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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to __________
Commission File No. 001-13195
INDUSTRIAL DISTRIBUTION GROUP, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 58-2299339
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
950 EAST PACES FERRY ROAD, SUITE 1575, ATLANTA, GEORGIA 30326
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 243-9000
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of Each Class Name of each exchange on which registered
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Common Stock, Par Value $0.01 Per Share New York Stock Exchange
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</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10K. [X]
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The aggregate market value of the voting stock held by nonaffiliates
(which for purposes hereof are all holders other than executive officers and
directors) of the Registrant as of March 1, 1999 is $50,094,043 (based on
7,490,698 shares held by nonaffiliates at $6 11/16 per share, the last sales
price on the NYSE on February 26, 1999).
At March 1, 1999, there were issued and outstanding 8,496,873
shares of Common Stock, par value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the 1999
Annual Meeting of Stockholders, to be filed with the Commission, are
incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS.
BACKGROUND AND GENERAL
Industrial Distribution Group, Inc. (the "Company" or "IDG") was
formed in February 1997 to create a leading, nationwide supplier of
cost-effective, flexible procurement solutions for manufacturers and other
users of maintenance, repair, operating, and production ("MROP") products. The
Company distributes a full line of industrial MROP products, emphasizing its
specialized expertise in product applications. The Company's principal product
categories include abrasives, cutting tools, hand and power tools, coolants,
lubricants, and adhesives. Utilizing its proprietary computerized Supply
Management System, the Company's application and product specialists are able
to analyze a customer's acquisition, possession, and application processes for
MROP supplies in order to design programs to streamline the processes and
reduce associated costs. Such programs may include improving a customer's
production and procurement processes, standardizing MROP products, reducing the
number of suppliers, or developing integrated supply arrangements that
outsource to the Company some or all of a customer's MROP procurement and
management functions.
In September 1997, IDG completed its initial public offering of Common
Stock and, at the same time, acquired the following nine industrial
distribution companies: Associated Suppliers, Inc., B&J Industrial Supply
Company, Cramer Industrial Supplies, Grinding Supplies Company, J.J. Stangel
Company, Shearer Industrial Supply Company, Slater Industrial Supply Company,
The Distribution Group, Inc. ("TDG") (formerly known as Industrial Distribution
Group, Inc.), and Tri-Star Industrial Supply, Inc., collectively referred to as
the "Founding Companies". Through December 31, 1998, the Company completed the
acquisition of 17 additional companies: Continental Air Tool, Inc., Northern
Tool & Supply, Inc., E.C. Blackstone Company, Refco, Inc., Hawley Industrial
Supplies, Inc., The New England Group Industrial Distributors, Inc., Industrial
& Tool Suppliers, LLC, Buford Bros., Inc., Knox Industrial Supplies, Inc., L D
Supply, Inc., Cardinal Machinery, Inc., Petry & Morrow, Inc., JM Tool & Supply,
Inc., Austin Ford Logan, Inc., Atlantic Industrial Supply, Inc., R.F. Ker Co.,
Inc., and The Innovative Distributor Group, Inc.
The Company intends to establish a nationwide presence, with MROP
product and service capability in all or most of the top 75 U. S. industrial
markets. Currently, the Company has 78 operating locations in 72 cities, which
include 37 of the top 75 U.S. industrial markets, along with two small
facilities abroad. The Company's more than 43,000 customers include a diverse
group of major national and international corporations, including AlliedSignal,
Black & Decker, Boeing, Chrysler, General Motors, Hoechst Celanese, PPG
Industries, and Shell Oil, as well as small and large local and regional
businesses. On a pro forma combined basis, the Company had net sales of
approximately $437.6 million for the year ended December 31, 1998.
INDUSTRY OVERVIEW
Manufacturers, processors, and other producers of industrial,
commercial, or consumer products have a continual need for a broad range of
industrial MROP products. Many of these products -- such as drill bits,
sandpaper, and saw blades -- are consumed in production processes and are
essential to maintain at the point of production to avoid unnecessary downtime.
Other MROP products -- such as power tools, scales, hoists, and lathes -- have
relatively longer operational lives and are therefore
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purchased less frequently, but still must be available "on time" in order to
achieve production efficiencies.
The Company estimates that the size of the market for industrial MROP
products in which it participates primarily is approximately $70 billion
annually. However, the entire U.S. MROP market is estimated to be in excess of
$175 billion annually, and includes electrical, PVF (pipes, valves, and
fittings), power transmission, and other product categories in which the
Company participates to a lesser extent. This larger market is highly
fragmented, with the 50 largest distributors (all of which have annual sales
over $105 million) accounting for less than 18% of the market.
Manufacturers and other users of MROP products are seeking ways to
enhance efficiencies and reduce MROP process and procurement costs in order to
compete more effectively in the global economy. As a result, the industrial
supply industry is experiencing consolidation, as customers focus on the
convenience, cost savings, and economies of scale associated with a reduced
number of suppliers capable of providing superior service and product
selection. Further, as manufacturers focus on their core manufacturing or other
production competencies, they are increasingly outsourcing their MROP
procurement, management, and application processes in search of comprehensive
MROP solutions, such as integrated supply. The Company believes that it will
benefit from these industry trends.
BUSINESS STRATEGIES
The Company believes that it has the size, scale of operations, and
resources necessary to compete effectively in the evolving MROP supply
industry. The Company's size and scale of operations allow it to benefit from
high volume purchasing, attract the highly skilled personnel required to
deliver enhanced levels of service, and realize internal operating
efficiencies. The Company's resources and product knowledge enable it to offer
a comprehensive product line and invest in sophisticated inventory management
and control systems needed to support its enhanced levels of customer service.
Moreover, management believes that the Company's overall position enhances its
ability to implement its acquisition strategy in the consolidating and
fragmented MROP industry.
OPERATING STRATEGY
Superior Product Expertise and Comprehensive Product Line. One of the
Company's core competencies is its extensive product expertise. With its
understanding of the most appropriate product for specific customer
applications, the Company can identify the MROP product best suited for a
customer's specific need. This expertise benefits the customer in two ways,
each of which lowers the customer's total MROP costs. First, the customer
increases the efficiency of its manufacturing processes by minimizing downtime
and other indirect costs. Second, by providing only that level of quality
required by the application, the Company can lower the customer's MROP product
costs. The Company's comprehensive product line supports its commitment to
deliver the most appropriate product to its customers. In addition to
maintaining over 100,000 stock keeping units ("SKUs"), as well as special items
in stock for regular customers, the Company can provide virtually any MROP
item, including special-order items.
Flexible Procurement Solutions; Integrated Supply. The Company
believes the key to serving customers in the changing MROP market is the
ability to design and implement customized flexible procurement solutions for
acquiring, possessing, and applying MROP products to satisfy each customer's
particular needs and achieve its cost reduction objectives. The spectrum of
services necessary to deliver such solutions is broad. For customers who are
not yet prepared to outsource their entire MROP
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procurement and management functions, the Company provides a range of options
from which customers may select the appropriate types and level of service. For
customers who desire total procurement solutions designed and implemented
through a single distributor, the Company offers its "fully integrated supply"
programs, which permit customers to outsource to the Company the entire MROP
procurement and management function, including ownership by the Company of
inventory in the customer's on-site MROP supply room (or "tool crib"). The
Company's services include, as needed by the customer: assessing a customer's
total procurement costs for its MROP requirements (comprised of product
ordering, carrying, management, administrative, and other overhead costs);
re-engineering procurement and production processes; standardizing products;
reducing the number of distributors, with a corresponding reduction in purchase
orders and invoices processed by customers; reducing the numbers of products
used by the customer; acquiring supplies on an "on-time" basis; managing and
supplying MROP items using the Supply Management System and InnoSource System,
the Company's proprietary software for the management of integrated supply
sites; managing and staffing customers' tool cribs; bar coding products in tool
cribs to facilitate ordering and to track and control consumption by employee,
product, or cost center; and generating a variety of customer-designed
management reports.
Centralized Corporate Functions and Decentralized Operating
Management. At the corporate level, on the one hand, the Company is
consolidating functions such as financial, accounting, management information
systems, employee benefits, and certain purchasing arrangements to eliminate
duplicative administrative and other costs that otherwise would be incurred at
each of its operating locations. The resulting operating efficiencies, along
with the enhanced leverage from higher volume purchasing, should provide the
Company an advantage over smaller regional and local competitors. At the
operating subsidiary level, on the other hand, the Company is employing a
decentralized management structure that focuses management at each operating
subsidiary on day-to-day operating matters, profitability, and growth, as well
as identifying potential acquisition candidates. The Company believes that its
decentralized management philosophy will result in better customer service by
allowing local management the flexibility to implement policies and make
decisions based on first-hand assessments of the needs and desires of
individual customers.
Superior Customer Service. Providing superior quality and a
comprehensive range of MROP services to customers is the IDG hallmark. As part
of its commitment to customer service, the Company emphasizes quality assurance
in all phases of its operations. The Company's sales and service personnel
receive ongoing periodic training in TQM ("total quality management") and other
team management skills to assure such quality performance. IDG also will seek
certification under the International Standards Organization ("ISO") 9002
standards for distribution with respect to its principal locations and expects
to make such certification a Company-wide objective for all future principal
locations. Currently, 10 of the Company's 25 operating subsidiaries are ISO
9002 certified.
Commitment to Technology. The Company's proprietary computerized
systems, including the Supply Management System, the InnoSource System and its
internal management and information systems, will be instrumental in delivering
high quality customer service and in reducing the Company's operating costs.
The Supply Management System and the InnoSource System are designed to allow a
customer to order products directly from the Company, set internal purchase
control limits for its personnel, coordinate the management of MROP items
within its tool cribs, run customized reports, and perform numerous other
functions that facilitate the procurement process or reduce its costs. The
Company is currently implementing enterprise resource planning software
("ERP"). When fully implemented, the Company's ERP system will track all of its
products nationwide and will enable a customer and the Company's sales
personnel anywhere to determine the availability of products in stock on a real
time basis and to evaluate alternative products and pricing. The Company is
committed to
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continually assessing and implementing technological innovations that will
enhance its ability to serve customers and improve its operating results. The
Company will seek to use technology to reduce its order processing and
receiving costs, by means such as product bar coding, electronic funds transfer
("EFT"), electronic data interchange ("EDI"), and vendor managed inventory
("VMI") modules to facilitate on-time procurement of products, without the
administrative expense and inconveniences of the traditional exchange of
purchase orders and invoices.
GROWTH STRATEGY
Internal Growth. Management believes that significant opportunities
exist to increase revenues and earnings through internal expansion. Through
focused marketing both inside and outside the United States, the Company will
seek to add revenue by offering additional products and services to new and
existing customers and identifying any unserved facilities of its larger
existing customers. Where necessary to increase its market share, the Company
will open or expand facilities in the vicinity of existing operations. The
Company will also consider the desirability of internal expansion into new
geographic markets.
Acquisitions in Select Geographic Markets. The Company's acquisitions
program seeks to take advantage of consolidation opportunities within the
highly fragmented industrial MROP market. The Company is focusing primarily on
MROP markets in the United States, both to expand within its existing markets
and to enter major markets where the Company does not presently operate. The
Company will continue to seek to acquire successful MROP distribution and
related businesses that are large enough to establish a significant initial
presence and to provide for future Company expansion in the particular
strategic market. The Company will continue to seek to retain the management of
acquired businesses.
"Hub and Spoke" Expansion Strategy. The Company is utilizing a "hub
and spoke" approach both for acquisitions and internal expansion. In
establishing a "hub" location, the Company generally assesses both the volume
of MROP utilization in the geographic area and the ready availability of
transportation and warehouse facilities to permit the Company to develop and
support smaller operations in surrounding regions through centralization of
some functions at the hub location. Upon establishing a hub, the Company seeks
to acquire or open additional smaller operations, or "spokes", in the
surrounding geographic area to increase market penetration or capitalize on
operating efficiencies available through the hub.
Expansion into International Markets. The Company believes that the
consolidation and outsourcing trends that provide growth opportunities in the
United States offer comparable opportunities in international markets. The
Company currently extends its offering of flexible procurement solutions to
foreign manufacturing facilities of its domestic customers to develop a base
for potentially expanded international operations. The Company has been active
in the People's Republic of China since 1988, establishing sales offices in
Beijing (1994) and Shanghai (1996), and in Mexico since 1997. During 1998, the
Company expanded its capabilities in Shanghai to offer a greater variety of
services and expand its customer base.
FLEXIBLE PROCUREMENT SOLUTIONS; INTEGRATED SUPPLY
The ability to deliver customized flexible procurement solutions that
are specially designed to reduce a particular customer's MROP costs is one of
the fundamental strengths of the Company. The spectrum of services necessary to
design and implement such solutions for customers in the changing industrial
MROP market is broad and must encompass all three phases of a customer's MROP
cycle --
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acquisition, possession, and application. The Company offers the entire
spectrum of services in order to assure its ability to design and implement
procurement solutions that meet each particular customer's MROP requirements.
Some customers may require nearly the entire spectrum of services -- a
so-called "fully integrated supply" relationship, where the Company essentially
forms a strategic alliance with the customer to procure, manage, and apply MROP
products at the customer's site and, in many cases, to share the benefits of
the cost reductions achieved. The Company's fully integrated supply
relationships, which are not standardized and vary from customer to customer,
usually include licensing IDG's proprietary Supply Management System to the
customer; gaining access to plant floors to re-engineer procurement and
production processes and standardize MROP products; coordinating the purchase
of multiple MROP product lines; providing consolidated invoices and customized
management reports via a direct network link to customers; and managing and
staffing tool cribs. In addition, in a fully integrated supply relationship,
the Company, rather than the customer, generally owns the inventory in the tool
crib. The Company believes that the nature of integrated supply relationships
will continue to evolve, and it will seek to maintain the capability to provide
whatever level of integration its customers may require over time.
In a fully integrated supply relationship, the Company often
guarantees a minimum annual reduction in the customer's total MROP costs. The
Company believes it can achieve such guaranteed cost reductions through its
focused and ongoing analysis and re-engineering of a customer's production
processes to reduce the variety and number of MROP products used by the
customer. In addition to the contractually guaranteed cost reductions, the
Company often achieves additional costs savings for the customer through the
reduction of certain tool crib staffing expenses; the reduction in shrinkage
and obsolete stock due to better inventory controls; and the elimination of
certain inventory holding costs. Where the Company saves additional costs for a
customer through process improvements, the customer usually shares the
additional savings with the Company. The Company believes that, for appropriate
customers, a fully integrated supply arrangement also has other benefits. For
example, through the use of the Company's proprietary Supply Management System,
the customer experiences a better fill rate for MROP products; reduces
production downtime due to the unavailability of key products; and obtains more
useful information about inventory needs and consumption by cost center than
previously collected.
For customers that require less comprehensive flexible procurement
solutions, the Company can design and implement special arrangements to provide
those services needed by the customer. In addition to selections from the
services described for fully integrated supply arrangements, these specialized
services may include any one or more of the following: providing consolidated
billing for MROP products and computerized management reports to customers
regarding purchases and inventory levels; installing computer software and
hardware to implement an EDI system to enable the customer to order products
from its own location electronically without contacting the Company by
telephone or facsimile; and bar coding products in a customer's tool crib to
control inventory and track consumption by product, employee, or cost center.
Other services, as needed to respond to a particular customer's MROP
requirements, can be designed and implemented to achieve the desired solution.
At December 31, 1998, the Company had in place 22 fully integrated
supply arrangements with customers covering 29 sites, and arrangements for
flexible procurement solution services with over 250 customers.
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PRODUCTS
The Company offers a full line of industrial MROP products, stocks
specific items for regular customers, and can satisfy virtually any requirement
a customer may have for an MROP application or service. The Company's principal
categories of products include abrasives, cutting tools, hand and power tools,
coolants, lubricants, and adhesives, among others. The Company is able to offer
significant depth and breadth in its core product lines to customers throughout
its nationwide operations, which distinguishes it from most of its present
competitors. The Company's products may be ordered electronically, by
telephone, by mail, or by facsimile. The Company seeks at all times to provide
its customers with the most convenient method of selecting and ordering
products, which in the future may include paper and electronic catalogs,
Internet commerce, and other publications.
The Company's offering of specific products from multiple
manufacturers at different prices and quality levels permits the Company to
offer the product that provides the best value for the customer. For example,
if a customer requires a drill bit to drill 100 holes, it would be inefficient
and more costly to purchase the top-of-the line product that is designed for a
requirement of drilling 10,000 holes. The Company's application and product
specialists are trained specifically to assist customers in making such
intelligent cost-saving purchases, with the goal of lowering the customer's
total MROP product costs. The Company believes these factors will significantly
enhance its volume of repeat business, and they are an integral part of the
Company's overall customer costs reduction and total procurement solution.
The following table sets forth the MROP products offered by the
Company, based on the Industrial Distribution Association product categories,
describes typical products in each category, and presents the percentage of the
Company's aggregate revenues from sales of the product category for 1998:
<TABLE>
<CAPTION>
% of
Aggregate
Product Category Typical Products Revenue
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<S> <C> <C>
Cutting Tools............................... Drills, Taps, Carbide Tools, End Mills 23.7%
Abrasives................................... Grinding Wheels, Sanding Belts, Discs, Sheets 15.9%
or Rolls
Hand Tools.................................. Wrenches, Socket Sets, Screw Drivers, 8.0%
Hammers
Power Tools................................. Air and Electric Drills, Air Compressors, 7.3%
Impact, Wrenches, Screwdrivers
Maintenance Equipment & Supplies........... Hydraulic Tools, Paint, Lubrication Equipment 6.6%
Coolants, Lubricants, and Adhesives......... Metal Cutting Coolants, Aerosols, Industrial 5.3%
Adhesives
Machinery................................... Metal Removal Equipment, Metal Forming 4.5%
Equipment
Safety Products............................. Gloves, Signs, Absorbents, Glasses 3.3%
Machine Tools & Accessories................. Milling Machines, Work Holding Vises, Tool 2.8%
Holders
Material Handling Equipment................. Hosts, Slings, Chain, Shelving, Casters 2.7%
Power Transmission Equipment................ Belts, Drives, Bearings, Gears, Pulleys 2.3%
Saw Blades.................................. Band, Hack, Hole, Jig Saw Blades 2.0%
Fasteners................................... Socket Screws, Hex Screws, Anchors 1.6%
Tapes....................................... Masking, Filament and Duct Tape 1.5%
</TABLE>
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<TABLE>
<CAPTION>
% of
Aggregate
Product Category Typical Products Revenue
- ---------------- ---------------- -------
<S> <C> <C>
Contractor Supplies......................... Power-Actuated Tools, Ladders, Shovels 1.2%
Quality Control Products.................... Electronic Calipers, Micrometers 1.2%
Fluid Power................................. Hydraulic and Pneumatic Valves, Cylinders 1.1%
Tool & Die Supplies......................... Ground Stock, Drill Rod, Die Sets 1.1%
Electrical.................................. Fuses, Electrical Switches, Controls 1.0%
Industrial Hose............................. Air Hose, Water Hose 0.9%
OEM Assembly Port........................... Gaskets, Springs, Assembly Plates 0.9%
Brushes..................................... Wire Wheel, Floor Brooms 0.7%
Welding Equipment & Supplies................ Welders, Weld Rod 0.4%
Industrial Pipe, Valves & Fittings.......... Pipes, Valve, Fittings 0.4%
Metal Goods................................. Angle Iron, Conduit 0.1%
Other Products.............................. Special Order Items and Miscellaneous 3.5%
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Total 100.0%
</TABLE>
In addition to maintaining over 100,000 SKUs in stock, the Company
often maintains supplies of special items for regular customers. Moreover, the
Company is able to supply virtually any special order MROP item. In order to
achieve costs savings for the Company and its customers, the Company
periodically reviews its special order activities to identify items ordered
with sufficient frequency to warrant inclusion in the Company's stock.
The Company obtains its products from approximately 24,000 vendors.
During 1998, only one vendor provided as much as 10% of the products sold by
the Company . The Company believes it is not materially dependent on any one
vendor or small group of vendors.
The Company ships products anywhere in the world in the time frame
required by the customer. To facilitate such "on time" delivery of the
Company's products, the Company stores its stock MROP products primarily in
warehouses at various locations across the United States.
CUSTOMERS
The Company's customers, who number over 43,000, include a broad range
of industrial, commercial, and institutional users of MROP products, from
one-person machine shops to national and multinational corporations such as
AlliedSignal, Black & Decker, Boeing, Chrysler, General Motors, Hoechst
Celanese, PPG Industries, and Shell Oil. For 1998, the Company sold products to
over 1,700 customers who purchased at least $50,000 of products, and no single
customer accounted for as much as 5% of the Company's net sales.
The Company will continue to serve a large number and wide variety of
customers, as part of its planned growth and nationwide expansion strategy.
Management does expect, however, that the Company will place special emphasis
on marketing and sales of core product categories to mid- to large-sized users
of MROP products who require the value-added benefits of the Company's flexible
procurement solutions.
