenile Products............................. 16,614 7 18,222 8 18,841 9 -------- --- -------- --- -------- --- Housewares Products......................... $229,341 96% $216,238 96% $204,382 96% Home Improvement Products................... 8,385 4 9,457 4 8,993 4 -------- --- -------- --- -------- --- Total Gross Sales............................. $237,726 100% $225,695 100% $213,375 100% === === === Allowances.................................... (15,439) (16,981) (14,723) -------- -------- -------- Total Net Sales............................... $222,287 $208,714 $198,652 ======== ======== ========
Ironing Boards, Covers and Pads. The Company offers a significant variety of ironing boards under the Seymour brand name (approximately 185 individual SKU's) and command over 75% of the U.S. market. Key 4 5 products in this category include the EasyBoard (perforated board), SureFoot (vented, four-leg board), ReadyPress (over-the-door) and WorkWizard (vented, four-leg with hanger rack). The Company is the leading manufacturer of ironing board covers and pads, under the Seymour brand name, and hold approximately 65% of the U.S. market. The Company offers eight different types of covers and pads in over 85 different designs that fit not only its own ironing boards, but all regular size boards. The Company's covers are known for their scorch resistance and it is the only company that sells ironing board covers with 3M Scotchguard protection. Home/Closet Organization Products. The Company offers a variety of products for general home organization, under both the "Selfix" and "Tamor" brand names. This category is comprised primarily of plastic clothes hangers, which represented 33% of this category's gross dollar sales in 1997. Due to the commodity nature of the hanger segment, margins in this category are inherently lower, while unit volumes are substantially higher. Management believes that Tamor has a leading U.S. market share in plastic clothes hangers, and that its broad product offering gives it a competitive advantage over other hanger manufacturers. In addition to plastic hangers, the Company markets a complete line of over 150 hooks, primarily made of plastic, under the brand name Selfix. The original product marketed by Selfix was a plastic hook, unique in that it employed a proprietary no-tools mounting system. Selfix has expanded its offering of these patented, self-adhesive hooks, and the Company believes it offers a complete line in the opening price point segment. Augmenting the plastic hooks are a line of metal picture hooks, sold to the same customer base. Also included in this category are other plastic organizers, closet and clothing care products, recycling containers, plastic kitchen organizers (including vinyl coated wire kitchen organizers) and miscellaneous housewares products. Storage Containers. The Company offers a variety of plastic home storage containers under the Tamor brand name. These range in size from shoe boxes to jumbo (48 gallon) totes, and include specialty containers sold during the winter holiday season. These products range in retail price from $2 to $20 and contain a variety of product attributes, including removable wheels and domed-top lids, which increase storage capacity. Management believes these features are key to obtaining shelf space and competing in the market. This is the fastest growing segment for Tamor, and management believes it has a meaningful share of the $800 million U.S. market. Laundry Accessories. The Company is the leading U.S. producer of laundry accessories with approximately 25% of the total U.S. market. Key products within this category include: drying racks, laundry bags, hampers and sorters, clotheslines, and clothes pins. Bath and Shower Organization. The Company markets a broad line of value-priced plastic bath accessories and organizers, primarily under the brand name Selfix. These include shower organizers, towel bars, soap dishes, shelves, portable shower sprays, and fog-free shower mirrors. In January of 1997, Selfix launched a major line extension in the Bath and Shower Organization category, Suction-Lock(R) Organizers. The Company believes it is a leading producer of opening price-point plastic bath accessories. Juvenile Products. The Company markets a line of quality children's organization products, under the brand names Tidy Kids(R), Kidtivity(R) and Lil' Helpers(TM). Selfix, Tamor, and Seymour each market juvenile products. These products include closet extenders, hook racks, storage cubes, clothes hangers, under-the-bed storage trolleys, and safety gates. These products are sold in the juvenile or housewares departments of its core customers, and also through specialty juvenile retailers like Toys R Us and Babies R Us. The Company believes it created a market niche of children's organization products in the development and successful sales of its Tidy Kids(R) and Lil Helpers(TM) products, and that it offers the premier children's organization program in the industry. Home Improvement Products. Through Shutters, the Company markets a unique line of plastic exterior shutters to the construction trades and consumer home improvement catalogs. Because of a patented design, the shutters are assembled from components, rather than formed in a single piece. This allows the shutters to be configured in the largest variety of sizes and colors in the industry. Shutters markets the shutters in component form to remodeling distributors, and in finished form to home center retailers. In both cases, the 5 6 key competitive advantage is customization of size and color, and quick turnaround service. In 1997 Shutters entered a new market segment with "fixed-size" shutters, utilizing existing trade channels. MARKETING AND DISTRIBUTION The Company's housewares products are sold through national and regional discount, variety, supermarket, drug, hardware/home center, and specialty stores. Selfix, Tamor and Seymour all sell directly to major retail customers through its sales management personnel and through manufacturer's representatives. Selfix, Tamor, and Seymour sell to approximately 3,000 other customers, through a network of approximately 50 independent manufacturers representatives. Including Seymour on a pro forma basis, Wal-Mart (including Sam's Club) accounted for 23% of the Company's gross sales in 1997, K-mart Corporation accounted for 12% of 1997 gross sales, and Target accounted for 6% of 1997 gross sales. The loss of one these customers could have a material effect on the Company. No other customer accounted for more than 5% of sales. The Company's primary marketing strategy is to design innovative products with consumer features and benefits, and focus on marketing the product to its retail selling partners. Management believes that one of its competitive advantages is prompt and reliable product delivery of value-priced high-volume products, allowing customers to maintain minimal inventories. The Company believes that the customer specific merchandising programs it offers enable retailers to achieve a higher return on its products than the products of many of its competitors. To that end, Selfix, Tamor and Seymour offer customers a variety of retail support services, including customized merchandise planogramming, small shipping packs, point-of-purchase displays, Electronic-Data-Interchange (EDI) order transmission, and just-in-time (JIT) product delivery. Shutters sells its home improvement products through 20 independent manufacturers' representatives to approximately 800 customers, the majority of which are distributors who supply home repair and remodeling contractors. Shutters also sells directly to national and regional home improvement catalog distributors. PRODUCT AND RESEARCH DEVELOPMENT The Company's Product Research and Development department uses computer-aided design (CAD) systems to enhance its product development efforts. New products have been a critical driver in the Company's sales growth. Although the Company's historical accounting records do not separately present research and development expenses, the Company estimates that for 1997, 1996 and 1995, expenses associated with research and development were $360,000, $330,000 and $501,000, respectively. FOREIGN AND EXPORT SALES/SEGMENT INFORMATION Including Seymour on a pro forma basis, the Company's 1997 sales outside the United States accounted for 7% of its total net sales. Sales to Canada accounted for 3% of the Company's net sales in 1997. See Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 15 to Consolidated Financial Statements for information regarding the gross sales, operating profit (loss) and identifiable assets attributable to each operating and geographic reporting segments. SEASONALITY Sales of the Company's houseware products are generally higher in the second and third quarter of the calendar year. This seasonality is primarily attributable to the spring/summer wedding season, increased home buying/building during the spring/summer months, and the back to school season. Laundry care products, and storage container products, gifts typically given at bridal showers, (held during the spring/summer wedding season) generate increased demand for these and the Company's other houseware products. The surge in home buying/building during the spring/summer months and the need for new houseware products further explain seasonality of the Company's houseware products. Finally, the back-to-school season, including college students moving out of the house for the first time also contribute to an increase in demand for the Company's houseware products during the spring/summer months. 6 7 Sales of the Company's home improvement products are generally higher in the second and third quarter as well. This seasonality is attributable to the favorable weather conditions typically experienced in the spring and summer months. COMPETITION The Company competes with a number of well established domestic and foreign manufacturers, some with greater resources than the Company. Many of the Company's products also compete with substitute products made of alternate materials. The Company believes it is recognized as a strong competitor in the marketplace based on its innovative yet value-priced products and reliable, timely volume delivery. The Company exports products manufactured in the United States and purchases finished goods products from Asia and Latin America. Consequently, the Company's competitive position may be affected by fluctuations in the exchange rates of certain foreign currencies relative to the U.S. dollar. PATENTS, TRADEMARKS AND LICENSES Subsidiaries of the Company own a number of trademarks and approximately 150 United States mechanical and design patents relating to various products and manufacturing processes. The Company believes that in the aggregate its patents enhance its business, in part by discouraging competitors from adopting patented features of its products. The Company believes, however, that there are no patents, trademarks or licenses material to the business. Through the acquisition of Mericon Child Safety Products in 1995, Selfix obtained a licensing agreement with Fisher-Price, Inc. of East Aurora, N.Y. The agreement required the Company to pay a percentage-based royalty to Fisher-Price for sales by Selfix of Fisher-Price branded products, which are designed, manufactured and marketed by Selfix. As of December 27, 1997, the Company terminated its agreement with Fisher-Price. The termination of the agreement is not expected to have a significant impact on sales. Sales of Fisher-Price branded products in 1997 approximated $.6 million. RAW MATERIALS AND PRODUCTION The Company manufactures the majority of its products at its various manufacturing facilities. As a result of the Seymour Acquisition, the Company has been able to significantly diversify its primary raw material needs. With the acquisition of Seymour, whose primary raw materials are cold rolled steel and greige fabric, plastic resin based products accounted for approximately 55% of the Company's 1997 pro forma net sales, as compared to 95% prior to the acquisition. The primary raw material used in the Company's plastic injection molding operations is plastic resin, primarily polypropylene. Plastic is a spot commodity with pricing parameters tied to supply and demand characteristics beyond the Company's control. In total, the Company expects to use 80 million pounds of plastic resin in 1998. Because of the large amount of plastic resin used and the relative inability to pass cost increases along to its retail customers, the Company is highly susceptible to changes in plastic resin pricing. For fiscal 1997 the cost of resin on a pro forma basis accounted for approximately 18% of the Company's total cost of goods sold and 13% of the Company's net sales. Plastic resin prices can vary widely from year to year and are very difficult to predict beyond a few months. Tamor's plastic resin cost history is illustrative of the swings that can occur in resin pricing. Tamor, which uses about 90% of the Company's resin requirements, experienced average price increases from 1993 to 1994 of 26%, from 1994 to 1995 of another 25% but then experienced price decreases from 1995 to 1996 of 16%, and from 1996 to 1997 of 10%. Due to the nature of certain resin based products the Company is able to use off-prime grades of resin. As a result, it does not purchase its plastic resin directly from manufacturers but rather is able to buy through brokers in a secondary market. This enables the Company to buy at a discount. Buying off-prime material at a discount gives the Company a cost advantage over some of its competitors but does not alleviate the pricing risks inherent with buying a commodity raw material. Plastic resin is utilized by a number of different 7 8 industries, many of which are quite different from the Company's primary housewares business. For example, the automobile and housing industries are very large users of plastic resin. As such, demand changes in the automobile industry or the number of new housing starts can have an impact on plastic resin pricing. There is no futures market for plastic resin. As such, the Company cannot lock in its costs without purchasing significant quantities beyond its immediate manufacturing needs. Management has determined that it will purchase resin in quantities that best fit its manufacturing needs and ability to store such purchases. The primary raw materials used in the Company's consumer laundry care operations are cold rolled steel and greige fabric. Steel procurement, including secondary and primary steel, and steel wire, is typically at spot prices which have moderated during 1997, and are anticipated to remain flat throughout 1998. The Company purchases approximately 25,000 tons of cold rolled steel annually. Greige fabric, purchased from brokers, is a cotton based product, with pricing tied to the world cotton markets. The Company anticipates a slight increase in the cost of greige fabric in the second half of 1998. Purchases of greige fabric approximate 7 million yards annually. The Company's production processes utilize automated machinery and systems where appropriate. Certain laundry care facilities employ the use of an automated manufacturing production line to produce perforated top ironing boards. Additionally, automated cutting and layout machines are used to maximize the usage of greige fabric. The Company also performs all printing and coating of the ironing board covers and pads in-house. Many of the injection molding and extrusion operations are also automated and are supported by incentive based, manually performed secondary operations. INVENTORY CONTROL The Company produces to and sells from inventory, based on forecasted unit sales, and generally ships within a short period of time after receipt of an order. Consequently, the Company does not believe that information with respect to backlog is meaningful. ENVIRONMENT Compliance with Federal, state or local provisions relating to protection of the environment is not expected to have a material effect on the Company's capital expenditures, earnings or competitive position. EMPLOYEES As of December 30, 1997, the Company employed 1,240 persons in the United States. Approximately 90 are hourly employees at its Leominster, Massachusetts facility, covered by a collective bargaining agreement which expires in March, 1999; 150 are hourly employees at its Chicago, Illinois facilities, covered by a collective bargaining agreement which expires in January, 2001; and 200 are hourly employees at its Reynosa, Mexico facility covered by a collective bargaining agreement which expires in December, 1999. The Company utilizes the services of approximately 350 temporary workers in its injection molding operations, for assembly and in certain warehouses. 8 9 ITEM 2. PROPERTIES The Company, including Seymour, maintained facilities with an aggregate of 1,924,000 square foot of space. The Company considers all of its facilities to be in good operating condition. Currently, all of the Company's manufacturing facilities are operating at or near full capacity. The following table summarizes the principal physical properties, both owned and leased, used by the Company in its operations:
SIZE FACILITY USE (SQUARE FEET) OWNED/LEASED -------- --- ------------- ------------ SELFIX Chicago, IL...................... Manufacturing/Distribution 186,000 Leased Chicago, IL...................... Storage/Distribution 83,500 Leased TAMOR Fitchburg, MA.................... Distribution 220,000 Leased Leominster, MA................... Manufacturing 100,000 Owned Leominster, MA................... Sales Office 5,000 Leased Leominster, MA................... Storage 120,000 Leased Louisiana, MO.................... Manufacturing/Distribution 340,000 Owned Thomasville, GA.................. Manufacturing/Distribution 45,000 Owned SHUTTERS Hebron, IL....................... Manufacturing/Distribution 62,500 Owned SEYMOUR Mooresville, NC.................. Manufacturing/Distribution 270,000 Owned McAllen, TX...................... Administration/Distribution 5,000 Leased Reynosa, Mexico.................. Manufacturing 30,000 Owned Seymour, IN Corporate...................... Corporate administration 10,000 Owned East Plant..................... Manufacturing 70,000 Owned South Plant.................... Manufacturing/Distribution 105,000 Owned Skaggs Facility................ Storage 40,000 Leased West Plant..................... Manufacturing/Distribution/Storage 132,000 Owned Logistics Center............... Storage/Distribution 100,000 Leased
Selfix closed its 34,000 square foot Canadian assembly and packaging facility in March, 1996. The Scarborough, Ontario facility was subject to a lease expiring in 1999, however the Company terminated the lease as of March 31, 1997. The cost to terminate the lease was not material to the Company's 1997 financial results. ITEM 3. LEGAL PROCEEDINGS A subsidiary of the Company was notified in early 1997, that it has been named co-defendants, along with an unrelated third party, in a product liability/personal injury suit. The suit seeks $7.0 million in total damages, one-half from each defendant. The Company, and its subsidiary have adequate levels of insurance coverage, and its defense is being handled by its insurance carrier's attorneys. Although management of the Company cannot predict the ultimate outcome of this matter with certainty, it believes that the ultimate resolution to this matter will not have a material effect on the Company's financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 9 10 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company, and their respective ages and principal positions as of March 25, 1998, are as follows:
NAME AGE POSITION ---- --- -------- James R. Tennant.......................... 45 Chairman of the Board and Chief Executive Officer Stephen R. Brian.......................... 49 President and Chief Operating Officer James E. Winslow.......................... 43 Executive Vice President, Chief Financial Officer and Secretary
James R. Tennant joined the Company as Chairman of the Board and Chief Executive Officer in April, 1994. Mr. Tennant was elected a Director of the Company in December, 1992 and was a member of the Company's Compensation Committee until April, 1994. From 1982 to 1994, Mr. Tennant was President of Foote, Cone & Belding/Direct, an international advertising agency. Previously, he was employed by Young and Rubicam, an advertising agency, his final position being Executive Vice President. Stephen R. Brian joined the Company as President and Chief Operating Officer in January 1998. From June, 1996 to January, 1998, Mr. Brian was President and Chief Executive Officer of Seymour Housewares Corporation. From April, 1994 to June, 1996, Mr. Brian was Executive Vice President Manufacturing and Technology for Sunbeam. Prior to April, 1994, Mr. Brian was employed by Hamilton Beach/Proctor Silex with his final position being Executive Vice President of Operations. James E. Winslow was named Executive Vice President in October, 1996. Mr. Winslow joined the Company as Chief Financial Officer and Senior Vice President in November, 1994. In 1994, Mr. Winslow was Executive Vice President and Chief Financial Officer of Stella Foods, Inc. From 1983 to 1994, Mr. Winslow was employed by Wilson Sporting Goods Co. in various capacities, his final position being Vice President and Chief Financial Officer. Officers serve at the discretion of the Board of Directors, except as provided in the employment agreements of Mr. Tennant and Mr. Brian. 10 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on The NASDAQ National Markets(SM) under the symbol "HPII". The Company believes that as of March 25, 1998 there were 250 holders of record and in excess of 1,000 beneficial holders of the Company's common stock. The Company has never paid a cash dividend on its common stock and currently anticipates that all of its earnings will be retained for use in the operation and expansion of its business. The following table sets forth for the periods indicated the high and low bid quotations for the Common Stock as reported on The NASDAQ National Market(SM). The prices reported reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not reflect actual transactions.
HIGH LOW ---- --- Fifty-two weeks ended December 27, 1997: First Quarter............................................. $12.75 $ 8.00 Second Quarter............................................ $11.19 $ 9.38 Third Quarter............................................. $15.88 $ 9.75 Fourth Quarter............................................ $14.75 $10.25 Fifty-two weeks ended December 28, 1996: First Quarter............................................. $ 5.63 $ 4.13 Second Quarter............................................ $ 5.13 $ 4.13 Third Quarter............................................. $ 5.00 $ 4.50 Fourth Quarter............................................ $ 8.63 $ 4.25 Fifty-two weeks ended December 30, 1995: First Quarter............................................. $ 5.25 $ 4.00 Second Quarter............................................ $ 5.25 $ 4.25 Third Quarter............................................. $ 5.75 $ 4.25 Fourth Quarter............................................ $ 5.88 $ 4.75
11 12 ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR ---------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales................................... $129,324 $38,200 $41,039 $40,985 $39,711 Cost of goods sold.......................... 88,888 22,992 25,678 25,587 22,504 -------- ------- ------- ------- ------- Gross profit............................. 40,436 15,208 15,361 15,398 17,207 Operating expenses.......................... 27,688 13,843 17,385 18,185 14,214 Restructuring charge........................ -- -- 2,051 1,701 -- -------- ------- ------- ------- ------- Operating profit (loss).................. 12,748 1,365 (4,075) (4,488) 2,993 Interest expense............................ 5,152 707 896 999 1,066 Other income (expense), net................. 70 148 688 (295) 126 -------- ------- ------- ------- ------- Earnings (loss) before income taxes......... 7,666 806 (4,283) (5,782) 2,053 Income tax expense (benefit)............. 346 -- (273) 221 574 -------- ------- ------- ------- ------- Earnings (loss) before the cumulative effect of a change in accounting for income taxes.................................... 7,320 806 (4,010) (6,003) 1,479 -------- ------- ------- ------- ------- Cumulative effect of a change in accounting for income taxes......................... -- -- -- -- 36 -------- ------- ------- ------- ------- Net earnings (loss)...................... $ 7,320 $ 806 $(4,010) $(6,003) $ 1,515 ======== ======= ======= ======= ======= Net earnings per common share -- Basic...... $ 1.35 $ 0.21 $ (1.11) $ (1.70) $ 0.43 ======== ======= ======= ======= ======= Net earnings per common share -- Diluted.... $ 1.29 $ 0.21 $ (1.11) $ (1.70) $ 0.43 ======== ======= ======= ======= =======
AS OF FISCAL YEAR END ---------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (IN THOUSANDS) BALANCE SHEET AND CASH FLOW DATA: Working capital............................. $ 8,263 $ 7,152 $ 6,712 $11,026 $12,752 Property, plant and equipment, net.......... 28,380 7,934 8,453 10,466 11,524 Intangible assets........................... 29,391 2,527 2,693 1,536 2,941 Total assets................................ 99,343 24,705 24,976 30,761 35,354 Long-term obligations (less current maturities).............................. 30,700 6,184 7,022 9,421 9,120 Stockholders' equity........................ 42,216 11,709 10,847 13,623 19,326 Cash provided by operating activities....... 878 1,823 2,575 2,027 4,193
12 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company reports on a 52-53 week year ending on the last Saturday of December. References to the fiscal years 1997, 1996 and 1995 are for the fifty-two weeks ended December 27, 1997, December 28, 1996, and December 30, 1995. FISCAL YEAR 1997 AS COMPARED TO FISCAL YEAR 1996 The following discussion and analysis compares the actual results of 1997 to the pro forma results for 1996. Management believes that such a comparison (pro forma 1996 results for Tamor) is necessary to meaningfully analyze the changes occurring in such years. The pro forma financial results give effect to the Tamor Acquisition, and related financing, as if each of the transactions had occurred on January 1, 1996. The pro forma operating expenses reflect (i) additional amortization expense resulting from the recording of goodwill associated with the Tamor Acquisition, (ii) net estimated cost savings as a result of the Tamor Acquisition, including a net reduction in discretionary distributions paid to and on behalf of related parties of Tamor and (iii) additional costs associated with the Company's 401(k) and profit sharing plans and certain other fees. The pro forma interest expense reflects the estimated net increase in interest expense as if the Tamor Acquisition and related financing had occurred on January 1, 1996. The pro forma number of weighted average shares assumes the shares issued as a result of the Tamor Acquisition (480,000 shares) and a warrant issued in connection with the acquisition financing were outstanding as of January 1, 1996. As such, in the discussion that follows, all comparisons are made on a pro forma basis with reference to the following (in thousands, except per share amounts):
PRO FORMA FIFTY-TWO WEEKS FIFTY-TWO WEEKS ENDED ENDED DECEMBER 27, 1997 DECEMBER 28, 1996 ----------------- ----------------- Net sales.............................................. $129,324 100.0% $113,904 100.0% Cost of goods sold..................................... 88,888 68.7% 80,810 70.9% -------- ----- -------- ----- Gross profit......................................... 40,436 31.3% 33,104 29.1% Operating expenses..................................... 27,688 21.5% 24,864 21.8% -------- ----- -------- ----- Operating profit..................................... 12,748 9.8% 8,240 7.3% Interest expense....................................... 5,152 4.0% 6,328 5.6% Other income (expense)................................. 70 .1% 847 .7% -------- ----- -------- ----- Earnings before income taxes........................... 7,666 5.9% 2,759 2.4% Income tax expense..................................... 346 .2% 160 .1% -------- ----- -------- ----- Net earnings........................................... $ 7,320 5.7% $ 2,599 2.3% ======== ===== ======== ===== Net earnings per common share -- Basic................. $ 1.35 $ 0.60 ======== ======== Net earnings per common share -- Diluted............... $ 1.29 $ 0.59 ======== ========
Net Sales. Net sales of $129.3 million were up $15.4 million from the prior year. The sales increase was primarily driven by new product introductions within Tamor's storage container line. The introduction of the flat lid 20, 30, and 48 gallon storage totes contributed $12.0 million of new product sales. Growth in the storage category was driven by continuing consumer trends toward larger, more durable products for storage of seasonal and other items. Sales of plastic hangers increased $3.4 million from 1996 as a result of aggressive pricing action taken in response to competitive pressures. 1997 also saw an increase in the bath and shower category with the introduction of Selfix's Suction Lock bath line. This increase offsets declines in less profitable juvenile and home organization products. Home improvement products experienced a decrease of $.9 million due to postponed remodeling projects by end users. Gross Profit. Gross profit margins in 1997 were 31.3% of net sales, up significantly from 1996 margins of 29.1%. The margin improvement was a direct result of a decline in the cost of plastic resin. The average cost of plastic resin dropped from $0.37 per pound in 1996 to $0.33 in 1997. The Company used 74 million pounds of 13 14 plastic resin in 1996 and as such realized savings of approximately $2.6 million as compared to 1996. This savings represents 2% of 1997 net sales. Declines in resin costs were a reflection of plastic resin market factors and not as a result of any change in the Company's buying practices. In addition to the decrease in plastic resin, margins also benefited from improved usage of existing capacity. Tamor was able to shift some of its excess molding capacity ($2.1 million) to Selfix and Shutters, allowing all three entities to run nearly at full capacity. Fixed costs were absorbed over an expanded manufacturing volume thus reducing unit costs as a percent of net sales. Operating Expenses. Operating expenses, including selling, administrative, and amortization of intangibles decreased slightly as a percentage of net sales from 1996 to 1997. Selling expenses decreased from 14.9% of net sales in 1996 to 14.3% in 1997. The slight decrease as a percentage of net sales is attributable to the Company's continuous efforts to effectively manage costs. Administrative expenses increased from 6.2% of net sales in 1996 to 6.5% in 1997. The minor increase is due to the 1997 implementation of two separate incentive bonus plans , as well as an increase in the reserve for bad debts. Amortization of intangibles increased slightly but as a percentage of net sales remained constant at .7% of net sales. Interest Expense. Interest expense of $5.2 million in 1997 decreased $1.2 million from 1996 due to a secondary public stock offering of 2.3 million shares in the third quarter. Proceeds from the offering, $20.9 million, were used to repay a subordinated note of $7.0 million, term notes of $13.6 million, and accrued interest of $.3 million. Income taxes. The Company was able to use federal net operating loss carryforwards, and the elimination of its valuation allowance to reduce the 1997 federal tax liability to zero. The valuation allowance was eliminated as a result of the Company's determination that it was more likely than not that the benefit of the deferred tax assets recorded would be realized. The Company recorded a provision for state income taxes in the amount of $346, as a result of the inability to use tax loss carryforwards in Massachusetts, Tamor's primary state of business. The pro forma 1996 results also reflect zero federal tax expense, and the state provision recorded reflects the actual state taxes paid by Tamor. Net earnings. Net earnings in 1997 were $7.3 million, or $1.29 per common share -- diluted, based on 5.7 million weighted average common shares outstanding. This compares to net earnings of $2.6 million in 1996, or $.59 per common share -- diluted, based on 4.4 million weighted average common shares outstanding. The $4.7 million increase in profitability is due to a 13.5% increase in net sales combined with a 2.2% increase in gross margin. The increase in weighted average common shares outstanding is the result of the secondary public stock offering in July, 1997, the exercise of stock options throughout 1997, and stock issued in connection with the Company's Employee Stock Purchase Plan. 14 15 FISCAL 1996 COMPARED TO FISCAL 1995 The following discussion and analysis compares the actual historical results of 1996 and 1995 without consideration for the Tamor Acquisition, (in thousands, except per share amounts):
FIFTY-TWO FIFTY-TWO WEEKS ENDED WEEKS ENDED DECEMBER 28, 1996 DECEMBER 30, 1995 ------------------ ------------------ Net sales......................................... $38,200 100.0% $41,039 100.0% Cost of goods sold................................ 22,992 60.2% 25,678 62.6% ------- ------ ------- ------ Gross profit................................. 15,208 39.8% 15,361 37.4% Operating expenses................................ 13,843 36.2% 17,385 42.3% Restructuring charge.............................. -- -- 2,051 5.0% ------- ------ ------- ------ Operating profit............................. 1,365 3.6% (4,075) (9.9)% Interest expense.................................. 707 1.9% 896 2.2% Other income (expense)............................ 148 .4% 688 1.7% ------- ------ ------- ------ Earnings before income taxes...................... 806 2.1% (4,283) (10.4)% Income tax expense................................ -- -- 273 .6% ------- ------ ------- ------ Net earnings...................................... $ 806 2.1% $(4,010) (9.8)% ======= ====== ======= ====== Net earnings per common share -- Basic............ $0.21 $(1.11) ======= ======= Net earnings per common share -- Diluted.......... $0.21 $(1.11) ======= =======
General. Fiscal 1996 results began to reflect the positive benefits of the restructuring actions taken during fiscal years 1994 and 1995. The Company's net earnings in fiscal 1996 of $0.8 million reflect reduced operating expenses, improved manufacturing efficiencies and increased gross profit margins. Overhead reductions and operating initiatives which were implemented in 1994 and 1995 directly benefited 1996 results as follows: (i) a 24% reduction in the workforce; (ii) the elimination of unprofitable product lines; (iii) the closing of three facilities; (iv) a reduction in outside warehousing costs; (v) a 29% reduction of gross inventory; and (vi) the reduction of operating expenses below amounts spent in fiscal 1993. Net sales. Net sales of $38.2 million in 1996 decreased $2.8 million, or 7%, from net sales in 1995 of $41.0 million. The reduction in sales was a direct result of decisions made in 1995 to discontinue the sale of certain under performing housewares products. Discontinued products, accounting for $3.3 million of 1995 net sales, were across all of the housewares product lines but were greatest in the hooks and home helpers and home organization product lines. Home bathwares sales increased 3% from 1995 as a result of an expanded line of shower organizers. Juvenile products sales increased 10% as the Company had a full year in which to sell the child safety product line acquired in October, 1995. Home improvement products increased 5% as a result of increased placement with remodeling distributors. Gross profit. Gross profit margins in 1996 were 39.8% of net sales, an increase from margins in 1995 of 37.4% of net sales. Increased gross profit margins were attributable to a slight decrease in the cost of plastic resin but more significantly to the impact of decisions made in 1995 and the selling of fewer lower margin products. Plastic resin costs declined about 9% during 1996 to an average cost of $0.48 per pound from an average cost of $0.53 per pound for plastic resin during 1995. Selfix used approximately seven million pounds of plastic resin resulting in a cost savings of $0.3 million as compared to 1995 cost levels. The declines in resin costs were a reflection of plastic resin market factors and not as a result of any change in the Company's buying practices. Operating expenses. Selling expenses decreased from 25.5% of net sales in 1995 to 23.7% of net sales in 1996. Warehousing and customer service costs were reduced by the first quarter closing of the Company's Canadian facility. All Canadian business is now serviced from the Company's manufacturing and distribution facilities in Chicago. The closing resulted in personnel reductions and reduced warehousing costs. In addition, 15 16 management decided that the Company was better served by outsourcing certain product design services. This resulted in further personnel related savings. Administrative expenses also decreased as a percent of net sales. Administrative expenses were 12% of net sales in 1996 as compared to 15.7% in 1995. Management efforts to evaluate and reduce spending successfully reduced personnel costs, professional fees and nearly all other administrative items. Costs related to the search and evaluation of acquisition targets were significantly decreased in 1996. Management devoted the majority of its attention to cost reduction efforts, manufacturing efficiencies, and managing the impact of selling a reduced number of product lines. Fourth quarter costs in 1996 of approximately $0.2 million related to the Tamor Acquisition were capitalized. In addition, 1995 included an increase in the allowance for doubtful accounts of $0.4 million to address the uncertain financial condition of several retailers. Further, management decided in 1995 to outsource its management information department and incurred $0.4 million of charges for related severance payments and equipment write-offs. Amortization of intangibles decreased from 1.1% of net sales in 1995 to 0.5% in 1996. The decrease in amortization is the result of 1995 write-offs of previously capitalized patents and trademarks related to discontinued product lines. Restructuring charge. Restructuring charges totaling $2.1 million were recorded in 1995 related to discontinuing certain unprofitable product lines, closing the Company's Canadian facility and moving the Canadian operations to Chicago. Such charges included severance benefits, the write-off of Canadian fixed assets, early lease termination charges on the Canadian building lease and the write-off of inventory and intangibles related to discontinued product lines. The charges for the closing and relocation of the Canadian operation totaled $1.0 million including severance benefits of $0.2 million covering all of the Canadian employees. The relocation of the Canadian operation was completed in the first half of 1996. The remaining $1.1 million of restructuring charges related to product lines the Company decided to discontinue and the write-off of related product molds, inventory and patents. The after tax and earnings per share impact of the write-off of depreciable assets in connection with the 1995 restructuring charge was $1.0 million and $0.27, respectively. Interest expense. In December, 1995, the Company used excess cash to pay down a $1.5 million note payable to a bank. In addition, $0.8 million of installment payments on variable rate demand bonds were made. As a result of these payments, Selfix's 1996 interest expense was reduced $0.2 million as compared to 1995. Changes in interest rates had no significant impact on interest expense between years. Other income (expense). 1996 other income of $0.1 million was significantly less than the $0.7 million of other income in 1995. Other income in 1995 was positively impacted by the favorable settlement of a non-compete and consulting agreement. The favorable settlement allowed $0.3 million of related accruals to be reversed into 1995 earnings. In addition, 1995 other income included gains on sales of fixed assets and a franchise tax refund. Income taxes. The Company was able to use tax losses from prior years to reduce current year tax provisions to zero. In 1995 and 1994, however, the Company was unable to record a significant tax benefit on pre-tax losses because of the unavailability of tax loss carrybacks. An income tax benefit of $0.3 million was recorded in 1995 through the utilization of alternative minimum tax carrybacks. The Company has about $6.5 million of book tax losses to shelter future reported pre-tax earnings. Net earnings (loss). Net earnings in 1996 were $0.8 million or $0.21 per common share -- diluted, based on 3.9 million weighted average common shares outstanding. This compares to a net loss of $4.0 million in 1995 or $1.11 loss per common share -- diluted, based on 3.6 million weighted average common shares outstanding. The $4.8 million turnaround in profitability was due to the operating improvements achieved over the prior few years and the $2.1 million decrease in restructuring charges. The increase in common shares and common share equivalents was the result of stock issued in connection with the Company's Stock Purchase Plan and the dilutive impact of stock options. The increase in the Company's year end stock price from $5.625 to $8.625 caused several previously issued stock option grants to be treated as dilutive for purposes of the common share equivalent determination. 16 17 OPERATING RESULTS BY INDUSTRY SEGMENT The Company operates in two industry segments: (i) housewares products and (ii) home improvement products. HOUSEWARES The housewares segment significantly improved its profitability in 1997. Operating profit of $12.3 million was achieved compared to pro forma (for the Tamor Acquisition) operating profits in 1996 of $7.7 million. The improvement resulted primarily from a 13.5% increase in net sales and a drop in the cost of plastic resin of $0.03 per pound or $2.4 million as compared to 1996. Other factors adding to the improvement were better utilization of existing capacity, allowing for the reduction in outside molding, and holding selling and marketing expenses steady in spite of the increase in sales. Operating profit of $.9 million in 1996 was up $5.8 million as compared to a loss in 1995, of $4.9 million. The improvement resulted from higher gross profit margins and reduced operating expenses. The majority of the operating initiatives and cost cutting measures of the prior two years benefited the housewares segment. The Selfix line of products was significantly streamlined from nearly 2,000 SKU's in 1994 to under 700 as of the end of 1996. The reduction in SKU's has allowed management to concentrate on selling more profitable products, allocate capital resources accordingly and cutback personnel. Additionally, 1995 results included a $2.1 million restructuring charge, whereas 1996 did not. HOME IMPROVEMENT PRODUCTS Operating profit of the home improvement segment remained flat from 1997 to 1996 at $.5 million. Sales for 1997 decreased $1.1 million as a result of postponed remodeling projects by end users. Offsetting the effects of a decline in sales were higher gross profit margins. The cost of plastic resin decreased $0.06 per pound in 1997 or $.2 million as compared to 1996. Shutters was able to operate at nearly full capacity in 1997 by molding for the housewares segment, allowing them to absorb their fixed costs over an expanded manufacturing volume, thus reducing unit costs as a percentage of net sales. In response to the sales shortfall, operating expenses were significantly reduced in 1997. Operating profits in 1996 of $.5 million declined from $.8 million in 1995. The decline in profitability occurred primarily in the first quarter when sales were significantly constrained by weather conditions in the midwest and northeast. Late winter storms deferred the start of the building season. This resulted in missed sales and significant unabsorbed fixed manufacturing costs. Although sales caught up later in the year, the unabsorbed manufacturing costs could not be recovered. In addition, operating expenses increased 8% to support new product introductions and to pursue new trade channel opportunities. During the fourth quarter, management initiated a series of changes to permanently reduce manufacturing costs and operating expenses. This resulted in a fourth quarter profit as compared to historical fourth quarter losses. Further, these changes positioned the home improvement segment for improved profitability in 1997. SEYMOUR ACQUISITION Effective December 30, 1997, (within the Company's 1998 fiscal year) the Company acquired Seymour, a privately held company originally founded in 1942. Seymour is a leading designer, manufacturer and marketer of consumer laundry care products. Seymour manufactures and markets a full line of ironing boards, ironing board covers and pads and numerous laundry related accessories. Seymour was acquired for a total purchase price of $100.7 million, consisting of $16.4 million in cash, $14.3 million in common stock (1,320,700 shares) and the assumption of $70.0 million of debt. The necessary funds to complete the acquisition were obtained from a credit agreement entered into on December 30, 1997, (the "12/30/97 CREDIT AGREEMENT"), with the lenders which are parties thereto and General Electric Capital Corporation ("GECC"). The financing facilities under the 12/30/97 Credit Agreement consist of a $20.0 million revolving credit facility and two term loans totaling $110.0 million. The Company also executed a $10.0 million senior 17 18 subordinated note in favor of GECC. The revolving credit facility, the term loans and the senior subordinated note provided a total of $140.0 million of available financing. The 12/30/97 Credit Agreement is secured by a pledge of all of the assets of the subsidiaries of the Company and all of the shares of capital stock of such subsidiaries. Interest on the revolving credit facility and term loans is initially charged at floating rates of 100-150 basis points over the lender's prime rate or 250-300 basis points over LIBOR, at the option of the Company. The senior subordinated note of $10.0 million bears interest at a floating rate of 300 basis points over the lender's prime rate, but in no event less than 11%. (See Note 16 to Consolidated Financial Statements for additional information in regards to the 12/30/97 Credit Agreement). If the Seymour Acquisition had occurred on January 1, 1997, the Company's 1997 net sales of $129.3 million would have been increased by $93.0 million to $222.3 million and operating profits of $12.7 million would have been increased by $2.6 million to $15.3 million. The pro forma operating profit of $15.3 million includes a charge of $2.6 million related to management's plans to consolidate and dispose of certain manufacturing operations. CAPITAL RESOURCES AND LIQUIDITY Cash and cash equivalents at December 27, 1997 were $.6 million as compared to $2.9 million at December 28, 1996. The decrease in cash is the result of daily sweeps against the Company's revolving line of credit that was established in February, 1997 in connection with the Tamor Acquisition. Capital spending of $8.6 million was used to acquire molds to support new product introductions, additional injection molding machines and to fund an expansion of the company's Missouri warehouse facility. Since the Tamor Acquisition, working capital has increased $4.3 million. In July, 1997, the Company completed a secondary stock offering of 2.3 million shares of common stock. Net proceeds of $20.9 million were used to repay a subordinated note of $7.0 million, term notes of $13.6 million and accrued interest of $.3 million. The required borrowings for the Seymour Acquisition have significantly changed the Company's financial structure. To fund the acquisition, increased financing facilities were provided by commercial lenders to replace and augment the financing facilities in place at December 27, 1997. The new financing facilities consist of $110.0 million of term loans and a $20.0 million revolving line of credit under the 12/30/97 Credit Agreement and a $10.0 million senior subordinated note. At March 25, 1998, the Company had total short and long term debt outstanding of $126.7 million and unused availability under the revolving line of credit of $11.8 million. During 1998, $5.0 million of debt will come due. The Company's capital spending needs in 1998 are expected to be between $10.0 and $12.0 million. Most of the spending relates to new injection molding presses to expand existing capacity and to replace old, inefficient machines. The replacement machines are expected to reduce manufacturing cycle times and ongoing maintenance costs. In addition, the Company exercised an option to purchase the leased manufacturing and warehouse facility in Missouri at an approximate cost of $1.4 million. Where possible, management will pursue alternative means of financing such as capital leases and purchase money transactions. In addition, operating leases will be pursued to the extent it represents an attractive economic alternative. The Company believes its existing financing facilities together with its cash flow from operations will provide sufficient capital to fund operations, make the required debt repayments and meet the anticipated capital spending needs. Management intends to continue to pursue its consolidation strategy within the housewares industry. The current financing facilities are not intended to fund future acquisitions. The ability to successfully fund future acquisitions will depend on the financial situation of the target company, possible renegotiation of existing credit terms or the possibility of obtaining an alternative credit facility, and the ability to use company stock in lieu of cash. Alternative financing arrangements are currently being explored including the possibility of a public debt offering, and the creation of a working capital and acquisition line of credit. However, no commitments have been made as of March 25, 1998. 18 19 OUTLOOK 1997's operating and financial results exceeded management's expectations at the time of the January, 1997 Tamor acquisition. Several planned strategic initiatives were successfully completed: - integration of the Tamor business into HPI - utilization of excess manufacturing capacity to improve gross profit margins - continued improved profitability of the Selfix business - follow-on stock offering of 2.3 million shares, which raised over $20 million to pay down debt, increased institutional ownership and expanded analyst coverage of the Company - increased share price and shareholder value with share price rising 43% - announcement at year end of the completion of the Seymour Acquisition Management expects 1998 to be an equally fulfilling year for its shareholders. On a pro forma basis, 1997 sales were up 13.5% to 1996. While increased sales and market presence is vitally important, growth must also be profitable. Not all of the 1997 sales growth was sufficiently profitable. In addition, the company was using its productive capacity at nearly 100%. As a result, the Company faces the challenge in 1998 of putting manufacturing capacity to its most profitable use. Certain products will continue to be outsourced but only when product profitability targets are met. To this end, management anticipates slower sales growth in 1998 while new product sales replace products expected to be discontinued. This will allow the Company to better use its manufacturing capacity to produce those products that provide the highest returns. During 1998, the Company will evaluate its production capacity needs and identify ways by which to add capacity. Management continues to believe that significant sales growth opportunities exist in the storage container category. It is management's intention to have the capacity in place by 1999 to allow for aggressive pursuit of profitable sales growth in this category. The Seymour Acquisition will add significantly to 1998 sales. If the Seymour Acquisition had occurred on January 1, 1997, the Company's 1997 sales would have increased by $93 million. Further, it is management's intention to fully integrate Seymour's operating functions such as sales, marketing and finance into the existing operating departments of other HPI businesses. This will allow for a reduction of pro forma operating expenses and improved profitability. The Seymour product line is more seasonal than the Company's other products. Sales of Seymour products are concentrated in the second and third quarter. This corresponds to the spring/summer wedding season and the back-to-school season. As a result, 1998 sales and earnings are expected to be significantly higher in the second and third quarters as compared to the first and fourth quarters. Because the Seymour products are composed primarily of steel and fabric, they provide a diversification hedge against the Company's exposure to fluctuations in the cost of plastic resin. In 1998, management expects the cost of plastic resin to represent about 12% of net sales as compared to 22% in 1997. The Company currently expects resin prices to increase slightly in 1998 as a result of changes in product mix, the composition of resins used and a tightening of resin supply. As a result of the Seymour Acquisition, the Company is highly leveraged and as such will be more sensitive to changes in interest rates. Further, the Company will be subject to tight borrowing limits and mandatory repayments. Management expects, however, that cash flow from operations will be sufficient to fund needed capital improvements and new product development. Offsetting some of the interest rate risk is a reduction in interest rate margins as defined in the 12/30/97 Credit Agreement. The Company's 1997 financial performance allowed for a lessening of such margins by about 50 basis points. Management will continue to seek strategic acquisitions of companies and product lines that fit within the desired categories of products for the home. Management expects continued sales and earnings growth from future acquisitions but that additional financing may be necessary to support acquisition activity. 19 20 FORWARD-LOOKING STATEMENTS This annual report on Form 10-K, including "Business," "Properties," "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. Such factors and uncertainties include, but are not limited to: (i) the anticipated effect of the Tamor Acquisition and the Seymour Acquisition on the Company's sales and earnings; (ii) the impact of the level of the Company's indebtedness; (iii) restrictive covenants contained in the Company's various debt documents; (iv) general economic conditions and conditions in the retail environment; (v) the Company's dependence on a few large customers; (vi) price fluctuations in the raw materials used by the Company, particularly plastic resin; (vii) competitive conditions in the Company's markets; (viii) the seasonal nature of the Company's business; (ix) the Company's ability to execute its acquisition strategy; (x) fluctuations in the stock market; (xi) the extent to which the Company is able to retain and attract key personnel; (xii) relationships with retailers; and (xiii) the impact of federal, state and local environmental requirements (including the impact of current or future environmental claims against the Company). As a result, the Company's operating results may fluctuate, especially when measured on a quarterly basis. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Listed below are the financial statements and supplementary data included in this part of the Annual Report on Form 10-K:
PAGE NO. -------- (a) Financial Statements Reports of Independent Public Accountants................... F-1 Consolidated Balance Sheets at December 27, 1997 and F-3 December 28, 1996........................................... Consolidated Statements of Operations for 1997, 1996 and F-4 1995........................................................ Consolidated Statements of Stockholders' Equity for 1997, F-5 1996 and 1995............................................... Consolidated Statements of Cash Flows for 1997, 1996 and F-6 1995........................................................ Notes to Consolidated Financial Statements.................. F-7 (b) Supplementary Data Summary of Quarterly Financial Information.................. F-26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Board of Directors of the Company has appointed Arthur Andersen LLP, independent public accountants, as independent auditors to examine the annual consolidated financial statements of the Company and its subsidiary companies for 1998. Arthur Andersen LLP has served as the Company's independent auditors since 1996. The Company dismissed Grant Thornton LLP, its independent public accountants, effective April 12, 1996. In connection with the audit of 1995, and during the interim period prior to the dismissal, there were no disagreements with the former accountants on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure. During 1995 and during the interim period prior to engagement by Arthur Andersen LLP, there were no consultations with Arthur Andersen LLP with regard to either the application of accounting principles as to any specific transaction, either completed or proposed; the type of audit opinion that would be rendered on the Company's financial statements; or any matter of disagreements with the former accountants. The former accountants' report on the financial statements of the Company for 1995 was unqualified. The Company's Board of Directors approved the audit committee's recommendation to change accountants. 20 21 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the Company's executive officers is included under Part I of this Form 10-K. Information set forth under "Election of Directors" in the Proxy Statement is incorporated herein by reference. The information set forth under "Executive Officers of the Registrant" in Part I of this Annual Report on Form 10-K is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information set forth under "Compensation of Executive Officers" and "Employment Agreements" in the Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth under the "Security Ownership of Principal Stockholders and Management" in the Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under "Certain Relationships and Related Transactions" in the Proxy Statement is incorporated herein by reference. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Listed below are the financial statements, additional financial information, reports and exhibits included in this part of the Annual Report on Form 10-K: (A) FINANCIAL STATEMENTS The financial statements and notes to the consolidated financial statements are referred to in Item 8.
(B) ADDITIONAL FINANCIAL INFORMATION PAGE NO. Reports of Independent Public Accountants on Schedule II.... F-24 Schedule II -- Valuation and Qualifying Accounts............ F-26
(C) REPORTS FILED ON FORM 8-K
DATE FILED ITEMS REPORTED ---------- -------------- 11-24-97 The Company signed a definitive agreement to acquire Seymour Housewares, Inc. There were no financial statements filed with this Form 8-K.
(D) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K) 21 22 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT TITLE - ------- ------------- 2.1 Agreement and Plan of Merger, dated as of February 13, 1997, by and among Selfix, Inc., HPI Merger, Inc. and Home Products International, Inc. Incorporated by reference from Exhibit 2.1 to Form 8-B Registration Statement filed on February 20, 1997. 2.2 Agreement and Plan of Merger, dated as of October 24, 1995, by and among Selfix, Inc., Mericon Corporation,Claw, L.L.C. and Dennis Buckshaw. Incorporated by reference from Exhibit 2.2 to Form 8-B Registration Statement filed on February 20, 1997. 2.3 Stock Purchase Agreement, made as of January 1, 1997, between the Company, Leonard J. Tocci, Richard M. Tocci, Lawrence J. Tata, Michael P. Tata and Barbara L. Tata. Incorporated by reference from Exhibit 2.2 to Form 8-K dated February 28, 1997. 2.4 Agreement and Plan of Merger, dated as of January 1, 1997, by and among the Company, Houseware Sales, Inc. and the individual shareholders of Houseware Sales, Inc. Incorporated by reference from Exhibit 2.1 to Form 8-K dated February 28, 1997. 2.5 Amended and Restated Agreement, dated December 30, 1997, by and among the Company, Seymour Sales Corporation, Seymour Housewares Corporation, and Chase Venture Capital Associates (majority shareholder of Seymour Sales Corporation). Incorporated by reference from Exhibit 2.1 to Form 8-K dated January 13, 1998, which was subsequently modified as stated in Item 2 to Form 8-K/A dated March 16, 1998. *2.6 Form of Escrow Agreement (Exhibit 2.8 from Amended and Restated Agreement, dated December 30, 1997 by and among the Company, Seymour Sales Corporation, Seymour Housewares Corporation, and Chase Venture Capital Associates (majority shareholder of Seymour Sales Corporation)) by and among HPII, the security holders of Sales, Majority Shareholder, and LaSalle. 3.1 Certificate of Incorporation of the Company filed with the Delaware Secretary of State on February 7, 1997. Incorporated by reference from Exhibit 3.1 to Form 8-B Registration Statement filed on February 20, 1997. 3.2 By-laws of the Company. Incorporated by reference from Exhibit 3.2 to Form 8-B Registration Statement filed on February 20, 1997. 4.1 Form of Rights Agreement dated as of May 21, 1997, between Home Products International, Inc. and ChaseMellon Shareholder Services L.L.C., as Rights Agent, which includes as Exhibit B thereto the Form of Right Certificate. Incorporated by reference from Exhibit 4.2 to Form S-2 Registration Statement (File No. 333-25871) filed on April 25, 1997. 10.1 The Company's 1994 Stock Option Plan. Incorporated by reference from Exhibit A of the Company's Proxy Statement for its 1994 Annual Meeting.** 10.2 The Company's 1991 Stock Option Plan. Incorporated by reference from Exhibit A of the Company's Proxy Statement for its 1991 Annual Meeting.** 10.3 The Company's 1987 Stock Option Plan Incorporated by reference from Exhibit 10.8 to Form S-1 Registration Statement No. 33-23881.** 10.4 Lease, dated July 24, 1980, among Selfix as Tenant and NLR Gift Trust and MJR Gift Trust as Landlord concerning Selfix's facility in Chicago, Illinois. Incorporated by reference from Exhibit 10.9 to Form S-1 Registration Statement No. 33-23881. 10.5 Patent licensing agreement, dated as of November 2, 1971, between Selfix and Meyer J. Ragir concerning M.J. Molding Process. Incorporated by reference from Exhibit 10.13 to Form S-1 Registration Statement No. 33-23881. 10.6 Patent licensing agreement, dated as of November 15, 1971, between Selfix and Meyer J. Ragir concerning Suction Lock Products. Incorporated by reference from Exhibit 10.14 to Form S-1 Registration Statement No. 33-23881. 10.7 Patent licensing agreement, dated as of June 1, 1981, between Selfix and Meyer J. Ragir concerning Shower Organizer Products. Incorporated by reference from Exhibit 10.15 to Form S-1 Registration Statement No. 33-23881.
22 23
EXHIBIT NUMBER EXHIBIT TITLE - ------- ------------- 10.8 Loan Agreement dated December, 1989 between Selfix and Illinois Development Finance Authority in connection with Selfix's Industrial Revenue Bond. Incorporated by reference from the Company's Form 10-K for the year ended May 31, 1990. 10.9 Loan Agreement dated September, 1990 between Selfix and Illinois Development Finance Authority in connection with Selfix's Industrial Revenue Bond. Incorporated by reference from the Company's Form 10-K for the fifty-two weeks ended December 28, 1991. *10.10 Credit Agreement dated as of December 30, 1997 among Selfix, Inc., Tamor Corporation, Seymour Housewares Corporation, and Shutters, Inc., as Borrowers, the Company, General Electric Capital Corporation, as Agent and Lender, and other Lenders signatory hereto from time to time. *10.11 Note Purchase Agreement dated as of December 30, 1997, among Selfix, Inc., Tamor Corporation, Shutters, Inc., and Seymour Housewares Corporation, Home Products International, Inc., (referred to herein as Joint Issuers) and General Electric Capital Corporation individually, and as Agent for itself and other Note Purchasers signatory hereto. *10.12 $5,000,000 Senior Subordinated Note -- General Electric Capital Corporation, due December 30, 2006. *10.13 $5,000,000 Senior Subordinated Note -- Archimedes Funding, L.L.C. due December 30, 2006. *10.14 Subordinated Note Security Agreement dated December 30, 1997 among Selfix, Inc., Tamor Corporation, Shutters, Inc., and Seymour Housewares Corporation, Home Products International, Inc., (collectively referred to herein as Grantors) in favor of General Electric Capital Corporation. 10.15 Employment Agreement dated January 1, 1997 between the Company and James R. Tennant, Chairman of the Board and Chief Executive Officer. Incorporated by reference from Exhibit 10.10 to Form 8-B Registration Statement filed on February 20, 1997.** *10.16 Employment Agreement dated January 5, 1998 between the Company and Stephen R. Brian, President and Chief Operating Officer.** 10.17 Reimbursement Agreement by and among Selfix, Shutters, Inc. and LaSalle National Bank dated as of April 12, 1996 relating to letter of credit issued in connection with the Series 1990 Bonds. Incorporated by reference from Exhibit 10.11 to Form 8-B Registration Statement filed on February 20, 1997. 10.18 Lease Agreement, dated March 6, 1992, by and between Gottsegen Realty Venture, Robert Gottsegen, Trustee, as Landlord and Victory Button, Inc., as Tenant (predecessor in interest to Tamor) for Warehouse Facilities at Fitchburg, Massachusetts, and First Addendum dated May 10, 1993. 10.19 Description of the 1998 Executive Incentive Bonus Plan. Incorporated by reference to the Compensation Committee Report contained in Form Pre 14A dated April 13, 1998.** 10.20 Description of the 1998 Management Incentive Bonus Plan. Incorporated by reference to the Compensation Committee Report contained in Form Pre 14A dated April 13, 1998.** *11.1 Statement Regarding Computation of Earnings Per Share is included in the Notes to the Consolidated Financial Statements referred to in Item 8 hereof. 16.1 Letter re: Change in Certifying Accountant. Incorporated by reference from Exhibit 16.1 to Form 8-K filed by the Company on April 22, 1996. *21.1 List of Subsidiaries. *23.1 Consent of Arthur Andersen LLP. *23.2 Consent of Grant Thornton LLP. *27.1 Financial Data Schedule.
