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LOAN AND SECURITY AGREEMENT
BY AND AMONG
THE OHIO ART COMPANY,
STRYDEL, INC.
AND
THE CIT GROUP/BUSINESS CREDIT, INC.
APRIL 7, 2000
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TABLE OF CONTENTS
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Page
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SECTION 1. PARTIES......................................................1
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS........................1
2.1. REVOLVING LOANS.................................................1
2.2. TERM LOAN.......................................................5
2.3. ACCOMMODATIONS..................................................5
2.4. CERTAIN AMOUNTS DUE ON DEMAND...................................6
SECTION 3. INTEREST AND FEES............................................6
3.1. INTEREST........................................................6
3.2. FEES............................................................6
SECTION 4. GRANT OF SECURITY INTEREST...................................7
4.1. GRANT OF SECURITY INTEREST......................................7
4.2. OBLIGATIONS.....................................................7
4.3. COLLATERAL......................................................7
4.4. ADDITIONAL COLLATERAL...........................................9
SECTION 5. COLLECTION AND ADMINISTRATION................................9
5.1. COLLECTIONS.....................................................9
5.2. CHARGES TO LOAN ACCOUNT.........................................9
5.3. PAYMENTS........................................................9
5.4. LOAN ACCOUNT STATEMENTS........................................10
5.5. DIRECT COLLECTIONS.............................................10
5.6. ATTORNEY-IN-FACT...............................................11
5.7. LIABILITY......................................................11
5.8. ADMINISTRATION OF ACCOUNTS.....................................11
5.9. DOCUMENTS......................................................11
5.10. ACCESS; APPRAISALS.............................................11
5.11. ENVIRONMENTAL AUDITS...........................................12
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS........12
6.1. FINANCIAL AND OTHER REPORTS....................................12
6.2. TRADE NAMES....................................................13
6.3. LOSSES.........................................................13
6.4. BOOKS OR RECORDS...............................................13
6.5. TITLE..........................................................14
6.6. DISPOSITION OF ASSETS..........................................14
6.7. INSURANCE......................................................14
6.8. COMPLIANCE WITH LAWS...........................................15
6.9. ACCOUNTS.......................................................15
6.10. EQUIPMENT......................................................16
6.11. FINANCIAL COVENANTS............................................16
6.12. AFFILIATED TRANSACTIONS........................................16
6.13. FEES AND EXPENSES..............................................17
6.14. FURTHER ASSURANCES.............................................17
6.15. ENVIRONMENTAL CONDITION........................................18
6.16. STATE OF INCORPORATION.........................................18
6.17. CERTAIN FUNDED INDEBTEDNESS....................................18
6.18. YEAR 2000......................................................19
6.19. THIRD PARTY INVENTORY..........................................19
6.20. KEYMAN INSURANCE...............................................19
6.21. INVENTORY......................................................20
6.22. SURVIVAL OF REPRESENTATIONS....................................20
SECTION 7. EVENTS OF DEFAULT AND REMEDIES..............................20
7.1. EVENTS OF DEFAULT..............................................20
7.2. REMEDIES.......................................................22
7.3. APPLICATION OF PROCEEDS........................................23
7.4. LENDER'S CURE OF THIRD PARTY AGREEMENT DEFAULT.................23
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS.......23
8.1. JURY TRIAL WAIVER..............................................23
8.2. COUNTERCLAIMS..................................................24
8.3. JURISDICTION...................................................24
8.4. NO WAIVER BY LENDER............................................24
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS............................24
9.1. TERM...........................................................24
9.2. EARLY TERMINATION..............................................24
9.3. TERMINATION INDEMNITY DEPOSIT..................................25
9.4. NOTICES........................................................25
9.5. SEVERABILITY...................................................25
9.6. ENTIRE AGREEMENT; AMENDMENTS; ASSIGNMENTS......................25
9.7. DISCHARGE OF BORROWER..........................................26
9.8. USAGE..........................................................26
9.9. GOVERNING LAW..................................................26
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS..........................26
10.1. UNLESS OTHERWISE INDICATED BELOW, THE LIMITS ON
AVAILABILITY ARE LIMITS APPLICABLE TO BOTH BORROWERS
IN THE AGGREGATE AND NOT INDIVIDUALLY:.........................26
10.2. TERM LOAN:.....................................................28
10.3. ACCOMMODATIONS:................................................28
10.4. INTEREST, FEES & CHARGES:......................................28
10.5. FINANCIAL COVENANTS:...........................................29
10.6. MISCELLANEOUS:.................................................31
10.7. TERM...........................................................32
LOAN AND SECURITY AGREEMENT
This Agreement is between the undersigned Borrower and the
undersigned Lender concerning loans and other credit accommodations to be made
by Lender to Borrower. Terms capitalized and not otherwise defined herein shall
have the meanings assigned to such terms in Exhibit A attached hereto.
SECTION 1. PARTIES
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1.1. The "BORROWER" is identified in Section 10.6(c) and its
successors and assigns. If more than one Borrower is specified in Section
10.6(c), (1) all references to Borrower shall mean each of them, jointly and
severally, individually and collectively, and the successors and assigns of
each, (2) Revolving Loans to each Borrower under this Agreement shall be made on
the basis of the separate Gross Availability (defined below) and Net
Availability (defined below) of such Borrower only, calculated with respect to
such Borrower's Eligible Accounts and Eligible Inventory, in the manner set
forth in this Agreement, (3) each Borrower will provide for a separate cash
collection system for such Borrower, in the manner set forth in Section 5.1, (4)
Lender will maintain separate loan accounts for each Borrower hereunder, (5)
each Borrower will provide separate borrowing base certificates, and weekly and
monthly reports pursuant to Section 6.1, calculated with respect to such
Borrower only, and (6) the criteria for Eligible Accounts contained in Sections
2.1(4), (11), (12) and (13) shall be calculated for Borrowers on a combined
basis.
1.2. The "LENDER" is THE CIT GROUP/BUSINESS CREDIT, INC. and
its agents, designees, representatives, successors and assigns.
1.3. Notwithstanding any provision of this Agreement to the
contrary, it is intended that this Agreement not constitute a "Fraudulent
Conveyance" (as defined below). Consequently, each of OAC and Strydel agrees
that if such Borrower's joint and several liability hereunder for the other
Borrower's obligations, or any liens or security interests securing such joint
and several liability, would, but for the application of this sentence,
constitute a Fraudulent Conveyance, such joint and several liability and each
such lien and security interest shall be valid and enforceable only to the
maximum extent that would not cause such joint and several liability or such
lien or security interest to constitute a Fraudulent Conveyance, and this
Agreement shall automatically be deemed to have been amended accordingly at all
relevant times. For purposes hereof, "Fraudulent Conveyance" means a fraudulent
conveyance under Section 548 of the Bankruptcy Code or a fraudulent conveyance
or fraudulent transfer under the provisions of any applicable fraudulent
conveyance or fraudulent transfer law or similar law of any state, nation or
other governmental unit, as in effect from time to time.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
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2.1. Revolving Loans.
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Lender shall, subject to the terms and conditions contained
herein, make revolving loans to Borrower ("REVOLVING LOANS") in amounts
requested by Borrower from
time to time, but not in excess of the Net Availability existing immediately
prior to the making of the requested loan and provided the requested loan would
not cause the outstanding Obligations to exceed the Maximum Credit.
(1) The "MAXIMUM CREDIT" is set forth in Section 10.1(a).
(2) The "GROSS AVAILABILITY" is at any time (i) the product of
the outstanding amount of Eligible Accounts, multiplied by the Eligible Accounts
Percentage set forth in Section 10.1(b)(i), but the amount so added shall not
exceed any sublimits set forth in Section 10.1(e), plus: (ii) the product(s)
obtained by multiplying the applicable Eligible Inventory Percentage(s), if any,
set forth in Section 10.1(b)(ii) by the values (based on the lower of cost,
market or appraised value, determined on a first-in, first-out basis) of
Eligible Inventory, but the amount so added shall not exceed any sublimits set
forth in Section 10.1(c).
(3) The "NET AVAILABILITY" shall be calculated at any time as
an amount equal to the Gross Availability minus the aggregate amount of all
then-outstanding Obligations to Lender other than the then outstanding principal
balance of the Term Loan, if any, but including all contingent liabilities of
Lender with respect to open Accommodations, if any.
(4) "ELIGIBLE ACCOUNTS" are accounts created by Borrower in
the ordinary course of its business which are and remain acceptable to Lender
for lending purposes. General criteria for Eligible Accounts are set forth below
but may be revised from time to time by Lender, in its sole judgment, on fifteen
(15) days' prior written notice to Borrower. Lender shall, in general, deem and
continue to deem accounts to be Eligible Accounts if: (1) such accounts arise
from bona fide completed transactions and have not remained unpaid for more than
the number of days after the invoice date set forth in Section 10.1(d) or
Schedule D attached hereto, as applicable (collectively, "Largest Accounts");
(2) the amounts of the accounts reported to Lender are absolutely owing to
Borrower and payment is not conditional or contingent (such as consignments,
guaranteed sales or right of return or other similar terms); (3) the account
debtor's chief executive office or principal place of business is located in the
United States or Canada (other than Quebec Province); (4) the account debtor's
chief executive office or principal place of business is located outside the
United States and Canada (other than Quebec province) and either (a) the account
debtor has been approved by Lender, but such accounts shall only be eligible to
the extent that the aggregate of such accounts do not exceed the amount set
forth in Section 10.1(e)(ii) or (b) the account is supported by a letter of
credit issued by a bank, and containing terms, satisfactory to Lender, and such
letter of credit has been assigned to Lender in a manner satisfactory to Lender,
but such accounts shall only be eligible to the extent that the aggregate amount
of such accounts do not exceed the amount set forth in Section 10.1(e)(iii); (5)
such accounts do not arise from progress billings, retainages or bill and hold
sales; (6) there are no contra relationships, setoffs, counterclaims or disputes
existing with respect thereto (the amount subject to setoff, counterclaim or
dispute shall not be eligible), and there are no other facts existing or
threatened which would impair or delay the collectibility of all or any portion
thereof; (7) the goods giving rise thereto were not at the time of the sale
subject to any liens except those
permitted in this Agreement; (8) such accounts are not accounts with respect to
which the account debtor or any officer or employee thereof is an Affiliate of
Borrower; (9) such accounts are not accounts with respect to which the account
debtor is the United States or any State or political subdivision thereof or any
department, agency or instrumentality of the United States, any State or
political subdivision, unless there has been compliance with the Assignment of
Claims Act or any similar State or local law, if applicable; (10) Borrower has
delivered to Lender such documents as Lender may have requested pursuant to
Section 5.9 hereof in connection with such accounts and Lender shall have
received verifications of such accounts, satisfactory to it, if sent to the
account debtors or any other obligors or any bailees pursuant to Section 5.5
hereof; (11) there are no facts existing or threatened which might reasonably be
expected to result in any adverse change in the account debtor's financial
condition; (12) accounts owed by an account debtor and its Affiliates do not
represent more than twenty-five percent (25%) of all otherwise Eligible
Accounts, unless such account debtor and such Affiliates have been notified in
writing (in a manner satisfactory to Lender) to make payments in respect of such
accounts directly to a lockbox account established pursuant to Section 5.1 (the
amount exceeding twenty-five percent (25%) shall not be eligible); (13) accounts
owed by an account debtor and its Affiliates do not represent more than thirty
percent (30%) of all otherwise Eligible Accounts (the amount exceeding thirty
percent (30%) shall not be eligible); (14) not more than fifty percent (50%) of
the accounts of an account debtor or its Affiliates owed to Borrower are
outstanding more than the applicable number of days set forth in Section
10.1(d); (15) such accounts are owed by account debtors whose total indebtedness
to Borrower does not exceed the amount of any customer credit limits as
established from time to time on notice to Borrower (the amount exceeding the
credit limit shall not be eligible); and (16) such accounts are owed by account
debtors deemed creditworthy at all times by Lender.