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SALES AND MARKETING
The Company has approximately 310 outside sales representatives, 327
inside sales/customer service representatives, and 30 application and product
specialists. Most of the inside sales/customer service representatives support
the outside sales representatives and are responsible for certain types of
customer service contacts and order entry. The application and product
specialists call on designated customers and are responsible for designing and
presenting the Company's flexible procurement solutions to those customers and
providing technical support with respect to certain products. These specialists
are highly trained individuals who build relationships with customers and
assist them in reducing total procurement costs and improving production
processes. Once the Company's internal operating systems are integrated, its
entire sales force will have access to customers' historic product preferences,
order values, and inventory levels for all of the products stocked by the
Company. The sales force will also be able to access billing information and
plant and industry information, and to input product orders. The Company has
invested significant resources in developing these sales force automation
systems and databases. The databases will be a key component of the Company's
marketing strategy and can offer the Company an ongoing competitive advantage
in increasing sales to existing customers and attracting new customers.
The Company has centralized the administration of Company-wide
training programs and provides intensive ongoing TQM training programs for all
Company personnel. In addition, each of the Company's operating subsidiaries
provides regular training programs for its sales personnel and special training
programs for any products distributed only in its market area. Each operating
subsidiary also maintains a technical support group, as part of its overall
sales and marketing function, dedicated to answering specific customer
inquiries, assisting customers with the operation of products, and finding low
cost solutions to manufacturing problems.
MANAGEMENT INFORMATION SYSTEMS
The Company will procure, develop, maintain, and utilize computerized
management and information systems, including its new ERP system and its
proprietary Supply Management System and InnoSource System for customer product
procurement and management. Both of these systems are important elements of the
Company's ability to meet customers' requirements for increasing levels of
individualized total MROP procurement solutions and also to achieve the
Company's desired level of operating efficiencies. The Company utilizes its
proprietary Supply Management System in providing flexible procurement
solutions for customers. The new ERP system will allow management of key
functions, including communication links between warehouse and sales offices,
inventory and accounts receivable management, purchasing, pricing, sales and
distribution, and the preparation of periodic operating control reports that
provide concise and timely information regarding key aspects of its business.
The Company's new ERP system will be connected to all of the Company's
facilities by frame relay wide area network. This system will operate in
real-time and will allow each warehouse and sales center to share information
and monitor daily progress relating to sales activities, credit approval,
inventory levels, stock balancing, vendor returns, order fulfillment, and other
measures of performance. In addition, the Company's systems will enable it to
automatically purchase inventory from certain vendors based on projected
customer ordering models.
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COMPETITION
The industrial MROP products industry is highly competitive and
features numerous distribution channels, including: national, regional, and
local distributors; direct mail suppliers; large warehouse chains; hardware
stores; and manufacturers' own sales forces. Many of the Company's competitors
are small enterprises who sell to such customers in a limited geographic area,
but the Company also competes against several large MROP distributors that have
significantly greater resources than the Company. Certain of the Company's
competitors sell identical products for lower prices than those offered by the
Company. Management believes, however, that the Company's ability to compete
effectively is dependent primarily upon its ability to respond to the needs of
its customers through quality service and product diversity and availability.
Management believes the Company's operating and growth strategies will yield
operating efficiencies that enhance its ability to compete successfully for the
types of customers it desires.
PERSONNEL
The Company had approximately 1,465 full-time and 45 part-time
associates as of December 31, 1998. Eleven of the Company's associates are
employed pursuant to a collective bargaining agreement with local unions
affiliated with the International Brotherhood of Teamsters. Management believes
that the subsidiary that has been employing these persons pursuant to that
contract enjoys good relations with these associates, and has not experienced
work stoppages. Management believes the Company's relations with all of its
associates is good.
EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information regarding the executive officers of the Company is
set forth in the following table and paragraphs.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard M. Seigel 53 Acting Chief Executive Officer and President; and
Chairman of the Board
Jack P. Healey 39 Senior Vice President, Chief Financial Officer, and
Secretary
Thomas W. Aldridge, Jr. 51 Senior Vice President
John L. Crum 54 Vice President and Chief Information Officer
</TABLE>
Mr. Seigel has been a director of the Company since June 1997; he
became Chairman of the Board on March 4, 1999, and Acting Chief Executive
Officer and President on March 8, 1999, in connection with the resignation of
Martin S. Pinson who had been Chairman of the Board, Chief Executive Officer,
and President. Mr. Seigel is the retired former Chairman and Chief Executive
Officer (from 1990 to 1997) of SYSCO Food Services of Los Angeles, a subsidiary
of SYSCO Corporation, with which he had held other positions prior to that
time. Mr. Seigel received his undergraduate degree from Knox College and his
Masters in Business Administration from The Amos Tuck School of Business at
Dartmouth College.
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Mr. Seigel is chair of the Company's search committee to fill the
position of Chief Executive Officer and President long-term.
Mr. Healey joined the Company in June 1997. Prior to joining the
Company, Mr. Healey was the partner in charge of assurance services (since
1983) for Miller Ray Healey & Houser, a regional accounting firm and member of
the SEC practice section of the AICPA, during which time he served as auditor
for TDG. Prior to joining that firm, Mr. Healey was a senior auditor with the
international accounting firm of Ernst & Young. Mr. Healey is a certified
public accountant and a certified fraud examiner. He received his undergraduate
degree in accounting from Syracuse University.
Mr. Aldridge joined the Company in August 1998. Prior to joining the
Company, Mr. Aldridge served (since 1991) as Senior Vice President, Vendor
Relations, of Affiliated Distributors, a purchasing organization for industrial
distributors. From 1987 through 1990, Mr. Aldridge served as Vice President
- --Sales of Bauer Corporation, a manufacturer of industrial ladders and personal
access equipment. From 1970 through 1987, he held various management positions
with AT&T, a telecommunications company. Mr. Aldridge received his
undergraduate degree from the University of Georgia.
Mr. Crum joined the Company in August 1998. Prior to joining the
Company, Mr. Crum served from April 1997 as Executive Vice President and Chief
Information Officer of Cameron Ashley Building Products, a building supply
company based in Dallas, Texas. From 1981 to March 1997, Mr. Crum was employed
by Georgia-Pacific Corporation, including as Group Director, Information
Resources Building Products, from 1993 to March 1997. Mr. Crum received his
undergraduate degree from the University of Southern Mississippi.
CERTAIN FACTORS AFFECTING FORWARD LOOKING STATEMENTS
From time to time, information provided by the Company or statements
made by its directors, officers or employees may constitute "forward-looking"
statements under the Private Securities Litigation Reform Act of 1995 and are
subject to numerous risks and uncertainties. Any statements made in this Annual
Report on Form 10-K, including any statements incorporated herein by reference,
that are not statements of historical fact are forward-looking statements. Such
forward-looking statements and other forward-looking statements made by the
Company or its representatives are based on a number of assumptions and involve
a number of risks and uncertainties, and, accordingly, actual results could
differ materially. Factors that may cause such differences include, but are not
limited to, the following:
LIMITED COMBINED OPERATING HISTORY--WE HAVE OPERATED AS A SINGLE
ENTITY ONLY SINCE SEPTEMBER 1997 AND CONTINUE TO FACE THE
CHALLENGE OF INTEGRATING NEW COMPANIES.
Although each of our Founding Companies has operated for over 20
years, the Company did not commence operations as a combined entity until
September 1997. As a result, we are still engaged in integrating these
businesses, along with subsequently acquired companies, and we cannot be
certain that we will be able to do so with enough success to be as profitable
as we expect or desire.
-12-
<PAGE> 13
ABSENCE OF INTEGRATED SYSTEMS--OUR INFORMATION AND OPERATIONS SYSTEMS
ARE NOT FULLY INTEGRATED, AND We MUST THEREFORE RELY ON THE
SYSTEMS OF THE COMPANIES WE ACQUIRE UNTIL WE CAN IMPLEMENT
OUR CENTRALIZED SYSTEM.
Until we can fully implement centralized management systems, we will
utilize and be dependent upon the information and operating systems of the
companies we acquire for many functions. These functions include, among others,
product ordering, financial reporting and analysis, and inventory control.
Although we have put certain control mechanisms in place, we may experience
delays, disruptions, and unanticipated expenses in implementing, integrating,
and operating centralized systems. Any of these problems could have a material
adverse effect on our results of operations and financial condition. In
addition, we will not be able to achieve the full benefit of certain
contemplated operating efficiencies and competitive advantages until we have
fully implemented our centralized management information and operating systems.
RISKS ASSOCIATED WITH EXPANSION THROUGH ACQUISITIONS--AS WE CONTINUE
TO EXPAND OUR BUSINESS BY ACQUIRINg OTHER COMPANIES, WE MAY
HAVE DIFFICULTY LOCATING AND ACQUIRING OTHER BUSINESSES.
Our growth strategy contemplates the ongoing acquisitions of MROP
distribution and related businesses. As a result, our success is dependent, in
part, upon our ability (1) to identify, finance, and acquire suitable
businesses on favorable terms and then (2) to integrate and manage the acquired
businesses successfully.
Acquisitions involve special risks, including risks associated with:
- unanticipated liabilities;
- diversion of management attention; and
- possible adverse effects on earnings resulting from
(1) increased goodwill amortization,
(2) potential increased interest costs,
(3) the issuance of additional securities,
(4) the dependence on retention, hiring, and training of
key personnel, and
(5) difficulties relating to the integration of the
acquired businesses.
Although we believe that we can successfully acquire the businesses we
need to establish a nationwide presence, we cannot be certain. Further, future
acquisitions could have an adverse effect upon our results of operations,
particularly during periods in which we are integrating the operations of
acquired businesses into our operations.
Another risk associated with our acquisition program is how we finance
the purchases. Initially, we sought to use shares of Common Stock, as well as
cash, in making acquisitions, and we hope and expect to be able to use stock
again in the future. The current market price of our stock makes its use
unattractive, however, and so our ability to make acquisitions is more
dependent upon having sufficient cash available, which requires increased
borrowings. Such borrowings also create risks. So far, we have been able to
raise the capital we have needed for acquisitions, but we cannot be certain
that we will be able to continue to do so. Therefore, our ability over the
longer term to finance our acquisition program will likely depend on the return
of our stock to price levels at which it can again be used for acquisitions.
-13-
<PAGE> 14
DEPENDENCE ON SUPPLIER RELATIONSHIPS--WE RELY ON A VARIETY OF
DISTRIBUTION RIGHTS GRANTED BY OUR SUPPLIERS TO OFFER THEIR
PRODUCT LINES TO OUR CUSTOMERS.
Until we fully implement more centralized procurement arrangements, we
will depend for a substantial portion of our business on the collection of
varied distribution arrangements with suppliers for certain product lines that
have been established by our several operating subsidiaries in their respective
geographic markets. A significant percentage of these current distribution
arrangements are oral, and many of them can be terminated by the supplier
immediately or upon short notice. The termination or limitation by any key
supplier of its relationship with us could have a material adverse effect on
our results of operations and financial condition.
COMPETITION--OUR INDUSTRY IS VERY COMPETITIVE, BOTH AS TO THE NUMBER
AND STRENGTH OF THE DIFFERENT COMPANIES WITH WHICH WE COMPETE
AND THE BUSINESS TERMS OFFERED TO POTENTIAL CUSTOMERS.
The industrial MROP supplies industry is highly competitive and
features numerous distribution channels, including:
- national, regional, and local distributors;
- direct mail suppliers;
- large warehouse chains;
- hardware stores; and
- manufacturers' own sales forces.
Many of our competitors are small enterprises who sell to customers in
a limited geographic area, but we also compete against several large MROP
distributors that have significantly greater resources than we do. Competition
with all of these distributors has increased as customers increasingly seek
low-cost alternatives to traditional methods of purchasing and sources of
supply by, among other things, reducing the number of their MROP suppliers.
Competition in the MROP industry may increase in other ways as well.
First, other MROP distributors are consolidating to achieve economies of scale
and increase efficiencies. Second, new competitors of which we are not
currently aware may emerge, further increasing competition.
Other aspects of our industry also make it very competitive. For
example, certain of our competitors sell the same products we sell at prices
lower than those we offer. Moreover, we compete on the basis of responsiveness
to the needs of customers for quality service, product diversity, and
availability. The Company cannot assure you that we will be able to compete
successfully under such conditions.
DEPENDENCE ON KEY PERSONNEL--WE RELY HEAVILY ON OUR SENIOR MANAGEMENT
AND THE EXPERTISE OF MANAGEMENT PERSONNEL OF THE BUSINESSES
WE ACQUIRE.
Our operations will depend for the foreseeable future on the efforts
of our executive officers, the heads of our business units, and the senior
management of the businesses we acquire, especially as we enter into new
geographic markets. Our business and prospects could be adversely affected if
these persons, in significant numbers, do not perform their key roles as
expected, and we are unable to attract and retain qualified replacements.
-14-
<PAGE> 15
The Company is presently conducting a search to fill the position of
Chief Executive Officer and President long-term, which person will be important
to the Company's ability to achieve its long-term objectives. Although the
Company is continuing with the implementation of its strategic initiatives and
other aspects of its business plan while the search is ongoing, there may be
uncertainties associated with the Company's operations and affairs until the
Company is able to fill that position.
LABOR AVAILABILITY--THE DELIVERY OF OUR SERVICES REQUIRE HIGHLY
SKILLED AND SPECIALIZED EMPLOYEES WHO ARE NOT EASY TO LOCATE
OR REPLACE.
The timely provision of our high-quality service requires an adequate
supply of skilled sales and customer service personnel, including the
application and product specialists whose expertise is an essential element of
our customer-oriented, flexible procurement solutions program. Accordingly, our
ability to implement strategies for our customers depends to a degree on our
ability to employ the skilled personnel necessary to meet our marketing and
servicing requirements. From time to time, we have experienced difficulty in
attracting or retaining sufficient numbers of qualified personnel. As a result,
our operating costs may be adversely affected by turnover in such positions.
The Company cannot assure you that we will be able to maintain an adequately
skilled sales and customer service force or that our labor expenses will not
increase as a result of a shortage in the supply of such skilled personnel.
INDUSTRY CYCLICALITY--OUR ABILITY TO SELL OUR PRODUCTS AND SERVICES IN
THE QUANTITY WE DESIRE DEPENDS HEAVILY UPON THE ECONOMIC
CONDITIONS OF OUR CUSTOMERS.
Some of the primary markets for the products and services we sell are
subject to cyclical fluctuations that generally affect demand for industrial
and consumer durable goods produced by the users of MROP products.
Consequently, the demand for MROP products and services has been and will
continue to be influenced by many of those same national, regional, or even
international factors. For example, events such as the continuing Asian
monetary crisis, the 1998 General Motors strike, and the slowing in the rate of
growth of the manufacturing segment of the U.S. economy have had a negative
influence on our business. Customers whose businesses are impacted directly by
such events affect our business when they delay or slow orders for MROP
products or services that they otherwise would have required if their
businesses had not been adversely affected. Changes in economic conditions,
such as the examples identified, resulting in a change in the current business
cycle could therefore have a material adverse effect on our results of
operations and financial condition.
CONTROL BY MANAGEMENT AND FORMER OWNERS OF FOUNDING COMPANIES--
MANAGEMENT AND CERTAIN INDIVIDUALS WHO HELPED FOUND THE
COMPANY OWN OVER 42% OF OUR STOCK AND THUS HAVE A SIGNIFICANT
AMOUNT OF CONTROL OF THE COMPANY.
Directors and officers of the Company, and former stockholders of the
Founding Companies, beneficially own an aggregate of approximately 42% the
outstanding Common Stock of the Company. Accordingly, these persons, if they
were to act in concert, could potentially control the election of directors and
other matters requiring stockholder approval by simple majority vote.
-15-
<PAGE> 16
YEAR 2000 COMPLIANCE--WE ARE EVALUATING THE LEVEL OF YEAR 2000
COMPLIANCE OF OUR COMPUTER SYSTEMS AND ARE TAKING STEPS TO
CORRECT ANY SYSTEMS THAT ARE NOT COMPLIANT, BUT CANNOT BE
ABSOLUTELY CERTAIN THAT ALL YEAR 2000 PROBLEMS WILL BE
AVOIDED.
The "year 2000 issue" arises from the widespread use of computer
programs that rely on two-digit date codes to perform computations or
decision-making functions. Many of these programs may fail due to an inability
to properly interpret date codes beginning January 1, 2000. For example, such
programs may misinterpret "00" as the year 1900 rather than 2000. In addition,
some equipment, being controlled by microprocessor chips, may not deal
appropriately with the year "00."
We have evaluated our computer systems to determine which software
modifications, software replacements, and hardware upgrades will be necessary
to make our systems compatible with 2000 year requirements. We believe that our
systems will be year-2000 compliant upon implementation of such modifications.
Our total costs (historical plus estimated future costs) of addressing
year 2000 issues should be between $500,000 to $600,000. We have spent over
$370,000 of this projected amount.
We cannot be certain, however, that all necessary modifications have
been identified and will be corrected or that unforeseen difficulties or cost
will not arise. In addition, we cannot be certain that the systems of other
companies on which our systems rely will be modified on a timely basis, or that
the failure by another company to properly modify its systems will not
negatively impact our systems or operations.
We have, however, sent surveys to most of our customers, product
vendors, utility vendors, and banks to determine their year 2000 readiness.
Once we have received their responses, we will be better able to assess our own
vulnerability to the failure of third parties to address the year 2000 issues
properly.
ITEM 2. DESCRIPTION OF FACILITIES.
Currently, the Company owns 15 properties and leases 71 properties in
72 cities in the United States for its warehouse, sales, and administrative
offices. The Company also leases two properties in two cities in other
countries. Certain property locations contain multiple operations such as a
warehouse and a sales office. The facilities range in size from 100 square feet
to 64,000 square feet. Leases for the facilities expire at various periods
between 1999 and 2014. The aggregate annual lease payments for real properties
in 1998 were approximately $2.9 million.
The Company's principal corporate offices are located in approximately
10,000 square feet of office space at 950 East Paces Ferry Road, Suite 1575,
Atlanta, Georgia. This lease commenced in December 1998 and expires in December
2003.
The Company believes that its facilities are adequate for its needs
and does not anticipate inordinate difficulty in replacing such facilities or
opening additional facilities, if needed.
ITEM 3. LEGAL PROCEEDINGS.
In February 1999, TDG settled the previously reported lawsuit that had
been filed in 1996 by Milliken & Company, a textile manufacturer and customer
of TDG, against a manufacturer of an
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<PAGE> 17
industrial product and TDG in the Superior Court of Troup County, Georgia,
Civil Action No. 96-CV-964. The settlement was achieved within the limits of
TDG's insurance coverage.
On December 22, 1997, TDG brought an action in DeKalb County Superior
Court, Georgia, File No. 97-14388-4, against a former stockholder, Alvis J.
Waite, under the Georgia dissenters' rights provisions of the Georgia Business
Corporation Code (the "GBCC"). Mr. Waite, as a stockholder of TDG, had
exercised his rights pursuant to the GBCC to dissent from the merger of TDG
with the Company. In accordance with the GBCC, TDG offered to pay Mr. Waite
$4.2 million for his interest in TDG. Mr. Waite rejected that offer and
demanded payment of $9 million. TDG brought this action to seek a judicial
determination of the value of Mr. Waite's interest in TDG as of the time of the
merger. The court has appointed a special master to supervise the completion of
discovery and to render a report on the central valuation issues. It is not
possible to predict the outcome at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year covered by this Report.
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<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Common Stock began trading on the New York Stock Exchange ("NYSE")
under the symbol "IDG" on September 24, 1997. Prior to that time, there was no
trading market for the Common Stock. The following table sets forth for the
periods indicated the high and low closing sales prices of the Common Stock on
the NYSE.
<TABLE>
<CAPTION>
PRICE RANGE
--------------------------
HIGH LOW
---- ---
<S> <C> <C>
1997
Third Quarter (from September 24, 1997)................. $ 21 $ 20 7/16
Fourth Quarter.......................................... $ 22 9/16 $ 14 11/16
1998
First Quarter........................................... $ 20 3/16 $ 15 9/16
Second Quarter.......................................... $ 20 3/4 $ 15
Third Quarter........................................... $ 16 9/16 $ 5 1/2
Fourth Quarter.......................................... $ 7 5/8 $ 5 3/8
1999
First Quarter (through March 16, 1999).................. $ 8 3/8 $ 5 5/8
</TABLE>
As of March 1, 1999, there were 142 holders of record of the Common
Stock. Investors who beneficially own Common Stock that is held in street name
by brokerage firms or similar holders are not included in this number.
Accordingly, based upon the quantities of periodic reports requested by such
brokerage firms, the Company believes that the actual number of individual
beneficial owners of its Common Stock exceeds 1,900.
The Company has not paid dividends on its Common Stock. The Company
currently intends to retain its future earnings, if any, to finance the growth,
development, and expansion of the Company's business and, accordingly, does not
currently intend to declare or pay any dividends on the Common Stock for the
foreseeable future. The declaration, payment, and amount of future dividends,
if any, will be subject to the discretion of the Company's Board of Directors
and will depend upon the future earnings, results of operations, financial
condition, and capital requirements of the Company, among other factors. Under
Delaware law, the Company is prohibited from paying any dividends unless it has
capital surplus or net profits available for this purpose. In addition, the
Company's credit agreement with the First National Bank of Chicago and other
lenders prohibits the payment of dividends in the event of a default under that
agreement.