- ------------------------- * Filed herewith, exhibits not marked with an asterisk are incorporated by reference. ** Indicates an employee benefit plan, management contract or compensatory plan or arrangement in which a named executive officer participates. 23 24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors Home Products International, Inc. We have audited the accompanying consolidated balance sheets of Home Products International, Inc. (formerly Selfix, Inc.) (a Delaware corporation) and subsidiaries as of December 27, 1997 and December 28, 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for the fifty-two week periods then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Home Product International, Inc. and subsidiaries as of December 27, 1997 and December 28, 1996, and the results of its operations and its cash flows for the fifty-two week periods then ended in conformity with generally accepted accounting principles. Arthur Andersen LLP Chicago, Illinois February 6, 1998 F-1 25 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Home Products International, Inc. (formerly Selfix, Inc.) We have audited the accompanying consolidated statements of operations, stockholders' equity and cash flows for the 52-week period ended December 30, 1995 of Home Products International, Inc., (formerly Selfix, Inc.). These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of their operations and their consolidated cash flows for the 52-week period ended December 30, 1995 of Home Products International, Inc. and Subsidiaries, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Chicago, Illinois February 9, 1996 F-2 26 HOME PRODUCTS INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
AS OF FISCAL YEAR END ---------------------- 1997 1996 ---- ---- (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS Current assets: Cash and cash equivalents................................. $ 583 $ 2,878 Accounts receivable, net of allowance for doubtful accounts of $1,716 at December 27, 1997 and $901 at December 28, 1996...................................... 20,802 6,476 Notes and other receivables............................... 80 119 Inventories, net.......................................... 12,797 4,391 Prepaid expenses and other current assets................. 428 100 -------- -------- Total current assets................................... 34,690 13,964 -------- -------- Property, plant and equipment -- at cost.................... 47,634 22,515 Less accumulated depreciation and amortization.............. (19,254) (14,581) -------- -------- Property, plant and equipment, net.......................... 28,380 7,934 -------- -------- Deferred income taxes....................................... 3,466 -- Intangible and other assets................................. 32,807 2,807 -------- -------- Total assets................................................ $ 99,343 $ 24,705 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term obligations............... $ 3,850 $ 838 Accounts payable.......................................... 9,664 1,956 Accrued liabilities....................................... 12,913 4,018 -------- -------- Total current liabilities.............................. 26,427 6,812 -------- -------- Long-term obligations -- net of current maturities.......... 30,700 6,184 Stockholders' equity: Preferred stock -- authorized, 500,000 shares, $.01 par value; none issued..................................... -- -- Common stock -- authorized 15,000,000 shares, $.01 par value; 6,674,271 shares issued at December 27, 1997 and 3,881,423 shares issued at December 28, 1996........... 67 39 Additional paid-in capital................................ 33,956 10,839 Retained earnings......................................... 8,616 1,296 Common stock held in treasury -- at cost (58,762 shares)................................................ (264) (264) Currency translation adjustments.......................... (159) (201) -------- -------- Total stockholders' equity............................. 42,216 11,709 -------- -------- Total liabilities and stockholders' equity.................. $ 99,343 $ 24,705 ======== ========
The accompanying notes are an integral part of the financial statements. F-3 27 HOME PRODUCTS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR -------------------------------- 1997 1996 1995 ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales.................................................. $129,324 $38,200 $41,039 Cost of goods sold......................................... 88,888 22,992 25,678 -------- ------- ------- Gross profit............................................. 40,436 15,208 15,361 Operating expenses Selling.................................................. 18,332 9,042 10,474 Administrative........................................... 8,474 4,600 6,433 Amortization of intangible assets........................ 882 201 478 Restructuring charge..................................... -- -- 2,051 -------- ------- ------- 27,688 13,843 19,436 -------- ------- ------- Operating profit (loss).................................. 12,748 1,365 (4,075) -------- ------- ------- Other income (expense) Interest income.......................................... 50 80 230 Interest (expense)....................................... (5,152) (707) (896) Other income (expense)................................... 20 68 458 -------- ------- ------- (5,082) (559) (208) -------- ------- ------- Earnings (loss) before income taxes........................ 7,666 806 (4,283) Income tax (expense) benefit............................... (346) -- 273 -------- ------- ------- Net earnings (loss)........................................ $ 7,320 $ 806 $(4,010) ======== ======= ======= Net earnings (loss) per common share -- Basic.............. $ 1.35 $ 0.21 $ (1.11) ======== ======= ======= Net earnings (loss) per common share -- Diluted............ $ 1.29 $ 0.21 $ (1.11) ======== ======= =======
The accompanying notes are an integral part of the financial statements. F-4 28 HOME PRODUCTS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON ADDITIONAL CURRENCY STOCK HELD PREFERRED COMMON PAID-IN RETAINED TRANSLATION OTHER, IN TREASURY STOCK STOCK CAPITAL EARNINGS ADJUSTMENTS NET AT COST TOTAL --------- ------ ---------- -------- ----------- ------ ----------- ----- (IN THOUSANDS) BALANCE AT DECEMBER 31, 1994...... $ -- $36 $ 9,360 $ 4,500 $(222) $(51) $ -- $13,623 Net loss.......................... -- -- -- (4,010) -- -- -- (4,010) Issuance of 250,000 shares of common stock in connection with the acquisition of Mericon Child Safety Products................. -- 3 1,372 -- -- -- -- 1,375 Issuance of 9,147 shares of common stock in connection with exercise of stock options....... -- -- 33 -- -- -- -- 33 Purchase of 58,762 common share held in treasury at cost........ -- -- -- -- -- -- (264) (264) Other............................. -- -- -- -- -- 60 -- 60 Translation adjustments........... -- -- -- -- 30 -- -- 30 ---- --- ------- ------- ----- ---- ----- ------- BALANCE AT DECEMBER 30, 1995...... -- 39 10,765 490 (192) 9 (264) 10,847 Net earnings...................... -- -- -- 806 -- -- -- 806 Issuance of 19,639 shares of common stock in connection with employee stock purchase plan.... -- -- 74 -- -- -- -- 74 Other............................. -- -- -- -- -- (9) -- (9) Translation adjustments........... -- -- -- -- (9) -- -- (9) ---- --- ------- ------- ----- ---- ----- ------- BALANCE AT DECEMBER 28, 1996...... -- 39 10,839 1,296 (201) -- (264) 11,709 Net earnings...................... -- -- -- 7,320 -- -- -- 7,320 Issuance of 19,560 shares in connection with employee stock purchase plan................... -- -- 107 -- -- -- -- 107 Issuance or 480,000 shares of common stock in connection with Tamor Acquisition............... -- 5 2,395 -- -- -- -- 2,400 Issuance of 2,280,000 shares of common stock in connection with secondary public offering....... -- 23 20,148 -- -- -- -- 20,171 Issuance of warrant............... -- -- 400 -- -- -- -- 400 Stock options exercised........... -- -- 67 -- -- -- -- 67 Issuance of 13,288 shares of common stock in connection with the exercise of stock options... Translation adjustments........... -- -- -- -- 42 -- -- 42 ---- --- ------- ------- ----- ---- ----- ------- BALANCE AT DECEMBER 27, 1997...... $ -- $67 $33,956 $ 8,616 $(159) $ -- $(264) $42,216 ==== === ======= ======= ===== ==== ===== =======
The accompanying notes are an integral part of the financial statements. F-5 29 HOME PRODUCTS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ----------------------------- 1997 1996 1995 ---- ---- ---- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss)....................................... $ 7,320 $ 806 $(4,010) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization.......................... 5,687 2,214 3,337 Provision for restructuring charge..................... -- -- 2,051 Changes in assets and liabilities: (Increase) decrease in accounts receivable............. (5,428) (1,786) 494 (Increase) decrease in inventories..................... (2,280) 760 105 Decrease in refundable income taxes.................... -- 222 159 Increase in net deferred tax asset..................... (3,466) -- -- (Increase) decrease in notes and other receivables..... -- (35) 1,691 Increase (decrease) in accounts payable................ (4,695) 622 (681) Increase (decrease) in accrued liabilities............. 5,060 (793) (603) Other operating activities, net........................ (1,320) (187) 32 ------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES................... 878 1,823 2,575 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Tamor Acquisition, net of cash acquired................... (27,876) -- -- Proceeds from sale or maturity of marketable securities... -- 515 408 Capital expenditures, net................................. (8,382) (1,624) (1,215) Restricted cash -- Industrial Revenue Bond................ -- -- 5 Mericon Child Safety Products Acquisition, net of cash acquired............................................... -- -- (921) ------- ------- ------- NET CASH USED FOR INVESTING ACTIVITIES...................... (36,258) (1,109) (1,723) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on borrowings.................................... (34,609) (860) (2,471) Proceeds from borrowings and warrants..................... 44,158 -- -- Net proceeds from borrowings under revolving line of credit................................................. 3,355 -- -- Net proceeds from secondary stock offering................ 20,171 -- -- Payment of capital lease obligation....................... (164) (32) (27) Purchase of treasury stock................................ -- -- (264) Exercise of common stock options and issuance of common stock under stock purchase plan........................ 174 74 33 ------- ------- ------- NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES........ 33,085 (818) (2,729) ------- ------- ------- Net decrease in cash and cash equivalents................. (2,295) (104) (1,877) Cash and cash equivalents at beginning of year............ 2,878 2,982 4,859 ------- ------- ------- Cash and cash equivalents at end of year.................. $ 583 $ 2,878 $ 2,982 ======= ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during the year for: Interest.................................................. $ 3,568 $ 599 $ 822 ------- ------- ------- Income taxes, net......................................... 1,255 (314) (457) ------- ------- -------
The accompanying notes are an integral part of the financial statements. F-6 30 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Home Products International, Inc. (the "Company") and its subsidiary companies design, manufacture and market products in two industry segments: housewares products and home improvement products. Housewares products are marketed principally through mass market trade channels throughout the United States and internationally. Home improvement products are sold principally through wholesalers that service the residential construction, repair, and remodeling industry throughout the United States. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiary companies. All significant intercompany transactions and balances have been eliminated. The accompanying statements do not include the accounts of Seymour Sales Corporation or its wholly owned subsidiary, Seymour Housewares Corporation, (collectively, "Seymour"), as the Company did not complete the acquisition until after the end of fiscal 1997. See Note 16 for more information regarding the acquisition of Seymour. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments and Credit Risk. The carrying value of cash, cash equivalents, investments and long-term obligations approximate their fair values based upon quoted market rates. As of December 27, 1997, and December 28, 1996, the Company had no significant concentrations of credit risk related to cash equivalents. Inventories. Inventories are stated at the lower of cost or net realizable value with cost determined on a first in, first out (FIFO) basis. Property, Plant and Equipment. Property, plant and equipment are stated at cost. Depreciation is charged against results of operations over the estimated service lives of the related assets. Improvements to leased property are amortized over the life of the lease or the life of the improvement, whichever is shorter. For financial reporting purposes, the Company uses the straight-line method of depreciation. For tax purposes, the Company uses accelerated methods where permitted. F-7 31 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The estimated service lives of the fixed assets are as follows: Buildings................................................... 30 years Land and building under capital lease....................... lease term Machinery, equipment and vehicles........................... 3 - 8 years Tools, dies and molds....................................... 5 years Furniture, fixtures and office equipment.................... 2 - 8 years Leasehold improvements...................................... lease term
Revenue Recognition. The Company recognizes revenue as products are shipped to customers. Intangible Assets. Goodwill, which represents the excess of the purchase price over the fair value of net assets acquired, is amortized over forty years. Covenants not to compete are amortized on a straight-line basis over the terms of the respective agreements. Patents, royalty rights, trademarks acquired and licensing agreements are amortized over their estimated useful lives ranging from five to ten years. Long-Lived Assets. In fiscal 1996, the Company adopted Statement of Financial Accounting Standard No. 121, ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of". The statement requires entities to review long-lived assets and certain intangible assets in certain circumstances, and if the value of the asset is impaired, an impairment loss shall be recognized. The adoption of this policy had no material effect on the Company's financial position or results of operations. Income Taxes. Deferred tax assets and liabilities are determined at the end of each period, based on differences between the financial statement bases of assets and liabilities and the tax bases of those same assets and liabilities, using the currently enacted statutory tax rates. Net Earnings (Loss) Per Common Share. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which established new standards for the computation and presentation of earning per share information. As required, the Company has adopted the provisions of SFAS 128 for its year end 1997 financial statements, and has restated all prior year earnings per share information. Net earnings (loss) per common share -- basic, was calculated by dividing net earnings (loss) applicable to common shares by the weighted average number of common shares outstanding during each year. Net earnings (loss) per common share -- diluted, reflects the potential dilution that could occur assuming exercise of all outstanding "in-the-money" stock options. A reconciliation of the net earnings (loss) F-8 32 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and the number of shares used in computing basic and diluted earnings per share was as follows (in thousands, except share and per share amounts):
1997 1996 1995 ---- ---- ---- Net earnings (loss) per common share -- Basic: Net earnings (loss) applicable to common shares...... $7,320 $ 806 $(4,010) ====== ====== ======= Weighted average common shares outstanding for the year............................................... 5,436 3,820 3,617 ====== ====== ======= Net earnings (loss) per common share -- Basic........ $ 1.35 $ 0.21 $ (1.11) ====== ====== ======= Net earnings (loss) per common share -- Diluted: Net earnings (loss) applicable to common shares...... $7,320 $ 806 $(4,010) ====== ====== ======= Weighted average common shares outstanding for the year............................................... 5,436 3,820 3,617 Increase in shares which would result from exercise of "in-the-money" stock options.................... 246 34 -- ------ ------ ------- Weighted average common shares assuming conversion of the above securities............................... 5,682 3,854 3,617 ====== ====== ======= Net earnings (loss) per common share -- Diluted...... $ 1.29 $ 0.21 $ (1.11) ====== ====== =======
Benefit Plans. The Company provides a profit sharing and savings plan (including a 401(k) plan) to which both the Company and eligible employees may contribute. Company contributions to the profit sharing and savings plan are voluntary and at the discretion of the Board of Directors. The Company matches the employee 401(k) plan contributions with certain limitations. The total Company contributions to both plans are limited to the maximum deductible amount under the Federal income tax law. The Company provides retirement plans for its employees covered under collective bargaining agreements. The amount of the Company contribution is determined by the respective collective bargaining agreement. The contributions to all the profit sharing, savings, and retirement plans for 1997, 1996 and 1995, were $414, $248, and $259, respectively. Cash and Cash Equivalents. The Company considers all highly liquid, short-term investments with an original maturity of three months or less, to be cash equivalents. Fiscal Year. The Company's fiscal year ends on the last Saturday in December. References to the fiscal years 1997, 1996 and 1995 are for the fifty-two weeks ended December 27, 1997, December 28, 1996 and December 30, 1995. Related Parties. A director of the Company is the executor and co-trustee of certain estates and trusts which lease facilities to the Company as discussed in Note 9. In addition, the director is a partner in a law firm which is the Company's general counsel. Total fees paid to this law firm in fiscal 1997 were $730. F-9 33 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In fiscal 1997 the Company engaged the services of a management consulting firm in which a director of the Company is a partner. Total fees paid to this management consulting firm in 1997 were $99. In fiscal 1997, Tamor purchased raw materials and packaging from vendors whose ownership was related to certain officers of Tamor. Such transactions were as follows: (i) raw materials totaling $9,835, and packaging totaling $1,700. Management believes the transactions were conducted on an arm's length basis at competitive prices. NOTE 2. ACQUISITION OF TAMOR PLASTICS CORPORATION AND HOUSEWARE SALES, INC. Pursuant to an agreement dated October 29, 1996, the Company, as of January 1, 1997, took operating and financial control of Tamor Plastics Corporation, and its affiliated product distribution company, Houseware Sales, Inc., (collectively, "TAMOR"), assumed substantially all of the liabilities of Tamor and retained substantially all of the earnings from Tamor's operations (the "TAMOR ACQUISITION"). Actual results are combined since the date of effective control although the purchase did not close until February 28, 1997. Tamor, founded in 1947, designs, manufactures, and markets quality plastic houseware products, including storage totes, hangers, and juvenile organization products. The Tamor Acquisition was completed by the Company for a total purchase price of $41,900 consisting of $27,800 in cash, $2,400 of Common Stock (480,000 shares), and the assumption of $11,700 of short and long-term debt. The funds used for the Tamor Acquisition were obtained from a credit agreement entered into with General Electric Capital Corporation, ("GECC"), on February 27, 1997, (the "CREDIT AGREEMENT"). See Note 9 for additional information on the Credit Agreement. The Tamor Acquisition was accounted for as a purchase, and the operating results of Tamor have been included in the accompanying financial statements from January 1, 1997, the effective date of the acquisition. The excess of the purchase price over the fair value of the assets acquired (goodwill) approximated $27,599 and is being amortized over a period of forty years. The unaudited pro forma consolidated results of operations as of December 28, 1996 would have been as follows, if the Tamor Acquisition had occurred on January 1, 1996: Net Sales................................................... $113,914 Gross Profit................................................ 33,104 Operating Income............................................ 8,240 Net Income.................................................. 2,599 Net earnings per common share -- Basic...................... $ 0.60 Net earnings per common share -- Diluted.................... $ 0.59
Adjustments made in arriving at the pro forma combined results include increased interest expense and amortization of debt issuance costs on acquisition debt, amortization of goodwill, and certain operating expense reductions. No effect has been given in operating expenses to the fair value of the assets acquired, depreciable values or lives, or synergistic benefits which may be realized from the acquisition. The pro forma consolidated results do not purport to be indicative of results that would have occurred had the Tamor Acquisition been in effect as of January 1, 1996 nor do they purport to be indicative of the results that will be obtained in the future. NOTE 3. ACQUISITION OF MERICON CHILD SAFETY PRODUCTS On October 24, 1995, the Company acquired 100% of the common stock of Mericon Child Safety Products for a total purchase price of $2,421 consisting of 250,000 shares of the Company's common stock. The acquisition was accounted for as a purchase, and accordingly, the results of operations are included in the F-10 34 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) consolidated financial results from the date of acquisition. The purchase price in excess of the fair value of net assets acquired (goodwill) of approximately $1,796 is being amortized over a period of forty years. NOTE 4. PUBLIC STOCK OFFERING On June 30, 1997, the Company completed a secondary public offering of 2,000,000 new shares of its common stock. Net proceeds in the amount of $18,300 were used to repay the subordinated note of $7,000, term notes of $11,100, and accrued interest of $200. On July 16, 1997, an additional 280,000 shares were sold pursuant to an underwriter's over-allotment provision. Net proceeds of $2,600 were used to repay term notes of $2,500 and accrued interest of $100. See Note 9 for additional information regarding the repayment of debt. NOTE 5. INVENTORIES The components of the Company's inventory were as follows:
1997 1996 ---- ---- Finished goods.............................................. $ 7,335 $2,604 Work-in-process............................................. 2,225 1,003 Raw materials............................................... 3,237 784 ------- ------ $12,797 $4,391 ======= ======
NOTE 6. PROPERTY, PLANT AND EQUIPMENT The components of property, plant and equipment were as follows:
1997 1996 ---- ---- Buildings and land....................................... $ 5,588 $ 2,176 Land and building under capital lease.................... 2,535 2,535 Machinery, equipment and vehicles........................ 17,936 7,092 Tools and dies........................................... 16,303 6,704 Furniture, fixtures and office equipment................. 3,339 2,679 Leasehold improvements................................... 1,933 1,329 -------- -------- 47,634 22,515 Less accumulated depreciation and amortization........... (19,254) (14,581) -------- -------- $ 28,380 $ 7,934 ======== ========
F-11 35 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 7. INTANGIBLES AND OTHER ASSETS Intangibles and other assets consist of the following:
1997 1996 ---- ---- Goodwill, net of accumulated amortization of $993 on December 27, 1997, and $223 on December 28, 1996.......... $28,892 $1,978 Covenants not to compete, net of accumulated amortization of $13 on December 27, 1997, and $7 on December 28, 1996..... 77 23 Industrial Revenue Bond fees, net of accumulated amortization of $230 on December 27, 1997, and $202 on December 28, 1996......................................... 173 201 Patents, net of accumulated amortization of $1,384 on December 27, 1997, and $1,327 on December 28, 1996........ 96 153 Licensing agreement, net of accumulated amortization of $42 on December 27, 1997, and $23 on December 28, 1996........ 153 172 Deferred financing fees, net of accumulated amortization of $439 on December 27, 1997, and $20 on December 28, 1996... 3,320 77 Other assets................................................ 96 203 ------- ------ $32,807 $2,807 ======= ======
NOTE 8. ACCRUED LIABILITIES Accrued liabilities consist of the following:
1997 1996 ---- ---- Compensation and other benefits............................. $ 3,012 $1,540 Sales incentives and commissions............................ 2,721 814 Income taxes payable........................................ 3,551 92 Other....................................................... 3,629 1,572 ------- ------ $12,913 $4,018 ======= ======
F-12 36 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9. LONG-TERM OBLIGATIONS Long-term obligations consist of the following:
1997 1996 ---- ---- Revolving credit facility, variable rate, due August 28, 2002...................................................... $ 3,355 $ -- Term Loan A, variable rate, due July 1, 2002................ 11,783 -- Term Loan B, variable rate, due July 1, 2004................ 12,938 -- Illinois Development Finance Authority (IDFA) variable rate demand Industrial Development Revenue bonds (Shutters Project) Series 1989, due November 1, 2002................ 2,000 2,400 Illinois Development Finance Authority (IDFA) variable rate demand Industrial Development Revenue Bonds (Selfix, Inc. Project) Series 1990, due September 1, 2005............... 2,400 2,800 Capital lease obligations................................... 2,074 1,822 ------- ------ 34,550 7,022 Less current maturities..................................... (3,850) (838) ------- ------ $30,700 $6,184 ======= ======
In connection with the Tamor Acquisition, (as more fully described in Note 2), the Company entered into a credit agreement dated February 27, 1997 (the "CREDIT AGREEMENT"), with GECC which provided (i) a $20,000 revolving credit facility, (ii) a twenty-two quarter $20,000 term loan, and (iii) a thirty quarter $20,000 term loan. In addition, the Company obtained a $7,000 subordinated equity bridge note (the "SUBORDINATED NOTE") through GECC. However, as more fully described in Note 16, effective December 30, 1997 the Company terminated the February 27, 1997, Credit Agreement, and entered into a $130,000 credit agreement dated December 30, 1997 (the "12/30/97 CREDIT AGREEMENT") with GECC. In addition to the 12/30/97 Credit Agreement, the Company obtained a $10,000 senior subordinated note, also through GECC. In connection with the Subordinated Note, the Company issued a warrant (the "WARRANT") to purchase 79,204 shares of common stock, exercisable at 50% of the Market price ($5.80 per share), as defined in the Warrant. The exercise period commenced on August 1, 1997, and terminates on February 27, 2007. The Warrant was recorded by the Company at its estimated fair value of $400. As of December 27, 1997 the Warrant had not been exercised. As discussed in Note 4, on June 24, 1997, the Company completed a secondary public offering of 2,000,000 shares of its common stock. Net proceeds in the amount of $18,300 were used to fully repay the Subordinated Note of $7,000, term notes of $11,100, and accrued interest of $200. On July 16, 1997, an additional 280,000 shares were sold pursuant to an underwriter's over-allotment provision. Net proceeds of $2,600 were used to repay term notes of $2,500 and accrued interest of $100. The IDFA variable rate demand Industrial Development Bonds (Shutters Project) Series 1989, were issued in December 1989, and mature on November 1, 2002. Interest is calculated based upon a weekly variable rate, and is paid monthly. Principal is payable in annual installments, due on December 1. The variable rate at December 27, 1997, and December 28, 1996, was 4.6%. The IDFA variable rate demand Industrial Development Bonds (Selfix Project) Series 1990, were issued in September 1990, and mature on September 1, 2005. Interest is calculated based upon a weekly variable rate, and is paid monthly. Principal is payable in annual installments, due on December 1. The variable rate at December 27, 1997, and December 28, 1996, was 4.6%. F-13 37 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Capital lease obligations include; (i) a lease agreement between Selfix and two related trusts for Selfix's principal factory and corporate office; and (ii) starting in fiscal 1997, various equipment lease agreements. Lease payments to the trusts were $519, $467 and $491, in 1997, 1996 and 1995, respectively, and lease payments for machinery and equipment in 1997 were $140. The following schedule shows future minimum lease payments together with the present value of the payments for capital lease obligations. Years ending: 1998...................................................... $ 430 1999...................................................... 422 2000...................................................... 417 2001...................................................... 407 2002...................................................... 367 Thereafter................................................ 2,604 ------- Less amount representing interest........................... (4,644) ------- Present value of minimum lease payments..................... $ 2,074 ======= Long-term portion........................................... $ 1,974 Current portion............................................. 100 ------- $ 2,074 =======
NOTE 10. COMMITMENTS AND CONTINGENCIES The Company leases certain manufacturing, distribution, and office facilities under noncancellable operating leases, expiring at various dates through 1999. Future minimum lease payments amount to $1,046, and $1,020 for fiscal years 1998 and 1999, respectively. Rent expense under operating leases for 1997, 1996, and 1995, was $1,184, $354, and $381, respectively. NOTE 11. INCOME TAXES The components of earnings (loss) before income taxes are as follows:
1997 1996 1995 ---- ---- ---- Domestic............................................. $7,602 $1,122 $(3,262) Foreign.............................................. 64 (316) (1,021) ------ ------ ------- $7,666 $ 806 $(4,283) ====== ====== =======
F-14 38 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Significant components of the Company's deferred tax items as of December 27, 1997 and December 28, 1996 are as follows:
1997 1996 ---- ---- DEFERRED TAX ASSETS Inventory reserves and overhead capitalized for tax purposes............................................... $1,166 $ 414 Employee benefit expenses and other accruals.............. 341 450 Accounts receivable reserve............................... 423 241 Capitalized lease treated as operating lease for tax purposes............................................... 378 430 Accrued advertising, volume rebates and reserves for returns................................................ 890 109 Other accrued liabilities................................. 235 344 Net operating loss carryforward........................... -- 612 Other..................................................... 936 889 ------ ------- Gross deferred tax assets................................... 4,369 3,489 ------ ------- DEFERRED TAX LIABILITIES Depreciation.............................................. 628 301 Other..................................................... 275 45 ------ ------- Gross deferred tax liabilities.............................. 903 346 ------ ------- Deferred tax assets net of deferred liabilities............. 3,466 3,143 Valuation allowance......................................... -- (3,143) ------ ------- Net deferred tax asset...................................... $3,466 $ -- ====== =======
In fiscal 1997, the Company received a refund of approximately $330 relating to federal income taxes paid in prior years. Through the claim for refund filed, and the level of fiscal 1997 taxable income, the Company utilized all federal net operating loss carryforwards in fiscal 1997. The Company has research and development credit carryforwards of approximately $11, expiring through the year 2010, state investment tax credit carryforwards of approximately $86 expiring through 2000 and foreign net operating loss carryforwards of $1,082 expiring in 2002. The Company eliminated the valuation allowance as of December 27, 1997 based upon the determination that it is more likely than not that the Company will realize the benefits generated from the deferred tax assets recorded. Income tax expense (benefit) is as follows:
1997 1996 1995 ---- ---- ---- Current U.S. federal........................................ $ 1,721 $ 0 $(247) Foreign............................................. -- (10) 22 State............................................... 346 0 (48) ------- ----- ----- 2,067 (10) (273) ------- ----- ----- Deferred U.S. federal........................................ 1,422 266 (463) Increase (decrease) in valuation allowance.......... (3,143) (256) 463 ------- ----- ----- (1,721) 10 -- ------- ----- ----- Total income tax expense (benefit).................... $ 346 $ -- $(273) ======= ===== =====
F-15 39 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income tax expense (benefit) differs from amounts computed based on the U.S. federal statutory tax rate applied to earnings (loss) before tax as follows:
1997 1996 1995 ---- ---- ---- Computed at statutory U.S. federal income tax rate.............................................. $ 2,683 $ 282 $(1,456) State income taxes, net of U.S. federal tax benefit........................................... 383 (39) (32) Foreign tax rate difference and foreign loss carryforwards..................................... -- -- 460 Tax exempt interest................................. -- (12) (25) Exercise of Stock Options........................... (34) -- -- Non deductible goodwill............................. 62 -- -- Other............................................... 395 25 317 Change in valuation allowance....................... (3,143) (256) 463 ------- ----- ------- $ 346 $ -- $ (273) ======= ===== =======
NOTE 12. STOCK OPTIONS Under the 1987, 1991 and 1994 stock option plans as amended, (collectively, the "Stock Option Plan") key employees and certain key nonemployees were granted options to purchase shares of the Company's common stock. All stock option grants are authorized by the Compensation Committee of the Board of Directors, which is comprised of outside directors. Options granted may or may not be "incentive stock options" as defined by the Internal Revenue Code of 1986. The exercise price is determined by the Company's Board of Directors at the time of grant but may not be less than 100% of the market price at the time of grant for incentive stock options. Options may not be granted for a term greater than ten years. All options granted, with the exception of those granted to the Chief Executive Officer, vest within a five year period. The options granted to the Chief Executive Officer vest on an accelerated schedule in accordance with his employment contract. In 1997, the shareholders of the Company voted to increase the maximum number of shares of common stock which may be granted under the Stock Option Plan by 450,000 shares to a maximum available of 1,475,000. A total of 120,820 shares of common stock have been issued as of December 27, 1997 from the Stock Option Plan, and 1,354,180 shares remain in reserve. The Company applies APB Opinion 25 "Accounting for Stock Based Compensation and related interpretations in accounting for stock option awards under the Stock Option Plan. Accordingly, no compensation cost has been recognized in the Company's financial statements. As required by SFAS 123, the Company has computed, for pro forma disclosure purposes, the value of options granted during fiscal years 1997 and 1996 using an option pricing model. The weighted average assumptions used for stock option grants for 1997 and 1996 were a dividend yield of 0%, expected volatility of the market price of the Company's common stock of 43% for 1997, and 41% for 1996, a weighted-average expected life of the options of approximately five years, and weighted average risk free interest rates of 6.3% for fiscal 1997 and 6.5% for fiscal 1996. Option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because changes in the subjective input assumptions can materially affect the fair value estimates, in management's opinion, the existing model does not necessarily provide a reliable single measure of the fair value of its employee stock based compensation plan. F-16 40 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Had compensation cost for the Company's 1997 and 1996 grants been determined using the above fair values and considering the applicable vesting periods, the Company's reported results would have been impacted as follows:
1997 1996 1995 ---- ---- ---- Net earnings (loss) As reported......................................... $7,320 $ 806 $(4,010) Pro forma........................................... 6,720 564 (4,092) Net earnings (loss) per common share -- Basic As reported......................................... $ 1.35 $0.21 $ (1.11) Pro forma........................................... $ 1.24 $0.15 $ (1.13) Net earnings (loss) per common share -- Diluted As reported......................................... $ 1.29 $0.21 $ (1.11) Pro forma........................................... $ 1.18 $0.15 $ (1.13)
A summary of the transactions in the option plans is as follows:
1997 1996 1995 ------------------ ---------------- ----------------- SHARES PRICE* SHARES PRICE* SHARES PRICE* ------ ------ ------ ------ ------ ------ Options outstanding at beginning of year.... 781,987 $ 6.21 598,527 $6.74 557,842 $8.65 Granted..................................... 497,900 10.17 248,900 4.95 626,700 7.22 Exercised................................... (13,288) 4.58 -- -- (8,147) 4.15 Canceled.................................... (45,100) 10.38 (65,440) 6.20 (577,868) 9.14 --------- ------- -------- Unexercised options outstanding at end of year...................................... 1,221,499 7.70 781,987 6.21 598,527 6.74 ========= ======= ======== Options exercisable at end of year.......... 199,734 6.75 16,754 4.89 15,784 4.69 ========= ======= ======== Available for grant......................... 132,681 1,934 195,394 ========= ======= ========
- ------------------------- * Weighted average
1997 1996 1995 -------------- ------------- -------------- Price range of options Granted...................................... $4.38 - $14.00 $4.25 - $6.00 $4.13 - $12.00 Exercised.................................... $4.23 - $ 5.00 $ -- - $ -- $4.00 - $ 4.23 Canceled..................................... $4.25 - $10.38 $4.13 - $8.00 $3.13 - $12.00 Outstanding.................................. $4.13 - $14.00 $4.13 - $8.00 $4.13 - $ 8.00
- ------------------------- * Weighted average The above stock options have the following characteristics as of December 27, 1997:
SHARES REMAINING LIFE SHARES GRANT YEAR OUTSTANDING PRICE* (IN YEARS)* EXERCISABLE - ---------- ----------- ------ -------------- ----------- Pre-1995..................................... 16,399 $ 5.09 5.5 16,399 1995......................................... 512,200 6.88 7.5 116,668 1996......................................... 238,000 4.96 8.8 66,667 1997......................................... 454,900 10.15 9.8 -- --------- ------- 1,221,499 199,734 ========= =======
- ------------------------- * Weighted average F-17 41 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 13. EMPLOYEE STOCK PURCHASE PLAN The 1995 Employee Stock Purchase Plan allows eligible employees to purchase up to 200,000 shares of the Company's stock. The purchase price shall be the lesser of 85% of the fair market value of a common share on the first day of each purchase period or the fair market value of a common share on the last day of such purchase period, adjusted to the nearest 1/8 point. As of December 27, 1997, and December 28, 1996, 19,560, and 19,639 shares respectively had been purchased under the plan. NOTE 14. STATEMENT OF OPERATIONS AND RESTRUCTURING CHARGES In the fourth quarter of 1995, the Company announced its intent to consolidate facilities and exit additional product lines. The 1995 charge is a result of the Company's decision to exit certain unprofitable product lines, close the Company's Canadian facility and move the Canadian operations to the Chicago manufacturing and distribution facilities. The restructuring charges for these initiatives totaled $2,051. The charges for the closing and relocation of the Canadian operation totaled $951 including severance benefits of $184 covering all of the Canadian employees. The relocation of the Canadian operation was completed in the first half of 1996. The remaining $1,100 of restructuring charges pertains to product lines the Company has decided to exit and the related write-off of product molds, inventory and patents. Approximately $66 of inventory reserves, $74 of accrued legal and accrued severance and $140 of accrued facility closing costs remained on the Company's books at December 28, 1996. As of December 27, 1997, no balances remained in these accounts. In 1995, the Company received approximately $1,400, net of a contingent liability, as its share of the net proceeds from a patent suit settlement. The Company recorded approximately $500 as its share of the proceeds in other income in 1994. NOTE 15. SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in two industry segments, the housewares segment and the home improvement products segment. The housewares segment provided approximately 94% of the Company's gross sales in 1997 and the home improvement products segment provided approximately 6% of the Company's gross sales in 1997. Sales to customers outside the United States in 1997 accounted for approximately 6% of total net sales F-18 42 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) with Canada accounting for approximately 2% of total net sales. Information about the Company's operations in these segments is as follows:
1997 1996 1995 ---- ---- ---- Gross sales: Housewares...................................... $129,745 $31,375 $34,543 Home improvement products....................... 8,385 9,457 8,993 -------- ------- ------- Consolidated................................. $138,130 $40,832 $43,536 ======== ======= ======= Operating profit (loss): Housewares...................................... $ 12,277 $ 904 $(4,892) Home improvement products....................... 471 461 817 -------- ------- ------- Consolidated................................. $ 12,748 $ 1,365 $(4,075) ======== ======= ======= Identifiable assets: Housewares...................................... $ 93,898 $19,615 $19,676 Home improvement products....................... 5,445 5,090 5,300 -------- ------- ------- Consolidated................................. $ 99,343 $24,705 $24,976 ======== ======= ======= Depreciation and amortization: Housewares...................................... $ 5,274 $ 1,532 $ 2,684 Home improvement products....................... 413 682 653 -------- ------- ------- Consolidated................................. $ 5,687 $ 2,214 $ 3,337 ======== ======= ======= Capital expenditures, net: Housewares...................................... $ 8,062 $ 982 $ 880 Home improvement products....................... 320 642 335 -------- ------- ------- Consolidated................................. $ 8,382 $ 1,624 $ 1,215 ======== ======= =======
Information about the Company's operations by geographic area is as follows:
1997 1996 1995 ---- ---- ---- Gross sales: United States................................... $136,407 $38,855 $40,283 Foreign......................................... 1,723 1,977 3,253 -------- ------- ------- Consolidated................................. $138,130 $40,832 $43,536 ======== ======= ======= Operating profit (loss): United States................................... $ 12,689 $ 1,386 $(2,975) Foreign......................................... 59 (21) (1,100) -------- ------- ------- Consolidated................................. $ 12,748 $ 1,365 $(4,075) ======== ======= ======= Identifiable assets: United States................................... $ 99,018 $24,170 $23,699 Foreign......................................... 325 535 1,277 -------- ------- ------- Consolidated................................. $ 99,343 $24,705 $24,976 ======== ======= =======
As a percentage of gross sales, a single customer represented 23% in 1997, and 12% in each of 1996 and 1995. A second customer represented 10% of 1997 gross sales, and less than 10% of gross sales in each of 1996 and 1995. F-19 43 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 16. SUBSEQUENT EVENTS Effective December 30, 1997, (within the Company's fiscal 1998), the Company completed the acquisition of Seymour Sales Corporation and its wholly owned subsidiary, Seymour Housewares Corporation, (collectively, "SEYMOUR"). Seymour, headquartered in Seymour, Indiana, is an industry leading manufacturer and marketer of consumer laundry care products, including a full line of ironing boards, ironing board covers and pads, and numerous laundry related accessories. The acquisition will be accounted for as a purchase. As such, the excess of the purchase price over the estimated fair value of the acquired net assets, which approximates, $35,000, will be recorded as goodwill and amortized over forty years. The purchase price allocation will be determined in 1998 when additional information becomes available. Accordingly, the final allocation may have a material effect on the pro forma information presented below. Total consideration for the acquisition was $100,700, consisting of approximately $16,400 in cash, $14,300 in common stock (1,320,700 shares) and the assumption of $70,000 of debt. The following unaudited pro forma information for the fifty-two weeks ended December 27, 1997 presents the combined results of operations as if the acquisition had been completed at the beginning of 1997, and may not be indicative of what would have occurred had the acquisition actually been made as of such date, or results which may occur in the future. Had the Seymour Acquisition occurred on January 1, 1997, pro forma net sales would have been $222,287, and operating profit would have been $15,332. Pro forma net income before extraordinary item would have been $3,972 or $0.59 per common share -- basic and $0.57 per common share -- diluted. Pro forma net earnings, after a $1,800 net of tax extraordinary item for the write-off of deferred financing fees related to a prior credit agreement would have been $2,172 or $0.32 per common share -- basic and $0.31 per common share -- diluted. Adjustments made in arriving at the pro forma unaudited combined results include increased interest expense, amortization of debt issuance costs on acquisition debt, amortization of goodwill, certain operating expense reductions and income tax expense recorded at an estimated combined statutory rate of 40%, prior to adjustment to the valuation allowance. No effect has been given in operating expenses to the fair value of assets acquired, depreciable values or lives, transition and restructuring costs or synergistic benefits which may be realized from the acquisition. The source of funds for the acquisition included the proceeds of a $130,000 Credit Agreement, dated December 30, 1997, (the "12/30/97 CREDIT AGREEMENT"), among the Company, Selfix, Shutters, Tamor, and Seymour, the lenders which are parties thereto and General Electric Capital Corporation ("GECC") as agent, and a $10,000 senior subordinated note (the "12/30/97 SENIOR SUBORDINATED NOTE"), dated December 30, 1997. The 12/30/97 Credit Agreement consists of a $20,000 revolving credit facility (the "12/30/97 REVOLVER") and $110,000 in senior term loans. All loans under the 12/30/97 Credit Agreement are secured by substantially all of the assets of the subsidiaries of the Company (including Seymour) and a pledge by the Company of all the outstanding shares of capital stock of such subsidiaries. The provisions of the 12/30/97 Credit Agreement include restrictions on additional indebtedness, asset sales, acquisitions or mergers, capital expenditures and dividend payments, among other things. As defined in the 12/30/97 Credit Agreement, the Company is also required to meet certain financial tests which include, but are not limited to, those relating to a minimum net worth test and a minimum interest coverage ratio. The 12/30/97 Revolver provides up to $20,000 (including a letter of credit facility of up to $15,000) subject to the availability of sufficient qualifying collateral. Interest is charged, at the Company's option, at either (i) the 1, 2 or 3 month reserve adjusted LIBOR rate plus a margin of 2.5%; or (ii) a floating rate equal to the prime rate plus a margin of 1.0%. Interest is paid monthly for borrowings which bear interest based on F-20 44 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the prime rate and is paid at the end of the applicable LIBOR period for borrowings which bear interest based on a LIBOR rate. An unused facility fee of .5% per annum is charged on the average unused daily balance. As of December 30, 1997, there were no borrowings outstanding on the 12/30/97 Revolver and unused availability was $13,400. Availability was reduced by several letters of credit outstanding as of December 30, 1997, which totaled $6,600. The 12/30/97 Revolver terminates on December 30, 2002. The 12/30/97 Credit Agreement also includes two senior term loans, (i) consisting of a $50,000 twenty-four quarter senior term loan ("SENIOR TERM LOAN A") and (ii) a $60,000 thirty-two quarter senior term loan ("SENIOR TERM LOAN B"). Both term loans are immediately due and payable in full if the 12/30/97 Revolver is terminated. Senior Term Loan A is required to be repaid in quarterly principal installments commencing in April 1998. Aggregate principal repayments for the Senior Term Loan A are as follows:
YEARS ENDING - ------------ 1998................................................................... $ 3,750 1999................................................................... 6,500 2000................................................................... 7,750 2001................................................................... 9,500 2002................................................................... 10,000 Thereafter............................................................. 12,500
Interest is charged, at the Company's option at either: (i) the 1, 2 or 3 month reserve adjusted LIBOR plus a margin of 2.5%; or (ii) a floating rate equal to the prime rate plus a margin of 1.0%. Interest is paid monthly for borrowings which bear interest based on the prime rate and is paid at the end of the applicable LIBOR period for borrowings which bear interest based on a LIBOR rate. Senior Term Loan B is required to be repaid in quarterly principal installments commencing in April of 1998. Aggregate principal repayments for the Senior Term Loan B are as follows:
YEARS ENDING - ------------ 1998................................................................... $ 450 1999................................................................... 600 2000................................................................... 600 2001................................................................... 600 2002................................................................... 600 Thereafter............................................................. 57,150
Interest is charged, at the Company's option, at either: (i) the 1, 2 or 3 month reserve adjusted LIBOR plus a margin of 3.0%; or (ii) a floating rate equal to the prime rate plus a margin of 1.5%. Interest is paid monthly for borrowings which bear interest based on the prime rate and is paid at the end of the applicable LIBOR period for borrowings which bear interest based on a LIBOR rate. The interest rates applicable to the obligations outstanding under the 12/30/97 Credit Agreement are subject to adjustment (up or down) based on the Company's year to date 1998 consolidated financial performance. The 12/30/97 Senior Subordinated Note matures on December 30, 2006, and is secured by a second lien on substantially all of the assets of the Company's subsidiaries. As such, the 12/30/97 Senior Subordinated Note is subordinated in right of payment from the proceeds of such collateral to the 12/30/97 Revolver and to the Senior Term Loans A and B. If all outstanding obligations under the 12/30/97 Credit Agreement have been paid and the commitment under the 12/30/97 Revolver has been terminated, the Company must prepay the 12/30/97 Senior Subordinated Note in full. Interest is payable monthly, and is charged at a rate of prime F-21 45 HOME PRODUCTS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) plus a margin of 3%, but in no event less than 11% per annum. The 12/30/97 Senior Subordinated Note is due and payable in a single installment on December 30, 2006. The 12/30/97 Senior Subordinated Note contains a fee which is due and payable to GECC upon repayment of the principal. If the 12/30/97 Senior Subordinated Note is repaid in full on or prior to December 30, 1999, the required fee is $500; if repaid in full after December 30, 1999, but prior to December 30, 2000, the fee is $750; if repaid in full after December 30, 2000, but prior to December 30, 2001, the fee is $1,200; if repaid in full after December 30, 2001, but prior to December 30, 2002, the fee is $1,600; and if repaid on or after December 30, 2002, the fee is $2,000. The 12/30/97 Credit Agreement provides for mandatory prepayments of obligations under the 12/30/97 Credit Agreement and the 12/30/97 Senior Subordinated Note from proceeds received in certain transactions outside the normal scope of the Company's business, such as the sale of fixed assets, or the receipt of insurance proceeds. Additionally, the Company is subject to an annual mandatory prepayment out of "excess cash", as defined in the 12/30/97 Credit Agreement. The Company will be subject to a prepayment premium, as defined in the 12/30/97 Credit Agreement, until December 30, 1999, if the revolving credit facility is terminated or the Company prepays all or any portion of the Senior Term Loans A or B other than as a result of the mandatory prepayments discussed above. F-22 46 ITEM 8. QUARTERLY FINANCIAL INFORMATION -- UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THIRTEEN THIRTEEN THIRTEEN THIRTEEN WEEKS WEEKS WEEKS WEEKS ENDED ENDED ENDED ENDED MARCH 29 JUNE 28 SEPTEMBER 27 DECEMBER 27 -------- -------- ------------ ----------- 1997 Net sales.......................................... $31,738 $33,023 $32,875 $31,688 Gross profit....................................... 9,128 10,124 10,377 10,807 Net earnings (loss)................................ 1,032 1,789 2,421 2,078 Earnings (loss) per common share -- Basic.......... $ 0.24 $ 0.41 $ 0.37 $ 0.31 Earnings (loss) per common share -- Diluted........ $ 0.23 $ 0.40 $ 0.36 $ 0.30
THIRTEEN THIRTEEN THIRTEEN THIRTEEN WEEKS WEEKS WEEKS WEEKS ENDED ENDED ENDED ENDED MARCH 30 JUNE 29 SEPTEMBER 28 DECEMBER 28 -------- -------- ------------ ----------- 1996 Net sales.......................................... $ 8,625 $10,155 $10,728 $ 8,692 Gross profit....................................... 2,858 4,311 4,388 3,651 Net earnings (loss)................................ (1,116) 709 764 449 Earnings (loss) per common share -- Basic.......... $ (0.29) $ 0.19 $ 0.20 $ 0.11 Earnings (loss) per common share -- Diluted........ $ (0.29) $ 0.19 $ 0.20 $ 0.11
F-23 47 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II Board of Directors Home Products International Inc. We have audited in accordance with generally accepted auditing standards the consolidated financial statements of Home Products International, Inc. (formerly Selfix, Inc.) as of and for the fifty-two week period ended December 27, 1997 and December 28, 1996 included in this Form 10-K, and have issued our report thereon dated February 6, 1998. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The financial statement schedule listed in Item 14(b) is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Chicago, Illinois February 6, 1998 F-24 48 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE II Board of Directors Home Products International, Inc. (Formerly Selfix, Inc.) In connection with our audit of the consolidated financial statements of Home Products International, Inc. (formerly Selfix, Inc.) and Subsidiaries referred to in our report dated February 9, 1996, we have also audited Schedule II for the 52-week period ended December 30, 1995. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. GRANT THORNTON LLP Chicago, Illinois February 9, 1996 F-25 49 SCHEDULE II HOME PRODUCTS INTERNATIONAL, INC. VALUATION AND QUALIFYING ACCOUNTS FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 27, 1997, FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 28, 1996, FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 30, 1995
ADDITIONS ---------------------- DEDUCTIONS BALANCE AT CHARGED TO (NET BALANCE BEGINNING COSTS AND BALANCES WRITE-OFFS/ AT END OF PERIOD EXPENSES ACQUIRED RECOVERIES) OF PERIOD ---------- ---------- -------- ----------- --------- (IN THOUSANDS) ALLOWANCE FOR DOUBTFUL ACCOUNTS December 27, 1997.......................... $ 901 $ 499 $659 $ (500) $1,716 December 28, 1996.......................... $1,395 $ 211 $ -- $ (705) $ 901 December 30, 1995.......................... $1,431 $ 524 $ -- $ (560) $1,395 WARRANTY RESERVES December 27, 1997.......................... $ 453 $ -- $ -- $ (181) $ 272 December 28, 1996.......................... $ 495 $ -- $ -- $ (42) $ 453 December 30, 1995.......................... $ 511 $ -- $ -- $ (16) $ 495 INVENTORY RESERVES December 27, 1997.......................... $ 993 $ 698 $300 $ (624) $1,367 December 28, 1996.......................... $2,411 $ 678 $ -- $(2,096) $ 993 December 30, 1995.......................... $1,560 $1,648 $ -- $ (797) $2,411
F-26 EX-21.1 2 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT Selfix, Inc. Chicago, IL, U.S.A. Shutters, Inc. Hebron, IL, U.S.A. Tamor Corporation Leominster, MA, U.S.A. Seymour Housewares Corporation Seymour, IN, U.S.A. EX-23.1 3 CONSENT OF INDEPENDENT PUB. ACC. 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (33-65041) and 33-67622). /s/ Arthur Andersen LLP Chicago, Illinois March 25, 1998 EX-2.6 4 ESCROW AGREEMENT 1 Exhibit 2.6 ESCROW AGREEMENT This Escrow Agreement (the "Agreement") is made this ____ day of December 1997 by and among Home Products International, Inc., a Delaware corporation ("HPII"), Chase Manhattan Investment Holdings, Inc. and Chase Venture Capital Associates, L.P. (collectively the "Majority Shareholder"), the Security Holders (as defined below) and LaSalle National Bank ("Escrow Agent"). RECITALS A. Pursuant to an Amended and Restated Agreement dated as of December ___, 1997 (the "Amended Agreement"), HPII has agreed to purchase all of the stock of Seymour Sales Corporation ("Sales") ("Transaction"). B. HPII has been indemnified with respect to certain indemnifiable damages, as described in the Amended Agreement (the "Indemnification Obligation"). C. To secure the Indemnification Obligation, 370,000 shares of HPII common stock otherwise payable to the security holders of Sales (the "Security Holders") are to be deposited into escrow (such shares, along with any earnings on or proceeds thereof shall be referred to as the "Escrowed Shares"). It is intended that the Escrowed Shares be used to satisfy the Indemnification Obligation. D. The parties have agreed to withhold the "Cash Escrow" (as defined in the Amended Agreement and hereinafter referred to, along with any earnings thereon, as the "Escrow Funds") to be paid to the Security holders in the event any Security Holders exercise dissenter's rights in connection with the Transaction. 2 E. The parties therefore have agreed to establish such escrow under the terms of this Agreement. CLAUSES In consideration of the foregoing and the mutual promises set forth below, the parties agree as follows: ARTICLE 1 ESTABLISHMENT OF ESCROW 1.1 Appointment of Agent. By executing this Agreement, the Majority Shareholder, the other Security Holders and HPII appoint LaSalle National Bank to the position of escrow agent (the "Escrow Agent") and Escrow Agent, by executing this Agreement, accepts such appointment. 1.2 Authorized Representative. For purposes of this Agreement, the term "Authorized Representative" shall mean: (a) in the case of HPII, James R. Tennant or his designee, and (b) in the case of the Security Holders, Stephen P. Murray or his designee. 1.3 Term. The term of this Agreement shall commence on the date hereof and shall continue until the Escrow Agent either distributes the Escrow Funds and the Escrowed Shares in accordance with this Agreement or deposits the Escrow Funds and the Escrowed Shares then being held by the Escrow Agent with a "Court" as provided in section 4.3 of this Agreement, unless sooner terminated by the joint written consent of the Authorized Representatives. 3 ARTICLE 2 DEPOSITS 2.1 Deposits. On the closing date of the Transaction (the "Closing Date"), HPII shall deposit with the Escrow Agent the following: (a) An amount equal to the Escrow Funds. The Escrow Agent shall have no duty to verify whether the amount received from HPII is the correct amount required by the Amended Agreement. (b) Stock certificates for the Escrowed Shares issued in the name of the Escrow Agent for the benefit of the Security Holders. The deposits referred to in Sections 2.1(a) and 2.1(b) above shall be referred to as the "Escrow Assets." ARTICLE 3 DISTRIBUTIONS 3.1 Claims for Indemnification. (a) Pursuant to Section 10.5 of the Amended Agreement , HPII is required to give written notice (the "Claims Notice") to the Majority Shareholder of any claim for indemnification pursuant to Section 10.2 of the Amended Agreement. Simultaneous with the giving of the Claims Notice to the Majority Shareholder, HPII shall provide a copy of the Claims Notice to the Escrow Agent. The Claims Notice shall clearly state the amount of the requested indemnification ("Claim Amount") and shall include a calculation of the value of the Escrowed Shares based on the date preceding the date of the Claims Notice. The value of the Escrowed Shares shall be equal to the average of the closing price for such shares on the NASDAQ National Market System, as published in The Wall Street Journal (Midwest Edition) for the trading day immediately preceding the date of the Claims Notice ("Average Price"). If within thirty (30) days from the date on which the Escrow Agent receives the Claims Notice ("Objection Period") it does not receive from the 4 Authorized Representative of the Majority Shareholder a written objection, then Escrow Agent shall, promptly following the expiration of the Objection Period, transfer to HPII (utilizing HPII's transfer agent and the transfer procedure set forth on the attached "EXHIBIT A") that number of Escrowed Shares equal to the Claim Amount, determined by dividing the Claim Amount by the Average Price. (b) If within the Objection Period Escrow Agent receives from the Authorized Representative of the Majority Shareholder a written objection to the proposed indemnified claim, then Escrow Agent shall make no disbursement of the Claim Amount from Escrowed Shares until such time as it receives: (i) a joint written direction from the Authorized Representatives to pay the Claim Amount or such other amount as they shall jointly designate in the direction; (ii) a written decision from an arbitrator with proper jurisdiction requiring the payment of the Claim Amount or some other amount relating to the claim; or (iii) any final order, judgment, or decree entered by a court directing Escrow Agent to pay the Claim Amount or some other specified amount. 3.2 Dissenting Shareholders. (a) If any of the Security Holders timely and properly makes a demand for appraisal ("Dissenting Shareholder") of such Dissenting Shareholder's shares in connection with the Transaction pursuant to the requirements of 8 Del. C. Section 262(d) then the Authorized Representatives shall notify the Escrow Agent ("Dissenting Notice"). Any amounts to be paid to such Dissenting Shareholder pursuant to the demand for appraisal shall be paid from the Escrow Funds. (b) The Escrow Agent shall disburse to a Dissenting Shareholder from the Escrow 5 Funds such amount as is authorized by: (i) a joint written direction from the Authorized Representatives to make a payment to a Dissenting Shareholder; (ii) a written decision from an arbitrator with proper jurisdiction requiring a payment to the Dissenting Shareholder; or (iii) any final order, judgment or decree entered by a court directing Escrow Agent to make a payment to the Dissenting Shareholder. Any amounts required to be paid to any Dissenting Shareholder in excess of the amount of the Escrow Funds shall be a payment obligation of the surviving corporation in the Transaction. 3.3 Automatic Disbursement. (a) The Escrow Agent shall disburse proportionately to the Security Holders the remaining Escrow Funds at such time as there remains no unresolved claim of a Dissenting Shareholder as to which a Dissenting Notice has been given to Escrow Agent. (b) Upon the expiration of twelve (12) months from the Closing Date (the "Release Date"), the Escrow Agent shall cause to be delivered proportionately to the Security Holders all remaining Escrowed Shares, unless there then remains unresolved any claims to which Claims Notice has been given to Escrow Agent, in which event delivery shall not be made of the amount of Escrowed Shares equal to 110% of the Claim Amount until immediately after such claim is satisfied. ARTICLE 4 6 ADMINISTRATION OF ESCROW ACCOUNT 4.1 Investment of Cash Escrow. The Escrow Agent shall invest the Escrow Funds in accordance with the joint, written directions it receives from the Authorized Representatives, or, if it receives no such joint directions, then in certificates of deposit or money market accounts of a bank or banks located in the downtown area of Chicago, and/or in any United States Government issued securities, but no such investment shall have a maturity date in excess of 90 days. 4.2 Records and Annual Accounts. The Escrow Agent shall maintain such records as it deems necessary or appropriate to account for all receipts and disbursements from the Escrow and/or any interest or other earnings which accrue on the Escrow Assets. The Escrow Agent shall furnish HPII and the Majority Shareholder with a calendar quarterly accounting which itemizes receipts, disbursements and income earned on the Escrow Assets. 4.3 Conflicting Demands. If at any time a dispute arises concerning any of the Escrow Assets or otherwise in connection with this Agreement, or the Escrow Agent receives any instructions from the Authorized Representatives which the Escrow Agent, in its sole discretion, deems conflict either with any terms or provisions of this Agreement or to the instructions the Escrow Agent received from any other Authorized Representative, then the Escrow Agent shall have the right to deposit, all Escrow Assets with any court situated in Cook County, Illinois (a "Court"). Upon the Escrow Agent's deposit with a Court, the Escrow Agent shall be relieved of all of its obligations under this Agreement, and shall no longer be or act as an "Escrow Agent" pursuant to the Agreement, and the parties each fully release the Escrow Agent from its responsibilities as the Escrow Agent, whether known or not, contingent or vested, arising at law, in equity or otherwise, effective as of the date of such deposit. 7 ARTICLE 5 ESCROW AGENT'S RIGHTS 5.1 Compensation. The Escrow Agent shall be entitled to compensation for its services under this Agreement and shall be reimbursed for all reasonable costs and expenses it incurs when performing its duties under this Agreement. The Escrow Agent is entitled to Three Thousand Dollars ($3,000) as an escrow fee ("Escrow Fee"). HPII agrees that it will pay the Escrow Fee by wire transfer directly to the Escrow Agent, but that half of the amount of the Escrow Fee shall be deducted from the purchase price of the Transaction. 5.2 Certain Actions. The Escrow Agent shall be protected in acting upon any certification, statement, request, consent, Agreement or other instrument which it in good faith believes to be genuine and to have been signed and delivered by the proper person or persons. In addition to its rights under Section 4.3 above, if the Escrow Agent receives any instructions that the Escrow Agent believes conflict with either the instructions it received from any other party or with any terms of this Agreement, then the Escrow Agent may, in its sole discretion, refrain from taking any action other than to keep safely such Escrow Account, until such conflict is resolved to the Escrow Agent's sole satisfaction. If the Escrow Agent is unable to decide upon what action to take, it shall so advise the Authorized Representatives of such indecision, and shall withhold performance of its duties under this Agreement until such time as either all the parties then bound by this Agreement direct the Escrow Agent in writing to take a specific action, or a court order or arbitrator's decision directs the Escrow Agent to take a specific action. 5.3 Limitation of Liability. The Escrow Agent shall be liable under this Agreement only for its bad faith in the performance of its duties. If the Escrow Agent performs any act or refuses to act pursuant to either the order of a court of competent jurisdiction or the advice of its attorneys, then such act or refusal to act shall be deemed conclusively to have been performed or 8 omitted in good faith. The Escrow Agent's duties and responsibilities are limited to those expressly set forth in this Agreement. The Escrow Agent shall not be subject to, nor obligated to recognize, any other Agreement among the parties, even though such Agreement may make specific reference to the Escrow Agent's responsibilities. The Escrow Agent, however, may consent to such additional responsibilities or obligations by executing a written instrument signed by all the parties to this Agreement acknowledging the same. 5.4 Effect of Judicial Action Concerning the Escrow Account. If a court order at any time attaches, garnishes or levies upon any funds on deposit with the Escrow Agent or if a court stays or enjoins the assignment, conveyance, transfer or delivery of any funds or Escrowed Shares which the Escrow Agent holds in the Escrow Account, or if a court enters any judgment or decree which affects all or a portion of the Escrow Assets, then the Escrow Agent is authorized, in its sole discretion, to rely upon and comply with such order, writ, judgment or decree. If the Escrow Agent complies with any such order, writ, judgment or decree, the Escrow Agent shall not be liable to HPII or the Majority Shareholder, or any successor of the aforesaid or to any other person, entity, firm or corporation by reason of such compliance, even though such writ, order, judgment or decree subsequently may be reversed, modified, annulled, set aside or otherwise vacated. 5.5 Indemnification. HPII and the Majority Shareholder, and their respective successors and assigns jointly and severally shall indemnify and hold harmless the Escrow Agent from and against any and all liability and reasonable expenses, including but not limited to attorneys' and accountants' fees, investigation costs, travel costs, transcript costs, disbursements, settlement amounts, judgments, fines or penalties, which the Escrow Agent may incur in connection with, in settlement of or resulting from any claim, action, suit or proceeding, whether such suit is civil, criminal, administrative or investigative (including any associated appeals) with 9 which the Escrow Agent becomes involved or is threatened, as a party or otherwise, in connection with or in any way based upon the escrow arrangement which this Agreement establishes. 5.6 Resignation or Termination. The Escrow Agent may resign at any time by providing ten (10) days prior written notice to the Authorized Representatives of its intention to resign. The Authorized Representatives may terminate the Escrow Agent at any time by delivery to it of a written instrument which both the Authorized Representatives have executed that terminates its position as Escrow Agent. Upon such resignation or termination, the Escrow Agent shall deposit the Escrow Assets with such successor as the Authorized Representatives may designate in a written instrument. If the Authorized Representatives fail to make such designation, the Escrow Agent, in its sole discretion, may deposit such Escrow Assets with any bank, or other financial institution which has experience in acting as an escrow agent or trustee or with a Court. 5.7 Successor. If the Escrow Agent resigns or is terminated, the Authorized Representatives shall jointly appoint a successor escrow agent by executing a written instrument which both identifies the successor escrow agent and contains the acceptance of such successor escrow agent evidenced by said successor's signature. Each such successor escrow agent shall have all the rights, powers, titles, duties, discretion and immunities of the original. No successor escrow agent shall be liable personally for any act or failure to act of any predecessor. A successor escrow agent shall accept the accounts rendered and the property delivered by a predecessor escrow agent as a full and complete discharge of such predecessor escrow agent, without incurring any liability or responsibility for so doing. ARTICLE 6 GENERAL 6.1 Notices. All notices concerning this Agreement shall be given in writing, as follows: (i) by actual delivery of the notice into the hands of the party entitled to receive it; (ii) by 10 mailing such notice by registered or certified mail, return receipt requested, in which case the notice shall be deemed to be given three days after the date of its mailing; (iii) by Federal Express or any other overnight carrier, in which case the notice shall be deemed to be given on the date next succeeding the date of its transmission; or (iv) by facsimile, in which case the notice shall be deemed given as of the date it is sent. All notices which concern this Agreement shall be addressed as follows: If to the Escrow Agent: LaSalle National Bank 135 South LaSalle Street Chicago, Illinois 60603 Attention: Mark Rimkus Fax No.: (312) 904-2236 If to HPII: Home Products International, Inc. 4501 West 47th Street Chicago, Illinois 60632 Attention: James R. Tennant Fax No.: (773) 890-1916 With a Copy to: Much, Shelist, Freed, Denenberg, Ament, Bell & Rubenstein, P.C. 200 North LaSalle Street, Suite 2100 Chicago, Illinois 60601 Attention: Jeffrey C. Rubenstein Fax No.: (312) 621-1750 If to the Majority Shareholder and the other Security Holders: Chase Capital Partners 380 Madison Avenue 12th Floor New York, NY 10017 Attention: Stephen P. Murray Fax No: (212) 622-3755 With a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Attention: William E. Curbow Fax No.: (212) 455-2502
11 6.2 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties as well as their respective personal representatives, successors and assigns. 6.3 Complete Understanding. This Agreement constitutes the complete understanding among the parties. Except as this Agreement specifically provides, no alteration or modification of any of its provisions shall be valid unless made in writing and signed by all of the parties. 6.4 Applicable Law. The laws of the State of Delaware shall govern all aspects of this Agreement, irrespective of the fact that one or more of the parties now is or may become a resident of a different state. 6.5 Descriptive Headings. All section headings, titles and subtitles are inserted in this Agreement for convenience of reference only, and are to be ignored in any construction of this Agreement's provisions. 6.6 Severability. If a court of competent jurisdiction adjudicates any one or more of this Agreement's provisions as invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any of this Agreement's other provisions, and this Agreement shall be construed as if it had never contained such invalid, illegal or unenforceable provision. 6.7 Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes constitute part of one original. 6.8 Definitions. All capitalized terms which are not defined in this Agreement shall have the meaning ascribed to them in the Amended Agreement. 12 Home Products International, Inc., a Delaware Chase Manhattan Investment corporation Holdings, Inc. By By: Name: James R. Tennant Name: Title: Chairman and CEO Title: ESCROW AGENT LaSalle National Bank Chase Venture Capital Associates, L.P. By: By: Mark Rimkus Name: Title: Title: Norman R. Proulx Tom Melton Joseph W. Deppen James McFall Daniel R. Slattery Kevin Comini William S. Watchman Rick Simpson Steve Mohler Linda Krol Kurt Tyler John Barnett, Jr. Janet Brumfield Terry Collins Bruce May 13 EXHIBIT A See Attached. 14 JOINT AUTHORIZATION FOR DISTRIBUTION OF ESCROWED SHARES Date: February 10, 1998 The undersigned are the Authorized Representatives under and as defined in that certain Escrow Agreement made as of December 30, 1997 (the "Agreement") between Home Products International, Inc., a Delaware Corporation ("HPII"), Chase Venture Capital Associates, L.P. (the "Majority Shareholder") and LaSalle National Bank (the "Escrow Agent"). The escrow was created pursuant to an Agreement and Plan of Merger dated November 11, 1997, and Amended and Restated Agreement made as of December 30, 1997 (the "First Amended Agreement"). Pursuant to the First Amended Agreement, HPII deposited with the Escrow Agent 370,000 shares of HPII common stock (the "Escrowed Shares"), all of which were newly issued. Only 328,000 newly issued shares were to have been deposited with the Escrow Agent, with the remaining 42,000 shares to be deposited to have been issued prior to the date of the First Amended Agreement. To correct such error, the undersigned desire to have the Escrow Agent to release 42,000 of the Escrowed Shares from the escrow and return them to HPII's transfer agent (the "Transfer Agent"), for cancellation ab initio. In connection therewith HPII will replace such 42,000 shares with a like number of HPII shares issued prior to the date of the First Amended Agreement. /s/ James R. Tennant /s/ Stephen P.Murray - ------------------------------------ ---------------------------- James R. Tennant Stephen P. Murray Purchase's Authorized Representative Security Holders' Authorized Representative HOME PRODUCTS INTERNATIONAL, INC /s/ James R. Tennant - ------------------------------------- By: James R. Tennant Its: Chairman and CEO EX-10.10 5 AMENDED & RESTATED CREDIT AGREEMENT 1 EXHIBIT 10.10 =============================================================================== AMENDED AND RESTATED CREDIT AGREEMENT Dated as of December __, 1997 among SELFIX, INC., TAMOR CORPORATION, SHUTTERS, INC., and SEYMOUR HOUSEWARES CORPORATION as Borrowers, THE OTHER CREDIT PARTIES SIGNATORY HERETO, as Credit Parties, THE LENDERS SIGNATORY HERETO FROM TIME TO TIME, as Lenders, and GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender =============================================================================== 2 TABLE OF CONTENTS 1. AMOUNT AND TERMS OF CREDIT............................................. 2 1.1. Credit Facilities................................................ 2 1.2. Letters of Credit................................................ 6 1.3. Prepayments...................................................... 7 1.4. Use of Proceeds.................................................. 9 1.5. Interest and Applicable Margins.................................. 10 1.6. Eligible Accounts................................................ 13 1.7. Eligible Inventory............................................... 15 1.8. Cash Management Systems.......................................... 16 1.9. Fees............................................................. 16 1.10. Receipt of Payments.............................................. 17 1.11. Application and Allocation of Payments........................... 17 1.12. Loan Account and Accounting...................................... 18 1.13. Indemnity........................................................ 18 1.14. Access........................................................... 19 1.15. Taxes............................................................ 19 1.16. Capital Adequacy; Increased Costs; Illegality.................... 20 1.17. Single Loan...................................................... 22 2. CONDITIONS PRECEDENT................................................... 22 2.1. Conditions to the Initial Loans.................................. 22 2.2. Further Conditions to Each Loan.................................. 23 3. REPRESENTATIONS AND WARRANTIES......................................... 24 3.1. Corporate Existence; Compliance with Law......................... 24 3.2. Executive Offices; FEIN.......................................... 24 3.3. Corporate Power, Authorization, Enforceable Obligations.......... 25 3.4. Financial Statements and Forecasts............................... 25 3.5. Material Adverse Effect.......................................... 26 3.6. Ownership of Property; Liens..................................... 26 3.7. Labor Matters.................................................... 27 3.8. Ventures, Subsidiaries and Affiliates; Outstanding Stock......... 27 3.9. Government Regulation............................................ 27 3.10. Margin Regulations............................................... 28 3.11. Taxes............................................................ 28 3.12. ERISA............................................................ 28 3.13. No Litigation.................................................... 29 3.14. Brokers.......................................................... 29 3.15. Intellectual Property............................................ 29 3.16. Full Disclosure.................................................. 29 3.17. Environmental Matters............................................ 30 3.18. Insurance........................................................ 30 3.19. Deposit and Disbursement Accounts................................ 30 3.20. Government Contracts............................................. 30 3.21. Customer and Trade Relations..................................... 31
3 3.22. Agreements and Other Documents................................... 31 3.23. Solvency......................................................... 31 3.24. Acquisition Agreement............................................ 31 3.25. Subordinated Debt................................................ 32 4. FINANCIAL STATEMENTS AND INFORMATION................................... 32 4.1. Reports and Notices.............................................. 32 4.2. Communication with Accountants................................... 32 5. AFFIRMATIVE COVENANTS.................................................. 32 5.1. Maintenance of Existence and Conduct of Business................. 32 5.2. Payment of Obligations........................................... 33 5.3. Books and Records................................................ 33 5.4. Insurance; Damage to or Destruction of Collateral................ 33 5.5. Compliance with Laws............................................. 35 5.6. Supplemental Disclosure.......................................... 35 5.7. Intellectual Property............................................ 35 5.8. Environmental Matters............................................ 35 5.9. Landlords' Agreements, Mortgagee Agreements and Bailee Letters... 36 5.10. Further Assurances............................................... 36 5.11. Acquisition Agreement............................................ 36 6. NEGATIVE COVENANTS..................................................... 37 6.1. Mergers, Subsidiaries, Etc....................................... 37 6.2. Investments; Loans and Advances.................................. 37 6.3. Indebtedness..................................................... 37 6.4. Employee Loans and Affiliate Transactions........................ 38 6.5. Capital Structure and Business................................... 39 6.6. Guaranteed Indebtedness.......................................... 39 6.7. Liens............................................................ 39 6.8. Sale of Stock and Assets......................................... 39 6.9. ERISA............................................................ 40 6.10. Financial Covenants.............................................. 40 6.11. Hazardous Materials.............................................. 40 6.12. Sale-Leasebacks.................................................. 40 6.13. Cancellation of Indebtedness..................................... 40 6.14. Restricted Payments.............................................. 40 6.15. Change of Corporate Name or Location; Change of Fiscal Year...... 40 6.16. No Impairment of Intercompany Transfers.......................... 41 6.17. No Speculative Transactions...................................... 41 6.18. Leases........................................................... 41 6.19. Changes Relating to Subordinated Debt............................ 41 6.20. Holdings......................................................... 41 7. TERM................................................................... 42 7.1. Termination...................................................... 42 7.2. Survival of Obligations Upon Termination of Financing Arrangements........................................... 42
4 8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES................................ 42 8.1. Events of Default.............................................. 42 8.2. Remedies....................................................... 44 8.3. Waivers by Credit Parties...................................... 44 9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT................... 44 9.1. Assignment and Participations.................................. 45 9.2. Appointment of Agent........................................... 46 9.3. Agent's Reliance, Etc.......................................... 47 9.4. GE Capital and Affiliates...................................... 47 9.5. Lender Credit Decision......................................... 48 9.6. Indemnification................................................ 48 9.7. Successor Agent................................................ 48 9.8. Setoff and Sharing of Payments................................. 49 9.9. Advances; Payments; Non-Funding Lenders; Information; Actions in Concert................................ 49 10. SUCCESSORS AND ASSIGNS................................................ 51 10.1. Successors and Assigns......................................... 51 11. MISCELLANEOUS......................................................... 52 11.1. Complete Agreement; Modification of Agreement.................. 52 11.2. Amendments and Waivers......................................... 52 11.3. Fees and Expenses.............................................. 54 11.4. No Waiver...................................................... 55 11.5. Remedies....................................................... 55 11.6. Severability................................................... 55 11.7. Conflict of Terms.............................................. 55 11.8. Confidentiality................................................ 55 11.9. GOVERNING LAW.................................................. 56 11.10. Notices........................................................ 56 11.11. Section Titles................................................. 57 11.12. Counterparts................................................... 57 11.13. WAIVER OF JURY TRIAL........................................... 57 11.14. Press Releases................................................. 57 11.15. Reinstatement.................................................. 58 11.16. Advice of Counsel.............................................. 58 11.17. No Strict Construction......................................... 58 12. CROSS-GUARANTY........................................................ 58 12.1. Cross-Guaranty................................................. 58 12.2. Waivers by Borrowers........................................... 59 12.3. Benefit of Guaranty............................................ 59 12.4. Subordination of Subrogation, Etc. ............................ 59 12.5. Election of Remedies........................................... 60 12.6. Limitation..................................................... 60 12.7. Contribution with Respect to Guaranty Obligations.............. 60 12.8. Liability Cumulative........................................... 61
5 INDEX OF APPENDICES Exhibit 1.1(a)(i) - Form of Notice of Revolving Credit Advance Exhibit 1.1(a)(ii) - Form of Revolving Note Exhibit 1.1(b) - Form of Term Note Exhibit 1.1(c)(ii) - Form of Swing Line Note Exhibit 1.5(e) - Form of Notice of Conversion/Continuation Exhibit 4.1(b) - Form of Borrowing Base Certificate Exhibit 9.1(a) - Form of Assignment Agreement Schedule 1.1 - Responsible Individual Schedule 1.1(b)(v) - Ratable Shares Schedule 1.4 - Sources and Uses; Funds Flow Memorandum Schedule 3.2 - Executive Offices; FEIN Schedule 3.4(A) - Financial Statements Schedule 3.4(B) - Pro Forma Schedule 3.4(C) - Forecasts Schedule 3.6 - Real Estate and Leases Schedule 3.7 - Labor Matters Schedule 3.8 - Ventures, Subsidiaries and Affiliates; Outstanding Stock Schedule 3.11 - Tax Matters Schedule 3.12 - ERISA Plans Schedule 3.13 - Litigation Schedule 3.15 - Intellectual Property Schedule 3.17 - Hazardous Materials Schedule 3.18 - Insurance Schedule 3.19 - Deposit and Disbursement Accounts Schedule 3.20 - Government Contracts Schedule 3.22 - Material Agreements Schedule 5.1 - Trade Names Schedule 6.2 - Investments Schedule 6.3 - Indebtedness Schedule 6.4(a) - Transactions with Affiliates Schedule 6.7 - Existing Liens Schedule 11.18 - Continuing Loans Annex A (Recitals) - Definitions Annex B (Section 1.2) - Letters of Credit Annex C (Section 1.8) - Cash Management System Annex D (Section 2.1(a)) - Schedule of Additional Closing Documents Annex E (Section 4.1(a)) - Financial Statements and Forecasts -- Reporting Annex F (Section 4.1(b)) - Collateral Reports Annex G (Section 6.10) - Financial Covenants Annex H (Section 9.9(a)) - Lenders' Wire Transfer Information Annex I (Section 11.10) - Notice Addresses Annex J - Commitments