(5) "ELIGIBLE INVENTORY" is inventory owned by Borrower which
is and remains acceptable to Lender for lending purposes and, other than in the
case of In-Transit Inventory (defined below), is located at one of the addresses
set forth in Section 10.6(e). Eligible Inventory shall not include (i) inventory
in the possession of a bailee, consignee, warehouseman or processor or located
at a location leased by Borrower, unless such bailee, consignee, warehouseman,
processor or landlord, as applicable, delivers to Lender an agreement in form
and substance satisfactory to Lender, together with such Uniform Commercial Code
financing statements as Lender shall require, (ii) inventory located at a
location owned by Borrower which is subject to a mortgage in favor of any person
or entity other than Lender, unless such person or entity delivers to Lender an
agreement in form and substance satisfactory to Lender, (iii) "Bull Frog"
inventory, (iv) inventory consisting of raw materials other than plastic resins
and steel, (v) inventory consisting of work-in-process, (vi) inventory that was
manufactured under, or to be sold pursuant to, a license, royalty, trademark,
tradename, copyright, patent, technology or similar agreement with any third
party to the extent that the aggregate amount of inventory subject to all such
agreements exceeds $100,000, but exclusive of any such inventory subject to such
an agreement (including all amendments thereto), in form and substance
satisfactory to Lender, that provides Borrower with the ability to sell such
inventory for at least a 6 month period after the termination of such agreement,
(vii) inventory in-transit to or from one of Borrower's
locations, other than In-Transit Inventory as to which (a) title has passed to
Borrower, (b) Borrower has provided Lender with evidence that such inventory is
adequately insured (in Lender's judgment) while in-transit, (c) Lender or a
customs agent acting as Lender's agent or another agent of Lender has possession
of all applicable shipping documents and documents of title, all of which are in
form and substance acceptable to Lender, (d) the carrier of such inventory
thereof is acceptable to Lender and (e) Lender is satisfied that Lender's
security interest in such inventory and all shipping documents and documents of
title relating thereto is a fully perfected senior security interest in such
collateral or (viii) finished goods inventory of Borrower's lithography
division, other than Kodak inventory located at the Fritz Companies warehouse in
Rochester, New York (which shall be eligible only to the extent that Borrower is
able to demonstrate to Lender's satisfaction that Borrower has title to such
inventory).
(6) "IN-TRANSIT INVENTORY" is inventory owned by Borrower
which is in-transit to Borrower either on the water, in the air or by overland
carrier.
(7) Lender shall have a continuing right to reduce the Gross
Availability by implementing Reserves ("Reserves"), and to increase and decrease
such Reserves from time to time, if and to the extent that, in Lender's
reasonable credit judgment, such Reserves are necessary to protect Lender
against any state of facts which does, or would, with notice or passage of time
or both, constitute an Event of Default or have an adverse effect on any
Collateral. In particular, Lender shall institute Reserves (a) in the aggregate
amount of any dividends declared in respect of the capital stock of OAC and not
yet paid, (b) in the aggregate amount of 3 months' warehousing charges for any
third party warehouse at which Borrower is storing inventory and as to which a
warehouseman's agreement has not been executed that waives or subordinates any
liens held by the warehouseman and is otherwise acceptable to Lender (provided,
that if any warehouseman executes and delivers to Lender an otherwise acceptable
warehouseman's agreement that retains the warehouseman's lien priority as to
less than 3 months' warehousing charges, such reserve shall be reduced to the
amount of warehousing charges for which the warehouseman has retained a priority
lien), and (c) to provide for payment by Borrower of amounts necessary to permit
Borrower to comply with the requirements of Section 6.15 hereof with respect to
Borrower's thermal oxidizing equipment, commencing on June 1, 2000 in the amount
of $350,000, increasing by $80,000 on the first day of each month thereafter,
until such reserves equal the estimated aggregate cost of such compliance, and
decreasing to the extent funds are actually disbursed by Borrower in order to
comply with the terms of Section 6.15; provided, with respect to clause (d),
that if Lender receives written evidence satisfactory to Lender that (i)
Borrower is in compliance with the requirements of Section 6.15 with respect to
Borrower's thermal oxidizing equipment, any such reserves will be released, (ii)
the cost of such compliance will be less than $750,000 or greater than $750,000,
such reserves will be adjusted accordingly, with half of such amount being
reserved on June 1, 2000 and the balance shall be reserved in 5 equal monthly
installments on the first day of each month thereafter and (iii) the time by
which such compliance must be completed is extended beyond December 31, 2000,
such reserves will be adjusted accordingly in a manner reasonably satisfactory
to Lender.
(8) Revolving Loans will not at any time exceed the Gross
Availability unless Lender has consented in writing.
2.2. Term Loan.
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Any term loans and the terms of such loans made by Lender to
Borrower are set forth in, and repayable as set forth in, Section 10.2
(collectively, "TERM LOANS").
2.3. Accommodations.
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(1) Lender may, in its sole discretion, issue or cause to be issued,
from time to time at Borrower's request and on terms and conditions and for
purposes satisfactory to Lender, credit accommodations consisting of letters of
credit, bankers' acceptances, merchandise purchase guaranties or other
guaranties or indemnities for Borrower's account ("ACCOMMODATIONS"). Borrower
shall execute and perform additional agreements relating to the Accommodations
in form and substance acceptable to Lender and the issuer of any Accommodations,
all of which shall supplement the rights and remedies granted herein. Any
payments made by Lender or any Affiliate of Lender in connection with the
Accommodations shall constitute additional Revolving Loans to Borrower.
(2) In addition to the fees and costs of any issuer in
connection with issuing or administering Accommodations, Borrower shall pay
monthly to Lender, on the first day of each month, a charge on open
Accommodations at the rate per annum set forth in Section 10.3(a) (the
"ACCOMMODATION CHARGES").
(3) No Accommodation will be issued unless the full amount of
the Accommodation requested, plus fees and costs for issuance, is less than the
Net Availability existing immediately prior to the issuance of the requested
Accommodation, or if the requested Accommodation would cause the outstanding
Obligations to exceed the Maximum Credit, or cause the open amount of
Accommodations to exceed, at any time, the Accommodation sublimit set forth in
Section 10.3(b).
(4) All indebtedness, liabilities and obligations of any sort
whatsoever, however arising, whether present or future, fixed or contingent,
secured or unsecured, due or to become due, paid or incurred, arising or
incurred in connection with any Accommodation shall be included in the term
"OBLIGATIONS", as defined herein, and shall include, without limitation, (i) all
amounts due or which may become due under any Accommodation; (ii) all amounts
charged or chargeable to Borrower or to Lender by any bank, other financial
institution or correspondent bank which opens, issues or is involved with such
Accommodations; (iii) Lender's Accommodation Charges and all fees, costs and
other charges of any issuer of any Accommodation; and (iv) all duties, freight,
taxes, costs, insurance and all such other charges and expenses which may
pertain directly or indirectly to any Obligations or Accommodations or to the
goods or documents relating thereto.
2.4. Certain Amounts Due On Demand.
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Lender may, in its sole discretion, make or permit Revolving Loans,
Accommodations or other Obligations in excess of the Maximum Credit, Gross or
Net Availability or applicable formulas or sublimits. All or any portion of such
excess(es) shall be immediately due and payable upon Lender's demand, unless
otherwise agreed in writing by Lender.
SECTION 3. INTEREST AND FEES
3.1. Interest
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(1) Interest on the Revolving Loans and Term Loans shall be
payable by Borrower on the first day of each month, calculated upon the closing
daily balances in the loan account of Borrower for each day during the
immediately preceding month, at the per annum rate set forth as the Interest
Rate in Section 10.4(a). The Interest Rate shall increase or decrease by an
amount equal to each increase or decrease, respectively, in the Prime Rate (as
defined below), effective as of the date of each such change. During the
existence of any Event of Default or termination or non-renewal hereof, interest
on all unpaid Obligations shall accrue at a rate equal to two percent (2%) per
annum in excess of the Interest Rate otherwise payable until such time as all
Obligations are indefeasibly paid in full (notwithstanding entry of any judgment
against Borrower or the exercise of any other right or remedy by Lender), and
all such interest shall be payable on demand. In no event shall charges
constituting interest exceed the rate permitted under any applicable law or
regulation, and if any provision of this Agreement is in contravention of any
such law or regulation, such provision shall be deemed amended to conform
thereto.
(2) The "PRIME RATE" is the rate of interest publicly
announced by The Chase Manhattan Bank in New York, New York, or its successors
and assigns from time to time as its prime rate.
3.2. Fees.
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Borrower shall pay to Lender:
(a) Closing Fee. A Closing Fee in the amount set forth in
Section 10.4(c).
(b) Facility Fee. Borrower shall pay Lender a Facility Fee
equal to the amount identified in Section 10.4(d), which Facility Fee
Borrower acknowledges has been fully earned by Lender as of the
commencement of the Term (as defined in Section 9.1 below); provided,
however, until such time as this Agreement shall terminate, Borrower shall
pay one-half of the Facility Fee on the first anniversary of the Term and
the remaining one-half of the Facility Fee on the second anniversary of the
Term. Upon termination of this Agreement for any reason, the entire unpaid
balance of the Facility Fee shall be due and payable in full.