ITEM 6. SELECTED FINANCIAL DATA.
The following summary financial data as of and for the years ended
December 31, 1998, 1997, 1996 and 1995 have been derived from audited financial
statements of the Company; the financial data as of and for the year ended
December 31, 1994 has been derived from unaudited financial statements of the
Company. All such financial statements of the Company reflect the requirements
of the Securities and
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<PAGE> 19
Exchange Commission's Staff Accounting Bulletin No. 97 ("SAB 97"), which deem
the historical financial statements of B&J Industrial Supply Company ("B&J") --
one of the nine companies acquired by IDG to commence its current operations as
a combined entity -- to be the historical financial statements of the Company
for all periods prior to the September 24, 1997, accounting effective date of
those acquisitions. As a result, the Company's financial statements, and the
following data, reflect the results of operations and financial condition of
B&J combined with Continental Air Tool, Inc., Northern Tool & Supply, Inc., and
Hawley Industrial Supplies, Inc., which IDG acquired during 1998 and are
accounted for under the pooling-of-interests accounting treatment (the "Pooled
Companies") for the periods prior to September 24, 1997; and the results of
operations and financial condition of all nine Founding Companies and the
Pooled Companies are reflected in the financial statements and data of the
Company for only the period of time from and after September 24, 1997.
Companies acquired during 1998 and accounted for under purchase accounting
treatment (which includes all companies acquired during 1998 other than the
Pooled Companies) are shown only for the period of time from and after their
acquisition by IDG. Those facts account for a substantial difference in these
financial data as of and for the year ended December 31, 1998 as compared to
prior years; they make comparisons of the data among the periods misleading;
and they are a further reason that these historical results are not indicative
of the results that the Company may achieve in the future.
These selected financial data should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations, included in Item 7 of this Report.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales $437,610 $153,218 $ 68,266 $ 59,944 $ 54,176
-------- -------- -------- -------- --------
Gross profit 100,425 35,492 15,492 14,181 12,803
Selling, general and administrative 89,954 31,595 14,649 13,281 12,106
-------- -------- -------- ------- --------
Operating income 10,471 3,897 843 900 697
Net income $ 6,215 $ 2,316 $ 364 $ 322 $ 302
BALANCE SHEET DATA:
Working capital $ 46,989 $ 81,152 $ 9,551 $ 8,645 $ 8,752
Property and equipment, net 24,619 9,910 2,156 2,082 2,080
Total assets 211,465 147,246 27,252 23,542 21,384
Long-term debt, including current portion 39,699 11,653 7,959 7,180 6,586
Stockholders' equity $113,595 $ 99,490 $ 11,223 $ 9,425 $ 9,072
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
The Company provides flexible procurement solutions for manufacturers
and other users of industrial MROP products, distributing a full line of such
products and providing specialized services to a diverse group of more than
43,000 customers. The Company sells MROP supplies directly from stock using
catalogs or similar methods (stock sales); such sales, on a combined basis,
were $295.1 million and $225.0 million in 1998 and 1997, respectively. The
Company also sells products and services pursuant to
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<PAGE> 20
supply contracts (normally for a duration of at least one year) for fixed
prices or fixed margins on certain products or product lines; such supply
contracts generated sales, on a combined basis, of $93.6 million and $80.8
million in 1998 and 1997 respectively. Pursuant to integrated supply contracts,
the Company manages tool cribs and provides a level of enhanced service to
certain customers, often with a guaranteed minimum reduction in the customer's
total MROP costs. Revenues from integrated supply contracts, on a combined
basis, were $48.9 million in 1998 and $26.3 million in 1997. Total sales for
1998 and 1997 on a combined basis were $437.6 million and $332.1 million
respectively.
Management expects the upward trend in its integrated supply business,
and also its other flexible procurement solutions business, to continue for the
foreseeable future. This increase is driven by increasing demand from customers
to outsource their MROP procurement and management functions and for customized
MROP procurement solutions. As an industry trend, integrated supply and other
arrangements for flexible procurement solutions are still in the early stages
of development, but management believes such arrangements are becoming
increasingly attractive to customers. IDG has selected flexible procurement
solutions as a major focus of its operating strategy. Because start-up costs
necessary to design and implement an integrated supply arrangement are
currently expensed as incurred, such contracts typically have a lower operating
margin, in the implementation phase, than the Company's other principal
categories of revenue. Management believes, however, that margins on these
arrangements generally increase over the term of a contract (as the Company's
costs are reduced and savings to the customer increase), and that integrated
supply contracts will become a significant component of the Company's operating
results.
Management believes that the success of the Company's integrated
supply and flexible procurement solutions business will depend in major part on
the Company's utilization of technology to design and implement the MROP
procurement solutions that customers desire. The Company, on a combined basis,
invested over $800,000 in 1996, $842,000 in 1997 and $1,132,000 in 1998 to
develop and upgrade its information systems, including its proprietary Supply
Management System, InnoSource System and its internal management information
systems in order to expand its capabilities to successfully and profitably
deliver such specialized services to customers. The Company will continue to
commit resources to its technological capabilities in order to provide superior
customer service and achieve internal operating efficiencies.
Under the provisions of SAB 97, the Company's historical financial
information prior to September 24, 1997 reflects only the operations of B&J
combined with the Pooled Companies. Management's analysis of such information
alone would not convey important information about the Company on a combined
basis, or about the historical results of operations achieved by the other
eight Founding Companies whose businesses were also acquired by the Company as
of September 24, 1997. Management has also included, therefore, its analysis of
certain combined financial information of the Company that reflect the
historical results of all nine Founding Companies for 1997 and 1996. For 1998,
results of the acquisitions accounted for under the purchase method of
accounting have been included.
In these discussions, most percentage and dollar amounts have been
rounded to aid presentation; as a result, all such figures are approximations.
References to such approximations have generally been omitted.
RESULTS OF OPERATIONS -- COMBINED
The following table sets forth certain combined operating data and
shows such data as a percentage of net sales for the periods indicated. These
combined data include the operating results of
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<PAGE> 21
B&J together with the results of the other eight Founding Companies and the
Pooled Companies, on a combined basis, for the entire periods presented. For
1998 only, the combined data include the results of the 14 acquisitions made
during 1998 and accounted for under the purchase method of accounting.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1998 1997 1996
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net Sales $437,610 100.0% $332,169 100.0% $290,486 100.0%
Cost of Sales 337,185 77.0 255,777 77.0 222,370 76.6
-------- ----- -------- ----- -------- -----
Gross Profit 100,425 23.0 76,392 23.0 68,116 23.4
</TABLE>
These combined operating data for the periods prior to the Combination
on September 24, 1997, may not be indicative of the Company's post-Combination
operations for several reasons. The Founding Companies involved in the
Combination, and the Pooled Companies that were subsequently acquired, had each
operated as separate privately owned entities until their respective
acquisitions by the Company. Moreover, these combined operating data do not
represent combined results of operations presented in accordance with generally
accepted accounting principles; rather, for all periods prior to September 24,
1997, they are only summations of the respective line items from historical
financial information of the individual Founding Companies and the Pooled
Companies.
As a result of the Combination, the Company expects to realize savings
from several sources, including increased volume discounts and rebates from
vendors. No such anticipated effect is reflected in the combined financial
information or the following discussion; only results actually achieved by the
Company during the period since September 24, 1997 are reflected.
1998 COMPARED TO 1997
Net sales increased $105.4 million, or 31.7%, from $332.2 million in
1997 to $437.6 million in 1998. In 1998, acquisitions accounted for under the
purchase method of accounting represented approximately $88.7 million of this
increase. The remainder of the increase was attributable, in major part, to an
increase in integrated supply and other specialized services supply sales that
accounted for $35.4 million of additional revenues during 1998. Excluding the
effect of the 1998 acquisitions, general sales decreased as compared to 1997
due to the conversion of certain existing customers who had been purchasing
products on a general sales basis to customers with whom the Company
established arrangements for integrated supply and other specialized services
supply. Total sales, excluding the effect of the 1998 acquisitions, increased
by $16.7 million, or 5.8%, in 1998 as compared to 1997.
Cost of sales increased $81.4 million, or 31.8%, from $255.8 million
in 1997 to $337.2 million in 1998, primarily as a result of increased sales
during the latter period. While there were variations in the product mix, cost
of sales as a percentage of net sales remained stable year over year.
1997 COMPARED TO 1996
Net sales increased $41.7 million, or 14.3%, from $290.5 million in
1996 to $332.2 million in 1997. This increase was attributable, in major part,
to an increase in integrated supply and other specialized services supply
contract sales. In addition, new customers and existing customers increased
orders.
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<PAGE> 22
Cost of sales increased $33.4 million, or 15.0%, from $222.4 million
in 1996 to $255.8 million in 1997, primarily as a result of increased sales
during the latter period. As a percentage of net sales, cost of sales also
increased slightly, from 76.6% to 77.0%, due to a change in product mix and
certain large sales to a few customers at lower margins.
RESULTS OF OPERATIONS -- HISTORICAL
The following table sets forth certain operating data of the Company
(which, pursuant to the requirements of SAB 97, are based on the historical
financial results of B&J and the Pooled Companies for the periods prior to
September 24, 1997, and include the other eight Founding Companies and the
companies acquired using the purchase method of accounting from the respective
acquisitions dates forward, only for the period from September 24, 1997) and
shows such data as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1998 1997 1996
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net Sales $437,610 100.0% $153,218 100.0% $ 68,266 100.0%
Cost of Sales 337,185 77.0 117,726 76.8 52,774 77.3
-------- ----- -------- ----- -------- -----
Gross Profit 100,425 23.0 35,492 23.2 15,492 22.7
Selling, General and 89,954 20.6 31,595 20.6 14,649 21.5
-------- ----- -------- ----- -------- -----
Administrative
Operating Income $ 10,471 2.4% $ 3,897 2.6% $ 843 1.2%
======== ===== ======== ===== ======== =====
</TABLE>
1998 COMPARED TO 1997
Net sales increased $284.4 million, or 185.6%, from $153.2 million in
1997 to $437.6 million in 1998. This substantial increase is primarily the
result of SAB 97 accounting for the Combination, for 1998 includes the
contributed revenue of all nine Founding Companies for the entire year. Also,
this increase reflects the $88.7 million in revenues from other companies that
were acquired during 1998.
Cost of sales increased $219.5 million, or 186.4%, from $117.7 million
in 1997 to $337.2 million in 1998. The increase is primarily due to the
substantial increase in sales, which is primarily attributable to the effect of
the SAB 97 accounting for the Combination and the 1998 acquisitions as
discussed above. As a percentage of net sales, cost of sales increased from
76.8% in 1997 to 77.0% in 1998, due to the higher cost of sales percentage,
relative to B&J and the Pooled Companies, of the other Founding Companies and
certain of the companies acquired in 1998.
Selling, general, and administrative expenses increased $58.4 million,
or 184.7%, from $31.6 million in 1997 to $90.0 million in 1998, again primarily
attributable to the effect of the SAB 97 accounting and the acquisitions
discussed above. As a percentage of net sales, however, selling, general, and
administrative expenses remained steady at 20.6%, even though 1998 expenses
included $0.3 million of non-recurring expenses related to acquisitions.
Excluding these non-recurring expenses, the Company's selling, general, and
administrative expenses for 1998 were $89.6 million, reflecting a slight
decline to 20.5% as a percentage of net sales.
In addition, during 1998 and primarily the fourth quarter of 1997, the
Company incurred substantial expenses relating to staffing a corporate office
and developing the infrastructure for
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<PAGE> 23
complying with certain obligations related to being a public company. During
1998, the Company also incurred expenses associated with the establishment of
its Management Incentive Plan. Excluding such corporate overhead, Management
Incentive Plan expenses and one-time acquisition charges, the selling, general,
and administrative expenses were 19.2% of net sales for 1998 as compared to
20.0% for 1997. The resulting decrease in selling, general, and administrative
expenses as a percentage of net sales, viewed on this basis, is primarily due
to these costs being lower as a percentage of net sales for the acquired
companies. The Company is also beginning to see benefits from economies of
scale and other internal consolidation initiatives.
Operating income increased $6.6 million, or 169.2%, from $3.9 million
in 1997 to $10.5 million in 1998, primarily reflecting the effects of SAB 97
accounting and the acquisitions discussed above. Operating income as a
percentage of net sales decreased, however, from 2.6% in 1997 to 2.4% in 1998,
also reflecting such effects.
1997 COMPARED TO 1996
Net sales increased $84.9 million, or 124.3%, from $68.3 million in
1996 to $153.2 million in 1997. This was due primarily to the contributed
revenue of the other eight Founding Companies following the Combination on
September 24, 1997, but it also reflects increased international sales and
sales to a large customer by B&J during the period.
Cost of sales increased $64.9 million, or 122.9%, from $52.8 million
in 1996 to $117.7 million in 1997. The increase is primarily due to the
substantial increase in sales, which reflected primarily the effect of the
Combination discussed above. As a percentage of net sales, cost of sales
decreased from 77.3% in 1996 to 76.8% in 1997. The decrease was primarily due
to a higher margin product mix and increased vendor rebates.
Selling, general, and administrative expenses increased $16.9 million,
or 116.4%, from $14.6 million in 1996 to $31.6 million in 1997, which reflected
primarily the effect of the Combination discussed above. Selling, general, and
administrative expenses as a percentage of net sales decreased from 21.5% in
1996 to 20.6% in 1997, primarily due to the ability of B&J to use its existing
corporate overhead levels to accommodate increased sales.
Operating income increased $3.1 million, or 387.5%, from $.8 million
in 1996 to $3.9 million in 1997 primarily reflecting SAB 97 accounting for the
Combination. Operating income as a percentage of net sales also increased,
however, from 1.2% in 1996 to 2.6% in 1997, also reflecting such effects.
IMPACT OF THE YEAR 2000 ISSUE
Generally, the year 2000 risk involves computer software and hardware
that are not able to perform without interruption into the year 2000. The
arrival of the year 2000 poses a unique worldwide challenge to the ability of
all systems to correctly recognize the date change from December 31, 1999 to
January 1, 2000. If the Company's systems did not correctly recognize such a
date change, computer applications that rely on the date field could fail or
create erroneous results. Such erroneous results could result in the temporary
inability to process transactions, send invoices or engage in similar normal
business activities. If not adequately addressed by the Company or its
suppliers, customers or other companies with which it does business, the year
2000 issue could result in a material adverse impact on the Company's financial
condition and results of operations.
-23-
<PAGE> 24
THE COMPANY'S STATE OF READINESS
The Company's 13 business unit presidents and their IT staff are
responsible for the respective business units' identification and remediation
of date recognition problems in both information technology ("IT") and
non-systems IT functions and processes that include microcontrollers and other
embedded computer technology. The Company hired a chief information officer in
August 1998 whose responsibilities include coordinating the consolidation of
the business units' IT systems. He has assumed oversight responsibility for the
business units' year 2000 initiatives.
The Company's business units have developed plans to address issues
related to the year 2000 risk. Their plans consist of four phases: (1)
assessing both IT systems and non-systems IT functions and processes; (2)
remediating year 2000 problems; (3) testing the remediated systems; and (4)
implementing the remediated systems. The chart below shows the number of the
Company's 13 business units that have completed each phase of the year 2000
plans:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STAGES OF THE COMPANY'S
YEAR 2000 PLAN
- --------------------------------------------------------------------------------
PHASE IT SYSTEMS NON-SYSTEMS IT FUNCTIONS
- ----- ---------- ------------------------
<S> <C> <C>
(1) Assessment 13 13
(2) Remediation 10 10
(3) Testing 10 10
(4) Implementation 9 9
- --------------------------------------------------------------------------------
</TABLE>
The Company expects the remediation, testing and implementation of its
year 2000 plan to be completed at all of its business units by the end of the
second quarter of 1999, except for one business unit. The several companies
that comprise that business unit are currently consolidating their systems.
Once consolidated, the business unit will remediate and test the system. Year
2000 compliance of that system is expected in August 1999.
For operational reasons, the Company is purchasing and implementing an
enterprise-wide IT system. The system will be implemented in stages beginning
in early 2000, with a targeted completion date of early 2001. The
enterprise-wide IT system, which the Company believes will be year 2000
compliant when installed, will replace the current systems being remediated at
the business units. The Company's purchase of the enterprise-wide IT system is
a part of its continuing effort to implement systemwide efficiencies.
COSTS TO ADDRESS YEAR 2000 ISSUES
The Company does not anticipate that the year 2000 related costs
(excluding the $15.5 million expenditure for the enterprise-wide IT system
mentioned above that is being installed for operational reasons unrelated to
year 2000 issues) will be material to its financial condition or results of
operations. Excluding that expenditure, the Company estimates that its total
costs for the evaluation, remediation, testing and implementation of its IT and
non-IT systems in connection with the year 2000 issue will range from $500,000
to $600,000. Approximately $370,000 of such costs have been incurred to date.
The Company is funding such expenditures from cash flow from operations. The
Company will spend approximately 35% of the anticipated year 2000 costs for the
remediation of software. The remainder of the expenditures relate to the
replacement of systems and equipment. All of the expected expenditures are
present in the Company's 1998 and 1999 internal budgets. In accordance with
generally accepted
-24-
<PAGE> 25
accounting principles, certain year 2000 expenditures will be charged to income
for the year when the expense is incurred.
RISKS OF THIRD-PARTY YEAR 2000 ISSUES
The impact of year 2000 non-compliance by outside parties with whom
the Company transacts business cannot be accurately gauged. The Company has
contacted (1) key customers that aggregate approximately 80% of each business
unit's sales during 1998; (2) key trade vendors that supply approximately 80%
of products sold by each business unit in 1998; and (3) key utility vendors.
The Company intends to follow-up with parties that fail to respond to its
inquiries.
THE COMPANY'S CONTINGENCY PLANS
The Company is developing contingency plans to address reasonably
likely worst case year 2000 scenarios. These scenarios include: (1) an
interruption in the supply of goods and services from the Company's vendors;
(2) the inability of a business unit's IT system to interface with the IT
systems of other business units or the Company's corporate office; and (3) the
inability of the Company's e-commerce systems to integrate with its customer's
systems.
The Company has not yet completed its contingency planning with
respect to these and other scenarios. It is contacting key vendors regarding
year 2000 compliance and attempting to gain assurance of the vendors'
compliance programs. Should the Company believe that a key vendor will not be
ready for the year 2000 date change, the Company may purchase critical
inventory from alternate acceptable vendors or stock-pile important product
lines.
The Company believes that should the worst case scenarios described in
subparagraphs (2) or (3) above occur, the Company could utilize telephone or
facsimile communications for a short period of time.
See "Item 1. Business - Certain Factors Affecting Forward Looking
Statements - Year 2000 Compliance" for a discussion of risks relating to the
year 2000 issue.
LIQUIDITY AND CAPITAL RESOURCES
As of February 28, 1999, the Company had $600,000 of cash and cash
equivalents, $46.6 million of working capital, and an aggregate of $77.0
million of borrowing capacity under a revolving credit facility for $125
million with a syndicate of commercial banks (the "Credit Facility"). At
December 31, 1998, these amounts were $1.3 million, $45.7 million, and $89
million, respectively.
The Credit Facility has a three-year term from December 11, 1998, may
be used for operations and acquisitions, and provides $10 million each for
swinglines and letters of credit. Amounts outstanding under the Credit Facility
bear interest at either the lead bank's corporate rate or LIBOR, plus
applicable margins, as selected by the Company from time to time. The Company
incurs a fee between 20 and 30 basis points on the average daily unused
capacity during the term. The Credit Facility is secured by the stock of all
the subsidiaries of the Company.
The principal capital requirements for the Company are for inventory
and accounts receivable, purchasing and upgrading property and equipment, and
financing the purchase prices for certain acquisitions. The Company's
acquisition program is part of its initiative to pursue strategic consolidation
opportunities in the fragmented MROP industry. Unless and until the Company is
able to resume using
-25-
<PAGE> 26
its stock to fund a significant portion of such acquisitions, management
expects that acquisitions will increase as a principal capital requirement of
the Company. The Company is convinced that increased earnings is the key to
returning its stock price to acceptable levels for acquisition use, and a
principal emphasis of the Company will be to improve operating efficiencies in
order to increase earnings. In any event, the Company believes that it will
have sufficient cash from working capital, cash flow from operations, and
borrowing, including use of available capacity under the Credit Facility, to
fund both its current operations and anticipated internal expansion, as well as
its contemplated acquisition program for at least the next year.
On an historical basis (consistent with the requirements of SAB 97),
net cash provided by (used in) operating activities for fiscal years 1998,
1997, 1996 was $4.1 million, ($1.3 million) and ($48,000) respectively. The
change was principally due to positive operating cash flow of companies
acquired in 1998 and improved management of accounts receivable.
On an historical basis, net cash provided by (used in) investing
activities for fiscal years 1998, 1997 and 1996 was ($49.3 million), $1.8
million and $26,000, respectively. The change was principally due to cash used
in acquisitions and purchases of property and equipment, in particular a new
building for the largest business unit and a portion of the Company's new ERP
system.