6 CREDIT AGREEMENT, dated as of December __, 1997, among SELFIX, INC., a Delaware corporation ("Selfix"), TAMOR CORPORATION., a Massachusetts corporation ("Tamor"), SHUTTERS, INC., an Illinois corporation ("Shutters"), SEYMOUR HOUSEWARES CORPORATION, a Delaware corporation ("Seymour" and, together with Selfix, Tamor and Shutters, sometimes collectively referred to herein as the "Borrowers" and individually as a "Borrower"); the other Credit Parties signatory hereto; GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (in its individual capacity, "GE Capital"), for itself, as Lender, and as Agent for Lenders, and the other Lenders signatory hereto from time to time. RECITALS WHEREAS, GE Capital and other Lenders have outstanding loans and letter of credit obligations to Selfix, Tamor and Shutters on the date hereof in the aggregate principal amount of the "Continuing Loans" (as summarized on Disclosure Schedule (11.18) hereto) pursuant to the terms of a Credit Agreement dated as of February 27, 1997 as amended (the "Prior Credit Agreement") by and among GE Capital, as Agent and Lender, the other Lenders party thereto, Selfix, Tamor and Shutters, as borrowers, and Home Products International, Inc., a Delaware corporation ("Holdings"), as an additional Credit Party (such Prior Credit Agreement and the loan documents entered into in connection therewith being hereinafter referred to as the "Prior Loan Documents"); WHEREAS, pursuant to the Agreement and Plan of Merger dated as of November 11, 1997 (as amended, the "Purchase Agreement") by and among Holdings, HPII Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Holdings ("HPII"), Seymour Sales Corporation, a Delaware corporation ("Seymour Sales"), Seymour, Chase Manhattan Investment Holdings, Inc. and Chase Venture Capital Associates, L.P., (i) HPII issued a promissory note in favor of Holdings in exchange for approximately $14.2 million of Holdings stock; (ii) HPII then merged with and into Seymour Sales, with Seymour Sales as the surviving corporation, and HPII paid to the "Sellers" (as defined in Annex A hereto) its Holdings stock plus cash as consideration for the merger; and (iii) Seymour Sales, in turn, was merged with and into its wholly owned subsidiary, Seymour, with Seymour as the surviving corporation (such transaction is referred to herein as the "Acquisition"); WHEREAS, Borrowers desire that Lenders amend and restate the Prior Credit Agreement so that it provides that Lenders shall extend revolving and term credit facilities to Borrowers of up to One Hundred Thirty Million Dollars ($130,000,000) in the aggregate (including the Continuing Loans), for the purpose of funding a portion of the Acquisition and refinancing certain indebtedness of Seymour and to provide (a) working capital financing for Borrowers, and (b) funds for other general corporate purposes of Borrowers; and for these purposes, Lenders are willing to make certain loans and other extensions of credit to Borrowers of up to such amount upon the terms and conditions set forth herein; WHEREAS, Borrowers desire to secure all of their obligations under the "Loan Documents" (as defined in Annex A hereto) by granting to Agent, for the benefit of Agent and Lenders, a security interest in and lien upon all of their existing and after-acquired personal and real property, including, without limitation, the capital stock of all of Borrowers' Subsidiaries; and WHEREAS, capitalized terms used in this Agreement shall have the meanings ascribed to them in Annex A. All Annexes, Disclosure Schedules, Exhibits and other attachments 7 (collectively, "Appendices") hereto, or expressly identified to this Agreement, are incorporated herein by reference, and taken together, shall constitute but a single agreement. These Recitals shall be construed as part of the Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the parties hereto agree as follows: 1. AMOUNT AND TERMS OF CREDIT 1.1 Credit Facilities. (a) Revolving Credit Facility. (i) Subject to the terms and conditions hereof, each Revolving Lender agrees to make available from time to time until the Commitment Termination Date its Pro Rata Share of advances (each, a "Revolving Credit Advance") of the total Revolving Loan Commitment. The Pro Rata Share of the Revolving Loan of any Revolving Lender shall not at any time exceed its separate Revolving Loan Commitment. The obligations of each Revolving Lender hereunder shall be several and not joint. The aggregate amount of Revolving Credit Advances outstanding, taking into account that portion of the Continuing Loans that are Revolving Credit Advances, shall not exceed at any time the lesser of (A) the Maximum Amount and (B) the Aggregate Borrowing Base, in each case less the sum of the Letter of Credit Obligations and the Swing Line Loan outstanding at such time ("Borrowing Availability"), except as set forth in Section 1.1 (a)(iii). Moreover, the sum of the Revolving Loan and Swing Line Loan outstanding to any Borrower shall not exceed at any time that Borrower's separate Borrowing Base, except as set forth in Section 1.1(a)(iii). Until the Commitment Termination Date, Borrowers may from time to time borrow, repay and reborrow under this Section 1.1(a). Each Revolving Credit Advance shall be made on notice by Borrower Representative on behalf of the applicable Borrower to the representative of Agent identified on Schedule 1.1 at the address specified thereon. Those notices must be given no later than (1) 10:30 a.m. (Chicago time) on the Business Day of the proposed Revolving Credit Advance, in the case of an Index Rate Loan, or (2) 11:00 a.m. (Chicago time) on the date which is three (3) Business Days prior to the proposed Revolving Credit Advance, in the case of a LIBOR Loan. Each such notice (a "Notice of Revolving Credit Advance") must be given in writing (by telecopy or overnight courier) substantially in the form of Exhibit 1.1(a)(i), and shall include the information required in such Exhibit and such other information as may be required by Agent. If any Borrower desires to have the Revolving Credit Advances bear interest by reference to a LIBOR Rate, Borrower Representative must comply with Section 1.5(e). (ii) The Revolving Loan Commitments of each Revolving Lender shall be evidenced by a single Promissory Note, dated the Closing Date and substantially in the form of Exhibit 1.1(a)(ii) (each a "Revolving Note" and, collectively, the "Revolving Notes") and executed by all of the Borrowers. Each Revolving Note shall represent the obligation of each Borrower to pay to the applicable Revolving Lender the amount of such Revolving Lender's Revolving Loan Commitment to such Borrower or, if less, such Revolving Lender's Pro Rata Share of the aggregate unpaid principal amount of all Revolving Credit Advances to such Borrower together with interest thereon as prescribed in Section 1.5. The entire unpaid balance of the aggregate Revolving Loan and all other non-contingent Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date. (iii) At the request of Borrower Representative, in its discretion Agent may (but shall have absolutely no obligation to), make Revolving Credit Advances to Borrowers on behalf of 2 8 Revolving Lenders in amounts which cause the outstanding balance of the aggregate Revolving Loan to exceed the Aggregate Borrowing Base (less the Swing Line Loan) or which cause the outstanding balance of the Revolving Loan owing by any Borrower to exceed that Borrower's separate Borrowing Base (less the Swing Line Loan advanced to that Borrower) (any such excess Revolving Credit Advances are herein referred to collectively as "Overadvances"), and no such event or occurrence shall cause or constitute a waiver by Agent or Lenders of any Default or Event of Default that may result therefrom or of Agent's, Swing Line Lender's or Revolving Lenders' right to refuse to make any further Overadvances, Swing Line Advances or Revolving Credit Advances, or incur any Letter of Credit Obligations, as the case may be, at any time that an Overadvance exists or would result therefrom. In addition, Overadvances may be made even if the conditions to lending set forth in Section 2 have not been met. All Overadvances shall constitute Index Rate Loans, shall bear interest at the Default Rate and shall be payable on demand. Except as otherwise provided in Section 1.11(b), the authority of Agent to make Overadvances is limited to an aggregate amount not to exceed $500,000 at any time, shall not cause the aggregate Revolving Loan to exceed the Maximum Amount, and may be revoked prospectively by a written notice to Agent signed by Revolving Lenders holding fifty percent (50%) or more of the Revolving Loan Commitments. (b) (1) Term Loan A. Subject to the terms and conditions hereof, each Lender having a Term Loan A Commitment agrees to make (or continue to the extent of the Continuing Loans) a term loan on the Closing Date to each Borrower (the "Term Loan A") in the original principal amount of such Borrower's Ratable Share of such Lender's Term Loan A Commitment. The obligations of each Term A Lender hereunder shall be several and not joint. Term Loan A shall be evidenced by promissory notes substantially in the form of Exhibit 1.1(b) (each a "Term Note A" and collectively the "Term A Notes"). The Borrowers shall execute and deliver a single Term Note A to each Term A Lender. Each Term Note A shall represent the obligation of each Borrower to pay its Ratable Share of the amount of Term Loan A to the applicable Lender, together with interest thereon as prescribed in Section 1.5. (ii) Each Borrower shall pay its Ratable Share of the principal amount of the Term Loan A in twenty-four (24) consecutive quarterly installments on the first day of January, April, July and October of each year, commencing April 1, 1998, as follows:
Payment Installment Date Amount (each) ------------------------------------------ ------------- 1-4 April 1, July 1, and October 1, 1998 January 1, 1999 $1,250,000 5-8 April 1, July 1, and October 1, 1999 January 1, 2000 $1,750,000 9-12 April 1, July 1, and October 1, 2000 January 1, 2001 $2,000,000 13-24 April 1, July 1, and October 1, 2001; January 1, April 1, July 1, and October 1, 2002; January 1, April 1, July 1, and October 1, 2003; and January 1, 2004 $2,500,000
3 9 (iii) Notwithstanding the foregoing clause (ii), the aggregate outstanding principal balance of Term Loan A shall be due and payable in full in immediately available funds on the Commitment Termination Date, if not sooner paid in full. (iv) Each payment of principal with respect to Term Loan A shall be paid to Agent for the ratable benefit of each Term A Lender, ratably in proportion to each such Term A Lender's respective Term Loan A Commitment. (b) (2) Term Loan B. (i) Subject to the terms and conditions hereof, each Term B Lender agrees to make (or continue to the extent of the Continuing Loans) a term loan on the Closing Date to each Borrower (the "Term Loan B") in the principal amount of such Borrower's Ratable Share of such Lender's Term Loan B Commitment. The obligations of each Term B Lender hereunder shall be several and not joint. Term Loan B shall be evidenced by promissory notes substantially in the form of Exhibit 1.1 (b) (each a "Term Note B" and collectively the "Term B Notes"). The Borrowers shall execute and deliver a single Term Note B to each Term B Lender. Each Term Note B shall represent the obligation of each Borrower to pay its Ratable Share of the amount of its Term Loan B to the applicable Lender, together with interest thereon as prescribed in Section 1.5. (ii) Each Borrower shall pay its Ratable Share of the principal amount of Term Loan B in thirty-two (32) consecutive quarterly installments on the first day of January, April, July and October of each year, commencing April 1, 1998, as follows:
Payment Installment Date Amount (each) ------------------------------------------------- --------------- 1-24 April 1, July 1, and October 1, 1998 January 1, April 1, July 1, and October 1, 1999 January 1, April 1, July 1, and October 1, 2000 January 1, April 1, July 1, and October 1, 2001 January 1, April 1, July 1, and October 1, 2002, January 1, April 1, July 1, and October 1, 2003, and January 1, 2004 $150,000 25-32 April 1, July 1, and October 1, 2004 January 1, April 1, July 1, and October 1, 2005, and January 1, 2006 $7,050,000
(iii) Notwithstanding the foregoing clause (ii), the aggregate outstanding principal balance of Term Loan B shall be due and payable in full in immediately available funds on the Commitment Termination Date, if not sooner paid in full. (iv) Each payment of principal with respect to Term Loan B shall be paid to Agent for the ratable benefit of each Term B Lender, ratably in proportion to each such Term B Lender's respective Term Loan B Commitment. 4 10 (v) Each Borrower shall pay its Ratable Share of each scheduled installment of Term Loan A and Term Loan B. The Ratable Share of each Borrower with respect to Term Loan A and Term Loan B is set forth on Disclosure Schedule (1.1(b)(v)). (c) Swing Line Facility. Agent shall notify the Swing Line Lender upon Agent's receipt of any Notice of Revolving Credit Advance. Subject to the terms and conditions hereof, the Swing Line Lender may, in its discretion, make available from time to time until the Commitment Termination Date advances (each, a "Swing Line Advance") in accordance with any such notice. The aggregate amount of Swing Line Advances outstanding shall not exceed the lesser of (A) the Swing Line Commitment and (B) the Aggregate Borrowing Base less the outstanding balance of the Revolving Loan at such time ("Swing Line Availability"). Moreover, the Swing Line Loan outstanding to any Borrower shall not exceed at any time that Borrower's separate Borrowing Base less the Revolving Loan outstanding to such Borrower. Until the Commitment Termination Date, Borrowers may from time to time borrow, repay and reborrow under this Section 1.1(c). Each Swing Line Advance shall be made pursuant to a Notice of Revolving Credit Advance delivered to Agent by Borrower Representative on behalf of the applicable Borrower in accordance with Section 1.1(a). Those notices must be given no later than 11:00 a.m. (Chicago time) on the Business Day of the proposed Swing Line Advance. Notwithstanding any other provision of this Agreement or the other Loan Documents, the Swing Line Loan shall constitute an Index Rate Loan. Borrowers shall repay the aggregate outstanding principal amount of the Swing Line Loan upon demand therefor by Agent. (ii) Each Borrower shall execute and deliver to the Swing Line Lender a promissory note to evidence the Swing Line Commitment. Each note shall be in the principal amount of the Swing Line Commitment of the Swing Line Lender, dated the Closing Date and substantially in the form of Exhibit 1.1(c)(ii) (each a "Swing Line Note" and, collectively, the "Swing Line Notes"). Each Swing Line Note shall represent the obligation of each Borrower to pay the amount of the Swing Line Commitment or, if less, the aggregate unpaid principal amount of all Swing Line Advances made to such Borrower together with interest thereon as prescribed in Section 1.5. The entire unpaid balance of the Swing Line Loan and all other non-contingent Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date if not sooner paid in full. (iii) Refunding of Swing Line Loans. The Swing Line Lender, at any time and from time to time in its sole and absolute discretion, but not less frequently than weekly, shall on behalf of each Borrower (and each Borrower hereby irrevocably authorizes the Swing Line Lender to so act on its behalf) request each Revolving Lender (including the Swing Line Lender) to make a Revolving Credit Advance to such Borrower (which shall be an Index Rate Loan) in an amount equal to such Revolving Lender's Pro Rata Share of the principal amount of such Borrower's Swing Line Loan (the "Refunded Swing Line Loan") outstanding on the date such notice is given. Unless any of the events described in Sections 8.1(h) or 8.1 (i) shall have occurred (in which event the procedures of Section 1.1(c)(iv) shall apply) and regardless of whether the conditions precedent set forth in this Agreement to the making of a Revolving Credit Advance are then satisfied, each Revolving Lender shall disburse directly to Agent, its Pro Rata Share of a Revolving Credit Advance on behalf of the Swing Line Lender, prior to 2:00 p.m. (Chicago time), in immediately available funds on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Credit Advances shall be immediately paid to the Swing Line Lender and applied to repay the Refunded Swing Line Loan of the applicable Borrower. 5 11 (iv) Participation in Swing Line Loans. If, prior to refunding a Swing Line Loan with a Revolving Credit Advance pursuant to Section 1.1 (c)(iii), one of the events described in Sections 8.1(h) or 8.1(i) shall have occurred, then, subject to the provisions of Section 1.1 (c)(v) below, each Revolving Lender will, on the date such Revolving Credit Advance was to have been made for the benefit of the applicable Borrower, purchase from the Swing Line Lender an undivided participation interest in the Swing Line Loan to such Borrower in an amount equal to its Pro Rata Share of such Swing Line Loan. Upon request, each Revolving Lender will promptly transfer to the Swing Line Lender, in immediately available funds, the amount of its participation. (v) Revolving Lenders' Obligations Unconditional. Each Revolving Lender's obligation to make Revolving Credit Advances in accordance with Section 1.1 (c)(iii) and to purchase participating interests in accordance with Section 1.1 (c)(iv) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Revolving Lender may have against the Swing Line Lender, any Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of any Default or Event of Default; (C) any inability of any Borrower to satisfy the conditions precedent to borrowing set forth in this Agreement on the date upon which such participating interest is to be purchased or (D) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any Revolving Lender does not make available to Agent or the Swing Line Lender, as applicable, the amount required pursuant to Section 1.1 (c)(iii) or 1.1(c)(iv), as the case may be, the Swing Line Lender shall be entitled to recover such amount on demand from such Revolving Lender, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the Federal Funds Rate for the first two Business Days and at the Index Rate thereafter. (d) Reliance on Notices; Appointment of Borrower Representative. Agent shall be entitled to rely upon, and shall be fully protected in relying upon, any Notice of Revolving Credit Advance, Notice of Conversion/Continuation or similar notice reasonably believed by Agent to be genuine. Agent may assume that each Person executing and delivering such a notice was duly authorized, unless the responsible individual acting thereon for Agent has actual knowledge to the contrary. Each Borrower hereby designates Selfix as its representative and agent on its behalf for the purposes of issuing Notices of Revolving Credit Advances, Notices of Swing Line Advances and Notices of Conversion/Continuation, giving instructions with respect to the disbursement of the proceeds of the Loans, selecting interest rate options, requesting Letters of Credit, giving and receiving all other notices and consents hereunder or under any of the other Loan Documents and taking all other actions (including in respect of compliance with covenants) on behalf of any Borrower or Borrowers under the Loan Documents. Borrower Representative hereby accepts such appointment. Agent and each Lender may regard any notice or other communication pursuant to any Loan Document from Borrower Representative as a notice or communication from all Borrowers, and may give any notice or communication required or permitted to be given to any Borrower or Borrowers hereunder to Borrower Representative on behalf of such Borrower or Borrowers. Each Borrower agrees that each notice, election, representation and warranty, covenant, agreement and undertaking made on its behalf by Borrower Representative shall be deemed for all purposes to have been made by such Borrower and shall be binding upon and enforceable against such Borrower to the same extent as if the same had been made directly by such Borrower. 1.2 Letters of Credit. Subject to and in accordance with the terms and conditions contained herein and in Annex B, Borrower Representative, on behalf of the applicable Borrower, 6 12 shall have the right to request, and Revolving Lenders agree to incur, or purchase participations in, Letter of Credit Obligations in respect of each Borrower. 1.3 Prepayments. (a) Voluntary Prepayments. Borrowers may at any time on at least five (5) days' prior written notice upon a partial prepayment (or at least thirty (30) days' prior written notice in the case of a prepayment in full) by Borrower Representative to Agent voluntarily prepay all or part of the Term Loan A or Term Loan B; provided that any such prepayments or reductions shall be in a minimum amount of $500,000 and integral multiples of $250,000 in excess of such amount. In addition, Borrowers may at any time on at least thirty (30) days' prior written notice by Borrower Representative to Agent terminate the Revolving Loan Commitment; provided that upon such termination, all Loans and other Obligations shall be immediately due and payable in full. Any such voluntary prepayment and any such termination of the Revolving Loan Commitment must be accompanied by the payment of the fee required by Section 1.9(c), if any, plus the payment of any LIBOR funding breakage costs in accordance with Section 1.13(b). Upon any such prepayment and termination of the Revolving Loan Commitment, each Borrower's right to request Revolving Credit Advances, or request that Letter of Credit Obligations be incurred on its behalf, or request Swing Line Advances shall simultaneously be permanently terminated. Each notice of partial prepayment shall designate the Loans or other Obligations to which such prepayment is to be applied, provided that any partial prepayments of Term Loan A or Term Loan B made by or on behalf of any Borrower shall be applied to prepay the scheduled installments of such Borrower's Term Loan A or Term Loan B, respectively, in inverse order of maturity. (b) Mandatory Prepayments. If at any time the outstanding balance of the aggregate Revolving Loan (taking into account the Continuing Loans that are part of the Revolving Loan) exceeds the lesser of (A) the Maximum Amount and (B) the Aggregate Borrowing Base, less, in each case, the aggregate outstanding Swing Line Loan at such time, Borrowers shall immediately repay the aggregate outstanding Revolving Credit Advances to the extent required to eliminate such excess. If any such excess remains after repayment in full of the aggregate outstanding Revolving Credit Advances, Borrowers shall provide cash collateral for the Letter of Credit Obligations in the manner set forth in Annex B to the extent required to eliminate such excess. Furthermore, if the outstanding balance of the Revolving Loan of any Borrower exceeds that Borrower's separate Borrowing Base at any time less the outstanding balance of the Swing Line Loan of such Borrower at such time, the applicable Borrower shall immediately repay its Revolving Credit Advances in the amount of such excess (and, if necessary, shall provide cash collateral for its Letter of Credit Obligations as described above). Notwithstanding the foregoing, any Overadvance made pursuant to Section 1.1(a)(iii) shall be repaid on demand. 7 13 (ii) Immediately upon receipt by any Credit Party of proceeds of any asset disposition (including condemnation proceeds, but excluding proceeds of asset dispositions permitted by Sections 6.8 (a) and 6.8(b)) or any sale of Stock of any Subsidiary of any Credit Party, Borrowers shall prepay the Loans in an amount equal to all such proceeds, net of (A) commissions and other reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by Borrowers in connection therewith (in each case, paid to non-Affiliates), (B) transfer taxes, (C) amounts payable to holders of senior Liens (to the extent such Liens constitute Permitted Encumbrances hereunder), if any, and (D) an appropriate reserve for income taxes in accordance with GAAP in connection therewith. Any such prepayment shall be applied in accordance with clause (c)(1) below. (iii) Except for the 1,362,700 shares of Holdings Stock to be issued to the shareholders of Seymour Sales pursuant to Section 2.5(b) of the Acquisition Agreement, if Holdings or any Borrower issues Stock, no later than the Business Day following the date of receipt of the proceeds thereof, all Borrowers (in the case of an issuance by Holdings) or the issuing Borrower shall prepay the Loans in an amount equal to all or a portion of such proceeds, in accordance with clause (c)(2) below, net of underwriting discounts and commissions and other reasonable costs paid to non-Affiliates in connection therewith. (iv) Until the Termination Date, Borrowers shall prepay the Obligations on the earlier of the date which is ten (10) days after (A) the date on which Borrowers' annual audited Financial Statements for the immediately preceding Fiscal Year are delivered pursuant to Annex E or (B) the date on which such annual audited Financial Statements were required to be delivered pursuant to Annex E, in an amount equal to seventy-five percent (75%) of Excess Cash Flow for the immediately preceding Fiscal Year. Any prepayments from Excess Cash Flow paid pursuant to this clause (iv) shall be allocated to each Borrower's Obligations based upon such Borrower's relative contribution to Excess Cash Flow and shall be applied in accordance with clause (c)(1) below. Each such prepayment shall be accompanied by a certificate signed by Borrower Representative's chief financial officer certifying the manner in which Excess Cash Flow, the resulting prepayment, and the method of allocation to each Borrower's Obligations were calculated, which certificate shall be in form and substance reasonably satisfactory to Agent. (c) (1) Application of Certain Mandatory Prepayments. Any prepayments made by any Borrower pursuant to clauses (b)(ii) or (iv) shall be applied as follows: first, to Fees and reimbursable expenses of Agent and other Lenders then due and payable pursuant to any of the Loan Documents; second, to interest then due and payable on such Borrower's Term Loans, pro rata; third, ratably to prepay the scheduled installments of such Borrower's Term Loans in inverse order of maturity, until such Loans shall have been prepaid in full; fourth to interest then due and payable on the Term Loans of each other Borrower, pro rata; fifth, to prepay the scheduled installments of the Term Loans of such other Borrowers in inverse order of maturity, until such Loans shall have been prepaid in full; sixth, to interest then due and payable on Revolving Credit Advances (including Swing Line Advances) made to such Borrower; seventh, to the principal balance of Revolving Credit Advances (including Swing Line Advances) outstanding to such Borrower until the same shall have been paid in full; eighth, to any Letter of Credit Obligations of such Borrower to provide cash collateral therefor in the manner set forth in Annex B, until all such Letter of Credit Obligations have been fully cash collateralized in the manner set forth in Annex B; ninth, to interest then due and payable on the Revolving Credit Advances (including Swing Line Advances) outstanding to each other Borrower, pro rata; tenth, to the principal balance of the Revolving Credit Advances (including 8 14 Swing Line Advances) made to each other Borrower, pro rata, until the same shall have been paid in full; and last, to any Letter of Credit Obligations of each other Borrower, pro rata, to provide cash collateral therefor in the manner set forth in Annex B, until all such Letter of Credit Obligations have been fully cash collateralized. Neither the Revolving Loan Commitment nor the Swing Line Commitment shall be permanently reduced by the amount of any such prepayments. (c) (2) Application of Mandatory Prepayments from Stock Sales. All prepayments made by Holdings or any Borrower pursuant to clause (b)(iii) above shall be applied as follows: first, 50% of the balance of such prepayments shall be applied to accrued interest and to the principal of the Subordinated Notes, and the remaining 50% of the balance of such prepayment shall be applied, ratably, to accrued interest and to the principal balances of Term Loan A and Term Loan B; and second, after payment in full of the Subordinated Notes, 100% of such prepayment shall be applied, ratably, to accrued interest and to the principal balances of Term Loan A and Term Loan B. All such prepayments of the Term Loans shall be applied to scheduled installments in inverse order of maturity. (d) Application of Prepayments from Insurance Proceeds. Prepayments from insurance proceeds in accordance with Section 5.4(c) shall be applied as follows: insurance proceeds from casualties or losses to cash or Inventory shall be applied, first, to the Swing Line Loans and, second, to the Revolving Credit Advances of the Borrower that incurred such casualties or losses; insurance proceeds from casualties or losses to Equipment, Fixtures and Real Estate shall be applied, pro rata, to scheduled installments of the Term Loans, if any, of the Borrower that incurred such casualties or losses in inverse order of maturity. Neither the Revolving Loan Commitment nor the Swing Line Loan Commitment shall be permanently reduced by the amount of any such prepayments. If the insurance proceeds received as to a particular Borrower exceed the outstanding principal balances of the Loans to that Borrower or if the precise amount of insurance proceeds allocable to Inventory as compared to Equipment, Fixtures and Real Estate are not otherwise determined, the allocation and application of those proceeds shall be determined by Agent, subject to the approval of Requisite Lenders. (e) Nothing in this Section 1.3 shall be construed to constitute Agent's or any Lender's consent to any transaction referred to in clauses (b)(ii) and (b)(iii) above which is not permitted by other provisions of this Agreement or the other Loan Documents. If the application of any mandatory prepayment in accordance with this Section 1.3 would result in the payment of LIBOR funding breakage costs in accordance with Section 1.13(b), the applicable Credit Party may elect to deposit such mandatory prepayment in a cash collateral account pledged to Agent on terms reasonably satisfactory to it. Thereafter, such amounts will be applied to prepay the Loans upon expiration of the relevant LIBOR Periods then in effect. (1.4) Use of Proceeds. Borrowers shall utilize the proceeds of the Term Loans, the Revolving Loan and the Swing Line Advances solely for the Acquisition and the Refinancing (and to pay any related transaction expenses), and for the financing of Borrowers' ordinary working capital and general corporate needs (but excluding in any event the making of any Restricted Payment not specifically permitted by Section 6.14). Disclosure Schedule (1.4) contains a description of Borrowers' sources and uses of funds as of the Closing Date, including Loans and Letter of Credit Obligations to be made or incurred on that date, and a funds flow memorandum detailing how funds from each source are to be transferred to particular uses. 9 15 1.5. Interest and Applicable Margins. (a) Borrowers shall pay interest to Agent, for the ratable benefit of Lenders in accordance with the various Loans being made by each Lender, in arrears on each applicable Interest Payment Date, at the following rates: (i) with respect to the Revolving Credit Advances, the Index Rate plus the Applicable Revolver Index Margin per annum or, at the election of Borrower Representative, the applicable LIBOR Rate plus the Applicable Revolver LIBOR Margin per annum, based on the aggregate Revolving Credit Advances outstanding from time to time; (ii) with respect to Term Loan A, the Index Rate plus the Applicable Term Loan A Index Margin per annum or, at the election of Borrower Representative, the applicable LIBOR Rate plus the Applicable Term Loan A LIBOR Margin per annum; (iii) with respect to Term Loan B, the Index Rate plus the Applicable Term Loan B Index Margin per annum or, at the election of Borrower Representative, the applicable LIBOR Rate plus the Applicable Term Loan B LIBOR Margin per annum and (iv) with respect to the Swing Line Loan, the Index Rate plus the Applicable Revolver Index Margin per annum. The Applicable Margins will be at Level IV as of the Closing Date. The Applicable Margins will be adjusted (up or down) prospectively on a quarterly basis as determined by Borrowers' consolidated financial performance for the immediately preceding four-quarter period (using actual figures for all Borrowers for all periods), commencing on the first day of the first calendar month that occurs more than five (5) days after delivery of Borrowers' quarterly Financial Statements to Lenders for the Fiscal Quarter ended December, 1998. Adjustments in Applicable Margins will be determined by reference to the following grids:
Level of If Leverage Ratio is: Applicable Margins: --------------------- ------------------- < 2.5 Level I <3.5, but > 2.5 Level II - <5.0, but > 3.5 Level III - <6.00, but > 5.0 Level IV - > 6.00 Level V -
10 16
APPLICABLE MARGINS ----------------------------------------------- LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V ------- -------- --------- -------- ------- Applicable Revolver Index Margin .25% .50% .75% 1.0% 1.25% Applicable Revolver LIBOR Margin 1.75% 2.0% 2.25% 2.5% 2.75% Applicable Term Loan A Index Margin .25% .50% .75% 1.0% 1.25% Applicable Term Loan A LIBOR Margin 1.75% 2.0% 2.25% 2.5% 2.75% Applicable Term Loan B Index Margin 1.25% 1.25% 1.25% 1.5% 1.75% Applicable Term Loan B LIBOR Margin 2.75% 2.75% 2.75% 3.0% 3.25%
All adjustments in the Applicable Margins after December 31, 1998 will be implemented quarterly on a prospective basis, for each calendar month commencing at least five (5) days after the date of delivery to Lenders of the quarterly unaudited or annual audited (as applicable) Financial Statements of Borrowers evidencing the need for an adjustment. Concurrently with the delivery of those Financial Statements, Borrower Representative shall deliver to Agent and Lenders a certificate, signed by its chief financial officer, setting forth in reasonable detail the basis for the continuance of, or any change in, the Applicable Margins. Failure to timely deliver such Financial Statements shall, in addition to any other remedy provided for in this Agreement, result in an increase in the Applicable Margins to the highest level set forth in the foregoing grid, until the first day of the first calendar month following the delivery of those Financial Statements demonstrating that such an increase is not required. If an Event of Default shall have occurred or be continuing at the time any reduction in the Applicable Margins is to be implemented, that reduction shall be deferred until the first day of the first calendar month following the date on which such Default or Event of Default is waived or cured. (b) If any payment on any Loan becomes due and payable on a day other than a Business Day, the maturity thereof will be extended to the next succeeding Business Day (except as set forth in the definition of LIBOR Period) and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. (c) All computations of Fees calculated on a per annum basis and interest shall be made by Agent on the basis of a three hundred and sixty (360) day year, in each case for the actual number of days occurring in the period for which such interest and Fees are payable. The Index Rate shall be determined each day based upon the Index Rate as in effect on that day. Each determination by Agent of an interest rate hereunder shall be conclusive, absent manifest error. (d) So long as any Event of Default shall have occurred and be continuing, and at 11 17 the election of Agent (or upon the written request of Requisite Lenders) confirmed by written notice from Agent to Borrower Representative, the interest rates applicable to the Loans and the Letter of Credit Fees shall be increased by two percentage points (2%) per annum above the rates of interest or the rate of such Fees otherwise applicable hereunder ("Default Rate"), and all outstanding Obligations shall bear interest at the Default Rate applicable to such Obligations. Interest and Letter of Credit Fees at the Default Rate shall accrue from the initial date of such Default or Event of Default until that Default or Event of Default is cured or waived and shall be payable upon demand. (e) So long as no Default or Event of Default shall have occurred and be continuing, and subject to the additional conditions precedent set forth in Section 2.2, Borrower Representative shall have the option to (i) request that any Revolving Credit Advances be made as a LIBOR Loan, (ii) convert at any time all or any part of outstanding Loans (other than the Swing Line Loan) from Index Rate Loans to LIBOR Loans, (iii) convert any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR breakage costs in accordance with Section 1.13(b) if such conversion is made prior to the expiration of the LIBOR Period applicable thereto, or (iv) continue all or any portion of any Loan (other than the Swing Line Loan) as a LIBOR Loan upon the expiration of the applicable LIBOR Period and the succeeding LIBOR Period of that continued Loan shall commence on the last day of the LIBOR Period of the Loan to be continued. Any Loan to be made or continued as, or converted into, a LIBOR Loan must be in a minimum amount of $1,000,000 or in integral multiples of $100,000 in excess of such amount, and a separate LIBOR Loan must be obtained for each of the Revolving Credit Loan, Term Loan A and Term Loan B. Any such election must be made by 11:00 a.m. (Chicago time) on the third (3rd) Business Day prior to (1) the date of any proposed Advance which is to bear interest at the LIBOR Rate, (2) the end of each LIBOR Period with respect to any LIBOR Loans to be continued as such, or (3) the date on which Borrower Representative wishes to convert any Index Rate Loan to a LIBOR Loan for a LIBOR Period designated by Borrower Representative in such election. If no election is received with respect to a LIBOR Loan by 11:00 a.m. (Chicago time) on the third (3rd) Business Day prior to the end of the LIBOR Period with respect thereto (or if a Default or an Event of Default shall have occurred and be continuing or if the additional conditions precedent set forth in Section 2.2 shall not have been satisfied), that LIBOR Loan shall be converted to an Index Rate Loan at the end of its LIBOR Period. Borrower Representative must make such election by notice to Agent in writing, by telecopy or overnight courier. In the case of any conversion or continuation, such election must be made pursuant to a written notice (a "Notice of Conversion/Continuation") in the form of Exhibit 1.5(e). Notwithstanding anything set forth herein to the contrary, (a) from the Closing Date through February 1, 1998, Borrowers may not request or convert to LIBOR Loans with LIBOR Periods in excess of one month and (b) from February 2, 1998 through March 2, 1998, no LIBOR Loans may be outstanding hereunder. Any LIBOR Loans outstanding during the period from February 2, 1998 through March 2, 1998 shall be immediately converted to Index Rate Loans and Borrowers shall bear any and all breakage costs as set forth herein. (f) Notwithstanding anything to the contrary set forth in this Section 1.5, if a court of competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the highest rate of interest permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; provided, however, that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, Borrowers shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by Agent, on behalf of Lenders, is equal to the total interest which would have been received had the 12 18 interest rate payable hereunder been (but for the operation of this paragraph) the interest rate payable since the Closing Date as otherwise provided in this Agreement. Thereafter, interest hereunder shall be paid at the rate(s) of interest and in the manner provided in Sections 1.5(a) through (e) above, unless and until the rate of interest again exceeds the Maximum Lawful Rate, and at that time this paragraph shall again apply. In no event shall the total interest received by any Lender pursuant to the terms hereof exceed the amount which such Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. If, notwithstanding the provisions of this Section 1.5(f), a court of competent jurisdiction shall finally determine that a Lender has received interest hereunder in excess of the Maximum Lawful Rate, Agent shall, to the extent permitted by applicable law, promptly apply such excess in the order specified in Section 1.11 and thereafter shall refund any excess to Borrowers or as a court of competent jurisdiction may otherwise order. 1.6 Eligible Accounts. Based on the most recent Borrowing Base Certificate delivered by each Borrower to Agent and on other information available to Agent, Agent shall in its reasonable credit judgment determine which Accounts of each Borrower shall be "Eligible Accounts" for purposes of this Agreement. In determining whether a particular Account of any Borrower constitutes an Eligible Account, Agent shall not include any such Account to which any of the exclusionary criteria set forth below applies. Agent reserves the right, at any time and from time to time after the Closing Date, upon prior written notice to Borrower Representative to adjust any such criteria, to establish new criteria and to establish Reserves with respect to Eligible Accounts, in its reasonable credit judgment, subject to the approval of Supermajority Revolving Lenders in the case of adjustments or new criteria which have the effect of making more credit available. Eligible Accounts shall not include any Account of any Borrower: (a) which does not arise from the sale of goods or the performance of services by such Borrower in the ordinary course of its business, (b) upon which (i) such Borrower's right to receive payment is not absolute or is contingent upon the fulfillment of any condition whatsoever or (ii) such Borrower is not able to bring suit or otherwise enforce its remedies against the Account Debtor through judicial process; (c) to the extent any defense, counterclaim, setoff or dispute is asserted as to such Account or if the Account represents a progress billing consisting of an invoice for goods sold or used or services rendered pursuant to a contract under which the Account Debtor's obligation to pay that invoice is subject to such Borrower's completion of further performance under such contract; (d) that is not a true and correct statement of bona fide indebtedness incurred in the amount of the Account for merchandise sold to or services rendered and accepted by the applicable Account Debtor; (e) with respect to which an invoice, acceptable to Agent in form and substance, has not been sent to the applicable Account Debtor; (f) that (i) is not owned by such Borrower or (ii) is subject to any right, claim, 13 19 security interest or other interest of any other Person, other than Liens in favor of Agent, on behalf of itself and Lenders; (g) that arises from a sale to any director, officer, other employee or Affiliate of any Credit Party, or to any entity which has any common officer or director with any Credit Party; (h) that is the obligation of an Account Debtor that is the United States government or a political subdivision thereof, or any state or municipality or department, agency or instrumentality thereof unless Agent, in its sole discretion, has agreed to the contrary in writing and such Borrower, if necessary or desirable, has complied with the Federal Assignment of Claims Act of 1940, and any amendments thereto, or any applicable state statute or municipal ordinance of similar purpose and effect, with respect to such obligation; (i) that is the obligation of an Account Debtor located in a foreign country other than Canada (excluding the provinces of Quebec, Newfoundland, Nova Scotia and Prince Edward Island) unless payment thereof is assured by a letter of credit, satisfactory to Agent as to form, amount and issuer; (j) to the extent such Borrower or any Subsidiary thereof is liable for goods sold or services rendered by the applicable Account Debtor to such Borrower or any Subsidiary thereof but only to the extent of the potential offset; (k) that arises with respect to goods which are delivered on a bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale or other terms by reason of which the payment by the Account Debtor is or may be conditional; (l) that is in default; provided, that, without limiting the generality of the foregoing, an Account shall be deemed in default upon the occurrence of any of the following: (i) it is not paid within the earlier of: sixty (60) days following its due date or ninety (90) days following its original invoice date; (ii) if any Account Debtor obligated upon such Account suspends business, makes a general assignment for the benefit of creditors or fails to pay its debts generally as they come due; or (iii) if any petition is filed by or against any Account Debtor obligated upon such Account under any bankruptcy law or any other federal, state or foreign (including any provincial) receivership, insolvency relief or other law or laws for the relief of debtors; (m) which is the obligation of an Account Debtor if fifty percent (50%) or more of the dollar amount of all Accounts owing by that Account Debtor are ineligible under the other criteria set forth in this Section 1.6; (n) as to which Agent's interest, on behalf of itself and Lenders, therein is not a first priority perfected security interest; (o) as to which any of the representations or warranties pertaining to Accounts set forth in this Agreement or the Security Agreement is untrue; 14 20 (p) to the extent such Account is evidenced by a judgment, Instrument or Chattel Paper; (q) to the extent such Account exceeds any credit limit established by Agent, in its reasonable discretion; (r) which is payable in any currency other than Dollars; (s) to the extent covered by reserves against Accounts for cash discounts, defective items, debit memos and accrued advertising expense on the applicable Borrower's general ledger; or (t) which is unacceptable to Agent in its reasonable credit judgment. 1.7 Eligible Inventory. Based on the most recent Borrowing Base Certificate delivered by each Borrower to Agent and on other information available to Agent, Agent shall in its reasonable credit judgment determine which Inventory of each Borrower shall be "Eligible Inventory" for purposes of this Agreement. In determining whether any particular Inventory of any Borrower constitutes Eligible Inventory, Agent shall not include any such Inventory to which any of the exclusionary criteria set forth below applies. Agent reserves the right, at any time and from time to time after the Closing Date, upon prior written notice to Borrower Representative to adjust any such criteria, to establish new criteria and to establish Reserves with respect to Eligible Inventory, in its reasonable credit judgment, subject to the approval of Supermajority Revolving Lenders in the case of adjustments or new criteria which have the effect of making more credit available. Eligible Inventory shall not include any Inventory of any Borrower: (a) that is not owned by such Borrower free and clear of all Liens and rights of any other Person (including the rights of a purchaser that has made progress payments and the rights of a surety that has issued a bond to assure such Borrower's performance with respect to that Inventory), except Permitted Encumbrances; (b) that is (i) not located on premises owned, leased or operated by such Borrower or (ii) is stored with a bailee, warehouseman or similar Person, unless Agent has given its prior consent thereto and unless (x) a satisfactory bailee letter or landlord waiver has been delivered to Agent, or (y) Reserves satisfactory to Agent have been established with respect thereto, or (iii) located at any site if the aggregate book value of Inventory at any such location is less than $100,000; (c) that is placed on consignment, is in transit or is otherwise not located on premises owned or leased by such Borrower; (d) that is covered by a negotiable document of title, unless such document has been delivered to Agent; (e) that in Agent's reasonable determination, is excess, obsolete, unsalable, shopworn, seconds, damaged or unfit for sale; (f) that consists of display items or packing or shipping materials, manufacturing supplies, work-in-process Inventory or replacement parts; 15 21 (g) that consists of goods which have been returned by the buyer; (h) that is not of a type held for sale in the ordinary course of such Borrower's business; (i) that is located in Mexico or as to which Agent's Lien, on behalf of itself and Lenders, therein is otherwise not a first priority perfected Lien, subject to Permitted Encumbrances; (j) as to which any of the representations or warranties pertaining to Inventory set forth in this Agreement or the Security Agreement is untrue; (k) consists of any costs associated with "freight-in" charges; (l) consists of chemicals, Hazardous Materials or goods that can be transported or sold only with licenses that are not readily available; (m) is not covered by casualty insurance reasonably acceptable to Agent; or (n) is otherwise unacceptable to Agent in its reasonable credit judgment. 1.8 Cash Management Systems. On or prior to the Closing Date, Borrowers will establish and will maintain until the Termination Date, the cash management systems described on Annex C (the "Cash Management Systems"). 1.9 Fees. (a) Borrowers shall pay to GE Capital, individually, the Fees specified in that certain fee letter dated as of December 11, 1997 among Borrowers and GE Capital (the "GE Capital Fee Letter"), at the times specified for payment therein. (b) As additional compensation for the Revolving Lenders, Borrowers agree to pay to Agent, for the ratable benefit of such Lenders, in arrears, on the first Business Day of each month prior to the Commitment Termination Date and on the Commitment Termination Date, a fee for Borrowers' non-use of available funds in an amount equal to one-half percent (0.5%) per annum (calculated on the basis of a 360 day year for actual days elapsed) of the difference between (x) the Maximum Amount (as it may be reduced from time to time) and (y) the average for the period of the daily closing balances of the aggregate Revolving Loan and the Swing Line Loan outstanding during the period for which such fee is due. (c) If Borrowers prepay all or any portion of the Term Loan A or Term Loan B or prepay the Revolving Loan and terminate the Revolving Loan Commitment, whether voluntarily or involuntarily and whether before or after acceleration of the Obligations, Borrowers shall pay to Agent, for the benefit of Lenders as liquidated damages and compensation for the costs of being prepared to make funds available hereunder an amount determined by multiplying the Applicable Percentage (as defined below) by (i) the principal amount of the Term Loans prepaid, and (ii) the Revolving Loan Commitment. As used herein, the term "Applicable Percentage" shall mean (x) two percent (2.0%), in the case of a prepayment on or prior to the first anniversary of the Closing Date, and (y) one percent (1.0%), in the case of a prepayment after the first anniversary of the Closing Date but on or prior to the second anniversary. No prepayment fee shall be payable upon any prepayment after the second anniversary of the Closing Date. Notwithstanding the foregoing, no prepayment fee shall be payable by Borrowers upon a mandatory prepayment made pursuant to Sections 1.3(b), 16 22 1.3(d) or 1.16(c); provided that Borrowers do not permanently reduce the Revolving Loan Commitment upon any such prepayment and, in the case of prepayments made pursuant to Section 1.3(b)(ii) or (b)(iii), the transaction giving rise to the applicable prepayment is expressly permitted under Section 6. Within one hundred eighty (180) days following the Closing Date any Borrower may voluntarily prepay all or a portion of its Ratable Share of Term Loan A and/or Term Loan B in accordance with Section 1.3(a), without premium or penalty (other than LIBOR breakage costs, if any); provided that (i) such prepayments are funded solely with proceeds of investment accounts held by the applicable Borrower(s); (ii) after giving effect to any such prepayment the applicable Borrower(s) have no Revolving Loan balance outstanding; and (iii) the aggregate of such prepayments shall not exceed $3,000,000. 1.10 Receipt of Payments. Borrowers shall make each payment under this Agreement not later than 1:00 p.m. (Chicago time) on the day when due in immediately available funds in Dollars to the Collection Account. For purposes of computing interest and Fees and determining Borrowing Availability or Net Borrowing Availability as of any date, all payments shall be deemed received on the day of receipt of immediately available funds therefor in the Collection Account prior to 1 :00 p m. Chicago time. Payments received after 1:00 p m. Chicago time on any Business Day shall be deemed to have been received on the following Business Day. 1.11 Application and Allocation of Payments. (a) So long as no Event of Default shall have occurred and be continuing, (i) payments consisting of proceeds of Accounts received in the ordinary course of business shall be applied to the Swing Line Loan and the Revolving Loan; (ii) payments matching specific scheduled payments then due shall be applied to those scheduled payments; (iii) voluntary prepayments shall be applied as determined by Borrower Representative, subject to the provisions of Section 1.3(a); and (iv) mandatory prepayments shall be applied as set forth in Section 1.3. As to each other payment, and as to all payments made when an Event of Default shall have occurred and be continuing or following the Commitment Termination Date, each Borrower hereby irrevocably waives the right to direct the application of any and all payments received from or on behalf of such Borrower, and each Borrower hereby irrevocably agrees that Agent shall have the continuing exclusive right to apply any and all such payments against the Obligations of Borrowers as Agent may deem advisable notwithstanding any previous entry by Agent in the Loan Account or any other books and records. In the absence of a specific determination by Agent with respect thereto, payments shall be applied to amounts then due and payable in the following order: (1) to Fees and Agent's and the Lenders' expenses reimbursable hereunder; (2) to interest on the Swing Line Loan; (3) to principal payments on the Swing Line Loan; (4) to interest on the other Loans, ratably in proportion to the interest accrued as to each Loan; (5) to principal payments on the other Loans and to provide cash collateral for Letter of Credit Obligations in the manner described in Annex B, ratably to the aggregate, combined principal balance of the other Loans and outstanding Letter of Credit Obligations; and (6) to all other Obligations including expenses of Lenders to the extent reimbursable under Section 11.3. (b) Agent is authorized to, and at its sole election may, charge to the Revolving Loan balance on behalf of each Borrower and cause to be paid all Fees, expenses, Charges, costs (including insurance premiums in accordance with Section 5 4(a)) and interest and principal, other than principal of the Revolving Loan, owing by Borrowers under this Agreement or any of the other Loan Documents if and to the extent Borrowers fail to promptly pay any such amounts as and when due, even if such charges would cause the balance of the aggregate Revolving Loan and the Swing Line Loan to exceed Borrowing Availability or would cause the balance of the Revolving Loan and 17 23 the Swing Line Loan of any Borrower to exceed such Borrower's separate Borrowing Base. At Agent's option and to the extent permitted by law, any charges so made shall constitute part of the Revolving Loan hereunder. 1.12 Loan Account and Accounting. Agent shall maintain a loan account (the "Loan Account") on its books to record: (a) all Advances and the Term Loans, (b) all payments made by Borrowers, and (c) all other debits and credits as provided in this Agreement with respect to the Loans or any other Obligations. All entries in the Loan Account shall be made in accordance with Agent's customary accounting practices as in effect from time to time. The balance in the Loan Account, as recorded on Agent's most recent printout or other written statement, shall be presumptive evidence of the amounts due and owing to Agent and Lenders by each Borrower; provided that any failure to so record or any error in so recording shall not limit or otherwise affect any Borrower's duty to pay the Obligations. Agent shall render to Borrower Representative and each Lender a monthly accounting of transactions with respect to the Loans setting forth the balance of the Loan Account as to each Borrower. Unless Borrower Representative notifies Agent in writing of any objection to any such accounting (specifically describing the basis for such objection), within thirty (30) days after the date thereof, each and every such accounting shall (absent manifest error) be deemed final, binding and conclusive upon Borrowers in all respects as to all matters reflected therein. Only those items expressly objected to in such notice shall be deemed to be disputed by Borrowers. 1.13 Indemnity. (a) Each Credit Party that is a signatory hereto shall jointly and severally indemnify and hold harmless each of Agent, Lenders and their respective Affiliates, and each such Person's respective officers, directors, employees, attorneys, agents and representatives (each, an "Indemnified Person"), from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and expenses (including attorneys' fees and disbursements and other costs of investigation or defense, including those incurred upon any appeal) which may be instituted or asserted against or incurred by any such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents and the administration of such credit, and in connection with or arising out of the transactions contemplated hereunder and thereunder and any actions or failures to act in connection therewith, including any and all Environmental Liabilities and legal costs and expenses arising out of or incurred in connection with disputes between or among any parties to any of the Loan Documents (collectively, "Indemnified Liabilities"); provided, that no such Credit Party shall be liable for any indemnification to an Indemnified Person to the extent that any such suit, action, proceeding, claim, damage, loss, liability or expense results from that Indemnified Person's gross negligence or willful misconduct, as finally determined by a court of competent jurisdiction. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER. (b) To induce Lenders to provide the LIBOR Rate option on the terms provided herein, if (i) any LIBOR Loans are repaid in whole or in part prior to the last day of any applicable LIBOR Period (whether that repayment is made pursuant to any provision of this Agreement or any 18 24 other Loan Document or is the result of acceleration, by operation of law or otherwise); (ii) any Borrower shall default in payment when due of the principal amount of or interest on any LIBOR Loan; (iii) any Borrower shall default in making any borrowing of, conversion into or continuation of LIBOR Loans after Borrower Representative has given notice requesting the same in accordance herewith; or (iv) any Borrower shall fail to make any prepayment of a LIBOR Loan after Borrower Representative has given a notice thereof in accordance herewith, Borrowers shall jointly and severally indemnify and hold harmless each Lender from and against all losses, costs and expenses resulting from or arising from any of the foregoing. Such indemnification shall include any loss (including loss of margin) or expense arising from the reemployment of funds obtained by it or from fees payable to terminate deposits from which such funds were obtained. For the purpose of calculating amounts payable to a Lender under this subsection, each Lender shall be deemed to have actually funded its relevant LIBOR Loan through the purchase of a deposit bearing interest at the LIBOR Rate in an amount equal to the amount of that LIBOR Loan and having a maturity comparable to the relevant LIBOR Period; provided, however, that each Lender may fund each of its LIBOR Loans in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. As promptly as practicable under the circumstances, each Lender shall provide Borrower Representative with its written calculation of all amounts payable pursuant to this Section 1.13(b), and such calculation shall be binding on the parties hereto unless Borrower Representative shall object in writing within ten (10) Business Days of receipt thereof, specifying the basis for such objection in detail. 1.14 Access. Each Credit Party which is a party hereto shall, during normal business hours, from time to time upon three (3) Business Day's prior notice as frequently as Agent reasonably determines to be appropriate: (a) provide Agent and any of its officers, employees and agents access to its properties, facilities, advisors and employees (including officers) of each Credit Party and to the Collateral, (b) permit Agent, and any of its officers, employees and agents, to inspect, audit and make extracts from any Credit Party's books and records, and (c) permit Agent, and its officers, employees and agents, to inspect, review, evaluate and make test verifications and counts of the Accounts, Inventory and other Collateral of any Credit Party. If an Event of Default shall have occurred and be continuing, each such Credit Party shall provide such access to Agent and to each Lender at all times and without advance notice. Furthermore, so long as any Event of Default shall have occurred and be continuing, Borrowers shall provide Agent and each Lender with access to their suppliers and customers. Each Credit Party shall make available to Agent and its counsel, as quickly as is possible under the circumstances, originals or copies of all books and records which Agent may request. Each Credit Party shall deliver any document or instrument necessary for Agent, as it may from time to time reasonably request, to obtain records from any service bureau or other Person which maintains records for such Credit Party, and shall maintain duplicate records or supporting documentation on media, including computer tapes and discs owned by such Credit Party. Agent will give Lenders at least ten (10) days' prior written notice of regularly scheduled audits. Representatives of other Lenders may accompany Agent's representatives on regularly scheduled audits at no charge to Borrowers. 1.15 Taxes. Any and all payments by each Borrower hereunder (including any payments made pursuant to Section 12) or under the Notes shall be made, in accordance with this Section 1.15, free and clear of and without deduction for any and all present or future Taxes. If any Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder (including any sum payable pursuant to Section 12) or under the Notes, (i) the sum 19 25 payable shall be increased as much as shall be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 1.15) Agent or Lenders, as applicable, receive an amount equal to the sum they would have received had no such deductions been made, (ii) such Borrower shall make such deductions, and (iii) such Borrower shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law. Within thirty (30) days after the date of any payment of Taxes, Borrower Representative shall furnish to Agent the original or a certified copy of a receipt evidencing payment thereof. (b) Each Credit Party that is a signatory hereto shall jointly and severally indemnify and, within ten (10) days of demand therefor, pay Agent and each Lender for the full amount of Taxes (including any Taxes imposed by any jurisdiction on amounts payable under this Section 1.15) paid by Agent or such Lender, as appropriate, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. (c) Each Lender organized under the laws of a jurisdiction outside the United States (a "Foreign Lender") as to which payments to be made under this Agreement or under the Notes are exempt from United States withholding tax under an applicable statute or tax treaty shall provide to Borrower Representative and Agent a properly completed and executed IRS Form 4224 or Form 1001 or other applicable form, certificate or document prescribed by the IRS or the United States certifying as to such Foreign Lender's entitlement to such exemption (a "Certificate of Exemption"). Any foreign Person that seeks to become a Lender under this Agreement shall provide a Certificate of Exemption to Borrower Representative and Agent prior to becoming a Lender hereunder. No foreign Person may become a Lender hereunder if such Person is unable to deliver hereunder a Certificate of Exemption. 1.16. Capital Adequacy; Increased Costs; Illegality. (a) If any Lender shall have determined that the adoption after the date hereof of any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by any Lender with any request or directive regarding capital adequacy, reserve requirements or similar requirements (whether or not having the force of law) from any central bank or other Governmental Authority increases or would have the effect of increasing the amount of capital, reserves or other funds required to be maintained by such Lender and thereby reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder, then Borrowers shall from time to time upon demand by such Lender (with a copy of such demand to Agent) pay to Agent, for the account of such Lender, additional amounts sufficient to compensate such Lender for such reduction. A certificate as to the amount of that reduction and showing the basis of the computation thereof submitted by such Lender to Borrower Representative and to Agent shall, absent manifest error, be final, conclusive and binding for all purposes. (b) If, due to either (i) the introduction of or any change in any law or regulation (or any change in the interpretation thereof) or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining any Loan, then Borrowers shall from time to time, upon demand by such Lender (with a copy of such demand to Agent), pay to Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such 20 26 increased cost, submitted to Borrower Representative and to Agent by such Lender, shall be conclusive and binding on Borrowers for all purposes, absent manifest error. Each Lender agrees that, as promptly as practicable after it becomes aware of any circumstances referred to above which would result in any such increased cost, the affected Lender shall, to the extent not inconsistent with such Lender's internal policies of general application, use reasonable commercial efforts to minimize costs and expenses incurred by it and payable to it by Borrowers pursuant to this Section 1.16(b). (c) Notwithstanding anything to the contrary contained herein, if the introduction of or any change in any law or regulation (or any change in the interpretation thereof) shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender to agree to make or to make or to continue to fund or maintain any LIBOR Loan, then, unless that Lender is able to make or to continue to fund or to maintain such LIBOR Loan at another branch or office of that Lender without, in that Lender's opinion, adversely affecting it or its Loans or the income obtained therefrom, on notice thereof and demand therefor by such Lender to Borrower Representative through Agent, (i) the obligation of such Lender to agree to make or to make or to continue to fund or maintain LIBOR Loans shall terminate and (ii) each Borrower shall forthwith prepay in full all outstanding LIBOR Loans owing by such Borrower to such Lender, together with interest accrued thereon, unless Borrower Representative on behalf of such Borrower, within five (5) Business Days after the delivery of such notice and demand, converts all such Loans into a Loan bearing interest based on the Index Rate. (d) Replacement of Lender in Respect of Increased Costs. Within fifteen (15) days after receipt by Borrower Representative of written notice and demand from any Lender (an "Affected Lender") for payment of additional amounts or increased costs as provided in Section 1.15(a) 1.16(a) or 1.16(b), Borrower Representative may, at its option, notify Agent and such Affected Lender of its intention to replace the Affected Lender. So long as no Default or Event of Default shall have occurred and be continuing, Borrower Representative, with the consent of Agent, may obtain, at Borrowers' expense, a replacement Lender ("Replacement Lender") for the Affected Lender, which Replacement Lender must be satisfactory to Agent. If Borrowers obtain a Replacement Lender within ninety (90) days following notice of their intention to do so, the Affected Lender must sell and assign its Loans and Commitments to such Replacement Lender for an amount equal to the principal balance of all Loans held by the Affected Lender and all accrued interest and Fees with respect thereto through the date of such sale, provided that Borrowers shall have reimbursed such Affected Lender for the additional amounts or increased costs that it is entitled to receive under this Agreement through the date of such sale and assignment. Notwithstanding the foregoing, Borrowers shall not have the right to obtain a Replacement Lender if the Affected Lender rescinds its demand for increased costs or additional amounts within fifteen (15) days following its receipt of Borrowers' notice of intention to replace such Affected Lender. Furthermore, if Borrowers give a notice of intention to replace and do not so replace such Affected Lender within ninety (90) days thereafter, Borrowers' rights under this Section 1.16(d) shall terminate and Borrowers shall promptly pay all increased costs or additional amounts demanded by such Affected Lender pursuant to Sections 1.15(a), 1.16(a) and 1.16(b). 21 27 1.17 Single Loan. All Loans to each Borrower and all of the other Obligations of each Borrower arising under this Agreement and the other Loan Documents shall constitute one general obligation of that Borrower secured, until the Termination Date, by all of its Collateral. 2. CONDITIONS PRECEDENT 2.1 Conditions to the Initial Loans. No Lender shall be obligated to make any Loan or incur any Letter of Credit Obligations on the Closing Date, or to take, fulfill, or perform any other action hereunder, until the following conditions have been satisfied or provided for in a manner reasonably satisfactory to Agent, or waived in writing by Agent and Lenders: (a) Credit Agreement; Loan Documents. This Agreement or counterparts hereof shall have been duly executed by, and delivered to, Borrowers, Agent and Lenders; and Agent shall have received such documents, instruments, agreements and legal opinions as Agent shall request in connection with the transactions contemplated by this Agreement and the other Loan Documents, including all those listed in the Closing Checklist attached hereto as Annex D, each in form and substance satisfactory to Agent. (b) Repayment of Prior Lender Obligations; Satisfaction of Outstanding L/Cs. (i) Agent shall have received a fully executed original or copy of pay-off letters satisfactory to Agent confirming that all of the Indebtedness owed by any Credit Party to the Prior Lender will be repaid in full from the proceeds of the Term Loans and the initial Revolving Credit Advance and all Liens upon any of the property of Borrowers or any of their Subsidiaries in favor of Prior Lenders shall be terminated by Prior Lenders immediately upon such payment; and (ii) all letters of credit issued or guaranteed by any Prior Lender shall have been cash collateralized, supported by a guaranty of Agent or supported by a Letter of Credit issued pursuant to Annex B, as mutually agreed upon by Agent, Borrowers and Prior Lender. (c) Approvals. Agent shall have received (i) satisfactory evidence that the Credit Parties have obtained all required consents and approvals of all Persons including all requisite Governmental Authorities, to the execution, delivery and performance of this Agreement and the other Loan Documents and the consummation of the Related Transactions, including, without limitation, termination of the Hart-Scott-Rodino waiting period with respect to the Acquisition of Seymour, or (ii) an officer's certificate in form and substance satisfactory to Agent affirming that no such consents or approvals are required. (d) Opening Availability. The Eligible Accounts and Eligible Inventory of each Borrower supporting the initial Revolving Credit Advance and the initial Letter of Credit Obligations incurred and the amount of the Reserves to be established on the Closing Date shall be sufficient in value, as determined by Agent, to provide Borrowers, collectively, with Net Borrowing Availability, after giving effect to the initial Revolving Credit Advance made to each Borrower, the incurrence of any initial Letter of Credit Obligations, the outstanding balances of the Continuing Loans as of the Closing Date and the consummation of the Related Transactions (on a pro forma basis, with trade payables being paid currently, and expenses and liabilities being paid in the ordinary course of business and without acceleration of sales) of at least $11,900,000. 22 28 (e) Payment of Fees. Borrowers shall have paid the Fees required to be paid on the Closing Date in the respective amounts specified in Section 1.9 (including the Fees specified in the GE Capital Fee Letter), and shall have reimbursed Agent for all fees, costs and expenses of closing presented as of the Closing Date. (f) Equity and Indebtedness. As of the Closing Date and after giving effect to the Related Transactions, Holdings shall have stockholders equity of approximately $55,200,000 and Holdings and its Subsidiaries shall not have Indebtedness outstanding in excess of $128,000,000. (g) Consummation of Related Transactions. Agent and Lenders shall have received fully executed copies of the Acquisition Agreement, the Subordinated Notes, and each of the other Related Transactions Documents, each of which shall be in form and substance satisfactory to Agent and its counsel. The Acquisition and the other Related Transactions shall have been consummated in accordance with the terms of the Acquisition Agreement and the other Related Transactions Documents but for the payment of the cash purchase price payable on the Closing Date pursuant to the Acquisition Agreement. (h) (i) Holdings shall pay at least $14,200,000 of the consideration for the Acquisition by the issuance of its common stock; (ii) the cash portion of the consideration paid for the Acquisition shall not exceed $87,800,000 and (iii) aggregate fees and closing costs for the Related Transactions will not exceed $4,000,000. (i) Agent and Lenders shall be reasonably satisfied that Holdings and its Subsidiaries, including Seymour on a pro forma basis, will have consolidated EBITDA of at least $32,000,000 for the Fiscal Year ending December 31, 1997 (excluding one-time expenses of $1.0 million for plant consolidation costs and approximately $500,000 for writing off pension plan assets), based on year-to-date financial statements and Forecasts provided to them by Borrowers. 2.2 Further Conditions to Each Loan. Except as otherwise expressly provided herein, no Lender shall be obligated to fund any Loan, convert or continue any Loan as a LIBOR Loan or incur any Letter of Credit Obligation, if, as of the date thereof: (a) Any representation or warranty by any Credit Party contained herein or in any of the other Loan Documents shall be untrue or incorrect as of such date in any material respect, except to the extent that such representation or warranty expressly relates to an earlier date and except for changes therein expressly permitted or expressly contemplated by this Agreement; or (b) As reasonably determined by Requisite Revolving Lenders, any event or circumstance having a Material Adverse Effect shall have occurred since the date hereof; or (c) (i) Any Event of Default shall have occurred and be continuing or would result after giving effect to any Loan (or the incurrence of any Letter of Credit Obligations), or (ii) a Default shall have occurred and be continuing or would result after giving effect to any Loan, and Agent or Requisite Revolving Lenders shall have determined not to make any Loan or incur any Letter of Credit Obligation so long as that Default is continuing; or (d) After giving effect to any Advance (or the incurrence of any Letter of Credit 23 29 Obligations), (i) the outstanding principal amount of the aggregate Revolving Loan would exceed the lesser of the Aggregate Borrowing Base and the Maximum Amount, less, in each case, the outstanding principal amount of the Swing Line Loan, or (ii) the outstanding principal amount of the Revolving Loan of the applicable Borrower would exceed such Borrower's separate Borrowing Base less the outstanding principal amount of the Swing Line Loan to that Borrower; or (e) After giving effect to any Swing Line Advance, (i) the outstanding principal amount of the Swing Line Loan would exceed Swing Line Availability, or (ii) the outstanding principal amount of the Swing Line Loan of the applicable Borrower would exceed such Borrower's separate Borrowing Base less the outstanding principal amount of the Revolving Loan to that Borrower. The request and acceptance by any Borrower of the proceeds of any Loan, the incurrence of any Letter of Credit Obligations or the conversion or continuation of any Loan into, or as, a LIBOR Loan, as the case may be, shall be deemed to constitute, as of the date of such request or acceptance, (i) a representation and warranty by Borrowers that the conditions in this Section 2.2 have been satisfied and (ii) a reaffirmation by Borrowers of the cross-guaranty provisions set forth in Section 12 and of the granting and continuance of Agent's Liens on behalf of itself and Lenders, pursuant to the Collateral Documents. 3. REPRESENTATIONS AND WARRANTIES To induce Lenders to make the Loans and to incur Letter of Credit Obligations, the Credit Parties executing this Agreement, jointly and severally, make the following representations and warranties to Agent and each Lender with respect to all Credit Parties, each and all of which shall survive the execution and delivery of this Agreement. 3.1 Corporate Existence; Compliance with Law. Each Credit Party (a) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; (b) is duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect; (c) has the requisite corporate power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease and to conduct its business as now, heretofore and proposed to be conducted; (d) has all material licenses, permits, consents or approvals from or by, and has made all filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (e) is in compliance with its charter and by-laws; and (f) subject to specific representations set forth herein regarding ERISA, Environmental Laws, tax and other laws, is in compliance with all applicable provisions of law, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 3.2 Executive Offices; FEIN. As of the Closing Date, the current location of each Credit Party's chief executive office and principal place of business is set forth in Disclosure Schedule (3.2), and none of such locations have changed within the twelve (12) months preceding the Closing Date. In addition, Disclosure Schedule (3.2) lists the federal employer identification number of each Credit Party. 24 30 3.3 Corporate Power, Authorization, Enforceable Obligations. The execution, delivery and performance by each Credit Party of the Loan Documents to which it is a party and the creation of all Liens provided for therein: (a) are within such Person's corporate power; (b) have been duly authorized by all necessary or proper corporate and shareholder action; (c) do not contravene any provision of such Person's charter or bylaws; (d) do not violate in any material respect any law or regulation, or any order or decree of any court or Governmental Authority; (e) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Person is a party or by which such Person or any of its property is bound; (f) do not result in the creation or imposition of any Lien upon any of the property of such Person other than those in favor of Agent, on behalf of itself and Lenders, pursuant to the Loan Documents; and (g) do not require the consent or approval of any Governmental Authority or any other Person, except those referred to in Section 2.1 (c), all of which will have been duly obtained, made or complied with prior to the Closing Date. On or prior to the Closing Date, each of the Loan Documents shall have been duly executed and delivered by each Credit Party thereto and each such Loan Document shall then constitute a legal, valid and binding obligation of such Credit Party enforceable against it in accordance with its terms. 3.4 Financial Statements and Forecasts. Except for the forecasts referred to below, all Financial Statements concerning Holdings and its Subsidiaries which are referenced below have been prepared in accordance with GAAP consistently applied throughout the periods covered (except as disclosed therein and except, with respect to unaudited Financial Statements, for the absence of footnotes and normal year-end audit adjustments) and present fairly in all material respects the financial position of the Persons covered thereby as at the dates thereof and the results of their operations and cash flows for the periods then ended. (a) The following Financial Statements attached hereto as Disclosure Schedule (3.4(A)) have been delivered on or prior to the date hereof: (i) The audited combined balance sheets of Tamor and Housewares at December 31, 1995 and 1996 and the related combined statements of income, stockholders' equity and cash flows for each of the three Fiscal Years for the period ended December 31, 1996, certified by BDO Seidman. (ii) The audited consolidated balance sheet at December 28, 1996 and the related consolidated statement(s) of income and cash flows of Selfix and Shutters for the Fiscal Year then ended, certified by Arthur Andersen & Co. (iii) The audited balance sheets of Seymour and the related statements of income, stockholders' equity and cash flows at June 30, 1996 and June 30, 1997 and for the respective fiscal years then ended. (iv) The unaudited balance sheets and the related statements of income, stockholders equity and cash flow of Holdings and its Subsidiaries (other than Seymour) on a consolidated and consolidating basis at November 29, 1997 and for the 11 months then ending. (v) The unaudited balance sheet and related statements of income, stock holders equity and cash flow of Seymour at November 23, 1997 and for the 5 months then ended. 25 31 (b) Pro Forma. The unaudited consolidated and consolidating balance sheet of Borrowers and their Subsidiaries as of the Closing Date delivered on or prior to the date hereof and attached hereto as Disclosure Schedule (3.4(B)) (the "Pro Forma") was prepared by Borrowers giving pro forma effect to the Related Transactions, was based on the unaudited consolidated and consolidating balance sheets of Borrowers and their Subsidiaries dated as of November 29, 1997, was prepared in accordance with GAAP, with only such adjustments thereto as would be required in accordance with GAAP and reflects stockholders equity of at least $55.2 million. (c) Forecasts. The forecasts delivered on or prior to the date hereof and attached hereto as Disclosure Schedule (3.4(C)) have been prepared by Borrowers in light of the past operations of their businesses and reflect Forecasts for the Fiscal Year beginning on December 28, 1997 on a quarter by quarter basis. Within thirty (30) days after the Closing Date Borrowers will deliver another set of forecasts for the Fiscal Year beginning on December 28, 1997 on a month by month basis. The forecasts are based upon estimates and assumptions stated therein, all of which Borrowers believe to be reasonable and fair in light of current conditions and current facts known to Borrowers and, as of the Closing Date, reflect Borrowers' good faith and reasonable estimates of the fixture financial performance of Borrowers and of the other information projected therein for the period set forth therein. (d) Post-Closing Balance Sheet. Within ninety (90) days after the Closing Date, Borrowers shall deliver to the Agent and Lenders a balance sheet for Seymour as of the Closing Date certified by the Chief Financial Officer of Holdings. 3.5 Material Adverse Effect. Between December 31, 1996 and the Closing Date, (a) no Credit Party has incurred any obligations, contingent or non-contingent liabilities, liabilities for Charges, long-term leases or unusual forward or long-term commitments which are not reflected in the Pro Forma and which, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect, (b) no contract, lease or other agreement or instrument has been entered into by any Credit Party or has become binding upon any Credit Party's assets and no law or regulation applicable to any Credit Party has been adopted which has had or could reasonably be expected to have a Material Adverse Effect, and (c) no Credit Party is in default and to the best of Borrowers' knowledge no third party is in default under any material contract, lease or other agreement or instrument, which alone or in the aggregate could reasonably be expected to have a Material Adverse Effect. Between December 31, 1996 and the Closing Date no event has occurred, which alone or together with other events, could reasonably be expected to have a Material Adverse Effect. 3.6 Ownership of Property; Liens. As of the Closing Date, the real estate ("Real Estate") listed on Disclosure Schedule (3.6) constitutes all of the real property owned, leased, subleased, or used by any Credit Party. Each Credit Party owns good and marketable fee simple title to all of its owned real estate, and valid and marketable leasehold interests in all of its leased Real Estate, all as described on Disclosure Schedule (3.6), and copies of all such leases or a summary of terms thereof satisfactory to Agent have been delivered to Agent. Disclosure Schedule (3.6) further describes any Real Estate with respect to which any Credit Party is a lessor, sublessor or assignor as of the Closing Date. Each Credit Party also has good and marketable title to, or valid leasehold interests in, all of its personal properties and assets. As of the Closing Date, none of the properties and assets of any Credit Party are subject to any Liens other than Permitted Encumbrances, and there are no facts, circumstances or conditions known to any Credit Party that may result in any Liens 26 32 (including Liens arising under Environmental Laws) other than Permitted Encumbrances. Disclosure Schedule (3.6) also describes any purchase options, rights of first refusal or other similar contractual rights pertaining to any Real Estate. As of the Closing Date, no portion of any Credit Party's Real Estate has suffered any material damage by fire or other casualty loss which has not heretofore been repaired and restored in all material respects to its original condition or otherwise remedied. As of the Closing Date, all material permits required to have been issued or appropriate to enable the Real Estate to be lawfully occupied and used for all of the purposes for which they are currently occupied and used have been lawfully issued and are in full force and effect. 3.7 Labor Matters. As of the Closing Date (a) no strikes or other material labor disputes against any Credit Party are pending or, to any Credit Party's knowledge, threatened; (b) hours worked by and payment made to employees of each Credit Party comply with the Fair Labor Standards Act and each other federal, state, local or foreign law applicable to such matter; (c) all payments due from any Credit Party for employee health and welfare insurance have been paid or accrued as a liability on the books of such Credit Party; (d) except as set forth in Disclosure Schedule (3.7), no Credit Party is a party to or bound by any collective bargaining agreement, management agreement, consulting agreement or any employment agreement (and true and complete copies of any agreements described on Disclosure Schedule (3.7) have been delivered to Agent); (e) there is no organizing activity involving any Credit Party pending or, to any Credit Panty's knowledge, threatened by any labor union or group of employees; (f) there are no representation proceedings pending or, to any Credit Party's knowledge, threatened with the National Labor Relations Board, and no labor organization or group of employees of any Credit Party has made a pending demand for recognition; and (g) except as set forth in Disclosure Schedule (3.7), there are no complaints or charges against any Credit Party pending or, to the knowledge of any Credit Party, threatened to be filed with any Governmental Authority or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by any Credit Party of any individual. 3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock. Except as set forth in Disclosure Schedule (3.8), no Credit Party has any Subsidiaries, is engaged in any joint venture or partnership with any other Person, or is an Affiliate of any other Person. All of the issued and outstanding Stock of each Credit Party is owned by each of the stockholders and in the amounts set forth on Disclosure Schedule (3.8). There are no outstanding rights to purchase, options, warrants or similar rights or agreements pursuant to which any Credit Party may be required to issue, sell, repurchase or redeem any of its Stock or other equity securities or any Stock or other equity securities of its Subsidiaries. All outstanding Indebtedness of each Credit Party as of the Closing Date is described in Section 6.3 (including Disclosure Schedule (6.3)). Holdings owns no material assets, except for the outstanding Stock of Borrowers. Holdings is not engaged in any trade or business. 3.9 Government Regulation. No Credit Party is an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940 as amended. No Credit Party is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, or any other federal or state statute that restricts or limits its ability to incur Indebtedness or to perform its obligations hereunder. The making of the Loans by Lenders to Borrowers, the incurrence of the Letter of Credit Obligations on behalf of Borrowers, the application of the proceeds thereof and repayment thereof and the consummation of the Related Transactions will not violate any 27 33 material provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission. 3.10 Margin Regulations. No Credit Party is engaged, nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin security" as such terms are defined in Regulation U or G of the Federal Reserve Board as now and from time to time hereafter in effect (such securities being referred to herein as "Margin Stock"). No Credit Party owns any Margin Stock, and none of the proceeds of the Loans or other extensions of credit under this Agreement will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry any Margin Stock or for any other purpose which might cause any of the Loans or other extensions of credit under this Agreement to be considered a "purpose credit" within the meaning of Regulation G, T, U or X of the Federal Reserve Board. No Credit Party will take or permit to be taken any action which might cause any Loan Document to violate any regulation of the Federal Reserve Board. 