(c) Unused Line Fee. Monthly, on the first day of each month,
in arrears, an Unused Line Fee for each month during the Term at the rate
per annum set forth in Section 10.4(f), calculated upon the amount, if any,
by which the Maximum Credit exceeds the greater of the Minimum Borrowing or
the average outstanding daily principal balance during the preceding month
of all Revolving Loans, Accommodations and any Term Loans.
(d) Late Report Fee. A late report fee set forth in Section
10.4(i), as calculated in accordance with the last sentence of Section 6.1
below.
SECTION 4. GRANT OF SECURITY INTEREST
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4.1. Grant of Security Interest.
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To secure the payment and performance in full of all
Obligations, Borrower hereby grants to Lender a continuing security interest in
and lien upon, and a right of setoff against, and Borrower hereby assigns and
pledges to Lender, all of the Collateral, including any Collateral not deemed
eligible for lending purposes.
4.2. Obligations.
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"OBLIGATIONS" shall mean any and all Revolving Loans, Term
Loans, Accommodations and all other indebtedness, liabilities and obligations of
every kind, nature and description owing by Borrower to Lender and/or its
Affiliates, including principal, interest, charges, fees and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
whether arising under this Agreement or otherwise, whether now existing or
hereafter arising, whether arising before, during or after the Term or after the
commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, original, renewed or extended and whether
arising directly or howsoever acquired by Lender including from any other entity
outright, conditionally or as collateral security, by assignment, merger with
any other entity, participations or interests of Lender in the obligations of
Borrower to others, assumption, operation of law, subrogation or otherwise and
shall also include all amounts chargeable to Borrower under this Agreement or in
connection with any of the foregoing.
4.3. Collateral.
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"COLLATERAL" shall mean all of the following property of
Borrower:
(1) All now owned and hereafter acquired right, title and
interest of Borrower in, to and in respect of all: accounts, interests in goods
represented by accounts, returned, reclaimed or repossessed goods with respect
thereto and rights as an unpaid vendor; contract rights; chattel paper;
investment property; general intangibles (including, but not limited to, tax and
duty refunds, registered and unregistered patents, trademarks, service marks,
copyrights, trade names, applications for the foregoing, trade secrets,
goodwill,
processes, drawings, blueprints, customer lists, licenses, whether as licensor
or licensee, choses in action and other claims, and existing and future
leasehold interests in equipment and fixtures); documents; instruments; letters
of credit, bankers' acceptances or guaranties; cash moneys, deposits,
securities, bank accounts, deposit accounts, credits and other property now or
hereafter held in any capacity by Lender, its Affiliates or any entity which, at
any time, participates in Lender's financing of Borrower or at any other
depository or other institution; agreements or property securing or relating to
any of the items referred to above;
(2) All now owned and hereafter acquired right, title and
interest of Borrower in, to and in respect of goods, including, but not limited
to:
(a) All inventory, wherever located, whether now owned or
hereafter acquired, of whatever kind, nature or description, including
all raw materials, work-in-process, finished goods, and materials to be
used or consumed in Borrower's business; and all names or marks affixed
to or to be affixed thereto for purposes of selling same by the seller,
manufacturer, lessor or licensor thereof;
(b) All equipment and fixtures, wherever located, whether now
owned or hereafter acquired, including, without limitation, all
machinery, equipment, motor vehicles (including without limitation the
motor vehicles listed on Schedule E hereto), furniture and fixtures,
and any and all additions, substitutions, replacements (including spare
parts), and accessions thereof and thereto; and
(c) All consumer goods, farm products, crops, timber, minerals
or the like (including oil and gas), wherever located, whether now
owned or hereafter acquired, of whatever kind, nature or description;
(3) All now owned and hereafter acquired right, title and
interests of Borrower in, to and in respect of any personal property in or upon
which Lender has or may hereafter have a security interest, lien or right of
setoff;
(4) All present and future books and records relating to any
of the above including, without limitation, all computer programs, printed
output and computer readable data in the possession or control of the Borrower,
any computer service bureau or other third party; and
(5) All products and proceeds of the foregoing in whatever
form and wherever located, including, without limitation, all insurance proceeds
and all claims against third parties for loss or destruction of or damage to any
of the foregoing.
Notwithstanding the foregoing, in no event shall "Collateral" include (i) intent
to use trademark applications or (ii) Borrower's rights as a lessee of
equipment, fixtures or real estate, to the extent that the underlying lease
prohibits Borrower from granting a lien on, or a collateral assignment of, its
rights under such lease.
4.4. Additional Collateral.
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The term "COLLATERAL" shall also include (1) the real property
of (a) OAC mortgaged to Lender in connection with this Agreement, commonly known
as One Toy Street, Bryan, Ohio, junior only to the lien of Fifth Third Bank,
Northwestern Ohio, N.A. ("FIFTH THIRD") or a replacement lender reasonably
satisfactory to Lender (a "REPLACEMENT LENDER") on such real property and (b)
Strydel mortgaged to Lender in connection with this Agreement, commonly known as
201 Ellis Street, Stryker, Ohio, junior only to the lien of Fifth Third or a
Replacement Lender on such real property and (2) Borrower's interest in the cash
surrender value of the keyman life insurance policies described in Section 6.20.
SECTION 5. COLLECTION AND ADMINISTRATION
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5.1. Collections.
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Borrower will, at its expense as Lender requests, direct that
all remittances and all other proceeds of accounts and other Collateral be sent
to a lock box designated by Lender, and deposited into a bank account selected
by Lender with arrangements with the bank providing that all funds deposited in
the bank account are to be transferred solely to Lender; provided, that
notwithstanding the foregoing, until otherwise directed by Lender, Strydel shall
not be required to maintain a lock box, but instead shall directly collect all
remittances and other proceeds of accounts and other Collateral and promptly
deposit such amounts into a bank account selected by Lender with arrangements
with the bank providing that all funds deposited in the bank account are to be
transferred solely to Lender. Borrower shall bear all risk of loss of any funds
deposited into such accounts. In connection therewith, Borrower shall execute
such lock box and bank account agreements as Lender shall specify. Any
collections or other proceeds received by Borrower shall be held in trust for
Lender and immediately remitted, at Lender's direction, either to such bank
account or to Lender in kind.
5.2. Charges to Loan Account.
-----------------------
At Lender's option, all payments of principal, interest, fees,
costs, expenses and other charges provided for in this Agreement, or in any
other agreement now or hereafter existing between Lender and Borrower, may be
charged on the date when due, as principal to any loan account of Borrower
maintained by Lender. Interest, fees for Accommodations, the Unused Line Fee and
any other amounts payable by Borrower to Lender based on a per annum rate shall
be calculated on the basis of actual days elapsed over a 360-day year.
5.3. Payments.
--------
All Obligations shall be payable at Lender's Office set forth
in Section 10.6(a) or at Lender's bank designated in Section 10.6(b) or at such
other bank or place as Lender may expressly designate from time to time for
purposes of this Section. Lender shall apply all proceeds of accounts or other
Collateral received by Lender and all other payments in respect of the
Obligations to the Revolving Loans or to any other Obligations then due, in
whatever order or manner Lender shall determine. For purposes of determining
Gross
Availability and Net Availability and for the calculation of the Minimum
Borrowing, remittances and other payments will be treated as credited to the
loan account of Borrower maintained by Lender and Collateral balances to which
they relate, upon the date of Lender's receipt of advice from Lender's bank that
such remittances or other payments have been credited to Lender's account or in
the case of remittances or other payments received directly in kind by Lender,
upon the date of Lender's deposit thereof at Lender's bank, subject to final
payment and collection. In computing interest charges, the loan account of
Borrower will be credited with remittances and other payments for the number of
days set forth in Section 10.4(b) after the day Lender has received advice of
receipt of remittances in Lender's account at Lender's Bank. For purposes of
this Agreement, "BUSINESS DAY" shall mean any day other than a Saturday, Sunday
or any other day on which Lender or banks located in states where Lender has its
offices, are closed.
5.4. Loan Account Statements.
-----------------------
Lender shall render to Borrower monthly a loan account
statement. Each statement shall be considered correct and binding upon Borrower
as an account stated, except to the extent that Lender receives, within sixty
(60) days after the receipt by Borrower of such statement, written notice from
Borrower of any specific exceptions by Borrower to that statement.
5.5. Direct Collections.
------------------
Lender may, at any time, but only after the occurrence of an
Event of Default in the case of clauses (c) through (f) below, (a) notify any
account debtor that the accounts and other Collateral which includes a monetary
obligation have been assigned to Lender by Borrower and that payment thereof is
to be made to the order of and directly to Lender, (b) send, or cause to be sent
by its designee, requests (which may identify the sender by a pseudonym) for
verification by telephone, in writing or otherwise of accounts and other
Collateral directly to any account debtor or any other obligor or any bailee
with respect thereto, (c) demand, collect or enforce payment of any accounts or
such other Collateral, but without any duty to do so, and Lender shall not be
liable for any failure to collect or enforce payment thereof, (d) take or bring,
in the name of Lender or Borrower, all steps, actions, suits or proceedings
deemed by Lender necessary or desirable to effect collection of or other
realization upon the accounts and other Collateral, (e) change the address for
delivery of mail to Borrower and to receive and open mail addressed to Borrower,
and (f) extend the time of payment of, compromise or settle for cash, credit,
return of merchandise, and upon any terms or conditions, any and all accounts or
other Collateral which includes a monetary obligation and discharge or release
the account debtor or other obligor, without affecting any of the Obligations.
At Lender's request all invoices and statements sent to any account debtor,
other obligor or bailee, shall state that the accounts and such other Collateral
have been assigned to Lender and are payable directly and only to Lender.
5.6. Attorney-in-Fact.
----------------
Borrower hereby irrevocably appoints Lender as Borrower's
attorney-in-fact and authorizes Lender at Borrower's sole expense, to exercise
at any times in Lender's discretion all or any of the powers necessary for
Lender to obtain information about the Collateral or to enforce Lender's rights
hereunder.
5.7. Liability.
---------
Borrower hereby releases and exculpates Lender, its officers
and employees from any liability arising from any acts under this Agreement or
in furtherance thereof, except for gross negligence or willful misconduct.
Lender will not have any liability to Borrower for lost profits or other special
or consequential damages.