On an historical basis, net cash provided by financing activities for
fiscal years 1998, 1997 and 1996 was $14.9 million, $29.4 million and $342,000
respectively. The changes were principally due to the net activity from
advances on the Credit Facility and repayment of lines of credit of the
companies that the Company acquired. In 1997 the Company received approximately
$56.6 million from its initial public offering.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company believes that its exposures to market risks are
immaterial. The Company hold no market risk sensitive instruments for trading
purposes. At present, the Company does not employ any derivative financial
instruments, other financial instruments or derivative commodity instruments to
hedge any market risk and has no plans to do so in the future. To the extent
the Company has borrowings outstanding under its revolving credit facility, the
Company is exposed to interest rate risk because of the variable interest rate
under the facility. Such exposure, however, is immaterial due to the short-term
nature of such borrowings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required to be provided by this item is found on pages
F-1 through F-20 of this Report.
-26-
<PAGE> 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the heading "Election of Directors" in
the definitive Proxy Statement to be used in connection with the solicitation
of proxies for the Company's 1999 Annual Meeting of Stockholders, to be filed
with the Commission, is incorporated herein by reference. Pursuant to
instruction 3 to paragraph (b) of Item 401 of Regulation S-K, information
relating to the executive officers of the Company is included in Item 1 of this
Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the heading "Executive Compensation"
in the definitive Proxy Statement to be used in connection with the
solicitation of proxies for the Company's 1999 Annual Meeting of Stockholders,
to be filed with the Commission, is incorporated herein by reference. In no
event shall the information contained in the Proxy Statement under the heading
"Stockholder Return Performance Graph" be deemed incorporated herein by such
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the heading "Voting Securities and
Principal Stockholders" in the definitive Proxy Statement to be used in
connection with the solicitation of proxies for the Company's 1999 Annual
Meeting of Stockholders, to be filed with the Commission, is incorporated
herein by reference. For purposes of determining the aggregate market value of
the Company's voting stock held by nonaffiliates, shares held by all directors
and executive officers of the Company have been excluded. The exclusion of such
shares is not intended to, and shall not, constitute a determination as to
which persons or entities may be "affiliates" of the Company as defined by the
Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the heading "Certain Transactions" in
the definitive Proxy Statement to be used in connection with the solicitation
of proxies for the Company's 1999 Annual Meeting of Stockholders, to be filed
with the Commission, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORT ON FORM 8-K.
(A) The following financial statements and notes thereto are filed as part
of this Report:
-27-
<PAGE> 28
1. FINANCIAL STATEMENTS
Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997, and 1996.
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements as of December 31,
1998 and 1997 for the years ended December 31, 1998, 1997,
and 1996.
2. FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Other Qualifying Accounts
All other schedules have been omitted since the information
required is either included in the financial statements or
notes or is not required.
(B) REPORTS ON FORM 8-K.
The Company has not filed any reports on Form 8-K during the last
quarter of the fiscal year ended December 31, 1998.
-28-
<PAGE> 29
(C) EXHIBITS
The exhibits set forth below are required to be filed with this Report
pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
<S> <C>
3.1 Certificate of Incorporation, as amended, of the
Company (filed as Exhibit 3.1 of the Company's
Registration Statement on Form S-1 (File No.
333-36233) is hereby incorporated by reference)
3.2 Bylaws of the Company (filed as Exhibit 3.2 of the
Company's Registration Statement on Form S-1 (File
No. 333-36233) is hereby incorporated by reference)
4.1 Form of Common Stock Certificate of the Company
(filed as Exhibit 3.1 of the Company's Registration
Statement on Form S-1 (File No. 333-36233) is hereby
incorporated by reference)
10.1 Form of Agreement and Plan of Merger and
Reorganization (reverse merger) (filed as Exhibit
10.1 of the Company's Registration Statement on Form
S-1 (File No. 333-36233) is hereby incorporated by
reference)
10.2 Agreement and Plan of Merger and Reorganization,
dated as of June 27, 1997, among the Company,
Industrial Distribution Group, Inc., a Georgia
corporation, IDG Acquisition Company I, Inc. and the
Stockholders named therein (filed as Exhibit 10.2 of
the Company's Registration Statement on Form S-1
(File No. 333-36233) is hereby incorporated by
reference)
10.3 Agreement and Plan of Reorganization, dated as of
July 16, 1997, between the Company and the
Stockholders of Associated Suppliers, Inc. named
therein (filed as Exhibit 10.3 of the Company's
Registration Statement on Form S-1 (File No.
333-36233) is hereby incorporated by reference)
10.4 Uniform Provisions for the Acquisition of Founding
Companies (filed as Exhibit 10.4 of the Company's
Registration Statement on Form S-1 (File No.
333-36233) is hereby incorporated by reference)
*10.5(a) Industrial Distribution Group, Inc. Stock Incentive
Plan (filed as Exhibit 10.5 of the Company's
Registration Statement on Form S-1 (File No.
333-36233) is hereby incorporated by reference)
*10.5(b) Amendment No. 1 to Industrial Distribution Group,
Inc. Stock Incentive Plan
*10.6(a) Employment Agreement between the Company and Martin
S. Pinson (filed as Exhibit 10.6 of the Company's
Registration Statement on Form S-1 (File No.
333-36233) is hereby incorporated by reference)
*10.6(b) Description of Separation Agreement and Mutual
Release with Martin S. Pinson dated March 8, 1999
</TABLE>
-29-
<PAGE> 30
<TABLE>
<S> <C>
*10.7(a) Employment Agreement between the Company and
Douglass C. Smith (filed as Exhibit 10.7 of the
Company's Registration Statement on Form S-1 (File
No. 333-36233) is hereby incorporated by reference)
*10.7(b) Amendment dated as of August 24, 1998 to Employment
Agreement between the Company and Douglass C. Smith
(filed as Exhibit 10.7(b) of the Company's
Registration Statement on Form S-1 (File No.
333-51851) is hereby incorporated by reference)
*10.8 Employment Agreement between the Company and Jack P.
Healey (filed as Exhibit 10.8 of the Company's
Registration Statement on Form S-1 (File No.
333-36233) is hereby incorporated by reference)
*10.9 Form of Indemnification Agreement entered into
between the Company and each of the executive
officers and directors of the Company (filed as
Exhibit 10.9 of the Company's Registration Statement
on Form S-1 (File No. 333-36233) is hereby
incorporated by reference)
10.10 Form of Escrow Agreement among the Company, American
Stock Transfer & Trust Company and the individuals
named therein (filed as Exhibit 10.10 of the
Company's Registration Statement on Form S-1 (File
No. 333-36233) is hereby incorporated by reference)
10.11(a) Letter Agreement dated October 1, 1997 by and
between the Company and Barth Smith Company (filed
as Exhibit 10.11 of the Company's Annual Report on
Form 10-K (File No. 001-13195) on March 31, 1998, is
hereby incorporated by reference)
10.11(b) Description of Agreement with Barth Smith Company
dated December 3, 1998
10.12 Lease Agreement dated July 30, 1998 by and between
Andrew B. and Stephanie A. Shearer and Shearer
Industrial Supply Co. (filed as Exhibit 10.12 of the
Company's Registration Statement on Form S-1 (File
No. 333-51851) is hereby incorporated by reference)
10.13 Agreement and Plan of Merger and Reorganization
between the Company, LDS Acquisition Company, Inc.,
L.D. Supply, Inc. and the Stockholders named therein
(filed as Exhibit 2 of the Company's Current Report
on Form 8-K (File No. 001-13195) on June 19, 1998 is
hereby incorporated by reference)
*10.14 Industrial Distribution Group, Inc. Management
Incentive Program
10.15(a) Credit Agreement dated December 11, 1997 by and
between the Company, the Lenders listed therein, and
The First National Bank of Chicago
10.15(b) First Amendment to Credit Agreement dated December
11, 1998 by and between the Company, the Lenders
listed therein, and The First National Bank of
Chicago
21.1 Subsidiaries of the Company
</TABLE>
-30-
<PAGE> 31
<TABLE>
<S> <C>
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
- -------------------------------------
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit.
-31-
<PAGE> 32
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants....................................................F-1
Consolidated Balance Sheets at December 31, 1998 and 1997...................................F-2
Consolidated Statements of Operations for the Years Ended December 31, 1998,
1997, and 1996........................................................................F-3
Consolidated Statements of Stockholders' Equity for the Years Ended December
31, 1998, 1997, and 1996..............................................................F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998,
1997, and 1996........................................................................F-5
Notes to Consolidated Financial Statements for the Years Ended December 31,
1998, 1997, and 1996..................................................................F-7
Schedule II - Valuation and Qualifying Accounts.............................................F-20
</TABLE>
-32-
<PAGE> 33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Industrial Distribution Group, Inc.:
We have audited the accompanying consolidated balance sheets of INDUSTRIAL
DISTRIBUTION GROUP, INC. AND SUBSIDIARIES (a Delaware corporation) as of
December 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Industrial Distribution Group,
Inc. and subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states, in all material respects, the financial
data required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 12, 1999
F-1
<PAGE> 34
INDUSTRIAL DISTRIBUTION GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
1998 1997
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,285 $ 31,534
Accounts receivable, net 57,459 36,099
Inventories 60,949 42,427
Deferred tax assets 5,516 3,057
Prepaid and other current assets 7,919 2,468
-------- --------
Total current assets 133,128 115,585
-------- --------
PROPERTY AND EQUIPMENT, NET 24,619 9,910
INTANGIBLE ASSETS, NET 51,880 19,584
OTHER ASSETS 1,838 2,167
-------- --------
Total assets $211,465 $147,246
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,278 $ 781
Lines of credit 35,761 5,836
Accounts payable 40,342 22,378
Accrued compensation 3,772 2,131
Other accrued liabilities 3,986 3,307
-------- --------
Total current liabilities 86,139 34,433
LONG-TERM DEBT 1,660 5,036
DEFERRED TAX LIABILITIES 884 865
OTHER LONG-TERM LIABILITIES 9,187 7,422
-------- --------
Total liabilities 97,870 47,756
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value per share; 10,000,000 shares authorized, no
shares issued or outstanding in 1998 and 1997 0 0
Common stock, $.01 par value per share; 50,000,000 shares authorized
8,478,180 and 7,880,110 shares issued in 1998 and 1997, respectively 85 79
Additional paid-in capital 97,272 89,298
Retained earnings 16,328 10,113
Treasury stock, at cost (6,773 and 0 shares in 1998 and 1997, respectively) (90) 0
-------- --------
Total stockholders' equity 113,595 99,490
-------- --------
Total liabilities and stockholders' equity $211,465 $147,246
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
F-2
<PAGE> 35
INDUSTRIAL DISTRIBUTION GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES $ 437,610 $ 153,218 $ 68,266
COST OF SALES 337,185 117,726 52,774
---------- ---------- ----------
Gross profit 100,425 35,492 15,492
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 89,954 31,595 14,649
---------- ---------- ----------
Income from operations 10,471 3,897 843
INTEREST EXPENSE 1,319 966 740
INTEREST INCOME (847) (461) (73)
OTHER INCOME, NET (147) (178) (315)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 10,146 3,570 491
PROVISION FOR INCOME TAXES 3,931 1,254 127
---------- ---------- ----------
NET INCOME $ 6,215 $ 2,316 $ 364
========== ========== ==========
EARNINGS PER SHARE:
Basic $ 0.75 $ 0.71 $ 0.25
========== ========== ==========
Diluted $ 0.75 $ 0.71 $ 0.25
========== ========== ==========
WEIGHTED AVERAGE SHARES:
Basic 8,263,151 3,258,555 1,446,439
========== ========== ==========
Diluted 8,294,099 3,282,927 1,446,439
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-3
<PAGE> 36
INDUSTRIAL DISTRIBUTION GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
--------- ------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 1,411,378 $14 $ 2,131 $ 7,442 $(179) $ 9,408
Common stock issued 119,801 1 1,459 0 0 1,460
Dividends paid 0 0 0 (9) 0 (9)
Net income 0 0 0 364 0 364
--------- --- ------- ------- ----- --------
BALANCE, DECEMBER 31, 1996 1,531,179 15 3,590 7,797 (179) 11,223
Retired treasury stock (45,628) 0 (179) 0 179 0
Issuance of common stock to founding companies and management 2,592,981 26 29,239 0 0 29,265
Initial public offering 3,795,000 38 56,561 0 0 56,599
Sale of shares through employee stock purchase plan 6,578 0 87 0 0 87
Net income 0 0 0 2,316 0 2,316
--------- --- ------- ------- ----- --------
BALANCE, DECEMBER 31, 1997 7,880,110 79 89,298 10,113 0 99,490
Issuance of common stock for acquired companies 573,560 6 7,701 0 0 7,707
Sale of shares through employee stock purchase plan 31,283 0 273 0 0 273
Net income 0 0 0 6,215 0 6,215
Purchase of treasury stock (6,773) 0 0 0 (90) (90)
--------- --- ------- ------- ----- --------
BALANCE, DECEMBER 31, 1998 8,478,180 $85 $97,272 $16,328 $ (90) $113,595
========= === ======= ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-4
<PAGE> 37
INDUSTRIAL DISTRIBUTION GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,215 $ 2,316 $ 364
-------- -------- --------
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 3,430 1,000 311
Gain (loss) on sale of assets 7 (24) (149)
Deferred taxes (336) (615) (499)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net 1,206 (1,192) (1,154)
Inventories, net (1,800) 457 528
Prepaids and other assets (2,145) (636) 35
Accounts payable (1,630) (1,381) 438
Accrued compensation 579 225 (32)
Other accrued liabilities (1,406) (1,400) 110
-------- -------- --------
Total adjustments (2,095) (3,566) (412)
-------- -------- --------
Net cash (used in) provided by operating activities 4,120 (1,250) (48)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisitions (37,407) 0 0
Changes in short-term investments 0 948 (34)
Cash from acquired companies 426 1,851 205
Additions to property and equipment, net (13,845) (1,014) (75)
Cash surrender value of life insurance 1,150 (29) (70)
Other 410 0 0
-------- -------- --------
Net cash provided by (used in) investing activities (49,266) 1,756 26
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of issuance costs 276 56,599 6
Short-term (repayments) borrowings 23,725 (15,871) 663
Long-term (repayments) borrowings (8,613) (11,286) (318)
Purchase of treasury stock (90) 0 0
Dividends paid 0 0 (9)
Deferred loan costs and other (401) 0 0
-------- -------- --------
Net cash provided by financing activities 14,897 29,442 342
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (30,249) 29,948 320
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 31,534 1,586 1,266
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,285 $ 31,534 $ 1,586
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 883 $ 964 $ 746
======== ======== ========
Income taxes paid $ 7,713 $ 1,031 $ 382
======== ======== ========
NONCASH TRANSACTIONS:
Common stock issued in acquisitions (Note 3) $ 7,707 $ 35,312 $ 1,460
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-5
<PAGE> 38
INDUSTRIAL DISTRIBUTION GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
1. BASIS OF PRESENTATION
ORGANIZATION AND BUSINESS
Industrial Distribution Group, Inc. ("IDG" or the "Company"), a
Delaware corporation, was formed on February 12, 1997 to create a
nationwide supplier of cost-effective, flexible procurement solutions
for manufacturers and other users of maintenance, repair, operating,
and production (MROP) products. The Company conducts business in 27
states and provides product expertise in the procurement and
application of MROP products to a wide range of industries.
BASIS OF PRESENTATION
In September 1997, IDG completed an initial public offering of its
common stock (NYSE: IDG) and, concurrent with the offering, acquired
the following nine industrial distribution companies: Associated
Suppliers, Inc., B&J Industrial Supply Company ("B&J"), Cramer
Industrial Supplies, Grinding Supplies Company, J.J. Stangel Company,
Shearer Industrial Supply Company, Slater Industrial Supply Company,
The Distribution Group ("TDG") (formerly known as Industrial
Distribution Group, Inc.), and Tri-Star Industrial Supply, Inc.
(collectively referred to as the "Founding Companies"). The
accompanying financial statements of IDG represent B&J (deemed to be
the acquiring company under the provisions of the Securities and
Exchange Commission's Staff Accounting Bulletin No. 97) for the three
years ended December 31, 1998 and include the results of operations of
the other eight Founding Companies since the effective date of the
acquisitions. IDG merged with three companies in 1998 which were
accounted for as poolings of interests. Accordingly, their results' of
operations are included for all periods presented. Acquisitions made
in 1998 using the purchase method of accounting were accounted for
from their dates of acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all of its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported
F-6
<PAGE> 39
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all short-term investments with original
maturities of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
An allowance for uncollectible accounts has been established based on
the Company's collection experience and an assessment of the
collectibility of specific accounts. The allowance amounted to
$1,566,000 and $994,000 as of December 31, 1998 and 1997,
respectively.
INVENTORIES
Inventories consist primarily of merchandise purchased for resale and
are stated at the lower of cost or market value. Cost is determined on
a First In First Out cost basis, and market is considered to be net
realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, less accumulated
depreciation. Expenditures for repairs and maintenance are charged to
expense as incurred. Upon retirement or disposal of assets, the cost
and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is recognized as other income (expense) in
the consolidated statements of operations.
Depreciation is computed using the straight-line method over the
following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements 40 years
Leasehold improvements Life of related lease
Furniture, fixtures, and equipment 5-10 years
Computer hardware and software 5 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill, which is amortized
using the straight-line method over a period not to exceed 40 years.
The Company continually evaluates whether later events and
circumstances have occurred that indicate the remaining balance of
goodwill may not be recoverable. In evaluating possible impairment,
the Company uses the most appropriate method of evaluation given the
circumstances surrounding the particular acquisition, which has
generally been an estimate of the related business unit's undiscounted
operating income before interest and taxes over the remaining life of
the goodwill.
F-7
<PAGE> 40
Additionally, $570,000 of the purchase price related to the Founding
Companies was allocated to the value of integrated supply contracts
which is included in intangible assets on the balance sheet and is
amortized over 13 years.
Amortization expense related to intangible assets for 1998, 1997, and
1996 was $833,000, $134,000, and $0, respectively. At December 31,
1998 and 1997, accumulated amortization of intangible assets was
$967,000 and $134,000, respectively.
OTHER ASSETS
Other assets as of December 31, 1998 and 1997 included the cash
surrender values of executive life insurance policies totaling
$396,000 and $1,422,000, respectively.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires recognition of deferred tax
assets and liabilities using currently enacted tax rates.
REVENUE RECOGNITION
Revenue is recognized on sales of products at the time of shipment.
COST OF SALES
Cost of sales consists of the cost of materials purchased.
FINANCIAL INSTRUMENTS
The Company's carrying value of financial instruments (cash, trade
receivables, accounts payable, accrued liabilities, and debt)
approximates fair value due to the short maturity of those
instruments. Credit risk on trade receivables is minimized by the
large and diverse nature of the Company's customer base. No one
customer represented more than 10% of the Company's accounts
receivable or sales for the periods presented. The Company's
international sales represent less than 5% of sales for the periods
presented.
SOFTWARE COSTS
Software costs are capitalized and amortized over the expected useful
life of three to five years. It is the Company's policy to capitalize
all of the internal and external costs associated with developing and
implementing software.
RECLASSIFICATIONS
Certain reclassifications have been made to 1997 and 1996 amounts to
conform to the current year presentation.
F-8
<PAGE> 41
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards
for the reporting of comprehensive income in a company's financial
statements. Comprehensive income includes all changes in a company's
equity during the period that result from transactions and other
economic events other than transactions with its stockholders. SFAS
No. 130 was effective for the year beginning January 1, 1998. For the
Company, comprehensive income equals net income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which requires
that an enterprise disclose certain information about operating
segments. SFAS No. 131 was effective for financial statements for the
Company's year ended December 31, 1998. SFAS No. 131 did not require
additional disclosure or revision of prior disclosures. The Company
considers its entire business as one operating segment for purposes of
SFAS No.131.
In February 1998, the FASB issued SFAS No.132, "Employer's Disclosure
about Pensions and Other Postretirement Benefits" which requires
disclosure of additional information about the cost and financial
status of pension and Postretirement plans. SFAS No.132 was effective
for financial statements for the Company's year ended December 31,
1997. SFAS No.132 did not require any significant disclosure or
revision of prior disclosures.
In June 1998, the FASB issued SFAS No.133, "Accounting for Derivative
Instruments and Hedging Activities" which addresses the accounting for
derivative instruments. SFAS No.133 is effective for financial
statements for the Company's fiscal quarters beginning after July 1,
1999. The Company does not expect SFAS No. 133 will have a significant
effect on its current financial reporting.
3. INITIAL PUBLIC OFFERING AND ACQUISITIONS
On September 24, 1997, the Company sold 3,795,000 shares of common
stock to the public at $17 per share (the "Offering"). The net
proceeds to the Company from the Offering (after deducting
underwriting commissions and offering expenses) were $56.6 million. Of
this amount, $25.1 million was used to reduce the Founding Companies'
indebtedness under their lines of credit.
The consideration for the acquisitions of the Founding Companies
consisted of the Company's common stock. A total of 3,330,224 shares
of company common stock were issued to the stockholders of the
Founding Companies. These stockholders have contractually agreed with
the Company not to offer, sell, or otherwise dispose of any of these
shares for a minimum period of two years after the Offering. The fair
value of these shares reflects this restriction.