3.11 Taxes. All tax returns, reports and statements, including information returns, required by any Governmental Authority to be filed by any Credit Party have been filed with the appropriate Governmental Authority and all Charges have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof (or any such fine, penalty, interest, late charge or loss has been paid), excluding Charges or other amounts being contested in accordance with Section 5.2(b). Proper and accurate amounts have been withheld by each Credit Party from its respective employees for all periods in full and complete compliance with all applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities. Disclosure Schedule (3.11) sets forth as of the Closing Date those taxable years for which any Credit Party's tax returns are currently being audited by the IRS or any other applicable Governmental Authority and any assessments or threatened assessments in connection with such audit, or otherwise currently outstanding. Except as described on Disclosure Schedule (3.11), no Credit Party has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges. None of the Credit Parties and their respective predecessors are liable for any Charges: (a) under any agreement (including any tax sharing agreements) or (b) to each Credit Party's knowledge, as a transferee. As of the Closing Date, no Credit Party has agreed or been requested to make any adjustment under IRC Section 481 (a), by reason of a change in accounting method or otherwise, which would have a Material Adverse Effect. 3.12 ERISA. (a) Disclosure Schedule (3.l2) lists and separately identifies all Title IV Plans, Multiemployer Plans, ESOPs and Retiree Welfare Plans. Copies of all such listed Plans, together with a copy of the latest form 5500 for each such Plan, have been delivered to Agent. Each Qualified Plan has been determined by the IRS to qualify under Section 401 of the IRC, and the trusts created thereunder have been determined to be exempt from tax under the provisions of Section 501 of the IRC, and nothing has occurred which would cause the loss of such qualification or tax-exempt status. Each Plan is in compliance with the applicable provisions of ERISA and the IRC, including the filing of reports required under the IRC or ERISA. No Credit Party or ERISA Affiliate has failed to make any contribution or pay any amount due as required by either Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan. No Credit Party or ERISA Affiliate has engaged in a prohibited transaction, as defined in Section 4975 of the IRC, in connection with any Plan, which would subject any Credit Party to a material tax on prohibited transactions imposed by 28 34 Section 4975 of the IRC. (b) Except as set forth in Disclosure Schedule (3.12): (i) no Title IV Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event described in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is reasonably expected to occur; (iii) there are no pending, or to the knowledge of any Credit Party, threatened claims (other than claims for benefits in the normal course), sanctions, actions or lawsuits, asserted or instituted against any Plan or any Person as fiduciary or sponsor of any Plan; (iv) no Credit Party or ERISA Affiliate has incurred or reasonably expects to incur any liability as a result of a complete or partial withdrawal from a Multiemployer Plan; (v) within the last five years no Title IV Plan with Unfunded Pension Liabilities has been transferred outside of the "controlled group" (within the meaning of Section 4001(a)(14) of ERISA) of any Credit Party or ERISA Affiliate; and (vi) no liability under any Title IV Plan has been satisfied with the purchase of a contract from an insurance company that is not rated AAA by the Standard & Poor's Corporation or the equivalent by another nationally recognized rating agency. 3.13 No Litigation. No action, claim, lawsuit, demand, investigation or proceeding is now pending or, to the knowledge of any Credit Party, threatened against any Credit Party, before any Governmental Authority or before any arbitrator or panel of arbitrators (collectively, "Litigation"), (a) which challenges any Credit Party's right or power to enter into or perform any of its obligations under the Loan Documents to which it is a party, or the validity or enforceability of any Loan Document or any action taken thereunder, or (b) which has a reasonable risk of being determined adversely to any Credit Party and which, if so determined, could have a Material Adverse Effect. Except as set forth on Disclosure Schedule (3.13), as of the Closing Date there is no Litigation pending or threatened which seeks damages in excess of $250,000 or injunctive relief or alleges criminal misconduct of any Credit Party. 3.14 Brokers. No broker or finder acting on behalf of any Credit Party brought about the obtaining, making or closing of the Loans or the Related Transactions, and no Credit Party has any obligation to any Person in respect of any finder's or brokerage fees in connection therewith. 3.15 Intellectual Property. As of the Closing Date, each Credit Party owns or has rights to use all Intellectual Property necessary to continue to conduct its business as now conducted by it or proposed to be conducted by it, and each material Patent, Trademark and License is listed, together with application or registration numbers, as applicable, in Disclosure Schedule (3.15) hereto. To its knowledge, each Credit Party conducts its business and affairs without infringement of or interference with any Intellectual Property of any other Person. 3.16 Full Disclosure. No information contained in this Agreement, any of the other Loan Documents, any Forecasts, Financial Statements or Collateral Reports or other reports from time to time delivered hereunder or any written statement furnished by or on behalf of any Credit Party to Agent or any Lender pursuant to the terms of this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The Liens granted to Agent, on behalf of itself and Lenders, pursuant to the Collateral Documents will at all times be fully perfected first priority Liens in and to the Collateral described therein, subject, as to priority, only to Permitted Encumbrances with respect to the Collateral other than Accounts. 29 35 3.17 Environmental Matters. (a) Except as set forth in Disclosure Schedule (3.17), as of the Closing Date: (i) the Real Estate is free of contamination from any Hazardous Material except for such contamination that would not adversely impact the value or marketability of such Real Estate and which would not result in Environmental Liabilities which could reasonably be expected to exceed $250,000; (ii) no Credit Party has caused or suffered to occur any Release of Hazardous Materials on, at, in, under, above, to, from or about any of its Real Estate; (iii) the Credit Parties are and have been in compliance with all Environmental Laws, except for such noncompliance which would not result in Environmental Liabilities which could reasonably be expected to exceed $250,000; (iv) the Credit Parties have obtained, and are in compliance with, all Environmental Permits required by Environmental Laws for the operations of their respective businesses as presently conducted or as proposed to be conducted, except where the failure to so obtain or comply with such Environmental Permits would not result in Environmental Liabilities which could reasonably be expected to exceed $250,000, and all such Environmental Permits are valid, uncontested and in good standing; (v) no Credit Party is involved in operations or knows of any facts, circumstances or conditions, including any Releases of Hazardous Materials, that are likely to result in any Environmental Liabilities of such Credit Party which could reasonably be expected to exceed $250,000, and no Credit Party has permitted any current or former tenant or occupant of the Real Estate to engage in any such operations; (vi) there is no Litigation arising under or related to any Environmental Laws, Environmental Permits or Hazardous Material which seeks damages, penalties, fines, costs or expenses in excess of $25,000 or injunctive relief, or which alleges criminal misconduct by any Credit Party; (vii) no notice has been received by any Credit Party identifying it as a "potentially responsible party" or requesting information under CERCLA or analogous state statutes, and to the knowledge of the Credit Parties, there are no facts, circumstances or conditions that may result in any Credit Party being identified as a "potentially responsible party" under CERCLA or analogous state statutes; and (viii) the Credit Parties have provided to Agent copies of all existing environmental reports, reviews and audits and all written information pertaining to actual or potential Environmental Liabilities, in each case relating to any Credit Party. (b) Each Credit Party hereby acknowledges and agrees that Agent (i) is not now, and has not ever been, in control of any of the Real Estate or any Credit Party's affairs, and (ii) does not have the capacity through the provisions of the Loan Documents or otherwise to influence any Credit Party's conduct with respect to the ownership, operation or management of any of its Real Estate or compliance with Environmental Laws or Environmental Permits. 3.18 Insurance. Disclosure Schedule (3.18) lists all insurance policies of any nature maintained, as of the Closing Date, for current occurrences by each Credit Party, as well as a summary of the terms of each such policy. 3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19) lists all banks and other financial institutions at which any Credit Party maintains deposits and/or other accounts as of the Closing Date, including any Disbursement Accounts, and such Schedule correctly identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number. 3.20 Government Contracts. Except as set forth in Disclosure Schedule (3.20), as of the Closing Date, no Credit Party is a party to any contract or agreement with any Governmental Authority and no Credit Party's Accounts are subject to the Federal Assignment of Claims Act, as amended (31 U.S.C. Section 3727) or any similar state or local law. 30 36 3.21 Customer and Trade Relations. As of the Closing Date, there exists no actual or, to the knowledge of any Credit Party, threatened termination or cancellation of, or any material adverse modification or change in: (a) the business relationship of any Credit Party with any customer or group of customers whose purchases during the preceding twelve (12) months caused them to be ranked among the ten largest customers of such Credit Party; or (b) the business relationship of any Credit Party with any supplier material to its operations. 3.22 Agreements and Other Documents. As of the Closing Date, each Credit Party has provided to Agent or its counsel, on behalf of Lenders, accurate and complete copies (or summaries) of all of the following agreements or documents to which any it is subject and each of which are listed on Disclosure Schedule (3.22): (a) supply agreements and purchase agreements not terminable by such Credit Party within sixty (60) days following written notice issued by such Credit Party and involving transactions in excess of $1,000,000 per annum; (b) any lease of Equipment having a remaining term of one year or longer and requiring aggregate rental and other payments in excess of $500,000 per annum; (c) licenses and permits held by the Credit Parties, the absence of which could be reasonably likely to have a Material Adverse Effect; (d) instruments or documents evidencing Indebtedness of such Credit Party and any security interest granted by such Credit Party with respect thereto; and (e) instruments and agreements evidencing the issuance of any equity securities, warrants, rights or options to purchase equity securities of such Credit Party. 3.23 Solvency. Both before and after giving effect to (a) the Loans and Letter of Credit Obligations to be made or extended on the Closing Date or such other date as Loans and Letter of Credit Obligations requested hereunder are made or extended, (b) the disbursement of the proceeds of such Loans pursuant to the instructions of Borrower Representative, (c) the Acquisition, the Refinancing and the consummation of the other Related Transactions and (d) the payment and accrual of all transaction costs in connection with the foregoing, each Credit Party is Solvent. 3.24 Acquisition Agreement. As of the Closing Date, Borrowers have delivered to Agent a complete and correct copy of the Purchase Agreement (including all schedules, exhibits, amendments, supplements, modifications, and assignments delivered pursuant thereto or in connection therewith). No Credit Party and, to the Credit Parties' knowledge, no other Person party thereto, is in default in the performance or compliance with any provisions thereof. The Acquisition Agreement complies with, and the Acquisition has been consummated in accordance in all material respects with, all applicable laws. The Acquisition Agreement is in full force and effect as of the Closing Date, has not been terminated, rescinded or withdrawn. All requisite approvals by Governmental Authorities having jurisdiction over any Credit Party with respect to the transactions contemplated by the Acquisition Agreement have been obtained, and no such approvals impose any conditions to the consummation of the transactions contemplated by the Acquisition Agreement or to the conduct by any Credit Party of its business thereafter. To the best of each Credit Party's knowledge, all requisite approvals by Governmental Authorities having jurisdiction over all Persons referenced in the Acquisition Agreement other than the Credit Parties, with respect to the transactions contemplated by the Acquisition Agreement, have been obtained, and no such approvals impose any conditions to the consummation of the transactions contemplated by the Acquisition Agreement or to the conduct by any Credit Party of its business thereafter. To the best of each Credit Party's knowledge, none of the Seller's representations or warranties in the Acquisition Agreement contain any untrue statement of a material fact or omit any fact necessary to make the statements therein not misleading. Each of the representations and warranties given by each applicable Credit Party in the Acquisition Agreement is true and correct in all material respects. Notwithstanding 31 37 anything contained in the Acquisition Agreement to the contrary, such representations and warranties of the Credit Parties are incorporated into this Agreement by this Section 3.24 and shall, solely for purposes of this Agreement and the benefit of Agent and Lenders, survive the consummation of the Acquisition. 3.25 Subordinated Debt. As of the Closing Date, Borrowers have delivered to Lenders a complete and correct copy of the Subordinated Notes and the Note Purchase Agreement (including all schedules, exhibits amendments, supplements, modifications, assignments and all other documents delivered pursuant thereto or in connection therewith). Borrowers have the corporate power and authority to incur the Indebtedness evidenced by the Subordinated Notes. The subordination provisions of the Subordinated Notes are enforceable against the holder of the Subordinated Notes by Lenders. All Obligations, including the Obligations to pay principal of and interest on the Loans and the Letter of Credit Obligations, constitute senior Indebtedness entitled to the benefits of the subordination provisions contained in the Subordinated Notes. The principal of and interest on the Notes, all Letter of Credit Obligations and all other Obligations will constitute "senior debt" as that or any similar term is or may be used in any other instrument evidencing or applicable to any other Subordinated Debt. Borrowers acknowledge that each Lender is entering into this Agreement and is extending the Commitments in reliance upon the subordination provisions of the Subordinated Notes and this Section 3.25. 4. FINANCIAL STATEMENTS AND INFORMATION 4.1. Reports and Notices. Each Credit Party executing this Agreement hereby agrees that from and after the Closing Date and until the Termination Date, it shall deliver to Agent and/or Lenders, as required, the Financial Statements, notices, Forecasts and other information at the times to the Persons and in the manner set forth in Annex E. (b) Each Credit Party executing this Agreement hereby agrees that from and after the Closing Date and until the Termination Date, it shall deliver to Agent and/or Lenders, as required, the various Collateral Reports (including Borrowing Base Certificates in the form of Exhibit 4.1 (b)) at the times, to the Persons and in the manner set forth in Annex F. 4.2. Communication with Accountants. Each Credit Party executing this Agreement authorizes Agent and, so long as an Event of Default shall have occurred and be continuing, each Lender, to communicate directly with its independent certified public accountants including Arthur Andersen & Company, and authorizes and shall instruct those accountants and advisors to disclose and make available to Agent and each Lender any and all Financial Statements and other supporting financial documents, schedules and information relating to any Credit Party (including copies of any issued management letters) with respect to the business, financial condition and other affairs of any Credit Party. 5. AFFIRMATIVE COVENANTS Each Credit Party executing this Credit Agreement jointly and severally agrees as to all Credit Parties that from and after the date hereof and until the Termination Date: 5.1. Maintenance of Existence and Conduct of Business. Each Credit Party shall: (a) do or cause to be done all things reasonably necessary to preserve and keep in full force and 32 38 effect its corporate existence and its rights and franchises; (b) continue to conduct its business substantially as now conducted or as otherwise permitted hereunder; (c) at all times maintain, preserve and protect all of its assets and properties used or useful in the conduct of its business, and keep the same in good repair, working order and condition in all material respects (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices; and (d) transact business only in such corporate and trade names as are set forth in Disclosure Schedule (5.1). 5.2. Payment of Obligations. (a) Subject to Section 5.2(b), each Credit Party shall pay and discharge or cause to be paid and discharged promptly all Charges payable by it, including (A) Charges imposed upon it, its income and profits, or any of its property (real, personal or mixed) and all Charges with respect to tax, social security and unemployment withholding with respect to its employees, and (B) lawful claims for labor, materials, supplies and services or otherwise, before any thereof shall become past due. (b) Each Credit Party may in good faith contest, by appropriate proceedings, the validity or amount of any Charges or claims described in Section 5.2(a); provided, that (i) at the time of commencement of any such contest no Event of Default shall have occurred and be continuing, (ii) adequate reserves with respect to such contest are maintained on the books of such Credit Party, in accordance with GAAP, (iii) such contest is maintained and prosecuted continuously and with diligence and operates to suspend collection or enforcement of such Charges or claims or any Lien in respect thereof, (iv) none of the Collateral becomes subject to forfeiture or loss as a result of such contest, (v) no Lien shall be imposed to secure payment of such Charges or claims other than Permitted Encumbrances, (vi) such Credit Party shall promptly pay or discharge such contested Charges or claims and all additional charges, interest, penalties and expenses, if any, and shall deliver to Agent evidence acceptable to Agent of such compliance, payment or discharge, if such contest is terminated or discontinued adversely to such Credit Party or the conditions set forth in this Section 5.2(b) are no longer met, and (vii) Agent has not advised Borrowers in writing that Agent reasonably believes that nonpayment or nondischarge thereof could have or result in a Material Adverse Effect. 5.3. Books and Records. Each Credit Party shall keep adequate books and records with respect to its business activities in which proper entries, reflecting all financial transactions, are made in accordance with GAAP and on a basis consistent with the Financial Statements attached as Disclosure Schedule (3.4(A)). 5.4. Insurance; Damage to or Destruction of Collateral. (a) The Credit Parties shall, at their sole cost and expense, maintain the policies of insurance described on Disclosure Schedule (3.18) as in effect on the date hereof or otherwise in form and with insurers reasonably acceptable to Agent. If any Credit Party at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required above or to pay all premiums relating thereto, Agent may at any time or times thereafter obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto which Agent reasonably deems advisable. Agent shall have no obligation to obtain insurance for any Credit Party or pay any premiums therefor. By doing so, Agent shall not be deemed to have waived any Default or Event of Default arising from any Credit Party's failure to maintain such insurance or pay any premiums therefor. All sums so disbursed, including attorneys' fees, court costs and other charges related thereto, shall be payable on 33 39 demand by Borrowers to Agent and shall be additional Obligations hereunder secured by the Collateral. (b) Agent reserves the right at any time upon any change in any Credit Party's risk profile (including any change in the product mix maintained by any Credit Party or any laws affecting the potential liability of such Credit Party) upon reasonable prior notice to Borrower Representative to require additional forms and limits of insurance to, in Agent's reasonable opinion, adequately protect both Agent's and Lender's interests in all or any portion of the Collateral and to ensure that each Credit Party is protected by insurance in amounts and with coverage customary for its industry. If requested by Agent, each Credit Party shall deliver to Agent from time to time a report of a reputable insurance broker, satisfactory to Agent, with respect to its insurance policies (c) Each Borrower shall deliver to Agent, in form and substance reasonably satisfactory to Agent, endorsements to (i) all "All Risk" and business interruption insurance naming Agent, on behalf of itself and Lenders, as loss payee, and (ii) all general liability and other liability policies naming Agent, on behalf of itself and Lenders, as additional insured. Each Borrower irrevocably makes, constitutes and appoints Agent (and all officers, employees or agents designated by Agent), so long as any Event of Default shall have occurred and be continuing or the anticipated insurance proceeds exceed $1,500,000 as such Borrower's true and lawful agent and attorney-in-fact for the purpose of making, settling and adjusting claims under such "All Risk" policies of insurance, endorsing the name of such Borrower on any check or other item of payment for the proceeds of such "All Risk" policies of insurance and for making all determinations and decisions with respect to such "All Risk" policies of insurance. Agent shall have no duty to exercise any rights or powers granted to it pursuant to the foregoing power-of-attorney. Borrower Representative shall promptly notify Agent of any loss, damage, or destruction to the Collateral in the amount of $250,000 or more, whether or not covered by insurance. After deducting from such proceeds the expenses, if any, incurred by Agent in the collection or handling thereof, Agent may, at its option, apply such proceeds to the reduction of the Obligations in accordance with Section 1.3(d), or permit or require the applicable Borrower to use such money, or any part thereof, to replace, repair, restore or rebuild the Collateral in a diligent and expeditious manner with materials and workmanship of substantially the same quality as existed before the loss, damage or destruction. Notwithstanding the foregoing, so long as no Default or Event of Default shall have occurred and be continuing and if such insurance proceeds do not exceed $1,500,000 in the aggregate, Agent shall permit the applicable Borrower to replace, restore, repair or rebuild the property; provided that if such Borrower shall not have completed or entered into binding agreements to complete such replacement, restoration, repair or rebuilding within 180 days of such casualty, Agent may apply such insurance proceeds to the Obligations in accordance with Section 1.3(d). All insurance proceeds which are to be made available to any Borrower to replace, repair, restore or rebuild the Collateral shall be applied by Agent to reduce the outstanding principal balance of the Revolving Loan of such Borrower (which application shall not result in a permanent reduction of the Revolving Loan Commitment) and upon such application, Agent shall establish a Reserve against the separate Borrowing Base of the affected Borrower in an amount equal to the amount of such proceeds so applied. Thereafter, such funds shall be made available to that Borrower to provide funds to replace, repair, restore or rebuild the Collateral as follows: (i) Borrower Representative shall request a Revolving Credit Advance be made to such Borrower in the amount requested to be released; (ii) so long as the conditions set forth in Section 2.2 have been met, Revolving Lenders shall make such Revolving Credit Advance, and (iii) the Reserve established with respect to such insurance proceeds shall be reduced by the amount of such Revolving Credit Advance. To the extent not used to replace repair, restore or rebuild the 34 40 Collateral, such insurance proceeds shall be applied in accordance with Section 1.3(d). 5.5. Compliance with Laws. Each Credit Party shall comply with all federal, state, local and foreign laws and regulations applicable to it, including those relating to licensing, ERISA and labor matters and Environmental Laws and Environmental Permits, except to the extent that the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 5.6. Supplemental Disclosure. From time to time as may be reasonably requested by Agent (which request will not be made more frequently than once each year absent the occurrence and continuance of an Event of Default), the Credit Parties shall supplement each Disclosure Schedule hereto, or any representation herein or in any other Loan Document, with respect to any matter hereafter arising which, if existing or occurring at the date of this Agreement, would have been required to be set forth or described in such Disclosure Schedule or as an exception to such representation or which is necessary to correct any information in such Disclosure Schedule or representation which has been rendered inaccurate thereby (and, in the case of any supplements to any Disclosure Schedule, such Disclosure Schedule shall be appropriately marked to show the changes made therein); provided that (a) no such supplement to any such Disclosure Schedule or representation shall be or be deemed a waiver of any Default or Event of Default resulting from the matters disclosed therein, except as consented to by Agent and Requisite Lenders in writing; and (b) no supplement shall be required as to representations and warranties that relate solely to the Closing Date. 5.7. Intellectual Property. Each Credit Party will conduct its business and affairs without infringement of any Intellectual Property of any other Person. 5.8. Environmental Matters. Each Credit Party shall and shall cause each Person within its control to: (a) conduct its operations and keep and maintain its Real Estate in compliance with all Environmental Laws and Environmental Permits other than noncompliance which could not reasonably be expected to have a Material Adverse Effect; (b) implement any and all investigation, remediation, removal and response actions which are appropriate or necessary to maintain the value and marketability of the Real Estate or to otherwise comply with Environmental Laws and Environmental Permits pertaining to the presence, generation, treatment, storage, use, disposal, transportation or Release of any Hazardous Material on, at, in, under, above, to, from or about any of its Real Estate; (c) notify Agent promptly after such Credit Party becomes aware of any violation of Environmental Laws or Environmental Permits or any Release on, at, in, under, above, to, from or about any Real Estate which is reasonably likely to result in Environmental Liabilities in excess of $25,000; and (d) promptly forward to Agent a copy of any order, notice, request for information or any communication or report received by such Credit Party in connection with any such violation or Release or any other matter relating to any Environmental Laws or Environmental Permits that could reasonably be expected to result in Environmental Liabilities in excess of $500,000, in each case whether or not the Environmental Protection Agency or any Governmental Authority has taken or threatened any action in connection with any such violation, Release or other matter. If Agent at any time has a reasonable basis to believe that there may be a violation of any Environmental Laws or Environmental Permits by any Credit Party or any Environmental Liability arising thereunder, or a Release of Hazardous Materials on, at, in, under, above, to, from or about any of its Real Estate, which, in each case, could reasonably be expected to have a Material Adverse Effect, then each Credit Party shall, upon Agent's written request (i) cause the performance of such environmental 35 41 audits including subsurface sampling of soil and groundwater, and preparation of such environmental reports, at Borrowers' expense, as Agent may from time to time request, which shall be conducted by reputable environmental consulting firms acceptable to Agent and shall be in form and substance acceptable to Agent, and (ii) permit Agent or its representatives to have access to all Real Estate for the purpose of conducting such environmental audits and testing as Agent deems appropriate, including subsurface sampling of soil and groundwater Borrowers shall reimburse Agent for the costs of such audits and tests and the same will constitute a part of the Obligations secured hereunder. 5.9. Landlords' Agreements, Mortgagee Agreements and Bailee Letters. Each Credit Party shall use its best efforts to obtain a landlord's agreement, mortgagee agreement or bailee letter, as applicable, from the lessor of each leased property or mortgagee of owned property or with respect to any warehouse, processor or converter facility or other location where Collateral is located, which agreement or letter shall contain a waiver or subordination of all Liens or claims that the landlord, mortgagee or bailee may assert against the Inventory or Collateral at that location, and shall otherwise be reasonably satisfactory in form and substance to Agent. With respect to such locations or warehouse space leased or owned as of the Closing Date, if Agent has not received a landlord or mortgagee agreement or bailee letter as of the Closing Date, any Borrower's Eligible Inventory at that location shall, in Agent's discretion, be excluded from the Borrowing Base or be subject to such Reserves as may be established by Agent in its reasonable credit judgment. After the Closing Date, no real property or warehouse space shall be leased or acquired by any Credit Party and no Inventory shall be shipped to a processor or converter under arrangements established after the Closing Date, unless and until a reasonably satisfactory landlord or mortgagee agreement or bailee letter, as appropriate, shall first have been obtained with respect to such location; provided that Borrowers may hold Inventory with a book value not to exceed $250,000 in the aggregate at newly established locations with Agent's prior approval and subject to a Reserve equal to the book value of such Inventory established at Agent's discretion. Each Credit Party shall timely and fully pay and perform its obligations under all leases and other agreements with respect to each leased location or public warehouse where any Collateral is or may be located. 5.10. Further Assurances. Each Credit Party executing this Agreement agrees that it shall and shall cause each other Credit Party to, at such Credit Party's expense and upon request of Agent, duly execute and deliver, or cause to be duly executed and delivered, to Agent such further instruments and do and cause to be done such further acts as may be reasonably necessary or proper in the opinion of Agent to carry out more effectually the provisions and purposes of this Agreement or any other Loan Document. 5.11. Acquisition Agreement. Within two (2) days following the Closing Date, Borrowers shall have delivered to Agent a complete and correct copy of the Acquisition Agreement (including all schedules, exhibits, amendments, supplements, modifications, assignments, and all other documents delivered pursuant thereto or in connection therewith). The Credit Parties shall not waive any material representation, warranty, covenant or indemnity of Sellers contained in the Acquisition Agreement and shall diligently enforce the same. 36 42 6. NEGATIVE COVENANTS Each Credit Party executing this Agreement jointly and severally agrees as to all Credit Parties that, without the prior written consent of Agent and the Requisite Lenders, from and after the date hereof until the Termination Date: 6.1. Mergers, Subsidiaries, Etc. No Credit Party shall directly or indirectly, by operation of law or otherwise, (a) form or acquire any Subsidiary, or (b) merge with, consolidate with, acquire all or substantially all of the assets or capital stock of, or otherwise combine with or acquire, any Person, except that any Borrower may merge with another Borrower, provided that Borrower Representative shall be the survivor of any such merger to which it is a party. 6.2. Investments; Loans and Advances. Except as otherwise expressly permitted by this Section 6, no Credit Party shall make or permit to exist any investment in, or make, accrue or permit to exist loans or advances of money to, any Person, through the direct or indirect lending of money, holding of securities or otherwise, except that (a) Borrowers may hold investments comprised of notes payable, or stock or other securities issued by Account Debtors to any Borrower pursuant to negotiated agreements with respect to settlement of such Account Debtor's Accounts in the ordinary course of business; (b) each Credit Party may maintain its existing investments in its subsidiaries as of the Closing Date; (c) other investments set forth on Schedule 6.2 hereto; (d) Investments, loans or advances by Seymour in or to its Mexican Subsidiary at such times and in such amounts as are necessary to fund the working capital requirements of that Subsidiary in the ordinary course of business and maintenance level Capital Expenditure requirements of that Subsidiary, provided that Seymour shall not permit cash or cash equivalents in excess of such immediate requirements to be accumulated or held by such Subsidiary; and (e) so long as no Event of Default shall have occurred and be continuing and no Revolving Loan is outstanding, Borrowers may make investments, subject to Control Letters in favor of Agent for the benefit of Lenders or otherwise subject to a perfected security interest in favor of Agent for the benefit of Lenders, in (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof maturing within one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and currently having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc., (iii) certificates of deposit, maturing no more than one year from the date of creation thereof, issued by commercial banks incorporated under the laws of the United States of America, each having combined capital, surplus and undivided profits of not less than $300,000,000 and having a senior secured rating of "A" or better by a nationally recognized rating agency (an "A Rated Bank"), and (iv) time deposits, maturing no more than 30 days from the date of creation thereof with A Rated Banks. No Credit Party shall maintain funds on deposit in its disbursement accounts in excess of funds reasonably necessary to cover checks issued against such account. 6.3. Indebtedness. (a) No Credit Party shall create, incur, assume or permit to exist any Indebtedness, except (without duplication) (i) Indebtedness secured by purchase money security interests permitted in clause (d) of Section 6.7, (ii) the Loans and the other Obligations, (iii) deferred taxes, (iv) unfunded pension fund and other employee benefit plan obligations and liabilities to the extent they are permitted to remain unfunded under applicable law, (v) existing Indebtedness described in Disclosure Schedule (6.3) and refinancings thereof or amendments or modifications thereto which do not have the effect of increasing the principal amount thereof or changing the amortization thereof (other than to extend the same) and which are otherwise on terms and 37 43 conditions no less favorable to any Credit Party, Agent or any Lender, as determined by Agent, than the terms of the Indebtedness being refinanced, amended or modified, (vi) the Subordinated Debt outstanding under the Subordinated Notes, (vii) Indebtedness consisting of intercompany loans and advances made by any Borrower to any other Credit Party, provided that (A) each Borrower shall have executed and delivered to each other Borrower, on the Closing Date, a demand note (collectively, the "Intercompany Notes") to evidence any such intercompany Indebtedness owing at any time by such Borrower to such other Borrowers which Intercompany Notes shall be in form and substance satisfactory to Agent and shall be pledged and delivered to Agent pursuant to the applicable Pledge Agreement or Security Agreement as additional collateral security for the Obligations; (B) each Borrower shall record all intercompany transactions on its books and records in a manner satisfactory to Agent; (C) the obligations of each Borrower under any such Intercompany Notes shall be subordinated to the Obligations of such Borrower hereunder in a manner satisfactory to Agent; (D) at the time any such intercompany loan or advance is made by any Borrower to any other Borrower and after giving effect thereto, each such Borrower shall be Solvent; (E) no Default or Event of Default would occur and be continuing after giving effect to any such proposed intercompany loan; and (F) in the case of any intercompany Indebtedness, the Borrower advancing such funds shall have Net Borrowing Availability under its separate Borrowing Base of not less than the following respective amounts after giving effect to such intercompany loan: $500,000 in the case of Selfix, $1,000,000 in the case of Tamor $250,000 in the case of Shutters, and $1,000,000 in the case of Seymour, and (viii) Indebtedness secured by Liens on the real property and fixtures located at 3016 West George Street, Louisiana, Missouri in an aggregate principal amount of not more than $5,000,000 (provided, however, that Agent receives a mortgagee's waiver executed by the lender in form and substance satisfactory to Agent). (b) No Credit Party shall, directly or indirectly, voluntarily purchase, redeem, defease or prepay any principal of, premium, if any, interest or other amount payable in respect of any Indebtedness prior to the maturity thereof, other than (i) the Obligations, (ii) Indebtedness secured by a Permitted Encumbrance if the asset securing such Indebtedness has been sold or otherwise disposed of in accordance with Sections 6.8(b) or (c), (iii) other Indebtedness (excluding Subordinated Debt) not in excess of $250,000, or (iv) the Subordinated Debt outstanding under the Subordinated Notes to the extent of voluntary or mandatory prepayments thereof permitted or required under Sections 1.3 and 6.14. 6.4. Employee Loans and Affiliate Transactions. (a) Except as otherwise expressly permitted in this Section 6 with respect to Affiliates, no Credit Party shall enter into any transaction with any other Credit Party or any Affiliate thereof except in the ordinary course of and pursuant to the reasonable requirements of such Credit Party's business and upon fair and reasonable terms that are no less favorable to such Credit Party than would be obtained in a comparable arm's length transaction with a Person not an Affiliate of such Credit Party. In addition, if any such transaction or series of related transactions involves payments in excess of $250,000 in the aggregate, the terms of these transactions must be disclosed in advance to Agent and Lenders. All such transactions existing as of the date hereof are described on Disclosure Schedule (6.4(a)). (b) No Credit Party shall enter into any lending or borrowing transaction with any employees of any Credit Party, except loans to their respective employees on an arm's-length basis in the ordinary course of business consistent with past practices for travel expenses, relocation 38 44 costs and similar purposes and stock option financing up to a maximum of $100,000 to any employee and up to a maximum of $250,000 in the aggregate at any one time outstanding. 6.5. Capital Structure and Business. No Credit Party shall (a) make any changes in any of its business objectives, purposes or operations which could have or result in a Material Adverse Effect, (b) make any change in its capital structure as described on Disclosure Schedule (3.8), including the issuance of any shares of Stock, warrants or other securities convertible into Stock or any revision of the terms of its outstanding Stock, except that Holdings may make one or more Qualified Public Offerings of its common Stock so long as (i) the proceeds thereof are applied in prepayment of the Obligations as required by Section 1.3(b)(iii), and (ii) no Change of Control occurs after giving effect thereto, or (c) amend its charter or bylaws in a manner which would adversely affect Agent or Lenders or such Credit Party's duty or ability to repay the Obligations. No Credit Party shall engage in any business other than the businesses currently engaged in by it or businesses reasonably related thereto. 6.6. Guaranteed Indebtedness. No Credit Party shall create, incur, assume or permit to exist any Guaranteed Indebtedness except (a) by endorsement of instruments or items of payment for deposit to the general account of any Credit Party, and (b) for Guaranteed Indebtedness incurred for the benefit of any other Credit Party if the primary obligation is expressly permitted by this Agreement; provided, however that only Holdings may incur Guaranteed Obligations with respect to the Indebtedness permitted under Subsection 6.3(viii) and such Guaranteed Obligations shall be unsecured and subordinate to the Obligations pursuant to a subordination agreement in form and substance satisfactory to Agent. 6.7. Liens. No Credit Party shall create, incur, assume or permit to exist any Lien on or with respect to its Accounts or other properties or assets (whether new owned or hereafter acquired) except for (a) Permitted Encumbrances; (b) Liens in existence on the date hereof and summarized on Disclosure Schedule (6.7); (c) Liens on the real property and fixtures located at 3016 West Georgia Street, Louisiana, Missouri, involving the incurrence of an aggregate principal amount of Indebtedness of not more than $5,000,000 outstanding at any one time (provided that such Lien attaches only to such real property and fixtures and provided, further, that Agent receives a mortgagee's waiver executed by the applicable lender in form and substance satisfactory to Agent); and (d) Liens created after the date hereof by conditional sale or other title retention agreements (including Capital Leases) or in connection with purchase money Indebtedness with respect to Equipment and Fixtures acquired by any Credit Party in the ordinary course of business, involving the incurrence of an aggregate amount of purchase money Indebtedness and Capital Lease Obligations of not more than $7,500,000 outstanding at any one time for all such Liens (provided that such Liens attach only to the assets subject to such purchase money debt and such Indebtedness is incurred within twenty (20) days following such purchase and does not exceed 100% of the purchase price of the subject assets). 6.8. Sale of Stock and Assets. No Credit Party shall sell, transfer, convey, assign or otherwise dispose of any of its properties or other assets, including its Stock or the Stock of any of its Subsidiaries (whether in a public or a private offering or otherwise but subject, in the case of Holdings, to the provisions of Section 6.5(b)) or any of their Accounts, other than (a) the sale of Inventory in the ordinary course of business, and (b) the sale, transfer, conveyance or other disposition by a Credit Party of Equipment or Fixtures that are obsolete or no longer used or useful in such Credit Party's business and having a value not exceeding $500,000 in the aggregate in any 39 45 Fiscal Year and (c) so long as no Event of Default shall have occurred and be continuing other Equipment and Fixtures having a value not exceeding $500,000 in the aggregate in any Fiscal Year. With respect to any disposition of assets or other properties permitted pursuant to clause (b) and clause (c) above, Agent agrees on reasonable prior written notice to release its Lien on such assets or other properties in order to permit the applicable Credit Party to effect such disposition and shall execute and deliver to Borrowers, at Borrowers' expense, appropriate UCC-3 termination statements and other releases as reasonably requested by Borrowers. 6.9. ERISA. No Credit Party shall, or shall cause or permit any ERISA Affiliate to, cause or permit to occur an event which could result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA. 6.10. Financial Covenants. Borrowers shall not breach or fail to comply with any of the Financial Covenants (the "Financial Covenants") set forth in Annex G. 6.11. Hazardous Materials. No Credit Party shall cause or permit a Release of any Hazardous Material on, at, in, under, above, to, from or about any of the Real Estate where such Release would (a) violate in any respect, or form the basis for any Environmental Liabilities under, any Environmental Laws or Environmental Permits or (b) otherwise adversely impact the value or marketability of any of the Real Estate or any of the Collateral, other than such violations or impacts which could not reasonably be expected to have a Material Adverse Effect. 6.12. Sale-Leasebacks. Except as set forth in Disclosure Schedule (3.6), no Credit Party shall engage in any sale-leaseback, synthetic lease or similar transaction involving any of its assets. 6.13. Cancellation of Indebtedness. No Credit Party shall cancel any claim or debt owing to it, except for reasonable consideration negotiated on an arm's-length basis and in the ordinary course of its business consistent with past practices. 6.14. Restricted Payments. No Credit Party shall make any Restricted Payment, except (a) intercompany loans and advances between Borrowers to the extent permitted by Section 6.3 above, (b) dividends and distributions by Subsidiaries of any Borrower paid to such Borrower, (c) employee loans permitted under Section 6.4(b) above, (d) Restricted Payments by Borrowers to Holdings in such amounts and at such times as are necessary to permit Holdings to pay the consolidated federal income taxes of Holdings and Borrowers, (e) scheduled payments of interest with respect to the Subordinated Debt, (f) the principal amount of the Subordinated Notes with the proceeds of public offerings of Stock by Holdings in an amount not to exceed 50% of the net proceeds thereof so long as Term Loan A or Term Loan B is outstanding; (g) the principal amount of the Subordinated Notes in an amount not to exceed 25% of the Borrowers' consolidated Excess Cash Flow for each Fiscal Year, payable concurrently with mandatory prepayments of the Loans from Excess Cash Flow in accordance with Section 1.3(b)(iv); provided that (i) no Event of Default shall have occurred and be continuing or would result after giving effect to any payment pursuant to clauses (e), (f) and (g) above, and (ii) the timing of the payments referred to in clauses (e), (f) and (g) above shall be set at dates which permit the delivery of Financial Statements necessary to determine current financial covenant compliance prior to each payment. 6.15. Change of Corporate Name or Location; Change of Fiscal Year. No Credit 40 46 Party shall (a) change its corporate name, or (b) change its chief executive office, principal place of business, corporate offices or warehouses or locations at which Collateral is held or stored, or the location of its records concerning the Collateral, in any case without at least thirty (30) days prior written notice to Agent and after Agent's written acknowledgment that any reasonable action requested by Agent in connection therewith, including to continue the perfection of any Liens in favor of Agent, on behalf of Lenders, in any Collateral, has been completed or taken, and provided that any such new location shall be in the continental United States. Without limiting the foregoing, no Credit Party shall change its name, identity or corporate structure in any manner which might make any financing or continuation statement filed in connection herewith seriously misleading within the meaning of Section 9-402(7) of the Code or any other then applicable provision of the Code except upon prior written notice to Agent and Lenders and after Agent's written acknowledgment that any reasonable action requested by Agent in connection therewith, including to continue the perfection of any Liens in favor of Agent, on behalf of Lenders, in any Collateral, has been completed or taken. No Credit Party shall change its Fiscal Year. 6.16. No Impairment of Intercompany Transfers. No Credit Party shall directly or indirectly enter into or become bound by any agreement, instrument, indenture or other obligation (other than this Agreement and the other Loan Documents) which could directly or indirectly restrict, prohibit or require the consent of any Person with respect to the payment of dividends or distributions or the making or repayment of intercompany loans by a Subsidiary of any Borrower to any Borrower or between Borrowers. 6.17. No Speculative Transactions. No Credit Party shall engage in any transaction involving commodity options, futures contracts or similar transactions, except solely to hedge against fluctuations in the prices of commodities owned or purchased by it and the values of foreign currencies receivable or payable by it and interest swaps, caps or collars. 6.18. Leases. No Credit Party shall enter into any operating lease for Equipment or Real Estate, if the aggregate of all such operating lease payments payable in any year for Holdings and its Subsidiaries on a consolidated basis would exceed $3,000,000. 6.19. Changes Relating to Subordinated Debt. No Credit Party shall change or amend the terms of any Subordinated Debt (or any indenture or agreement in connection therewith) if the effect of such amendment is to: (a) increase the interest rate on such Subordinated Debt; (b) change the dates upon which payments of principal or interest are due on such Subordinated Debt other than to extend such dates; (c) change any default or event of default other than to delete or make less restrictive any default provision therein, or add any covenant with respect to such Subordinated Debt; (d) change the redemption or prepayment provisions of such Subordinated Debt other than to extend the dates therefor or to reduce the premiums payable in connection therewith; or (e) change or amend any other term if such change or amendment would materially increase the obligations of the obligor or confer additional material rights to the holder of such Subordinated Debt in a manner adverse to any Credit Party or Lenders. 6.20. Holdings. Holdings shall not own any material assets other than the outstanding Stock of Borrowers. Holdings shall not engage in any trade or business. 41 47 7. TERM 7.1. Termination. The financing arrangements contemplated hereby shall be in effect until the Commitment Termination Date, and the Loans and all other Obligations shall be automatically due and payable in full on such date. 7.2. Survival of Obligations Upon Termination of Financing Arrangements. Except as otherwise expressly provided for in the Loan Documents, no termination or cancellation (regardless of cause or procedure) of any financing arrangement under this Agreement shall in any way affect or impair the obligations, duties and liabilities of the Credit Parties or the rights of Agent and Lenders relating to any unpaid portion of the Loans or any other Obligations, due or not due, liquidated, contingent or unliquidated or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is required after the Commitment Termination Date. Except as otherwise expressly provided herein or in any other Loan Document, all undertakings, agreements, covenants, warranties and representations of or binding upon the Credit Parties, and all rights of Agent and each Lender, all as contained in the Loan Documents, shall not terminate or expire, but rather shall survive any such termination or cancellation and shall continue in full force and effect until the Termination Date; provided however, that in all events the provisions of Section 11, the payment obligations under Sections 1.15 and 1.16, and the indemnities contained in the Loan Documents shall survive the Termination Date. 8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES 8.1. Events of Default. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an "Event of Default" hereunder: (a) Any Borrower (i) fails to make any payment of principal of, or interest on, or Fees owing in respect of, the Loans or any of the other Obligations when due and payable, or (ii) within ten (10) days following Agent's demand for such reimbursement or payment of expenses, fails to pay or reimburse Agent or Lenders for any expense reimbursable hereunder or under any other Loan Document. (b) Any Credit Party shall fail or neglect to perform, keep or observe any of the provisions of Sections 1.4, 1.8, 5.4 or 6, or any of the provisions set forth in Annexes C or G, respectively. (c) Any Borrower shall fail or neglect to perform, keep or observe any of the provisions of Section 4 or any provisions set forth in Annexes E or F, respectively, and the same shall remain unremedied for five (5) Business Days or more. (d) Any Credit Party shall fail or neglect to perform, keep or observe any other provision of this Agreement or of any of the other Loan Documents (other than any provision embodied in or covered by any other clause of this Section 8.1) and the same shall remain unremedied for twenty (20) days or more. (e) A default or breach shall occur under any other agreement, document or instrument to which any Credit Party is a party which is not cured within any applicable grace period, and such default or breach (i) involves the failure to make any payment when due in respect 42 48 of any Indebtedness (other than the Obligations) of any Credit Party in excess of $1,000,000 in the aggregate, or (ii) causes, or permits any holder of such Indebtedness or a trustee to cause, Indebtedness or a portion thereof in excess of $1,000,000 in the aggregate to become due prior to its stated maturity or prior to its regularly scheduled dates of payment, regardless of whether such default is waived, or such right is exercised, by such holder or trustee. (f) Any information contained in any Borrowing Base Certificate is untrue or incorrect in any material respect or any representation or warranty herein or in any Loan Document or in any written statement, report, financial statement or certificate (other than a Borrowing Base Certificate) made or delivered to Agent or any Lender by any Credit Party is untrue or incorrect in any material respect as of the date when made or deemed made. (g) Assets of any Credit Party with a fair market value of $250,000 or more shall be attached, seized, levied upon or subjected to a writ or distress warrant or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors of any Credit Party and such condition continues for thirty (30) days or more. (h) A case or proceeding shall have been commenced against any Credit Party seeking a decree or order in respect of any Credit Party (i) under Title 11 of the United States Code, as now constituted or hereafter amended or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for any Credit Party or of any substantial part of any such Person's assets, or (iii) ordering the winding-up or liquidation of the affairs of any Credit Party, and such case or proceeding shall remain undismissed or unstayed for sixty (60) days or more or such court shall enter a decree or order granting the relief sought in such case or proceeding. (i) Any Credit Party (i) shall file a petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) shall fail to contest in a timely and appropriate manner or shall consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of any Credit Party or of any substantial part of any such Person's assets, (iii) shall make an assignment for the benefit of creditors, (iv) shall take any corporate action in furtherance of any of the foregoing; or (v) shall admit in writing its inability to, or shall be generally unable to, pay its debts as such debts become due. (j) A final judgment or judgments for the payment of money in excess of $1,000,000 in the aggregate at any time outstanding shall be rendered against any Credit Party and the same shall not, within thirty (30) days after the entry thereof, have been discharged or execution thereof stayed or bonded pending appeal, or shall not have been discharged prior to the expiration of any such stay. (k) Any material provision of any Loan Document shall for any reason cease to be valid, binding and enforceable in accordance with its terms (or any Credit Party shall challenge the enforceability of any Loan Document or shall assert in writing, or engage in any action or inaction based on any such assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms), or any security interest created under any Loan Document shall cease to be a valid and perfected first priority 43 49 security interest or Lien (except as otherwise permitted herein or therein) in any of the Collateral purported to be covered thereby. (l) Any "Change of Control" shall occur. (m) Any event shall occur, whether or not insured or insurable, as a result of which revenue-producing activities cease or are substantially curtailed at any facility of Borrowers generating more than 10% of Borrowers' consolidated revenues for the Fiscal Year preceding such event and such cessation or curtailment continues for more than 30 days. 8.2. Remedies. (a) If any Event of Default shall have occurred and be continuing or if a Default shall have occurred and be continuing and Agent or Requisite Revolving Lenders shall have determined not to make any Advances or incur any Letter of Credit Obligations so long as that specific Default is continuing, Agent may (and at the written request of the Requisite Revolving Lenders shall), without notice, suspend this facility with respect to further Advances and/or the incurrence of further Letter of Credit Obligations whereupon any further Advances and Letter of Credit Obligations shall be made or extended in Agent's sole discretion (or in the sole discretion of the Requisite Revolving Lenders, if such suspension occurred at their direction) so long as such Default or Event of Default is continuing. If any Event of Default shall have occurred and be continuing, Agent may (and at the written request of Requisite Lenders shall), without notice except as otherwise expressly provided herein, increase the rate of interest applicable to the Loans and the Letter of Credit Fees to the Default Rate. (b) If any Event of Default shall have occurred and be continuing, Agent may (and at the written request of the Requisite Lenders shall), (i) terminate this facility with respect to further Advances or the incurrence of further Letter of Credit Obligations; (ii) declare all or any portion of the Obligations, including all or any portion of any Loan to be forthwith due and payable, and require that the Letter of Credit Obligations be cash collateralized as provided in Annex B, all without presentment, demand, protest or further notice of any kind, all of which are expressly waived by Borrowers and each other Credit Party; and (iii) exercise any rights and remedies provided to Agent under the Loan Documents and/or at law or equity, including all remedies provided under the Code; provided, however, that upon the occurrence of an Event of Default specified in Sections 8.1 (g), (h) or (i), all of the Obligations, including the aggregate Revolving Loan, shall become immediately due and payable without declaration, notice or demand by any Person. 8.3. Waivers by Credit Parties. Except as otherwise provided for in this Agreement or by applicable law, each Credit Party waives (including for purposes of Section 12): (a) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Agent on which any Credit Party may in any way be liable, and hereby ratifies and confirms whatever Agent may do in this regard, (b) all rights to notice and a hearing prior to Agent's taking possession or control of, or to Agent's replevy, attachment or levy upon, the Collateral or any bond or security which might be required by any court prior to allowing Agent to exercise any of its remedies, and (c) the benefit of all valuation, appraisal, marshalling and exemption laws. 44 50 9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT 9.1. Assignment and Participations. (a) The Credit Parties signatory hereto consent to any Lender's assignment of, and/or sale of participations in, at any time or times, the Loan Documents, Loans, Letter of Credit Obligations and any Commitment or of any portion thereof or interest therein, including any Lender's rights, title, interests, remedies, powers or duties thereunder whether evidenced by a writing or not. Any assignment by a Lender shall (i) require the consent of Agent (which shall not be unreasonably withheld or delayed, provided that no consent by Borrower Representative shall be required so long as any Event of Default shall have occurred and be continuing) and the execution of an assignment agreement (an "Assignment Agreement") substantially in the from attached hereto as Exhibit 9.1 (a) and otherwise in form and substance satisfactory to, and acknowledged by, Agent; (ii) be conditioned on such assignee Lender representing to the assigning Lender and Agent that it is purchasing the applicable Loans to be assigned to it for its own account, for investment purposes and not with a view to the distribution thereof; (iii) if a partial assignment be in an amount at least equal to $2,500,000 and, after giving effect to any such partial assignment, the assigning Lender shall have retained Commitments in an amount at least equal to $2,500,000; and (iv) include a payment to Agent of an assignment fee of $3,500. In the case of an assignment by a Lender under this Section 9.1, the assignee shall have, to the extent of such assignment, the same rights, benefits and obligations as it would if it were a Lender hereunder. The assigning Lender shall be relieved of its obligations hereunder with respect to its Commitments or assigned portion thereof from and after the date of such assignment. Each Borrower hereby acknowledges and agrees that any assignment will give rise to a direct obligation of Borrowers to the assignee and that the assignee shall be considered to be a "Lender". In all instances, each Lender's liability to make Loans hereunder shall be several and not joint and shall be limited to such Lender's Pro Rata Share of the applicable Commitment. In the event Agent or any Lender assigns or otherwise transfers all or any part of a Note, Agent or any such Lender shall so notify Borrowers and Borrowers shall, upon the request of Agent or such Lender, execute new Notes in exchange for the Notes being assigned. Notwithstanding the foregoing provisions of this Section 9.1 (a), any Lender may at any time pledge or assign all or any portion of such Lender's rights under this Agreement and the other Loan Documents to a Federal Reserve Bank; provided, however, that no such pledge or assignment shall release such Lender from such Lender's obligations hereunder or under any other Loan Document. (b) Any participation by a Lender of all or any part of its Commitments shall be in an amount at least equal to $2,500,000, and with the understanding that all amounts payable by Borrowers hereunder shall be determined as if that Lender had not sold such participation, and that the holder of any such participation shall not be entitled to require such Lender to take or omit to take any action hereunder except actions directly affecting (i) any reduction in the principal amount of, or interest rate or Fees payable with respect to, any Loan in which such holder participates, (ii) any extension of the scheduled amortization of the principal amount of any Loan in which such holder participates or the final maturity date thereof, and (iii) any release of all or substantially all of the Collateral (other than in accordance with the terms of this Agreement, the Collateral Documents or the other Loan Documents). Solely for purposes of Sections 1.13, 1.15, 1.16 and 9.8, each Borrower acknowledges and agrees that a participation shall give rise to a direct obligation of Borrowers to the participant and the participant shall be considered to be a "Lender". Except as set forth in the preceding sentence no Borrower or Credit Party shall have any obligation or duty to any participant. Neither Agent nor any Lender (other than the Lender selling a participation) shall have any duty to any participant and may continue to deal solely with the Lender selling a participation as if no such sale had occurred. 45 51 (c) Except as expressly provided in this Section 9.1, no Lender shall, as between Borrowers and that Lender, or Agent and that Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment, transfer or negotiation of, or granting of participation in, all or any part of the Loans, the Notes or other Obligations owed to such Lender. (d) Each Credit Party executing this Agreement shall assist any Lender permitted to sell assignments or participations under this Section 9.1 as reasonably required to enable the assigning or selling Lender to effect any such assignment or participation, including the execution and delivery of any and all agreements, notes and other documents and instruments as shall be requested and, if requested by Agent, the preparation of informational materials for, and the participation of management in meetings with, potential assignees or participants. Each Credit Party executing this Agreement shall certify the correctness, completeness and accuracy of all descriptions of the Credit Parties and their affairs contained in any selling materials provided by them and all other information provided by them and included in such materials, except that any Forecasts delivered by Borrowers shall only be certified by Borrowers as having been prepared by Borrowers in compliance with the representations contained in Section 3.4(c). (e) A Lender may furnish any information concerning Borrowers in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants). Each Lender shall obtain from assignees or participants confidentiality covenants substantially equivalent to those contained in Section 11.8. (f) So long as no Event of Default shall have occurred and be continuing, no Lender shall assign or sell participations in any portion of its Loans or Commitments to a potential Lender or participant, if, as of the date of the proposed assignment or sale, the assignee Lender or participant would be subject to capital adequacy or similar requirements under Section 1.16(a), increased costs under Section 1.16(b), an inability to fund LIBOR Loans under Section 1.16(c), or withholding taxes in accordance with Section 1.16(d). 9.2. Appointment of Agent. (a) GE Capital is hereby appointed to act on behalf of all Lenders as Agent under this Agreement and the other Loan Documents. The provisions of this Section 9.2 are solely for the benefit of Agent and Lenders and no Credit Party nor any other Person shall have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement and the other Loan Documents, Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for any Credit Party or any other Person. Agent shall have no duties or responsibilities except for those expressly set forth in this Agreement and the other Loan Documents. The duties of Agent shall be mechanical and administrative in nature and Agent shall not have, or be deemed to have, by reason of this Agreement, any other Loan Document or otherwise a fiduciary relationship in respect of any Lender. Neither Agent nor any of its Affiliates nor any of their respective officers, directors, employees, agents or representatives shall be liable to any Lender for any action taken or omitted to be taken by it hereunder or under any other Loan Document, or in connection herewith or therewith, except for damages caused by its or their own gross negligence or willful misconduct. (b) If Agent shall request instructions from Requisite Lenders, Requisite Revolving Lenders, Supermajority Revolving Lenders or all affected Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Loan Document, then Agent 46 52 shall be entitled to refrain from such act or taking such action unless and until Agent shall have received instructions from Requisite Lenders, Requisite Revolving Lenders, Supermajority Revolving Lenders or all affected Lenders, as the case may be, and Agent shall not incur liability to any Person by reason of so refraining. Notwithstanding any provision of any Loan Document to the contrary, Agent shall be fully justified in failing or refusing to take any action hereunder or under any other Loan Document (a) if such action would, in the opinion of Agent, be contrary to law or the terms of this Agreement or any other Loan Document, (b) if such action would, in the opinion of Agent, expose Agent to Environmental Liabilities or (c) if Agent shall not first be indemnified to its satisfaction against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting hereunder or under any other Loan Document in accordance with the instructions of Requisite Lenders, Requisite Revolving Lenders, Supermajority Revolving Lenders or all affected Lenders, as applicable. 9.3. Agent's Reliance, Etc. Neither Agent nor any of its Affiliates nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the other Loan Documents, except for damages caused by its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, Agent: (a) may treat the payee of any Note as the holder thereof until Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to Agent; (b) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement or the other Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Loan Documents on the part of any Credit Party or to inspect the Collateral (including the books and records) of any Credit Party; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (f) shall incur no liability under or in respect of this Agreement or the other Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopy, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. 9.4. GE Capital and Affiliates. With respect to its Commitments hereunder, GE Capital shall have the same rights and powers under this Agreement and the other Loan Documents as any other Lender and may exercise the same as though it were not Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include GE Capital in its individual capacity. GE Capital and its Affiliates may lend money to, invest in, and generally engage in any kind of business with, any Credit Party, any of their Affiliates and any Person who may do business with or own securities of any Credit Party or any such Affiliate, all as if GE Capital were not Agent and without any duty to account therefor to Lenders. GE Capital and its Affiliates may accept fees and other consideration from any Credit Party for services in connection with this Agreement or otherwise without having to account for the same to Lenders. Each Lender acknowledges that GE Capital holds disproportionate interests in the Loans, a Subordinated Note and a warrant for Holdings Stock. 47 53 9.5. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon Agent or any other Lender and based on the Financial Statements referred to in Section 3.4(a) and such other documents and information as it has deemed appropriate, made its own credit and financial analysis of the Credit Parties and its own decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. Each Lender acknowledges the potential conflict of interest of each other Lender as a result of Lenders holding disproportionate interests in the Loans, and expressly consents to, and waives any claim based upon, such conflict of interest. 9.6. Indemnification. Lenders agree to indemnify Agent (to the extent not reimbursed by Borrowers and without limiting the obligations of Borrowers hereunder), ratably according to their respective Pro Rata Shares, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of this Agreement or any other Loan Document or any action taken or omitted by Agent in connection therewith; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Agent's gross negligence or willful misconduct. Without limiting the foregoing, each Lender agrees to reimburse Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and each other Loan Document, to the extent that Agent is not reimbursed for such expenses by Borrowers. 9.7. Successor Agent. Agent may resign at any time by giving not less than thirty (30) days' prior written notice thereof to Lenders and Borrower Representative. Upon any such resignation, the Requisite Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Requisite Lenders and shall have accepted such appointment within 30 days after the resigning Agent's giving notice of resignation, then the resigning Agent may, on behalf of Lenders, appoint a successor Agent, which shall be a Lender, if a Lender is willing to accept such appointment, or otherwise shall be a commercial bank or financial institution or a subsidiary of a commercial bank or financial institution if such commercial bank or financial institution is organized under the laws of the United States of America or of any State thereof and has a combined capital and surplus of at least $300,000,000. If no successor Agent has been appointed pursuant to the foregoing, by the 30th day after the date such notice of resignation was given by the resigning Agent, such resignation shall become effective and the Requisite Lenders shall thereafter perform all the duties of Agent hereunder until such time, if any, as the Requisite Lenders appoint a successor Agent as provided above. Any successor Agent appointed by Requisite Lenders hereunder shall be subject to the approval of Borrower Representative, such approval not to be unreasonably withheld or delayed; provided that such approval shall not be required if a Default or an Event of Default shall have occurred and be continuing. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the resigning Agent. Upon the earlier of the acceptance of any appointment as Agent hereunder by a successor Agent or the effective date of the resigning Agent's resignation, the resigning Agent shall be discharged from its 48 54 duties and obligations under this Agreement and the other Loan Documents, except that any indemnity rights or other rights in favor of such resigning Agent shall continue. After any resigning Agent's resignation hereunder, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. Agent may be removed at the written direction of the holders (other than Agent) of two-thirds or more of the Commitments (excluding Agent's Commitment); provided that in so doing, such Lenders shall be deemed to have waived and released any and all claims they may have against Agent. In addition to the foregoing, Requisite Lenders may remove Agent upon not less than ten (10) days' prior written notice to Agent for cause, consisting of one or more instances of gross negligence or willful misconduct, as specified in such notice. 9.8. Setoff and Sharing of Payments. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Lender and each holder of any Note is hereby authorized at any time or from time to time, without notice to any Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all balances held by it at any of its offices for the account of any Borrower (regardless of whether such balances are then due to such Borrower) and any other properties or assets any time held or owing by that Lender or that holder to or for the credit or for the account of Borrowers against and on account of any of the Obligations which are not paid when due. Any Lender or holder of any Note exercising a right to set off or otherwise receiving any payment on account of the Obligations in excess of its Pro Rata Share thereof shall purchase for cash (and the other Lenders or holders shall sell) such participations in each such other Lender's or holder's Pro Rata Share of the Obligations as would be necessary to cause such Lender to share the amount so set off or otherwise received with each other Lender or holder in accordance with their respective Pro Rata Shares. Each Lender's obligation under this Section 9.8 shall be in addition to and not in limitation of its obligations to purchase a participation in an amount equal to its Pro Rata Share of the Swing Line Loans under Section 1.1. Each Borrower agrees, to the fullest extent permitted by law, that (a) any Lender or holder may exercise its right to set off with respect to amounts in excess of its Pro Rata Share of the Obligations and may sell participations in such amount so set off to other Lenders and holders and (b) any Lender or holders so purchasing a participation in the Loans made or other Obligations held by other Lenders or holders may exercise all rights of set-off, bankers' lien, counterclaim or similar rights with respect to such participation as fully as if such Lender or holder were a direct holder of the Loans and the other Obligations in the amount of such participation. Notwithstanding the foregoing, if all or any portion of the set-off amount or payment otherwise received is thereafter recovered from the Lender that has exercised the right of set-off, the purchase of participations by that Lender shall be rescinded and the purchase price restored without interest. 9.9. Advances; Payments; Non-Funding Lenders; Information; Actions in Concert. (a) Advances; Payments. (i) Revolving Lenders shall refund or participate in the Swing Line Loan in accordance with clauses (iii) and (iv) of Section 1.1(c). If the Swing Line Lender declines to make a Swing Line Loan or if Swing Line Availability is zero, Agent shall notify Revolving Lenders, promptly after receipt of a Notice of Revolving Credit Advance and in any event prior to 12:30 p.m. (Chicago time) on the date such Notice of Revolving Advance is received, by telecopy, telephone or other similar form of transmission. Each Revolving Lender shall make the amount of such Lender's Pro Rata Share of each Revolving Credit Advance available to Agent in 49 55 same day funds by wire transfer to Agent's account as set forth in Annex H not later than 2:00 p.m. (Chicago time) on the requested funding date, in the case of an Index Rate Loan and not later than 11 :00 a.m. (Chicago time) on the requested funding date in the case of a LIBOR Loan. After receipt of such wire transfers (or, in the Agent's sole discretion, before receipt of such wire transfers), subject to the terms hereof, Agent shall make the requested Revolving Credit Advance to the Borrower designated by Borrower Representative in the Notice of Revolving Credit Advance. All payments by each Revolving Lender shall be made without setoff, counterclaim or deduction of any kind. (ii) On the second (2nd) Business Day of each calendar week or more frequently as aggregate cumulative payments in excess of $1,000,000 are received with respect to the Loans (other than the Swing Line Loan) (each, a "Settlement Date"), Agent will advise each Lender by telephone and telecopy of the amount of such Lender's Pro Rata Share of principal, interest and Fees paid for the benefit of Lenders with respect to each applicable Loan. Provided that such Lender has made all payments required to be made by it and has purchased all participations required to be purchased by it under this Agreement and the other Loan Documents as of such Settlement Date, Agent will pay to each Lender such Lender's Pro Rata Share of principal, interest and Fees paid by Borrowers since the previous Settlement Date for the benefit of that Lender on the Loans held by it. Such payments shall be made by wire transfer to such Lender's account (as specified by such Lender in Annex H or the applicable Assignment Agreement) not later than 1:00 p.m. (Chicago time) on the next Business Day following each Settlement Date. (b) Availability of Lender's Pro Rata Share. Agent may assume that each Revolving Lender will make its Pro Rata Share of each Revolving Credit Advance available to Agent on each funding date. If such Pro Rata Share is not, in fact, paid to Agent by such Revolving Lender when due, Agent will be entitled to recover such amount on demand from such Revolving Lender without set-off, counterclaim or deduction of any kind. If any Revolving Lender fails to pay the amount of its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly notify Borrower Representative and Borrowers shall immediately repay such amount to Agent. Nothing in this Section 9.9(b) or elsewhere in this Agreement or the other Loan Documents shall be deemed to require Agent to advance funds on behalf of any Revolving Lender or to relieve any Revolving Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Borrowers may have against any Revolving Lender as a result of any default by such Revolving Lender hereunder. To the extent that Agent advances funds to any Borrower on behalf of any Revolving Lender and is not reimbursed therefor on the same Business Day as such Advance is made, Agent shall be entitled to retain for its account all interest accrued on such Advance until reimbursed by the applicable Revolving Lender. (c) Return of Payments. (i) If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from Borrowers and such related payment is not received by Agent, then Agent will be entitled to recover such amount from such Lender on demand without set-off, counterclaim or deduction of any kind. (ii) If Agent determines at any time that any amount received by Agent under this Agreement must be returned to any Borrower or paid to any other Person pursuant to any insolvency law or otherwise, then, notwithstanding any other term or condition of this Agreement or any other Loan Document, Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has 50 56 distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to any Borrower or such other Person, without set-off, counterclaim or deduction of any kind. (d) Non-Funding Lenders. The failure of any Revolving Lender (such Revolving Lender, a "Non-Funding Lender") to make any Revolving Credit Advance or to purchase any participation in any Swing Line Loan to be made or purchased by it on the date specified therefor shall not relieve any other Revolving Lender (each such other Revolving Lender, an "Other Lender") of its obligations to make such Advance or purchase such participation on such date, but neither any Other Lender nor Agent shall be responsible for the failure of any Non-Funding Lender to make an Advance to be made, or to purchase a participation to be purchased, by such Non-Funding Lender, and no Non-Funding Lender shall have any obligation to Agent or any Other Lender for the failure by such Non-Funding Lender. Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender (so long as it shall remain a Non-Funding Lender) shall not have any voting or consent rights under or with respect to any Loan Document or constitute a "Lender" or a "Revolving Lender" (or be included in the calculation of "Requisite Lenders", "Requisite Revolving Lenders" or "Supermajority Revolving Lenders" hereunder) for any voting or consent rights under or with respect to any Loan Document. (e) Dissemination of Information. Agent will provide Lenders with any notice of Event of Default received by Agent from, or delivered by Agent to, any Credit Party. Lenders acknowledge that Borrowers are required to provide Financial Statements and Collateral Reports to Lenders in accordance with Annexes E and F hereto and agree that Agent shall have no duty to provide the same to Lenders. (f) Actions in Concert. Anything in this Agreement to the contrary notwithstanding, each Lender hereby agrees with each other Lender that no Lender shall take any action to protect or enforce its rights arising out of this Agreement or the Loan Documents (including exercising any rights of set-off) without first obtaining the prior written consent of Agent or Requisite Lenders, it being the intent of Lenders that any such action to protect or enforce rights under this Agreement and the Notes shall be taken in concert and at the direction or with the consent of Agent. 10. SUCCESSORS AND ASSIGNS 10.1. Successors and Assigns. This Agreement and the other Loan Documents shall be binding on and shall inure to the benefit of each Credit Party, Agent, Lenders and their respective successors and assigns (including, in the case of any Credit Party, a debtor-in-possession on behalf of such Credit Party), except as otherwise provided herein or therein. No Credit Party may assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder or under any of the other Loan Documents without the prior express written consent of Agent and Lenders. Any such purported assignment, transfer, hypothecation or other conveyance by any Credit Party without the prior express written consent of Agent and Lenders shall be void. The terms and provisions of this Agreement are for the purpose of defining the relative rights and obligations of each Credit Party, Agent and Lenders with respect to the transactions contemplated hereby and no Person shall be a third party beneficiary of any of the terms and provisions of this Agreement or any of the other Loan Documents. 51 57 11. MISCELLANEOUS 11.1. Complete Agreement; Modification of Agreement. The Loan Documents constitute the complete agreement between the parties with respect to the subject matter thereof and may not be modified, altered or amended except as set forth in Section 11.2 below. Any letter of interest, commitment letter, and/or fee letter (other than the GE Capital Fee Letter) and/or confidentiality agreement between any Credit Party and Agent or any Lender or any of their respective affiliates, predating this Agreement and relating to a financing of substantially similar form, purpose or effect shall be superseded by this Agreement. 11.2. Amendments and Waivers. (a) Except for actions expressly permitted to be taken by Agent, no amendment, modification, termination or waiver of any provision of this Agreement or any of the Notes, or any consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by Agent and Borrowers, and by Requisite Lenders, Requisite Revolving Lenders, Supermajority Revolving Lenders or all affected Lenders, as applicable. Except as set forth in clauses (b) and (c) below, all such amendments, modifications, termination's or waivers requiring the consent of any Lenders shall require the written consent of Requisite Lenders. (b) No amendment, modification, termination or waiver of or consent with respect to any provision of this Agreement which increases the percentage advance rates set forth in the definition of the Borrowing Base, or which makes less restrictive the nondiscretionary criteria for exclusion from Eligible Accounts and Eligible Inventory set forth in Sections 1.6 and 1.7, shall be effective unless the same shall be in writing and signed by Agent, Supermajority Revolving Lenders and Borrowers. No amendment, modification, termination or waiver of or consent with respect to any provision of this Agreement which waives compliance with the conditions precedent set forth in Section 2.2 to the making of any Loan or the incurrence of any Letter of Credit Obligations shall be effective unless the same shall be in writing and signed by Agent, Requisite Revolving Lenders and Borrowers. Notwithstanding anything contained in this Agreement to the contrary, no waiver or consent with respect to any Default (if in connection therewith Agent or Requisite Revolving Lenders, as the case may be, have exercised its or their right to suspend the making or incurrence of further Advances or Letter of Credit Obligations pursuant to Section 8.2(a)) or any Event of Default shall be effective for purposes of the conditions precedent to the making of Loans or the incurrence of Letter of Credit Obligations set forth in Section 2.2 unless the same shall be in writing and signed by Agent, Requisite Revolving Lenders and Borrowers. (c) No amendment, modification, termination or waiver shall, unless in writing and signed by Agent and each Lender directly affected thereby, do any of the following: (i) increase the principal amount of any Lender's Commitment (which action shall be deemed to directly affect all Lenders); (ii) reduce the principal of, rate of interest on or Fees payable with respect to any Loan or Letter of Credit Obligations of any affected Lender; (iii) change any scheduled payment date or final maturity date of the principal amount of any Loan of any affected Lender; (iv) waive, forgive, defer, extend or postpone any payment of interest or Fees as to any affected Lender; (v) release any Guaranty or, except as otherwise permitted herein or in the other Loan Documents, permit any Credit Party to sell or otherwise dispose of any Collateral with a value exceeding $5,000,000 in the aggregate (which action shall be deemed to directly affect all Lenders); (vi) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which shall be required for Lenders or any of them to take any action hereunder; and (vii) amend or waive this Section 11.2 52 58 or the definitions of the terms "Requisite Lenders", "Requisite Revolving Lenders" or "Supermajority Revolving, Lenders" insofar as such definitions affect the substance of this Section 11.2. Furthermore, no amendment, modification, termination or waiver affecting the rights or duties of Agent under this Agreement or any other Loan Document shall be effective unless in writing and signed by Agent, in addition to Lenders required hereinabove to take such action. Each amendment, modification, termination or waiver shall be effective only in the specific instance and for the specific purpose for which it was given. No amendment, modification, termination or waiver shall be required for Agent to take additional Collateral pursuant to any Loan Document. No amendment, modification, termination or waiver of any provision of any Note shall be effective without the written concurrence of the holder of that Note. No notice to or demand on any Credit Party in any case shall entitle such Credit Party or any other Credit Party to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 11.2 shall be binding upon each holder of the Notes at the time outstanding and each future holder of the Notes. (d) If, in connection with any proposed amendment, modification, waiver or termination (a "Proposed Change"): (i) requiring the consent of all affected Lenders, the consent of Requisite Lenders is obtained, but the consent of other Lenders whose consent is required is not obtained (any such Lender whose consent is not obtained as described this clause (i) and in clauses (ii), (iii) and (iv) below being referred to as a "Non-Consenting Lender"), or (ii) requiring the consent of Supermajority Revolving Lenders, the consent of Requisite Revolving Lenders is obtained, but the consent of Supermajority Revolving Lenders is not obtained, or (iii) requiring the consent of Requisite Revolving Lenders, the consent of Revolving Lenders holding 51% or more of the aggregate Revolving Loan Commitments is obtained, but the consent of Requisite Revolving Lenders is not obtained, or (iv) requiring the consent of Requisite Lenders, the consent of Lenders holding 51% or more of the aggregate Commitments is obtained, but the consent of Requisite Lenders is not obtained, then, so long as Agent is not a Non-Consenting Lender, at Borrower Representative's request, Agent or a Person acceptable to Agent shall have the right with Agent's consent and in Agent's sole discretion (but shall have no obligation) to purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders agree that they shall, upon Agent's request, sell and assign to Agent or such Person, all of the Commitments of such Non-Consenting Lender for an amount equal to the principal balance of all Loans held by the Non-Consenting Lender and all accrued interest and Fees with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed Assignment Agreement. (e) Upon payment in full in cash and performance of all of the Obligations (other than indemnification Obligations under Section 1.13), termination of the Commitments and a release of all claims against Agent and Lenders, and so long as no suits, actions proceedings, or claims are pending or threatened against any Indemnified Person asserting any damages, losses or liabilities that 53 59 are Indemnified Liabilities, Agent shall deliver to Borrowers termination statements, mortgage releases and other documents necessary or appropriate to evidence the termination of the Liens securing payment of the Obligations. 