5.8. Administration of Accounts.
--------------------------
After written notice by Lender to Borrower or without notice
after an Event of Default, Borrower shall not, (a) amend, modify, settle or
compromise any of the accounts or any other Collateral which includes a monetary
obligation, (b) release in whole or in part any account debtor or other person
liable for the payment of any of the accounts or any such other Collateral, or
(c) grant any credits, discounts, allowances, deductions, return authorizations
or the like with respect to any of the accounts or any such other Collateral.
5.9. Documents.
---------
Borrower shall deliver to Lender, as Lender may request,
copies of all documents, schedules, invoices, proofs of delivery, purchase
orders, statements, contracts and all other information evidencing or relating
to the Collateral, in form and substance satisfactory to Lender and duly
executed by Borrower; provided, however, that after an Event of Default, any of
such items designated by Lender shall be originals rather than copies. Without
limiting the provisions of Section 5.5, Borrower's granting of credits,
discounts, allowances, deductions, return authorizations or the like will be
promptly reported to Lender in writing. In no event shall any schedule or
confirmatory assignment (or the absence thereof or omission of any of the
accounts or other Collateral therefrom) limit or in any way be construed as a
waiver, limitation or modification of the security interests or rights of Lender
or the warranties, representations and covenants of Borrower under this
Agreement. Any documents, schedules, invoices or other paper delivered to Lender
by Borrower may be destroyed or otherwise disposed of by Lender six (6) months
after receipt by Lender, unless Borrower requests their return in writing in
advance and makes prior arrangements for their return at Borrower's expense.
5.10. Access; Appraisals.
------------------
Lender shall have access, prior to an Event of Default during
reasonable business hours and during the existence of an Event of Default at any
time, to all of the premises where Collateral is located for the purposes of
inspecting or copying the Collateral, and all Borrower's books and records.
Lender, at no charge, may use such of Borrower's
personnel, equipment, including computer equipment, programs, printed output and
computer readable media, supplies and premises for the collection of accounts
and realization on other Collateral as Lender, in its sole discretion, deems
appropriate. Borrower hereby irrevocably authorizes all accountants and third
parties to disclose and deliver to Lender at Borrower's expense all financial
information, books and records, work papers, management reports and other
information in their possession regarding Borrower. In addition, from time to
time, Lender also shall have the right to engage an appraiser or consultant
selected by Lender (but at Borrower's expense) to appraise, audit and evaluate
Borrower's inventory.
5.11. Environmental Audits.
--------------------
From time to time, but no more frequently than annually
(provided no Event of Default is in existence), as requested by Lender, at the
sole expense of Borrower, Borrower shall provide Lender, or its designee,
complete access to all of Borrower's facilities for the purpose of conducting an
environmental audit of such facilities as Lender may deem necessary.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
----------------------------------------------------
Borrower hereby represents, warrants and covenants to Lender
the following, the truth and accuracy of which, and compliance with which, shall
be continuing conditions of the making of loans or other credit accommodations
by Lender to Borrower:
6.1. Financial and Other Reports.
---------------------------
Borrower shall keep and maintain its books and records in
accordance with generally accepted accounting principles, consistently applied.
Borrower shall, at its expense, on each day on which Borrower requests a
Revolving Loan (and in no event less frequently than weekly), deliver to Lender
a borrowing base certificate in the form attached hereto as Exhibit B; provided,
that notwithstanding the foregoing, Borrower shall be permitted to deliver to
Lender borrowing base certificates on a monthly basis (on or before the
fifteenth (15th) day of each month) commencing immediately after any Testing
Date on which the Reporting Conditions have been satisfied and continuing until
immediately after any subsequent Testing Date in which any of the Reporting
Conditions have not been satisfied. In addition, Borrower shall, at its expense,
deliver to Lender (a) weekly inventory reports no later than three (3) Business
Days after each such weekly period; and, on or before the fifteenth (15th) day
of each month, (b) true and complete monthly agings of its accounts receivable,
accounts payable and notes payable; and (c) consolidated monthly internally
prepared interim financial statements containing a balance sheet, income
statement and cash flow statement certified by an officer of Borrower. Until
such time as Lender is satisfied with Strydel's inventory reporting system,
Strydel shall also deliver to Lender, on or before the fifteenth (15th) day of
each month the results of a physical inventory performed by Strydel as of the
last day of the prior month. Until such time as Lender is satisfied with the
inventory reporting system used by Borrower's lithography division, Borrower
shall also
deliver to Lender, on or before the fifteenth (15th) day of each calendar
quarter the results of a physical inventory performed by Borrower as of the last
day of the prior calendar quarter. Annually, Borrower shall deliver audited
consolidated and consolidating financial statements of Borrower, containing a
balance sheet, income statement and cash flow statement, accompanied by the
report and opinion thereon of independent certified public accountants
acceptable to Lender, as soon as available, but in no event later than ninety
(90) days after the end of Borrower's fiscal year. No later than 30 days prior
to each fiscal year, Borrower shall also deliver to Lender consolidated and
consolidating balance sheet, income, cash flow and availability projections for
such fiscal year in a format acceptable to Lender. All of the foregoing shall be
in such form and together with such information with respect to the business of
Borrower or any guarantor, as Lender may in each case reasonably request.
Borrower understands and agrees that if it shall fail at any time to timely
deliver a financial or other report or projection required under this Section
6.1, Borrower shall be charged a fee per late report equal to the amount set
forth in Section 10.4(i) multiplied by the number of days such report is late in
delivery to Lender.
6.2. Trade Names.
-----------
Borrower may from time to time render invoices under its trade
names set forth in Section 10.6(g) or any other tradename of which Lender has
been notified in writing at least 30 days prior to the date on which Borrower
commences to use such tradename for such purpose and, Borrower represents that:
(a) each trade name does not refer to another corporation or other legal entity,
(b) all accounts and proceeds thereof (including any returned merchandise)
invoiced under any such trade names are owned exclusively by Borrower and (c)
Lender may receive, endorse and deposit to any loan account of Borrower
maintained by Lender all checks or other remittances made payable to any trade
name of Borrower representing payment with respect to such sales or services.
6.3. Losses.
------
Borrower shall promptly notify Lender in writing of any loss,
damage, investigation, action, suit, proceeding or claim relating to a material
portion of the Collateral or which may reasonably be expected to result in any
material adverse change in Borrower's business, assets, liabilities or
condition, financial or otherwise.
6.4. Books or Records.
----------------
Borrower's books and records concerning accounts and its chief
executive office are and shall be maintained only at the address set forth in
Section 10.6(d). Borrower's Eligible Inventory shall be kept only at the
addresses set forth on Section 10.6(e); and Borrower's only other places of
business and the only other locations of Collateral, if any, are and shall be
the addresses set forth in Section 10.6(f) hereof, except Borrower may change
such locations or open a new place of business after thirty (30) days prior
written notice to Lender. Borrower shall execute and deliver or cause to be
executed and delivered to Lender such financing statements, amendments,
financing documents and security and other agreements as Lender may reasonably
require.
6.5. Title.
-----
Borrower has and at all times will continue to have good and
marketable title to all of the Collateral, free and clear of all liens, security
interests, claims or encumbrances of any kind except in favor of Lender and
except, if any, those set forth on Schedule A hereto.
6.6. Disposition of Assets.
---------------------
Without the prior written consent of Lender, Borrower shall
not directly or indirectly: (a) sell, lease, transfer, assign, abandon or
otherwise dispose of any part of the Collateral or any material portion of its
other assets (other than (i) sales of inventory to buyers in the ordinary course
of business, (ii) so long as no Event of Default is in existence, sales of
inventory that is not Eligible Inventory, whether or not in the ordinary course
of business, (iii) so long as no Event of Default is in existence, charitable
donations of inventory with an aggregate value not in excess of $100,000 in any
fiscal year and (iv) so long as no Event of Default is in existence, sales of
obsolete equipment, which together with sales of similar obsolete equipment of
Trinc Co., do not exceed an aggregate book value of $25,000 in any 12 month
period, in each case so long as the proceeds thereof are immediately remitted to
Lender for application to the Obligations as set forth in Section 5.3) or (b)
consolidate with or merge with or into any other entity, or permit any other
entity to consolidate with or merge with or into Borrower or (c) form or acquire
any interest in any firm, corporation or other entity.
6.7. Insurance.
---------
Borrower shall at all times maintain, with financially sound
and reputable insurers, insurance (including, without limitation, at the option
of Lender, earthquake and flood insurance) with respect to the Collateral and
other assets (the "INSURANCE COVERAGE"). All such insurance policies shall be in
such form, substance, amounts and coverage as may be satisfactory to Lender and
shall provide that the insurer will provide for thirty (30) days' prior written
notice to Lender of cancellation or reduction of coverage. Borrower hereby
irrevocably appoints Lender and any designee of Lender as attorney-in-fact for
Borrower to obtain at Borrower's expense, any such insurance should Borrower
fail to do so and to adjust or settle any claim or other matter under or arising
pursuant to such insurance or to amend or cancel such insurance. Borrower shall
deliver to Lender evidence of such insurance and an endorsement satisfactory to
Lender naming Lender as the lender loss payee and additional insured as to all
existing and future insurance policies with respect to the Collateral. In the
event Borrower, at any time, fails to provide Lender with evidence of the
Insurance Coverage as required by this Agreement, Lender may purchase the
Insurance Coverage at Borrower's expense to protect Lender's interests in the
Collateral. Such insurance may, but need not, protect Borrower's interests, and
Lender shall be under no obligation to protect Borrower's interests. The
Insurance Coverage that Lender purchases on behalf of Borrower may not pay any
claim that Borrower makes or any claim that is made against Borrower in
connection with the Collateral. Borrower may later cancel any Insurance Coverage
purchased by Lender, but only after providing Lender with evidence that
Insurance Coverage has been
obtained as provided for in this Agreement. In the event Lender purchases all or
any portion of the Insurance Coverage for the Collateral or as otherwise
required hereunder, Borrower will be responsible for all costs and expenses of
such Insurance Coverage with the purchase of the Insurance Coverage including,
but not limited to, interest and any other charges imposed by Lender in
connection with the purchase of the Insurance Coverage until the effective date
of the cancellation or expiration of the Insurance Coverage. The costs and
expenses of any Insurance Coverage purchased by Lender shall be added to
Borrower's Obligations. Borrower acknowledges that the costs and expenses of the
Insurance Coverage purchased by Lender pursuant hereto may be more than the cost
of insurance Borrower may be able to obtain on its own. Borrower shall deliver
to Lender in kind, all instruments representing proceeds of insurance received
by Borrower. Lender may apply any insurance proceeds received at any time to the
cost of repairs to or replacement of any portion of the Collateral and/or, at
Lender's option, to payment of or as security for any of the Obligations,
whether or not due, in any order or manner as Lender determines; provided, that
so long as no Event of Default is in existence, in any 12 month period Borrower
may elect to provisionally apply up to an aggregate of $250,000 of the proceeds
of casualty insurance in respect of damage to or destruction of Borrower's fixed
assets against the outstanding balance of the Revolving Loans, so long as such
amounts are used with 6 months of the date of the applicable loss to replace the
damaged or destroyed fixed assets. If such amount is not so used within such 6
month period, such amount will be applied to the Obligations in the manner set
forth in Section 5.3.