The closing of the acquisitions and the Offering occurred on September
29, 1997. For accounting purposes, however, September 24, 1997 has
been established as the effective date of the acquisitions because
management has determined that effective control of the operations of
the Founding Companies transferred to IDG on that date.
F-9
<PAGE> 42
The acquisitions were accounted for using the purchase method of
accounting. The allocations of purchase price to the assets acquired
and liabilities assumed of the Founding Companies have been recorded
based on the fair value as follows (in thousands):
<TABLE>
<S> <C>
Working capital, net $ 26,798
Property and equipment 7,664
Integrated supply contracts 570
Goodwill 19,144
Other assets 2,075
Liabilities assumed (20,939)
--------
$ 35,312
========
</TABLE>
During 1998, IDG merged with three companies, Northern Tool & Supply,
Continental Air Tools, Inc., d/b/a Continental-McLaughlin, and Hawley
Industrial Supplies, Inc. (collectively referred to as the "Pooled
Companies"). These mergers were accounted for using the
pooling-of-interests method of accounting. The Company's financial
statements include the results of operations for the Pooled Companies
for all periods presented. IDG issued 618,559 shares in these
pooling-of-interests transactions.
During 1998, the Company acquired 14 companies that were accounted for
using the purchase method of accounting. The allocation of purchase
price to the assets acquired and liabilities assumed of those
acquisitions have been recorded based on the preliminary estimates of
fair value as follows (in thousands);
<TABLE>
<S> <C>
Working capital, net $ 15,373
Property and equipment 3,853
Goodwill 33,931
Other assets 817
Liabilities assumed (8,860)
--------
$ 45,114
========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment, including capitalized interest consisted of
the following at December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land, building, and improvements $ 12,155 $ 5,345
Leasehold improvements 2,059 1,846
Furniture, fixtures, and equipment 7,867 4,637
Computer hardware and software 3,668 2,026
Software development 4,352 --
-------- --------
30,101 13,854
Less accumulated depreciation (5,482) (3,944)
-------- --------
Property and equipment, net $ 24,619 $ 9,910
======== ========
</TABLE>
F-10
<PAGE> 43
Depreciation expense totaled $2,597,000, $866,000, and $311,000 for
the years ended December 31, 1998, 1997, and 1996, respectively.
5. REVOLVING CREDIT FACILITIES
In December 1998, the Company entered into a $125,000,000 revolving
credit facility with a six-bank syndicate. The facility has a
three-year term, bears interest at either the bank's corporate base
rate or a Eurodollar rate plus applicable margins, and has a first
security interest in the capital stock of the Company's business
units. The agreement provides that the facility be used for operations
and acquisitions and provides $10,000,000 each for swinglines and
letters of credit. There is an annual commitment fee on the unused
portion of the facility equal to between 20 and 30 basis points of the
average daily unused portion of the aggregate commitment depending on
the indebtedness to adjusted EBITDA ratio. This fee amounted to
$142,000 and $8,000 in 1998 and 1997, respectively. This agreement
amended the December 1997 agreement for $75,000,000. The amounts
outstanding under this facility at December 31, 1998 and 1997 were
$34,000,000 and $0, respectively, which have been classified as
current liabilities. Additionally, the Company has outstanding an
issued letter of credit for $2,081,000. The revolving credit facility
contains various covenants pertaining to maintenance of certain
financial relationships. These covenants include requirements for
interest coverage, cash flow, and net worth, among other restrictions.
The covenants also prohibit the payment of dividends. The Company was
in compliance with these covenants as of December 31, 1998 and 1997.
The Company has available additional lines of credit of $3,250,000 of
which $1,761,000 was drawn on these lines at December 31, 1998. The
lines bear interest at rates that are prime to prime minus 1.25% and
are partially secured by floor planned equipment.
Concurrent with the Offering, the Company obtained loan availability
through a line of credit of one of the acquired business units. This
loan was originally obtained in November 1993 and amended in March
1996. The loan availability under the line of credit was determined by
a formula based on trade accounts receivable and merchandise
inventory, not to exceed $15,000,000. As of December 31, 1997, the
Company had $1,111,000 drawn on this line of credit. The line was
secured by trade accounts receivable, merchandise inventory,
intangibles, and other assets. The principal balance was paid in full
and the line closed in March 1998.
Additionally, the Company had available $7,250,000 through various
lines of credit during 1997. As of December 31, 1997, the Company had
$4,725,000 drawn against these lines of credit. The various lines of
credit were paid and the lines closed at various dates during 1998.
6. LONG-TERM DEBT
At December 31, 1998 and 1997, long-term debt consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
9.75% mortgage payable, due in monthly installments of
$15,036, including interest, through July 1999, at which time
remaining principal and interest are due; secured by a building
with a net book value of approximately $2.3 million $1,552 $1,573
</TABLE>
F-11
<PAGE> 44
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Notes payable due to various parties through 2008, bearing
interest between 7% and 10.40% 978 1,148
Commercial mortgage note payable to bank, due January 1999,
payable in monthly installments of $4,580, plus interest at 8% 323 0
Commercial mortgage note payable to bank, due February 2000,
payable in monthly installments of $1,525, plus interest at 8.5% 144 0
Note payable to bank, due February 1999, payable in monthly
installments of $11,500, plus interest at prime plus .25%;
collateralized by inventory, property and equipment, and
accounts receivable and guaranteed by the stockholders of the
Company 0 1,251
Commercial mortgage note payable to bank, due July 2022,
payable in monthly installments of $2,500, plus interest at prime
plus .75%
0 622
Note payable to officer, due June 30, 1999, bearing interest at
7% 0 128
Demand note payable to stockholder, bearing interest at 6% 0 169
Other 941 926
------- -------
Total long-term debt $ 3,938 $ 5,817
Less current portion (2,278) (781)
------- -------
Total long-term debt, less current portion $ 1,660 $ 5,036
======= =======
</TABLE>
Maturities of long-term debt as of December 31, 1998 are as follows
(in thousands):
<TABLE>
<S> <C>
1999 $2,278
2000 474
2001 205
2002 155
2003 122
Thereafter 704
------
$3,938
======
</TABLE>
F-12
<PAGE> 45
7. CAPITAL STOCK
PREFERRED STOCK
Pursuant to the Company's certificate of incorporation, the board of
directors, from time to time, may authorize the issuance of shares of
preferred stock in one or more series; may establish the number of
shares to be included in any such series; and may fix the
designations, powers, preferences, and rights (including voting
rights) of the shares of each such series and any qualifications,
limitations, or restrictions thereon. No stockholder authorization is
required for the issuance of shares of preferred stock unless imposed
by then-applicable law. Shares of preferred stock may be issued for
any general corporate purposes, including acquisitions. The board of
directors may issue one or more series of preferred stock with rights
more favorable with regard to dividends and liquidation than the
rights of holders of common stock.
COMMON STOCK
Options to purchase 409,825 shares of common stock at $17 were granted
on September 24, 1997. During 1998, options to purchase 200,694 shares
of common stock at $7.12 to $19 were granted. Options are included in
the computation of diluted EPS where the options' exercise price was
less than the average market price of the common shares during the
year. The dilutive effect of these stock options outstanding during
1998 and 1997 added 30,948 and 24,372 shares respectively to the
weighted average common shares outstanding for purposes of calculating
diluted EPS. During 1998, options where the exercise price exceeded
the average market price of the common shares totaled 511,095. The
options expire ten years from the date of grant and vest ratably over
a three-to-four year period. No options or other dilutive securities
were outstanding during 1996.
At December 31, 1998, the Company has two stock-based compensation
plans, which are described below. The Company applies APB Opinion No.
25 and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its stock
incentive plan and its employee stock purchase plan. Had compensation
cost for the Company's stock-based compensation plans been determined
based on the fair value at the grant dates for awards under those
plans consistent with the method established in SFAS No. 123, the
Company's net income and EPS would have been reduced to the pro forma
amounts indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net income:
As reported $6,215 $2,316 $ 364
Pro forma 5,570 2,002 364
Basic EPS:
As reported $ 0.75 $ 0.71 $ 0.25
Pro forma 0.67 0.61 0.25
Diluted EPS:
As reported $ 0.75 $ 0.71 $ 0.25
Pro forma 0.67 0.61 0.25
</TABLE>
F-13
<PAGE> 46
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate between 4.72% and 5.82%, an
expected life of four to eight years; volatility of 49%, dividend
yield of 0%. The total value of options granted in 1998, 1997, and
1996 was $1,983,000, $3,696,000, and $0, respectively.
STOCK INCENTIVE PLAN
In July 1997, the Company adopted its stock incentive plan to provide
key employees, officers, and directors an opportunity to own common
stock of the Company and to provide incentives for such persons to
promote the financial success of the Company. Awards under the stock
incentive plan may be structured in a variety of ways, including
"incentive and nonqualified stock options," shares of common stock
subject to terms and conditions set by the board of directors
("restricted stock awards"), and stock appreciation rights ("SARs").
Incentive stock options may be granted only to full-time employees
(including officers) of the Company and any subsidiaries. Nonqualified
options, restricted stock awards, SARs, and other permitted forms of
awards may be granted to any person employed by or performing services
for the Company, including directors. The stock incentive plan
provides for the issuance of an aggregate number of shares of common
stock equal to 15% of the Company's diluted shares of common stock
outstanding from time to time, subject to the issuance of a maximum of
1,000,000 shares pursuant to incentive stock options.
Incentive stock options are also subject to certain limitations
prescribed by the Internal Revenue Code and may not be exercised for
more than five years from the stated grant date. The board of
directors of the Company (or a committee designated by the board)
generally has discretion to set the terms and conditions of options
and other awards, including the term, exercise price, and vesting
conditions, if any; to select the persons who receive such grants and
awards; and to interpret and administer the stock incentive plan.
A summary of the status of the stock incentive plan as of December 31,
1998 and 1997 and changes during the year then ended is presented
below:
<TABLE>
<CAPTION>
SHARES EXERCISE PRICE
------- --------------
<S> <C> <C>
Fixed options:
Outstanding at January 1, 1997 0 $ 0.00
Granted 409,825 $17.00
------- ------
Outstanding at January 1, 1998 409,825 $17.00
Granted 79,360 $19.00
Granted 4,000 $18.00
Granted 30,000 $11.44
Granted 67,134 $ 7.31
Granted 20,200 $ 7.12
Forfeitures (12,090)
------- ---------------
Outstanding at December 31, 1998 598,429 $ 7.12 - $19.00
======= ===============
Options exercisable at end of year 115,352 $ 7.12 - $19.00
======= ===============
Weighted average remaining contractual life 9.3 years
</TABLE>
F-14
<PAGE> 47
EMPLOYEE STOCK PURCHASE PLAN
In 1997, the Company adopted an employee stock purchase plan (the
"Stock Purchase Plan") under which qualified employees of the Company
and its subsidiaries have the right to purchase shares of common stock
on a quarterly basis through payroll deductions by the employee. The
Stock Purchase Plan is administered by the compensation committee of
the Company's board of directors. The price paid for a share of common
stock under the plan is 85% of the fair market value (as defined in
the Stock Purchase Plan) of a share of common stock at the beginning
or the end of each quarterly purchase period, whichever is lower. The
amount of any participant's payroll deductions or cash contributions
made pursuant to the Stock Purchase Plan may not exceed 10% of such
participant's total annual compensation and may not exceed $25,000 per
year. A maximum of 500,000 shares of common stock may be issued under
the Stock Purchase Plan. The Stock Purchase Plan may be terminated or
amended by the Company's board of directors.
8. INCOME TAXES
The provision for income taxes includes income taxes deferred because
of temporary differences between financial statement and tax bases of
assets and liabilities and consisted of the following for the years
ended December 31, 1998, 1997, and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Current $4,267 $1,869 $ 626
Deferred (336) (615) (499)
------ ------ ------
Total provision $3,931 $1,254 $ 127
====== ====== ======
</TABLE>
The provision for income taxes for the years ended December 31, 1998,
1997, and 1996 differs from the amount computed by applying the
statutory rate of 34% due to the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Tax at federal statutory rate $3,450 $1,214 $ 167
Nondeductible expenses 61 35 29
Tax-exempt interest income 0 (11) (10)
Goodwill amortization 318 47 0
State income tax, net of federal benefit 426 104 0
Cash surrender value of life insurance 0 3 (23)
Change in tax rates (119) 0 0
Other (205) (138) (36)
------ ------ ------
Provision for income taxes $3,931 $1,254 $ 127
====== ====== ======
</TABLE>
Deferred taxes are recorded based on differences between the financial
statement and tax bases of assets and liabilities. Temporary
differences which give rise to a significant portion of deferred tax
assets and liabilities at December 31, 1998 and 1997 are as follows
(in thousands):
F-15
<PAGE> 48
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 626 $ 351
Accrued employee benefits 443 231
Capitalized inventory costs 474 309
Inventory allowance 2,958 1,927
Accrued liabilities 1,599 828
Net operating loss carryforward 239 241
Other 186 164
------- -------
$ 6,525 $ 4,051
------- -------
Deferred tax liabilities:
Book over tax depreciation $ (126) $ (50)
Prepaid expenses (61) (5)
Intangible integrated supply contract (206) (206)
Step-up in asset basis (975) (917)
Section 481--LIFO (523) (584)
Other (2) (97)
------- -------
(1,893) (1,859)
------- -------
Net deferred tax assets $ 4,632 $ 2,192
======= =======
</TABLE>
The Company has net operating loss carryforwards for federal income
tax purposes of approximately $598,000 as of December 31, 1998, which
expire 2008 through 2010. The utilization of the related available
deferred tax asset of $239,000 at December 31, 1998 is subject to
certain limitations of the Internal Revenue Code Section 382.
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain warehouse and office facilities as well as
certain vehicles and office equipment under operating leases.
Management expects that in the normal course of business, leases that
expire will be renewed or replaced by other leases.
The minimum future rental payments, net of sublease revenues, under
all leases as of December 31, 1998 were as follows (in thousands):
<TABLE>
<S> <C>
1999 $ 3,846
2000 2,999
2001 2,298
2002 2,103
2003 1,678
Thereafter 2,262
-------
$15,186
=======
</TABLE>
During the years ended December 31, 1998, 1997, and 1996, rental
expense under operating leases totaled $3,595,000, $1,196,000, and
$665,000, respectively.
F-16
<PAGE> 49
LITIGATION
In February 1999, TDG settled the previously reported lawsuit that had
been filed in 1996 by Milliken & Company, a textile manufacturer and
customer of TDG, against a manufacturer of an industrial product and
TDG in the Superior Court of Troop County, Georgia, Civil Action
No.96-CV-964. The settlement was achieved within the limits of TDG's
insurance coverage.
On December 22, 1997, TDG brought an action in DeKalb County Superior
Court, Georgia, File No. 97-14388-4, against a former stockholder
under the Georgia dissenters' rights provisions of the Georgia
Business Corporation Code (the "GBCC"). This former stockholder of TDG
had exercised his rights pursuant to the GBCC to dissent from the
merger of TDG with the Company. In accordance with the GBCC, TDG
offered to pay the former stockholder $4.2 million for his interest in
TDG. The former stockholder rejected that offer and demanded payment
of $9 million. TDG brought this action to seek a judicial
determination of the value of his interest in TDG as of the time of
the merger. The proceeding is in discovery, and it is not possible to
predict the outcome at this time.
The Company is subject to various claims and legal actions which arise
in the ordinary course of business. The Company believes that the
ultimate resolution of such matters, including those identified above,
will not have a material adverse effect on the Company's financial
position or results of operations.
INSURANCE
One of the Founding Companies had a self-insured health insurance plan
during 1998 and 1997. Estimated accruals for reported and unreported
claims are funded through a VEBA trust. The balance of this trust was
approximately $163,000 and $414,000 as of December 31, 1998 and 1997,
respectively, and represents management's best estimate of its
liability as of the end of each year. Revisions to estimated accruals
are recorded in the period in which they become known.
EMPLOYMENT AGREEMENTS
Included in the employment agreements of the Company's two executive
officers and each of the presidents of its business units is a
change-of-control provision. Upon certain changes in the majority
stockholders or board of directors, the executive officers and the
business unit presidents may elect to receive a cash payment equal to
the present value of their base salary for two years.
10. SAVINGS PLANS
Beginning January 1, 1989, B&J established a 401(k) savings plan (the
"Plan") for the Company's nonunion employees under which participants
may contribute up to 10% of their compensation. Employees over age 21
with more than one year of service who are not covered by a union plan
are eligible for participation in the Plan. During 1996, the Company
made contributions to the Plan equivalent to 5% of eligible
participants' salaries. The Company's contributions totaled $149,000
during 1996. As a result of the acquisition of the other Founding
Companies, the Company had a total of eight 401(k) and profit sharing
plans in effect since
F-17
<PAGE> 50
September 24, 1997. In addition to these eight plans, each of the
Pooled Companies maintained a 401(k) or savings plan. Total company
contributions to 401(k) and savings plans during 1997 were $297,000.
Effective January 1, 1998, all existing 401(k) plans were merged into
one new plan (the "New Plan"). All employees who are age 21 or older
and have completed one year of service are eligible to participate in
the New Plan. Once eligibility requirements are met, employees may
join the New Plan on a quarterly basis. Employees may contribute
between 1% and 15% of their compensation to the New Plan, subject to
tax law limitations. For 1998, the Company matched 25% of the employee
contribution up to a maximum of 1 1/2% of the employees' salary.
Of the companies acquired in 1998, thirteen had 401(k) plans at the
date of acquisition. Eleven of these plans will be merged into the
Company's 401(k) plan as soon as practicable. Total company
contributions to 401(k) plans during 1998 were $524,000.
11. RELATED-PARTY TRANSACTIONS
B&J was obligated to a retired officer to provide monthly payments of
$10,000 over his remaining life or, in the event he predeceases his
spouse, over the life of the spouse. As of December 31, 1996, B&J had
accrued $1,133,000, discounted at a 10% annual interest rate to cover
the cost of this obligation. The Company made a lump-sum payment of
$1.1 million during 1997 for relief from its obligation through 2012.
If either the retired officer or his spouse is surviving as of January
2013, monthly payments of $10,000 shall resume. In addition, the
Company agreed to pay 75% of the health and dental insurance costs of
the retired officer and his spouse until their deaths.
The Company leases facilities from various related parties. Rental
expense recognized under these leases was $737,000 for the year ended
December 31, 1998. Related party rental expense for the years ended
December 31, 1997 and 1996 was $149,000 and $82,000, respectively.
12. PRO FORMA COMBINED FINANCIAL INFORMATION (UNAUDITED)
The following pro forma combined financial information for the two
years ended December 31, 1998 includes the results of B&J (deemed to
be the financial acquiror) combined with the other eight Founding
Companies and the companies acquired in 1998, as if the acquisitions
had occurred on January 1 of each respective period. This pro forma
combined financial information includes the effects of (a) the
acquisitions, (b) the Offering, (c) amortization of goodwill resulting
from the acquisitions, (d) elimination of interest expense for the
debt that was paid from the offering proceeds, and (e) provision for
income taxes at 40%, even though several of the acquired companies had
Chapter S corporate tax status.
The EPS amounts are based on 8,556,211 and 8,536,947 shares deemed to
be outstanding for the periods ended December 31, 1998 and 1997,
respectively. The net income amounts include estimates of the federal
and state taxes that would have been applicable to the Company had the
acquisitions occurred at the beginning of each respective period. The
underlying tax rates differ from statutory federal and state rates
primarily because amortization of goodwill related to the acquisitions
is not deductible for tax purposes.
F-18
<PAGE> 51
The pro forma combined financial information does not purport to
represent what the Company's financial position or results of
operations would actually have been if such transactions and events in
fact had occurred on those dates or to project the Company's results
of operations for any future period. (In thousands, except for per
share amounts.)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net sales $577,864 $531,386
======== ========
Net income $ 6,899 $ 5,952
======== ========
Diluted earnings per share $ 0.81 $ 0.70
======== ========
</TABLE>
13. INTERIM FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth certain quarterly financial data for
the periods indicated (in thousands, except for per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1998:
Net sales $ 89,763 $ 106,638 $ 119,888 $ 121,321
Gross profit 20,925 23,916 27,620 27,964
Net income 1,376 1,700 1,712 1,427
Diluted EPS $ 0.17 $ 0.21 $ 0.20 $ 0.17
1997:
Net sales $ 19,444 $ 20,669 $ 27,182 $ 85,923
Gross profit 4,299 4,888 6,279 20,026
Net income 184 521 653 958
Diluted EPS* $ 0.12 $ 0.35 $ 0.31 $ 0.12
</TABLE>
*The sum of the diluted EPS for 1997 by quarter does not agree
with the amount disclosed on the statement of operations due to
the weighted average effect of the shares issued in the
Offering and to the Founding Companies late in the third
quarter of 1997.