11.3. Fees and Expenses. Borrowers shall reimburse Agent for all out-of-pocket expenses incurred in connection with the preparation of the Loan Documents (including the reasonable fees and expenses of all of its special loan counsel, advisors, consultants and auditors retained in connection with the Loan Documents and the Related Transactions and advice in connection therewith). Borrowers shall reimburse Agent (and, with respect to clauses (c) and (d) below, all Lenders) for all fees, costs and expenses, including the fees, costs and expenses of counsel or other advisors (including environmental and management consultants and appraisers) for advice, assistance, or other representation in connection with: (a) the forwarding to Borrowers or any other Person on behalf of Borrowers by Agent of the proceeds of the Loans; (b) any amendment, modification or waiver of, or consent with respect to, any of the Loan Documents or Related Transactions Documents or advice in connection with the administration of the Loans made pursuant hereto or its rights hereunder or thereunder; (c) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Agent, any Lender, any Borrower or any other Person) in any way relating to the Collateral, any of the Loan Documents or any other agreement to be executed or delivered in connection therewith or herewith, whether as party, witness, or otherwise, including any litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof, in connection with a case commenced by or against any or all of the Borrowers or any other Person that may be obligated to Agent by virtue of the Loan Documents; including any such litigation, contest, dispute, suit, proceeding or action arising in connection with any work-out or restructuring of the Loans during the pendency of one or more Events of Default; provided that in the case of reimbursement of counsel for Lenders other than Agent, such reimbursement shall be limited to one counsel for all such Lenders; (d) any attempt to enforce any remedies of Agent against any or all of the Credit Parties or any other Person that may be obligated to Agent or any Lender by virtue of any of the Loan Documents; including any such attempt to enforce any such remedies in the course of any work-out or restructuring of the Loans during the pendency of one or more Events of Default; provided that in the case of reimbursement of counsel for Lenders other than Agent, such reimbursement shall be limited to one counsel for all such Lenders; (e) any work-out or restructuring of the Loans during the pendency of one or more Events of Default; (f) efforts to (i) monitor the Loans or any of the other Obligations, (ii) evaluate, observe or assess any of the Credit Parties or their respective affairs, and (iii) verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of any of the Collateral; including all attorneys' and other professional and service providers' fees arising from such services, including those in connection with any appellate proceedings; and all expenses, costs, charges and other fees incurred by such counsel and others in any way or respect arising in connection with or relating to any of the events or actions described in this Section 11.3 shall be payable, on demand, by 54 60 Borrowers to Agent. Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include: fees, costs and expenses of accountants, environmental advisors, appraisers, investment bankers, management and other consultants and paralegals, court costs and expenses; photocopying and duplication expenses; court reporter fees, costs and expenses; long distance telephone charges; air express charges; telegram or telecopy charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal or other advisory services. 11.4. No Waiver. Agent's or any Lender's failure, at any time or times, to require strict performance by the Credit Parties of any provision of this Agreement and any of the other Loan Documents shall not waive, affect or diminish any right of Agent or such Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver of an Event of Default shall not suspend, waive or affect any other Event of Default whether the same is prior or subsequent thereto and whether the same or of a different type. Subject to the provisions of Section 11.2, none of the undertakings, agreements, warranties, covenants and representations of any Credit Party contained in this Agreement or any of the other Loan Documents and no Default or Event of Default by any Credit Party shall be deemed to have been suspended or waived by Agent or any Lender, unless such waiver or suspension is by an instrument in writing signed by an officer of or other authorized employee of Agent and the applicable required Lenders, and directed to Borrowers specifying such suspension or waiver. 11.5. Remedies. Agent's and Lenders' rights and remedies under this Agreement shall be cumulative and nonexclusive of any other rights and remedies which Agent or any Lender may have under any other agreement, including the other Loan Documents, by operation of law or otherwise Recourse to the Collateral shall not be required. 11.6. Severability. Wherever possible, each provision of this Agreement and the other Loan Documents shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 11.7. Conflict of Terms. Except as otherwise provided in this Agreement or any of the other Loan Documents by specific reference to the applicable provisions of this Agreement, if any provision contained in this Agreement is in conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 11.8. Confidentiality. Agent and each Lender agree to use commercially reasonable efforts (equivalent to the efforts Agent or such Lender applies to maintaining the confidentiality of its own confidential information) to maintain as confidential all confidential information provided to them by the Credit Parties and designated as confidential for a period of two (2) years following receipt thereof, except that Agent and any Lender may disclose such information (a) to Persons employed or engaged by Agent or such Lender in evaluating, approving, structuring or administering the Loans and the Commitments; (b) to any bona fide assignee or participant or potential assignee or participant or to any direct or indirect contractual counterparties in swap agreements or professional advisors of such swap counterparties that has agreed to comply with the covenant contained in this Section 11.8 (and any such bona fide assignee or participant or potential assignee or participant or 55 61 direct or indirect contractual counterparties in swap agreements or professional advisors of such swap counterparties may disclose such information to Persons employed or engaged by them as described in clause (a) above); (c) as required or requested by any Governmental Authority or reasonably believed by Agent or such Lender to be compelled by any court decree, subpoena or legal or administrative order or process; (d) as, in the opinion of Agent's or such Lender's counsel, required by law; (e) in connection with the exercise of any right or remedy under the Loan Documents or in connection with any Litigation to which Agent or such Lender is a party; or (f) which ceases to be confidential through no fault of Agent or such Lender. 11.9. GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. EACH CREDIT PARTY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN COOK COUNTY, CITY OF CHICAGO, ILLINOIS SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE CREDIT PARTIES, AGENT AND LENDERS PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT AGENT, LENDERS AND THE CREDIT PARTIES ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF COOK COUNTY, CITY OF CHICAGO, ILLINOIS AND, PROVIDED, FURTHER NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT. EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH CREDIT PARTY HEREBY WAIVES ANY OBJECTION WHICH SUCH CREDIT PARTY MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH CREDIT PARTY AT THE ADDRESS SET FORTH IN ANNEX I OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. 11.10. Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may 56 62 be given to or served upon any of the parties by any other parties, or whenever any of the parties desires to give or serve upon any other parties any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 11.10), (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address or facsimile number indicated on Annex I or to such other address (or facsimile number) as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any Person (other than Borrower Representative or Agent) designated on Annex I to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 11.11. Section Titles. The Section titles and Table of Contents contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 11.12. Counterparts. This Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. 11.13. WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND ANY CREDIT PARTY ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO. 11.14. Press Releases. Each Credit Party executing this Agreement agrees that neither it nor its Affiliates will in the future issue any press releases or other public disclosure using the name of GE Capital or its affiliates or referring to this Agreement, the other Loan Documents or the Related Transactions Documents without at least two (2) Business Days' prior notice to GE Capital and without the prior written consent of GE Capital unless (and only to the extent that) such Credit Party or Affiliate is required to do so under law and then, in any event, such Credit Party or Affiliate will consult with GE Capital before issuing such press release or other public disclosure 57 63 Each Credit Party consents to the publication by Agent or any Lender of a tombstone or similar advertising material relating to the financing transactions contemplated by this Agreement. Agent may provide to industry trade organizations information necessary and customary for inclusion in league table measurements. 11.15. Reinstatement. This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against any Borrower for liquidation or reorganization, should any Borrower become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of any Borrower's assets, and shall continue to be effective or to be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 11.16. Advice of Counsel. Each of the parties represents to each other party hereto that it has discussed this Agreement and, specifically, the provisions of Sections 11.9 and 11.13, with its counsel 11.17. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. 11.18. Effect on Prior Credit Agreement; Continuing Loans. This Agreement amends and restates the Prior Credit Agreement in its entirety and supersedes the terms and provisions thereof. Nevertheless, the Credit Parties acknowledge that the Continuing Loans in the respective amounts set forth on Disclosure Schedule (11.18) remain outstanding, and the parties agree that (i) such Loans are continuing Obligations hereunder governed by the terms and provisions hereof; (ii) the Liens securing payment thereof are continuing in all respects, and (iii) this Agreement shall not be deemed to evidence a novation, or repayment and refunding, of the Continuing Loans. All references in the Loan Documents (entered into pursuant to the Prior Credit Agreement) to the "Credit Agreement" or the "Agreement" shall be deemed to refer to this Agreement, without further amendment of those Loan Documents. 12. CROSS-GUARANTY 12.1. Cross-Guaranty. Each Borrower hereby agrees that such Borrower is jointly and severally liable for, and hereby absolutely and unconditionally guarantees to Agent and Lenders and their respective successors and assigns, the full and prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of, all Obligations owed or hereafter owing to Agent and Lenders by each other Borrower. Each Borrower agrees that its guaranty obligation hereunder is a continuing guaranty of payment and performance and not of collection, and that its obligations under this Section 12 shall be absolute and unconditional, irrespective of, and unaffected by, 58 64 (a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in, this Agreement, any other Loan Document or any other agreement, document or instrument to which any Borrower is or may become a party; (b) the absence of any action to enforce this Agreement (including this Section 12) or any other Loan Document or the waiver or consent by Agent and Lenders with respect to any of the provisions thereof; (c) the existence, value or condition of, or failure to perfect its Lien against, any security for the Obligations or any action, or the absence of any action, by Agent and Lenders in respect thereof (including the release of any such security); (d) the insolvency of any Credit Party; or (e) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being agreed by each Borrower that its obligations under this Section 12 shall not be discharged until the payment and performance, in full, of the Obligations has occurred. Each Borrower shall be regarded and shall be in the same position, as principal debtor with respect to the Obligations guaranteed hereunder 12.2. Waivers by Borrowers. Each Borrower expressly waives all rights it may have now or in the future under any statute, or at common law, or at law or in equity, or otherwise, to compel Agent or Lenders to marshall assets or to proceed in respect of the Obligations guaranteed hereunder against any other Credit Party, any other party or against any security for the payment and performance of the Obligations before proceeding against, or as a condition to proceeding against, such Borrower. It is agreed among each Borrower, Agent and Lenders that the foregoing waivers are of the essence of the transaction contemplated by this Agreement and the other Loan Documents and that, but for the provisions of this Section 12 and such waivers, Agent and Lenders would decline to enter into this Agreement. 12.3. Benefit of Guaranty. Each Borrower agrees that the provisions of this Section 12 are for the benefit of Agent and Lenders and their respective successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between any other Borrower and Agent or Lenders, the obligations of such other Borrower under the Loan Documents. 12.4. Subordination of Subrogation, Etc. Notwithstanding anything to the contrary in this Agreement or in any other Loan Document, and except as set forth in Section 12.7, each Borrower hereby expressly and irrevocably subordinates to payment of the Obligations any and all rights at law or in equity to subrogation, reimbursement, exoneration, contribution, indemnification or set off and any and all defenses available to a surety, guarantor or accommodation co-obligor until the Obligations are indefeasibly paid in full in cash. Each Borrower acknowledges and agrees that this subordination is intended to benefit Agent and Lenders and shall not limit or otherwise affect such Borrower's liability hereunder or the enforceability of this Section 12 and that Agent, Lenders and their respective successors and assigns are intended third party beneficiaries of the waivers and agreements set forth in this Section 12.4. 59 65 12.5. Election of Remedies. If Agent or any Lender may, under applicable law, proceed to realize its benefits under any of the Loan Documents giving Agent or such Lender a Lien upon any Collateral, whether owned by any Borrower or by any other Person, either by judicial foreclosure or by nonjudicial sale or enforcement, Agent or any Lender may, at its sole option, determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Section 12. If, in the exercise of any of its rights and remedies, Agent or any Lender shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against any Borrower or any other Person, whether because of any applicable laws pertaining to "election of remedies" or the like, each Borrower hereby consents to such action by Agent or such Lender and waives any claim based upon such action, even if such action by Agent or such Lender shall result in a full or partial loss of any rights of subrogation which each Borrower might otherwise have had but for such action by Agent or such Lender. Any election of remedies which results in the denial or impairment of the right of Agent or any Lender to seek a deficiency judgment against any Borrower shall not impair any other Borrower's obligation to pay the full amount of the Obligations. In the event Agent or any Lender shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or the Loan Documents, Agent or such Lender may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by Agent or such Lender but shall be credited against the Obligations. The amount of the successful bid at any such sale, whether Agent, Lender or any other party is the successful bidder, shall be conclusively deemed to be the fair market value of the Collateral and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Section 12, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which Agent or any Lender might otherwise be entitled but for such bidding at any such sale. 12.6. Limitation. Notwithstanding any provision herein contained to the contrary each Borrower's liability under this Section 12 (which liability is in any event in addition to amounts for which such Borrower is primarily liable under Section 1) shall be limited to an amount not to exceed as of any date of determination the greater of: (a) the net amount of all Loans advanced to any other Borrower under this Agreement and then re-loaned or otherwise transferred to, or for the benefit of, such Borrower; and (b) the amount which could be claimed by Agent and Lenders from such Borrower under this Section 12 without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law after taking into account, among other things, such Borrower's right of contribution and indemnification from each other Borrower under Section 12 7. 12.7. Contribution with Respect to Guaranty Obligations. (a) To the extent that any Borrower shall make a payment under this Section 12 of all or any of the Obligations (other than Loans made to that Borrower for which it is primarily liable) (a "Guarantor Payment") which, taking into account all other Guarantor Payments then previously or concurrently made by any other Borrower, exceeds the amount which such Borrower would otherwise have paid if each Borrower had paid the aggregate Obligations satisfied by such Guarantor Payment in the same proportion that such Borrower's "Allocable Amount" (as defined 60 66 below) (as determined immediately prior to such Guarantor Payment) bore to the aggregate Allocable Amounts of each of the Borrowers as determined immediately prior to the making of such Guarantor Payment, then, following indefeasible payment in full in cash of the Obligations and termination of the Commitments, such Borrower shall be entitled to receive contribution and indemnification payments from, and be reimbursed by, each other Borrower for the amount of such excess, pro rata based upon their respective Allocable Amounts in effect immediately prior to such Guarantor Payment. (b) As of any date of determination, the "Allocable Amount" of any Borrower shall be equal to the maximum amount of the claim which could then be recovered from such Borrower under this Section 12 without rendering such claim voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar statute or common law. (c) This Section 12.7 is intended only to define the relative rights of Borrowers and nothing set forth in this Section 12.7 is intended to or shall impair the obligations of Borrowers, jointly and severally, to pay any amounts as and when the same shall become due and payable in accordance with the terms of this Agreement, including Section 12.1. Nothing contained in this Section 12.7 shall limit the liability of any Borrower to pay the Loans made directly or indirectly to that Borrower and accrued interest, Fees and expenses with respect thereto for which such Borrower shall be primarily liable. (d) The parties hereto acknowledge that the rights of contribution and indemnification hereunder shall constitute assets of the Borrower to which such contribution and indemnification is owing. (e) The rights of the indemnifying Borrowers against other Credit Parties under this Section 12.7 shall be exercisable upon the full and indefeasible payment of the Obligations and the termination of the Commitments. 12.8. Liability Cumulative. The liability of Borrowers under this Section 12 is in addition to and shall be cumulative with all liabilities of each Borrower to Agent and Lenders under this Agreement and the other Loan Documents to which such Borrower is a party or in respect of any Obligations or obligation of the other Borrower, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary. [signature page follows] 61 67 IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above. SELFIX, INC. By: ____________________________________ Title: _________________________________ TAMOR CORPORATION By: ____________________________________ Title: _________________________________ SHUTTERS, INC. By: ____________________________________ Title: _________________________________ SEYMOUR HOUSEWARES CORPORATION By: ____________________________________ Title: _________________________________ 68 GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender By:_________________________________ Title:______________________________ KEY CORPORATE CAPITAL INC., as Lender By:_________________________________ Title:______________________________ LASALLE NATIONAL BANK, as Lender By:_________________________________ Title:______________________________ BANK POLSKA KASA OPIEKI S.A. - PEKAO S.A. GROUP, NEW YORK BRANCH, as Lender By:_________________________________ Title:______________________________ KZH-ING-2 CORPORATION, as Lender By:_________________________________ Title:______________________________ 69 THE ING CAPITAL SENIOR SECURED HIGH INCOME FUND, L.P., as Lender, By: ING Capital Advisors, Inc., as Investment Advisor By:_________________________________ Title:______________________________ ING HIGH INCOME PRINCIPAL PRESERVATION FUND HOLDINGS, LDC, as Lender, By: ING Capital Advisors, Inc., as Investment Advisor By:_________________________________ Title:______________________________ 70 The following Person is a signatory to this Agreement in its capacity as a Credit Party and not as a Borrower. HOME PRODUCTS INTERNATIONAL, INC. By:_________________________________ Title:______________________________ 71 ANNEX A (Recitals) to CREDIT AGREEMENT DEFINITIONS Capitalized terms used in the Loan Documents shall have (unless otherwise provided elsewhere in the Loan Documents) the following respective meanings and all section references in the following definitions shall refer to Sections of the Agreement: "Account Debtor" shall mean any Person who may become obligated to any Credit Party under, with respect to, or on account of, an Account. "Accounts" shall mean all "accounts," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party and, in any event, including (a) all accounts receivable, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to any Credit Party, whether arising out of goods sold or services rendered by it or from any other transaction (including any such obligations which may be characterized as an account or contract right under the Code), (b) all of each Credit Party's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, (c) all of each Credit Party's rights to any goods represented by any of the foregoing (including all unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (d) all monies due or to become due to any Credit Party, under all purchase orders and contracts for the sale of goods or the performance of services or both by such Credit Party or in connection with any other transaction (whether or not yet earned by performance on the part of such Credit Party) now or hereafter in existence, including the right to receive the proceeds of said purchase orders and contracts, and (e) all collateral security and guarantees of any kind, now or hereafter in existence, given by any Person with respect to any of the foregoing. "Acquisition" shall have the meaning assigned to it in the recitals to the Agreement, and shall include the issuance of common stock of Holdings with a value of at least $14.2 million as part of the consideration therefor. "Acquisition Agreement" shall mean collectively (i) the Purchase Agreement and (ii) all other documents, agreements and instruments entered into in connection with the Acquisition. "Advance" shall mean any Revolving Credit Advance or Swing Line Advance, as the context may require. "Affiliate" shall mean, with respect to any Person, (a) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, five percent (5%) or more of the Stock having ordinary voting power in the election of directors of such Persons, (b) each Person that controls, is controlled by or is under common control with 72 such Person, (c) each of such Person's officers, directors, joint venturers and partners and (d) in the case of Borrowers, the immediate family members, spouses and lineal descendants of individuals who are Affiliates of any Borrower. For the purposes of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise; provided; however, that the term "Affiliate" shall specifically exclude Agent and each Lender. "Agent" shall mean GE Capital or its successor appointed pursuant to Section 9.7. "Aggregate Borrowing Base" shall mean, as of any date of determination, an amount equal to the sum of the Selfix Borrowing Base, the Tamor Borrowing Base, the Shutters Borrowing Base and the Seymour Borrowing Base. "Agreement" shall mean the Amended and Restated Credit Agreement by and among Borrowers, the other Credit Parties named therein, GE Capital, as Agent and Lender and the other Lenders signatory from time to time to the Agreement. "Appendices" shall have the meaning assigned to it in the recitals to the Agreement. "Applicable Margins" means collectively the Applicable Revolver Index Margin, the Applicable Term Loan A Index Margin, the Applicable Term Loan B Index Margin, the Applicable Revolver LIBOR Margin and the Applicable Term Loan A LIBOR Margin and the Applicable Term Loan B LIBOR Marin. "Applicable Revolver Index Margin" shall mean the per annum interest rate margin from time to time in effect and payable in addition to the Index Rate applicable to the Revolving Loan, as determined by reference to Section 1.5(a) of the Agreement. "Applicable Revolver LIBOR Margin" shall mean the per annum interest rate from time to time in effect and payable in addition to the LIBOR Rate applicable to the Revolving Loan, as determined by reference to Section 1.5(a) of the Agreement. "Applicable Term Loan A Index Margin" shall mean the per annum interest rate from time to time in effect and payable in addition to the Index Rate applicable to Term Loan A, as determined by reference to Section 1.5(a) of the Agreement. "Applicable Term Loan A LIBOR Margin" shall mean the per annum interest rate from time to time in effect and payable in addition to the LIBOR Rate applicable to Term Loan A, as determined by reference to Section 1.5(a) of the Agreement. "Applicable Term Loan B Index Margin" shall mean the per annum interest rate from time to time in effect and payable in addition to the Index Rate applicable to Term Loan B, as determined by reference to Section 1.5(a) of the Agreement. A-2 73 "Applicable Term Loan B LIBOR Margin" shall mean the per annum interest rate from time to time in effect and payable in addition to the LIBOR Rate applicable to Term Loan B, as determined by reference to Section 1.5(a) of the Agreement. "Assignment Agreement" shall have the meaning assigned to it in Section 9.1(a). "Borrower Accounts" shall have the meaning assigned to it in Annex C. "Borrower Representative" shall mean Selfix in its capacity as Borrower Representative pursuant to the provisions of Section 1.1 (c). "Borrowers" and "Borrower" shall have the respective meanings assigned thereto in the recitals to the Agreement. "Borrowing Availability" shall have the meaning assigned to it in Section 1.1(a)(i). "Borrowing Base" shall mean, as to each Borrower, as of any date of determination by Agent, from time to time, an amount equal to the sum at such time of: (a) eighty-five percent (85%) of the book value of such Borrower's Eligible Accounts, less any Reserves established by Agent at such time; and (b) fifty percent (50%) of the book value of such Borrower's Eligible Inventory valued on a first-in, first-out basis (at the lower of cost or market), less any Reserves established by Agent at such time. "Borrowing Base Certificate" shall mean a certificate to be executed and delivered from time to time by each Borrower in the form attached to the Agreement as Exhibit 4.1(b). "Business Day" shall mean any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State of Illinois and in reference to LIBOR Loans shall mean any such day that is also a LIBOR Business Day. "Capital Expenditures" shall mean, with respect to any Person, all expenditures (by the issuance of securities, the expenditure of cash or the incurrence of Indebtedness) by such Person during any measuring period for any fixed assets or improvements or for replacements, substitutions or additions thereto, that have a useful life of more than one year and that are required to be capitalized under GAAP. "Capital Lease" shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, would be required to be classified and accounted for as a capital lease on a balance sheet of such Person. A-3 74 "Capital Lease Obligation" shall mean, with respect to any Capital Lease of any Person, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease. "Cash Management Systems" shall have the meaning assigned to it in Section 1.8. "Change of Control" means any of the following: (a) any person or group of persons (within the meaning of the Securities and Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended) of 20% or more of the issued and outstanding shares of capital Stock of Holdings having the right to vote for the election of directors of Holdings under ordinary circumstances other than the Ragir Family Trusts; (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the board of directors of Holdings (together with any new directors whose election by the board of directors of Holdings or whose nomination for election by the stockholders of Holdings was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose elections or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office, (c) Holdings shall cease to own and control all of the economic and voting rights associated with all of the outstanding capital Stock of the Borrowers. "Charges" shall mean all federal, state, county, city, municipal, local, foreign or other governmental taxes (including taxes owed to the PBGC at the time due and payable), levies, assessments, charges, liens, claims or encumbrances upon or relating to (a) the Collateral, (b) the Obligations, (c) the employees, payroll, income or gross receipts of any Credit Party, (b) any Credit Party's ownership or use of any properties or other assets, or (e) any other aspect of any Credit Party's business. "Chattel Paper" shall mean any "chattel paper," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, wherever located. "Closing Checklist" shall mean the schedule, including all appendices, exhibits or schedules thereto, listing certain documents and information to be delivered in connection with the Agreement, the other Loan Documents and the transactions contemplated thereunder, substantially in the form attached hereto as Annex D. "Closing Date" shall mean December 29, 1997. "Code" shall mean the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of Illinois provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of Agent's or any Lender's security interest in any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Illinois, the term "Code" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions hereof relating to such attachment, perfection or A-4 75 priority and for purposes of definitions related to such provisions. "Collateral" shall mean the property covered by the Security Agreement, the Mortgages and the other Collateral Documents and any other property, real or personal, tangible or intangible, now existing or hereafter acquired, that may at any time be or become subject to a security interest or Lien in favor of Agent, on behalf of itself and Lenders, to secure the Obligations. "Collateral Documents" shall mean the Security Agreement, the Pledge Agreements, the Guaranties, the Mortgages, the Patent Security Agreement, the Trademark Security Agreement and all similar agreements entered into guaranteeing payment of, or granting a Lien upon property as security for payment of, the Obligations. "Collateral Reports" shall mean the reports with respect to the Collateral referred to in Annex F. "Collection Account" shall mean that certain account of Agent, account number 502-328-54 in the name of Agent at Bankers Trust Company in New York, New York. "Commitment Termination Date" shall mean the earliest of (a) December __, 2002, (b) the date of termination of Lenders' obligations to make Advances and/or incur Letter of Credit Obligations or permit existing Loans to remain outstanding pursuant to Section 8.2(b), and (c) the date of indefeasible prepayment in full by Borrowers of the Loans and the cancellation and return (or stand-by guarantee) of all Letters of Credit or the cash collateralization of all Letter of Credit Obligations pursuant to Annex B, and the permanent reduction of the Revolving Loan Commitment and the Swing Line Commitment to zero dollars ($0). "Commitments" shall mean (a) as to any Lender, the aggregate of such Lender's Revolving Loan Commitment (including without duplication the Swing Line Lender's Swing Line Commitment) and Term Loan Commitment as set forth on Annex J to the Agreement or in the most recent Assignment Agreement executed by such Lender and (b) as to all Lenders, the aggregate of all Lenders' Revolving Loan Commitments (including without duplication the Swing Line Lender's Swing Line Commitment) and Term Loan Commitments, which aggregate commitment shall be One Hundred Thirty Million Dollars ($130,000,000) on the Closing Date, as such amount may be adjusted, if at all, from time to time in accordance with the Agreement. "Compliance Certificate" shall have the meaning assigned to it in Annex E. "Concentration Accounts" shall have the meaning assigned to it in Annex C. "Continuing Loans" shall mean the Loans and Letter of Credit Obligations under the Prior Credit Agreement existing on the Closing Date and listed on Disclosure Schedule (11.8) to the Agreement. "Contracts" shall mean all "contracts," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, in any event, including all contracts, undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or A-5 76 Instruments) in or under which any Credit Party may now or hereafter have any right, title or interest, including any agreement relating to the terms of payment or the terms of performance of any Account. "Control Letter" means a letter agreement between Agent and (i) the issuer of uncertificated securities with respect to uncertificated securities in the name of any Credit Party, (ii) a securities intermediary with respect to securities, whether certificated or uncertificated, securities entitlements and other financial assets held in a securities account in the name of any Credit Party, (iii) a futures commission merchant or clearing house with respect to commodity accounts and commodity contracts held by any Credit Party, whereby, among other things, the issuer, securities intermediary or futures commission merchant disclaims any security interest in the applicable financial assets, acknowledges the Lien of Agent, on behalf of itself and Lenders, on such financial assets, and agrees to follow the instructions or entitlement orders of Agent without further consent by the affected Credit Party. "Credit Parties" shall mean Holdings and each Borrower. "Default" shall mean any event which, with the passage of time or notice or both, would, unless cured or waived, become an Event of Default. "Default Rate" shall have the meaning assigned to it in Section 1.5(d). "Disbursement Accounts" shall have the meaning assigned to it on Annex C. "Disclosure Schedules" shall mean the Schedules prepared by Borrowers and denominated as Disclosure Schedules 1.4 through 6.7 in the Index to the Agreement. "Documents" shall mean any "documents," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, wherever located. "Dollars" or "$" shall mean lawful currency of the United States of America. "EBITA" shall mean, with respect to any Person for any fiscal period, EBITDA excluding the add-back of depreciation. "EBITDA" shall mean, with respect to any Person for any fiscal period, an amount equal to (a) consolidated net income of such Person for such period, minus (b) the sum of (i) income tax credits, (ii) interest income, (iii) gain from extraordinary items for such period, (iv) any aggregate net gain (but not any aggregate net loss) during such period arising from the sale, exchange or other disposition of capital assets by such Person (including any fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets and all securities), and (v) any other non-cash gains which have been added in determining consolidated net income, in each case to the extent included in the calculation of consolidated net income of such Person for such period in accordance with GAAP, but without duplication, plus (c) the sum of (i) any provision for income taxes, (ii) Interest Expense, (iii) loss from extraordinary items for such period, (iv) the amount of noncash charges (including depreciation and amortization) for such period, (v) amortized debt discount for such period, and (vi) the A-6 77 amount of any deduction to consolidated net income as the result of any grant to any members of the management of such Person of any Stock, in each case to the extent included in the calculation of consolidated net income of such Person for such period in accordance with GAAP, but without duplication. For purposes of this definition, the following items shall be excluded in determining consolidated net income of a Person: (1) the income (or deficit) of any other Person accrued prior to the date it became a Subsidiary of, or was merged or consolidated into, such Person or any of such Person's Subsidiaries, (2) the income (or deficit) of any other Person (other than a Subsidiary) in which such Person has an ownership interest, except to the extent any such income has actually been received by such Person in the form of cash dividends or distributions; (3) the undistributed earnings of any Subsidiary of such Person to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any contractual obligation or requirement of law applicable to such Subsidiary; (4) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period; (5) any write-up of any asset; (6) any net gain from the collection of the proceeds of life insurance policies; (7) any net gain arising from the acquisition of any securities, or the extinguishment, under GAAP, of any Indebtedness, of such Person, (8) in the case of a successor to such Person by consolidation or merger or as a transferee of its assets, any earnings of such successor prior to such consolidation, merger or transfer of assets, and (9) any deferred credit representing the excess of equity in any Subsidiary of such Person at the date of acquisition of such Subsidiary over the cost to such Person of the investment in such Subsidiary "Eligible Accounts" shall have the meaning assigned to it in Section 1.6 of the Agreement . "Eligible Inventory" shall have the meaning assigned to it in Section 1.7 of the Agreement. "Environmental Laws" shall mean all applicable federal, state, local and foreign laws, statutes, ordinances, codes, rules standards and regulations, now or hereafter in effect, and in each case as amended or supplemented from time to time, and any applicable judicial or administrative interpretation thereof, including any applicable judicial or administrative order, consent decree, order or judgment, imposing liability or standards of conduct for or relating to the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.) ("CERCLA"); the Hazardous Materials Transportation Authorization Act of 1994 (49 U.S.C. Section 5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et seq.); the Solid Waste Disposal Act (42 U.S.C. Section 6901 et seq.); the Toxic Substance Control Act (15 U.S.C. Section 2601 et seq.); the Clean Air Act (42 U.S.C. Section 7401 et seq.); the Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.); and the Safe Drinking Water Act (42 U.S.C. Section 300(f) et seq.), each as from time to time amended, and any and all regulations promulgated thereunder, and all analogous state, local and foreign counterparts or equivalents and any transfer of ownership A-7 78 notification or approval statutes. "Environmental Liabilities" shall mean, with respect to any Person, all liabilities, obligations, responsibilities, response, remedial and removal costs, investigation and feasibility study costs, capital costs, operation and maintenance costs, losses, damages, punitive damages, property damages, natural resource damages, consequential damages, treble damages, costs and expenses (including all fees, disbursements and expenses of counsel, experts and consultants), fines, penalties, sanctions and interest incurred as a result of or related to any claim, suit, action, investigation, proceeding or demand by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law, including any arising under or related to any Environmental Laws, Environmental Permits, or in connection with any Release or threatened Release or presence of a Hazardous Material whether on, at, in, under, from or about or in the vicinity of any real or personal property. "Environmental Permits" shall mean all permits, licenses, authorizations, certificates, approvals, registrations or other written documents required by any Governmental Authority under any Environmental Laws. "Equipment" shall mean all "equipment," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, wherever located and, in any event, including all such Credit Party's machinery and equipment, including processing equipment, conveyors, machine tools, data processing and computer equipment with software and peripheral equipment (other than software constituting part of the Accounts), and all engineering, processing and manufacturing equipment, office machinery, furniture, materials handling equipment, tools, attachments, accessories, automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling, stock and other equipment of every kind and nature, trade fixtures and fixtures not forming a part of real property, all whether now owned or hereafter acquired, and wherever situated, together with all additions and accessions thereto, replacements therefor, all parts therefor, all substitutes for any of the foregoing, fuel therefor, and all manuals, drawings, instructions, warranties and rights with respect thereto, and all products and proceeds thereof and condemnation awards and insurance proceeds with respect thereto. "ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or any successor legislation thereto), as amended from time to time, and any regulations promulgated thereunder. "ERISA Affiliate" shall mean, with respect to any Credit Party, any trade or business (whether or not incorporated) which, together with such Credit Party, are treated as a "controlled group of corporation," a group of trades or businesses under "common control," or an "affiliated service group" within the meaning of Sections 414(b), (c), (m) or (o) of the IRC. "ERISA Event" shall mean, with respect to any Credit Party or any ERISA Affiliate, (a) any event described in Section 4043(c) of ERISA with respect to a Title IV Plan; (b) the withdrawal of any Credit Party or ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the complete or partial withdrawal of any Credit Party or any ERISA A-8 79 Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to terminate a Title IV Plan or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (e) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Credit Party or ERISA Affiliate to make when due required contributions to a Multiemployer Plan or Title IV Plan unless such failure is cured within 30 days; (g) any other event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or for the imposition of liability under Section 4069 or 4212(c) of ERISA; (h) the termination of a Multiemployer Plan under Section 4041A of ERISA or the reorganization or insolvency of a Multiemployer Plan under Section 4241 of ERISA; or (i) the loss of a Qualified Plan's qualification or tax exempt status. "ESOP" shall mean a Plan which is intended to satisfy the requirements of Section 4975(e)(7) of the IRC. "Event of Default" shall have the meaning assigned to it in Section 8.1. "Excess Cash Flow" shall mean, without duplication, with respect to any Fiscal Year of Borrowers and their Subsidiaries, consolidated net income plus (a) depreciation, amortization and Interest Expense to the extent deducted in determining consolidated net income, minus (b) Capital Expenditures during such Fiscal Year (excluding the portion thereof financed from sources other than the Credit Agreement) minus (c) Interest Expense paid or accrued (excluding any original issue discount, interest paid in kind or amortized debt discount, to the extent included in determining Interest Expense) and scheduled principal payments paid or payable in respect of Funded Debt, plus or minus (as the case may be), (d) extraordinary gains or losses which are cash items not included in the calculation of net income, minus (e) mandatory prepayments paid in cash pursuant to Section 1.3 other than mandatory prepayments made pursuant to Sections 1.3(b)(i), 1.3(b)(iv) or 1.3(d), plus (f) taxes deducted in determining consolidated net income to the extent not paid for in cash. "Federal Funds Rate" shall mean, for any day, a floating rate equal to the weighted average of the rates on overnight Federal funds transactions among members of the Federal Reserve System, as determined by Agent. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System, or any successor thereto. "Fees" shall mean any and all fees payable to Agent or any Lender pursuant to the Agreement or any of the other Loan Documents. "Financial Statements" shall mean the consolidated and consolidating income statements, statements of cash flows and balance sheets of Holdings and Borrowers delivered in accordance with Section 3.4 of the Agreement and Annex E to the Agreement. "Fiscal Month" shall mean any of the monthly accounting periods of Borrowers. A-9 80 "Fiscal Quarter" shall mean any of the quarterly accounting periods of Borrowers, ending generally on the Saturday closest to the last day of March, June, September and December of each year. "Fiscal Year" shall mean any of the annual accounting periods of Borrowers ending in December of each year. "Fixed Charges" shall mean, with respect to any Person for any fiscal period, the aggregate of all Interest Expense paid or accrued during such period (other than Interest Expense with respect to the Subordinated Notes not paid in cash), plus scheduled payments of principal with respect to Indebtedness during such period or within seven (7) days thereafter. "Fixed Charge Coverage Ratio" shall mean, with respect to any Person for any fiscal period, the ratio of (i) EBITDA less the sum of Capital Expenditures and income taxes paid in cash during such period to (ii) Fixed Charges. "Fixtures" shall mean any "fixtures" as such term is defined in the Code, now owned or hereafter acquired by any Credit Party. "Forecasts" means Borrowers' budgeted consolidated and consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow statements; and (d) capitalization statements, all prepared on a Subsidiary by Subsidiary or division by division basis, if applicable, and otherwise consistent with the historical Financial Statements of the Borrowers, together with appropriate supporting details and a statement of underlying assumptions. "Funded Debt" shall mean, with respect to any Person, all Indebtedness for borrowed money evidenced by notes, bonds, debentures, or similar evidences of Indebtedness and which by its terms matures more than one year from, or is directly or indirectly renewable or extendible at such Person's option under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year from the date of creation thereof, and specifically including Capital Lease Obligations, current maturities of long-term debt, revolving credit and short-term debt extendible beyond one year at the option of the debtor, and also including, in the case of Borrowers, the Obligations. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect on the Closing Date, consistently applied as such term is further defined in Annex G to the Agreement. "GE Capital Fee Letter" shall mean that certain letter, dated as of December 11, 1997, between GE Capital and the Borrowers with respect to certain Fees to be paid from time to time by Borrowers to GE Capital. "General Intangibles" shall mean any "general intangibles," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, and, in any event, including all right, title and interest which such Credit Party may now or hereafter have in or under any Contract, all customer lists, Licenses, Trademarks, Patents, and all applications therefor and reissues, extensions or renewals A-10 81 thereof, rights in Intellectual Property, interests in partnerships, joint ventures and other business associations, licenses, permits, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill (including the goodwill associated with any Trademark or Trademark License), all rights and claims in or under insurance policies (including insurance for fire, damage, loss and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key man and business interruption insurance, and all unearned premiums), uncertificated securities, choses in action, deposit, checking and other bank accounts, rights to receive tax refunds and other payments, rights of indemnification, all books and records, correspondence, credit files, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of such Credit Party or any computer bureau or service company from time to time acting for such Credit Party. "Goods" shall mean any "goods" as such term is defined in the Code, now or hereafter acquired by any Credit Party. "Governmental Authority" shall mean any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guaranteed Indebtedness" shall mean, as to any Person, any obligation of such Person guaranteeing any indebtedness, lease, dividend, or other obligation ("primary obligations") of any other Person (the "primary obligor") in any manner, including any obligation or arrangement of such Person (a) to purchase or repurchase any such primary obligation, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (d) to indemnify the owner of such primary obligation against loss in respect thereof. The amount of any Guaranteed Indebtedness at any time shall be deemed to be an amount equal to the lesser at such time of (x) the stated or determinable amount of the primary obligation in respect of which such Guaranteed Indebtedness is made and (y) the maximum amount for which such Person may be liable pursuant to the terms of the instrument embodying such Guaranteed Indebtedness; or, if not stated or determinable, the maximum reasonably anticipated liability (assuming full performance) in respect thereof. "Guaranties" shall mean, collectively, the Holdings Guaranty, and any other guaranty executed by any Guarantor in favor of Agent and Lenders in respect of the Obligations. "Guarantors" shall mean Holdings, and each other Person, if any, which executes a guarantee or other similar agreement in favor of Agent in connection with the transactions A-11 82 contemplated by the Agreement and the other Loan Documents. "Hazardous Material" shall mean any substance, material or waste which is regulated by or forms the basis of liability now or hereafter under, any Environmental Laws, including any material or substance which is (a) defined as a "solid waste," "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "pollutant," "contaminant," "hazardous constituent," "special waste," "toxic substance" or other similar term or phrase under any Environmental Laws, (b) petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's), or any radioactive substance. "Holdings" shall mean Home Products International, Inc., a Delaware corporation. "Holdings Guaranty" shall mean the guaranty of payment of the Obligations dated as of the Closing Date, executed and delivered by Holdings. "Holdings Pledge Agreement" shall mean the Pledge Agreement dated as of the Closing Date executed by Holdings in favor of Agent on behalf of itself and Lenders, pledging all of the Stock of its Subsidiaries and all Intercompany Notes owing to or held by it. "Housewares" shall mean Houseware Sales, Inc., a Massachusetts corporation. "Indebtedness" of any Person shall mean without duplication (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property payment for which is deferred six (6) months or more, but excluding obligations to trade creditors incurred in the ordinary course of business that are not overdue by more than six (6) months unless being contested in good faith, (b) all reimbursement and other obligations with respect to letters of credit, bankers' acceptances and surety bonds, whether or not matured, (c) all obligations evidenced by notes, bonds, debentures or similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations, (f) all obligations of such Person under commodity purchase or option agreements or other commodity price hedging arrangements, in each case whether contingent or matured, (g) all obligations of such Person under any foreign exchange contract, currency swap agreement, interest rate swap, cap or collar agreement or other similar agreement or arrangement designed to alter the risks of that Person arising from fluctuations in currency values or interest rates, in each case whether contingent or matured, (h) all indebtedness referred to above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property or other assets (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, and (i) the Obligations. "Indemnified Liabilities" shall have the meaning assigned to it in Section 1.13. "Index Rate" shall mean, for any day, a floating rate equal to the higher of (i) the rate publicly quoted from time to time by The A-12 83 Wall Street Journal as the "base rate on corporate loans at large U.S. money center commercial banks" (or, if The Wall Street Journal ceases quoting a base rate of the type described, the highest per annum rate of interest published by the Federal Reserve Board in Federal Reserve statistical release H.15 (519) entitled "Selected Interest Rates" as the Bank prime loan rate or its equivalent), and (ii) the Federal Funds Rate plus fifty (50) basis points per annum. Each change in any interest rate provided for in the Agreement based upon the Index Rate shall take effect at the time of such change in the Index Rate. "Index Rate Loan" shall mean a Loan or portion thereof bearing interest by reference so the Index Rate. "Instruments" shall mean any "instrument," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, wherever located, and, in any event, including all certificated securities, all certificates of deposit, and all notes and other, without limitation, evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. "Intellectual Property" shall mean any and all Licenses, Patents, Trademarks, trade secrets and customer lists. "Intercompany Notes" shall have the meaning assigned to it in Section 6.3. "Interest Coverage Ratio" shall mean, with respect to any Person for any period, the ratio of (i) EBITDA less Capital Expenditures to (ii) Interest Expense. "Interest Expense" shall mean, with respect to any Person for any fiscal period, interest expense (whether cash or non-cash, excluding interest on the Subordinated Notes paid by the issuance of Subordinated Notes) of such Person determined in accordance with GAAP for the relevant period ended on such date, including, in any event, interest expense with respect to any Funded Debt of such Person; provided, however, that "Interest Expense" shall not include (a) any fees and expenses incurred on or prior to the Closing Date in connection with the Related Transactions that are amortized and included in interest expense under GAAP or (b) any success fee described on Schedule 3.2 to Note Purchase Agreement dated as of the date hereof among Credit Parties, GE Capital, individually and as agent for itself and the other note purchasers that are signatories thereto, and the note purchasers that are signatory thereto, that is accrued or paid and included in interest expense under GAAP. "Interest Payment Date" means (a) as to any Index Rate Loan, the first Business Day of each month to occur while such Loan is outstanding, (b) as to any LIBOR Loan, the last day of the applicable LIBOR Period, provided that, in addition to the foregoing, each of (x) the date upon which all of the Commitments have been terminated and the Loans have been paid in full and (y) the Commitment Termination Date shall be deemed to be an "Interest Payment Date" with respect to any interest which is then accrued under the Agreement. "Inventory" shall mean any "inventory," as such term is defined in the Code, now or hereafter owned or acquired by any Credit Party, wherever located, and, in any event, including inventory, merchandise, goods and A-13 84 other personal property which are held by or on behalf of any Credit Party for sale or lease or are furnished or are to be furnished under a contract of service, or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in such Credit Party's business or in the processing, production, packaging, promotion, delivery or shipping of the same, including other supplies. "Investment Property" shall have the meaning ascribed thereto in Section 9-115 of the Code in those jurisdictions in which such definition has been adopted and shall include (i) all securities, whether certificated or uncertificated, including stocks, bonds, interests in limited liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all securities entitlements of any Credit Party, including the rights of any Credit Party to any securities account and the financial assets held by a securities intermediary in such securities account and any free credit balance or other money owing by any securities intermediary with respect to that account; (iii) all securities accounts held by any Credit Party; (iv) all commodity contracts held by any Credit Party; and (v) all commodity accounts held by any Credit Party. "IRC" shall mean the Internal Revenue Code of 1986, as amended, and any successor thereto. "IRS" shall mean the Internal Revenue Service, or any successor thereto "L/C Issuer" shall have the meaning assigned to such term in Annex B. "Lenders" shall mean GE Capital, the other Lenders named on the signature page of the Agreement, and, if any such Lender shall decide to assign all or any portion of the Obligations, such term shall include such assignee "Letter of Credit Fee" has the meaning ascribed thereto in Annex B. "Letter of Credit Obligations" shall mean all outstanding obligations incurred by Agent and Lenders at the request of Borrower Representative, whether direct or indirect, contingent or otherwise, due or not due, in connection with the issuance of a reimbursement agreement or guaranty by Agent with respect to any Letter of Credit. The amount of such Letter of Credit Obligations shall equal the maximum amount which may be payable by Agent or Lenders thereupon or pursuant thereto. "Letters of Credit" shall mean commercial or standby letters of credit issued for the account of any Borrower by any L/C Issuer, and bankers' acceptances issued by any Borrower, for which Agent and Lenders have incurred Letter of Credit Obligations. "Leverage Ratio" shall mean, with respect to any Person as of any date of determination the ratio of (a) Funded Debt, to (b) EBITA. "LIBOR Business Day" shall mean a Business Day on which banks in the city of London are generally open for interbank or foreign exchange transactions. A-14 85 "LIBOR Loan" shall mean a Loan or any portion thereof bearing interest by reference to the LIBOR Rate. "LIBOR Period" shall mean, with respect to any LIBOR Loan, each period commencing on a LIBOR Business Day selected by Borrower Representative pursuant to the Agreement and ending one, two or three months thereafter, as set forth in Borrower Representative's irrevocable notice to Agent as set forth in Section 1.5(e); provided that the foregoing provision relating to LIBOR Periods is subject to the following: (a) if any LIBOR Period would otherwise end on a day that is not a LIBOR Business Day, such LIBOR Period shall be extended to the next succeeding LIBOR Business Day unless the result of such extension would be to carry such LIBOR Period into another calendar month in which event such LIBOR Period shall end on the immediately preceding LIBOR Business Day; (b) any LIBOR Period that would otherwise extend beyond the Commitment Termination Date shall end two (2) LIBOR Business Days prior to such date; (c) any LIBOR Period pertaining to a LIBOR Loan that begins on the last LIBOR Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Period) shall end on the last LIBOR Business Day of a calendar month; (d) Borrower Representative shall select LIBOR Periods so as not to require a payment or prepayment of any LIBOR Loan during a LIBOR Period for such Loan; and (e) Borrower Representative shall select LIBOR Periods so that there shall be no more than five (5) separate LIBOR Loans in existence at any one time. "LIBOR Rate" shall mean for each LIBOR Period, a rate of interest determined by Agent equal to: (a) the offered rate for deposits in United States Dollars for the applicable LIBOR Period which appears on Telerate Page 3750 as of 11 :00 a.m., London time, on the second full LIBOR Business Day next preceding the first day of each LIBOR Period (unless such date is not a Business Day, in which event the next succeeding Business Day will be used); divided by (b) a number equal to 1.0 minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on the day which is two (2) LIBOR Business Days prior to the beginning of such LIBOR Period (including basic, supplemental, marginal and emergency reserves under any regulations of the Board of Governors of the Federal Reserve system or other governmental authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of such Board which are required to be maintained by a member bank of the Federal Reserve System (such rate to be adjusted to the nearest A-15 86 one sixteenth of one percent (1/16th of 1%) or, if there is not a nearest one sixteenth of one percent (1/16th of 1%), to the next highest one sixteenth of one percent (1/16th of 1%). If such interest rates shall cease to be available from Telerate News Service, the LIBOR Rate shall be determined from such financial reporting service or other information as shall be mutually acceptable to Agent and Borrower Representative. "License" shall mean any Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by any Credit Party. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Code or comparable law of any jurisdiction). "Litigation" shall have the meaning assigned to it in Section 3.13. "Loan Account" shall have the meaning assigned to it in Section 1.12. "Loan Documents" shall mean the Agreement, the Notes, the Collateral Documents and all other agreements, instruments, documents and certificates identified in the Closing Checklist executed and delivered to, or in favor of, Agent and/or Lenders and including all other pledges, powers of attorney, consents, assignments, contracts, notices, and all other written matter whether heretofore, now or hereafter executed by or on behalf of any Credit Party, or any employee of any Credit Party, and delivered to Agent or any Lender in connection with the Agreement or the transactions contemplated hereby. Any reference in the Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to such Agreement as the same may be in effect at any and all times such reference becomes operative. Notwithstanding the foregoing, the term "Loan Document" shall exclude documents that evidence or govern the Subordinated Debt. "Loans" shall mean the Revolving Loan, the Swing Line Loan and the Term Loans. "Material Adverse Effect" shall mean a material adverse effect on (a) the business, assets, operations, prospects or financial or other condition of the Credit Parties considered as a whole, (b) the Borrowers' ability to pay any of the Loans or any of the other Obligations in accordance with the terms of the Agreement, (c) the Collateral or Agent's Liens, on behalf of itself and Lenders, on the Collateral or the priority of such Liens, or (d) Agent's or any Lender's material rights and remedies under the Agreement and the other Loan Documents Without limiting the foregoing, any event or occurrence which results or could reasonably be expected to result in losses, costs or liabilities A-16 87 in excess of (i) $3,500,000 prior to payment in full of the Subordinated Debt or (ii) $7,500,000 thereafter shall be deemed to have had Material Adverse Effect. "Maximum Amount" shall mean, at any particular time, an amount equal to the Revolving Loan Commitment of all Lenders, which shall equal $20,000,000 as of the Closing Date. "Maximum Lawful Rate" shall have the meaning assigned to it in Section 1.5(f). "Mexican Subsidiary" shall mean Seymour S.A. de C.V., a wholly owned Subsidiary of Seymour. "Mortgaged Properties" shall have the meaning assigned to it in Annex D. "Mortgages" shall mean each of the mortgages, deeds of trust, leasehold mortgages, leasehold deeds of trust, collateral assignments of leases or other real estate security documents delivered by any Credit Party to Agent with respect to the Mortgaged Properties, all in form and substance satisfactory to Agent. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a(3) of ERISA, to which any Credit Party or ERISA Affiliate is making, is obligated to make, or has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them. "Net Borrowing Availability" shall mean as of any date of determination (a) as to all Borrowers, the lesser of (i) the Maximum Amount and (ii) the Aggregate Borrowing Base, in each case less the sum of the aggregate Revolving Loan and Swing Line Loan then outstanding, or (b) as to an individual Borrower, the lesser of (i) the Maximum Amount less the sum of the Revolving Loan and Swing Line Loan outstanding to all other Borrowers and (ii) that Borrower's separate Borrowing Base, less the sum of the Revolving Loan and Swing Line Loan outstanding to that Borrower. "Net Worth" shall mean, with respect to any Person as of any date of determination, the book value of the assets (including, but not limited to all general intangibles and goodwill) of such Person, minus (a) reserves applicable thereto, and minus (b) all of such Person's liabilities on a consolidated basis (including accrued and deferred income taxes), will be determined in accordance with GAAP. "Notes" shall mean the Revolving Notes, the Swing Line Notes and the Term Notes, collectively. "Notice of Conversion/Continuation" shall have the meaning assigned to it in Section 1.5(e). "Notice of Revolving Credit Advance" shall have the meaning assigned to it in Section 1.1(a). A-17 88 "Obligations" shall mean all loans, advances, debts, liabilities and obligations, for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or such amounts are liquidated or determinable) owing by any Credit Party to Agent or any Lender, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement or other instrument, arising under the Agreement or any of the other Loan Documents. This term includes all principal, interest (including all interest which accrues after the commencement of any case or proceeding in bankruptcy after the insolvency of, or for the reorganization of any Credit Party, whether or not allowed in such proceeding), Fees, Charges, expenses, attorneys' fees and any other sum chargeable to any Credit Party under the Agreement or any of the other Loan Documents. Notwithstanding the foregoing, the term "Obligations" shall exclude any portion of the Subordinated Debt. "Overadvance" shall have the meaning assigned to it in Section 1.1(a)(iii). "Patent License" shall mean rights under any written agreement now owned or hereafter acquired by any Credit Party granting any right with respect to any invention on which a Patent is in existence. "Patent Security Agreements" shall mean the Patent Security Agreements made in favor of Agent, on behalf of itself and Lenders, by each applicable Credit Party. "Patents" shall mean all of the following in which any Credit Party now holds or hereafter acquires any interest: (a) all letters patent of the United States or any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State or Territory thereof, or any other country, and (b) all reissues, continuations, continuations-in-part or extensions thereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereto. A-18 89 "Permitted Encumbrances" shall mean the following encumbrances: (a) Liens for taxes or assessments or other governmental Charges not yet due and payable; (b) pledges or deposits of money securing obligations under workmen's compensation, unemployment insurance, social security or public liability laws or similar legislation; (c) pledges or deposits of money securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which any Credit Party is a party as lessee made in the ordinary course of business; (d) deposits of money securing statutory obligations of any Credit Party; (e) inchoate and unperfected workers', mechanics' or similar liens arising in the ordinary course of business, so long as such Liens attach only to Equipment, Fixtures and/or Real Estate; (f) carriers', warehousemen's, suppliers' or other similar possessory liens arising in the ordinary course of business and not past due, so long as such Liens attach only to Inventory; (g) deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings to which any Credit Party is a party; (h) any attachment or judgment lien not constituting an Event of Default under Section 8.1 (j); (i) Zoning restrictions, easements, licenses, or other similar restrictions on the use of any Real Estate or other minor irregularities in title (including leaseholding title) thereto, so long as the same do not materially impair the use, value, or marketability of such Real Estate; (j) presently existing or hereinafter created Liens in favor of Agent, on behalf of Lenders; (k) "silent" second Liens securing payment of the Subordinated Debt, (l) the Lien of the Jackson County Bank on the 5.33 acres located at South Airport Road, Seymour, Indiana pursuant to a Mortgage dated October 8, 1997 between A&R Leasing, Inc. and Jackson County Bank securing payment of $1,880,000 of Indebtedness; and (m) Liens expressly permitted under clauses (b), (c) and (d) of Section 6.7 of the Agreement. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, other entity or government (whether federal, state, county, city, municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or department thereof). "Plan" shall mean, at any time, an employee benefit plan, as defined in Section 3(3) of ERISA, which any Credit Party maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any Credit Party. "Pledge Agreements" shall mean the Pledge Agreement executed and delivered by Holdings as of the Closing Date, the Pledge Agreement executed and delivered by Seymour as of the Closing Date and any pledge agreements entered into after the Closing Date by any Credit Party (as required by the Agreement or any other Loan Document). "Prior Credit Agreement" shall have the meaning assigned to it in the recitals to the Agreement. "Prior Lender" shall mean Jackson National Life Insurance Company. "Prior Loan Documents" shall have the meaning assigned to it in the recitals to the Agreement. A-19 90 "Proceeds" shall mean "proceeds," as such term is defined in the Code and, in any event, shall include (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to any Credit Party from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to any Credit Party from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting under color of governmental authority), (c) any claim of any Credit Party against third parties (i) for past, present or future infringement of any Patent or Patent License, or (ii) for past, present or future infringement or dilution of any Trademark or Trademark License, or for injury to the goodwill associated with any Trademark or Trademark License, (d) any recoveries by any Credit Party against third parties with respect to any litigation or dispute concerning any of the Collateral, and (e) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral, upon disposition or otherwise. "Pro Forma" shall have the meaning assigned to it in Section 3.4(b). "Pro Rata Share" shall mean with respect to all matters relating to any Lender (a) with respect to the Revolving Loan or the Swing Line Loan, the percentage obtained by dividing (i) the Revolving Loan Commitment, including the Swing Line Commitment of that Lender by (ii) the aggregate Revolving Loan Commitments, including the Swing Line Commitment of all Lenders, as any such percentages may be adjusted by assignments permitted pursuant to Section 9 1; (b) with respect to the Term Loans, the percentage obtained by dividing (i) the Term Loan Commitment of that Lender by (ii) the aggregate Term Loan Commitments of all Lenders, as any such percentages may be adjusted by assignments permitted pursuant to Section 9 1; (c) with respect to all Loans, the percentage obtained by dividing (i) the aggregate Commitments of that Lender by (ii) the aggregate Commitments of all Lenders, as any such percentages may be adjusted by assignments permitted pursuant to Section 9 1, and (d) with respect to all Loans after the Commitment Termination Date, the percentage obtained by dividing (i) the aggregate outstanding principal balance of the Loans held by that Lender by the outstanding principal balance of all Loans held by all Lenders. "Purchase Agreement" shall have the meaning assigned to it in the recitals to the Agreement. "Qualified Plan" shall mean a Plan which is intended to be tax-qualified under Section 401(a) of the IRC. "Qualified Public Offering" shall mean a firm underwritten public offering of common stock registered on form S-1, S-2 or S-3 under the Securities Act of 1933, as amended, by a nationally recognized investment banking firm, resulting in net proceeds to the issuer of at least $10,000,000, and after giving effect to which the issuer shall be qualified for listing on the NASDAQ National Market, the American Stock Exchange or the New York Stock Exchange. "Ratable Share" means as to each Borrower that percentage of the principal of each Term Loan for which that Borrower is primarily liable as set forth on Disclosure Schedule A-20 91 (1.1(b)(v)) to the Agreement. "Real Estate" shall have the meaning assigned to it in Section 3 6. "Refinancing" shall mean the repayment in full by Borrowers of the Prior Lender Obligations on the Closing Date. "Refunded Swing Line Loan" shall have the meaning assigned to it in Section 1.1(c)(iii). "Related Transactions" means each borrowing under the Revolving Loan and the Term Loans on the Closing Date, the Acquisition, the Refinancing, the issuance of the Subordinated Notes, the payment of all fees, costs and expenses associated with all of the foregoing and the execution and delivery of all of the Related Transactions Documents. "Related Transactions Documents" shall mean the Loan Documents, the Acquisition Agreement, and the Subordinated Notes. "Release" shall mean any release, threatened release, spill, emission, leaking, pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Material in the indoor or outdoor environment, including the movement of Hazardous Material through or in the air, soil, surface water, ground water or property. "Requisite Lenders" shall mean (a) Lenders having more than sixty-six and two-thirds percent (66 2/3%) of the Commitments of all Lenders, or (b) if the Commitments have been terminated, more than sixty-six and two-thirds percent (66 2/3%) of the aggregate outstanding amount of all Loans (with the Swing Line Loan being attributed to the Lender making such Loan) and Letter of Credit Obligations; provided that so long as all of the Commitments are held by GE Capital and LaSalle National Bank, "Requisite Lenders" shall mean both of such Lenders. "Requisite Revolving Lenders" shall mean (a) Lenders having more than sixty-six and two-thirds percent (66 2/3%) of the Revolving Loan Commitments of all Lenders, or (b) if the Revolving Loan Commitments have been terminated, more than sixty-six and two-thirds percent (66 2/3%) of the aggregate outstanding amount of the Revolving Loan (with the Swing Line Loan being attributed to the Lender making such Loan) and Letter of Credit Obligations. "Reserves" shall mean, with respect to the Borrowing Base of any Borrower (a) reserves established by Agent from time to time against Eligible Inventory pursuant to Section 5.9, (b) reserves established pursuant to Section 5.4(c), and (c) such other reserves against Eligible Accounts or Eligible Inventory of any Borrower which Agent may, in its reasonable credit judgment, establish from time to time. Without limiting the generality of the foregoing, Reserves established to ensure the payment of accrued Interest Expenses, Environmental Liabilities or Indebtedness shall be deemed to be a reasonable exercise of Agent's credit judgment. A-21 92 "Restricted Payment" shall mean (a) the declaration or payment of any dividend or the incurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of a Person's Stock, (b) any payment on account of the purchase, redemption, defeasance, sinking fund or other retirement of a Person's Stock or any other payment or distribution made in respect thereof, either directly or indirectly, (c) any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to, any Subordinated Debt; (d) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire Stock of such Person now or hereafter outstanding (other than by means of cancellation of Subordinated Debt); (e) any payment of a claim for the rescission of the purchase or sale of, or for material damages arising from the purchase or sale of, any shares of such Person's Stock or of a claim for reimbursement, indemnification or contribution arising out of or related to any such claim for damages or rescission; (f) any payment, loan, contribution, or other transfer of funds or other property to any Stockholder of such Person; and (g) any payment of management fees (or other fees of a similar nature) by such Person to any Stockholder of such Person or their Affiliates. "Retiree Welfare Plan" shall mean, at any time, a Plan that is a "welfare plan" as defined in Section 3(1) of ERISA, that provides for continuing coverage or benefits for any participant or any beneficiary of a participant after such participant's termination of employment, other than continuation coverage provided pursuant to Section 4980B of the IRC and at the sole expense of the participant or the beneficiary of the participant. "Revolving Credit Advance" shall have the meaning assigned to it in Section 1.1(a)(i). "Revolving Lenders" shall mean, as of any date of determination, Lenders having a Revolving Loan Commitment. "Revolving Loan" shall mean as the context may require, at any time, the sum of (i) the aggregate amount of Revolving Credit Advances outstanding to any Borrower or to all Borrowers plus (ii) the aggregate Letter of Credit Obligations incurred on behalf of any Borrower or all Borrowers. "Revolving Loan Commitment" shall mean (a) as to any Lender, the aggregate commitment of such Lender to make Revolving Credit Advances (including without duplication Swing Line Advances) and/or incur Letter of Credit Obligations as set forth on Annex J to the Agreement or in the most recent Assignment Agreement executed by such Lender and (b) as to all Lenders, the aggregate commitment of all Lenders to make Revolving Credit Advances (including without duplication Swing Line Advances) and/or incur Letter of Credit Obligations, which aggregate commitment shall be Twenty Million ($20,000,000) on the Closing Date, as such amount may be adjusted, if at all, from time to time in accordance with the Agreement. "Revolving Note" shall have the meaning assigned to it in Section 1.1(a)(ii). A-22 93 "Security Agreement" shall mean the Security Agreement of even date herewith entered into among Agent, on behalf of itself and Lenders, and each Credit Party that is a signatory thereto. "Selfix" means Selfix, Inc., a Delaware corporation. "Sellers" shall mean the shareholders of Seymour Sales on the Closing Date. "Seymour" shall mean Seymour Housewares Corporation, a Delaware corporation. "Seymour Sales" shall have the meaning assigned to it in the recitals to the Agreement. "Shutters" means Shutters, Inc., an Illinois corporation. "Seymour Pledge Agreement" shall mean the Pledge Agreement dated as of the Closing Date executed by Seymour in favor of Agent on behalf of itself and Lenders, pledging all of the Stock of the Mexican Subsidiary. "Solvent" shall 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 continent liabilities, of such Person; (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probably liability of such Person on its debts as the become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or 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 transaction, and is not about to engage in a business or transaction, for which such Person's property would constitute an unreasonably small capital. The amount of contingent liabilities (such as litigation, guarantees and pension plan liabilities) at any time shall be computed as the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can be reasonably be expected to become an actual or matured liability. "Stock" shall mean all shares, options, warrants, general or limited partnership interests or other equivalents (regardless of how designated) of or in a corporation, partnership or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other "equity security" (as such term is defined in Rule 3all-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended). "Subordinated Debt" shall mean the Indebtedness of Borrowers evidenced by the Subordinated Notes and any other Indebtedness of any Credit Party subordinated to the Obligations in a manner and form satisfactory to Agent and Lenders in their sole discretion, as to right and time of payment and as to any other rights and remedies thereunder. "Subordinated Notes" shall mean those certain Senior Subordinated Notes due on the ninth anniversary of the date hereof issued by Borrowers, jointly and severally, in the original A-23 94 principal amount of $10,000,000, and all payment-in-kind notes issued to pay interest with respect thereto. "Subsidiary" shall mean, with respect to any Person, (a) any corporation of which an aggregate of more than fifty percent (50%) of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person and/or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of fifty percent (50%) or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have an interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%) or of which any such Person is a general partner or may exercise the powers of a general partner. "Supermajority Revolving Lenders" shall mean (a) Lenders having eighty percent (80%) or more of the Revolving Loan Commitments of all Lenders, or (b) if the Revolving Loan Commitments have been terminated, eighty percent (80%) or more of the aggregate outstanding amount of the Revolving Loan (with the Swing Line Loan being attributed to the Lender making such Loan) and Letter of Credit Obligations. "Swing Line Advance" has the meaning assigned to it in Section 1.1 (c)(i). "Swing Line Availability" has the meaning assigned to it in Section 1.1(c). "Swing Line Commitment" shall mean, as to the Swing Line Lender, the commitment of the Swing Line Lender to make Swing Line Loans as set forth on Annex J to the Agreement, which commitment constitutes a subfacility of the Revolving Loan Commitment of the Swing Line Lender. "Swing Line Lender" shall mean GE Capital. "Swing Line Loan" shall mean as the context may require, at any time, the aggregate amount of Swing Line Advances outstanding to any Borrower or to all Borrowers. "Swing Line Loan Participation Certificate" shall mean a certificate delivered pursuant to Section 1.1(c)(iv). "Swing Line Note" has the meaning assigned to it in Section 1.1(c)(ii). "Tamor" means Tamor Corporation, a Massachusetts corporation. "Taxes" shall mean taxes, levies, imposts, deductions, Charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on or measured by the net income of Agent or a Lender by the jurisdictions under the laws of which Agent and Lenders are A-24 95 organized or any political subdivision thereof. "Term A Lenders" shall mean those Lenders having Term Loan A Commitments. "Term B Lenders" shall mean those Lenders having Term Loan B Commitments. "Term Lenders" shall mean those Lenders having Term Loan Commitments. "Term Loan A" shall have the meaning assigned to it in Section 1.1(b). "Term Loan A Commitment" shall mean (a) as to any Lender with a Term Loan A Commitment, the commitment of such Lender to make its Pro Rata Share of Term Loan A as set forth on Annex J to the Agreement or in the most recent Assignment Agreement executed by such Lender, and (b) as to all Lenders with a Term Loan A Commitment, the aggregate commitment of all Lenders to make the Term Loan A, which aggregate commitment shall be Fifty Million Dollars ($50,000,000) on the Closing Date. "Term Loan B Commitment" shall mean (a) as to any Lender with a Term Loan B Commitment, the commitment of such Lender to make its Pro Rata Share of Term Loan B as set forth on Annex J to the Agreement or in the most recent Assignment Agreement executed by such Lender, and (b) as to all Lenders with a Term Loan B Commitment, the aggregate commitment of all Lenders to make Term Loan B, which aggregate commitment shall be Sixty Million Dollars ($60,000,000) on the Closing Date. "Term Loan B" shall have the meaning assigned to it in Section 1.1(b)(2). "Term Loan Commitment" shall mean, collectively, the Term Loan A Commitment and the Term Loan B Commitment. "Term Loans" shall mean all Term A Loans and all Term B Loans. "Term Note A" shall have the meaning assigned to it in Section 1.1(b)(1). "Term Note B" shall have the meaning assigned to it in Section 1.1(b)(2). "Term Notes" shall mean all Term A Notes and all Term B Notes. "Termination Date" shall mean the date on which the Loans have been indefeasibly repaid in full and all other Obligations under the Agreement and the other Loan Documents have been completely discharged and Letter of Credit Obligations have been cash collateralized, cancelled or backed by stand-by letters of credit in accordance with Annex B, and none of Borrowers shall have any further right to borrow any monies under the Agreement. "Title IV Plan" shall mean an employee pension benefit plan, as defined in Section 3 (2) of ERISA (other than a Multiemployer Plan), which is covered by Title IV of ERISA, which any Credit Party or ERISA Affiliate maintains, contributes to or has an obligation to contribute to, or has maintained, contributed to or had an obligation to contribute to, on behalf A-25 96 of participants who are or were employed by any of them. "Trademark License" shall mean rights under any written agreement now owned or hereafter acquired by any Credit Party granting any right to use any Trademark. "Trademark Security Agreements" shall mean the Trademark Security Agreements made in favor of Agent, on behalf of Lenders, by each applicable Credit Party. "Trademarks" shall mean all of the following now owned or hereafter acquired by any Credit Party: (a) all trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature (whether registered or unregistered), now owned or existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof; (b) all reissues, extensions or renewals thereof; and (c) all goodwill associated with or symbolized by any of the foregoing. "Unfunded Pension Liability" shall mean, at any time, the aggregate amount, if any, of the sum of (a) the amount by which the present value of all accrued benefits under each Title IV Plan exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, all determined as of the most recent valuation date for each such Title IV Plan using the actuarial assumptions for funding purposes in effect under such Title IV Plan, and (b) for a period of five (5) years following a transaction which might reasonably be expected to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided by any Credit Party or any ERISA Affiliate as a result of such transaction. All other undefined terms contained in any of the Loan Documents shall, unless the context indicates otherwise, have the meanings provided for by the Code as in effect in the State of Illinois to the extent the same are used or defined therein. Unless otherwise specified, references in the Agreement or any of the Appendices to a Section, subsection or clause refer to such Section, subsection or clause as contained in the Agreement. The words "herein," "hereof" and "hereunder" and other words of similar import refer to the Agreement as a whole, including all Annexes, Exhibits and Schedules, as the same may from time to time be amended, restated, modified or supplemented, and not to any particular section, subsection or clause contained in the Agreement or any such Annex, Exhibit or Schedule. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter genders. The words "including", "includes" and "include" shall be deemed to be followed by the words "without limitation"; references to Persons include their respective successors and assigns (to the extent and only to the extent permitted by the Loan Documents) or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to A-26 97 statutes and related regulations shall include any amendments of the same and any successor statutes and regulations. Whenever any provision in any Loan Document refers to the knowledge (or an analogous phrase) of any Credit Party, such words are intended to signify that such Credit Party has actual knowledge or awareness of a particular fact or circumstance or that such Credit Party, if it had exercised reasonable diligence, would have known or been aware of such fact or circumstance. A-27 98 ANNEX B (Section 1.2) to CREDIT AGREEMENT LETTERS OF CREDIT (a) Issuance. Subject to the terms and conditions of the Agreement, Agent and Revolving Lenders agree to incur, from time to time prior to the Commitment Termination Date, upon the request of Borrower Representative on behalf of the applicable Borrower and for such Borrower's account, Letter of Credit Obligations by causing Letters of Credit to be issued (by a bank or other legally authorized Person selected by or acceptable to Agent in its sole discretion (each, an "L/C Issuer")) for such Borrower's account and guaranteed by Agent, provided, however, that if the L/C Issuer is a Revolving Lender, then such Letters of Credit shall not be guaranteed by Agent but rather each Revolving Lender shall, subject to the terms and conditions hereinafter set forth, purchase (or be deemed to have purchased) risk participations in all such Letters of Credit issued with the written consent of Agent, as more fully described in paragraph (b)(ii) below. The aggregate amount of all such Letter of Credit Obligations shall not at any time exceed the least of (i) Fifteen Million ($15,000,000) (the "L/C Sublimit"), and (ii) the Maximum Amount less the aggregate outstanding principal balance of the Revolving Credit Advances and the Swing Line Loan, and (iii) the Aggregate Borrowing Base less the aggregate outstanding principal balance of the Revolving Credit Advances and the Swing Line Loan. Furthermore, the aggregate amount of any Letter of Credit Obligations incurred on behalf of any Borrower shall not at any time exceed such Borrower's separate Borrowing Base less the aggregate principal balance of the Revolving Credit Advances and the Swing Line Loan to such Borrower. Except for two IRB Letters of Credit outstanding on the Closing Date that have an Expiry Date of April 1, 1998, no such Letter of Credit shall have an expiry date which is more than one year following the date of issuance thereof, and neither Agent nor Revolving Lenders shall be under any obligation to incur Letter of Credit Obligations in respect of, or purchase risk participations in, any Letter of Credit having an expiry date which is later than the Commitment Termination Date. (b) (i) Advances Automatic; Participations. In the event that Agent or any Revolving Lender shall make any payment on or pursuant to any Letter of Credit Obligation, such payment shall then be deemed automatically to constitute a Revolving Credit Advance to the applicable Borrower under Section 1.1(a) of the Agreement regardless of whether a Default or Event of Default shall have occurred and be continuing and notwithstanding any Borrower's failure to satisfy the conditions precedent set forth in Section 2, and each Revolving Lender shall be obligated to pay its Pro Rata Share thereof in accordance with the Agreement. The failure of any Revolving Lender to make available to Agent for Agent's own account its Pro Rata Share of any such Revolving Credit Advance or payment by Agent under or in respect of a Letter of Credit shall not relieve any other Revolving Lender of its obligation hereunder to make available to Agent its Pro Rata Share thereof, but no Revolving Lender shall be responsible for the failure of any other Revolving Lender to make available such other Revolving Lender's Pro Rata Share of any such payment. 99 (ii) If it shall be illegal or unlawful for any Borrower to incur Revolving Credit Advances as contemplated by paragraph (b)(i) above because of an Event of Default described in Section 8.1(h) or (i) or otherwise or if it shall be illegal or unlawful for any Revolving Lender to be deemed to have assumed a ratable share of the reimbursement obligations owed to an L/C Issuer, or if the L/C Issuer is a Revolving Lender, then (i) immediately and without further action whatsoever, each Revolving Lender shall be deemed to have irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the case may be) an undivided interest and participation equal to such Revolving Lender's Pro Rata Share (based on the Revolving Loan Commitments) of the Letter of Credit Obligations in respect of all Letters of Credit then outstanding and (ii) thereafter, immediately upon issuance of any Letter of Credit, each Revolving Lender shall be deemed to have irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the case may be) an undivided interest and participation in such Revolving Lender's Pro Rata Share (based on the Revolving Loan Commitments) of the Letter of Credit Obligations with respect to such Letter of Credit on the date of such issuance. Each Revolving Lender shall fund its participation in all payments or disbursements made under the Letters of Credit in the same manner as provided in the Agreement with respect to Revolving Credit Advances. (c) Cash Collateral. If Borrowers are required to provide cash collateral for any Letter of Credit Obligations pursuant to the Agreement prior to the Commitment Termination Date, each Borrower will pay to Agent for the benefit of Revolving Lenders cash or cash equivalents acceptable to Agent ("Cash Equivalents") in an amount equal to 105% of the maximum amount then available to be drawn under each applicable Letter of Credit outstanding for the benefit of such Borrower. Such funds or Cash Equivalents shall be held by Agent in a cash collateral account (the "Cash Collateral Account") maintained at a bank or financial institution acceptable to Agent. The Cash Collateral Account shall be in the name of the applicable Borrower and shall be pledged to, and subject to the control of, Agent, for the benefit of Agent and Lenders, in a manner satisfactory to Agent. Each Borrower hereby pledges and grants to Agent, on behalf of Lenders, a security interest in all such funds and Cash Equivalents held in the Cash Collateral Account from time to time and all proceeds thereof, as security for the payment of all amounts due in respect of the Letter of Credit Obligations and other Obligations, whether or not then due. The Agreement, including this Annex B, shall constitute a security agreement under applicable law. If any Letter of Credit Obligations, whether or not then due and payable, shall for any reason be outstanding on the Commitment Termination Date, Borrowers shall either (i) provide cash collateral therefor in the manner described above, or (ii) cause all such Letters of Credit and guaranties thereof to be canceled and returned, or (iii) deliver a stand-by letter (or letters) of credit in guaranty of such Letter of Credit Obligations, which stand-by letter (or letters) of credit shall be of like tenor and duration as, and in an amount equal to 105% of the aggregate maximum amount then available to be drawn under, the Letters of Credit to which such outstanding Letter of Credit Obligations relate and shall be issued by a Person, and shall be subject to such terms and conditions as are be satisfactory to Agent in its sole discretion. From time to time after funds are deposited in the Cash Collateral Account by any Borrower, whether before or after the Commitment Termination Date, Agent may apply such B-2 100 funds or Cash Equivalents then held in the Cash Collateral Account to the payment of any amounts, in such order as Agent may elect, as shall be or shall become due and payable by such Borrower to Lenders with respect to such Letter of Credit Obligations of such Borrower and, upon the satisfaction in full of all Letter of Credit Obligations of such Borrower, to any other Obligations of any Borrower then due and payable. No Borrower nor any Person claiming on behalf of or through any Borrower shall have any right to withdraw any of the funds or Cash Equivalents held in the Cash Collateral Account, except that upon the termination of all Letter of Credit Obligations and the payment of all amounts payable by Borrowers to Lenders in respect thereof, any funds remaining in the Cash Collateral Account shall be applied to other Obligations when due and owing and upon payment in full of such Obligations, an remaining, amount shall be paid to Borrowers or as otherwise required by law. (d) Fees and Expenses. Borrowers agree to pay to Agent for the benefit of Revolving, Lenders, as compensation to such Lenders for Letter of Credit Obligations incurred hereunder, (x) all costs and expenses incurred by Agent or any Lender on account of such Letter of Credit Obligations, and (y) for each month during which any Letter of Credit Obligation shall remain outstanding, a fee (the "Letter of Credit Fee") in an amount equal to two percent (2.0%) per annum multiplied by the maximum amount available from time to time to be drawn under the applicable Letter of Credit. Such fee shall be paid to Agent for the benefit of the Revolving Lenders in arrears, on the first day of each month. In addition, Borrowers shall pay to any L/C Issuer, on demand, such fees (including all per annum fees), charges and expenses of such L/C Issuer in respect of the issuance. negotiation, acceptance, amendment, transfer and payment of such Letter of Credit or otherwise payable pursuant to the application and related documentation under which such Letter of Credit is issued. (e) Request for Incurrence of Letter of Credit Obligations. Borrower Representative shall give Agent at least two (2) Business Days prior written notice requesting the incurrence of any Letter of Credit Obligation, specifying the date such Letter of Credit Obligation is to be incurred, identifying the beneficiary and the Borrower to which such Letter of Credit Obligation relates and describing the nature of the transactions proposed to be supported thereby. The notice shall be accompanied by the form of the Letter of Credit (which shall be acceptable to the L/C Issuer) to be guarantied. Notwithstanding anything contained herein to the contrary, Letter of Credit applications by Borrower Representative and approvals by Agent may be made and transmitted pursuant to electronic codes and security measures mutually agreed upon and established by and among Borrower Representative, Agent and the L/C Issuer. (f) Obligation Absolute. The obligation of Borrowers to reimburse Agent and Revolving Lenders for payments made with respect to any Letter of Credit Obligation shall be absolute, unconditional and irrevocable without necessity of presentment, demand, protest or other formalities, and the obligations of each Revolving Lender to make payments to Agent with respect to Letters of Credit shall be unconditional and irrevocable. Such obligations of Borrowers and Revolving Lenders shall be paid strictly in accordance with the terms hereof under all circumstances including the following circumstances: B-3 101 (i) any lack of validity or enforceability of any Letter of Credit or the Agreement or the other Loan Documents or any other agreement; (ii) the existence of any claim, set-off, defense or other right which any Borrower or any of their respective Affiliates or any Lender may at any time have against a beneficiary or any transferee of any Letter of Credit (or any Persons or entities for whom, any such transferee may be acting), Agent, any Lender, or any other Person, whether in connection with the Agreement, the Letter of Credit, the transactions contemplated herein or therein or any unrelated transaction (including any underlying transaction between any Borrower or any of their respective Affiliates and the beneficiary for which the Letter of Credit was procured); (iii) any draft, demand, certificate or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by Agent or any L/C Issuer under any Letter of Credit or guaranty thereof against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit or such guaranty; (v) any other circumstance or happening whatsoever, which is similar to any of the foregoing; or (vi) the fact that a Default or an Event of Default shall have occurred and be continuing. (g) Indemnification; Nature of Lenders' Duties. In addition to amounts payable as elsewhere provided in the Agreement, Borrowers hereby agree to pay and to protect, indemnify, and save harmless Agent and each Lender from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including attorneys' fees and allocated costs of internal counsel) which Agent or any Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit or guaranty thereof, or (ii) the failure of Agent or any Lender seeking indemnification or of any L/C Issuer to honor a demand for payment under any Letter of Credit or guaranty thereof as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority, in each case other than to the extent solely as a result of the gross negligence or willful misconduct of Agent or such Lender (as finally determined by a court of competent jurisdiction). As between Agent and any Lender and Borrowers, Borrowers assume all risks of the acts and omissions of, or misuse of any Letter of Credit by beneficiaries of any Letter of Credit. In furtherance and not in limitation of the foregoing, to the fullest extent permitted by law neither Agent nor any Lender shall be responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or legal effect of any document issued by any party in connection with the application for and issuance of any Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the validity or B-4 102 sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason, (iii) for failure of the beneficiary of any Letter of Credit to comply fully with conditions required in order to demand payment under such Letter of Credit, provided that, in the case of any payment by Agent under any Letter of Credit or guaranty thereof, Agent shall be liable to the extent such payment was made solely as a result of its gross negligence or willful misconduct (as finally determined by a court of competent jurisdiction) in determining that the demand for payment under such Letter of Credit or guaranty thereof complies on its face with any applicable requirements for a demand for payment under such Letter of Credit or guaranty thereof; (iv) for errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) for errors in interpretation of technical terms; (vi) for any loss or delay in the transmission or otherwise of any document required in order to make a payment under any Letter of Credit or guaranty thereof or of the proceeds thereof; (vii) for the credit of the proceeds of any drawing under any Letter of Credit or guaranty thereof; and (viii) for any consequences arising from causes beyond the control of Agent or any Lender. None of the above shall affect, impair, or prevent the vesting of any of Agent's or any Lender's rights or powers hereunder or under the Agreement. Nothing contained herein shall be deemed to limit or to expand any waivers, covenant or indemnities made by Borrowers in favor of any L/C Issuer in any letter of credit application, reimbursement agreement or similar document, instrument or agreement between or among Borrowers and such L/C Issuer. B-5 103 ANNEX C (Section 1.8) to CREDIT AGREEMENT CASH MANAGEMENT SYSTEMS Each Borrower shall, and shall cause its Subsidiaries to, establish and maintain the Cash Management Systems described below: (a) On or before the Closing Date and until the Termination Date, each Borrower shall (i) establish lock boxes ("Lock Boxes") at one or more of the banks set forth on Disclosure Schedule (3.19), and shall request in writing and otherwise take such reasonable steps to ensure that all Account Debtors forward payment directly to such Lock Boxes, and (ii) deposit and cause its Subsidiaries to deposit or cause to be deposited promptly, and in any event no later than the first Business Day after the date of receipt thereof, all cash, checks, drafts or other similar items of payment relating to or constituting payments made in respect of any and all Collateral (whether or not otherwise delivered to a Lock Box) into bank accounts in such Borrower's name or any such Subsidiary's name (collectively, the "Borrower Accounts") at banks set forth on Disclosure Schedule (3.19) (each, a "Relationship Bank"). On or before the Closing Date, each Borrower shall have established a concentration account in its name (each a "Concentration Account" and collectively, the "Concentration Accounts") at the bank or banks which shall be designated as the Concentration Account bank for each such Borrower on Disclosure Schedule (3.19) (each a "Concentration Account Bank" and collectively, the "Concentration Account Banks"), which banks shall be satisfactory to Agent. (b) On or before the Closing Date (or such later date as Agent shall consent to in writing), each Concentration Account Bank, each bank where a Disbursement Account is located and all other Relationship Banks, shall have entered into tri-party blocked account agreements with Agent, for the benefit of itself and Lenders, and the applicable Borrower and Subsidiaries thereof, as applicable, in form and substance acceptable to Agent, which shall become operative on or prior to the Closing Date. Each such blocked account agreement shall provide, among other things, that (i) all items of payment deposited in such account and proceeds thereof deposited in the applicable Concentration Account are held by such bank as agent or bailee-in-possession for Agent, on behalf of Lenders, (ii) the bank executing such agreement has no rights of setoff or recoupment or any other claim against such account, as the case may be, other than for payment of its service fees and other charges directly related to the administration of such account and for returned checks or other items of payment, and (iii) from and after the Closing Date (A) with respect to banks at which a Borrower Account is located, such bank agrees to forward immediately all amounts in each Borrower Account to such Borrower's Concentration Account Bank and to commence the process of daily sweeps from such Borrower Account into the applicable Concentration Account and (B) with respect to each Concentration Account Bank, such bank agrees to immediately forward all amounts received in the applicable Concentration Account to the Collection Account through daily sweeps from such Concentration Account into the Collection Account. No Borrower shall, or shall cause or permit any Subsidiary thereof to, accumulate or maintain cash in disbursement or payroll accounts as of any date of determination 104 in excess of checks outstanding against such accounts as of that date and amounts necessary to meet minimum balance requirements. (c) So long as no Default or Event of Default has occurred and is continuing, Borrowers may amend Disclosure Schedule (3.19) to add or replace a Relationship Bank, Lock Box or Borrower Account or to replace any Concentration Account or any Disbursement Account, provided, however, that (i) Agent shall have consented in writing in advance to the opening of such account or Lock Box with the relevant bank and (ii) prior to the time of the opening of such account or Lock Box, the applicable Borrower and/or the Subsidiaries thereof, as applicable, and such bank shall have executed and delivered to Agent a tri-party blocked account agreement, in form and substance satisfactory to Agent. Borrowers shall close any of their accounts (and establish replacement accounts in accordance with the foregoing sentence) promptly and in any event within thirty (30) days of notice from Agent that the creditworthiness of any bank holding an account is no loner acceptable in Agent's reasonable judgment, or as promptly as practicable and in any event within sixty (60) days of notice from Agent that the operating performance, funds transfer and/or availability procedures or performance with respect to accounts or lockboxes of the bank holding such accounts or Agent's liability under any tri-party blocked account agreement with such bank is no loner acceptable in Agent's reasonable judgment. (d) The Lock Boxes, Borrower Accounts, Disbursement Accounts and the Concentration Accounts shall be cash collateral accounts, with all cash, checks and other similar items of payment in such accounts securing payment of the Loans and all other Obligations, and in which each Borrower and each Subsidiary thereof shall have ranted a Lien to Agent, on behalf of itself and Lenders, pursuant to the Security Agreement. (e) All amounts deposited in the Collection Account shall be deemed received by Agent in accordance with Section 1.10 of the Agreement and shall be applied (and allocated) by Agent in accordance with Section 1.11 of the Agreement. In no event shall any amount be so applied unless and until such amount shall have been credited in immediately available funds to the Collection Account. (f) Each Borrower may maintain, in its name, an account (each a "Disbursement Account" and collectively, the "Disbursement Accounts") at a bank acceptable to Agent into which Agent shall, from time to time, deposit proceeds of Revolving Credit Advances and Swing Line Advances made to such Borrower pursuant to Section 1.1 for use by such Borrower solely in accordance with the provisions of Section 1.4. (g) Each Borrower shall and shall cause its Affiliates, officers, employees, agents, directors or other Persons acting for or in concert with such Borrower (each a "Related Person") to (i) hold in trust for Agent, for the benefit of itself and Lenders, all checks, cash and other items of payment received by such Borrower or any such Related Person, and (ii) within one (1) Business Day after receipt by such Borrower or any such Related Person of any checks, cash or other items or payment, deposit the same into a Borrower Account of such Borrower. Each Borrower and each Related Person thereof acknowledges and agrees that all cash, checks or items of payment constituting proceeds of Collateral are the property of Agent and Lenders. All C-2 105 proceeds of the sale or other disposition of any Collateral, shall be deposited directly into the applicable Borrower Accounts. C-3 106 ANNEX D (Section 2.1(a)) to CREDIT AGREEMENT SCHEDULE OF ADDITIONAL CLOSING DOCUMENTS 107 ANNEX D ================================================================================ SCHEDULE OF CLOSING DOCUMENTS $130,000,000 AMENDED AND RESTATED CREDIT AGREEMENT Dated as of December __, 1997 among SELFIX, INC., TAMOR CORPORATION, SHUTTERS, INC., and SEYMOUR HOUSEWARES CORPORATION, as Borrowers, THE OTHER CREDIT PARTIES SIGNATORY HERETO, as Credit Parties, THE LENDERS SIGNATORY HERETO FROM TIME TO TIME, as Lenders, and GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender ================================================================================ 2 108 RELEVANT PARTIES A. Selfix, Inc. ("Selfix") B. Tamor Corporation ("Tamor") C. Shutters, Inc. ("Shutters") D. Seymour Housewares Corporation ("Seymour") E. Home Products International, Inc. ("Holdings") F. General Electric Capital Corporation, as Agent ("GECC") G. Seymour Sales ("Seymour Sales") H. Key Corporate Capital, Inc. ("Key Corp..") I. KZH-ING-2 Corporation ("KZH") J. The ING Capital Senior Secured High Income Fund, L.P. ("ING - Senior") K. The ING Capital High Income Principal Preservation Fund Holdings, LDC ("ING - Principal") L. Archimedes Funding, L.L.C. ("Archimedes") M. LaSalle National Bank ("LaSalle") N. Bank Polska Kasa Opieki S.A. - Pekao S.A. Group ("PKO") O. HP II Acquisition ("HPII") 2 109 LAW FIRMS A. Latham & Watkins ("L&W") B. Much Shelist Freed Denenberg Ament Bell & Rubenstein, P.C. ("MS") C. Simpson & Thatcher ("S&T") 110 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- 1. CREDIT DOCUMENTS - SENIOR SECURED FACILITY - -------------------------------------------------------------------------------- 1.1 Credit Agreement by and among the Credit Parties and GECC L&W - -------------------------------------------------------------------------------- 1.2 Annexes to Credit Agreement - -------------------------------------------------------------------------------- Annex A -- Definitions L&W - -------------------------------------------------------------------------------- Annex B -- Letters of Credit L&W - -------------------------------------------------------------------------------- Annex C -- Cash Management Systems L&W - -------------------------------------------------------------------------------- Annex D -- Schedule of Additional Closing Documents L&W - -------------------------------------------------------------------------------- Annex E -- Financial Statements and Projections - Reporting L&W - -------------------------------------------------------------------------------- Annex F -- Collateral Reports L&W - -------------------------------------------------------------------------------- Annex G -- Financial Covenants GECC - -------------------------------------------------------------------------------- Annex H -- Lender's Wire Transfer GECC Information - -------------------------------------------------------------------------------- Annex I -- Notice Addresses L&W - -------------------------------------------------------------------------------- Annex J -- Commitments as of Closing Date L&W - -------------------------------------------------------------------------------- 1.3 Exhibits to Credit Agreement - -------------------------------------------------------------------------------- Exhibit 1.1(a)(i) Form of Notice of Revolving Credit Advance L&W - -------------------------------------------------------------------------------- Exhibit 1.1(a)(ii) Form of Revolving Note L&W - -------------------------------------------------------------------------------- Exhibit 1.1(b)(i) Form of Term Note L&W ================================================================================ D-2 111 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- Exhibit 1.1(c)(ii) Form of Swing Line L&W Note - -------------------------------------------------------------------------------- Exhibit 1.5(e) Form of Notice of Conversion/Continuation L&W - -------------------------------------------------------------------------------- Exhibit 4.1(b) Form of Borrowing Base L&W Certificate - -------------------------------------------------------------------------------- Exhibit 9.1(a) Form of Assignment L&W Agreement - -------------------------------------------------------------------------------- 1.4 Schedules to Credit Agreement - -------------------------------------------------------------------------------- Schedule 1.1 - Responsible Individual L&W - -------------------------------------------------------------------------------- Schedule 1.1(b)(v) - Ratable Shares GECC - -------------------------------------------------------------------------------- Schedule 1.4 - Sources and Uses; Funds Flow Memorandum MS - -------------------------------------------------------------------------------- Schedule 3.2 - Executive Offices; FEIN MS - -------------------------------------------------------------------------------- Schedule 3.4(A) - Financial Statements Borrowers - -------------------------------------------------------------------------------- Schedule 3.4(B) - Pro Forma Borrowers - -------------------------------------------------------------------------------- Schedule 3.4(C) - Forecasts Borrowers - -------------------------------------------------------------------------------- Schedule 3.6 - Real Estate and Leases MS - -------------------------------------------------------------------------------- Schedule 3.7 - Labor Matters MS - -------------------------------------------------------------------------------- Schedule 3.8 - Ventures, Subsidiaries and Affiliates; Outstanding Stock MS - -------------------------------------------------------------------------------- Schedule 3.11 - Tax Matters MS - -------------------------------------------------------------------------------- Schedule 3.12 - ERISA Plans MS - -------------------------------------------------------------------------------- Schedule 3.13 - Litigation MS - -------------------------------------------------------------------------------- Schedule 3.15 - Intellectual Property MS ================================================================================ D-3 112 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- Schedule 3.17 - Hazardous Materials MS - -------------------------------------------------------------------------------- Schedule 3.18 - Insurance - Seymour MS - -------------------------------------------------------------------------------- Schedule 3.19 - Deposit and Disbursement MS Accounts - -------------------------------------------------------------------------------- Schedule 3.20 - Government Contracts MS - -------------------------------------------------------------------------------- Schedule 3.22 - Material Agreements MS - -------------------------------------------------------------------------------- Schedule 5.1 - Trade Names MS - -------------------------------------------------------------------------------- Schedule 6.2 - Investments MS - -------------------------------------------------------------------------------- Schedule 6.3 - Indebtedness MS - -------------------------------------------------------------------------------- Schedule 6.4(a) - Transactions with Affiliates MS - -------------------------------------------------------------------------------- Schedule 6.7 - Existing Liens MS - -------------------------------------------------------------------------------- Schedule 11.18 - Continuing Loans MS - -------------------------------------------------------------------------------- 1.5 Notes of Borrowers (as defined in the Credit Agreement) - -------------------------------------------------------------------------------- (a) Revolving Notes in favor of - -------------------------------------------------------------------------------- (i) GECC L&W - -------------------------------------------------------------------------------- (ii) PKO L&W - -------------------------------------------------------------------------------- (iii) Key Corp. L&W - -------------------------------------------------------------------------------- (iv) LaSalle L&W - -------------------------------------------------------------------------------- (b) Term A Notes in favor of - -------------------------------------------------------------------------------- (i) GECC L&W - -------------------------------------------------------------------------------- (ii) PKO L&W ================================================================================ D-4 113 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- (iii) KZH L&W - -------------------------------------------------------------------------------- (iv) LaSalle L&W - -------------------------------------------------------------------------------- (v) ING - Senior L&W - -------------------------------------------------------------------------------- (vi) ING - Principal L&W - -------------------------------------------------------------------------------- (vii) Key Corp. L&W - -------------------------------------------------------------------------------- (c) Term B Notes in favor of - -------------------------------------------------------------------------------- (i) ING - Senior L&W - -------------------------------------------------------------------------------- (ii) ING - Principal L&W - -------------------------------------------------------------------------------- (iii) KZH L&W - -------------------------------------------------------------------------------- (iv) Key Corp. L&W - -------------------------------------------------------------------------------- (v) GECC L&W - -------------------------------------------------------------------------------- (d) Swing Line Note in favor of GECC L&W - -------------------------------------------------------------------------------- 1.6 Security Agreement of Credit Parties L&W - -------------------------------------------------------------------------------- Schedule I - Filing Jurisdictions MS - -------------------------------------------------------------------------------- Schedule II - Instruments MS - -------------------------------------------------------------------------------- Schedule III-A - Office Locations of MS Collateral and Records concerning Selfix's Collateral - -------------------------------------------------------------------------------- Schedule III - B - Office Locations of MS Collateral and Records concerning Tamor's collateral - -------------------------------------------------------------------------------- Schedule III - C - Office Locations of MS Collateral and Records concerning Shutter's collateral ================================================================================ D-5 114 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- Schedule III - D - Office Locations of Collateral and Records concerning Seymour's collateral MS - -------------------------------------------------------------------------------- Schedule IV - Patents and Trademarks MS - -------------------------------------------------------------------------------- Exhibit A - Power of Attorney L&W - -------------------------------------------------------------------------------- (a) Selfix L&W - -------------------------------------------------------------------------------- (b) Tamor L&W - -------------------------------------------------------------------------------- (c) Shutters L&W - -------------------------------------------------------------------------------- (d) Seymour L&W - -------------------------------------------------------------------------------- 1.7 UCC-1s in favor of GECC as listed on L&W Schedule A hereto - -------------------------------------------------------------------------------- (a) Search Results for Seymour L&W - -------------------------------------------------------------------------------- 1.8 UCC-3s in Termination Statements from Jackson National Life MS - -------------------------------------------------------------------------------- 1.9 Payoff letter in favor of GECC MS - -------------------------------------------------------------------------------- 1.10 Trademark Security Agreement from Seymour L&W - -------------------------------------------------------------------------------- 1.11 Patent Security Agreement from Seymour L&W - -------------------------------------------------------------------------------- 1.12 Reaffirmation of Holdings Guaranty L&W - -------------------------------------------------------------------------------- 1.13 Acquisition Agreement MS - -------------------------------------------------------------------------------- 1.14 Initial Borrowing Base Certificate for Tamor, Selfix, Shutters and Seymour - -------------------------------------------------------------------------------- 1.15 Initial Notice of Revolving Credit Advance MS - -------------------------------------------------------------------------------- 1.16 Letter of Direction from Selfix to GECC MS ================================================================================ D-6 115 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- 1.17 Lockbox Account Agreements with MS Northern Trust - -------------------------------------------------------------------------------- 1.18 Control Agreement MS - -------------------------------------------------------------------------------- 2. CORPORATE AND ORGANIZATION DOCUMENTS - -------------------------------------------------------------------------------- 2.1 Seymour - -------------------------------------------------------------------------------- (a) Certificate of Good Standing (with MS verification of tax status) in the following states: - -------------------------------------------------------------------------------- (i) Indiana MS - -------------------------------------------------------------------------------- (ii) North Carolina MS - -------------------------------------------------------------------------------- (b) Secretary's Certificate, certifying: MS - -------------------------------------------------------------------------------- (i) Copy of Resolutions (broad MS form) authorizing execution and performance of Loan Documents - -------------------------------------------------------------------------------- (ii) Incumbency Certificate MS - -------------------------------------------------------------------------------- (iii)Certificate of Incorporation and MS amendments thereto - -------------------------------------------------------------------------------- (iv) By-laws MS - -------------------------------------------------------------------------------- (c) Certificate of Merger: Seymour MS Sales into Seymour - -------------------------------------------------------------------------------- (d) Officer's Certificate re: (a) no MS required consents or approvals, (b) no Material Adverse Effect, (c) no material adverse change, (d) no material Litigation, (e) no Restricted payments and (f) no material liabilities or decrease in assets ================================================================================ D-7 116 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- 2.2 Tamor - -------------------------------------------------------------------------------- (a) Certificate of Good Standing (with MS verification of tax status) in the following states - -------------------------------------------------------------------------------- (i) Georgia MS - -------------------------------------------------------------------------------- (b) Secretary's Certificate, certifying: - -------------------------------------------------------------------------------- (i) Copy of Resolutions (broad MS form) authorizing execution and performance of Loan Documents - -------------------------------------------------------------------------------- (ii) Incumbency Certificate MS - -------------------------------------------------------------------------------- (iii)No amendments to Articles or MS By-laws since February 27, 1997 - -------------------------------------------------------------------------------- (c) Officer's Certificate re: (a) no MS required consents or approvals, (b) no Material Adverse Effect, (c) no material adverse change, (d) no material Litigation, (e) no Restricted payments and (f) no material liabilities or decrease in assets - -------------------------------------------------------------------------------- 2.3 Selfix - -------------------------------------------------------------------------------- (a) Certificate of Good Standing (with MS verification of tax status) in the following states - -------------------------------------------------------------------------------- (i) Illinois MS - -------------------------------------------------------------------------------- (b) Secretary's Certificate, to include ================================================================================ D-8 117 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- (i) Copy of Resolutions (broad MS form) authorizing execution and performance of Loan Documents - -------------------------------------------------------------------------------- (ii) Incumbency Certificate MS - -------------------------------------------------------------------------------- (iii)No amendments to Articles MS or By-laws since February 27, 1997 - -------------------------------------------------------------------------------- (c) Officer's Certificate re: (a) no MS required consents or approvals, (b) no Material Adverse Effect, (c) no material adverse change, (d) no material Litigation, (e) no Restricted payments and (f) no material liabilities or decrease in assets - -------------------------------------------------------------------------------- 2.4 Shutters - -------------------------------------------------------------------------------- (a) Certificate of Good Standing (with MS verification of tax status) in the following states - -------------------------------------------------------------------------------- (i) Illinois MS - -------------------------------------------------------------------------------- (b) Secretary's Certificate, to include - -------------------------------------------------------------------------------- (i) Copy of Resolutions (broad MS form) authorizing execution and performance of Loan Documents - -------------------------------------------------------------------------------- (ii) Incumbency Certificate MS - -------------------------------------------------------------------------------- (iii)No amendments to Articles MS or By-laws since February 27, 1997 ================================================================================ D-9 118 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- (c) Officer's Certificate re: (a) no MS required consents or approvals, (b) no Material Adverse Effect, (c) no material adverse change, (d) no material Litigation, (e) no Restricted payments and (f) no material liabilities or decrease in assets - -------------------------------------------------------------------------------- 2.5 Holdings - -------------------------------------------------------------------------------- (a) Certificate of Good Standing (with MS verification of tax status) in the following states - -------------------------------------------------------------------------------- (b) Secretary's Certificate, to include - -------------------------------------------------------------------------------- (i) Copy of Resolutions (broad MS form) authorizing execution and performance of Loan Documents - -------------------------------------------------------------------------------- (ii) Incumbency Certificate MS - -------------------------------------------------------------------------------- (iii)No amendments to Articles MS or By-laws since February 27, 1997 - -------------------------------------------------------------------------------- (c) Officer's Certificate re: (a) no MS required consents or approvals, (b) no Material Adverse Effect, (c) no material adverse change, (d) no material Litigation, (e) no Restricted payments and (f) no material liabilities or decrease in assets - -------------------------------------------------------------------------------- (d) Solvency Certificate MS - -------------------------------------------------------------------------------- 2.6 HP II Acquisition Corp. ================================================================================ D-10 119 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- (a) Certificate of Good Standing (with MS verification of tax status) in the following states - -------------------------------------------------------------------------------- 3.0 Opinion of MS MS - -------------------------------------------------------------------------------- 4.0 Subordinated Notes in favor of L&W - -------------------------------------------------------------------------------- (i) GECC in the amount L&W of $5,000,000 - -------------------------------------------------------------------------------- (ii)Archimedes in the amount L&W of $5,000,000 - -------------------------------------------------------------------------------- (a) Note Purchase Agreement L&W - -------------------------------------------------------------------------------- Schedule 3.2 - Success Fee L&W - -------------------------------------------------------------------------------- Schedule 5.3 - Defaults MS - -------------------------------------------------------------------------------- Schedule 5.4(B) - MS Capitalization - -------------------------------------------------------------------------------- Schedule 5.7 - Audits and MS Investigations - -------------------------------------------------------------------------------- Schedule 5.8 - Employee MS Matters - -------------------------------------------------------------------------------- Schedule 5.11 - Pending MS and Threatened Litigation - -------------------------------------------------------------------------------- Schedule 8.6 - Transactions MS with Affiliates - -------------------------------------------------------------------------------- Exhibit 1.1 - Form of MS Senior Subordinated Note - -------------------------------------------------------------------------------- Exhibit 7.1 - Officers' MS Certificate - -------------------------------------------------------------------------------- (b) Subordinated Note Security MS Agreement ================================================================================ D-11 120 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- Schedule I - Filing Jurisdictions MS - -------------------------------------------------------------------------------- Schedule IIA - Location of MS Records and Certain Collateral of Selfix - -------------------------------------------------------------------------------- Schedule IIB - Location of Records MS and Certain Collateral of Tamor - -------------------------------------------------------------------------------- Schedule IIC - Location of Records MS and Certain Collateral of Shutters - -------------------------------------------------------------------------------- Schedule IID - Location of MS Records and Certain Collateral of Seymour - -------------------------------------------------------------------------------- (c) UCC-1 Financing Statement in MS favor of GE Capital as Agent for Subordinated Lenders in each jurisdiction listed on Schedule B hereto - -------------------------------------------------------------------------------- (d) Holdings Subordinated Guaranty L&W - -------------------------------------------------------------------------------- 5.0 Amendment to existing Pledge Agreement L&W - -------------------------------------------------------------------------------- (a) Share certificates for stock of Borrowers Seymour - -------------------------------------------------------------------------------- (i) Stock Powers MS - -------------------------------------------------------------------------------- 5.1 Seymour Pledge Agreement in favor of L&W GECC, as Agent - -------------------------------------------------------------------------------- (a) Share Certificates for Common Borrowers Stock of Seymour S.A. de C.V. - -------------------------------------------------------------------------------- (i) Stock Powers MS - -------------------------------------------------------------------------------- (b) Share Certificates for Common Borrowers Stock of Rose's Holdings, Inc. - -------------------------------------------------------------------------------- (i) Stock Powers MS ================================================================================ D-12 121 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- (c) Share Certificates for Common of Borrowers Stock Ames Department Stores, Inc. - -------------------------------------------------------------------------------- (i) Stock Powers MS - -------------------------------------------------------------------------------- (d) Share Certificates for Common Borrowers Stock of Hills Stores Company - -------------------------------------------------------------------------------- (i) Stock Powers MS - -------------------------------------------------------------------------------- (e) Share Certificates for Preferred Borrrowers Stock of Hills Stores Company - -------------------------------------------------------------------------------- (i) Stock Powers MS - -------------------------------------------------------------------------------- (f) Share Certificates for Common Borrowers Stock of Federated Department Stores, Inc. (141 Shares) - -------------------------------------------------------------------------------- (i) Stock Powers MS - -------------------------------------------------------------------------------- (g) Share Certificates for Common Borrowers Stock of Federated Department Stores, Inc. (39 Shares) - -------------------------------------------------------------------------------- (i) Stock Powers MS - -------------------------------------------------------------------------------- (h) Share Certificates for Common Borrowers Stock of Federated Department Stores, Inc. (66 Shares) - -------------------------------------------------------------------------------- (i) Stock Powers MS - -------------------------------------------------------------------------------- (i) Stock Certificates for Common Borrowers Stock of Best Products Co., Inc. - -------------------------------------------------------------------------------- (i) Stock Powers MS - -------------------------------------------------------------------------------- 5.2 Intercompany Notes in favor of Seymour L&W - -------------------------------------------------------------------------------- (a) Tamor L&W ================================================================================ D-13 122 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- (b) Shutters L&W - -------------------------------------------------------------------------------- (c) Selfix L&W - -------------------------------------------------------------------------------- 6.0 Accountants Letter L&W - -------------------------------------------------------------------------------- 7.0 Appointment of Agent for Service L&W - -------------------------------------------------------------------------------- 8.0 Fee Letter - Senior Debt L&W - -------------------------------------------------------------------------------- 8.1 Fee Letter - Subordinated Debt L&W - -------------------------------------------------------------------------------- 10.0 REAL ESTATE DOCUMENTS - -------------------------------------------------------------------------------- 10.1 Amendments to Landlord Waiver L&W and Consent with respect to following leaseholds - -------------------------------------------------------------------------------- (a) West 47th Street L&W Chicago, Illinois - Selfix - -------------------------------------------------------------------------------- (b) 5555 South Archer Avenue L&W Chicago, Illinois - Selfix - -------------------------------------------------------------------------------- (c) 3016 West Georgia Street L&W Louisiana, Missouri - Tamor - -------------------------------------------------------------------------------- (i) Estoppel Certificate MS - -------------------------------------------------------------------------------- (ii) Second Amendment to Lease MS - -------------------------------------------------------------------------------- (d) 634 Crawford Street L&W Fitchburg, Massachusetts - Tamor - -------------------------------------------------------------------------------- (e) 12130 Route 173 L&W Hebron, Illinois - Shutters - -------------------------------------------------------------------------------- 10.2 Landlord Waivers and Consents with respect L&W to the following leaseholds - -------------------------------------------------------------------------------- (a) South Airport Road L&W Seymour, Indiana - Seymour ================================================================================ D-14 123 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- (i) Landlord Certification L&W - -------------------------------------------------------------------------------- (ii) Memorandum of Lease MS - -------------------------------------------------------------------------------- (iii) Non-Disturbance and MS Attornment Agreement - -------------------------------------------------------------------------------- (b) Leominster Lease - Tamor L&W - -------------------------------------------------------------------------------- (i) Landlord Certification L&W - -------------------------------------------------------------------------------- 10.3 Illinois Property L&W - -------------------------------------------------------------------------------- (a) Amendment to First Leasehold L&W Mortgage, Assignment of Rents and Security Agreement - 47th Street - Selfix - -------------------------------------------------------------------------------- (i) Title Policy for First L&W Leasehold Mortgage - -------------------------------------------------------------------------------- (b) Amendment to First Mortgage, L&W Assignment of Rents and Security Agreement -Hebron - Shutters - -------------------------------------------------------------------------------- (i) Title Policy for First Mortgage L&W - -------------------------------------------------------------------------------- (c) Second Leasehold Mortgage, L&W Assignment of Rents and Security Agreement - 47th Street - Selfix - -------------------------------------------------------------------------------- (i) Title Policy for Second L&W Leasehold Mortgage - -------------------------------------------------------------------------------- (ii) Release of Prior Second L&W Mortgage - -------------------------------------------------------------------------------- (d) Second Mortgage, Assignment of L&W Rents and Security Agreement - Hebron - Shutters ================================================================================ D-15 124 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- (i) Title Policy for Second L&W Mortgage - -------------------------------------------------------------------------------- (ii) Release of Prior Second L&W Mortgage - -------------------------------------------------------------------------------- 10.4 Missouri Property L&W - -------------------------------------------------------------------------------- (a) Amendment to First Leasehold L&W Deed of Trust, Assignment of Rents and Leases and Security Agreement -Louisiana, Missouri - Tamor - -------------------------------------------------------------------------------- (i) Title Policy for First Deed L&W of Trust - -------------------------------------------------------------------------------- (b) Second Leasehold Deed of Trust, L&W Assignment of Rents and Leases and Security Agreement - Louisiana, Missouri - Tamor - -------------------------------------------------------------------------------- (i) Title Policy for Second L&W Deed of Trust - -------------------------------------------------------------------------------- (ii) Release of Prior Second L&W Deed of Trust - -------------------------------------------------------------------------------- 10.5 Massachusetts Property L&W - -------------------------------------------------------------------------------- (a) Amendment to First Mortgage, L&W Assignment of Rents and Leases, Security Agreement and Fixture Filing-Leominster, Massachusetts - Tamor - -------------------------------------------------------------------------------- (i) Title Policy for First L&W Mortgage ================================================================================ D-16 125 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- (b) Second Mortgage, Assignment of L&W Rents and Leases, Security Agreement and Fixture Filing - Leominster, Massachusetts - Tamor - -------------------------------------------------------------------------------- (i) Title Policy for Second L&W Mortgage - -------------------------------------------------------------------------------- (ii) Release of Prior Second L&W Mortgage - -------------------------------------------------------------------------------- 10.6 Georgia Property L&W - -------------------------------------------------------------------------------- (a) Amendment to First Deed to L&W Secure Debt, Assignment of Rents and Leases and Security Agreement - Thomasville, Georgia - Tamor - -------------------------------------------------------------------------------- (i) Title Policy for First L&W Mortgage - -------------------------------------------------------------------------------- (b) Second Deed to Secure Debt, L&W Assignment of Rents and Leases and Security Agreement - Thomasville, Georgia - Tamor - -------------------------------------------------------------------------------- (i) Title Policy for Second L&W Mortgage - -------------------------------------------------------------------------------- (ii) Release of Prior Second L&W Deed - -------------------------------------------------------------------------------- 10.7 Indiana Property L&W - -------------------------------------------------------------------------------- (a) Mortgage, Assignment of Rents L&W and Security Agreement and Financing Statement (Fixture Filing) - Seymour ================================================================================ D-17 126 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- (b) Signed, marked-up commitment MS for lender's policy of title insurance covering first priority mortgage (including appropriate endorsements) (final policies to be delivered post-closing) - -------------------------------------------------------------------------------- (c) Survey (new or recertified and Borrowers sufficient to remove exceptions from title commitment) - -------------------------------------------------------------------------------- (d) Second Mortgage, Assignment of L&W Rents and Security Agreement and Financing Statement (Fixture Filing) - Seymour - -------------------------------------------------------------------------------- (e) Signed, marked-up commitment MS for lender's policy of title insurance covering second priority mortgage (including appropriate endorsements) (final policies to be delivered post-closing) - -------------------------------------------------------------------------------- (f) Corrective Corporate Limited MS Warranty Deed re: South Leased Property - -------------------------------------------------------------------------------- 10.8 North Carolina Property - -------------------------------------------------------------------------------- (a) Deed of Trust, Assignment of L&W Rents and Security Agreement - Seymour - -------------------------------------------------------------------------------- (b) Signed, marked-up commitment MS for lender's policy of title insurance covering first priority mortgage (including appropriate endorsements) in favor of GECC as agent (final policies to be delivered post-closing) ================================================================================ D-18 127 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- (c) Survey (new or recertified and Borrowers sufficient to remove exceptions from title commitment) - -------------------------------------------------------------------------------- (d) Second Deed of Trust Assignment L&W of Rents and Security Agreement - Seymour - -------------------------------------------------------------------------------- (e) Signed, marked-up commitment MS for lender's policy of title insurance covering second priority mortgage (including appropriate endorsements) in favor of GECC as agent (final policies to be delivered post-closing) - -------------------------------------------------------------------------------- (f) Request for Notice L&W - -------------------------------------------------------------------------------- 10.9 Environmental Reports - Phase I - -------------------------------------------------------------------------------- (a) Seymour Borrowers - -------------------------------------------------------------------------------- 10.10 General Title Insurance Documents - -------------------------------------------------------------------------------- (a) GAP Affidavits MS - -------------------------------------------------------------------------------- (b) Owner's Affidavits MS - -------------------------------------------------------------------------------- (c) Affidavits of No New MS Improvements to Survey - -------------------------------------------------------------------------------- 11.FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 11.1 Certificate of Chief Executive Officer or L&W Chief Financial Officer of Home Products International, Inc. - -------------------------------------------------------------------------------- 12.OTHER DOCUMENTS - -------------------------------------------------------------------------------- 12.1 Certificates or Policies of Insurance re Seymour MS ================================================================================ D-19 128 ================================================================================ Responsible Party - -------------------------------------------------------------------------------- 12.2 Loss Payee Endorsement re Seymour's casualty insurance L&W/Borrowers - -------------------------------------------------------------------------------- 12.3 Government Approvals H-S-R early termination Borrowers - -------------------------------------------------------------------------------- 12.4 Evidence of $14.2 million stock issuance in connection with the Acquisition Borrowers - -------------------------------------------------------------------------------- 12.5 Solvency opinion of Valuation Research - -------------------------------------------------------------------------------- 12.6 Bailee Letters for the following locations: MS - -------------------------------------------------------------------------------- (a) North Carolina - -------------------------------------------------------------------------------- (b) Virginia - -------------------------------------------------------------------------------- 12.7 Post-Closing Matters Agreement L&W ================================================================================ D-20 129 SCHEDULE A UCC FINANCING STATEMENTS FILED AGAINST SEYMOUR HOUSEWARES CORPORATION UNDER THE AMENDED AND RESTATED CREDIT AGREEMENT
DEBTOR JURISDICTION ------ ------------ Seymour Housewares Corporation, a Delaware Secretary of State, Texas corporation 885 North Chestnut Street State Corporations Commission, Virginia Seymour, Indiana 47274 City of Richmond, Virginia Secretary of State, North Carolina Anson County, North Carolina Iredell County, North Carolina Iredell County, North Carolina (Fixtur Filing) Lincoln County, North Carolina Secretary of State, Indiana Jackson County, Indiana Jackson County, Indiana (Fixture Filing) Secretary of State, Illinois Secretary of State, South Carolina Fayette County, Kentucky Jefferson County, Kentucky Aken County, South Carolina Lancaster County, South Carolina Forsythe County, North Carolina Tamor Corporation Secretary of State, Illinois 106 Carter Street Leominster, Massachusetts 01453
D-21 130 SCHEDULE B UCC FINANCING STATEMENTS FILED AGAINST SEYMOUR HOUSEWARES CORPORATION, SHUTTERS, INC., SELFIX, INC., AND TAMOR CORPORATION UNDER THE NOTE PURCHASE AGREEMENT
DEBTOR JURISDICTION ------ ------------ Seymour Housewares Corporation, a Delaware Secretary of State, Texas corporation State Corporations Commission, Virginia City of Richmond, Virginia Secretary of State, North Carolina Iredell County, North Carolina Iredell County, North Carolina (Fixture Filing) Anson County, North Carolina Lincoln County, North Carolina Secretary of State, Indiana Jackson County, Indiana Jackson County, Indiana (Fixture Filing) Secretary of State, Illinois Secretary of State, South Carolina Fayette County, Kentucky Jefferson County, Kentucky Aken County, South Carolina Lancaster County, South Carolina Forsythe County, North Carolina
D-22 131
DEBTOR JURISDICTION ------ ------------ Tamor Corporation Secretary of State, Illinois 106 Carter Street Leominster, Massachusetts 01452 Secretary of State, Missouri Pike County, Missouri Pike County, Missouri (Fixture Filing) Secretary of the Commonwealth, Massachusetts Selfix, Inc. Secretary of State, Illinois 4501 West 47th Street Chicago, Illinois 60632 Cook County, Illinois (Fixture Filing) Shutters, Inc. Secretary of State, Illinois 12213 Route 173 Hebron, Illinois McHenry County, Illinois (Fixture Filing)
D-23 132 ANNEX E (SECTION 4.1(a)) TO CREDIT AGREEMENT FINANCIAL STATEMENTS AND FORECASTS REPORTING Borrowers shall deliver or cause to be delivered to Agent or to Agent and Lenders as indicated, the following: (a) Monthly Financials. To Agent and Lenders, within thirty (30) days after the end of each Fiscal Month, financial information regarding Holdings and its Subsidiaries, certified by the Chief Financial Officer of Borrower Representative, consisting of consolidated and consolidating (i) unaudited balance sheets as of the close of such Fiscal Month and the related statements of income and cash flow for that portion of the Fiscal Year ending as of the close of such Fiscal Month; (ii) unaudited statements of income and cash flows for such Fiscal Month, setting forth in comparative form the figures for the corresponding period in the prior year and the figures contained in the Forecasts for such Fiscal Year, all prepared in accordance with GAAP (subject to normal year-end adjustments); and (iii) a summary of the outstanding balance of all Intercompany Notes as of the last day of that Fiscal Month. Such financial information shall be accompanied by the certification of the Chief Financial Officer of Borrower Representative that (i) such financial information presents fairly in accordance with GAAP (subject to normal year-end adjustments) the financial position and results of operations of Borrowers and their Subsidiaries, on a consolidated and consolidating basis, in each case as at the end of such month and for the period then ended and (ii) any other information presented is true, correct and complete in all material respects and that there was no Default or Event of Default in existence as of such time or, if a Default or Event of Default shall have occurred and be continuing describing the nature thereof and all efforts undertaken to cure such Default or Event of Default; (b) Quarterly Financials. To Agent and Lenders, within forty-five (45) days after the end of each Fiscal Quarter, consolidated and consolidating financial information regarding Holdings and its Subsidiaries, certified by the Chief Financial Officer of Borrower Representative, including (i) unaudited balance sheets as of the close of such Fiscal Quarter and the related statements of income and cash flow for that portion of the Fiscal Year ending as of the close of such Fiscal Quarter and (ii) unaudited statements of income and cash flows for such Fiscal Quarter, in each case setting forth in comparative form the figures for the corresponding period in the prior year and the figures contained in the Forecasts for such Fiscal Year, all prepared in accordance with GAAP (subject to normal year-end adjustments). Such financial information shall be accompanied by (A) a statement in reasonable detail (each, a "Compliance Certificate" showing the calculations used in determining compliance with each of the financial covenants set forth on Annex G which is tested on a quarterly basis and (B) the certification of the Chief Financial Officer of Borrower Representative that (i) such financial information presents fairly in accordance with GAAP (subject to normal yearend adjustments) the financial position, results of operations and statements of cash flows of Holdings and its Subsidiaries, on both a consolidated and consolidating basis, as at the end of such Fiscal Quarter and for the 133 period then ended, (ii) any other information presented is true, correct and complete in all material respects and that there was no Default or Event of Default in existence as of such time or, if a Default or Event of Default shall have occurred and be continuing, describing the nature thereof and all efforts undertaken to cure such Default or Event of Default In addition Borrowers shall deliver to Agent and Lenders, within forty-five (45) days after the end of each Fiscal Quarter, a management discussion and analysis which includes a comparison to budget for that Fiscal Quarter and a comparison of performance for that Fiscal Quarter to the corresponding period in the prior year; (c) Operating Plan. To Agent and Lenders, as soon as available, but not later than thirty (30) days after the end of each Fiscal Year, an annual operating plan for each Borrower, approved by the Board of Directors of such Borrower, for the following year, which will include a statement of all of the material assumptions on which such plan is based, will include monthly balance sheets and a monthly budget for the following year and will integrate sales, gross profits, operating expenses, operating profit, cash flow Forecasts and Borrowing Availability Forecasts all prepared on the same basis and in similar detail as that on which operating results are reported (and in the case of cash flow Forecasts, representing management's good faith estimates of future financial performance based on historical performance), and including plans for personnel, Capital Expenditures and facilities; (d) Annual Audited Financials. To Agent and Lenders, within ninety (90) days after the end of each Fiscal Year, audited Financial Statements for Holdings and its Subsidiaries on a consolidated and consolidating basis, consisting of balance sheets and statements of income and retained earnings and cash flows, setting forth in comparative form in each case the figures for the previous Fiscal Year and the figures contained in the Forecasts for such Fiscal Year, which Financial Statements shall be prepared in accordance with GAAP, certified without qualification, by an independent certified public accounting firm of national standing or otherwise acceptable to Agent. Such Financial Statements shall be accompanied by (i) a statement prepared in reasonable detail showing the calculations used in determining compliance with each of the financial covenants set forth on Annex G, (ii) a report from such accounting firm to the effect that, in connection with their audit examination, nothing has come to their attention to cause them to believe that a Default or Event of Default has occurred (or specifying those Defaults and Events of Default that they became aware of), it being understood that such audit examination extended only to accounting matters and that no special investigation was made with respect to the existence of Defaults or Events of Default, (iii) a letter addressed to Agent, on behalf of itself and Lenders, in form and substance reasonably satisfactory to Agent and subject to standard qualifications taken by nationally recognized accounting firms, signed by such accounting firm acknowledging that Agent and Lenders are entitled to rely upon such accounting firm's certification of such audited Financial Statements, (iv) the annual letters to such accountants in connection with their audit examination detailing contingent liabilities and material litigation matters, and (v) the certification of the Chief Executive Officer or Chief Financial Officer of Holdings that all such Financial Statements present fairly in accordance with GAAP the financial position, results of operations and statements of cash flows of Borrowers and their Subsidiaries on a consolidated and consolidating basis, as at the end of such year and for the period then ended, and that there was no Default or Event of Default in existence as of such time E-2 134 or, if a Default or Event of Default shall have occurred and be continuing, describing the nature thereof and all efforts undertaken to cure such Default or Event of Default; (e) Management Letters. To Agent and Lenders, within five (5) Business Days after receipt thereof by any Credit Party, copies of all management letters, exception reports or similar letters or reports received by such Credit Party from its independent certified public accountants; (f) Default Notices. To Agent and Lenders, as soon as practicable, and in any event within five (5) Business Days after an executive officer of any Borrower has actual knowledge of the existence of any Default, Event of Default or other event which has had a Material Adverse Effect telephonic or telecopied notice specifying the nature of such Default or Event of Default or other event including the anticipated effect thereof, which notice, if given telephonically, shall be promptly confirmed in writing on the next Business Day; (g) SEC Filings and Press Releases. To Agent and Lenders, promptly upon their becoming available, copies of: (i) all Financial Statements, reports, notices and proxy statements made publicly available by an Credit Party to its security holders; (ii) all regular and periodic reports and all registration statements and prospectuses, if any, filed by any Credit Party with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority; and (iii) all press releases and other statements made available by any Credit Party to the public concerning material adverse changes or developments in the business of any such Person; (h) Subordinated Debt and Equity Notices. To Agent and Lenders, as soon as practicable, copies of all material written notices given or received by any Credit Party with respect to any Subordinated Debt or Stock of such Person, and within two (2) Business Days after any Credit Party obtains knowledge of any matured or unmatured event of default with respect to any Subordinated Debt notice of such event of default; (i) Supplemental Schedules. To Agent and Lenders, supplemental disclosures, if any, required by Section 5.6 of the Agreement; (j) Litigation. To Agent and Lenders in writing, promptly upon learning thereof, notice of any Litigation commenced or threatened against any Credit Party that (i) seeks damages in excess of $100,000, (ii) seeks injunctive relief, (iii) is asserted or instituted against any Plan, its fiduciaries or its assets or against any Credit Party or ERISA Affiliate in connection with any Plan, (iv) alleges criminal misconduct by any Credit Party, or (v) alleges the violation of any law regarding, or seeks remedies in connection with any Environmental Liabilities, (k) Insurance Notices. To Agent and Lenders, disclosure of losses or casualties required by Section 5 4 of the Agreement; (l) To Agent and Lenders, copies of (i) any and all default notices received under or with respect to any leased location or public warehouse where Collateral is located, and (ii) such other notices or documents as Agent may request in its reasonable discretion; and E-3 135 (m) Other Documents. To Agent and Lenders, such other financial and other information respecting any Credit Party's business or financial condition as Agent or any Lender shall from time to time, request. E-4 136 ANNEX F (Section 4.1 (b)) to CREDIT AGREEMENT COLLATERAL REPORTS Borrowers shall deliver or cause to be delivered the following: (a) To Agent and any Lender that has requested copies thereof in writing, on the first Business Day of each Fiscal Month as of the last day of the prior Fiscal Month, a Borrowing Base Certificate with respect to each Borrower, in each case accompanied by such supporting detail and documentation as shall be requested by Agent in its reasonable discretion; provided, however, if Agent or Requisite Lenders request in writing that each Borrower deliver a weekly Borrowing Base Certificate, Borrowers shall deliver to Agent and any Lender that has requested copies thereof in writing, the Borrowing Base Certificate and supporting detail and documentation described above on the first Business Day of each week as of the last day of the prior week; (b) To Agent, upon its request, and in no event less frequently than five (5) Business Days after the end of each Fiscal Month (together with a copy of all or any part of such delivery requested by any Lender in writing after the Closing Date), each of the following: (i) with respect to each Borrower, a summary of Inventory by location and type with a supporting perpetual Inventory report, in each case accompanied by such supporting detail and documentation as shall be requested by Agent in its reasonable discretion; and (ii) with respect to each Borrower, a monthly trial balance showing Accounts outstanding aged from invoice due date as follows: 1 to 30 days, 31 to 60 days, 61 to 90 days and 91 days or more, accompanied by such supporting detail and documentation as shall be requested by Agent in its reasonable discretion; (c) To Agent, at the time of delivery of each of the monthly Financial Statements delivered pursuant to Annex E, a reconciliation of the Accounts trial balance and month-end Inventory reports of each Borrower to such Borrower's general ledger and monthly Financial Statements delivered pursuant to such Annex E, in each case accompanied by such supporting detail and documentation as shall be requested by Agent in its reasonable discretion; (d) To Agent, at the time of delivery of each of the annual Financial Statement delivered pursuant to Annex E, (i) a listing of government contracts of each Borrower subject to the Federal Assignment of Claims Act of 1940; and (ii) a list of any applications for the registration of any Patent, or Trademark with the United States Patent and Trademark Office or any similar office or agency which any Credit Party thereof has filed in the prior Fiscal Quarter; (e) Each Borrower, at its own expense, shall deliver to Agent the results of each physical verification, if any, which such Borrower or any of its Subsidiaries may in their 137 discretion have made, or caused any other Person to have made on their behalf, of all or any portion of their Inventory (and, if a Default or an Event of Default shall have occurred and be continuing, each Borrower shall, upon the request of Agent, conduct, and deliver the results of, such physical verifications as Agent may require); (f) Each Borrower, at its own expense, shall deliver to Agent such appraisals of its assets as Agent may request at any time after the occurrence and during the continuance of a Default or an Event of Default, such appraisals to be conducted by an appraiser, and in form and substance, satisfactory to Agent; and (g) Such other reports, statements and reconciliations with respect to the Borrowing Base or Collateral of any or all Credit Parties as Agent shall from time to time request in its reasonable discretion. F-2 138 ANNEX G (Section 6.10) to CREDIT AGREEMENT FINANCIAL COVENANTS Borrowers shall not breach or fail to comply with any of the following financial covenants, each of which shall be calculated in accordance with GAAP consistently applied: (a) Maximum Capital Expenditures. Holdings and its Subsidiaries on a consolidated basis (a) shall not make Capital Expenditures in excess of $12,000,000 during the Fiscal Year ending in December of 1998, (b) shall not make Capital Expenditures in excess of $13,000,000 during the Fiscal Year ending in December of 1999, and (c) shall not make Capital Expenditures in excess of $13,500,000 during any Fiscal Year thereafter. (b) Minimum Fixed Charge Coverage Ratio. Holdings and its Subsidiaries shall have on a consolidated basis at the end of each Fiscal Quarter set forth below, a Fixed Charge Coverage Ratio for the 12-month period then ended (or with respect to the Fiscal Quarters ending on or before September 30,1998, the period commencing on December 28, 1997 and ending on the last day of such Fiscal Quarter) of not less than the following: 1.15 to 1.0 for each Fiscal Quarter ending in June, 1998; September, 1998; December, 1998; and March 1999; 1.14 to 1.0 for each Fiscal Quarter ending in June, 1999; September, 1999; and December, 1999; 1.13 to 1.0 for each Fiscal Quarter ending in March, 2000; June, 2000; September, 2000; December, 2000; March, 2001; June 30, 2001; September, 2001; and December, 2001; 1.17 to 1.0 for Fiscal Quarter ending in March, 2002; 1.20 to 1.0 for each Fiscal Quarter ending in June, 2002; September, 2002; December, 2002; March, 2003; June, 2003; September, 2003; December, 2003; and March, 2004; 1.0 to 1.0 for each Fiscal Quarter ending in June, 2004; September, 2004; December 2004; March, 2005; June, 2005; September, 2005; December, 2005; and March, 2006; 1.10 to 1.0 for the Fiscal Quarter ending in June, 2006; and each Fiscal Quarter ending thereafter. (c) Minimum EBITA. Holdings and its Subsidiaries on a consolidated basis shall have, at the end of each Fiscal Quarter set forth below, EBITA for the twelve month period then ending (or with respect to the Fiscal Quarters ending on or before September 30, 1998, the period commencing on December 28, 1997 and ending on the last day of such Fiscal Quarter) of not less than the following: 139 Period EBITA ------ ----- March of 1998 $ 5,600,000 June of 1998 $13,900,000 September of 1998 $20,800,000 December of 1998 $27,800,000 March of 1999 $28,700,000 June of 1999 $29,500,000 September of 1999 $30,300,000 December of 1999 $31,100,000 March of 2000 $32,200,000 June of 2000 $33,300,000 September of 2000 $34,400,000 December of 2000 $35,500,000 March of 2001 $35,900,000 June of 2001 $36,300,000 September of 2001 $36,800,000 December of 2001 $37,200,000 March of 2002 $37,700,000 June of 2002 $38,200,000 September of 2002 $38,600,000 December of 2002 $39,100,000 March of 2003 $39,600,000 June of 2003 $40,100,000 September of 2003 $40,600,000 G-2 140 December of 2003 $41,100,000 March of 2004 $41,600,000 June of 2004 $42,100,000 September of 2004 $42,600,000 December of 2004 $43,100,000 March of 2005 $43,600,000 June of 2005 $44,200,000 September of 2005 $44,700,000 December of 2005 $45,300,000 March of 2006 $45,800,000 June of 2006 $46,400,000 September of 2006 $47,000,000 December of 2006 $47,500,000 and each Fiscal Quarter thereafter $47,500,000 (d) Minimum Net Worth. Holdings and its Subsidiaries on a consolidated basis shall maintain at all times Net Worth equal to or greater than $55,200,000 measured as of the last day of each Fiscal Quarter and increased by an amount equal to fifty percent (50%) of the cumulative positive net income of Holdings and its Subsidiaries on a consolidated basis from the Closing Date through the last day of that Fiscal Quarter. (e) Minimum Interest Coverage Ratio. Holdings and its Subsidiaries on a consolidated basis shall have at the end of each Fiscal Quarter set forth below, an Interest Coverage Ratio for the 12-month period then ended (or with respect to the Fiscal Quarters ending on or before September 30, 1997, the period commencing on December 28, 1997 and ending on the last day of such Fiscal Quarter) of not less than the following: G-3 141 2.0 to 1.0 for each Fiscal Quarter ending in March of 1998; June of 1998; September of 1998; and December of 1998 2.3 to 1.0 for the Fiscal Quarter ending in March of 1999 2.5 to 1.0 for the Fiscal Quarter ending in June of 1999 2.6 to 1.0 for the Fiscal Quarter ending in September of 1999 2.7 to 1.0 for the Fiscal Quarter ending in December of 1999 2.9 to 1.0 for the Fiscal Quarter ending in March of 2000 3.1 to 1.0 for the Fiscal Quarter ending in June of 2000 3.3 to 1.0 for the Fiscal Quarter ending in September 2000 3.5 to 1.0 for the Fiscal Quarter ending in December of 2000 3.7 to 1.0 for the Fiscal Quarter ending in March of 2001 3.9 to 1.0 for the Fiscal Quarter ending in June of 2001 4.0 to 1.0 for the Fiscal Quarter ending in September of 2001 4.4 to 1.0 for the Fiscal Quarter ending in December of 2001 4.7 to 1.0 for the Fiscal Quarter ending in March of 2002 5.0 to 1.0 for the Fiscal Quarter ending in June of 2002 5.3 to 1.0 for the Fiscal Quarter ending in September of 2002 5.8 to 1.0 for the Fiscal Quarter ending in December of 2002 6.2 to 1.0 for the Fiscal Quarter ending in March of 2003 6.6 to 1.0 for the Fiscal Quarter ending in June of 2003 7.1 to 1.0 for the Fiscal Quarter ending in September of 2003 7.7 to 1.0 for the Fiscal Quarter ending in December of 2003 9.0 to 1.0 for the Fiscal Quarter ending in March of 2004 10.0 to 1.0 for the Fiscal Quarter ending in June of 2004 and each Fiscal Quarter end thereafter. Unless otherwise specifically provided herein, any accounting term used in the Agreement shall have the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed in accordance with GAAP consistently applied. That certain items or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. If any "Accounting Changes" (as defined below) occur and such changes result in a change in the calculation of the financial covenants, standards or terms used in the Agreement or any other Loan Document, then Borrowers, Agent and Lenders agree to enter into negotiations in order to amend such provisions of the Agreement so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating Borrowers' and their Subsidiaries' financial condition shall be the same after such Accounting Changes as if such Accounting Changes had not been made; provided however that the agreement of Requisite Lenders to any required amendments of such provisions shall be sufficient to bind all Lenders. "Accounting Changes" means (a) changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or successor thereto or any agency with similar functions), (b) changes in accounting principles concurred in by any Borrower's certified public accountants; (c) purchase accounting adjustments under A.P.B.16 and/or 17 and EITF 88-16, and the application of the accounting principles set forth in FASB 109, including the establishment of reserves pursuant thereto and G-4 142 any subsequent reversal (in whole or in part) of such reserves; and (d) the reversal of any reserves established as a result of purchase accounting adjustments. All such adjustments resulting from expenditures made subsequent to the Closing Date (including capitalization of costs and expenses or payment of pre-Closing Date liabilities) shall be treated as expenses in the period the expenditures are made and deducted as part of the calculation of EBITDA in such period. If Agent, Borrowers and Requisite Lenders agree upon the required amendments, then after appropriate amendments have been executed and the underlying Accounting Change with respect thereto has been implemented, any reference to GAAP contained in the Agreement or in any other Loan Document shall, only to the extent of such Accounting Change, refer to GAAP, consistently applied after giving effect to the implementation of such Accounting. Change If Agent, Borrowers and Requisite Lenders cannot agree upon the required amendments within thirty (30) days following the date of implementation of any Accounting Change, then all Financial Statements delivered and all calculations of financial covenants and other standards and terms in accordance with the Agreement and the other Loan Documents shall be prepared, delivered and made without regard to the underlying Accounting Change. G-5 143 ANNEX H (SECTION 9.9(a)) TO CREDIT AGREEMENT WIRE TRANSFER INFORMATION Name General Electric Capital Corporation Bank: Bankers Trust Company New York, New York ABA No 021001033 Account No: 50232854 Account Name: GECC/CF Depositor Reference: Selfix Inc. Reference Number: CFC 4075 H-1 144 ANNEX I (SECTION 11.10) TO CREDIT AGREEMENT NOTICE ADDRESSES (A) If to Agent or GE Capital, at General Electric Capital Corporation Merchant Banking Group 10 South LaSalle Street, Suite 2700 Chicago, Illinois 60603 Attention: Selfix Account Manager Telecopier No: (312) 419-5992 Telephone No: (312) 419-0985 with copies to: Latham & Watkins 5800 Sears Tower Chicago, Illinois 60603 Attention: David G. Crumbaugh Telecopier No (312) 993-9767 Telephone No: (312) 876-7660 and General Electric Capital Corporation 201 High Ride Road Stamford, Connecticut 06927-5100 Attention: Corporate Counsel Telecopier No: (203) 316-7889 Telephone No: (203) 316-7552 (B) If to any Borrower, to Borrower Representative, at Selfix, Inc. 4501 West 47th Street Chicago, Illinois 60632 Attention: James Tennant Telecopier No: (773) 890-8901 Telephone No: (773) 890-8916 145 with copies to: Much, Shelist, Freed, Denenberg, Ament, Bell & Rubenstein 200 N. LaSalle Street Suite 2100 Chicago, Illinois 60601 Attention: Jefrey C. Rubenstein Telecopier No: (312) 621-1750 Telephone No: (312) 346-3100 I-2 146 ANNEX J to CREDIT AGREEMENT COMMITMENTS LENDER REVOLVING LOAN TERM LOAN A TERM LOAN B - ------ -------------- ----------- ----------- General Electric Capital Corporation 4,500,000* 12,000,000 28,500,000 Key Corporate Capital, Inc. 7,000,000 14,000,000 9,000,000 KZH-ING-2 Corporation 2,500,000 7,500,000 The ING Capital Senior Secured High Income Fund, L.P. 2,500,000 7,500,000 ING High Income Principal Preservation Fund Holdings, LDC 2,500,000 7,500,000 LaSalle National Bank 7,000,000 13,000,000 Bank Polska Kasa Opieki S.A. - Pekao S.A. Group, New York Branch 1,500,000 3,500,000 ---------- ---------- ---------- 20,000,000 50,000,000 60,000,000 *Including a Swing Line Commitment of $2,000,000 I-2 EX-10.11 6 NOTE PURCHASE AGREEMENT 1 EXHIBIT 10.11 NOTE PURCHASE AGREEMENT This Note Purchase Agreement dated as of December ___, 1997, is by and among Selfix, Inc., a Delaware corporation; Tamor Corporation, a Massachusetts corporation, Shutters, Inc., an Illinois corporation, and Seymour Housewares Corporation, a Delaware corporation ("Seymour") (the "Joint Issuers"); Home Products International, Inc., a Delaware corporation ("Holdings"); and General Electric Capital Corporation, a New York corporation ("GE Capital"), individually and as agent (in such capacity, "Agent") for itself and the other Note Purchasers that are signatories hereto (the "Note Purchasers"), and the Note Purchasers. In Witness Whereof the parties hereto agree as follows: 1.1 The Notes. The Joint Issuers have authorized the issuance and sale of Senior Subordinated Notes due December ___, 2006 (including any notes issued in payment of interest pursuant to Section 1.2 or in substitution therefor pursuant to Section 11, collectively, the "Notes"), to be in the form of the Note set forth in Exhibit 1.1. with such changes thereto, if any, as may be approved by the Note Purchasers and the Joint Issuers. 1.2 Note Terms. Prepayments. (a) The Notes shall bear interest at a per annum rate equal to the Index Rate from time to time in effect, plus three percent (3.0%) per annum, but in no event less than eleven percent (11.0%) per annum (collectively, the "Base Rate"). Interest shall be payable monthly on the first day of each calendar month, commencing January 1, 1998. Interest on the Notes shall be calculated daily on the basis of a three hundred sixty (360) day year for the actual number of days elapsed in the period during which it accrues. If the Majority Holders so elect, after the occurrence of an Event of Default and for so long as such Event of Default continues, the Notes shall bear interest at a per annum rate equal to the Base Rate plus 2.0% per annum. The Note Purchasers agree that under no circumstances will the rate of interest chargeable be in excess of the maximum amount permitted by law. If excess interest is charged and paid in error, the Note Purchasers agree that the excess amount will be promptly refunded to the Joint Issuers. The outstanding principal balance of all of the Notes, together with all accrued and unpaid interest thereon, shall be due and payable in full on December ___, 2006. (b) If Holdings or any Joint Issuer issues equity securities, no later than the Business Day following the date of receipt of the proceeds thereof, the Joint Issuers shall prepay the Notes, ratably, in an amount equal to 50% of the proceeds of such equity issuance, net of underwriting discounts and commissions and other reasonable out-of-pocket costs incurred in connection therewith. If Term Loan A and Term Loan B under the Credit Agreement, as the same may be amended, restated, extended, refinanced or refunded have been paid in full in cash the Joint Issuers shall prepay the Notes, ratably, in an amount equal to 100% of such net proceeds of equity issuances. In addition, the Joint Issuers shall prepay the Notes in full upon payment in full in cash of the Senior Loans and termination of the Senior Lenders' commitment to make Senior Loans under the Credit Agreement as in effect on the date hereof. 