6.8. Compliance With Laws.
--------------------
Except as set forth in Section 6.15, Borrower is and at all
times will continue to be in compliance with the requirements of all laws,
rules, regulations and orders of any governmental authority relating to its
business (including laws, rules, regulations and orders relating to income,
withholding, excise, property and social security taxes, minimum wages, employee
retirement and welfare benefits, employee health and safety, or environmental
matters) and all agreements or other instruments binding on Borrower or its
property, except to the extent that non-compliance therewith could not
reasonably be expected to have a material adverse effect on Borrower's business,
assets, liabilities or condition, financial or otherwise. Borrower shall pay and
discharge all taxes, assessments and governmental charges against Borrower or
any Collateral when due, unless the same are being contested in good faith.
Lender may establish Reserves for the amount contested and penalties which may
accrue thereon.
6.9. Accounts.
--------
With respect to each account deemed an Eligible Account,
except as reported in writing to Lender, Borrower has no knowledge that any of
the criteria for eligibility are not or are no longer satisfied and the
Eligibility criteria will continue to be satisfied. All statements made and all
unpaid balances and other information appearing in the invoices, agreements,
proofs of rendition of services and delivery of goods and other documentation
relating to the accounts, and all confirmatory assignments, schedules,
statements of account
and books and records with respect thereto, are true and correct and in all
respects what they purport to be.
6.10. Equipment.
---------
With respect to Borrower's equipment, Borrower shall keep the
equipment in good order and repair, and in running and marketable condition,
ordinary wear and tear excepted.
6.11. Financial Covenants.
-------------------
Borrower shall maintain consolidated working capital (as
determined in accordance with generally accepted accounting principles, in
effect on the date hereof, consistently applied) and Tangible Net Worth, in each
case on the last day of each fiscal quarter hereafter commencing April 30, 2000,
in the amounts set forth in Section 10.5(a) and Section 10.5(b), respectively,
and Borrower shall not, directly or indirectly, expend or commit to expend, for
fixed or capital assets (including capital lease obligations) an amount in
excess of the capital expenditure limit set forth in Section 10.5(c) in any
fiscal period of Borrower set forth in Section 10.5(c).
6.12. Affiliated Transactions.
-----------------------
Borrower will not, directly or indirectly: (a) lend or advance
money or property to, guarantee or assume indebtedness of, or invest (by capital
contribution or otherwise) in any person, firm, corporation or other entity,
including without limitation any officer, director, shareholder or other
Affiliate of Borrower, except that (i) at any time that no Event of Default is
in existence, Borrower may make (x) advances in the ordinary course of business
to officers, directors and employees for routine travel and similar expenses,
which in the aggregate do not exceed $50,000 at any time outstanding and (y)
other loans to officers and key employees of Borrower, so long as the aggregate
outstanding balance thereof does not exceed $75,000 and (ii) at any time that no
Event of Default is in existence, Strydel may make loans to Ohio Art in an
aggregate outstanding principal amount not to at any time exceed $1,000,000
("INTERCOMPANY LOANS"), so long as the Intercompany Loans are evidenced by
promissory notes in form and substance acceptable to Lender, which are endorsed
to Lender's order and delivered to Lender as security for the Obligations; or
(b) declare, pay or make any dividend, redemption or other distribution on
account of any shares of any class of stock of Borrower now or hereafter
outstanding, except that OAC may declare and pay dividends on the last day of
each fiscal quarter commencing on May 1, 2000, so long as (i) the aggregate
amount of dividends declared and paid in each calendar quarter shall not exceed
$36,000, (ii) immediately after payment of such dividend, aggregate Net
Availability for OAC and Strydel equals or exceeds $1,000,000, (iii) at the time
of payment of such dividend, Borrower has no accounts payable that are over 120
days past due, other than accounts payable subject to bona-fide disputes, (iv)
no Event of Default is in existence at the time of declaration (as opposed to
payment) of such dividend or would be caused thereby and (v) at the time of
payment of such dividend, Borrower has no past due income taxes; or (c) make any
payment of the principal amount of or interest on any indebtedness
owing to any officer, director, shareholder, or other Affiliate of Borrower,
except that so long as no Event of Default is in existence, Ohio Art may repay
the Intercompany Loans; or (d) except as otherwise provided in this Section
6.12, enter into any sale, lease or other transaction with any officer,
director, employee, shareholder or other Affiliate of Borrower on terms that are
less favorable to Borrower than those which might be obtained at the time from
persons who are not an officer, director, employee, shareholder or other
Affiliate of Borrower.
6.13. Fees and Expenses.
-----------------
Borrower shall pay, on Lender's demand, all costs, expenses,
filing fees and taxes payable in connection with the preparation, execution,
delivery, recording, administration, collection, liquidation, enforcement and
defense of the Obligations, Lender's rights in the Collateral, this Agreement
and all other existing and future agreements or documents contemplated herein or
related hereto, including any amendments, waivers, supplements or consents which
may hereafter be made or entered into in respect hereof, or in any way involving
claims or defense asserted by Lender or claims or defense against Lender
asserted by Borrower, and guarantor or any third party directly or indirectly
arising out of or related to the relationship between Borrower and Lender or any
guarantor and Lender, including, but not limited to the following, whether
incurred before, during or after the Term or after the commencement of any case
with respect to Borrower or any guarantor under the United States Bankruptcy
Code or any similar statute: (a) all costs and expenses of filing or recording
(including Uniform Commercial Code financing statement filing taxes and fees,
documentary taxes, intangible taxes and mortgage recording taxes and fees, if
applicable); (b) all title insurance and other insurance premiums, appraisal
fees, fees incurred in connection with any environmental report, audit or survey
and search fees; (c) all fees as then in effect relating to the wire transfer of
loan proceeds and other funds and fees then in effect for returned checks and
credit reports; (d) all expenses and costs heretofore and from time to time
hereafter incurred by Lender during the course of periodic field examinations of
the Collateral and Borrower's operations including field examiner travel, food
and lodging, plus (i) a per diem charge at the rate set forth in Section 10.4(g)
for Lender's examiners in the field and office, and (ii) a per diem charge at
the rate set forth in Section 10.4(g) for Lender's personnel providing account
analysis and verification services, provided however, such per diem charge may
be increased by Lender from time to time upon notice from Lender to Borrower;
and (e) the costs, disbursements and fees of in-house and outside counsel to
Lender, including but not limited to such fees and disbursements incurred as a
result of a workout, restructuring, reorganization, liquidation, insolvency
proceeding or litigation between the parties hereto, any third party and in any
appeals arising therefrom.
6.14. Further Assurances.
------------------
At the request of Lender, at any time and from time to time,
at Borrower's sole expense, Borrower shall execute and deliver or cause to be
executed and delivered to Lender, such agreements, documents and instruments,
including waivers, consents and subordination agreements from mortgagees or
other holders of security interests or liens, landlords or bailees, and do or
cause to be done such further acts as Lender, in its discretion, deems
necessary or desirable to create, preserve, perfect or validate any security
interest of Lender in the Collateral and otherwise to effectuate the provisions
and purposes of this Agreement. Borrower hereby authorizes Lender to file
financing statements or amendments against Borrower in favor of Lender with
respect to the Collateral, without Borrower's signature and to file as financing
statements any carbon, photographic or other reproductions of this Agreement or
any financing statements signed by Borrower.
6.15. Environmental Condition.
-----------------------
None of Borrower's properties or assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site, or a
candidate for closure pursuant to any environmental protection statute. No lien
arising under any environmental protection statute has attached to any revenues
or to any real or personal property owned by Borrower. Except as set forth on
Schedule C attached hereto, Borrower has not received a summons, citation,
notice, or directive from the Environmental Protection Agency or any other
federal or state governmental agency any action or omission by Borrower
resulting in the releasing, or otherwise exposing of hazardous waste or
hazardous substances into the environment. Except as set forth on Schedule C,
Borrower is and will continue to be in compliance (in all material respects)
with all statutes, regulations, ordinances and other legal requirements
pertaining to the production, storage, handling, treatment, release,
transportation or disposal of any hazardous waste or hazardous substance.
Borrower will take such steps as are necessary to become compliant (in all
material respects) on or before December 31, 2000 (or such later date as the
applicable regulatory authorities agree in writing shall be the date by which
such compliance must occur) with all statutes, regulations, ordinances and other
legal requirements pertaining to Borrower's thermal oxidizing equipment,
including without limitation Ohio Administrative Code rules 3745-31-02(A)(1) and
3745-31-05(A)(3). Borrower represents that to the best of Borrower's knowledge
after due inquiry, the aggregate cost of achieving such compliance will not
exceed $750,000. Borrower agrees to promptly notify Lender if Borrower learns
that the cost of such compliance is reasonably likely to exceed $750,000.
6.16. State of Incorporation.
----------------------
If Borrower is a corporation, it is duly organized, existing
and in good standing under the laws of the state set forth in Section 10.6(h).