F-19
<PAGE> 52
INDUSTRIAL DISTRIBUTION GROUP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Additions
--------------------------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Account (2) Deductions (1) Period
- ------------------------------ ------------ ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful 994 607 284 319 1566
accounts
Year ended December 31, 1997:
Allowance for doubtful 240 348 441 35 994
accounts
Year ended December 31, 1996:
Allowance for doubtful 184 83 0 27 240
accounts
</TABLE>
- ----------------------------
(1) Deductions represent the write off of uncollectable receivables, net of
recoveries.
(2) Reserves acquired in connection with the acquisition of the Founding
Companies in 1997 and 1998.
F-20
<PAGE> 53
\
SIGNATURES
Pursuant to the requirements of Section 13 or 15(a) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Atlanta, State of Georgia, on the 30th day of March, 1999.
INDUSTRIAL DISTRIBUTION GROUP, INC.
By: /s/ Richard M. Seigel
--------------------------------------------------------
Richard M. Seigel
Chairman of the Board and Acting Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company in the capacities set forth and on the 30th day of March, 1999.
<TABLE>
<CAPTION>
Signature Position
--------- --------
<S> <C>
/s/ Richard M. Seigel
- ------------------------------------------------------- Chairman of the Board and Acting Chief Executive
Richard M. Seigel Officer and President (Principal Executive Officer)
/s/ Jack P. Healey
- ------------------------------------------------------- Senior Vice President, Chief Financial Officer, and
Jack P. Healey Secretary (Principal Financial and Accounting Officer)
/s/ David K. Barth
- ------------------------------------------------------- Director
David K. Barth
/s/ William J. Burkland
- ------------------------------------------------------- Director
William J. Burkland
/s/ William R. Fenoglio
- ------------------------------------------------------- Director
William R. Fenoglio
/s/ William T. Parr
- ------------------------------------------------------- Director
William T. Parr
/s/ George L. Sachs, Jr.
- ------------------------------------------------------- Director
George L. Sachs, Jr.
/s/ Andrew B. Shearer
- ------------------------------------------------------- Director
Andrew B. Shearer
/s/ Douglass C. Smith
- ------------------------------------------------------- Director
Douglass C. Smith
</TABLE>
<PAGE> 1
EXHIBIT 10.5(b)
AMENDMENT NO. 1
TO
INDUSTRIAL DISTRIBUTION GROUP, INC.
STOCK INCENTIVE PLAN
THIS AMENDMENT is made as of the 5th day of March, 1998, by
INDUSTRIAL DISTRIBUTION GROUP, INC., a Delaware corporation (the "Company");
WITNESSETH:
WHEREAS, the Board of Directors of the Company previously adopted the
Industrial Distribution Group, Inc. Stock Incentive Plan ("Plan"); and
WHEREAS, the Company now desires to amend the Plan in the manner
hereinafter provided;
NOW, THEREFORE, the Plan is hereby amended as follows:
1.
Section 2(g) is hereby amended by deleting the existing section in its
entirety and substituting the following therefor:
"(g) "Committee" means the committee appointed to administer the
Plan with respect to grants of Awards, as specified in ARTICLE 3."
2.
Section 3.1 is hereby amended by deleting the existing section in its
entirety and substituting the following therefor:
"3.1 THE COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board, or by any other committee or subcommittee appointed by
the Board, provided that such Committee shall consist of not less than two
"Outside Directors" as such term is defined in Section 162(m) of the Code and
Regulation Section 1.162-27(e)(3), as may be amended from time to time, and any
successor provisions thereto."
3.
Section 6.1 is hereby amended by adding the following new sentence to
the end of the present section:
"The maximum number of Shares subject to Options which can be granted
under the Plan during any calendar year to any Named Executive Officer is
100,000 Shares; provided, however, this maximum number shall be 200,000 Shares
for the calendar year (or portion thereof) during which a Named Executive
Officer is first employed by the Company."
<PAGE> 2
4.
Section 7.1 is hereby amended by adding the following sentence to the
end of the present section:
"The maximum number of Shares underlying SARs which can be awarded
under the Plan during any calendar year to any Named Executive Officer is
100,000 Shares; provided, however, this maximum number shall be 200,000 Shares
for the calendar year (or portion thereof) during which a Named Executive
Officer is first employed by the Company."
5.
Section 9.1 is hereby amended by adding the following sentence to the
end of the present section:
"No more than 100,000 Performance Shares may be earned by a Named
Executive Officer with respect to any performance period."
6.
These amendments to the Plan shall be effective as of the day and year
first above written. Except as hereby modified, the Plan shall remain in full
force and effect.
IN WITNESS WHEREOF, the undersigned has executed this Amendment No. 1
the day and year first above written.
INDUSTRIAL DISTRIBUTION GROUP, INC.
By: /s/ Jack P. Healey
-----------------------------------
Vice President and Chief Financial
Officer
2
<PAGE> 1
EXHIBIT 10.6(B)
DESCRIPTION OF SEPARATION AGREEMENT AND MUTUAL RELEASE WITH MARTIN S. PINSON
In connection with the resignation of Martin S. Pinson as Chairman of
the Board on March 4, 1999 and as Chief Executive Officer and President of the
Company on March 8, 1999, the Company entered into a Separation Agreement and
Mutual Release with Mr. Pinson as of March 8, 1999. The principal terms of the
agreement, are as follows:
- - In consideration of the termination of Mr. Pinson's employment
agreement and releases by Mr. Pinson, the Company
- paid Mr. Pinson $312,500 as severance and agreed to continue
certain medical insurance benefits for Mr. Pinson and his
family;
- accelerated the vesting in full of options to purchase 103,800
shares of Common Stock at a price of $17.00 per share, which
were originally scheduled to vest one-third on each of
September 23, 1998, 1999, and 2000;
- conveyed incidental items of personal office equipment to Mr.
Pinson, and permitted Mr. Pinson to use the Company's office
space in Chevy Chase, Maryland for a period of time; and
- provided Mr. Pinson piggyback registration rights.
- - The provisions of Mr. Pinson's employment agreement relating to
non-recruitment, non-solicitation, and non-competition by him remain in
effect, as did the provisions relating to indemnification of Mr. Pinson
by the Company.
- - Mr. Pinson and the Company released each other from claims that he or
it might have had against the other, including as a result of his
employment by the Company.
<PAGE> 1
EXHIBIT 10.11(B)
DESCRIPTION OF AGREEMENT WITH BARTH SMITH COMPANY
DATED DECEMBER 3, 1998
Barth Smith Company ("BSC") will continue to provide acquisition and
planning related services including financial analysis, price negotiations, due
diligence and market studies at the discretion of Industrial Distribution Group,
Inc. ("IDG") management. In consideration for these services, IDG will pay to
BSC during 1999 a monthly retainer of $15,000. Either BSC or IDG may terminate
this arrangement upon 60 days' notice to the other party.
<PAGE> 1
EXHIBIT 10.14
INDUSTRIAL DISTRIBUTION GROUP, INC.
MANAGEMENT INCENTIVE PROGRAM
EFFECTIVE AS OF JANUARY 1, 1998
1. ESTABLISHMENT AND EFFECTIVE DATE OF PLAN
Industrial Distribution Group, Inc. (the "Company") hereby adopts the Industrial
Distribution Group, Inc. Management Incentive Program (the "Plan") for its
executive officers and certain other executives of the Company, its Business
Units and affiliates who are in management positions designated as eligible for
participation by the Compensation Committee (the "Committee") of the Board of
Directors of the Company or its designee. The Plan shall be effective as of
January 1, 1998 and shall remain in effect, subject to the rights of amendment
and termination in Section 15. Payments under the Plan shall only be made to
Named Executive Officers after the Plan is approved by the stockholders of the
Company, unless the Board of Directors determines otherwise.
2. PURPOSE OF THE PLAN
The purpose of the Plan is to reward certain key management personnel of the
Company and its Business Units for achieving performance goals relating to,
among other things, increasing operating income and return on investment,
increasing shareholder value, promoting growth and efficient use of resources
and achieving specific individual goals.
3. DEFINITIONS
(a) "Base Annual Salary" means the base salary established for a
Participant during the applicable Plan Year, as determined by
the Committee (which shall include the amount of any pre-tax
deferrals or other pre-tax payments made by the Participant to
the Company's deferred compensation or welfare plans, whether
qualified or non-qualified).
(b) "Board of Directors" means the Board of Directors of the
Company.
(c) "Business Unit" means a separate business operating unit of
the Company with respect to which separate performance goals
may be established hereunder.
(d) "Change in Control" means any of the following events:
(i) The acquisition (other than from the Company) by any
"Person" (as the term person is used for purposes of
Sections 13(d) or 14(d) of the
1 of 8
<PAGE> 2
Securities Exchange Act of 1934, as amended (the
"1934 Act")) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the 1934 Act)
of twenty percent (20%) or more of the combined
voting power of the Company's then outstanding voting
securities; or
(ii) The individuals who, as of January 1, 1998, are
members of the Board of Directors (the "Incumbent
Board"), cease for any reason to constitute at least
two-thirds of the Board of Directors; provided,
however, that if the election, or nomination for
election by the Company's stockholders, of any new
director was approved by a vote of at least
two-thirds of the Incumbent Board, such new director
shall, for purposes of this Plan, be considered as a
member of the Incumbent Board; or
(iii) Approval by stockholders of the Company of (1) a
merger or consolidation involving the Company if the
stockholders of the Company, immediately before such
merger or consolidation do not, as a result of such
merger or consolidation, own, directly or indirectly,
more than fifty percent (50%) of the combined voting
power of the then outstanding voting securities of
the corporation resulting from such merger or
consolidation in substantially the same proportion as
their ownership of the combined voting power of the
voting securities of the Company outstanding
immediately before such merger or consolidation, or
(2) a complete liquidation or dissolution of the
Company or an agreement for the sale or other
disposition of all or substantially all of the assets
of the Company.
Notwithstanding the foregoing, for purposes of subsection (i)
above, "person" shall not include any person who on the date
hereof owns 100% or more of the Company's outstanding
securities, and a Change in Control shall not be deemed to
occur solely because twenty percent (20%) or more of the
combined voting power of the Company's then outstanding
securities is acquired by (i) a trustee or other fiduciary
holding securities under one or more employee benefit plans
maintained by the Company or any of its subsidiaries, or (ii)
any corporation, which, immediately prior to such acquisition,
is owned directly or indirectly by the stockholders of the
Company in the same proportion as their ownership of stock in
the Company immediately prior to such acquisition.
(e) "Chief Executive Officer" means the chief executive officer of
the Company, unless otherwise specified.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the Compensation Committee of the Board of
Directors or any other committee designated by the Board of
Directors which is responsible for administering the Plan.
(h) "Common Stock" means the common stock of the Company, par
value $.01 per share.
2 of 8
<PAGE> 3
(i) "Company" means Industrial Distribution Group, Inc., a
Delaware corporation, and its successors.
(j) "Estimated Earnings" means the Company's estimated earnings
for the fiscal year based upon the consensus estimate
forecasted by analysts and market makers for the fiscal year,
as adjusted by the Committee in its discretion.
(k) "Incentive Award" or "Award" means the cash and, if
applicable, Shares or restricted Shares awarded to
Participants under the terms of the Plan.
(l) "Maximum Award" means the maximum percentage of Base Annual
Salary which may be paid based upon the Company's or Business
Unit's Relative Performance during the Plan Year.
(m) "Named Executive Officer" means a Participant who as of the
date of payment of an Incentive Award is one of the group of
"covered employees" under Code Section 162(m) and the
regulations thereunder.
(n) "Participant" means an executive of the Company, a Business
Unit or an affiliate who is designated by the Committee (or
its designee) to participate in the Plan.
(o) "Personal Performance Goals" means the goals established for
each Participant each year to improve the effectiveness of the
Participant's area of responsibility as well as the Company as
a whole.
(p) "Plan Year" means the twelve month period which is the same as
the Company's fiscal year. The initial Plan Year shall be
January 1 through December 31, 1998.
(q) "Program Rules" means the eligible Participants, performance
measures, Incentive Award amounts, and other rules and
conditions established annually by the Committee pursuant to
Section 4, subject to ratification by the Board of Directors.
The Program Rules for Participants other than Named Executive
Officers may be established by a designee of the Committee.
(r) "Relative Performance" means the extent to which the Company,
or designated Business Unit, as applicable, achieves the
performance measurement criteria set forth in the Program
Rules.
(s) "Shares" means the shares of Common Stock of the Company
(including any new, additional or different stock or
securities resulting from the changes described in Section 7).
(t) "Target Award" means the percentage (which may vary among
Participants and from Plan Year to Plan Year) of Base Annual
Salary which will be paid to a Participant as an Incentive
Award if the performance measurement criteria applicable to
the Participant for the Plan Year is achieved, as reflected in
the Program Rules for such Plan Year.
3 of 8
<PAGE> 4
(u) "Threshold Award" means the minimum percentage of Base Annual
Salary which may be paid based on the Company's Relative
Performance during the Plan Year.
4. ADMINISTRATION OF THE PLAN
The Plan will be administered by the Committee; provided, however, the Committee
shall have the right to delegate as it may deem necessary or appropriate to the
Chief Executive Officer, the Chief Operating Officer or the Chief Financial
Officer its authority and responsibility for administration of parts of the Plan
as it applies to Participants other than Named Executive Officers. Subject to
the right of the Board of Directors to ratify such Program Rules, the Committee
(or its designee) will have the authority, from time to time, to determine the
Program Rules for the following matters:
(a) the executives who are eligible to participate in the Plan;
(b) the types of Awards to grant under the Plan, such as the use
of a performance matrix or bonus pool, which may vary among
Participants and from year to year;
(c) the Target Award, Maximum Award and Threshold Award that can
be granted to each Participant and the method for determining
such award, which the Committee may amend from time to time;
(d) the performance targets and the measurement criteria to be
used in determining the Company's or a Business Unit's
Relative Performance, which will include one or more of the
following, as determined by the Committee each year: operating
income, return on investment, Estimated Earnings, net income,
earnings per share, return on equity, return on assets (or net
assets), profit before taxes, market value of the Company's
stock, and total shareholder return;
(e) the time or times and the conditions (such as continuing
employment requirements) subject to which any Incentive Award
may become payable; and
(f) the form in which the Award will be paid, such as cash, Shares
or restricted Shares or any combination of the foregoing.
The Program Rules will be adopted by the Committee prior to, or as soon as
practical after, the commencement of each Plan Year. Subject to the provisions
of the Plan and its right to delegate its responsibilities, the Committee will
also have the discretionary authority to interpret the Plan and the Incentive
Awards issued under the Plan; to prescribe, amend and rescind rules and
regulations relating to the Plan and the Awards; and to make all other
determinations deemed necessary or advisable in administering the Plan. The
determinations of the Committee on the matters referred to in paragraphs (a)
through (f) of this Section 4 shall be submitted at least annually to the Board
of Directors for its consideration and ratification. For Participants who are
not Named Executive Officers, the Committee may in its discretion establish
performance measures not listed in this Section 4 without obtaining shareholder
approval.
4 of 8
<PAGE> 5
5. PARTICIPATION
Eligibility for participation in the Plan is limited to the Presidents and
certain other executives of the Company's Business Units or affiliates thereof
who hold key management and staff positions. From among those eligible and based
upon the recommendations of the Chief Executive Officer and other designees, the
Committee will designate by name or position the Participants each Plan Year.
Any employee who is a Participant in one Plan Year may be excluded from
participation in any other Plan Year. If, during the Plan Year, a Participant
other than a Named Executive Officer, changes employment positions to a new
position which corresponds to a different award level, the Committee may, in its
discretion adjust the Participant's award level for such Plan Year. The
Committee may, in its discretion, designate employees who are hired after the
beginning of the Plan Year as Participants for such Plan Year and as eligible to
receive full or partial Incentive Awards for such year.
6. INCENTIVE AWARDS
(A) DETERMINATION OF THE AMOUNT OF INCENTIVE AWARDS
As soon as administratively practical after the end of each Plan Year, the
Committee shall certify the extent to which the performance targets and
measurement criteria established pursuant to Section 4 have been achieved for
such Plan Year based upon information prepared by the Company's Chief Financial
Officer. Subject to the right to decrease an award as described in the next
paragraph, the Participant's Incentive Award shall be computed by the Committee
based upon the achievement of the established performance targets, measurement
criteria and the requirements of the Plan. The Committee may in determining
whether performance targets have been met adjust the Company's financial results
to exclude the effect of unusual charges or income items or other events,
including acquisitions or dispositions of businesses or assets, restructurings,
reductions in force, currency fluctuations or changes in accounting, which are
distortive of financial results (either on a segment or consolidated basis);
provided, that for purposes of determining the Incentive Awards of Named
Executive Officers, the Committee shall exclude unusual items whose exclusion
has the effect of increasing income, earnings, or other measurements if such
items constitute "extraordinary items" under generally accepted accounting
principles or are significant unusual items. In addition, the Committee will
adjust its calculations to exclude the effect on financial results of changes in
the Code or other tax laws, or the regulations relating thereto.
The Committee may, in its discretion, decrease the amount of a Participant's
Incentive Award for a Plan Year based upon such factors as it may determine,
including the failure of the Company or a Business Unit to meet certain
performance goals or of a Participant to meet his Personal Performance Goals.
The factors to be used in reducing an Incentive Award may be established at the
beginning of a Plan Year and may vary among Participants.
In the event that the Company's or a Business Unit's performance is below the
performance thresholds for the Plan Year and the Incentive Awards are reduced or
canceled, the Committee may in its discretion grant Incentive Awards to
deserving Participants, except for Participants who are Named Executive
Officers.
5 of 8
<PAGE> 6
The Program Rules and Incentive Awards under the Plan shall be administered in a
manner to qualify payments under the Plan to the Named Executive Officers for
the performance based exception under Code Section 162(m) and the regulations
thereunder, except where the Board of Directors determines such compliance is
not necessary or desirable. The maximum Incentive Award that may be paid to an
individual Participant for a Plan Year shall not exceed $1.0 million.
(B) ELIGIBILITY FOR PAYMENT OF INCENTIVE AWARD
No Participant will have any vested right to receive any Incentive Award until
such date as the Board of Directors has ratified the Committee's (or its
designee's) recommendation with respect to the payment of individual Incentive
Awards, except where the Committee determines such ratification is not
necessary. No Incentive Award will be paid to any Participant who is not an
active employee of the Company or an affiliate on the date the Board of
Directors has ratified the payment of such Incentive Awards; provided, however,
at the discretion of the Committee or its designee (subject to ratification by
the Board of Directors, where required), a partial Incentive Award may be
authorized by the Committee to be paid to Participants (or their beneficiaries)
who are terminated by the Company without cause or who retire, die or become
permanently and totally disabled during the Plan Year or prior to payment of the
Incentive Award. No Participant entitled to receive an Incentive Award shall
have any interest in any specific asset of the Company, and such Participant's
rights shall be equivalent to that of a general unsecured creditor of the
Company.
(C) PAYMENTS OF AWARDS
The Awards will be payable in cash, provided that the Committee shall have the
authority to provide in the Program Rules that all or a portion of the Award
will be paid in Shares and/or that the Participant may elect to receive all or a
portion of his Award in Shares. For this purpose, the Shares will be valued at
the closing price of the Shares on the primary securities exchange on which they
are traded on the last trading day of the fiscal year, unless the Committee
provides otherwise. The Committee may elect to place transferability, vesting
and resale restrictions on the Shares.
The Committee may also provide in the Program Rules that if the Participant
elects to receive a portion of the Award in Shares, the Participant will receive
an additional number of Shares ("Additional Shares") equal to a certain
percentage (not to exceed 100%) of the number of Shares received by reason of
his election, plus an additional cash bonus equal to the fair market value
(determined as of the last trading day of the fiscal year) of the Additional
Shares received multiplied by a percentage amount to help offset income tax
liability. The Committee may elect to place restrictions, such as a vesting
schedule related to continuing employment, transferability, and resale
restrictions, on the Additional Shares. Subject to adjustment as provided in
Section 7, the maximum number of Shares that may be issued pursuant to the Plan
is 250,000.
Payment of the Awards shall be made within 90 days after the close of the
Company's fiscal year, or such other period as may be specified by the Committee
in the Program Rules.
6 of 8
<PAGE> 7
7. RECAPITALIZATION OF THE COMPANY
In the event of a recapitalization of the Company or its merger into or
consolidation with another corporation, a Participant shall be entitled to
receive such securities which he or she would have been entitled to receive had
he or she been a shareholder of the Company holding Shares pursuant to the Plan
at the time of such recapitalization, merger or consolidation. In the event of a
stock split, stock dividend or combination of shares with respect to the Common
Stock of the Company after the determination of the number of Shares to which a
Participant is entitled but before delivery of such Shares to the Participant,
then the number of Shares that such Participant shall be entitled to receive
shall be proportionately adjusted.
8. INVESTMENT REPRESENTATION AND RESTRICTIONS ON THE STOCK
Any Shares to be issued to a Participant pursuant to the Plan may be
unregistered and, at the option of the Company, the Participant may be required
to execute an investment letter in form satisfactory to the Company. The Shares
shall bear a legend reflecting the investment representation and the
unregistered status of the Shares.
9. CHANGE IN CONTROL
The Committee may provide in the Program Rules or in the Award agreement that
upon the occurrence of a Change in Control, the Participant's Incentive Award
for the Plan Year, determined at the Target Award level (without any reductions
under Section 6(a)) shall be deemed to have been fully earned for the Plan Year.