2 (c) In addition to the mandatory prepayments required under clause (b) above, the Joint Issuers may voluntarily prepay the Notes in whole or in part (in integral multiples of $100,000) at any time upon not less than ten (10) days' prior written notice to the Note Purchasers in an amount not to exceed 25% of the Joint Issuers' Excess Cash Flow for each Fiscal Year within 100 days following the last day of such Fiscal Year. (d) All prepayments, whether mandatory or voluntary, shall be applied first to accrued interest under the Notes, pro rata, and then to the principal balance of the Notes, pro rata, and all prepayments may be made without premium or penalty. 2. Sale and Purchase of Notes. The Joint Issuers will issue and sell to the Note Purchasers on the date hereof Notes in the aggregate principal amount of $10,000,000 in the respective principal amounts set forth on the signature pages hereto. Such Notes shall be issued in the State of Illinois and governed by the laws of that State. 3.1 Closing; Fees. The sale of the Notes to be purchased by the Note Purchasers shall take place at the offices of Latham & Watkins, Suite 5800, Sears Tower, Chicago, Illinois 60606, at a closing (the "Closing") on December ___, 1997 or on such other Business Day thereafter as may be agreed upon by the Joint Issuers and the Majority Holders (the "Closing Date"). At the Closing, the Joint Issuers will deliver to each Note Purchaser the Notes to be purchased by it in the principal amount set forth on the signature pages hereto on such date against delivery by each Note Purchaser to the Joint Issuers or their order of immediately available funds in the amount of the principal amount of each Note to be purchased by it. If, at the Closing, the Joint Issuers shall fail to tender to any Note Purchaser the Notes to be purchased by it as provided herein, or any of the material conditions specified in Section 4 shall not have been fulfilled to the Note Purchasers' satisfaction, all of the Note Purchasers shall be relieved of their respective obligations under this Agreement, without thereby waiving any other rights such Note Purchasers may have by reason of such failure or such non-fulfillment. 3.2 The Joint Issuers agree, jointly and severally, to promptly pay all reasonable fees, costs and expenses (including those of attorneys) incurred by the Note Purchasers in connection with any matters arising out of the Note Purchase Documents and the other Related Transactions Documents, in connection with the examination, review, due diligence investigation, documentation, negotiation and closing of the transactions identified herein and in connection with the continued administration (other than administrative matters arising in the ordinary course) of the Note Purchase Documents including any amendments, modifications, and waivers of or with respect to the Note Purchase Documents or any of the other Related Transactions Documents. The Joint Issuers agree, jointly and severally, to promptly pay (i) all reasonable fees, costs and expenses incurred by each Note Purchaser in connection with any action to enforce any Note Purchase Document or to collect any payments due from the Joint Issuers and (ii) upon prepayment in full of the Notes, the success fee to the Note Purchasers as 3 determined in accordance with Schedule 3.2 hereto. All fees, costs and expenses for which the Joint Issuers are responsible under this Section 3.2 shall be payable on demand (or when due in the case of the success fee) and secured by the Collateral (as defined in the Security Documents). 4. Conditions Precedent; Conditions to Closing. Each Note Purchaser's obligation to execute and deliver this Agreement and to purchase and pay for the Note to be sold to it at the Closing is subject to the fulfillment to the reasonable satisfaction of the Majority Holders, prior to or at the Closing, of the following conditions: 4.1.1 Representations and Warranties. The representations and warranties of Holdings and each of the Joint Issuers contained in this Agreement and those otherwise made in writing by or on behalf of the Joint Issuers in connection with the transactions identified in this Agreement shall be correct in all material respects at the time of Closing. 4.1.2 Performance; No Default. The Joint Issuers shall have performed and complied in all material respects with all agreements and conditions contained in this Agreement required to be performed or complied with by them prior to or at the Closing and at the time of the Closing no Default or Event of Default shall have occurred and be continuing. 4.1.3 Opinions of Counsel. Each Note Purchaser shall have received from Much, Shelist, Freed, Denenberg, Ament, Bell & Rubenstein PC, counsel to Holdings and the Joint Issuers, a favorable opinion in form and substance reasonably satisfactory to the Majority Holders, addressed to the Note Purchasers and dated the Closing Date. 4.1.4 Credit Agreement. The Related Transactions shall have been consummated. 4.1.5 Security Documents. Each Note Purchaser shall have received duly executed copies of the Security Agreement and each of the other Security Documents, together with reasonably satisfactory evidence that the Note Purchasers have a valid and perfected second priority security interest in the Collateral (as defined in the Security Documents), subject only to liens and encumbrances permitted herein, in the Security Agreement or in the Credit Agreement. 4.1.6 Certain Legal Matters. On the date of the Closing, no Note Purchaser's purchase of the Note shall be prohibited by any applicable law or governmental regulation. 4.1.7 Compliance with Securities Laws. The offering and sale of the Note to be issued at the Closing shall have complied with all applicable requirements of federal and state securities laws. 4.1.8 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and the other Related 4 Transactions Documents to be executed and delivered on the Closing Date and all documents and instruments to such transactions shall be reasonably satisfactory to each Note Purchaser, and each Note Purchaser shall have received all such counterpart originals or certified or other copies of such documents as it may reasonably request. 4.1.9 No Actions Pending. There shall be no suit, action, investigation, inquiry or other proceeding by any governmental body or any other Person or any other legal or administrative proceeding, pending or, to the Joint Issuers' knowledge, threatened, which questions the validity or legality of the transactions contemplated by this Agreement or any of the other Related Transactions Documents or which seeks damages or injunctive or other equitable relief in connection therewith. 4.1.10 Other Documents. Each Note Purchaser's obligation to purchase the Note on the Closing Date is, in addition to the conditions precedent specified above, subject to the delivery to it of all Note Purchase Documents, all in form and substance reasonably satisfactory to the initial Note Purchasers. 4.1.11 Performance; No Default. The Joint Issuers shall have performed and complied in all material respects with all agreements and conditions contained in this Agreement required to be performed or complied with by any of them as of the Closing Date and, as of the Closing Date, no Default or Event of Default shall have occurred and be continuing. 5. Representations and Warranties. The Joint Issuers represent and warrant to each Note Purchaser that: 5.1. Disclosure. No representation or warranty of Holdings or any Joint Issuer contained in this Agreement, the financial statements referred to in Section 5.5, the other Related Transactions Documents or any other document, certificate or written statement furnished to any Note Purchaser by or on behalf of any such Person for use in connection with the Note Purchase Documents or the other Related Transactions Documents contains any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. 5.2. No Material Adverse Effect. Since December 31, 1996, no events have occurred which, taken as a whole, have had a Material Adverse Effect. 5.3. No Default. The consummation of the Related Transactions does not and will not violate, conflict with, result in a breach of, or constitute a default (with due notice or lapse of time or both) under, or require the consent of any third party under, any material contract of the Joint Issuers except if such violations, conflicts, breaches or defaults have either been 5 waived on or before the Closing Date and are disclosed on Schedule 5.3 or could not reasonably been expected to have, either individually or in the aggregate, a Material Adverse Effect. 5.4. Organization, Powers, Capitalization and Good Standing. (A) Organization and Powers. Each Joint Issuer and Holdings is a corporation, duly organized, validly existing and in good standing under the laws of the State of its incorporation. Each of the Joint Issuers has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and proposed to be conducted, to enter into each Related Transactions Document to which it is a party and to consummate the Related Transactions. (B) Capitalization. The authorized and issued capital stock of Holdings and each of the Joint Issuers is as set forth on Schedule 5.4(B). All issued and outstanding shares of capital stock of each of the Joint Issuers are duly authorized and validly issued, fully paid, nonassessable, and such shares were issued in compliance with all applicable state and federal laws concerning the issuance of securities. The capital stock of each of the Joint Issuers is owned by Holdings. There are no preemptive or other outstanding rights, options, warrants, conversion rights or similar agreements or understandings for the purchase or acquisition from Holdings or any Joint Issuer of any shares of capital stock or other securities of any such entity, except for the Warrant and the other securities disclosed in the Schedules to the Credit Agreement as of the Closing Date. (C) Binding Obligation. This Agreement is, and the other Related Transactions Documents when executed and delivered will be, the legally valid and binding obligations of Holdings and the Joint Issuers, respectively, each enforceable against each of them, as applicable, in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium and similar laws affecting creditors' rights generally, and by general principles of equity. (D) Qualification. Each of the Joint Issuers is duly qualified and in good standing wherever necessary to carry on its business and operations, except in jurisdictions in which the failure to be qualified and in good standing could not reasonably be expected to have a Material Adverse Effect. 5.5. Financial Statements. All financial statements concerning any of the Joint Issuers which have been or will hereafter be furnished to the Note Purchasers pursuant to this Agreement, including those listed below, have been or will be prepared in accordance with GAAP consistently applied (except as disclosed therein) and do or will present fairly the financial condition of the corporations covered thereby as at the dates thereof and the results of their operations for the periods then ended. 6 (i) The audited combined balance sheets of Tamor and Housewares at December 31, 1995 and 1996 and the related combined statements of income, stockholders' equity and cash flows for each of the three Fiscal Years for the period ended December 31, 1996, certified by BDO Seidman. (ii) The audited consolidated balance sheet at December 28, 1996 and the related consolidated statement(s) of income and cash flows of Selfix and Shutters for the Fiscal Year then ended, certified by Arthur Andersen & Co. (iii) The audited balance sheets of Seymour and the related statements of income, stockholders' equity and cash flows at June 30, 1996 and June 30, 1997 and for the respective fiscal years then ended. (iv) The unaudited balance sheets and the related statements of income, stockholders equity and cash flow of Holdings and its Subsidiaries on a consolidated and consolidating basis at November 29, 1997 and for the 11 months then ending. (v) The unaudited balance sheet and related statements of income, stock holders equity and cash flow of Seymour at November 23, 1997 and for the five months then ended. 5.6. Property. Each Joint Issuer owns, is licensed to use or otherwise has the right to use, all assets used in or necessary for the conduct of its business as currently conducted or that are material to the condition (financial or other), business or operations of the Joint Issuers. 5.7. Investigations, Audits, Etc. Except as set forth on Schedule 5.7, none of the Joint Issuers are the subject of any review or audit by the Internal Revenue Service or any governmental authority concerning the violation or possible violation of any law. 5.8. Employee Matters. Except as set forth on Schedule 5.8, (a) no Joint Issuer has any obligation under any collective bargaining agreement, (b) no petition for certification or union election is pending with respect to the employees of any Joint Issuer and no union or collective bargaining unit has sought such certification or recognition with respect to the employees of any Joint Issuer and (c) there are no strikes, slowdowns, work stoppages or controversies pending or, to the best knowledge of the Joint Issuers threatened between any Joint Issuer and its respective employees, other than employee grievances arising in the ordinary course of business which could not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. 5.9. Solvency. As of and from and after the date of this Agreement and after giving effect to the consummation of the Related Transactions, each Joint Issuer: (a) owns and will own assets the fair saleable value of which are greater than the total amount of liabilities (including contingent liabilities) of that Joint Issuer; (b) is able to pay its debts as they become due; (c) has capital that is not unreasonably small in relation to its business as presently conducted or any 7 contemplated or undertaken transaction; and (d) does not intend to incur and does not believe that it will incur debts beyond its ability to pay such debts as they become due. 5.10. Compliance with Laws. Each Joint Issuer is in compliance with all applicable laws after giving effect to the Related Transactions, except where failure to comply would not have a Material Adverse Effect. 5.11. Pending and Threatened Litigation. Except as set forth on Schedule 5.11 hereto, Neither Holdings nor any Joint Issuer is a party to any litigation that is pending or to the knowledge of any Joint Issuer, threatened, which is likely to be determined adversely to Holdings or that Joint Issuer and, which, if so determined, would have a Material Adverse Effect. 6. Purchase Intent. Each Note Purchaser represents that it is purchasing a Note hereunder for its own account, not with a view to the distribution thereof or with any present intention of distributing or selling such Note except in compliance with the Securities Act, provided that the disposition of each Note Purchaser's property shall at all times be within its control. Each Note Purchaser represents that it is an accredited investor, within the meaning of Regulation 501(a) under the Securities Act. 7. Financial Covenants and Reporting. Holdings agrees that so long as any Note is outstanding, unless each Note Purchaser shall otherwise give its prior written consent, Holdings shall comply with and shall cause each of the other Joint Issuers that are owned or controlled by it to comply with all covenants in this Section 7 applicable to such Person. 7.1. Financial Statements and Other Reports. Holdings will maintain, and cause each of its Subsidiaries to maintain, a system of accounting established and administered in accordance with second business practices to permit preparation of financial statements in conformity with GAAP (it being understood that monthly financial statements are not required to have footnote disclosures). Holdings will deliver to each Note Purchaser each of the financial statements and other reports described below. (A) Monthly Financials. As soon as available and in any event within thirty (30) days after the end of each month, Holdings will deliver to each Note Purchaser (1) the consolidated and consolidating balance sheet of Holdings and its Subsidiaries as at the end of such month and the related consolidated and consolidating statements of income, stockholders' equity and cash flow for such month and for the period from the beginning of the then current fiscal year of such Person to the end of such month and (2) a schedule of the outstanding Indebtedness for borrowed money of each such Person describing in reasonable detail each such debt issue or loan outstanding and the principal amount and amount of accrued and unpaid interest with respect to each such debt issue or loan. (B) Year-End Financials. As soon as available and in any event within ninety (90) days after the end of each fiscal year of Holdings, Holdings will deliver to each Note Purchaser 8 (1) the consolidated and consolidating balance sheet of Holdings and each of its Subsidiaries as at the end of such year and the related consolidated and consolidating statements of income, stockholders' equity and cash flow for such fiscal year, (2) a schedule of the outstanding Indebtedness for borrowed money of each such Person describing in reasonable detail each such debt issue or loan outstanding and the principal amount and amount of accrued and unpaid interest with respect to each such debt issue or loan and (3) an unqualified report with respect to the financial statements from a firm of certified public accountants selected by Holdings and reasonably acceptable to the Majority Holders. (C) Compliance Certificate. Together with each delivery of financial statements of Holdings and its Subsidiaries pursuant to Sections 7.1(A) and 7.1(B) above, Holdings will deliver to each Note Purchaser a fully and properly completed Compliance Certificate (in substantially the same form as Exhibit 7.1) signed by Holdings' chief executive officer or chief financial officer. (D) Accountants' Reports. Promptly upon receipt thereof, Holdings will deliver copies of all significant reports submitted by Holdings' outside auditors in connection with each annual, interim or special audit or review of any type of the financial statements or related internal control systems of Holdings made by such accountants, including any comment letter submitted by such accountants to management in connection with their services. (E) SEC Filings and Press Releases. Promptly upon their becoming available, Holdings will deliver to each Note Purchaser copies of (1) all financial statements, reports, notices and proxy statements made publicly available by Holdings, to its security holders, (2) all regular and periodic reports and all registration statements and prospectuses, if any, filed by Holdings, with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority, and (3) all press releases and other statements made available by Holdings, to the public concerning material adverse changes or other developments in the business of any such Person. (F) Events of Default, Etc. Promptly upon any officer of Holdings obtaining knowledge of any of the following events or conditions, Holdings shall deliver to each Note Purchaser copies of all notices given or received by Holdings with respect to any such event or condition and a certificate of Holdings' chief executive officer specifying the nature and period of existence of such event or condition and what action Holdings has taken, is taking and proposes to take with respect thereto: (1) any condition or event that constitutes an Event or Default or Default; (2) any notice that any Person has given to Holdings or any of its Subsidiaries or any other action taken with respect to a claimed default or event or condition of the type referred to in Section 13(e); or (3) any event or condition that could reasonably be expected to result in any Material Adverse Effect. (G) Litigation. Holdings shall notify each Note Purchaser in writing, promptly upon learning thereof, of any litigation commenced or threatened against Holdings or any of its Subsidiaries, and of the institution against it of any suit or administrative proceeding that (a) seeks 9 damages of $250,000 or more or (b) seeks injunctive relief. (H) Other Information. With reasonable promptness, Holdings will deliver such other information and data with respect to Holdings or any Joint Issuer as from time to time may be reasonably requested by the Majority Holders. 7.2. Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement. For purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to such terms in conformity with GAAP. Financial statements and other information furnished to the Note Purchasers pursuant to Section 7.1 shall be prepared in accordance with GAAP as in effect at the time of such preparation. 7.3. Inspection. Holdings shall permit any authorized representatives designated from time to time by the Majority Holders to visit and inspect any of the properties of Holdings or any of its Subsidiaries, including its and their financial and accounting records, and to make copies and take extracts therefrom, and to discuss its and their affairs, finances and business with its and their officers and certified public accountants, at such reasonable times during normal business hours and as often as may be reasonably requested. 8. Affirmative and Negative Covenants. Holdings covenants that, from the date of this Agreement through the Closing and thereafter so long as any of the Notes are outstanding: 8.1. Liens, etc. (A) Holdings will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any property or asset (including any document or instrument in respect of goods or accounts receivable) of Holdings or any of its Subsidiaries, whether now owned or held or hereafter acquired, or any income or profits therefrom, except Liens securing the Senior Loans or otherwise permitted under the Credit Agreement. (B) No Negative Pledges. Holdings will not and will not permit any of its Subsidiaries directly or indirectly to enter into or assume any agreement (other than the Note Purchase Documents or as permitted under the Credit Agreement) prohibiting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired, except leases or licenses which prohibit liens on the property subject thereto. (C) No Restrictions on Subsidiary Distributions to Holdings. Except as provided herein and in the Credit Agreement, Holdings will not and will not permit any of its Subsidiaries directly or indirectly to create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any such Subsidiary to: (1) pay dividends or make any other distribution on any of such Subsidiary's capital stock owned by Holdings or any Subsidiary of Holdings; (2) pay any Indebtedness owed to Holdings or any other Subsidiary; (3) make loans or advances to Holdings or any other Subsidiary; or (4) transfer any of its property or assets to Holdings or any other Subsidiary. 10 8.2. Investments; Joint Ventures. Holdings will not and will not permit any of its Subsidiaries directly or indirectly to make or own any Investment in any Person except Investments permitted from time to time under the Credit Agreement. 8.3. Restricted Payments. Holdings will not directly or indirectly declare, order, pay, make or set apart any sum for any Restricted Payment except Restricted Payments permitted under the Credit Agreement as in effect on the date hereof. 8.4. Restriction on Certain Amendments and Fundamental Changes. Holdings will not and will not permit any of its Subsidiaries directly or indirectly to: (a) amend, modify or waive any term or provision of its charter or by-laws in a manner which would have a Material Adverse Effect; (b) enter into any transaction of merger or consolidation, except that any Subsidiary may be merged with or into Holdings (provided that Holdings is the surviving entity) or any other Subsidiary of Holdings; (c) liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution); or (d) except as permitted by the Credit Agreement or consented to by the Senior Lenders, acquire by purchase or otherwise all or any substantial part of the business or assets of any other Person. 8.5. Disposal of Assets or Subsidiary Stock. Holdings will not and will not permit any of its Subsidiaries directly or indirectly to: convey, sell, lease, sublease, transfer or otherwise dispose of, or grant any Person an option to acquire, in one transaction or a series of transactions any of its property, business or assets, or the capital stock of or other equity interests in any of its Subsidiaries, whether now owned or hereafter acquired, except dispositions permitted from time to time under the Credit Agreement. 8.6. Transactions with Affiliates. Except as otherwise permitted herein (or in the Credit Agreement), Holdings will not and will not permit any of its Subsidiaries directly or indirectly to, enter into or be a party to any transaction with any Affiliate of Holdings, except (a) as set forth on Schedule 8.6, or (b) in the ordinary course of and pursuant to the reasonable requirements of Holdings' or such Subsidiary's business and upon fair and reasonable terms and are no less favorable to Holdings or such Subsidiary than would be obtained in a comparable arm's-length transaction with a Person that is not an Affiliate of Holdings or such Subsidiary. 8.7. Conduct of Business. Holdings will not and will not permit any of its Subsidiaries directly or indirectly to engage in any business other than businesses currently engaged in by them or any lines of business reasonably related thereto. 8.8. Indebtedness. Holdings will not and will not permit any of its Subsidiaries directly or indirectly to incur or become liable in any manner with respect to any Subordinated Indebtedness or any other Indebtedness, except the Senior Loans and, subject to Section 8.15, as permitted under the Credit Agreement (as from time to time in effect). 8.9. Fiscal Year. Neither Holdings nor any Subsidiary of Holdings shall change 11 its fiscal year without the Majority Holders' prior written consent, which shall not be unreasonably withheld. 8.10. Press Release; Public Offering Materials. Holdings will not and will not permit any of its Subsidiaries to disclose any Note Purchaser's identity in any press release or in any prospectus, proxy statement or other materials filed with any governmental authority except as required by law following the Note Purchasers' prior review. 8.11. Subsidiaries. Except as permitted in the Credit Agreement, Holdings will not and will not permit any of its Subsidiaries directly or indirectly to establish, create or acquire any new Subsidiary without the Majority Holders' prior written consent, which shall not be unreasonably withheld. 8.12. Compliance With Laws. Holdings shall comply with all federal, state, local and foreign laws and regulations applicable to it, including those relating to licensing, ERISA and labor matters and Environmental Laws (as defined in the Credit Agreement) and Environmental Permits (as defined in the Credit Agreement) except to the extent that the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Holdings will comply and will cause each of its Subsidiaries to comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any governmental authority (including, without limitation, laws, rules, regulations and orders relating to taxes, employer and employee contributions, securities, employee retirement and welfare benefits, environmental protection matters and employee health and safety) as now in effect and which may be imposed in the future in all jurisdictions in which Holdings or its Subsidiaries are now doing business or may hereafter be doing business. This Section 8.12 shall not preclude Holdings or any Subsidiary from contesting any taxes or other payments, if they are being diligently contested in good faith and if appropriate reserves have been recorded in conformity with GAAP. 8.13. Maintenance of Properties; Insurance. Holdings will maintain or cause to be maintained all material properties used in the business of Holdings and its Subsidiaries consistent with industry standards and will make or cause to be made all appropriate repairs, renewals and replacements thereof. Holdings will maintain or cause to be maintained, with financially sound and reputable insurers, public liability and property damage insurance with respect to its business and properties and the business and properties of its Subsidiaries against loss or damage of the kinds customarily carried or maintained by corporations of established reputation engaged in similar businesses and in amounts as set forth in the Credit Agreement and will deliver evidence thereof to the Note Purchasers. Holdings represents and warrants that it and each of its Subsidiaries currently maintains all material properties as set forth above and maintains all insurance described above. 8.14. Corporate Existence, Etc. Except as otherwise permitted hereunder, Holdings will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its respective corporate existence and all rights and franchises material to its respective business. 12 8.15. Intervening Debt. Neither Holdings nor any Joint Issuer shall incur any indebtedness that is subordinated in right of payment to the Senior Loans and superior in right of payment or pari passu with the Notes. 8.16. Notice of Default. Holdings shall promptly notify the Majority Holders of the occurrence of any Default or Event of Default known to it hereunder. 9. Prepayment of Notes. 9.1. Maturity; Surrender. In the case of each prepayment in accordance with Section 1.2(c) or (d), the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date. 10. Subordination of Notes. 10.1. General. All obligations under this Agreement and the Notes, including without limitation, principal, interest, fees, expenses (the "Subordinated Obligations") shall be subordinate and junior in right of payment to all Senior Loans (as defined in Section 10.2) to the extent and in the manner provided in this Section 10. In furtherance of the foregoing, notwithstanding the date, manner or order of grant, attachment or perfection of any Liens granted to the Senior Lenders or to the Note Purchasers and notwithstanding any provisions of the UCC or any applicable law or decision or any other circumstance, the Note Purchasers agree that all Liens granted by Holdings or any Joint Issuer to the Note Purchasers to secure the obligations under the Notes are hereby subordinated to all Liens granted by Holdings or any Joint Issuer to secure the Senior Loans. 10.2. Senior Loans. As used in this Section 10, the term "Senior Loans" shall mean all principal of and premium, if any, and interest (including post-petition interest during any proceeding under the Bankruptcy Code, whether or not allowed in such proceeding) on and fees, and expenses and all other obligations including, without limitation, Holdings' obligations as a guarantor and obligations to cash collateralize letters of credit, payable in connection with, all loans and financial accommodations from time to time outstanding under or in connection with the Credit Agreement. The Senior Loans shall continue to be Senior Loans and entitled to the benefits of these subordination provisions irrespective of any amendment, restatement, modification or waiver of any term of the Senior Loans or extension or renewal of the Senior Loans. 10.3. Default in Respect of Senior Loans and the Notes. (a) Upon the occurrence of an Event of Default with respect to any Senior Loans, as defined in the Credit Agreement, permitting the holders thereof to accelerate the maturity thereof, then, unless and until such event of default shall have been remedied or waived in writing or shall have ceased to exist, no direct or indirect payment (in cash, property or securities or by set-off or 13 otherwise, except securities which are subordinate and junior in right of payment to the payment of Senior Loans at least to the extent provided in this Section 10) shall be made on account of the Subordinated Obligations or on any Note or as a sinking fund for any Note, or in respect of any redemption, retirement, purchase or other acquisition of any Note. (b) The holders of the Notes shall not take any action to enforce payment of any of the Subordinated Obligations or any security interest or lien securing payment of the Notes (including, without limitation, acceleration of the maturity of the Notes) until the earliest to occur of the following: (i) final payment in full in cash of all Senior Loans and termination of the commitments with respect thereto; (ii) the acceleration of any of the Senior Loans, (iii) June 30, 2007, or (iv) the occurrence of an Event of Default described in Section 13(f) or 13(g) hereof, provided that, in the event of the nonpayment when due of scheduled principal payments or required interest payments (unless prohibited by Section 10.3(a)) such holders may ask or make demand for payment of any such amount but shall not take any other action to enforce payment of such amount; provided further that any payments received shall be subject to the terms of Section 10.5 hereof. (c) If the holders of the Senior Loans release their security interests or liens in any items of Collateral, the holders of the Notes shall release their security interests or liens in the same items of Collateral. 10.4. Insolvency, etc. In the event of: (a) any insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to Holdings or any Joint Issuer or the respective property of any of them, (b) any proceeding for the liquidation, dissolution or other winding-up of Holdings or any Joint Issuer, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings, (c) any assignment by Holdings or any Joint Issuer for the benefit of creditors, or (d) any other marshaling of the assets of Holdings or any Joint Issuer, all Senior Loans shall first be paid in full in cash before payment or distribution, whether in cash, securities or other property, shall be made to any holder of any Note on account of any Note. Any payment or distribution, whether in cash, securities or other property (other than securities of Holdings or any other corporation provided for by a plan of reorganization or readjustment the payment of which is subordinate, at least to the extent provided in this Section 10 with respect to any Note, to the payment of all Senior Loans at the time outstanding and to any securities issued in respect thereof under any such plan of reorganization or readjustment), which would otherwise (but for these subordination provisions) be payable or deliverable in respect of the Notes shall be paid or delivered 14 directly to the holders of Senior Loans until all Senior Loans shall have been paid in full in cash. 10.5. Payments and Distributions Received. If any payment or distribution of any character or any security, whether in cash, securities or other property (other than securities of Holdings or any other corporation provided for by a plan of reorganization or readjustment the payment of which is subordinate, at least to the extent provided in this Section 10 with respect to any Note, to the payment of all Senior Loans at the time outstanding and to any securities issued in respect thereof under any such plan of reorganization or readjustment), shall be received by any holder of any Note in contravention of any of the terms hereof and before all the Senior Loans shall have been paid in full in cash and the commitments with respect thereto have been terminated, such payment or distribution or security shall be received in trust for the benefit of, and shall be promptly paid over or delivered and transferred to, the holders of the Senior Loans at the time outstanding for application to the payment of all Senior Loans remaining unpaid, to the extent necessary to pay all such Senior Loans in full in cash. 10.6. No Prejudice or Impairment. No present or future holder of any Senior Loans shall be prejudiced in its right to enforce subordination of the Notes by any act or failure to act on the part of Holdings, any Joint Issuer or the holders of the Notes. Without in any way limiting the generality of the preceding sentence, the holders of Senior Loans may, at any time and from time to time, without the consent of or notice to the holders of the Notes, without incurring responsibility to the holders of the Notes and without impairing or releasing the subordination provided in this Section 10 or the obligations of the holders of the Notes to the holders of Senior Loans, do any one or more of the following: (a) change the manner, place or terms of payment of, or renew or alter any Senior Loans, or otherwise amend or supplement in any manner, any Senior Loans or any instrument evidencing the same or any agreement under which Senior Loans is outstanding; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing any Senior Loans; (c) release any Person liable in any manner for the collection or payment of any Senior Loans; and (d) exercise or refrain from exercising any rights against any obligor. Holdings shall notify the holders of the Notes of any of the events described in the preceding sentence, but any failure so to notify such holders shall not affect or impair the rights of the holders of Senior Loans hereunder. Nothing contained herein shall impair, as between Holdings and the Joint Issuers and the holder of any Notes, the obligation of Holdings and the Joint Issuers to pay to the holder thereof the principal thereof and interest thereon as and when the same shall become due and payable in accordance with the terms hereof and of this Agreement, or prevent the holder of any Note from exercising all rights, powers and remedies otherwise permitted by applicable law or hereunder upon a Default or Event of Default hereunder, all subject to the terms of this Section 10 and the rights of the holders of the Senior Loans to receive cash, securities or other property otherwise payable or deliverable to the holders of the Notes. 10.7. Payment of Senior Loans, Subrogation, etc. Upon the payment in full of all Senior Loans in cash and termination of the commitments with respect thereto, the holders of the Notes shall be subrogated to all rights of any holders of Senior Loans to receive any further payments 15 or distributions applicable to the Senior Loans until the Notes shall have been paid in full, but only to the extent that any payment or distribution otherwise payable with respect to the Notes has been applied to the Senior Loans, and, for the purposes of such subrogation, no payment or distribution received by the holders of Senior Loans of cash, securities, or other property to which the holders of the Notes would have been entitled except for this Section 10 shall, as between Holdings and the Joint Issuers and their respective creditors other than the holders of Senior Loans, on the one hand, and the holders of the Notes, on the other, be deemed to be a payment or distribution by Holdings or any Joint Issuer on account of Senior Loans. 10.8. Filing of Claims. The holders of the Notes hereby irrevocably authorize and empower the holders of the Senior Loans to file a claim or proof of claim in any proceeding under the Bankruptcy Code for any portion of the Notes if the holder or holders thereof shall have failed to file a claim or proof of claim with respect thereto at least 10 days prior to the date established by rule of law or order of court for such filing. Except as expressly stated in this Section 10.8, the holders of the Notes retain their rights to vote their claims to accept or reject any plan of partial or complete liquidation, reorganization, arrangement or composition 10.9. Reliance; Binding on Subsequent Holders. Holdings and each Joint Issuer agree, and each present and future holder of a Note, by its acceptance of such Note, agrees to be bound by the subordination provisions of this Section 10, and agrees that such subordination provisions are inducement to the present and future holders of Senior Loans to continue to hold such Indebtedness and/or to make advances of credit to the Joint Issuers and/or Holdings. 11. Registration, Transfer and Substitution of Securities. 11.1. Note Register; Ownership of Notes. Holdings will keep at its principal office a register in which Holdings will provide for the registration of Notes and the registration of transfers of Notes and the Senior Loans. Holdings may treat the Person in whose name any Note is registered on such register as the owner thereof for the purpose of receiving payment of the principal of and interest on such Note and for all other purposes, whether or not such Note shall be overdue, and Holdings shall not be affected by any notice to the contrary. All references in this Agreement to a "holder" of any Note shall mean the Person in whose name such Note is at the time registered on such register. 11.2. Transfer and Exchange of Notes. Upon surrender of any Notice for registration of transfer or for exchange to Holdings at its principal office, the Joint Issuers at their expense (except for transfer taxes) will execute and deliver in exchange therefor a new Note or Notes in denominations of at least $100,000 (except one Note may be issued in a lesser principal amount if the unpaid principal amount of the surrendered Note is not evenly divisible by, or is less than, $100,000), as may be requested by the holder or transferee, which aggregate the unpaid principal amount of such surrendered Note, registered as such holder or transferee may request, dated so that there will be no loss of interest on such surrendered Note and otherwise of like tenor. 16 11.3. Replacement of Notes. Upon receipt of evidence reasonably satisfactory to Holdings of the loss, theft, destruction or mutilation of any Note and, in the case of any such loss, theft or destruction, upon delivery of an indemnity bond in such reasonable amount as Holdings may determine (or, in the case of any Note held by any institutional holder or its nominee, of an unsecured indemnity agreement from such institutional holder reasonably satisfactory to Holdings), or, in the case of any such mutilation, upon the surrender of such Note for cancellation, at the principal office of Holdings, the Joint Issuers, at their expense, will execute and deliver, in lieu thereof, a new Note in the unpaid principal amount of such lost, stolen, destroyed or mutilated Note, dated so that there will be no loss of interest on such Note and otherwise of like tenor. Any Note in lieu of which any such new Note has been so executed and delivered by the Joint Issuers shall not be deemed to be an outstanding Note for any purpose of this Agreement. 11.4. Notes Held by Holdings, etc., Deemed Not Outstanding. For purposes of determining whether the holders of the Notes of the requisite principal amount at the time outstanding have taken any action authorized by this Agreement with respect to the giving of consents or approvals or with respect to acceleration upon an Event of Default, any Notes directly or indirectly owned by Holdings or any of its Subsidiaries or Affiliates shall be disregarded and deemed not to be outstanding. 12. Payments on Notes. All payments by the Joint Issuers of principal, interest and fees becoming due on or with respect to the Notes shall be made in same day funds and delivered to the Note Purchasers by wire transfer to such account as each Note Purchaser may from time to time designate. The Joint Issuers shall receive credit for such funds if received by 1:00 p.m. CST on such day. In the absence of timely notice and receipt, such funds shall be deemed to have been paid on the next Business Day. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, the payment may be made on the next succeeding Business Day and such extension of time shall be included in the computation of the amount of interest and fees due hereunder. 13. Events of Default; Acceleration. If any of the following conditions or events ("Events of Default") shall occur and be continuing: (a) if the Joint Issuers or Holdings, as guarantor, shall default in the payment of any principal of any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by acceleration or otherwise; or (b) if the Joint Issuers or Holdings, as guarantor, shall default in the payment of any interest on any Note (whether by issuance of a Note or payment in cash as required by the terms hereof) for more than 5 days after the same becomes due and payable; or (c) if Holdings or any Joint Issuer shall default in the performance of or 17 compliance with any other material term contained in this Agreement or any other Note Purchase Document and such default shall continue unremedied for 30 days after such failure shall first have become known to any officer of Holdings or written notice thereof shall have been received by Holdings from any holder of any Note; or (d) if any representation or warranty made in writing by or on behalf of Holdings or any Joint Issuer in this Agreement, any other Note Purchase Document, or in any instrument furnished in compliance with or in reference to this Agreement shall prove to have been false or incorrect in any material respect on the date as of which made; or (e) if any event shall occur or condition shall exist in respect of any Indebtedness of Holdings or any Joint Issuer in excess of $1,000,000 or under any evidence of any such Indebtedness or of any mortgage, indenture or other agreement relating thereto, the effect of which event or condition is to cause the acceleration of such Indebtedness before its stated maturity or before its regularly scheduled dates of payment; or (f) (1) An order for relief is entered with respect to Holdings or any Joint Issuer or any such Person commences a voluntary case under the Bankruptcy Code, or consents to the entry of an order for relief in an involuntary case or to the conversion of an involuntary case to a voluntary case under any such law or consents to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or (2) Holdings or any Joint Issuer makes any assignment for the benefit of creditors; or (3) the Board of Directors of Holdings or any Joint Issuer adopts any resolution or otherwise authorizes action to approve any of the actions referred to in this subsection 13(f); or (g) (1) A court enters a decree or order for relief with respect to Holdings or any Joint Issuer in an involuntary case under the Bankruptcy Code, which decree or order is not stayed or other similar relief is not granted under any applicable federal or state law within sixty (60) days after the entry thereof; or (2) the continuance of any of the following events for sixty (60) days or more unless dismissed, bonded or discharged: (a) an involuntary case is commenced against Holdings or any Joint Issuer under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or (b) a decree or order of a court for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over Holdings or any Joint Issuer or over all or substantial part of its property, is entered; or (c) an interim receiver, trustee or other custodian is appointed without the consent of Holdings or any Joint Issuer, as applicable, for all or a substantial part of the property of such Person; or (h) A final judgment or judgments in any individual case or in the aggregate at any time, in excess of $500,000 (in either case not adequately covered by insurance as to which the insurance company has acknowledged coverage) is entered or filed against Holdings or any Joint Issuer or any of their respective assets and remains undischarged, unvacated, unbonded or unstayed for a period of thirty (30) days or more; or 18 (i) (1) Holdings or any Joint Issuer fails to make full payment when due of all amounts which, under the provisions of any employee benefit plans or any applicable provisions of the Internal Revenue Code as amended from time to time ("IRC"), such Person is required to pay as contributions thereto and such failure results in the imposition of a lien on the assets of the Holdings or any Joint Issuer; or (2) an accumulated funding deficiency in excess of $1,000,000 occurs or exists, whether or not waived, with respect to any Holdings' or any Joint Issuer's employee benefit plans; or (3) any such employee benefit plans lose their status as a qualified plan under the IRC which results in the imposition of a material lien on the assets of Holdings or any Joint Issuer; or (j) Any of the Note Purchase Documents for any reason, other than a partial or full release in accordance with the terms thereof, ceases to be in full force and effect or is declared to be null and void, or Holdings or any Joint Issuer denies that it has any further liability under any Note Purchase Document to which it is party, or gives notice to such effect; or (k) A Change of Control as defined under the Credit Agreement (as in effect on the date hereof) shall occur and be continuing; then (1) upon the occurrence of any Event of Default described in subdivision (f) or (g) of this Section 13, the unpaid principal amount of and accrued interest on the Notes shall automatically become due and payable immediately; or (2) upon the occurrence of any other Event of Default, any holder or holders of 25% or more in principal amount of the Notes at the time outstanding may at any time (unless all Events of Default shall theretofore have been remedied) at its or their option, by written notice or notices to Holdings as agent for the Joint Issuers, declare all the Notes to be due and payable, whereupon the same shall forthwith mature and become due and payable immediately if no Senior Loans are then outstanding. 14. Remedies on Default. Subject to the terms of Section 10 hereof, upon the acceleration of any Note, the holder of such Note may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in such Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise (it being agreed, however, that no holder of a Note shall commence or continue any such proceeding in the case of any Event of Default which shall have been waived in accordance with Section 18). In the case of a default in the payment of any principal of or any interest on any Note, the Joint Issuers will, jointly and severally, pay to the holder thereof such further amount as shall be sufficient to cover the costs and expenses (including, without limitation, reasonable attorneys' fees, expenses and disbursements) incurred in connection with any such proceeding or collection. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any right, power or remedy 19 referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. 15. Definitions. 15.1. Certain Defined Terms. As used in this Agreement, the following terms have set the following respective meanings: Affiliate: With respect to any Person, (i) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, five percent (5%) or more of any class of the Stock or other equity interests of such Person or possesses, directly or indirectly, the power to direct or cause the direction of the management of such Person, whether through ownership of Stock or other equity interests, by contract or otherwise, (ii) each Person that controls, is controlled by or is under common control with such Person or any Affiliate of such Person or (iii) each of such Person's employees, officers, directors, joint venturers and partners. For the purposes of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. Bankruptcy Code: Title 11 of the United States Code entitled "Bankruptcy", as amended from time to time or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect and all rules and regulations promulgated thereunder. Business Day: Any day except a Saturday, a Sunday or other day on which commercial banks in the State of New York or the State of Illinois are required or authorized by law to be closed. Capital Expenditures: Shall mean, with respect to any Person, all expenditures (by the expenditure of cash or the incurrence of indebtedness) by such Person doing any measuring period for any fixed assets or improvements or for replacements, substitutions or additions thereto, that have a useful life of more than one year and that are required to be capitalized under GAAP. Capital Lease: Shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, would be required to be classified and accounted for as a capital lease on a balance sheet of such Person. Closing: As defined in Section 3. Closing Date: As defined in Section 3. Collateral: Any property covered by the Security Documents and any other property, real or personal, tangible or intangible, now existing or hereafter acquired, that may at any time be or become subject to a security interest or Lien in favor of any Note Purchaser to secure any of the obligations with respect to the Note Purchase Documents. 20 Credit Agreement: That certain Credit Agreement of even date herewith among the Joint Issuers, General Electric Capital Corporation in its capacity as Agent and Lender, and the Lenders that are from time to time parties thereto, as the same may be amended, modified, extended, renewed or otherwise supplemented from time to time and any credit agreement evidencing the successive refunding, refinancing or replacement thereof. Default: A condition or event which, with notice or lapse of time or both, would become an Event of Default. Event of Default: The meaning specified in Section 13. Excess Cash Flow: Shall mean, without duplication, with respect to any Fiscal Year of the Joint Issuers and their Subsidiaries, consolidated net income plus (a) depreciation, amortization and Interest Expense to the extent deducted in determining consolidated net income, minus (c) Capital Expenditures during such Fiscal Year (excluding the portion thereof financed from sources other than the Credit Agreement), minus (d) Interest Expense paid or accrued (excluding any original discount, interest paid in kind or amortized debt discount, to the extent included in determining Interest Expense) and scheduled principal payments paid or payable in respect of Funded Debt, plus or minus (as the case may be), (e) extraordinary gains or losses which are cash items not included in the calculation of net income, minus (f) mandatory prepayments paid in cash pursuant to Section 1.3 of the Credit Agreement other than mandatory prepayments made pursuant to Sections 1.3(b)(i), 1.3(b)(iv) or 1.3(d) therein, plus (g) taxes deducted in determining consolidated net income to the extent not paid for in cash. Exchange Act: The Securities Exchange Act of 1934, as amended, or any successor federal statute. Fiscal Year: Shall mean any of the annual accounting periods of the Joint Issuers ending on the Saturday closest to December 31st of each year. Funded Debt: Shall mean, with respect to any Person, all indebtedness for borrowed money evidenced by notes, bonds, debentures, or similar evidences of Indebtedness and which by its terms matures more than one year from, or is directly or indirectly renewable or extendible at such Person's option under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year from the date of creation thereof, and specifically including Capital Lease Obligations, current maturities of long-term debt, revolving credit and short-term debt extendible beyond one year at the option of the debtor. Holdings: Home Products International, Inc., a Delaware corporation. Holdings Guaranty: A guaranty by Holdings of payment of the Notes. Housewares: Houseware Sales, Inc., a Massachusetts corporation. 21 Indebtedness: As applied to any Person, means: (a) all indebtedness for borrowed money; (b) that portion of obligations with respect to capital leases that is properly classified as a liability on a balance sheet in conformity with GAAP; (c) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (d) any obligation owed for all or any part of the deferred purchase price of property or services if the purchase price is due more than six (6) months from the date the obligation is incurred or is evidenced by a note or similar written instrument; and (e) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. Indemnified Party: As defined in Section 19. Index Rate: For any day, a floating rate equal to the higher of (i) the rate publicly quoted from time to time by The Wall Street Journal as the "base rate on corporate loans at large U.S. money center commercial banks" (or, if The Wall Street Journal ceases quoting a base rate of the type described, the highest per annum rate of interest published by the Federal Reserve Board in Federal Reserve statistical release H.15 (519) entitled "Selected Interest Rates" as the Bank prime loan rate or its equivalent), and (ii) the Federal Funds Rate plus fifty (50) basis points per annum. Interest Expense: Shall mean, with respect to any Person for any fiscal period, interest expense (whether cash or non-cash) of such Person determined in accordance with generally accepted accounting principles for the relevant period ended on such date, including, in any event, interest expense with respect to any Funded Debt of such Person. Investment: As to any Person, any loan, advance (other than commission, travel and similar advances to officers and employees made in the ordinary course of business), extension of credit (other than accounts receivable arising in the ordinary course of business on terms customary in the trade), deposit account or investment in, or purchase or other acquisition of, the stock, partnership interests, notes, debentures or other securities of any other Person made by such Person. Lien: As to any Person, any lien, mortgage, pledge, security interest, charge or encumbrance of any kind, whether voluntary or involuntary, (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest). Majority Holders: Note Purchasers holding a majority in principal amount of the Notes outstanding hereunder. Material Adverse Effect: A material adverse effect on (i) the business, properties, assets, operations, prospects or financial or other condition of Holdings and its Subsidiaries considered as a whole, (ii) Holdings' and its Subsidiaries' ability to perform their respective obligations under any Note Purchase Document, (iii) the Collateral or the Note Purchasers' Liens on the Collateral or the priority of any such Lien, or (iv) the Note Purchasers' rights and remedies under 22 this Agreement or any other Note Purchase Document. In determining whether any individual event would result in a Material Adverse Effect, notwithstanding that such event does not of itself have such effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other then existing events would result in a Material Adverse Effect. Note Purchase Documents: This Agreement, the Notes, the Security Documents, the Warrant, the Allocation Agreement, the Holdings Guaranty, and all other instruments, documents and agreements executed by or on behalf of Holdings or any Joint Issuer and delivered concurrently herewith or at any time hereafter to any Note Purchaser in connection with the Notes and other transactions contemplated by this Agreement, including without limitation all such documents executed and delivered after the Closing Date in connection with Liens granted to the Note Purchasers, all as amended, supplemented or modified from time to time. Note Purchasers: General Electric Capital Corporation, each other purchaser of Notes on the Closing Date and the successors and assigns of each such Person. Officer's Certificate: A certificate executed on behalf of Holdings by its Chief Executive Officer or Chief Financial Officer. Person: Natural persons, corporations, limited liability companies, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof and their respective permitted successors and assigns (or in the case of a governmental person, the successor functional equivalent of such Person). Pro Forma: The unaudited consolidated balance sheets of each of Holdings and its Subsidiaries prepared in accordance with GAAP as of the Closing Date after giving effect to the Related Transactions. The Pro Forma is annexed hereto as Schedule 15.1(A). Projections: Holdings' forecasted consolidated: (a) balance sheets; (b) profit and loss statements; (c) cash flow statements; and (d) capitalization statements, all prepared on a consistent basis with Holdings' historical financial statements, together with appropriate supporting details and a statement of underlying assumptions. The Projections represent and will represent as of the date thereof the good faith estimate of Holdings and its senior management concerning the most probable course of its business. Related Transactions: The execution and delivery of each of the Note Purchase Documents required to be executed and delivered on the Closing Date, the issuance and sale of the initial Notes on the Closing Date, the acquisition by merger of Seymour by Holdings and each of the other "Related Transactions" as defined in the Credit Agreement as in effect on the date hereof. Related Transactions Documents: The Note Purchase Documents, the Credit 23 Agreement and all other agreements, instruments and documents executed or delivered in connection with the Related Transactions. Restricted Payment: Shall mean (a) the declaration or payment of any dividend or the incurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of a Person's stock, (b) any payment on account of the purchase, redemption, defeasance, sinking fund or other retirement of a Person's stock or any other payment or distribution made in respect thereof, either directly or indirectly, (c) any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to, any subordinated debt; (d) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire stock of such Person now or hereafter outstanding; (e) any payment of a claim for the rescission of the purchase or sale of, or for material damages arising from the purchase or sale of, any shares of such Person's stock or of claim for reimbursement, indemnification or contribution arising out of or related to any such claim for damages or rescission; (f) any payment, loan, contribution, or other transfer fees (or other fees of a similar nature) by such Person to any stockholder of such Person or their affiliates. Securities Act: The Securities Act of 1933, as amended or any successor federal statute. Security Agreement: That certain Subordinated Note Security Agreement of even date herewith executed by the Joint Issuers in favor of the Note Purchasers, in form and substance satisfactory to the Majority Holders. Security Documents: The Security Agreement and all instruments, documents, financing statements and agreements by or on behalf of any Joint Issuers to provide collateral security with respect to the Notes including, without limitation, any security agreement or pledge agreement, second mortgages on each parcel of real estate owned by each Joint Issuer, and all instruments, documents and agreements executed pursuant to the terms of the foregoing. Senior Lenders: Any lender which may from time to time provide financing to any of the Joint Issuers pursuant to the Credit Agreement. Senior Loans: As defined in Section 10.2. Subsidiary: With respect to any Person, any corporation, partnership, association or other business entity of which more than fifty percent (50%) of the total voting power of shares of stock (or equivalent ownership or controlling interest) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. 24 15.2. Accounting and other Terms. For the purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meaning assigned to them in accordance with GAAP. To the extent not otherwise defined herein, all defined terms herein shall have the meanings ascribed thereto in Schedule A to the Credit Agreement as in effect on the date hereof. 16. Submission to Jurisdiction; Waiver. Holdings and each Joint Issuer hereby irrevocably (a) agree that any legal or equitable action, suit or proceeding arising out of or relating to this Agreement or any transaction contemplated hereby or the subject matter of any of the foregoing may be instituted in any state or federal court in the City of Chicago, Illinois, (b) waive any objection which they may now or hereafter have to the venue of any action, suit or proceeding, and (c) irrevocably submit themselves to the nonexclusive jurisdiction of any state or federal proceeding. Holdings and each Joint Issuer waive personal service of process and consents that service of process upon it may be made by certified or registered mail, return receipt requested, at its address specified or determined in accordance with the provisions of Section 20, and service so made shall be deemed completed on the third business day after mailing. Nothing contained in this Section 16 shall be deemed to affect the rights of any Note Purchaser to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against Holdings and/or any Joint Issuer in any jurisdiction. Each of the parties hereto irrevocably waives any right it may have to a trial by jury in respect of any claim based upon, or arising out of the terms and conditions of, this Agreement. 17. Survival of Representations and Warranties. All representations and warranties contained in this Agreement or made in writing by or on behalf of Holdings or any Joint Issuer in connection with the transactions contemplated by this Agreement shall survive the execution and delivery of this Agreement, any investigation at any time made by any Note Purchaser or on its behalf, the purchase of the initial Note by any Note Purchaser under this agreement and any disposition of the same and the payment of the Notes. 18. Amendments and Waivers. Any term of this Agreement or of the Notes may be amended and the observance of any term of this Agreement or of the Notes may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of Holdings and the Majority Holders, provided that, without the prior written consent of the holders of all the Notes at the time outstanding, no such amendment or waiver shall (a) change the maturity or the principal amount of, or reduce the rate or change the time of payment of interest on, or decrease the amount or the time of payment of any principal payable on any payment or prepayment of, any Note, (b) reduce the aforesaid percentages of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, (c) decrease the percentage of the principal amount of the Notes the holders of which may declare the Notes to be due and payable as provided in Section 13, or (e) otherwise change or waive any of the terms of Section 10 or this Section 18. Any amendment or waiver effected in accordance with this Section 18 shall be binding upon each holder of any Note issued and outstanding pursuant to this Agreement, each future holder of any Note and Holdings and the Joint Issuers. 25 19. Indemnification. Holdings and the Joint Issuers, jointly and severally, will indemnify and hold harmless each Note Purchaser and each person who controls a Note Purchaser within the meaning of the Securities Act or the Exchange Act and each Affiliate of a Note Purchaser and each Note Purchaser's respective directors, officers, employees and agents (any and all of whom are referred to as the "Indemnified Party") from and against any and all losses, claims, damages and liabilities, whether joint or several (including all legal fees or other expenses reasonably incurred by any Indemnified Party in connection with the preparation for or defense of any pending or threatened third party claim, action or proceeding, whether or not resulting in any liability), to which such Indemnified Party may become subject (whether or not such Indemnified Party is a party thereto) under any applicable federal or state law or otherwise, caused by or arising out of, or allegedly caused by or arising out of this Agreement and the other Related Transactions Documents or any transaction contemplated hereby or thereby; provided that Holdings and the Joint Issuers shall not be liable for any indemnification to any Indemnified Party to the extent that any such losses, claims, damages or liabilities are the result of any representation made by such Indemnified Party in Section 6 or result from such Indemnified Party's gross negligence or willful misconduct. To the extent that Holdings or any Joint Issuer is strictly liable under any environmental laws, Holdings' or the applicable Joint Issuer's obligations to indemnify under this Section 19 shall likewise be without regard to fault on the part of Holdings or the applicable Joint Issuer and with respect to the violation of law which results in liability to Holdings and/or the applicable Joint Issuer. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section 19 may be unenforceable because it is violative of any law or public policy, Holdings and/or the applicable Joint Issuer shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all indemnified liabilities incurred by the Indemnified Parties or any of them. Notwithstanding any other provision of this Agreement to the contrary, the provisions of and undertakings and indemnifications set forth in this Section 19 shall survive the satisfaction and payment of the Notes and the termination of this Agreement. All of the foregoing indemnification liabilities shall be secured by the collateral. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED OR TERMINATED UNDER THIS AGREEMENT AND THE OTHER NOTE PURCHASE DOCUMENTS. Promptly after receipt by an Indemnified Party of notice of any claim, action or proceeding with respect to which an Indemnified Party is entitled to indemnity hereunder, such Indemnified Party will notify Holdings of such claim or the commencement of such action or proceeding, provided that the failure of an Indemnified Party to give notice as provided herein shall not relieve Holdings of its obligations under this Section 19 with respect to such Indemnified Party, except to the extent that Holdings is actually prejudiced by such failure. Holdings and the Joint Issuers will assume the defense of such claim, action or proceeding and will employ counsel satisfactory to the Indemnified Party and will pay the fees and expenses of such counsel. 26 Notwithstanding the preceding sentence, the Indemnified Party will be entitled, at the expense of Holdings and the Joint Issuers, to employ counsel separate from counsel for Holdings and the Joint Issuers and for any other party in such action if the Indemnified Party reasonably determined that a conflict of interest or other reasonable basis exists which makes representation by counsel chosen by Holdings and the Joint Issuers not advisable, but Holdings and the Joint Issuers will not be obligated to pay the fees and expenses of more than one counsel for all Indemnified Parties. 20. Notices, etc. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing and shall be delivered, or mailed by registered or certified mail, return receipt requested, or by overnight courier, or sent by telex or telecopy, addressed, (a) if to the initial Note Purchasers, at the addresses set forth on signature page hereof or at such other address as the initial Note Purchasers shall have furnished to Holdings in writing, or (b) if to any other holder of any Note, at such address as such other holder shall have furnished to Holdings in writing, or, until any such other holder so furnishes to Holdings an address, then to and at the address of the last holder of such Note who has furnished an address to Holdings, or (c) if to Holdings or any Joint Issuer, to Selfix, Inc., 4501 West 47th Street, Chicago, Illinois 60632, Attention: Chief Executive Officer, telecopy no. (773) 890-0523 with a copy to, Much, Shelist, Freed, Denenberg, Ament, Bell & Rubenstein PC, 200 N. LaSalle St., Suite 2100, Chicago, IL 60601, Attention: Jeffrey C. Rubenstein, telecopy (312) 621-1750 or at such other address, or to the attention of such other officer, as Holdings shall have furnished to each Note Purchaser. All such notices and communications shall be deemed to have been given or made (i) when delivered, if by hand, (ii) one Business Day after submission to a reputable courier for overnight delivery, (iii) on the fifth Business Day after being mailed by registered or certified mail, or (iv) if telecopied, when telecopy receipt is confirmed. 21. Miscellaneous. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, whether so expressed or not, and, in particular, shall inure to the benefit of and be enforceable by any holder or holders at the time of the Notes sold hereunder or any part thereof. This Agreement and the Note Purchase Documents embody the entire agreement and understanding between the Note Purchaser and Holdings and the Joint Issuers and supersede all prior agreements and understandings relating to the subject matter hereof. THIS AGREEMENT AND THE NOTES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THE STATE OF ILLINOIS. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute on instrument. All payment obligations of Holdings and the Joint Issuers hereunder or under the Notes shall be joint and several. All references in any Note Purchase Documents to the Note Purchase Agreement or the Amended and Restated Note Purchase Agreement shall be deemed to refer to this Agreement. 22. Appointment of Agent. By its acceptance of a Subordinated Note, each Note Purchaser appoints GE Capital as agent for purposes of enforcing each Note Purchaser's rights. The provisions of Section 9 of the Security Agreement are hereby incorporated herein by reference and are binding on all signatories hereto. [signature page follows] 27 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Note Purchase Agreement on the date first above written. HOLDINGS: HOME PRODUCTS INTERNATIONAL, INC. By: Title: JOINT ISSUERS: SELFIX, INC. By: Title: TAMOR CORPORATION By: Title: SHUTTERS, INC. By: Title: SEYMOUR HOUSEWARES CORPORATION By: Title: 28 THE INITIAL NOTE PURCHASERS: GENERAL ELECTRIC CAPITAL CORPORATION Amount: $5,000,000 By: Name: Its: Authorized Signature Address: 10 South LaSalle Street, Suite 2700 Chicago, Illinois 60603 Attn: Selfix Account Manager Amount: $5,000,000 ARCHIMEDES FUNDING, L.L.C., By: ING Capital Advisors, Inc., as Collateral Manager By: Title: Its: Address: 333 South Grand Avenue, Suite 4250 Los Angeles, California 90071 30 29 SCHEDULE 3.2 Success Fee The success fee payable upon payment in full of the notes issued under the Note Purchase Agreement is as follows:
Total Date of Payment in Full Amount ----------------------- ------ Prior to 2nd Anniversary $ 500,000 On or after 2nd Anniversary, but prior to 3rd Anniversary $ 750,000 On or after 3rd Anniversary, but prior to 4th Anniversary $1,200,000 On or after 4th Anniversary, but prior to 5th Anniversary $1,600,000 On or after 5th Anniversary $2,000,000
1 30 SCHEDULE 5.3 Defaults None ALL SCHEDULES TO BE UPDATED BY JOINT ISSUERS 31 To be updated by Joint Issuers SCHEDULE 5.4(B) Capitalization 1. Selfix, Inc., a Delaware corporation Capitalization: 1000 common shares authorized, par value $.01 Per Share, 1000 shares issued to Home Products International, Inc. Principal Place 4501 West 47th Street of Business; Chief Chicago, IL 60632 Executive Office: States Qualified: Illinois FEIN: 36-249-0451 2. Shutters, Inc., an Illinois corporation Capitalization: 10,000 common shares authorized, par value $.01 per Share, 1000 shares issued to Home Products International, Inc. States Qualified: Missouri, Georgia FEIN: 04-207 3885 3. Tamor Corporation, a Massachusetts corporation Capitalization: 1000 common shares authorized, par value $100 Per share, 38.771 issued to Home Products International, Inc. 4. Home Products International, Inc., a Delaware corporation Capitalization: 8,000,000 shares authorized; 7,500,000 common and 500,000 preferred, par value $.01 per Share Principal Place 4501 West 47th Street of Business; Chief Chicago, IL 60632 Executive Office States Qualified: Illinois FEIN: Applied for 32 SCHEDULE 5.7 Audits and Investigations 33 SCHEDULE 5.8 Employee Matters Agreement between Tamor Plastics Corp. And International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers, AFL-CIO, and its Local 154-136B FW beginning April 1, 1996 and expiring on March 31, 1999 Collective Bargaining Agreement between Selfix, Inc. And Plastic Workers' Union Local #18 AFL-CIO beginning January 26, 1995 until January 25, 1998 34 SCHEDULE 5.11 Litigation 35 SCHEDULE 8.6 Transactions with Affiliates Since Tamor, Selfix and Shutters all have facilities for plastic injection molding and because Tamor is currently molding on the outside, we anticipate using our capacity to the fullest, extent. This means that Selfix and Shutters will both be manufacturing Tamor product. This will necessitate an intercompany arrangement that allows Selfix and Shutters to manufacture and sell to Tamor and to bill and collect accordingly. 36 EXHIBIT 1.1 to NOTE PURCHASE AGREEMENT FORM OF SENIOR SUBORDINATED NOTE $10,000,000 December ___, 1997 FOR VALUE RECEIVED, the undersigned, SELFIX, INC. a Delaware corporation; TAMOR CORPORATION, a Massachusetts corporation; SHUTTERS, INC., an Illinois corporation; and SEYMOUR HOUSEWARES CORPORATION, a Delaware corporation (individually a "Joint Issuer" and, collectively, the "Joint Issuers"), hereby unconditionally PROMISE TO PAY to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("GE Capital"), in its individual capacity, at 10 South LaSalle Street, Suite 2700, Chicago, IL 60603, or at such other place as the holder of this Senior Subordinated Note may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the principal amount of Ten Million Dollars ($10,000,000), together with interest on the unpaid principal amount of this Senior Subordinated Note outstanding from time to time from the date hereof, at the rate provided in the Note Purchase Agreement (as hereinafter defined). The Joint Issuers agree that they will be jointly and severally liable for the payment of all amounts due hereunder. This Senior Subordinated Note is issued pursuant to that certain Note Purchase Agreement dated as of December ___, 1997 by and among the Joint Issuers, Home Products International, Inc., a Delaware corporation, GE Capital and the other note purchasers from time to time party thereto (as the same from time to time may be amended, restated, supplemented or otherwise modified, the "Note Purchase Agreement'), and is entitled to the benefit and security of the Note Purchase Documents provided for therein, to which reference is hereby made for a statement of all of the terms and conditions under which the indebtedness evidenced hereby is made and is to be repaid and for a statement of holder's remedies upon the occurrence and during the continuance of an Event of Default. All capitalized terms, unless otherwise defined herein, shall have the meanings ascribed to them in the Note Purchase Agreement. The principal amount of the indebtedness evidenced hereby shall be payable in one installment on December ___, 2006, if not sooner paid in full, and is subject to certain prepayments as set forth in the Note Purchase Agreement. Interest thereon shall be paid until such principal amount is paid in full at such interest rates and at such times, as are specified in the Note Purchase Agreement. If any payment on this Senior Subordinated Note becomes due and payable 37 on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the rate applicable for the prior month during such extension. Upon and after the occurrence of an Event of Default, this Senior Subordinated Note may, as provided in the Note Purchase Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Joint Issuers to the fullest extent permitted by law. All payments under this Senior Subordinated Note shall be paid in the State of Illinois, and this Senior Subordinated Note shall be interpreted, governed by, and construed in accordance with, the laws of the State of Illinois applicable to promissory notes made and payable in such State. SELFIX, INC. By: Name: Title: TAMOR CORPORATION By: Name: Title: SHUTTERS, INC. By: Name: Title: SEYMOUR HOUSEWARES CORPORATION By: Name: Title: 38 NOTE PURCHASE AGREEMENT EXHIBIT 7.1 I, the undersigned, being the Chief Executive Officer/Chief Financial Officer of Household Products International, Inc., a Delaware corporation ("Holdings"), hereby certifies that the financial statements attached hereto present fairly in accordance with GAAP the financial position, results of operations and statement of cash flows of Holdings and its Subsidiaries on a consolidated and consolidating basis, as at the end of such year and for the period then ended, and that no Default or Event of Default has occurred and is continuing as of the date hereof or, if a Default or Event of Default shall have occurred and be continuing describing the same and all efforts undertaken to cure the same. Home Products International, Inc. Dated: By: Title: EX-10.12 7 SENIOR SUBORDINATED NOTE 1 EXHIBIT 10.12 SENIOR SUBORDINATED NOTE $5,000,000 DECEMBER 30, 1997 FOR VALUE RECEIVED, the undersigned, SELFIX, INC. a Delaware corporation; TAMOR CORPORATION, a Massachusetts corporation; SHUTTERS, INC., an Illinois corporation; and SEYMOUR HOUSEWARES CORPORATION, a Delaware corporation (individually and "Joint Issuer" and, collectively, the "Joint Issuers"), hereby unconditionally PROMISE TO PAY to the order of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("GE Capital"), in its individual capacity, at 10 South LaSalle Street, Suite 2700, Chicago, IL 60603, or at such other place as the holder of this Senior Subordinated Note may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the principal amount of FIVE MILLION DOLLARS ($5,000,000), together with interest on the unpaid principal amount of this Senior Subordinated Note outstanding from time to time from the date hereof, at the rate provided in the Note Purchase Agreement (as herein after defined). The Joint Issuers agree that they will be jointly and severally liable for the payment of all amounts due hereunder. This Senior Subordinated Note is issued pursuant to that certain Note Purchase Agreement dated as of December 30, 1997 by and among the Joint Issuers, Home Products International, Inc., a Delaware corporation, and GE Capital and the other Note Purchasers signatory thereto (as the same from time to time may be amended, restated, supplemented or otherwise modified, the "Note Purchase Agreement'), and is entitled to the benefit and security of the Note Purchase Documents provided for therein, to which reference is hereby made for a statement of all of the terms and conditions under which the indebtedness evidenced hereby is made and is to be repaid and for a statement of holder's remedies upon the occurrence and during the continuance of an Event of Default. All capitalized terms, unless otherwise defined herein, shall have the meanings ascribed to them in the Note Purchase Agreement. The principal amount of the indebtedness evidenced hereby shall be payable in one installment on December 30, 2006, if not sooner paid in full, and is subject to certain prepayments as set forth in the Note Purchase Agreement. Interest thereon shall be paid until such principal amount is paid in full at such interest rates and at such times, as are specified in the Note Purchase Agreement. If any payment on this Senior Subordinated Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the rate applicable for the prior month during such extension. Upon and after the occurrence of an Event of Default, this Senior Subordinated Note may, as provided in the Note Purchase Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. 2 Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Joint Issuers to the fullest extent permitted by law. All payments under this Senior Subordinated Note shall be paid in the State of Illinois, and this Senior Subordinated Note shall be interpreted, governed by, and construed in accordance with, the laws of the State of Illinois applicable to promissory notes made and payable in such State. SELFIX, INC. By:____________________________ Name:__________________________ Title:_________________________ TAMOR CORPORATION By:____________________________ Name:__________________________ Title:_________________________ SHUTTERS, INC. By:____________________________ Name:__________________________ Title:_________________________ SEYMOUR HOUSEWARES CORPORATION By:____________________________ Name:__________________________ Title:_________________________ EX-10.13 8 SENIOR SUBORDINATED NOTE 1 EXHIBIT 10.13 SENIOR SUBORDINATED NOTE $5,000,000 DECEMBER 30, 1997 FOR VALUE RECEIVED, the undersigned, SELFIX, INC. a Delaware corporation; TAMOR CORPORATION, a Massachusetts corporation; SHUTTERS, INC., an Illinois corporation; and SEYMOUR HOUSEWARES CORPORATION, a Delaware corporation (individually and "Joint Issuer" and, collectively, the "Joint Issuers"), hereby unconditionally PROMISE TO PAY to the order of ARCHIMEDES FUNDING, L.L.C., at the office of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("GE Capital"), in its individual capacity, at 10 South LaSalle Street, Suite 2700, Chicago, IL 60603, or at such other place as the holder of this Senior Subordinated Note may designate from time to time in writing, in lawful money of the United States of America and in immediately available funds, the principal amount of FIVE MILLION DOLLARS (5,000,000), together with interest on the unpaid principal amount of this Senior Subordinated Note outstanding from time to time from the date hereof, at the rate provided in the Note Purchase Agreement (as herein after defined). The Joint Issuers agree that they will be jointly and severally liable for the payment of all amounts due hereunder. This Senior Subordinated Note is issued pursuant to the certain Note Purchase Agreement dated as of December 30, 1997 by and among the Joint Issuers, Home Products International, Inc., a Delaware corporation, and GE Capital and the other Note Purchasers signatory thereto (as the same from time to time may be amended, restated, supplemented or otherwise modified, the "Note Purchase Agreement"), and is entitled to the benefit and security of the Note Purchase Documents provided for therein, to which reference is hereby made for a statement of all of the terms and conditions under which the indebtedness evidenced hereby is made and is to be repaid and for a statement of holder's remedies upon the occurrence and during the continuance of an Event of Default. All capitalized terms, unless otherwise defined herein, shall have the meanings ascribed to them in the Note Purchase Agreement. The principal amount of the indebtness evidenced hereby shall be payable in one installment on December 30, 2006, if not sooner paid in full, and is subject to certain prepayments as set forth in the Note Purchase Agreement. Interest thereon shall be paid until such principal amount is paid in full at such interest rates and at such times, as are specified in the Note Purchase Agreement. If any payment on this Senior Subordinated Note becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest thereon shall be payable at the rate applicable for the prior month during such extension. Upon and after the occurrence of an Event of Default, this Senior Subordinated Note may, as provided in the Note Purchase Agreement, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable. 2 Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Joint Issuers to the fullest extent permitted by law. All payments under this Senior Subordinated Note shall be paid in the State of Illinois, and this Senior Subordinated Note shall be interpreted, governed by, and construed in accordance with, the laws of the State of Illinois applicable to promissory notes made and payable in such State. SELFIX, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- TAMOR CORPORATION By: ------------------------------- Name: ----------------------------- Title: ---------------------------- SHUTTERS, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- SEYMOUR HOUSEWARES CORPORATION By: ------------------------------- Name: ----------------------------- Title: ---------------------------- EX-10.14 9 SUBORDINATED NOTE SECURITY AGREE. 