6.17. Certain Funded Indebtedness.
---------------------------
As of the date of this Agreement, Borrower has no indebtedness
for borrowed money, other than (i) the Obligations, (ii) indebtedness to Fifth
Third or a Replacement Lender in an aggregate amount not in excess of $5,200,000
(the "REAL ESTATE LOANS"), (iii) loans (a) from OAC to Trinc Co. in an aggregate
outstanding amount of $99,403.96 and (b) from OAC to Strydel in an aggregate
outstanding amount of $462,699.73 (which represents the net amount of such
outstanding loans, after subtracting the balance of loans currently owing by OAC
to Strydel ($1,215,375.01) from the balance of loans currently
owing by Strydel to OAC ($1,678,074.74) and (iv) the indebtedness set forth on
Schedule B hereto. After the date of this Agreement, Borrower shall not incur
any indebtedness for borrowed money other than the Intercompany Loans and as set
forth on Exhibit B. Borrower will not make any payments on any indebtedness for
borrowed money, whether listed on Schedule B hereto or otherwise, except that
(a) Borrower may make payments to in respect of the Obligations, (b) Borrower
may make scheduled payments to Fifth Third pursuant to the terms of the
agreements, instruments and documents evidencing the Real Estate Loans, as they
exist on the date hereof, or scheduled payments to a Replacement Lender pursuant
to the terms of the agreements, instruments and documents evidencing the Real
Estate Loans, as approved by Lender in its reasonable discretion and without
amendment to the terms thereof, (c) Borrower may make payments to holders of
such indebtedness listed on Schedule B if, and only if, and to the extent such
payments are permitted by a subordination agreement (or substantially similar
agreement or agreement having substantially similar effect) acceptable to Lender
and executed by Borrower and each such holder in favor of Lender and (d) Ohio
Art may make payments in respect of the Intercompany Loans to the extent set
forth in Section 6.12(c).
6.18. Year 2000.
---------
Borrower has taken all action necessary to assure that its
computer-based systems are able to effectively process data including dates and
date sensitive functions. Borrower represents and warrants that the "YEAR 2000
PROBLEM" is not reasonably likely to result in a material adverse effect on
Borrower's business condition. Upon request, Borrower shall provide assurances
acceptable to Lender that Borrower's computer systems and software are Year 2000
compliant. The term "YEAR 2000 PROBLEM" means the inability of certain computer
applications to recognize and correctly perform date-sensitive functions
involving certain dates prior to and after December 31, 1999.
6.19. Third Party Inventory.
---------------------
Borrower shall take all necessary steps to ensure that any
product of other persons or entities at any time consigned to Borrower,
delivered to Borrower for processing or otherwise located on any of Borrower's
premises are physically segregated from Borrower's own inventory and supplies
and are clearly marked and identified as being the property of a person or
entity other than Borrower. Borrower agrees that any inventory or other products
or materials of each of Lakeside Metals, Inc., Ball Packaging Corp., d/b/a Ball
Metal Food Containers Corp. and Tinplate Partners International, Inc., now or at
any time hereafter located on any of Borrower's premises shall be delivered by
such person to Borrower for processing by Borrower, shall be returned to such
entity after processing has been completed and shall at no time become property
of Borrower.
6.20. Keyman Insurance.
----------------
Borrower shall maintain in full force and effect keyman
insurance on the lives of Messrs. William C. Killgallon and Martin L. Killgallon
II in the aggregate amount for both policies of at least $2,500,000 and with an
aggregate cash surrender value, net of policy
loans and previous assignments of interest, of at least $152,000. Borrower shall
make payment when due of all premiums owing in respect of such keyman insurance.
6.21. Inventory.
---------
Borrower agrees to safeguard, protect and hold all inventory
for Lender's account and make no disposition thereof except in the ordinary
course of the business of Borrower and except as permitted in Section 6.6. In
addition, Borrower shall maintain a seasonal mix of raw materials and finished
goods inventory, respectively, that is consistent in all material respects with
Borrower's past practices, modified by current practices of other persons
engaged in similar businesses. Inventory may be sold and shipped by Borrower to
its customers, on open account and on commercially reasonable terms consistent
with Borrower's past practices. Lender shall have the right to withdraw this
permission at any time upon the occurrence of an Event of Default and until such
time as such Event of Default is waived, in which event no further disposition
shall be made of the inventory by Borrower without Lender's prior written
approval. Cash and cash on delivery sales shall be made by Borrower only with
the approval of Lender, and the proceeds of such sales or sales of inventory for
cash or cash on delivery shall not be commingled with Borrower's other property,
but shall be segregated, held by Borrower in trust for Lender as Lender's
exclusive property, and shall be delivered immediately by the Borrower to Lender
in the identical form received; provided, that notwithstanding the foregoing,
Borrower may sell to employees for cash, without the approval of Lender, up to
an aggregate amount of $10,000 of inventory per calendar month. Upon the sale,
exchange, or other disposition of inventory, Lender's security interest such
inventory shall, without break in continuity and without further formality or
act, continue in, and attach to, all proceeds, including any instruments for the
payment of money, accounts receivable, contract rights, documents of title,
shipping documents, chattel paper and all other cash and non-cash proceeds of
such sale, exchange or disposition. As to any such sale, exchange or other
disposition, Lender shall have all of the rights of an unpaid seller, including
stoppage in transit, rescission and reclamation.
6.22. Survival of Representations.
---------------------------
All representations and warranties of Borrower contained in
this Agreement or any of the other agreements contemplated herein shall (1)
survive the execution and delivery of this Agreement until the termination
hereof and the indefeasible satisfaction in full of all Obligations (other than
obligations in respect of unasserted indemnity claims) and (2) be deemed to have
been remade by Borrower each time that Borrower requests a Revolving Loan, a
Term Loan or an Accommodation.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
------------------------------
7.1. Events of Default.
-----------------
All Obligations shall be immediately due and payable, without
notice or demand, and any provisions of this Agreement as to future loans and
credit accommodations by Lender shall terminate automatically, upon the
termination or non-renewal of this
Agreement or, at Lender's option, upon or at any time after the occurrence or
existence of any one or more of the following "EVENTS OF DEFAULT":
(1) Borrower fails to pay when due any of the Obligations;
(2) Borrower fails to perform any of the terms of this
Agreement or any other existing or future financing, security or other agreement
between Borrower and Lender or any Affiliate of Lender, other than a payment
Obligation, and such failure continues for 5 days after the date of such
failure;
(3) Any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement or any other agreement, schedule,
confirmatory assignment or otherwise, or to any Affiliate of Lender, shall prove
inaccurate or misleading in any material respect as and when the same is made or
deemed made or remade;
(4) Any guarantor of the Obligations revokes, terminates or
fails to perform any of the terms of any guaranty, endorsement or other
agreement of such party in favor of Lender or any Affiliate of Lender;
(5) Any judgment or judgments aggregating in excess of $25,000
or any injunction or attachment is obtained against Borrower or any guarantor,
which remains unstayed or unbonded on appeal for a period of thirty (30) days or
is enforced;
(6) Borrower or any guarantor dies or ceases to exist or the
usual business of Borrower or any guarantor ceases or is suspended:
(7) Any change in the chief executive officer, chief operating
officer, or controlling ownership of Borrower;
(8) Borrower or any guarantor becomes insolvent, makes an
assignment for the benefit of creditors, makes or sends notice of a bulk
transfer or calls a general meeting of its creditors or principal creditors;
(9) Any petition or application for any relief under the
bankruptcy laws of the United States now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) (each, a "BANKRUPTCY PETITION") is filed by or
against Borrower or any guarantor; provided, that in the case of an involuntary
Bankruptcy Petition, it shall not constitute an Event of Default hereunder
unless such Bankruptcy Petition remains undismissed or unstayed more than 60
days after the filing date thereof;
(10) The indictment or threatened indictment of Borrower or
any guarantor under any criminal statute, or commencement or threatened
commencement of criminal or civil proceedings against Borrower or any guarantor,
pursuant to which statute or proceedings the penalties or remedies sought or
available include forfeiture of any of the
property of Borrower or such guarantor which Lender reasonably believes may have
a material adverse effect on the Collateral or Borrower's business;
(11) Any default or event of default occurs on the part of
Borrower under (a) any agreement, instrument or document evidencing or securing
the Real Estate Loans, (b) any other agreement, instrument or document
evidencing or securing indebtedness for borrowed money with a balance in excess
of $100,000 and which permits the holder of such indebtedness to accelerate such
indebtedness or (c) any other material agreement, document or instrument to
which Borrower is a party or by which Borrower or any of its property is bound;
(12) Lender in good faith believes that either (i) the
prospect of payment or performance of the Obligations is impaired or (ii) the
Collateral is not sufficient to secure fully the Obligations; or
(13) Any material adverse change occurs in the nature or
conduct of Borrower's business.
7.2. Remedies.
--------
Upon the occurrence of an Event of Default and at any time
thereafter until such Event of Default shall have been waived by Lender, Lender
shall have all rights and remedies provided in this Agreement, any other
agreements between Borrower and Lender, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to Borrower, all such notices being hereby waived, except such notice as is
expressly provided for hereunder or is not waivable under applicable law. Upon
the occurrence of an Event of Default, Lender may elect to have no further
obligation to make loans or advances hereunder; however, if a Bankruptcy
Petition is filed by or against Borrower, Lender shall have no further
obligation to make loans or advances hereunder. All rights and remedies of
Lender are cumulative and not exclusive and are enforceable, in Lender's
discretion, alternatively, successively, or concurrently on any one or more
occasions and in any order Lender may determine. Without limiting the foregoing,
Lender may (a) accelerate the payment of all Obligations and demand immediate
payment thereof to Lender, (b) with or without judicial process or the aid or
assistance of others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral,
(c) require Borrower, at Borrower's expense, to assemble and make available to
Lender any part or all of the Collateral at any place and time designated by
Lender, (d) collect, foreclose, receive, appropriate, setoff and realize upon
any and all Collateral, and/or (e) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including, without limitation,
entering into contracts with respect thereto, by public or private sales at any
exchange, broker's board, any office of Lender or elsewhere) at such prices or
terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the foregoing being free from any
right or equity of redemption of Borrower, which right or equity of redemption
is hereby expressly waived and released by
Borrower. If any of the Collateral is sold or leased by Lender upon credit terms
or for future delivery, the Obligations shall not be reduced as a result thereof
until payment therefor is finally collected by Lender. If notice of disposition
of Collateral is required by law, ten (10) days' prior notice by Lender to
Borrower designating the time and place of any public sale or the time after
which any private sale or other intended disposition of Collateral is to be
made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be required.
7.3. Application of Proceeds.
-----------------------
Lender may apply the cash proceeds of Collateral other than
accounts actually received by Lender from any sale, lease, foreclosure or other
disposition of the Collateral to payment of any of the Obligations, in whole or
in part and in such order as Lender may elect, whether or not then due. Borrower
shall remain liable to Lender for the payment of any deficiency together with
interest at the highest rate provided for herein and all costs and expenses of
collection or enforcement, including reasonable attorney's fees and legal
expenses.