The Committee may also provide that the Participant shall only be entitled to a
pro rata portion of his Incentive Award based upon the number of days within the
Plan Year that had elapsed as of the effective date of the Change in Control.
The Award agreement may also provide for accelerated payments of Incentive
Awards upon the occurrence of a Change in Control.
10. DEFERRAL
The Committee may permit a Participant to defer to another plan or program such
Participant's receipt of Shares or cash that would otherwise be due to such
Participant by virtue of earning an Award under this Plan. If any such deferral
election is required or permitted, the Committee shall, in its discretion,
establish rules and procedures for such payment deferral.
11. BENEFICIARY
Each Participant will designate a person or persons to receive, in the event of
death, any Incentive Award to which he or she would then be entitled under
Section 6(b). Such designation will be made in the manner determined by the
Committee and may be revoked by the Participant in writing. If a Participant
fails effectively to designate a beneficiary, then his or her estate will be
deemed to be the beneficiary.
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12. WITHHOLDING OF TAXES
The Company shall deduct from each Incentive Award the amount of any taxes
required to be withheld by any governmental authority.
13. EMPLOYMENT
Nothing in the Plan or in any Incentive Award shall confer (or be deemed to
confer) upon any Participant the right to continue in the employ of the Company,
a Business Unit or an affiliate, or interfere with or restrict in any way the
rights of the Company, a Business Unit or an affiliate to discharge any
Participant at any time for any reason whatsoever, with or without cause.
14. SUCCESSORS
All obligations of the Company under the Plan with respect to Incentive Awards
granted hereunder shall be binding upon any successor to the Company, whether
such successor is the result of an acquisition of stock or assets of the
Company, a merger, a consolidation or otherwise.
15. TERMINATION AND AMENDMENT OF THE PLAN; GOVERNING LAW
The Committee, subject to the ratification rights of the Board of Directors, has
the right to suspend or terminate the Plan at any time, or to amend the Plan in
any respect, provided that no such action will, without the consent of a
Participant, adversely affect his or her rights under an Incentive Award
approved under Section 6(b).
The Plan shall be interpreted and construed under the laws of the State of
Delaware.
The Plan is intended to comply with Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended, and the Committee shall interpret and
administer the provisions of the Plan and any Award agreement in a manner
consistent therewith. Any provisions inconsistent with such Rule shall be
inoperative and shall not affect the validity of the Plan.
In the event that changes are made to Code Section 162(m) to permit greater
flexibility with respect to any Award under the Plan, the Committee may, subject
to this Section 15, make any adjustments it deems appropriate in such Award.
AS ADOPTED BY BOARD OF DIRECTORS,
March 5, 1998
AND APPROVED BY STOCKHOLDERS,
May 7, 1998
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EXHIBIT 10.15(a)
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is made and entered into as of
December 11, 1997, among INDUSTRIAL DISTRIBUTION GROUP, INC., a Delaware
corporation (the "Borrower"), the lending institutions listed on the signature
pages of this Agreement and each other lending institution becoming a "Lender"
hereunder as provided herein (collectively, the "Lenders"), and THE FIRST
NATIONAL BANK OF CHICAGO, a national banking association with its principal
office in Chicago, Illinois, as agent for the Lenders (in such capacity, the
"Agent") and as the issuing bank for the "Facility LCs" as provided herein (in
such capacity, the "LC Issuer").
The Borrower has requested the Lenders to extend credit in the form of
Loans (such term and each other capitalized term used but not defined herein
having the meaning given to it in Article I) and Facility LCs at any time and
from time to time on or after the Closing Date and prior to the Facility
Termination Date, in an aggregate principal amount at any time outstanding not
in excess of Seventy-Five Million Dollars ($75,000,000). The Lenders are willing
to extend such credit to the Borrower, and the LC Issuer is willing to issue
such LCs for the account of the Borrower, on the terms and subject to the
conditions set forth herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"ACQUISITION" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Subsidiaries (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or limited liability
company, or division thereof, whether through purchase of assets, merger or
otherwise, (ii) directly or indirectly acquires (in one transaction or as the
most recent transaction in a series of transactions) at least a majority (in
number of votes) of the securities of a corporation which have ordinary voting
power for the election of directors (other than securities having such power
only by reason of the happening of a contingency) or a majority (by percentage
or voting power) of the outstanding ownership interests of a partnership or
limited liability company, or (iii) enters into a joint venture, licensing
agreement, or other similar alliance in order to pursue new business
opportunities.
"ACTIVE SUBSIDIARY" means any Subsidiary with assets in excess of $1000
(as measured as at the end of the most recent fiscal quarter of the Borrower)
and revenues in excess of $10,000 (as measured for the most recent period of
four complete consecutive fiscal quarters of the Borrower).
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"ADJUSTED CONSOLIDATED EBITDA" for any period means Consolidated EBITDA
for such period calculated on a pro forma basis assuming that each Acquisition
made by the Borrower or any of its Subsidiaries after the first day of such
period had occurred on the first day of such period.
"ADVANCE" means a borrowing hereunder (or conversion or continuation
thereof) consisting of the aggregate amount of the several Loans made on the
same Borrowing Date (or date of conversion or continuation) by the Lenders to
the Borrower of the same Type and, in the case of Eurodollar Advances, for the
same Interest Period.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
"AGENT" means The First National Bank of Chicago in its capacity as
contractual representative of the Lenders pursuant to Article X, and not in its
individual capacity as a Lender, and any successor Agent appointed pursuant to
Article X.
"AGREED SWING LINE RATE" is defined in Section 2.12.1.
"AGGREGATE OUTSTANDING LC EXPOSURE" means, as of any day, the aggregate
of the Outstanding LC Exposure of all of the Lenders.
"AGGREGATE OUTSTANDING CREDIT EXPOSURE" means, as of any day, the
aggregate of the Outstanding Credit Exposure of all of the Lenders.
"AGGREGATE REVOLVING COMMITMENT" means the aggregate of the Revolving
Commitments of all the Lenders, which amount as of the Closing Date is
$75,000,000, as such amount may be reduced from time to time pursuant to the
terms hereof.
"AGREEMENT" means this Credit Agreement, as it may be amended,
supplemented and restated and in effect from time to time.
"AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent with
that used in preparing the financial statements referred to in Section 5.4.
"ALTERNATE BASE RATE" means, for any day, a rate of interest per annum
equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum
of the Federal Funds Effective Rate for such day plus 1/2% per annum.
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"APPLICABLE FEE RATE" means, at any time, the percentage rate per annum
at which Commitment Fees are accruing on the Available Aggregate Commitment at
such time as set forth in the Pricing Schedule.
"APPLICABLE MARGIN" means, with respect to Advances of any Type at any
time, the percentage rate per annum which is applicable at such time with
respect to Advances of such Type as set forth in the Pricing Schedule.
"ARRANGER" means First Chicago Capital Markets, Inc., a Delaware
corporation, and its successors, in its capacity as arranger of the credit
facilities made available to the Borrower in this Agreement.
"ARTICLE" means an article of this Agreement unless another document is
specifically referenced.
"AUTHORIZED OFFICER" means any of the President, the Chief Executive
Officer, or the Chief Financial Officer of the Borrower, acting singly.
"AVAILABLE AGGREGATE COMMITMENT" means, for any day, the Aggregate
Revolving Commitment then in effect minus the sum (without duplication) of (i)
the aggregate principal amount of outstanding Advances and Swing Line Loans, and
(ii) the Aggregate Outstanding LC Exposure.
"BORROWER" means Industrial Distribution Group, Inc., a Delaware
corporation, and its successors and permitted assigns.
"BORROWER CREDIT DOCUMENTS" means this Agreement, any and all Notes,
any and all Facility LC Application Agreements, and the Borrower Pledge
Agreement.
"BORROWER PLEDGE AGREEMENT" means the Pledge and Security Agreement
executed by the Borrower in favor of the Agent for the ratable benefit of the
Lenders, substantially in the form of Exhibit H, as the same may be amended,
supplemented, and restated from time to time.
"BORROWER PLEDGE AGREEMENT SUPPLEMENT" means each Supplement to the
Borrower Pledge Agreement in the form of Annex I attached thereto, executed by
the Borrower in favor of the Agent for the ratable benefit of the Lenders
pursuant to the requirements of Section 6.23.
"BORROWING DATE" means a date on which an Advance is made hereunder.
"BORROWING NOTICE" is defined in Section 2.8.
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"BUSINESS DAY" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market and (ii)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago for the conduct of substantially all of their
commercial lending activities.
"CAPITAL EXPENDITURES" means, without duplication, any expenditures for
any purchase or other acquisition of any asset which would be classified as a
fixed or capital asset on a consolidated balance sheet of the Borrower and its
Subsidiaries prepared in accordance with Agreement Accounting Principles.
"CAPITAL STOCK" means any nonredeemable capital stock (or in the case
of a partnership or limited liability company, the partners' or members'
equivalent equity interests) of the Borrower or any of its Subsidiaries (to the
extent issued to a Person other than the Borrower), whether common or preferred.
"CAPITALIZED LEASE" of a Person means any lease of Property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with Agreement Accounting Principles.
"CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"CASH EQUIVALENT INVESTMENTS" means (i) short-term obligations of, or
fully guaranteed by, the United States of America, (ii) commercial paper rated
A-1 or better by S&P or P-1 or better by Moody's, (iii) demand deposit accounts
maintained in the ordinary course of business, and (iv) certificates of deposit
issued by and time deposits with commercial banks (whether domestic or foreign)
having capital and surplus in excess of $100,000,000, in either case maturing
not later than one year after deposit; provided in each case that the same
provides for payment of both principal and interest (and not principal alone or
interest alone) and is not subject to any contingency regarding the payment of
principal or interest.
"CHANGE" is defined in Section 3.2.
"CHANGE IN CONTROL" means the acquisition after the date of this
Agreement by any Person, or two or more Persons acting in concert, of beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934) of 20% or more of the
outstanding shares of Voting Stock of the Borrower.
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"CLOSING DATE" means the date on which all conditions set forth in
Section 4.1 have been satisfied or waived in writing by the Required Lenders.
"CODE" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"COLLATERAL" means, collectively, the "Collateral" as defined in the
Borrower Pledge Agreement and the Subsidiary Pledge Agreement.
"COLLATERAL DOCUMENTS" means, collectively, the Borrower Pledge
Agreement, the Subsidiary Guaranty, the Contribution Agreement, and the
Subsidiary Pledge Agreement.
"COMMITMENT FEES" is defined in Section 2.5.
"CONSOLIDATED EBITDA" means Consolidated Net Income plus, to the extent
deducted from revenues in determining Consolidated Net Income, (i) Consolidated
Interest Expense, (ii) expense for current federal, state and local income taxes
paid or accrued, and (iii) depreciation, amortization and all other non-cash
charges, minus, to the extent added in determining Consolidated Net Income, (A)
non-recurring items such as gains on sale of assets or extraordinary items, (B)
earnings from discontinued businesses, (C) any non-cash gains, and (D) the
income of any Affiliate or other Person (other than a Subsidiary of the
Borrower) in which any Person (other than the Borrower or any of its
Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to the Borrower or any of its
Subsidiaries by such Affiliate or other Person during such period.
"CONSOLIDATED INDEBTEDNESS" means at any time the Indebtedness of the
Borrower and its Subsidiaries calculated on a consolidated basis as of such
time.
"CONSOLIDATED INTEREST EXPENSE" means, with reference to any period,
the interest expense of the Borrower and its Subsidiaries calculated on a
consolidated basis for such period.
"CONSOLIDATED NET INCOME" means, with reference to any period, the net
income (or loss) of the Borrower and its Subsidiaries calculated on a
consolidated basis for such period.
"CONSOLIDATED NET WORTH" means at any time the stockholders' equity of
the Borrower and its Subsidiaries calculated on a consolidated basis as of such
time.
"CONSOLIDATED RENTALS" means, with reference to any period, the Rentals
of the Borrower and its Subsidiaries calculated on a consolidated basis for such
period.
"CONTINGENT OBLIGATION" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or
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working capital or other financial condition of any other Person, or otherwise
assures any creditor of such other Person against loss, including, without
limitation, any comfort letter, operating agreement or take-or-pay contract.
"CONTRIBUTION AGREEMENT" means the Contribution Agreement among those
Subsidiaries that are parties to the Subsidiary Guaranty, the Borrower, and the
Agent, substantially in the form of Exhibit G, as the same may be amended,
supplemented and restated from time to time.
"CONTRIBUTION AGREEMENT SUPPLEMENT" means each Supplement to the
Contribution Agreement in the form of Annex I attached thereto, executed by a
Subsidiary of the Borrower pursuant to the requirements of Section 6.20.
"CONTROLLED GROUP" means all members of a controlled group of
corporations or other business entities and all trades or businesses (whether or
not incorporated) under common control which, together with the Borrower or any
of its Subsidiaries, are treated as a single employer under Section 414 of the
Code.
"CONVERSION/CONTINUATION NOTICE" is defined in Section 2.9.
"CORPORATE BASE RATE" means a rate per annum equal to the corporate
base rate of interest announced by First Chicago from time to time, changing
when and as said corporate base rate changes.
"CREDIT DOCUMENTS" means, collectively, the Borrower Credit Documents,
the Subsidiary Credit Documents, and the Contribution Agreement.
"CREDIT EXTENSION" means either the making of an Advance or the
issuance of a Facility LC hereunder.
"CREDIT EXTENSION DATE" means the Borrowing Date for an Advance or the
issuance date for a Facility LC hereunder.
"DEFAULT" means an event described in Article VII.
"DOMESTIC ACTIVE SUBSIDIARY" is defined in Section 6.20.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating to
(i) the protection of the environment, (ii) the effect of the environment on
human health, (iii) emissions, discharges or releases of pollutants,
contaminants, hazardous substances or wastes into surface water, ground water or
land, or (iv)
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the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, hazardous substances or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"EURODOLLAR ADVANCE" means an Advance which bears interest at the
applicable Eurodollar Rate.
"EURODOLLAR BASE RATE" means, with respect to a Eurodollar Advance for
the relevant Interest Period, the rate determined by the Agent to be the rate at
which First Chicago offers to place deposits in U.S. dollars with first-class
banks in the London interbank market at approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period, in the
approximate amount of First Chicago's relevant Eurodollar Loan and having a
maturity approximately equal to such Interest Period.
"EURODOLLAR LOAN" means a Loan which bears interest at the applicable
Eurodollar Rate.
"EURODOLLAR RATE" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base
Rate applicable to such Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
(ii) the Applicable Margin. The Eurodollar Rate shall be rounded to the next
higher multiple of 1/16 of 1% if the rate is not such a multiple.
"EXCLUDED TAXES" means, in the case of each Lender or applicable
Lending Installation and the Agent, taxes imposed on its overall net income, and
franchise or branch profit taxes imposed on it, by (i) the jurisdiction under
the laws of which such Lender or the Agent is incorporated or organized or (ii)
the jurisdiction in which the Agent's or such Lender's principal executive
office or such Lender's applicable Lending Installation is located.
"EXHIBIT" refers to an exhibit to this Agreement, unless another
document is specifically referenced.
"EXISTING CREDIT AGREEMENTS" means, collectively, (i) Commercial
Security Agreement dated February 1, 1996 by and between United States National
Bank of Oregon and Associated Suppliers, Inc. for a revolving line of credit in
the original amount of $3,500,000; (ii) Commercial Security Agreement dated
March 19, 1997 by and between United States National Bank of Oregon and
Associated Suppliers, Inc. for a term loan in the original amount of $300,000;
(iii) Business Loan Agreement dated as of October 2, 1996 by and between Bank of
America Northwest d/b/a SeaFirst Bank and B&J Industrial Supply Company, B&J
Industrial Supply Company of Spokane, and B&J Industrial Supply Company of
Tacoma for a
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line of credit in the original amount of $1,250,000; (iv) Amended and Restated
Loan and Security Agreement dated April 2, 1993 by and between Cramer Industrial
Supplies, Inc. and Marine Midland Bank for a line of credit in the original
amount of $1,500,000; (v) Credit Agreement dated October 6, 1994 by and between
Grinding Supplies Company, Inc. and NBD Bank for a line of credit in the
original amount of $1,000,000; (vi) the NCFC Loan and Security Agreement; (vii)
Business Note and Loan Agreement dated January 31, 1997 by and between First
National Bank - Manitowoc and J.J. Stangel Company for a line of credit in the
original amount of $650,000; (viii) Letter Agreement dated August 1, 1996 by and
between Shearer Industrial Supply Company, Wm. H. Taylor & Company, Inc., Turner
Industries and CoreStates Bank, N.A. for a line of credit in the original amount
of $4,500,000; (ix) Letter Agreement dated August 1, 1996 between Shearer
Industrial Supply Company, Wm. H. Taylor & Company, Inc., Turner Industries and
CoreStates Bank, N.A. for a line of credit in the original amount of $500,000;
(x) Loan Agreement dated December 9, 1996 between Slater Industrial Supply, Inc.
and California United Bank for a line of credit in the original amount of
$850,000; and (xi) Credit Agreement dated February 1, 1996 between Tri-Star
Industrial Supply, Inc. and Boatman's Bank of St. Louis for a $1,500,000 line of
credit and a $1,515,850 term loan.
"FACILITY LC" is defined in Section 2.19(a).
"FACILITY LC APPLICATION AGREEMENT" means each and every application
agreement or other instrument or agreement requested by the LC Issuer pursuant
to Section 2.19(c).
"FACILITY LC NOTICE" is defined in Section 2.19(c).
"FACILITY TERMINATION DATE" means December 11, 2000 or any earlier date
on which the Aggregate Revolving Commitment is reduced to zero or otherwise
terminated pursuant to the terms hereof.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"FIRST CHICAGO" means The First National Bank of Chicago in its
individual capacity, and its successors.
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"FLOATING RATE" means, for any day, a rate per annum equal to (i) the
Alternate Base Rate for such day plus (ii) the Applicable Margin, in each case
changing when and as the Alternate Base Rate changes.
"FLOATING RATE ADVANCE" means an Advance which bears interest at the
Floating Rate.
"FLOATING RATE LOAN" means a Loan which bears interest at the Floating
Rate.
"INDEBTEDNESS" of a Person means, without duplication, such Person's
(i) obligations for borrowed money, (ii) obligations representing the deferred
purchase price of Property or services (other than accounts payable arising in
the ordinary course of such Person's business payable on terms customary in the
trade), (iii) obligations, whether or not assumed, secured by Liens or payable
out of the proceeds or production from property now or hereafter owned or
acquired by such Person, (iv) obligations which are evidenced by notes,
acceptances, or other instruments, (v) obligations of such Person to purchase
securities or other property arising out of or in connection with the sale of
the same or substantially similar securities or property, (vi) Capitalized Lease
Obligations, (vii) Letters of Credit and unreimbursed drafts in connection
therewith, (viii) obligations of the Borrower or any Subsidiary of the Borrower
pursuant to a receivables securitization or financing facility, (ix) Contingent
Obligations in respect of any of the foregoing types of Indebtedness, and (x)
other obligations for borrowed money or other financial accommodations (other
than accounts payable arising in the ordinary course of such Person's business
payable on terms customary in the trade) which in accordance with Agreement
Accounting Principles would be shown as a liability on the consolidated balance
sheet of such Person.
"INTEREST PERIOD" means, with respect to a Eurodollar Advance, a period
of one, two, three or six months commencing on a Business Day selected by the
Borrower pursuant to this Agreement. Such Interest Period shall end on the day
which corresponds numerically to such date one, two, three or six months
thereafter, provided, however, that if there is no such numerically
corresponding day in such next, second, third or sixth succeeding month, such
Interest Period shall end on the last Business Day of such next, second, third
or sixth succeeding month. If an Interest Period would otherwise end on a day
which is not a Business Day, such Interest Period shall end on the next
succeeding Business Day, provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
"INVESTMENT" of a Person means any loan, advance (other than
commission, travel and similar advances to officers and employees made in the
ordinary course of business), extension of credit (other than accounts
receivable arising in the ordinary course of business on terms customary in the
trade) or contribution of capital by such Person; stocks, bonds, mutual funds,
partnership interests, notes, debentures or other securities owned by such
Person; any deposit accounts and certificate of deposit owned by such Person;
and structured notes, derivative financial instruments and other similar
instruments or contracts owned by such Person.
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"LC CASH COLLATERAL ACCOUNT" shall mean the cash collateral account
established pursuant to the LC Cash Collateral Assignment (and designated
thereunder as the LC Cash Collateral Account) in favor of the Agent.
"LC CASH COLLATERAL ASSIGNMENT" shall mean the LC Cash Collateral
Assignment Agreement, substantially in the form of Exhibit J, between the
Borrower and the Agent, as the same may be amended, restated and supplemented
from time to time.
"LC ISSUER" means First Chicago in its capacity as LC Issuer hereunder
with respect to each Facility LC.
"LC OBLIGATIONS" means, at any time, the sum, without duplication, of
(i) the aggregate amount available for drawing under all Facility LCs
outstanding at such time, plus (ii) the aggregate unpaid amount at such time of
all Reimbursement Obligations in respect of previous drawings made under
Facility LCs.