1 Exhibit 10.14 SUBORDINATED NOTE SECURITY AGREEMENT SUBORDINATED NOTE SECURITY AGREEMENT, dated December __, 1997 (as it may be amended, supplemented or otherwise modified from time to time, this "Security Agreement"), made by SELFIX, INC., a Delaware corporation (individually, "Selfix"), TAMOR CORPORATION, a Massachusetts corporation (individually, "Tamor"), SHUTTERS, INC., an Illinois corporation (individually, "Shutters") and SEYMOUR HOUSEWARES CORPORATION, a Delaware corporation (individually, "Seymour") (Selfix, Tamor, Shutters and Seymour collectively, "Grantors"), in favor of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("GE Capital"), as agent for holders of the Senior Subordinated Notes (the "Agent"). W I T N E S S E T H: WHEREAS, pursuant to that certain Note Purchase Agreement, of even date herewith, by and among Grantors and GE Capital, as Agent for holders of the Subordinated Notes (as the same may from time to time be amended, modified or supplemented, the "Note Purchase Agreement"), GE Capital and certain other Note Purchasers have agreed to purchase from Grantors senior subordinated notes (the "Subordinated Notes") in the principal amount of $10,000,000; WHEREAS, Grantors have agreed to grant to the holders of the Subordinated Notes a Lien and security interest in, to and under substantially all of their assets to secure payment of any and all obligations owing by Grantors to the holders of the Subordinated Notes under the Note Purchase Agreement; and WHEREAS, GE Capital is willing to purchase the Subordinated Notes but only upon the condition, among others, that Grantors shall have executed and delivered to GE Capital this Security Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows; 1. Defined Terms. Unless otherwise defined herein, terms defined in the Note Purchase Agreement are used herein as therein defined, and the following terms shall have the following meanings (such meanings being equally applicable to both the singular and plural forms of the terms defined): 2 "Account Debtor" shall mean any "account debtor," as such term is defined in the Code. "Accounts" shall mean any "account," as such term is defined in the Code, now owned or hereafter acquired by any Grantor and, in any event, including (a) all accounts receivable, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) now owned or hereafter received or acquired by or belonging or owing to any Grantor whether arising out of goods sold or services rendered by any Grantor or from any other transaction, (including any such obligations which may be characterized as an account or contract right under the Code), (b) and all of each Grantor's rights in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, (c) all of each Grantor's rights to any goods represented by any of the foregoing (including unpaid seller's rights or rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (d) all monies due or to become due to any Grantor, under all purchase orders and contracts for the sale of goods or the performance of services or both by such Grantor or in connection with any other transaction (whether or not yet earned by performance on the part of such Grantor), now or hereafter in existence, including the right to receive the proceeds of said purchase orders and contracts, and (e) all collateral security and guarantees of kind, now or hereafter in existence, given by an Person with respect to any of the foregoing. "Chattel Paper" shall mean any "chattel paper," as such term is defined in the Code, now owned or hereafter acquired by any Grantor. "Code" shall mean the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of Illinois provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of Agent's or any Note Purchaser's security interest in any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Illinois, the term "Code" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. "Collateral" shall have the meaning assigned to such term in Section 2 of this Security Agreement. "Contracts" shall mean all "contracts" as such term is defined in the Code, now or hereafter acquired by any Grantor, in any event, including all contracts, undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under 2 3 which any Grantor may now or hereafter have any right, title or interest, including any agreement relating to the terms of payment or the terms of performance of any Account. "Documents" shall mean any "documents," as such term is defined in the Code, now owned or hereafter acquired by any Grantor, wherever located. "Equipment" shall mean all "equipment," as such term is defined in the Code, now owned or hereafter acquired by any Grantor, wherever located and, in any event, including all of such Grantor's machinery and equipment, including processing equipment, conveyors, machine tools, data processing and computer equipment with software and peripheral equipment (other than software constituting part of the Accounts), and all engineering, processing and manufacturing equipment, office machinery, furniture, materials handling equipment, tools, attachments, accessories, automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other equipment of every kind and nature, trade fixtures not forming a part of real property, all whether now owned or hereafter acquired, and wherever situated, together with all additions and accessions thereto, replacements therefore, all substitutes for any of the foregoing, fuel therefore, and all manuals, drawings, instructions, warranties and rights with respect thereto, and all products and proceeds thereof and condemnation awards and insurance proceeds with respect thereto. "Fixtures" shall mean any "fixtures," as such term is defined in the Code, now owned or hereafter acquired by any Grantor. "General Intangibles" shall mean any "general intangibles," as such term is defined in the Code, now owned or hereafter acquired by any Grantor, and, in any event, including all right, title and interest which such Grantor may now or hereafter have in or under any Contract, all customer lists, Licenses, Trademarks, Patents, and all applications therefore and reissues, extensions or renewals thereof, rights in Intellectual Property, interests in partnerships, joint ventures and other business associations, licenses, permits, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill (including the goodwill associated with any Trademark or Trademark License), all rights and claims in or under insurance policies (including insurance for fire, damage, loss and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key man and business interruption insurance, and all unearned premiums), uncertificated securities, choses in action, deposit, checking and other bank accounts, rights to receive tax refunds and other payments, rights of indemnification, all books and records, correspondence, credit files, invoices and other papers, including without limitation all tapes, cards, computer runs and other 3 4 papers and documents in the possession or under the control of such Grantor or any computer bureau or service company from time to time acting for such Grantor. "hereby," "herein," "hereof," "hereunder" and words of similar import refer to this Security Agreement as a whole (including, without limitation, any schedules hereto) and not merely to the specific section, paragraph or clause in which the respective word appears. "Instruments" shall mean any "instrument," as such term is defined in the Code, now owned or hereafter acquired by any Grantor, wherever located, and, in any event, including all certificated securities, all certificates of deposit, and all notes and other, without limitation, evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. "Intellectual Property Collateral" shall mean any and all Licenses, Patents, Trademarks and trade secrets and customer lists as to which Agent has been granted a security interest hereunder. "Inventory" shall mean all "inventory," as such term is defined in the Code, now owned or hereafter acquired by any Grantor, wherever located, and, in any event, including inventory, merchandise, goods and other personal property which are held by or on behalf of any Grantor for sale or lease or are furnished or are to be furnished under a contract of service, or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in such Grantor's business, or in the processing, production, packaging, promotion, delivery or shipping of the same, including other supplies. "Investment Property" shall have the meaning ascribed thereto in Section 9-115 of the Code in those jurisdictions in which such definition has been adopted and shall include (i) all securities, whether certificated or uncertificated, including stocks, bonds, interests in limited liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all securities entitlements of any Grantor, including the rights of any Grantor to any securities account and the financial assets held by a securities intermediary in such securities account and any free credit balance or other money owing by any securities account and any free credit balance or other money owing by any securities intermediary with respect to that account; (iii) all securities accounts held by any Grantor; (iv) all commodity contracts held by any Grantor; and (v) all commodity accounts held by any Grantor. "License" shall mean any Patent License, Trademark License or other license as to which Agent has been granted a security interest hereunder. 4 5 "Patent License" shall mean rights under any written agreement now owned or hereafter acquired by any Grantor granting any right with respect to any invention on which a Patent is in existence. "Patents" shall mean all of the following now or hereafter acquired by any Grantor: (i) all patents and patent applications, (ii) all inventions and improvements described and claimed therein, (iii) all reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, (iv) all income, royalties, damages and payments now and hereafter due and/or payable to any Grantor with respect thereto, including, without limitation, damages and payments for past, present or future infringements or misappropriation thereof, (v) all rights to sue for past, present and future infringements or misappropriation thereof, and (vi) all other rights corresponding thereto throughout the world. "Proceeds" shall mean "proceeds," as such term is defined in the Code and, in any event, shall include (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to any Grantor form time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to any Grantor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), (iii) any claim of any Grantor against third parties (A) for past, present or future infringement of any Patent or Patent License or (B) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License, (iv) any recoveries by any Grantor against third parties with respect to any litigation or dispute concerning any of the Collateral, and (v) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral, upon disposition or otherwise. "Secured Obligations" shall mean the obligations of each Grantor to Agent pursuant to the Note Purchase Agreement and the Subordinated Notes, including, without limitation, principal, interest, fees and expenses. "Security Agreement" shall mean this Security Agreement, as the same may from time to time be amended, modified or supplemented and shall refer to this Security Agreement as in effect on the date such reference become operative. "Trademark License" shall mean rights under any written agreement now owned or hereafter acquired by any Grantor granting any right use any Trademark. 5 6 "Trademarks" shall mean all of the following now owned or hereafter acquired by any Grantor: (i) all trademarks (including service marks and trade names, whether registered or at common law), registrations and applications therefore, and the entire product lines and good will of any Grantor's business connected therewith and symbolized thereby, (ii) all renewals thereof, (iii) all income, royalties, damages and payments now and hereafter due or payable or both with respect thereto, including, without limitation, damages and payments for past, present or future infringements or misappropriations thereof, (iv) all rights to sue for past, present and future infringements or misappropriations thereof, and (v) all other rights corresponding thereto throughout the world. 2. Grant of Security Interest. (a) As collateral security for the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all the Secured Obligations, each Grantor hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to Agent on behalf of the holders of the Subordinated Notes, and hereby grants to Agent on behalf of the holders of the Subordinated Notes, a second Lien on all of such Grantor's right, title and interest in, to and under the following (all of which being hereinafter collectively called the, "Collateral"): (i) all Accounts; (ii) all Chattel Paper; (ii) all Contracts; (iv) all Documents; (v) all Equipment; (vi) all Fixtures; (vii) all General Intangibles; (viii) all goods; (ix) all Instruments; (x) all Inventory; 6 7 (xi) all Investment Property; (xii) all Grantor's accounts, concentration accounts, disbursement accounts and all other deposit and other bank accounts and all deposits therein; (xiii) all money, cash or cash equivalents of any Grantor; and (xiv) to the extent not otherwise included, all Proceeds and products of the foregoing and all accessions to, substitutions and replacements for, and rents and profits of, each of the foregoing. (b) In addition, as collateral security for the prompt and complete payment when due of the Secured Obligations and in order to induce Agent as aforesaid, Agent is hereby granted a second Lien on all property of any Grantor held by Agent, including, without limitation, all property of every description (including any real property subject to any mortgage), now or hereafter in the possession or custody of or in transit to Agent for any purpose, including safekeeping, collection or pledge, for account of any Grantor, or as to which any Grantor may have any right or power. 3. Rights of Agent; Limitations on Agent's Obligations. (a) It is expressly agreed by Grantors that, anything herein to the contrary notwithstanding , each Grantor shall remain liable under each of its Contracts and each of its Licenses to observe and perform all the conditions and obligations to be observed and performed by it thereunder and each Grantor shall perform all of its duties and obligations thereunder, all in accordance with and pursuant to the terms and provisions of each such Contract or License. Agent shall not have any obligation or liability under any Contract or License by reason of or arising out of this Security Agreement or the granting to Agent of a security interest therein or their receipt by Agent of any payment relating to any Contract or License pursuant hereto, nor shall Agent be required or obligated in any manner to perform or fulfill any of the obligations of any Grantor under or pursuant to any Contract or License, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any Contract or License, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which may be entitled at any time or times. (b) Agent authorizes each Grantor to collect its Accounts provided that such collection is performed in a prudent and businesslike manner, and Agent may, upon the 7 8 occurrence and during the continuation of any Event of Default and without notice, limit or terminate said authority at any time. If required by Agent after payment in full of the Senior Loans and at any time during the continuation of any Event of Default, any Proceeds, when first collected by any Grantor, received in payment of any such Account or in payment for any of its Inventory or on account of any of its Contracts, shall be promptly deposited by such Grantor in precisely the form received (with all necessary endorsements) in a special bank account maintained by Agent subject to withdrawal by Agent only, as hereinafter provided, and until so turned over shall be deemed to be held in trust by such Grantor for and as Agent's property and shall not be commingled with such Grantor's other funds or properties. Such Proceeds, when deposited, shall continue to be collateral security for all of the Secured Obligations and shall not constitute payment thereof until applied as hereinafter provided. Agent shall apply all or a party of the funds on deposit in said special account to the principal of or interest on or both in respect of any of the Secured Obligations in accordance with the provisions of Section 7(d) hereof and any part of such funds which Agent elects not so to apply and deems not required as collateral security for the Secured Obligations shall be paid over from time to time by Agent to such Grantor. If an Event of Default has occurred and is continuing and after payment in full of the Senior Loans and, at the request of Agent, each Grantor shall deliver to Agent all original and other documents evidencing, and relating to , the sale and delivery of such Inventory or the performance of labor or service which created such Accounts, including, without limitation, all original orders, invoices and shipping receipts; and, prior to the occurrence of an Event of Default, Grantor shall deliver photocopies thereof to Agent at its request. (c) Agent may at any time after payment in full of the Senior Loans and upon the occurrence and during the continuation of any Event of Default (whether or not waived), after first notifying the Grantors of its intention to do so, notify Account Debtors of each Grantor, parties to the Contracts of each Grantor, obligors of Instruments of each Grantor and obligors in respect of Chattel Paper of each Grantor that the Accounts and the right, title and interest of each Grantor in and under such Contracts, such Instruments and such Chattel Paper have been assigned to Agent and that payments shall be made directly to Agent. Upon the request of Agent after payment in full of the Senior Loans, each Grantor will so notify such Account Debtors, parties to such Contracts, obligors of such Instruments and obligors in respect of such Chattel Paper that payments shall be made directly to Agent. Upon the occurrence and during the continuation of an Event of Default (whether or not waived), after payment in full of the Senior Loans, Agent may in its own name or in the name of others communicate with such Account Debtors, parties such Contracts, obligors of such Instruments and obligors in respect of such Chattel Paper 8 9 to verify with such Persons to Agent's satisfaction the existence, amount and terms of any such Accounts, Contracts, Instruments or Chattel Paper. (d) Upon reasonable prior notice to any Grantor (unless an Event of Default has occurred and is continuing, in which case no notice is necessary), Agent shall have the right, during normal business hours, to make test verifications of the Accounts and physical verifications of the Inventory in any manner and through any medium that it considers advisable, and all Grantors agree to finish all such assistance and information as Agent may require in connection therewith. Upon the occurrence and continuation of an Event of Default, each Grantor at its expense will cause certified independent public accountants satisfactory to Agent to prepare and deliver to Agent at any time and from time to time promptly upon Agent's request, the following reports: (i) a reconciliation of all its Accounts, (ii) an aging of all its Accounts, (iii) trial balances, and (iv) a test verification of such Accounts as Agent may request. Each Grantor at its expense will cause certified independent public accountants satisfactory to Agent to prepare and deliver to Agent the results of the annual physical verification of its Inventory made or observed by such accountants. 4. Representations and Warranties. Each Grantor hereby represents and warrants that: (a) Except for the security interest granted to Agent pursuant to this Security Agreement and other Liens permitted by the Note Purchase Agreement, each Grantor is the sole owner of each item of the Collateral in which it purports to grant a security interest hereunder, having good and marketable title thereto, free and clear of any and all Liens. No material amounts payable under or in connection with any of its Accounts or Contracts are evidenced by Instruments which have not been delivered to Agent. (b) No effective security agreement, financing statement, equivalent security or lien instrument or continuation statement covering all or any party of the Collateral is on file or of record in any public office, except such as my have been filed by any Grantor in favor of Agent pursuant to this Security Agreement or such as relate to other Liens permitted by the Note Purchase Agreement. (c) Appropriate financing statements having been filed in the jurisdictions listed on Schedule I hereto, this Security Agreement is effective to create a valid and continuing lien on and perfected security interest in the Collateral with respect to which a security interest may be perfected by the filing of financing statements pursuant to the Code, or by filing in the United States Patent and Trademark Office, in favor of Agent, 9 10 prior to all other Liens except Liens permitted by the Note Purchase Agreement, and is enforceable as such as against creditors of and purchasers from any Grantor (other than purchasers of Inventory in the ordinary course of business) and as against any purchaser of real property where any of the Equipment is located and any present or future creditor obtaining a Lien on such real property. All action necessary or desirable to protect and perfect such security interest in each item of the Collateral has been duly taken. (d) Each Grantor's principal place of business and the place where its records concerning the Collateral are kept and the location of its Inventory and Equipment are set forth on Schedule II hereto, and no Grantors will change such principal place of business or remove such records or change the location of its Inventory and Equipment unless it has taken such action as is necessary to cause the security interest of Agent in the Collateral to continue to be perfected. No Grantor will change its principal place of business or the place where its records concerning the Collateral are kept or change the locations of its Inventory and Equipment without giving thirty (30) days' prior written notice thereof to Agent. (e) The amount represented by each Grantor to Agent from time to time as owing by each Account Debtor or by all Account Debtors in respect of the Accounts of such Grantor will at such time be correct amount actually and unconditionally owing by such Account Debtors thereunder. (5) Covenants. Grantors covenant and agree with Agent that from and after the date of this Security Agreement and until the Secured Obligations are fully satisfied: (a) Further Documentation; Pledge of Instruments. At any time and from time to time, upon the written request of Agent, and at the sole expense of Grantors, Grantors will promptly and duly execute and deliver any and all such further instruments and documents and take such further action as Agent may reasonably deem desirable to obtain the full benefits of this Security Agreement and of the rights and powers herein granted, including, without limitation, using their best efforts to secure all consents and approvals necessary or appropriate for the assignment to Agent of any License or Contract held by any Grantor or in which any Grantor has any rights not heretofore assigned, the filing of any financing or continuation statements under the Code with respect to the Liens and security interests granted hereby, transferring Collateral to Agent's possession (if a security interest in such Collateral can be perfected by possession), and using its best efforts to obtain waivers of Liens from landlords and mortgagees. Grantors also hereby authorize Agent to file any such financing or continuation statement without the signature of any Grantor to the extent permitted by applicable law. If any amount payable under or 10 11 in connection with any of the Collateral shall be or become evidenced by any Instrument, after the Senior Loans have been paid in full, such Instrument shall be immediately pledged to Agent hereunder, and shall be duly endorsed in a manner satisfactory to Agent and delivered to Agent. (b) Maintenance of Records. Each Grantor will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral, including, without limitation, a record of all payments received and all credits granted with respect to the Collateral and all other dealings with the Collateral. Each Grantor will mark its books and records pertaining to the Collateral to evidence this Security Agreement and the security interests granted hereby. All Chattel Paper will be marked with the following legend: "This writing and the obligations evidenced or secured hereby are subject to the security interest of General Electric Capital Corporation." For Agent's further security, each Grantor agrees that Agent shall have a special property interest in all of each Grantor's books and records pertaining to the Collateral and, upon the occurrence and during the continuation of any Event of Default, after the Senior Loans has been paid in full, each Grantor shall deliver and turn over any such books and records to Agent or to its representatives at any time on demand of Agent. Prior to the occurrence of an Event of Default and upon reasonable notice from Agent, each Grantor shall permit any representative of Agent to inspect such books and records and will provide photocopies thereof to Agent. (c) Indemnification. In any suit, proceeding or action brought by Agent relating to any Account, Chattel Paper, Contract, General Intangible or Instrument for any sum owing thereunder, or to enforce any provision of any Account, Chattel Paper, Contract, General Intangible or Instrument, each Grantor will save, indemnify and keep Agent harmless from and against all expense, loss or damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of liability whatsoever of the obligor thereunder, arising out of a breach by any Grantor or any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owning to, or in favor so, such obligor or its successors from any Grantor, and all such obligations of each Grantor shall be and remain enforceable against and only against such Grantor and shall not be enforceable against Agent. (d) Payment of Obligations. Each Grantor will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of its income or profits therefrom and all claims of any kind (including, without limitation, claims for labor, materials and supplies), except that no such charge need be paid if (i) such nonpayment does not involve any danger of the sale, forfeiture or loss of 11 12 any of the Collateral or any interest therein, and (ii) such charge is being contested in good faith, by proper proceedings, and adequate reserves therefore have been established by each Grantor in accordance with and to the extent required by GAAP. (e) Compliance with Terms of Accounts, etc. In all material respects, each Grantor will perform and comply with all obligations in respect of Accounts, Chattel Paper, Contracts and Licenses and all other agreements to which it is a party or by which it are bound. (f) Limitation on Liens on Collateral. Grantors will not create, permit or suffer to exist, and will defend the Collateral against and take such other action as is necessary to remove, any Lien on the Collateral except Liens permitted by the Note Purchase Agreement, and will defend the right, title and interest of Agent in and to any of each Grantor's rights under the Chattel Paper, Contracts, Documents, General Intangibles and Instruments and to the Equipment and Inventory and in and to the Proceeds thereof against the claims and demands of all Persons whomsoever. (g) Limitations on Modifications of Accounts. Upon the occurrence and during the continuation of any Default or Event of Default, no Grantor will, without Agent's prior written consent, grant any extension of the time of payment of any of the Accounts, Chattel Paper or Instruments, compromise, compound or settle the same for less than the full amount thereof, release, wholly or partly, any Person liable for the payment thereof, or allow any credit or discount whatsoever thereon other than trade discounts granted in the ordinary course of business of such Grantor. (h) Maintenance of Insurance. Each Grantor will maintain, with financially sound and reputable companies, insurance policies (i) insuring their Inventory and Equipment against loss by fire, explosion, theft and such other casualties as are usually insured against by companies engaged in the same or similar businesses and (ii) insuring each Grantor and Agent against liability for personal injury and property damage relating to such Inventory and Equipment, such policies to be in such amounts and against at least such risks, as are usually insured against, in the same general area by companies engaged in the same or a similar business, naming Agent as an additional insured with losses payable to each Grantor and Agent as their respective interests may appear under a standard "lender loss-payable" clause. (i) Further Identification of Collateral. Each Grantor will if so requested by Agent furnish to Agent, as often as Agent reasonably requests, statements and schedules 12 13 further identifying and describing the Collateral and such other reports in connection with the Collateral as Agent may reasonably request, all in reasonable detail. (j) Notices. Each Grantor will advise Agent promptly, in reasonable detail, (i) of any material Lien, security interest, encumbrance or claim made or asserted against any of the Collateral, (ii) of any material change in the composition of the Collateral, and (iii) of the occurrence of any other event which would have a material adverse effect on the aggregate value of the Collateral or on the security interests created hereunder. (k) Right of Inspection. Upon reasonable notice to any Grantor (unless an Event of Default has occurred and is continuing, in which case no notice is necessary), Agent shall at all reasonable times have access during normal business hours to all of the books and records and correspondence of each Grantor, and Agent or its representatives may examine the same, take extracts therefrom and make photocopies thereof, and each Grantor agrees to render to Agent, at such Grantor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. Upon reasonable notice to any Grantor (unless an Event of Default has occurred and is continuing, in which case no notice is necessary), Agent and its representatives shall also have the right, at reasonable times and during normal business hours, to enter into and upon any premises where any of the Equipment or Inventory is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein. (l) Maintenance of Equipment. Each Grantor will keep and maintain the Equipment in good operating condition sufficient for the continuation of the business conducted by each Grantor on a basis consistent with past practices, and each Grantor will provide all maintenance and service and all repairs necessary for such purpose. (m) Continuous Perfection. Grantors will not change their names, identities or corporate structures in any manner which might make any financing or continuation statement filed in connection herewith seriously misleading within the meaning of section 9-402(7) of the Code (or any other then applicable provision of the Code) unless such Grantor shall have given Agent at least thirty (30) days' prior written notice thereof and shall have taken all action (or made arrangements to take such action substantially simultaneously with such change if it is impossible to take such action in advance) necessary or reasonably requested by Agent to amend such financing statement or continuation statement so that it is not seriously misleading. (n) Covenants Regarding Intellectual Property Collateral. 13 14 (i) Each Grantor shall notify Agent immediately if it knows or has reason to know that any application or registration relating to any Trademark which is material to the conduct of such Grantor's business may become abandoned or dedicated, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office or any court) regarding such Grantor's ownership of any Patent or Trademark which is material to the conduct of such Grantor's business, its right to register the same, or to keep and maintain the same. (ii) In no event shall any Grantor, either itself or through any agent, employee, licensee or designee, file an application for the registration of any Trademark with the United States Patent or Trademark Office or any similar office or agency in any other country or any political subdivision thereof, unless it promptly informs Agent, and, upon request of Agent, executes and delivers any and all agreements, instruments, documents, and papers as Agent may request to evidence Agent's security interest in such Trademark and the General Intangibles, including, without limitation, the goodwill of such Grantor relating thereto or represented thereby. (iii) Each Grantor will take all necessary and appropriate actions to maintain and pursue each application, to obtain the relevant registration, and to maintain the registration of each of the Trademarks which are material to the conduct of such Grantor's business, including, without limitation, the filing of applications for renewal, affidavits of use, affidavits of incontestability and opposition and interference and cancellation proceedings. (iv) In the event that any of the Intellectual Property Collateral is infringed, misappropriated or diluted by a third party, the applicable Grantor shall notify Agent promptly after it learns thereof and shall, unless such Grantor shall reasonably determine that such Intellectual Property Collateral is not material to the conduct of such Grantor's business, promptly sue for infringement, misappropriation or dilution and to recover any and all damages for such infringement, misappropriation or dilution, and take such other actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property Collateral. 14 15 6. Agent's Appointment as Attorney-in-Fact. (a) Each Grantor hereby irrevocably constitutes and appoints Agent and any officer or Agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power authority in the place and stead of such Grantor and in the name of each Grantor or in its own name, from time to time in Agent's discretion, for the purpose of carrying out the terms of this Security Agreement, to take any and all appropriate action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Security Agreement and, without limiting the generality of the foregoing, hereby gives Agent the power and right, on behalf of each Grantor, without notice to or assent by any Grantor to do the following after the Senior Loans has been paid in full: (i) in the name of each Grantor or its own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other Instruments for the payment of moneys due under any Collateral and to receive payment of any and all monies, claims, and other amounts due or to become due at any time arising out of or in respect of any Collateral; (ii) to pay or discharge taxes, Liens, security interests or other encumbrances levied or placed on or threatened against the Collateral, to effect any repairs or any insurance called for by the terms of this Security Agreement and to pay all or any part of the premiums therefore and the costs thereof; and (iii) Upon the occurrence and during the continuation of an Event of Default (A) to direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due, and to become due thereunder, directly to Agent or as Agent shall direct; (B) to ask, demand and receive payment of and receipt of any and all moneys, claims and other amounts due, and to become due at any time, in respect of or arising out of any Collateral; (C) to sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with accounts and other Documents constituting or relating to the Collateral; (D) to refile any claim or take or commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any part thereof and to enforce any other right in respect of any Collateral; (E) to defend any suit, action or proceeding brought against any Grantor with respect to any Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such 16 16 discharges or releases as Agent may deem appropriate; (G) to license or, to the extent permitted by an applicable license, sublicense, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any Patent or Trademark, throughout the world for such term or terms, on such conditions, and in such manner, as Agent shall in its sole discretion determine; and (H) to sell, transfer, pledge, make, any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as through Agent were the absolute owner thereof for all purposes, and to do, at Agent's option and at such Grantor's expense, at any time, or from time to time, all acts and things which Agent reasonably deems necessary to protect, preserve or realize upon the Collateral and Agent's Lien therein, in order to effect the intent of this Security Agreement, all as fully and effectively as each Grantor, respectively, might do. (b) Agent agrees that, except upon the occurrence and during the continuation of an Event of Default, it will forebear from exercising the power of attorney or any rights granted to Agent pursuant to this Section 6(iii). Each Grantor hereby ratifies, to the extent permitted by law, all that said attorneys shall lawfully do or cause to be done by virtue hereof. The power of attorney granted pursuant to this Section 6 is power coupled with an interest and shall be irrevocable until the Secured Obligations are indefeasible paid in full. (c) The powers conferred on Agent hereunder are solely to protect Agent's interests in the Collateral and shall not impose any duty upon it to exercise any such powers. Agent shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and neither it not any of its officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act, except for its own gross negligence or willful misconduct. (d) Each Grantor also authorizes Agent, at any time and from time to time upon occurrence and during the continuation of any Event of Default and after the Senior Loans has been paid in full, (i) to communicate in its own name with any party to any Contract with regard to the assignment of the right, title and interest of such Grantor in and under the Contracts hereunder and other matters relating thereto and (ii) to execute, in connection with the sale provided for in Section 7 hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral. 7. Remedies, Rights upon Default. 17 17 (a) If any Event of Default shall occur and be continuing, subject to the terms of the Note Purchase Agreement, Agent shall exercise in addition to all other rights and remedies granted to it in this Security Agreement and in any other instrument or agreement securing, evidencing or relating to the Secured Obligations, all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing, each Grantor expressly agrees that in any such event Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon any Grantor or any other person (all and each of which demands, advertisements and/or notices are hereby expressly waived to the maximum extent permitted by the Code and other applicable law), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker's board or at any of Agent's offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Agent shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption Grantor hereby releases. Each Grantor further agrees, at Agent's request, to assemble the Collateral and make it available to Agent at places which Agent shall reasonably select, whether at any Grantor's premises or elsewhere. Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, as provided in Section 7(d) hereof, all Grantors remaining liable for any deficiency remaining unpaid after such application, and only after so paying over such net proceeds and after the payment by Agent of any other amount required by any provision of law, including section 9-504(1)(c) of the Code, need Agent account for the surplus, if any, to such Grantor. To the maximum extent permitted by applicable law, each Grantor waives all claims, damages, and demands against Agent arising out of the repossession, retention or sale of the Collateral except such as arise out of the gross negligence or willful misconduct of Agent as finally determined by a court of competent jurisdiction after all possible appeals have been exhausted. Each Grantor agrees that Agent need not give more than ten (10) days' notice (which notification shall be deemed given when mailed or delivered on an overnight basis, postage prepaid, addressed to such Grantor at its address referred to in Section 11 hereof) of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters. Grantors shall remain liable for any deficiency if the proceeds of any sale or disposition of the Collateral are insufficient to pay all amounts to which Agent is 18 18 entitled, such Grantors also being liable for the fees of any attorneys employed by Agent to collect such deficiency. (b) Each Grantor also agrees to pay all costs of Agent including, without limitation, reasonable attorneys' fees, incurred in connection with the enforcement of any of its rights and remedies hereunder. (c) Each Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral. (d) After payment in full of the Senior Loans, the Proceeds of any sale, disposition or other realization upon all or any part of the Collateral (including real property) shall be distributed by Agent in the following order of priorities: first, to Agent in an amount sufficient to pay in full the expenses of Agent in connection with such sale, disposition or other realization, including all reasonable expenses, liabilities and advances incurred or made by Agent in connection therewith, including, without limitation, attorney's fees: second, to Agent and such other holders, if any, of the Subordinated Notes in an amount equal to the then unpaid principal of and accrued interest and prepayment premiums, if any, on the Secured Obligations applicable to the Subordinated Notes, and if such Proceeds shall be insufficient to pay in full such amount, then to Agent and such other holders, if any, of the Subordinated Notes ratably in accordance with the then unpaid amounts thereof owing to Agent and each such holder; and finally, upon payment in full of all of the Secured Obligations, to pay to the Grantors, or their representatives or as a court of competent jurisdiction may direct, any surplus then remaining from such Proceeds. 8. Grant of License to Use Intellectual Property Collateral. For the purpose of enabling Agent to exercise rights and remedies under Section 7 hereof at such time as 19 19 Agent, without regard to this Section 8, shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to Agent an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to any Grantor) to use, license or sublicense any Patent, Trade Secret or Trademark, now owned or hereafter acquired by any Grantor, and wherever the same may be located, and including, without limitation, in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer and automatic machinery software and programs used for the compilation or printout thereof. 9. Appointment of Agent. (a) By its acceptance of a Subordinated Note, each Note Purchaser appoints GE Capital as agent for purposes of enforcing each Note Purchaser's rights with respect to Collateral, including any real property of the Grantors subject to any mortgage. The provisions of this Section 9 are solely for the benefit of GE Capital and the Note Purchasers and no Grantor nor any other person shall have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Security Agreement and the other Note Purchase Documents, GE Capital shall act solely as an agent of the Note Purchasers and does not assume and shall not be deemed to have assumed any obligation toward or relationship or agency or trust with or for any Note Purchaser or any other person. GE Capital shall have no duties or responsibilities except for those expressly set forth in this Security Agreement and the other Note Purchase Documents. The duties of GE Capital shall be mechanical and administrative in nature and GE Capital shall not have, or be deemed to have, by reason of this Security Agreement, any other Note Purchase Document or otherwise, a fiduciary relationship in respect of any Note Purchaser. Neither GE Capital nor any of its affiliates nor any of their respective officers, directors, employees, agents or representatives shall be liable to any Note Purchaser for any action taken or omitted to be taken by it hereunder or under any other Note Purchase Document, or in connection herewith or therewith, except for damages solely caused by its or their own gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. (b) If Agent shall request instructions from Majority Holders in connection with any of the Note Purchase Documents, then Agent shall be entitled to refrain from acting unless and until Agent has received instructions from the Majority Holders, and Agent shall incur no liability to any Person by reason of so refraining. Notwithstanding any provision of any Note Purchase Document to the contrary, Agent shall be fully justified in failing or refusing to take any action hereunder or under any other Note Purchase Document (a) if such action would, in the opinion of Agent, be contrary to law or the terms 20 20 of this Agreement or any other Note Purchase Document, (b) if such action would, in the opinion of Agent, expose Agent to Environmental Liabilities or (c) if Agent shall not first be indemnified to its satisfaction against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Without limiting the foregoing, no Lender shall have any right of action whatsoever against Agent as a result of Agent acting or refraining from acting hereunder or under any other Note Purchase Document in accordance with the instructions of Majority Holders, Requisite Revolving Lenders, Supermajority Revolving Lenders or all affected Lenders, as applicable. (c) GE Capital's Reliance, Etc. GE Capital: (a) may treat the payee of any Note as the holder thereof until GE Capital receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to GE Capital; (b) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Note Purchaser and shall not be responsible to any Note Purchaser for any statements, warranties or representations made in or in connection with this Security Agreement or the other Note Purchase Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or condition of this Security Agreement or the other Note Purchase Documents on the part of any Grantor or to inspect the Collateral (including the books and records) of any Grantor; (e) shall not be responsible to any Note Purchaser for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Security Agreement or the other Note Purchase Documents or any other instrument or document furnished pursuant hereto to thereto; and (f) shall incur no liability under or in respect of this Security Agreement or the other Note Purchase Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopy, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties (including the Majority Holders). (d) GE Capital and affiliates. With respect to its commitments hereunder, GE Capital shall have the same rights and powers under this Security Agreement and the other Note Purchase Documents as any other Note Purchaser and may exercise the same as though it were not GE Capital; and the term "Note Purchaser" or "Note Purchasers" shall, unless otherwise expressly indicated, include GE Capital in its individual capacity. GE Capital and its affiliates may lend money to, invest in, and generally engage in any kind of business with, any Grantor, any of their affiliates and any person who may do business with or own securities of any Grantor or any such affiliate, all as if GE Capital 21 21 were not GE Capital and without any duty to account therefor to the Note Purchasers. GE Capital and its Affiliates may accept fees and other consideration from any Grantor for services in connection with this Security Agreement or otherwise without having to account for the same to the Note Purchasers. GE Capital has also made Senior Loans to the Grantors and acts as agent for the holders of the Senior Loans. Each Note Purchaser acknowledges the potential conflict of interest between GE Capital as an agent and lender holding interests in the Senior Loans and GE Capital as a holder of the Subordinated Notes pursuant to the Note Purchase Agreement. (e) Note Purchaser Credit Decision. Each Note Purchaser acknowledges that it has, independently and without reliance upon GE Capital or any other Note Purchaser and based on documents and information as it has deemed appropriate, made its own credit and financial analysis of the Grantors and its own decision to enter into this Security Agreement. Each Note Purchaser also acknowledges that it will, independently and without reliance upon GE Capital or any other Note Purchaser 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 Security Agreement. (f) Indemnification. The Note Purchasers agree to indemnify Agent (to the extent not reimbursed by Grantors and without limiting the obligations of the Grantors hereunder), ratably according to their respective pro rata shares, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against Agent in any way relating to or arising out of this Security Agreement or any other Note Purchase Document or any action taken or omitted by Agent in connection therewith; provided, however, that no Note Purchaser shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Agent's gross negligence or willful misconduct. Without limiting the foregoing, each Note Purchaser agrees to reimburse Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Security Agreement and each other Note Purchase Document, to the extent that Agent is not reimbursed for such expenses by Grantors. (g) Successor Agent. GE Capital may resign at any time by giving not less than twenty (20) days' prior written notice thereof to the Note Purchasers. Upon any such 22 22 resignation, the Majority Holders (other than GE Capital) shall have the right to appoint a successor agent which shall be a holder of Subordinated Notes. Upon the acceptance of any appointment as agent hereunder by a successor agent, such successor agent shall succeed to and become vested with all the rights, powers, privileges and duties of the resigning agent. If the Majority Holders fail to appoint a successor to GE Capital within that twenty-day period, the holder of the largest principal amount of the Subordinated Notes shall be the successor agent automatically upon expiration of such twenty day period. Upon the earlier of the acceptance of any appointment as agent hereunder by a successor agent or the effective date of the resigning agent's resignation, the resigning agent shall be discharged from its duties and obligations under this Security Agreement and the other Note Purchase Documents, except that any indemnity rights or other rights in favor of such resigning agent shall continue. After any resigning agent's resignation hereunder, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was agent under this Security Agreement and the other Note Purchase Documents. 10. Reinstatement. This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against any Grantor for liquidation or reorganization, should any Grantor become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of any Grantor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a "voidable preference", "fraudulent conveyance", or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 11. Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other party, or whenever any of the parties desires to give or serve upon any other communication with respect to this Security Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and either shall be delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, or by telecopy and confirmed by telecopy answerback addressed as follows: (a) If to Agent, at: 23 23 General Electric Capital Corporation 10 South LaSalle Street Suite 2700 Chicago, Illinois 60603 Attention: Selfix Account Manager Telecopy Number: (312) 419-5992 With copies to: General Electric Capital Corporation 201 High Ridge Road Stamford, Connecticut 06927-5100 Attention: Corporate Counsel Telecopy Number: (203) 316-7889 and Latham & Watkins Suite 5800, Sears Tower Chicago, Illinois 60606 Attention: David G. Crumbaugh Telecopy Number: (312) 993-9767 (b) If to any Grantor, at: Selfix, Inc. 4501 West 47th Street Chicago, Illinois 60632 Telecopy Number: (773) 890-8901 24 24 With a copy to: Much, Shelist, Freed, Deneberg, Ament Bell & Rubenstein PC 200 North LaSalle Street Chicago, Illinois 60601 Attention: Jeffrey Rubenstein Telecopy Number: (312) 621-1750 or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, telecopied and confirmed by telecopy answerback or three (3) Business Days after the same shall have been deposited in the United States mail. Failure to delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to the persons designated above to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 12. Severability. Any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 13. No Waiver; Cumulative Remedies. Agent shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder, and no waiver shall be valid unless in writing, signed by Agent, and then only to the extent therein set forth. A waiver by Agent of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Agent would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Agent, any right, power or privilege hereunder, shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. The rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. None of the terms or provisions of this Security 25 25 Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by Agent and, where applicable by any Grantor. 14. Successors and Assigns; Governing Law. (a) This Security Agreement and all obligations of Grantors hereunder shall be binding upon the successors and assigns of any Grantor, and shall, together with the rights and remedies of Agent hereunder, inure to the benefit of Agent, its respective successors and assigns. No sales of participations, other sales, assignments, transfers or other dispositions of any agreements governing or instrument evidencing the Secured Obligations or any portion thereof or interest therein shall in any manner affect the security interest granted to Agent hereunder. (b) This Security Agreement shall be governed by, and be construed and interpreted in accordance with, the laws of the State of Illinois, applicable to contracts made and performed in that State. 15. Waiver of Jury Trial. Each Grantor waives all right to trial by jury in any action or proceeding to enforce or defend any rights or remedies hereunder, under the Note Purchase Agreement or under the Note Purchase Documents or relating to each of the foregoing. 16. Section Titles. The Section titles contained in this Security Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. 17. Counterparts. This Security Agreement may be executed in any number of counterparts, which shall, collectively and separately, constitute one agreement. 18. Limitation on Actions. NOTWITHSTANDING ANY PROVISION HEREIN CONTAINED TO THE CONTRARY, THE LIEN CREATED UNDER, AND THE TERMS AND PROVISIONS OF, AND AGENTS RIGHTS, POWERS AND REMEDIES UNDER, THIS SECURITY AGREEMENT ARE SUBJECT TO AND LIMITED BY THE SUBORDINATION PROVISIONS CONTAINED IN THE NOTE PURCHASE AGREEMENT INCLUDING, WITHOUT LIMITATION, SECTION 10.3(b) THEREOF AS IN EFFECT ON THE DATE HEREOF. [signature page follows] 26 26 IN WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement to be executed and delivered by its duly authorized officer on the date first set forth above. GRANTORS SELFIX, INC. By: Name: Title: TAMOR CORPORATION By: Name: Title: 27 SHUTTERS, INC. By: Name: Title: SEYMOUR HOUSEWARES CORPORATION By: Name: Title: 29 28 Accepted and acknowledged by: GENERAL ELECTRIC CAPITAL CORPORATION By: Name: Title: 30 29 SCHEDULE I to SUBORDINATED NOTE SECURITY AGREEMENT FILING JURISDICTIONS
SELFIX TAMOR SHUTTERS - ------ ----- -------- Illinois Secretary Illinois Secretary of State Illinois Secretary of State of State Cook County McHenry County (Real Estate Records) (Real Estate Records) Secretary of the Commonwealth of Massachusetts Town Clerk Leominster, Massachusetts Worcester County (N.D.), Massachusetts (Real Estate Records) Secretary of State of Missouri Pike County, Missouri Pike County, Missouri (Real Estate Records) Thomas County, Georgia Thomas County, Georgia (Real Estate Records)
30 SEYMOUR - ------- Secretary of State of Indiana Jackson County, Indiana (Real Estate Records) Secretary of State of North Carolina Iredell County, North Carolina Iredell County, North Carolina (Real Estate Records) Anson County, North Carolina City of Richmond, Virginia State Corporations Commission, Virginia Secretary of State of Texas Secratary of State of South Carolina Hidalgo County, Texas Jefferson County, Kentucky Aken County, South Carolina Lancaster County, South Carolina Forsythe County, North Carolina 31 SCHEDULE II-A to Subordinated Note Security Agreement LOCATION OF RECORDS AND CERTAIN COLLATERAL OF SELFIX I. Chief Executive Office and principal place of business of Selfix: 4701 West 47th Street Chicago, Illinois 60632 II. Corporate Offices of Selfix: 4701 West 47th Street Chicago, Illinois 60632 III. Warehouses: 5455 South Archer Avenue Chicago, Illinois 60632 IV. Other Premises at which Collateral is Stored or Located: Not available. V. Locations of Records Concerning Collateral: 4701 West 47th Street Chicago, Illinois 60632 32 SCHEDULE II-B to Subordinated Note Security Agreement LOCATION OF RECORDS AND CERTAIN COLLATERAL OF TAMOR I. Chief Executive Office and principal place of business of Tamor: 106 Carter Street Leominster, Massachusetts 01453 II. Corporate Offices of Tamor: 106 Carter Street Leominster, Massachusetts 01453 III. Warehouse: 640 Crawford Street Fitchburg, Massachusetts IV. Other Premises at which Collateral is Stored or Located: 3016 West Georgia Street Louisiana, Missouri 323 Industrial Boulevard Thomasville, Georgia V. Locations of Records Concerning Collateral: 106 Carter Street Leominster, Massachusetts 01453 33 SCHEDULE II-C to Subordinated Note Security Agreement LOCATION OF RECORDS AND CERTAIN COLLATERAL OF SHUTTERS I. Chief Executive Office and principal place of business of Shutters: 12213 Highway 173 Hebron, Illinois 60034 II. Corporate Offices of Shutters: 12213 Highway 173 Hebron, Illinois 60034 III. Warehouse: 290 Front Street Harvard, Illinois 60033 12130 Route 173 Hebron, Illinois 60034 IV. Other Premises at which Collateral is Stored or Located: Not available. V. Locations of Records Concerning Collateral: 12213 Highway 173 Hebron, Illinois 60034 34 SCHEDULE II-D to Subordinated Note Security Agreement ------------------------------------ LOCATION OF RECORDS AND CERTAIN COLLATERAL OF SEYMOUR ----------------------------------------------------- I. Chief Executive Office and principal place of business of Seymour II. Corporate Offices of Seymour III. Warehouses IV. Other Premises at which Collateral is stored or located V. Locations of Records Concerning Collateral 35 SCHEDULE III-D TO SECURITY AGREEMENT SCHEDULE OF OFFICES, LOCATIONS OF COLLATERAL AND RECORDS CONCERNING SEYMOUR'S COLLATERAL I. Chief Executive Officer; Principal Place 855 North Chestnut Street of Business: Seymour, IN 47274 II. Corporate Offices of Seymour: 855 North Chestnut Street Seymour, IN 47274 III. Warehouses 1531 West Tipton Seymour, IN 47274 5.33 acres located at S. Airport Road Seymour, IN 47275 Bay 7, Air Cargo Facility Building 2201 Uvalde McAllen, TX 78503 IV. Other Premises at which Collateral is 201 N. Jackson Park Drive Stored or Located: Seymour, IN 47274
36 500 Brookwood Street Mooresville, NC 28115 400 S. Airport Road Seymour, IN 47274 Columbus Container Indiana Kuntry Kottage Indiana Metal Service and Supply Co. Indiana WebsterWest Indiana Central Kentucky Processing, Inc. Kentucky Tri-State Plating, Inc. INVENTORY LOCATIONS FOR SEYMOUR HOUSEWARES CORPORATION 1. Central Kentucky Processing Inc. 2580 Palumbo Drive Lexington, KY 40509 Fayette County 2. Tri State Plating Inc. 1125 S. 12th Street Louisville, KY 40210 Jefferson County 3. Graniteville Company #1 Marshall Street Graniteville, SC 29829 Aken County 4. Velcro Laminates, Inc. 2077 Pageland Highway Lancaster, SC 29720 Lancaster County 5. Hanes Dye & Finishing 609 Northwest Blvd. Winston-Salem, NC 27102 221st Street Warehouse 500 E. 21st Street Winston-Salem, NC 27102 EX-10.16 10 EMPLOYMENT AGREEMENT 1 Exhibit 10.16 EMPLOYMENT AGREEMENT This Employment Agreement (the "AGREEMENT"), dated as of January 5, 1998 (the "EFFECTIVE DATE"), is made between Home Products International, Inc., a Delaware corporation ("HPII"), and Stephen R. Brian ("EMPLOYEE"). RECITALS A. HPII, through its subsidiaries, designs, manufactures, imports, markets and distributes bathware and houseware related products, and recently acquired all of the equity of Seymour Sales Corporation ("SEYMOUR"). Seymour is in the business of manufacturing and supplying laundry-management products, specializing in ironing tables and ironing pads (HPII's business, including that of Seymour and HPII's other subsidiaries (whether now owned or acquired during the Term (as defined below), is collectively referred to as the "BUSINESS"). B. Employee has been employed by Seymour as its president and chief executive officer. C. HPII desires for Employee to continue his employment with HPII as its president and chief operating officer, and Employee is willing to continue such employment. D. Employee has had and will continue to have access to HPII's confidential and proprietary information. To protect HPII from unfair competition by Employee associated with his relationship with HPII, HPII's customers and his access to HPII's confidential and proprietary information, HPII is willing to offer Employee continued employment only if Employee agrees and adheres to certain restrictive covenants and other terms that are set forth in this Agreement. To induce HPII to offer continued employment to Employee, and to protect HPII as described herein, Employee agrees to adhere to such restrictive covenants and the other terms of his employment with HPII, as set forth below. CLAUSES In consideration of the foregoing, as well as the mutual covenants and promises set forth herein, the parties agree as follows: ARTICLE 1 EMPLOYMENT TERMS 1.1 EMPLOYMENT. Subject to the terms and conditions contained in this Agreement, HPII employs Employee its the president and chief operating officer on a full-time basis to devote all his professional time and attention to the Business, including, until otherwise directed by the CEO (as defined below), management of Seymour's business, and Employee accepts such employment with HPII. 1.2 TERM. Unless earlier terminated in accordance with this Agreement, Employee's employment with HPII under this Agreement will begin on the Effective Date and will continue for a period of three (3) years (the "INITIAL TERM"). Employee's term of employment with HPII shall thereafter be subject to one automatic one-year extension commencing January 5, 2001 ("RENEWAL TERM") pursuant to the terms of this Agreement, unless one party notifies the other in writing of its intention not to renew at least sixty (60) days prior to the date the Renewal Term is scheduled to begin. The Employee's actual term of employment with HPII under this Agreement, inclusive of the Initial Term and the Renewal Term, or any shorter period, will be collectively referred to as the "TERM". 1.3 TITLE AND RESPONSIBILITIES. Employee shall perform his duties as President and Chief Operating Officer of HPII, which duties will include the normal and customary duties of such office and 2 such other senior executive duties for HPII as HPII's chief executive officer ("CEO") may from time to time assign to Employee, including, until otherwise directed by the CEO, management of Seymour's business. Employee shall report to and at all times discharge his duties in consultation with and subject to the general direction and control of the CEO, and provide the CEO with periodic reports upon request. 1.4 FULL TIME AND ATTENTION. Employee shall devote his exclusive and full time attention and skills to the performance of his duties as President and Chief Operating Officer of HPII, but nothing in this Agreement shall preclude Employee from engaging in charitable and community affairs and (subject to the approval of HPII's Board of Directors) serving on the board of directors of a corporation that does not compete with the Business; provided, however, that such activities do not interfere with the performance of his duties or responsibilities under this Agreement. 1.5 OFFICE LOCATION. Employee agrees to perform his obligations under this Agreement from the HPII's corporate office which is or will be located in the Chicago metropolitan area, unless Employee otherwise consents. 1.6 COMPENSATION. (A) BASE SALARY. During the Initial Term, Employee shall receive an annual base salary of Two Hundred Fifty Thousand Dollars ($250,000) (the "BASE SALARY"), payable in accordance with HPII's payroll practices for executive employees (reduced solely by all applicable payroll and withholding taxes, and other legal garnishments). The CEO shall undertake performance reviews of Employee every two (2) years beginning in January, 1998 in accordance with HPII's guidelines for executive employees, and the CEO may, in his discretion, adjust the Base Salary to reflect Employee's performance and/or the financial position of HPII; provided, however, that the Base Salary shall not be less than Two Hundred Fifty Thousand Dollars ($250,000). (B) BONUS. In addition to the Base Salary, Employee shall be eligible to participate in HPII's senior management bonus program, as such bonus program may be amended from time to time by HPII's Board of Directors. A copy of the terms of HPII's senior management bonus program in effect on the Effective Date has been provided to Employee. 1.7 VACATION. Employee shall be entitled to vacation in accordance with HPII's vacation policy for senior executives, but in no event shall Employee be entitled to less than three (3) weeks of vacation per year. 1.8 BENEFIT PLANS. Employee shall be entitled to participate in the benefit plans HPII now or hereafter makes available to its senior executives and/or other salaried employees, including without limitation, profit sharing, retirement plans, group life insurance, hospitalization, surgical and major medical, vacation, holidays and other fringe benefits in accordance with the terms of such benefits or plans and subject to eligibility and vesting requirements, in effect from time to time, provided however, that nothing herein shall require HPII to create or continue any such plan or benefit. It is intended that all such benefits and plans be substantially similar to benefits and plans made available to HPII's senior executives and/or other salaried employees. 1.9 EXPENSES. HPII shall reimburse Employee for all reasonable and necessary expenses incurred by him in executing his duties for HPII, provided, however, that such reimbursement shall be conditioned upon Employee's compliance with all policies adopted by HPII regarding expense reimbursement, including without limitation, policies regarding the documentation and timely submission of such expenses. HPII shall reimburse Employee for weekly round trip coach airfare between 3 Charlotte, North Carolina and Chicago, Illinois, in accordance with the terms of this paragraph. HPII shall provide relocation assistance to Employee, consistent with HPII's policy for executive employees, to move Employee's secondary residence from Sellersburg, Indiana to the Chicago metropolitan area. 1.10 CAR ALLOWANCE. During the Term, HPII shall pay Employee a car allowance of Eight Hundred Dollars ($800) per month. 1.11 STOCK OPTIONS. HPII has granted Employee One Hundred Thousand (100,000) options to purchase the common stock of HPII at a price per option equal to the fair market value of a share of HPII's common stock on the closing date of HPII's acquisition of Seymour. The grant of options and vesting thereof is pursuant to HPII's stock option plan. A copy of HPII's stock option plan in effect on the Effective Date has been provided to Employee. Employee shall be eligible for additional options each year during the Term as approved by HPII's Board of Directors. 1.12 TERMINATION. (A) DEATH. In the event of the death of the Employee during the Term of this Agreement, this Agreement shall thereupon immediately and automatically terminate in its entirety, provided, however, that all amounts which accrued to Employee prior to the date of his death in accordance with the terms of this Agreement shall be paid to his estate in accordance with HPII's standard payroll practice. (B) DISABILITY. In the event that the Employee becomes "DISABLED" (defined below) for a period of 90 consecutive days, or for 120 days (irrespective or whether such days are consecutive) during any six-month period, HPII may, at its option and in its sole discretion, terminate the Employee's employment by giving written notice to Employee, to be effective as of the date set forth in such notice, which shall in no event be less than thirty (30) days after the giving of such notice. For purposes of this Agreement, Employee shall be deemed to have become "DISABLED" if, because of physical or mental disability or drug or alcohol dependency or abuse or other incapacitation, he shall have been unable to perform his duties hereunder. So long as this Agreement is in effect, and during such period in which he is Disabled, Employee shall be entitled to all compensation, benefits, rights and entitlements under this Agreement; provided, however, that Employees compensation under Section 1.6 hereof shall be reduced by the amount of any disability benefits which Employee receives from HPII-sponsored disability plans, if any. (C) TERMINATION BY HPII FOR CAUSE. HPII shall have the right to terminate this Agreement and Employee's employment hereunder immediately "FOR CAUSE." The term "FOR CAUSE" as used herein shall mean: (i) fraud, embezzlement, theft of money, intangible assets or material property of HPII, conviction of a felony or any crime involving moral turpitude, (ii) gross dereliction or gross neglect of duties hereunder that is not corrected within thirty (30) days following written notice thereof to Employee by HPII (such notice to state with reasonable specificity the nature of such gross dereliction or gross neglect); (iii) a material breach of any of the provisions of Articles 3 or 4 of this Agreement; (iv) willful refusal to perform the duties hereunder; or (v) willful misconduct materially and demonstrably injurious to HPII. (D) VOLUNTARY TERMINATION BY EMPLOYEE. Employee may terminate this Agreement prior to the end of the Term upon ninety (90) days prior written notice to HPII, in which event HPII shall be obligated only to pay Employee all amounts which accrued to Employee up to the date of termination 4 in accordance with the terms of this Agreement; provided, however, that this section does not apply to a Change of Control Termination caused by Employee (as set forth and defined in Section 2.2 hereof). (E) TERMINATION IN THE EVENT OF BANKRUPTCY. In the event that HPII files a petition for liquidation under Chapter 7 of the U.S. Bankruptcy Code, or has a petition for liquidation under such Chapter filed involuntarily against it, the Employee shall be released from all obligations under this Agreement. In addition, if HPII is in Chapter 11 Reorganization, Employee shall be released from all obligations under this Agreement if his compensation and benefits under the plan of reorganization is not substantially equivalent to his compensation and benefits under this Agreement. (F) SEVERANCE PAYMENT IN THE EVENT OF TERMINATION OF EMPLOYEE WITHOUT CAUSE. In the event HPII terminates this Agreement and Employee's employment hereunder other than For Cause, and except as provided in Section 2.2 hereof with respect to a Change of Control Termination, HPII shall pay Employee a one (1) time severance payment equal to one hundred percent (100%) of Employee's yearly Base Salary then in effect, payable in twelve (12) equal monthly installments following the date of termination. In addition, Employee shall have the right to exercise those stock options granted to him (as described in Section 1.11) which have vested in accordance with HPII' stock option plan up to and including the date of termination. Employee also shall be entitled to all compensation that would have been payable to him under this Agreement through the Initial Term (and the Renewal Term if in effect) payable in twelve (12) equal monthly installments following the date of termination. ARTICLE 2 CHANGE OF CONTROL. 2.1 DEFINITIONS. For purposes of this Agreement, a "CHANGE OF CONTROL" shall have occurred if any person or group (as defined in Section 13(d) of the Exchange Act of 1934) becomes the beneficial owner of shares of stock in HPII representing fifty percent (50%) or more of the total number of voting shares that may be cast for the election of directors of HPII. 2.2 TERMINATION FOLLOWING CHANGE OF CONTROL. In the event Employee's active full-time employment with HPII terminates within one hundred eighty (180) days after a Change of Control (a "Change of Control Termination"), the following provisions shall apply and Employee shall be entitled to compensation set forth in this paragraph: (a) if Employee voluntarily causes the Change of Control Termination, Employee shall be entitled to receive an amount equal to one hundred percent (100%) of Employee's yearly Base Salary then in effect, and all stock options granted by HPII to Employee shall become immediately vested and exercisable in accordance with their terms; or (b) if HPII causes the Change of Control Termination, Employee shall be entitled to receive an amount equal to (i) one hundred percent (100%) of Employee's yearly Base Salary then in effect, plus (ii) all compensation that would have been payable to him under this Agreement through the Initial Term (and the Renewal Term, if in effect), and, all stock options granted by HPII to Employee shall become immediately vested and exercisable in accordance with their terms. In the case of (a) or (b) above, all amounts payable to Employee shall be payable in twelve (12) equal monthly installments following the date of the Change of Control Termination. 2.3 NO DUPLICATION. Notwithstanding anything to the contrary, if the Employee first becomes entitled to payment pursuant to Section 2.2 above, such payment shall be in lieu of all other payments he to which he would have been entitled pursuant to this Agreement, if any. 5 ARTICLE 3 RESTRICTIVE COVENANTS 3.1 ACKNOWLEDGMENTS. Employee acknowledges that: (i) HPII would not be willing to employ him unless Employee agreed to the covenants set forth in this Agreement; (ii) Employee will develop considerable expertise from association with the Business; (iii) Employee will have access to HPII's customer lists, suppliers, internal business organization, financial data, software programs, marketing plans, specialized requirements of HPII's customers and other highly confidential and proprietary matters and due to the nature of its business; (iv) HPII has expended considerable funds to establish and maintain its business relationship with its customers and has developed a "near permanent relationship" (as that phrase is utilized in Illinois law) with HPII's customers (collectively the "PROTECTED CUSTOMERS"); (v) the type, identity, internal information, quantity, orders, needs and other specific requirements of the Protected Customers as well as the promotional/marketing programs HPII devises for and fees HPII charges to the Protected Customers and HPII 's financial data, employee salaries, supplier lists, whether contained in hard copy or on disk, and overall concepts for the Business and its expansion, the terms of this Agreement and all documents, Protected Customer lists, leads for Protected Customers, records (however kept, whether in hard copy, magnetically, on compact or floppy disks, electronically or otherwise) and information concerning the same, all constitute confidential and proprietary information of HPII provided that they are not generally known in the industry and constitute trade secrets of HPII, within the meaning of the Illinois Trade Secrets Act (collectively the "TRADE SECRETS"); (vi) HPII has a proprietary interest in its Trade Secrets the useful life of which based upon general industry standards is unlimited; (vii) HPII has invested and will continue to invest considerable sums of money to obtain and maintain its Trade Secrets; (viii) HPII derives substantial economic benefit due to the confidentiality of its Trade Secrets; (ix) HPII 's competitors would obtain unfair economic advantages if the Trade Secrets were divulged; (x) HPII has instituted procedures to maintain the confidentiality of its Trade Secrets; (xi) HPII retains its Trade Secrets in a segregated retention area solely limited in access to those of its employees who have a specific need to know; and (xii) HPII 's Trade Secrets identified in this Agreement constitute the most significant factors in HPII 's ability to conduct the Business profitably. At the time the "Protected Customers" are being determined for purposes of this Agreement, the term "Protected Customers" will include all customers of HPII which made a purchase from HPII within the prior twenty-four (24) month period. 3.2 RESTRICTIONS ON DISCLOSURE, SOLICITATION AND COMPETITION. In recognition of the importance and sensitivity of the Trade Secrets and to protect HPII from unfair competition, Employee agrees that during the term of Employee's employment with HPII, and for a period of two (2) years following the termination of such employment for any reason, or for no reason, Employee shall not, directly or indirectly, on behalf of Employee or any corporation, limited liability company, partnership, joint venture, individual or other entity: (i) solicit, service or otherwise transact business with any Protected Customer of HPII if such solicitation, service or business involves products which HPII or any affiliate sold to such Protected Customer, or was actively planning to sell to such Protected Customer, during the period of Employee's employment hereunder, or (ii) solicit, hire, retain or otherwise engage or go into business with any individual who was an employee of HPII during the period which commenced twelve (12) months prior to the date upon which such business relationship commences. In addition, for the term of Employee's employment with HPII and for two (2) years following termination for any reason; or for no reason, Employee will not, directly or indirectly, alone or in association with others, either as a principal, agent, owner, shareholder, officer, director, partner, employee, lender, investor, consultant, manager or in any other capacity engage in, have a financial interest in or be in any 6 way connected or affiliated with, or render advice or services to any business which engages in the manufacture, assembly, sale or distribution of any products which were manufactured, assembled, sold or distributed by HPII or its affiliates, or which HPII or its affiliates were actively planning to manufacture, assemble, sell or distribute, during the period of Employee's employment hereunder; provided, however, that Employee may own less than five percent (5%) of the outstanding securities of public companies which are engaged in the same business as HPII or its affiliates. Further, for the term of Employee's employment with HPII and for an unlimited period of time following the termination of such employment for any reason or for no reason whatsoever, with or without cause, Employee shall: (i) hold the Trade Secrets in a fiduciary capacity for the sole benefit of HPII; and (ii) not directly or indirectly sell, alienate, transfer, use, assign or divulge any Trade Secrets or information relating to any Trade Secrets. 3.3 ADEQUATE CONSIDERATION. Employee expressly acknowledges that: (i) Employee will be able to earn a livelihood in occupations that are both unrelated and related to the Business, without violating the covenants set forth in this Agreement; (ii) Employee's ability so to earn a livelihood was a condition precedent to HPII entering into this Agreement; and (iii) the restrictive covenants contained in this Agreement are fair and reasonable and are necessary for the protection of the legitimate business interests of HPII and Employee has agreed to satisfy such restrictive covenants as a specific condition precedent to HPII being willing to employ Employee. 3.4 REASONABLE LIMIT. The parties have attempted to limit Employee's rights to compete only to the extent necessary to protect HPII from unfair competition. If, however, the geographic scope, time duration or enforceability of the restrictive covenant contained in this Agreement is disputed at any time, a court or other trier of fact shall modify and enforce the covenant to the maximum extent reasonable under the circumstances then existing. ARTICLE 4 PROPERTY AND INVENTIONS 4.1 ASSIGNMENT. Employee agrees that all discoveries, inventions, ideas, concepts, research and other information, processes, products, methods and improvements (collectively "INVENTIONS") which are conceived, developed or otherwise made by him alone or jointly with others during the Initial Term or any Renewal Term and that relate to the Business, shall be the sole property of HPII. Employee therefore grants, conveys, transfers, alienates and assigns exclusively to HPII, for and throughout the world, in and for all languages (including but not limited to computer languages and human languages, whether now existing or subsequently developed) all rights, titles and interests (legal, equitable, use or otherwise) which Employee has, may have in the future or may have the right to claim now or in the future, in all Inventions, copyrights, patents, trademarks, trade names and servicemarks (whether or not registered, including all associated applications therefor and the right to file and register the same in HPII's or any other name), modifications, improvements, derivative works and/or other work which Employee conceives solely or jointly with others (collectively the "ASSIGNED INTELLECTUAL PROPERTY") which: (i) are related to any Trade Secrets or other proprietary materials of HPII; (ii) relate to work Employee performs for HPII (whether or not done during normal working hours); or (iii) Employee develops based on materials, equipment, facilities or information of HPII. The foregoing assignment by Employee is under any and all foreign or domestic, federal, state or local copyright, trade secret, trademark, intellectual property, patent or other laws, and is intended to be all inclusive and without reservation, and specifically includes the right to sue for and collect and retain all damages associated with past, present or future infringements of any or all of the Assigned Intellectual Property. 7 4.2 NO RETAINED RIGHTS. Employee's assignment of the Assigned Intellectual Property to HPII under this Agreement constitutes a complete, absolute and exclusive transfer of all rights (legal, equitable, use and otherwise) in the Assigned Intellectual Property, whether such rights are currently existing or arise in the future. The Employee does not reserve or retain any right, title or interest in any Assigned Intellectual Property or any Trade Secrets or related information which concerns any Assigned Intellectual Property. Employee acknowledges and agrees that the Assigned Intellectual Property constitutes the sole, exclusive and confidential property of HPII. Employee shall disclose to HPII, in full, accurate detail and in writing, all Inventions, derivative works, improvements and/or developments (whether or not patentable, copyrightable or otherwise protectable under law) which Employee makes or assists in making either during the course of his employment with HPII or that in any way concern, relate to or are based upon the Trade Secrets, Assigned Intellectual Property or any other proprietary information of HPII, and acknowledges that the same constitutes HPII's sole property. 4.3 DUTY TO ASSIST. If at any time (during or after the Term) HPII deems it necessary or appropriate, the Employee shall execute and deliver any and all instruments and documents and shall provide such assistance (including testifying in court or other judicial or administrative proceeding) which HPII believes are reasonably necessary either to evidence or register the assignment of rights made by the Employee in this Agreement, or to apply for, obtain, register or enforce any copyright, patent or trademark or otherwise protect or enforce HPII's interests therein; provided, however, that Employee shall not be required to warrant any intellectual property or the nature of HPII's interest therein and, should his assistance be required subsequent to the Term, Employee shall be reimbursed for reasonable expenses associated with such assistance. In addition, if such assistance is required after the Term and would require Employee to spend at least one full business day providing such assistance to HPII, Employee shall be paid for his services at a daily rate equal to the Base Salary as in effect on the date of termination of his employment divided by 270. HPII shall reimburse Employee as set forth herein within thirty (30) days of presentment by Employee to HPII of his documented expenses and time, so long as Employee has complied with the requirements of Section 1.9 of this Agreement. 4.4 WORKS MADE FOR HIRE. HPII and Employee acknowledge that in the course of Employee's employment with HPII, Employee may from time to time create for HPII copyrightable works. Such works may consist of manuals, pamphlets, instructional materials, computer programs, films, tapes, marketing plans, facility layouts, promotional schemes, customer lists, customer prospect lists, or other copyrightable material or portions thereof, and may be created within or without HPII's facilities and before, during or after normal business hours. Both Employee and HPII specifically intend that all such works which in any way are related to or useful in the Business of HPII constitute "works made for hire" by Employee for HPII as that phrase is understood under the Federal Copyright Act, as amended from time to time. Employee therefore shall cooperate fully with HPII in the protection of HPII 's copyrights in such materials and, to the extent HPII deems the same desirable, shall assist HPII in registering such copyrights and executing any documents associated therewith as HPII may designate and prepare. Moreover, Employee through this instrument, assigns to HPII, any and all such materials Employee may develop during the term of Employee's employment with HPII. 4.5 RIGHTS TO MATERIALS AND RETURN OF DATA. All records, files, memoranda, reports, price lists, customer lists, drawings, plans, sketches, documents and the Trade Secrets (together with all copies or abstracts thereof, however stored whether in electronic media, magnetic media, compact disk, floppy disk, hard copy or otherwise) relating to the Business which Employee uses or prepares or comes in contact with in the course of or as a result of Employee's employment, shall remain the sole property of HPII. Upon the termination of Employee's employment with HPII for any reason or for no reason, or upon HPII 's demand, Employee immediately shall return to HPII all notes, data, reference materials, memoranda, documents, instruments, records, all other information and all abstracts thereof which in 8 any way incorporate or reflect the Trade Secrets or other proprietary information of HPII, shall not thereafter cause the removal of any such items from the premises of HPII and shall retain no copies or abstracts of the same in any form or media. ARTICLE 5 REMEDIES 5.1 DAMAGES AND INJUNCTIVE RELIEF. Employee acknowledges that upon breaching or threatening to breach the restrictive covenants contained in this Agreement, Employee will cause damage of an irreparable and continuing nature to HPII, for which money damages alone will not provide adequate relief. Therefore, Employee agrees that in addition to money damages, which only compensate HPII for harm it has suffered or lost profits it reasonably expects to suffer, HPII also is entitled to have all Employee's obligations, undertakings or agreements under this Agreement specifically performed, and to have an immediate injunction (including but not limited to a temporary restraining order) issued for the remainder of the period specified in the restrictive covenant which Employee breached or threatened to breach. HPII shall have the right to obtain such injunctive relief without having to post any bond or prove any damages. The non-prevailing party in any enforcement action taken against Employee hereunder for breach of the restrictive covenants contained in this Agreement agrees to indemnify and reimburse the prevailing party for any and all costs, expenses (including but not limited to reasonable attorney's fees, whether or not a lawsuit is filed), losses and damages paid or incurred thereunder. 5.2 CUMULATIVE REMEDIES. The remedies contained in this Agreement are in addition to any of HPII's other remedies whether specified in this Agreement, available at law, in equity or otherwise. 5.3 SURVIVAL OF COVENANTS. Employee's duties and obligations under this Agreement shall survive the termination of this Agreement or any of its provisions. ARTICLE 6 GENERAL PROVISIONS 6.1 APPLICABLE LAW. The laws of the State of Illinois (other than those pertaining to conflicts of law) shall govern the interpretation of this Agreement, irrespective of the fact that one or more of the parties now is or may become a resident of a different state. The parties shall submit all disputes which arise under this Agreement to state or federal courts located in the City of Chicago, Illinois for resolution. The parties acknowledge that the aforesaid courts shall have exclusive jurisdiction over this Agreement, and specifically waive any claims they may have which involve jurisdiction or venue, including but not limited to forum non conveniens. If service of process is made as aforesaid, the party served agrees that such service shall constitute valid service, and specifically waives any objections the party served may have for invalid service. The aforesaid method of service of process shall be in addition to and not to the exclusion of any other method of service of process legally available. 6.2 SEVERABILITY. If a court of competent jurisdiction holds that any one or more of this Agreement's provisions are invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any of this Agreement's other provisions, and this Agreement shall be construed as if it had never contained such invalid, illegal or unenforceable provision. 9 6.3 NOTICES. The parties shall provide any notices which this Agreement requires in writing as follows: (i) by actual delivery of the notice into the hands of the party entitled to receive it, in which case the notice shall be deemed given on the date of delivery; (ii) by mailing the notice by registered or certified mail, return receipt requested, in which case the notice shall be deemed given four (4) days after it is deposited in the mail; (iii) by Federal Express or any other overnight carrier, in which case the notice shall be deemed given the day following the date it is deposited with such carrier; or (iv) by facsimile, telecopy or any other same day electronic or telephonic delivery system, in which case the notice shall be deemed given on the day it is transmitted. The parties shall address all notices as follows: To Employee: To HPII: Stephen R. Brian Home Products International, Inc. 7216 Seton House Lane Attn: Chief Executive Officer Charlotte, NC 28277 4501 West 47th Street Chicago, IL 60632 6.4 BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of Employee and HPII, as well as their respective heirs, personal representatives, successors and assigns, provided that Employee's services under this Agreement are personal, and therefore Employee may not assign any of his rights or duties under this Agreement. 6.5 COMPLETE UNDERSTANDING. This Agreement constitutes the complete understanding between the parties and supersedes any prior understanding between the parties whether written or oral. No alteration or modification of any of this Agreement's provisions shall be valid unless made in writing and signed by both the parties. 6.6 WAIVER OF DEFAULT. The waiver by either party of any breach of this Agreement by the other will not operate or be construed as a waiver of any other breach by the other which is not specifically waived in writing. 6.7 DIRECTORS AND OFFICERS INSURANCE. HPII shall indemnify Employee to the full extent permitted by applicable law for liabilities arising in Employee's good faith performance of his duties hereunder. Employee shall be covered by the Directors and Officers insurance obtained by HPII under substantially the same terms and with substantially the same coverage as currently provided by HPII to its senior executives. 6.8 MODIFICATION. With respect to the terms of Employee's employment, this Agreement constitutes the full and complete understanding and agreement of the parties, supersedes any prior understanding and agreement, and cannot be changed or terminated except in writing signed by the parties to be bound thereby. 6.9 ASSIGNMENT. The rights and obligations of HPII under this Agreement shall inure to the benefit of and shall be binding upon the successors and assigns of HPII. The rights and obligation of Employee hereunder may not be assigned or delegated. 10 6.10 VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. The parties have executed this Agreement as of the Effective Date. HOME PRODUCTS INTERNATIONAL, EMPLOYEE INC., a Delaware corporation By: ------------------------------------- ---------------------------------------- Its: ----------------------------------- STEPHEN R. BRIAN, individually EX-23.2 11 CONSENT OF INDEPENDENT PUB. ACC. 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (33-65041 and 33-67622). /s/ Grant Thornton LLP Chicago, Illinois March 25, 1998 EX-27 12 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 12-MOS DEC-27-1997 DEC-29-1996 DEC-27-1997 1 583 0 22,518 1,716 12,797 34,690 47,634 19,254 99,343 26,427 30,700 0 0 67 42,149 99,343 129,324 129,324 88,888 88,888 (20) 0 5,152 7,666 346 7,320 0 0 0 0 1.35 1.29
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