7.4. Lender's Cure of Third Party Agreement Default.
----------------------------------------------
Lender may, at its option, cure any default by Borrower under
any agreement with a third party or pay or bond on appeal any judgment entered
against Borrower, discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral
and pay any amount, incur any expense or perform any act which, in Lender's sole
judgment, is necessary or appropriate to preserve, protect, insure, maintain, or
realize upon the Collateral. Lender may charge Borrower's loan account for any
amounts so expended, such amounts to be repayable by Borrower on demand. Lender
shall be under no obligation to effect such cure, payment, bonding or discharge,
and shall not, by doing so, be deemed to have assumed any obligation or
liability of Borrower.
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
-----------------------------------------------------
8.1. JURY TRIAL WAIVER.
-----------------
BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST THE OTHER WHICH
PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE OBLIGATIONS, THE
COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER, OR, IN ANY WAY,
DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN
BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR LOST PROFITS OR OTHER
SPECIAL OR CONSEQUENTIAL DAMAGES.
8.2. Counterclaims.
-------------
Borrower waives all rights to interpose any claims,
deductions, setoffs or counterclaims of any kind, nature or description in any
action or proceeding instituted by Lender with respect to this Agreement, the
Obligations, the Collateral or any matter arising therefrom or relating thereto,
except compulsory counterclaims.
8.3. Jurisdiction.
------------
Borrower hereby irrevocably submits and consents to the
nonexclusive jurisdiction of the State and Federal Courts located in the State
in which the office of Lender designated in Section 10.6(a) is located and any
other State where any Collateral is located with respect to any action or
proceeding arising out of this Agreement, the Obligations, the Collateral or any
matter arising therefrom or relating thereto. In any such action or proceeding,
Borrower waives personal service of the summons and complaint or other process
and papers therein and agrees that the service thereof may be made by mail
directed to Borrower at its chief executive office set forth herein or other
address thereof of which Lender has received notice as provided herein, service
to be deemed complete five (5) days after mailing, or as permitted under the
rules of either of said Courts. Any such action or proceeding commenced by
Borrower against Lender will be litigated only in a Federal Court located in the
district, or a State Court in the State and County, in which the office of
Lender designated in Section 10.6(a) is located and Borrower waives any
objection based on FORUM NON CONVENIENS and any objection to venue in connection
therewith.
8.4. No Waiver by Lender.
-------------------
Lender shall not, by any act, delay, omission or otherwise be
deemed to have expressly or impliedly waived any of its rights or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. A waiver by Lender of any right or remedy on any one occasion shall not
be construed as a bar to or waiver of any such right or remedy which Lender
would otherwise have on any future occasion, whether similar in kind or
otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
--------------------------------
9.1. Term.
----
This Agreement shall only become effective upon execution and
delivery by Borrower and Lender and shall continue in full force and effect for
a term set forth in Section 10.7 from the date hereof (the "TERM").
9.2. Early Termination.
-----------------
Borrower may also terminate this Agreement by giving Lender at
least thirty (30) days prior written notice and payment in full of all of the
Obligations as provided herein, including the early termination fee described
below (the "EARLY TERMINATION FEE"), unpaid Facility Fee and any other fees.
Thirty (30) days after receipt of such early
termination notice, Lender need not make any further loans or accommodations.
Lender shall also have the right to terminate this Agreement at any time upon or
after the occurrence of an Event of Default. If Lender terminates this Agreement
upon or after the occurrence of an Event of Default, Borrower shall pay Lender
forthwith, in full, payment in all Obligations, including the Early Termination
Fee, Facility Fee and any other accrued and unpaid fees. In view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits, the Early Termination Fee shall be the percentage of the Maximum Credit
set forth in Section 10.4(h).
9.3. Termination Indemnity Deposit.
-----------------------------
Upon termination of this Agreement by Borrower, as permitted
herein, in addition to payment of all Obligations which are not contingent,
Borrower shall deposit such amount of cash collateral as Lender determines is
necessary to secure Lender from loss, cost, damage or expense, including
reasonable attorneys' fees, in connection with any open Accommodations or
remittance items or other payments provisionally credited to the Obligations
and/or to which Lender has not yet received final and indefeasible payment.
9.4. Notices.
-------
Except as otherwise provided, all notices, requests and
demands hereunder shall be (a) made to Lender at its address set forth in
Section 10.6(a) and to Borrower at its chief executive office set forth in
Section 10.6(d), or to such other address as either party may designate by
written notice to the other in accordance with this provision, and (b) deemed to
have been given or made: if by hand, immediately upon delivery; if by telex,
telegram or telecopy (fax), immediately upon receipt; if by overnight delivery
service, one day after dispatch; and if by first class or certified mail, three
(3) days after mailing.
9.5. Severability.
------------
If any provision of this Agreement is held to be invalid or
unenforceable, such provision shall not affect this Agreement as a whole, but
this Agreement shall be construed as though it did not contain the particular
provision held to be invalid or unenforceable.
9.6. Entire Agreement; Amendments; Assignments.
-----------------------------------------
This Agreement contains the entire agreement of the parties as
to the subject matter hereof, all prior commitments, proposals and negotiations
concerning the subject matter hereof being merged herein. Neither this Agreement
nor any provision hereof shall be amended, modified or discharged orally or by
course of conduct, but only by a written agreement signed by an authorized
officer of Lender. This Agreement shall be binding upon and inure to the benefit
of each of the parties hereto and their respective successors and assigns,
except that any obligation of Lender under this Agreement shall not be
assignable nor inure to the successors and assigns of Borrower.
9.7. Discharge of Borrower.
---------------------
No termination of this Agreement shall relieve or discharge
Borrower of its Obligations, grants of Collateral, duties and covenants
hereunder or otherwise until such time as all Obligations to Lender have been
indefeasibly paid and satisfied in full (other than unasserted indemnity
claims), including, without limitation, the continuation and survival in full
force and effect of all security interests and liens of Lender in and upon all
then existing and thereafter-arising or acquired Collateral and all warranties
and waivers of Borrower.
9.8. Usage
-----
All terms used herein which are defined in the Uniform
Commercial Code shall have the meanings given therein unless otherwise defined
in this Agreement and all references to the singular or plural herein shall also
mean the plural or singular, respectively.
9.9. Governing Law.
-------------
This Agreement shall be construed and enforced in accordance
with the internal laws of the State of Illinois without regard to conflicts of
laws principles.
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
--------------------------------
10.1. Unless otherwise indicated below, the limits on
availability are limits applicable to both Borrowers in
the aggregate and not individually:
(a) Maximum Credit:
$12,000,000; provided, that upon the sale of all
or substantially all of the stock or assets of
Strydel in a transaction to which Lender has
consented, and the repayment in full of all of
the Obligations owing by Strydel and any
Obligations then owing by OAC in excess of the
Maximum Credit, as reduced pursuant to the
following clause, OAC may, upon prior written
notice to Lender, reduce the Maximum Credit by
up to $2,500,000; such reduction and partial
prepayment shall not require payment of an Early
Termination Fee under Section 9.2
(b) Gross Availability Formulas:
(i) Eligible Accounts Percentage:
85% provided that if the accounts
dilution percentage exceeds 4%, the
Eligible Accounts Percentage shall
be reduced by an amount satisfactory
to Lender
(ii) Eligible Inventory
Percentages:
Standard Finished Goods: 60%
Obsolete Finished Goods: 33%
Raw Materials: 50%
(c) Inventory Sublimit(s):
(i) All Eligible Inventory:
$6,000,000 during the period from
each May 1 through and including the
following November 15
$4,500,000 during the period from
each November 16 through and
including the following April 30
(ii) Obsolete Finished Goods: $300,000
(iii) In-Transit Inventory:
$250,000 during the period from each
November 1 through and including the
following June 30
$700,000 during the period from each
July 1 through and including the
following October 31
(iv) Raw materials consisting of plastic
resins: $200,000
(d) Maximum days after Invoice Date for Eligible
Accounts: 90 days, except for Largest Accounts
(which shall be 120 days)
(e) Account Sublimit(s)
(i) Largest Accounts:
$750,000 in the aggregate for
portions of the Largest Accounts in
excess of 90 days after Invoice Date
(ii) Foreign Accounts not subject to a
letter of credit: $250,000
(iii) Foreign Accounts subject to a letter
of credit: $1,000,000
10.2. Term Loan:
---------
(a) A Term Loan A shall be made to OAC on the date hereof
in the amount of Two Million Six Hundred Sixty-Six Thousand
and No/100 Dollars ($2,666,000.00). Term Loan A shall be
repayable in immediately available funds, in seventy-two (72)
consecutive monthly installments (or earlier, as hereinafter
provided), each in the amount of Thirty-Seven Thousand
Twenty-Eight and No/100 Dollars ($37,028.00) commencing May 1,
2000 and on the first day of each month thereafter; provided,
that notwithstanding the foregoing, the then unpaid balance
thereof shall be due and payable in full on the date of the
expiration of the Term or if this Agreement is terminated
(b) A Term Loan B shall be made to Strydel on the date
hereof in the amount of Six Hundred Thirteen Thousand and
No/100 Dollars ($613,000.00). Term Loan B shall be repayable
in immediately available funds, in seventy-two (72)
consecutive monthly installments (or earlier, as hereinafter
provided), each in the amount of Eight Thousand Five Hundred
Fourteen and No/100 Dollars ($8,514.00) commencing May 1, 2000
and on the first day of each month thereafter; provided, that
notwithstanding the foregoing, the then unpaid balance thereof
shall be due and payable in full on the date of the expiration
of the Term or if this Agreement is terminated
10.3. Accommodations:
--------------
(a) Lender's Charge for Accommodations: N/A
(b) Sublimit for Accommodations: N/A
10.4. Interest, Fees & Charges:
------------------------
(a) Interest Rate: Prime Rate plus 1.25% per annum;
provided, that the Interest Rate
shall be reduced to Prime Rate plus
0.75% per annum on the Interest
Adjustment Date if Borrower has
satisfied the Interest Adjustment
Conditions
(b) Clearance: 2 Business Days
(c) Closing Fee: $93,750, which has been paid prior
to the date hereof
(d) Facility Fee: $150,000
(e) Intentionally omitted
(f) Unused Line Fee: 0.50% per annum
(g) Field Examination per diem charge for each $750
field examiner and each person providing
account analysis or verification services
(h) Early Termination Fee:
First Year of Term: 3% of the
Maximum Credit
Second Year of Term: 2% of the
Maximum Credit
Third Year of Term: 1% of the
Maximum Credit;
provided, that upon the sale of all the stock or
all or substantially all of the assets of both
OAC and Strydel to a person not an Affiliate of
OAC or Strydel or any of their current
shareholders, and the repayment in full of all
of the Obligations, the Early Termination Fee
shall be reduced to 1.5% of the Maximum Credit
for a repayment in the First Year of the Term,
1.0% of the Maximum Credit for repayment in the
Second Year of the Term and 0.50% of the Maximum
Credit for repayment in the Third Year of the
Term.
(i) Late Report Fee: $50.00 per day
10.5. Financial Covenants:
(a) Working Capital: N/A
(b) Tangible Net Worth: April 30, 2000: $3,800,000
July 31, 2000: $4,400,000
October 31, 2000:$5,700,000
January 31, 2001:$5,900,000
The last day of each
fiscal quarter
thereafter:
$5,900,000 plus 80% of
Borrower's projected
positive Tangible Net
Worth, if any, for each
fiscal quarter during the
period from February 1,
2001 through the last day
of such fiscal quarter, as
set forth in Borrower's
projections for such
period delivered to Lender
pursuant to Section 6.1
(provided, that in no
event shall minimum
Tangible Net Worth for any
fiscal quarter be less
than $5,900,000)
(c) Capital Expenditures: Period Amount
------ ------
Fiscal quarter
ending January 31,
2000 $250,000
Fiscal year
ending January 31,
2000 $1,600,000
Fiscal year
ending January 31,
2001 and
each fiscal year
thereafter $2,000,000;
provided, that Capital Expenditures for any
period shall not include any amount spent by
Borrower during such period to replace damaged
or destroyed fixed assets as set forth in
Section 6.7
10.6. Miscellaneous:
(a) Lender's Office: 10 South LaSalle Street
Chicago, Illinois 60603
(b) Lender's Bank: Bank of America, N.A.
231 South LaSalle Street
Chicago, Illinois 60697
(c) Borrower: (i) The Ohio Art Company
("OAC")
(ii) Strydel, Inc.
("STRYDEL")
(d) Borrower's Chief
Executive Office: OAC: One Toy Street
Bryan, Ohio 43506
Strydel: 201 Ellis Street
Stryker, Ohio 43557
(e) Borrower's Eligible
Inventory Locations: OAC: One Toy Street
Bryan, Ohio 43506
Strydel: 201 Ellis Street
Stryker, Ohio 43557
(f) Borrower's Other OAC: Building 507
Offices and Locations Kodak Park
of Collateral: Door C
1600 Lexington Ave.
Gate 603
Rochester, New York
14652
Rooms 848, 850, 852,
854 and 856
The Toy Center South
200 5th Avenue
New York, New York
10010
Strydel: One Toy Street
Bryan, Ohio 43506
(g) Borrower's Trade Names
for Invoicing: OAC: N/A
Strydel: N/A
(h) Borrower's State of
Incorporation: OAC: Ohio
Strydel: Ohio
10.7. Term 3 Years
IN WITNESS WHEREOF, Borrower and Lender have duly executed
this Loan and Security Agreement this _____ day of April, 2000.
LENDER: BORROWER:
THE CIT GROUP/BUSINESS CREDIT, INC. THE OHIO ART COMPANY
By: By:
---------------------------------- ------------------------------
Title: Title:
-------------------------------- ------------------------------
BORROWER:
STRYDEL, INC.
By:
------------------------------
Title:
------------------------------
EXHIBITS AND SCHEDULES
Exhibit A Certain Definitions
Exhibit B Borrowing Base Certificate
Schedule A Permitted Liens
Schedule B Funded Indebtedness
Schedule C Environmental Matters
Schedule D Largest Accounts
Schedule E Motor Vehicles
Exhibits and Schedules
EXHIBIT A
CERTAIN DEFINITIONS
"AFFILIATE" means, with respect to any entity or person, (i)
each other person or entity that, directly or indirectly, owns or controls,
whether beneficially, or as a trustee, guardian or other fiduciary, ten percent
(10%) or more of the ownership interests (whether voting or non-voting) of such
entity or person, (ii) each other person or entity that controls, is controlled
by, or is under common control with such entity or person or any Affiliate of
such entity or person, or (iii) each of such entity's or person's officers,
directors, employees, agents, joint venturers and partners.
"EBITDA" means, for any period, Borrower's consolidated
earnings before interest, taxes, depreciation and amortization (as determined in
accordance with generally accepted accounting principles, in effect on the date
hereof, consistently applied) for such period.
"FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio
of Borrower's EBITDA for such period to the sum of Borrower's consolidated
interest expense (other than default interest paid to Fifth Third on or prior to
the date of this Agreement), cash taxes (including income taxes, franchise
taxes, real estate property taxes and any other taxes deemed material by
Lender), scheduled principal payments (but not optional prepayments) in respect
of indebtedness for borrowed money (other than the Revolving Loans), capital
expenditures and dividends for such period (as determined in accordance with
generally accepted accounting principles, in effect on the date hereof,
consistently applied).
"INTEREST ADJUSTMENT CONDITIONS" means that (i) Borrower's
EBITDA for the fiscal year ended January 31, 2001, as demonstrated by Borrower's
annual audited financial statements for such fiscal year delivered pursuant to
Section 6.1, equals or exceeds the amount set forth in Borrower's projections
for such period, which were delivered by Borrower to Lender on the date hereof,
(ii) Borrower's Fixed Charge Coverage Ratio for the fiscal year ended January
31, 2001 equals or exceeds 1.1:1.0, as demonstrated by Borrower's annual audited
financial statements for such fiscal year delivered pursuant to Section 6.1,
(iii) no Event of Default is in existence on any of the date such annual audited
financial statements are due pursuant to Section 6.1, the date such financial
statements are actually delivered or the Interest Adjustment Date, (iv)
aggregate Net Availability for OAC and Strydel on the Interest Adjustment Date
equals or exceeds $1,500,000 and (v) all of Borrower's debts, obligations and
payables are then current in accordance with Borrower's usual business
practices.
"INTEREST ADJUSTMENT DATE" means the date that is five (5)
business days after Borrower has delivered to Lender Borrower's annual audited
financial statements for the fiscal year ended January 31, 2001, as required
pursuant to Section 6.1.
"OBSOLETE FINISHED GOODS" means inventory consisting of
finished goods of a type or class either (a) that are classified as obsolete or
slow-moving on Borrower's inventory
Exhibit A -- Page 1
accounting system or (b) as to which Borrower has on hand either (i) a number of
units in excess of the number of units of such type or class that was sold in
the prior fiscal year or (ii) inventory with an aggregate value in excess of the
aggregate value of inventory of such type or class that was sold in the prior
fiscal year. No inventory (including without limitation Etch-a-Sketch and Betty
Spaghetti inventory) shall be deemed to be Obsolete Finished Goods unless either
that inventory is so classified by Borrower or Borrower has on hand an amount or
value of such inventory in excess of the amounts set forth in the immediately
preceding sentence.
"REPORTING CONDITIONS" means that (i) Borrower's Fixed Charge
Coverage Ratio for the twelve month period immediately preceding a Testing Date
equals or exceeds 1.1:1.0, as demonstrated by Borrower's monthly financial
statements delivered pursuant to Section 6.1, (ii) average aggregate Net
Availability for OAC and Strydel for the 90 day period ending on such Testing
Date equals or exceeds $2,500,000, (iii) on such Testing Date, Borrower has no
past due income taxes, (iv) on such Testing Date, Borrower has no accounts
payable that are over 120 days past due, other than accounts payable subject to
bonafide disputes and (v) on such Testing Date, no Event of Default is in
existence.
"STANDARD FINISHED GOODS" means inventory consisting of
finished goods other than Obsolete Finished Goods and other than finished goods
of Borrower's lithography division (other than Kodak inventory located at the
Fritz Companies warehouse in Rochester, New York).
"TANGIBLE NET WORTH" means, on any date, Borrower's net worth
on such date (as determined in accordance with generally accepted accounting
principles, in effect on the date hereof, consistently applied), minus prepaid
expenses as of such date and minus goodwill as of such date.
"TESTING DATE" means the last day of each month commencing on
August 31, 2000.
Exhibit A -- Page 2
EXHIBIT B
BORROWING BASE CERTIFICATE
COLLATERAL REPORT
Exhibit B -- Page 3
SCHEDULE A
PERMITTED LIENS
"Permitted Liens" means (a) the utility, access and other
easements, rights-of-way, mineral rights, restrictions and exceptions of record
encumbering the real property included in the Collateral and approved by Lender
for inclusion as exceptions in the policies of title insurance in favor of
Lender insuring the liens of the mortgages on the real property included in the
Collateral, as from time to time supplemented or amended with the prior written
consent of Lender; (b) security interests, and liens in favor of Lender; (c)
liens for taxes not delinquent or being contested in good faith by appropriate
proceedings, with adequate reserves therefor being set aside on the books of
Borrower; (d) inchoate materialmen's, mechanics', workmen's, repairmen's, or
other like liens arising in the original course of business and, in each case,
not delinquent; (e) senior liens on the real estate located at One Toy Street,
Bryan, Ohio and 201 Ellis Street, Stryker, Ohio and liens on the personal
property of Borrower and Trinc Co. (junior to the liens of Lender in such
personal property), all securing the Real Estate Loans; and (f) the liens listed
on Schedule A-1 attached hereto.
Schedule A -- Page 1
SCHEDULE D
LARGEST ACCOUNTS
For the following account debtors (listed by name and customer account number),
the number of days set forth in Section 10.1 (d) shall be 120; provided, that
any account debtor listed below may be removed from this Schedule D if Lender is
not satisfied with the financial condition of such account debtor.
Account Debtor Customer Account Number
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Wal-Mart Stores, Inc. 1069
Eastman Kodak Company 1739
Toys R Us/Beltsville 2676
Kay Bee Toy Stores 3240
Olive Can Company 1378
Target Cntl Processing 974
Bandai UK Ltd. 332
Ball Packaging Corp. 1484
K Mart Corporation 58
Carnaud Metalbox 1178
Groupe Masbro France SA 3851
Unitrade Inc. 471
Ames Dept. Stores 1085
Trademark Marketing Int. 788
Wholesale Merchandisers 2862
QVC Studio Park 1301
J C Penny Co. Disb. Dept. 21
Bertels Can Company 1718
Irwin Toys Ltd. 1131
Service Merchandise Co. 3008
Schedule D -- Page 1
SCHEDULE E
MOTOR VEHICLES
Attached.
Schedule E -- Page 1