"LC PAYMENT DATE" is defined in Section 2.19(e).
"LENDERS" means the lending institutions listed on the signature pages
of this Agreement and their respective successors and assigns. Unless the
context otherwise requires, the term "Lender" shall also be deemed to include
the Swing Line Lender.
"LENDING INSTALLATION" means, with respect to a Lender or the Agent,
the office, branch, subsidiary or affiliate of such Lender or the Agent listed
on the signature pages hereof or on a Schedule or otherwise selected by such
Lender or the Agent pursuant to Section 2.17.
"LETTER OF CREDIT" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"LEVERAGE RATIO" means, as of any date of calculation, the ratio of (i)
Consolidated Indebtedness outstanding on such date to (ii) Adjusted Consolidated
EBITDA for the Borrower's then most-recently ended four fiscal quarters.
"LIEN" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"LOAN" means, with respect to a Lender, such Lender's loan made
pursuant to Article II (or any conversion or continuation thereof).
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"LOAN PARTY" means each of the Borrower and the Subsidiaries that are
parties to the Subsidiary Guaranty (as supplemented by any Subsidiary Guaranty
Supplements).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the
ability of the Borrower to perform its obligations under the Credit Documents to
which it is a party, or (iii) the validity or enforceability of any of the
Credit Documents or the rights or remedies of the Agent or the Lenders
thereunder.
"MATERIAL OBLIGATION" is defined in Section 7.5.
"MODIFICATION" is defined in Section 2.19(a).
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"NCFC LOAN AND SECURITY AGREEMENT" means the Loan and Security
Agreement dated November 5, 1993 by and between National Canada Finance Corp.
and The Distribution Group, Inc. (formerly Industrial Distribution Group, Inc.),
as amended by the First Amendment to Loan and Security Agreement dated March 14,
1996, by and between The Distribution Group, Inc. (formerly Industrial
Distribution Group, Inc.) and National Canada Finance Corp. for a line of credit
in the original amount of Fifteen Million Dollars ($15,000,000).
"NET MARK-TO-MARKET EXPOSURE" of a Person means, as of any date of
determination, the excess (if any) of all unrealized losses over all unrealized
profits of such Person arising from Rate Hedging Agreements. "Unrealized losses"
means the fair market value of the cost to such Person of replacing such Rate
Hedging Agreement as of the date of determination (assuming the Rate Hedging
Agreement were to be terminated as of that date), and "unrealized profits" means
the fair market value of the gain to such Person of replacing such Rate Hedging
Agreement as of the date of determination (assuming such Rate Hedging Agreement
were to be terminated as of that date).
"NET PROCEEDS OF CAPITAL STOCK" means any proceeds received or deemed
received by the Borrower or a Subsidiary in respect of the issuance or sale or
Capital Stock or the conversion of any Indebtedness to Capital Stock, after
deducting therefrom all reasonable and customary costs and expenses incurred by
the Borrower or such Subsidiary directly in connection with such issuance, sale
or conversion.
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"NON-DOMESTIC ACTIVE SUBSIDIARY" is defined in Section 6.20.
"NON-U.S. LENDER" is defined in Section 3.5(iv).
"NOTE" means any promissory note issued at the request of a Lender
pursuant to Section 2.13 in the form of Exhibit E-1.
"NOTICE OF ASSIGNMENT" is defined in Section 12.3.2.
"OBLIGATIONS" means all unpaid principal of and accrued and unpaid
interest on the Loans, all LC Obligations, all accrued and unpaid fees and all
expenses, reimbursements, indemnities and other obligations of the Borrower to
the Lenders or to any Lender, the LC Issuer, the Agent, or any indemnified party
hereunder arising under the Credit Documents.
"OFF-BALANCE SHEET LIABILITY" of a Person means (i) any repurchase
obligation or liability of such Person with respect to accounts or notes
receivable sold by such Person, (ii) any liability under any Sale and Leaseback
Transaction which does not create a liability on the balance sheet of such
Person, (iii) any liability under any financing lease or so-called "synthetic
lease" transaction entered into by such Person, or (iv) any obligation arising
with respect to any other transaction which is the functional equivalent of or
takes the place of borrowing but which does not constitute a liability on the
balance sheets of such Person, but excluding Operating Leases.
"OPERATING LEASE" of a Person means any lease of Property (other than a
Capitalized Lease) by such Person as lessee which has an original term
(including any required renewals and any renewals effective at the option of the
lessor) of one year or less.
"OPERATING LEASE OBLIGATIONS" means, as at any date of determination,
the amount obtained by aggregating the present values, determined in the case of
each particular Operating Lease by applying a discount rate (which discount rate
shall equal the discount rate which would be applied under Agreement Accounting
Principles if such Operating Lease were a Capitalized Lease) from the date on
which each fixed lease payment is due under such Operating Lease to such date of
determination, of all fixed lease payments due under all Operating Leases of the
Borrower and its Subsidiaries.
"OTHER TAXES" is defined in Section 3.5(ii).
"OUTSTANDING CREDIT EXPOSURE" means, as to any Lender at any time, the
sum (without duplication) of (i) the aggregate principal amount of its Loans
(including, in the case of the Swing Line Lender, the Swing Line Loans)
outstanding at such time, plus (ii) in the case of each Lender other than the
Swing Line Lender, such Lender's Percentage of the aggregate principal amount of
Swing Line Loans outstanding at such time, plus (iii) its Outstanding LC
Exposure at such time.
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"OUTSTANDING LC EXPOSURE" means, as to any Lender at any time, an
amount equal to its Percentage of the LC Obligations at such time.
"PARTICIPANTS" is defined in Section 12.2.1.
"PAYMENT DATE" means the first day of each calendar quarter.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"PERMITTED ACQUISITION" means an Acquisition (i) that was not preceded
by an unsolicited public tender offer for Capital Stock of the Person being
acquired (the "Acquired Entity"), (ii) where the Acquired Entity is in the same
or similar line of business as the Borrower and its Subsidiaries, (iii) if the
cash consideration to be paid in the Acquisition exceeds (x) $15,000,000, in the
case of an Acquisition of an Acquired Entity organized in the United States of
America whose principal business is conducted in the United States of America,
or (y) $5,000,000, in the case of an Acquisition of any other type of Acquired
Entity, where in either such case the Borrower has submitted to the Agent and
the Lenders evidence satisfactory to them that, after giving pro forma effect to
the Acquisition, the Borrower will be in compliance with all financial and other
covenants set forth in this Agreement and the Required Lenders have given their
prior written approval of such Acquisition, and (iv) where immediately prior to
and after giving effect to such Acquisition, no Default or Unmatured Default
then exists or would occur as a result thereof.
"PERCENTAGE" means, with respect to each Lender, the percentage that
such Lender's Revolving Commitment constitutes of the Aggregate Revolving
Commitment.
"PERSON" means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"PLAN" means an employee pension benefit plan which is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"PRICING SCHEDULE" means the Schedule attached hereto identified as
such.
"PROPERTY" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.
"PROSPECTUS" means the Prospectus dated September 23, 1997, prepared in
respect of the offering of the sale of 3,300,000 shares of common stock of the
Borrower.
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"PURCHASERS" is defined in Section 12.3.1.
"RATE HEDGING AGREEMENT" means an agreement, device or arrangement
providing for payments which are related to fluctuations of interest rates,
exchange rates or forward rates, including, but not limited to,
dollar-denominated or cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate cap or collar protection agreements,
forward rate currency or interest rate options, puts and warrants.
"RATE HEDGING OBLIGATIONS" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all Rate
Hedging Agreements, and (ii) any and all cancellations, buy backs, reversals,
terminations or assignments of any Rate Hedging Agreement.
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
or other regulation or official interpretation of said Board of Governors
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"REIMBURSEMENT OBLIGATIONS" means, at any time, the aggregate of all
obligations of the Borrower then outstanding under Section 2.19 to reimburse the
LC Issuer for amounts paid by the LC Issuer in respect of any one or more
drawings under Facility LCs.
"RENTALS" of a Person means the aggregate fixed amounts payable by such
Person under any Operating Lease.
"REPORTABLE EVENT" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC has by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event, provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"REQUIRED LENDERS" means (i) Lenders in the aggregate having at least
66 2/3% of the Aggregate Revolving Commitment or, (ii) if the Aggregate
Revolving Commitment has been
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terminated, Lenders in the aggregate holding at least 66 2/3% of the aggregate
unpaid principal amount of the outstanding Advances or, (iii) if the Aggregate
Revolving Commitment has been terminated and there are no Advances outstanding,
Lenders in the aggregate having at least 66 2/3% of the Aggregate Outstanding LC
Exposure (whether by participation or otherwise).
"RESERVE REQUIREMENT" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"REVOLVING COMMITMENT" means for each Lender, the obligation of such
Lender to make Loans (other than Swing Line Loans) not exceeding its Percentage
of the Aggregate Revolving Commitment.
"S&P" means Standard and Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc.
"SALE AND LEASEBACK TRANSACTION" means any sale or other transfer of
Property by any Person with the intent to lease such Property as lessee.
"SCHEDULE" refers to a specific schedule to this Agreement, unless
another document is specifically referenced.
"SECTION" means a numbered section of this Agreement, unless another
document is specifically referenced.
"SECURED OBLIGATIONS" means, collectively, (i) the Obligations and (ii)
all Rate Hedging Obligations owing to one or more Lenders.
"SINGLE EMPLOYER PLAN" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"SUBORDINATED INDEBTEDNESS" of a Person means any Indebtedness of such
Person the payment of which is subordinated to payment of the Secured
Obligations to the written satisfaction of the Lenders.
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, limited liability company, association, joint venture or
similar business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a "Subsidiary"
shall mean a Subsidiary of the Borrower.
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"SUBSIDIARY CREDIT DOCUMENTS" means, collectively, the Subsidiary
Guaranty and the Subsidiary Pledge Agreement.
"SUBSIDIARY GUARANTY" means the Subsidiary Guaranty executed by the
Active Subsidiaries of the Borrower in favor of the Agent for the ratable
benefit of the Lenders, substantially in the form of Exhibit F, as the same may
be amended, supplemented, and restated from time to time.
"SUBSIDIARY GUARANTY SUPPLEMENT" means each Supplement to the
Subsidiary Guaranty substantially in the form of Annex I attached thereto,
executed by a Subsidiary of the Borrower in favor of the Agent for the ratable
benefit of the Lenders pursuant to the requirements of Section 6.20.
"SUBSIDIARY PLEDGE AGREEMENT" means the Subsidiary Pledge and Security
Agreement executed by those Subsidiaries of the Borrower that own Capital Stock
in any Active Subsidiaries of the Borrower, substantially in the form of Exhibit
I, as the same may be amended, supplemented, and restated from time to time.
"SUBSIDIARY PLEDGE AGREEMENT SUPPLEMENT" means each Supplement to the
Subsidiary Pledge Agreement substantially in the form of Annex I attached
thereto, executed by a Subsidiary of the Borrower in favor of the Agent for the
ratable benefit of the Lenders pursuant to the requirements of Section 6.20.
"SUBSTANTIAL PORTION" means, with respect to the Property of the
Borrower and its Subsidiaries taken as a whole, Property which either (i)
represents more than 10% of the consolidated assets of the Borrower and its
Subsidiaries as would be shown in the consolidated financial statements of the
Borrower and its Subsidiaries as at the beginning of the twelve-month period
ending with the month in which such determination is made, or (ii) is
responsible for more than 10% of the consolidated net sales or of the
consolidated net income of the Borrower and its Subsidiaries as reflected in the
financial statements referred to in clause (i) above.
"SWING LINE FACILITY AMOUNT" means Swing Line Loans up to a maximum
principal amount of $5,000,000 at any one time outstanding, as the same may be
reduced from time to time pursuant to Section 2.12.
"SWING LINE LENDER" means First Chicago or any other Lender as a
successor Swing Line Lender hereunder.
"SWING LINE LOAN" means a Loan made available to the Borrower by the
Swing Line Lender pursuant to Section 2.12 hereof.
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"SWING LINE NOTE" means any promissory note, in substantially the form
of Exhibit E-2 hereto, duly executed by the Borrower at the request of the Swing
Line Lender payable to the order of the Swing Line Lender in the amount of the
Swing Line Facility Amount, as the same may be amended, supplemented and
restated from time to time.
"TAXES" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities with
respect to the foregoing, but excluding Excluded Taxes.
"TRANSFEREE" is defined in Section 12.4.
"TYPE" means, with respect to any Advance, its nature as a Floating
Rate Advance or a Eurodollar Advance.
"UNFUNDED LIABILITIES" means the amount (if any) by which the present
value of all vested and unvested accrued benefits under all Single Employer
Plans exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans using PBGC actuarial assumptions for single employer plan terminations.
"UNMATURED DEFAULT" means an event which but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"VOTING STOCK" means stock of a corporation of a class or classes
having general voting power under ordinary circumstances to elect a majority of
the board of directors, managers or trustees of such corporation (irrespective
of whether or not at the time stock of any other class or classes shall have or
might have voting power by the reason of the happening of any contingency).
"WHOLLY-OWNED SUBSIDIARY" of a Person means (i) any Subsidiary all of
the outstanding voting securities of which (other than any directors' qualifying
shares) shall at the time be owned or controlled, directly or indirectly, by
such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such
Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any
partnership, limited liability company, association, joint venture or similar
business organization 100% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
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ARTICLE II
THE CREDITS
2.1. REVOLVING COMMITMENT. From and including the Closing Date and
prior to the Facility Termination Date, each Lender severally agrees, on the
terms and conditions set forth in this Agreement, to make Loans to the Borrower
from time to time; provided, however, that upon giving effect to each such Loan,
such Lender's Outstanding Credit Exposure shall not exceed such Lender's
Revolving Commitment; and provided further, that upon giving effect to each such
Loan, the Aggregate Outstanding Credit Exposure shall not exceed the Aggregate
Revolving Commitment. Subject to the terms of this Agreement, the Borrower may
borrow, repay and reborrow at any time prior to the Facility Termination Date.
The Revolving Commitments to lend hereunder shall expire on the Facility
Termination Date.
2.2. REQUIRED PAYMENTS; TERMINATION. Any outstanding Advances and
Swing Line Loans and all other unpaid Obligations shall be paid in full by the
Borrower on the Facility Termination Date. If at any time prior to the Facility
Termination Date the aggregate principal amount of the outstanding Advances and
Swing Line Loans plus the Aggregate Outstanding LC Exposure exceeds the
Aggregate Revolving Commitment, the Borrower agrees to pay at such time a
principal amount of such outstanding Advances and/or Swing Line Loans (together
with interest thereon and any applicable funding indemnification amounts
required by Section 3.4) not less than such excess amount.
2.3. RATABLE LOANS. Each Advance hereunder shall consist of Loans
(other than Swing Line Loans) made from the several Lenders ratably in
accordance with their respective Percentages.
2.4. TYPES OF ADVANCES. The Advances may be Floating Rate Advances
or Eurodollar Advances, or a combination thereof, selected by the Borrower in
accordance with Sections 2.8 and 2.9.
2.5. COMMITMENT FEE; REDUCTIONS IN AGGREGATE REVOLVING COMMITMENT.
The Borrower agrees to pay to the Agent for the account of each Lender a
commitment fee (collectively for all Lenders, the "Commitment Fees") at a per
annum rate equal to the Applicable Fee Rate on the daily unused portion of such
Lender's Revolving Commitment from the date hereof to and including the Facility
Termination Date, payable on each Payment Date hereafter and on the Facility
Termination Date. Outstanding Swing Line Loans shall not be deemed a usage of
the Swing Line Lender's or any other Lender's Revolving Commitment for purposes
of the preceding sentence. The Borrower may permanently reduce the Aggregate
Revolving Commitment in whole, or in part ratably among the Lenders in a minimum
amount of $4,000,000 and in integral multiples of $500,000, upon at least five
Business Days' written
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notice to the Agent, which notice shall specify the amount of any such
reduction, provided, however, that the amount of the Aggregate Revolving
Commitment may not be reduced below an amount equal to the sum of (i) the
aggregate principal amount of the outstanding Advances and Swing Line Loans, and
(ii) the Aggregate Outstanding LC Exposure. All accrued Commitment Fees shall be
payable on the effective date of any termination of the obligations of the
Lenders to make Loans hereunder.
2.6. MINIMUM AMOUNT OF EACH ADVANCE. Each Eurodollar Advance shall
be in the minimum amount of $4,000,000 (and in multiples of $500,000 if in
excess thereof), and each Floating Rate Advance shall be in the minimum amount
of $1,000,000 (and in multiples of $500,000 if in excess thereof), provided,
however, that any Floating Rate Advance may be in the amount of the unused
Aggregate Revolving Commitment.
2.7. OPTIONAL PRINCIPAL PAYMENTS. The Borrower may from time to
time pay, without penalty or premium, all outstanding Floating Rate Advances,
or, in a minimum aggregate amount of $1,000,000 or any integral multiple of
$500,000 in excess thereof, any portion of the outstanding Floating Rate
Advances upon five Business Days' prior notice to the Agent. The Borrower may
from time to time pay, subject to the payment of any funding indemnification
amounts required by Section 3.4 but without penalty or premium, all outstanding
Eurodollar Advances, or, in a minimum aggregate amount of $4,000,000 or any
integral multiple of $500,000 in excess thereof, any portion of the outstanding
Eurodollar Advances upon three Business Days' prior notice to the Agent.
2.8. METHOD OF SELECTING TYPES AND INTEREST PERIODS FOR NEW
ADVANCES. The Borrower shall select the Type of Advance and, in the case of each
Eurodollar Advance, the Interest Period applicable thereto from time to time.
The Borrower shall give the Agent irrevocable notice (a "Borrowing Notice") not
later than 10:00 a.m. (Chicago time) on the Borrowing Date of each Floating Rate
Advance and not later than 10:00 a.m. (Chicago time) on the third Business Day
preceding the Borrowing Date for each Eurodollar Advance, specifying:
(i) the Borrowing Date, which shall be a Business Day, of such
Advance,
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected, and
(iv) in the case of each Eurodollar Advance, the Interest Period
applicable thereto.
Not later than noon (Chicago time) on each Borrowing Date, each Lender shall
make available its Loan or Loans in funds immediately available in Chicago to
the Agent at its address specified pursuant to Article XIII. The Agent will make
the funds so received from the
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Lenders available to the Borrower no later than 2:00 p.m. (Chicago time) at the
Agent's aforesaid address.
2.9. CONVERSION AND CONTINUATION OF OUTSTANDING ADVANCES. Floating
Rate Advances shall continue as Floating Rate Advances unless and until such
Floating Rate Advances are converted into Eurodollar Advances pursuant to this
Section 2.9 or are repaid in accordance with Section 2.7. Each Eurodollar
Advance shall continue as a Eurodollar Advance until the end of the then
applicable Interest Period therefor, at which time such Eurodollar Advance shall
be automatically converted into a Floating Rate Advance unless (x) such
Eurodollar Advance is or was repaid in accordance with Section 2.7 or (y) the
Borrower shall have given the Agent a Conversion/Continuation Notice (as defined
below) requesting that, at the end of such Interest Period, such Eurodollar
Advance continue as a Eurodollar Advance for the same or another Interest
Period. Subject to the terms of Section 2.6, the Borrower may elect from time to
time to convert all or any part of a Floating Rate Advance into a Eurodollar
Advance. The Borrower shall give the Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of a Floating Rate Advance
into a Eurodollar Advance or continuation of a Eurodollar Advance not later than
10:00 a.m. (Chicago time) at least three Business Days prior to the date of the
requested conversion or continuation, specifying:
(i) the requested date, which shall be a Business Day, of such
conversion or continuation,
(ii) the aggregate amount and Type of the Advance which is to be
converted or continued, and
(iii) the amount of such Advance which is to be converted into or
continued as a Eurodollar Advance and the duration of the
Interest Period applicable thereto.
2.10. CHANGES IN INTEREST RATE, ETC. Each Floating Rate Advance
shall bear interest on the outstanding principal amount thereof, for each day
from and including the date such Advance is made or is automatically converted
from a Eurodollar Advance into a Floating Rate Advance pursuant to Section 2.9,
to but excluding the date it is paid or is converted into a Eurodollar Advance
pursuant to Section 2.9 hereof, at a rate per annum equal to the Floating Rate
for such day. Changes in the rate of interest on that portion of any Advance
maintained as a Floating Rate Advance will take effect simultaneously with each
change in the Alternate Base Rate. Each Eurodollar Advance shall bear interest
on the outstanding principal amount thereof from and including the first day of
the Interest Period applicable thereto to (but not including) the last day of
such Interest Period at the interest rate determined by the Agent as applicable
to such Eurodollar Advance based upon the Borrower's selections under Section
2.8 and 2.9 and otherwise in accordance with the terms hereof. No Interest
Period may end after the Facility Termination Date.
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2.11. RATES APPLICABLE AFTER DEFAULT. Notwithstanding anything to
the contrary contained in Section 2.8 or 2.9, during the continuance of a
Default or Unmatured Default the Required Lenders may, at their option, by
notice to the Borrower(which notice may be revoked at the option of the Required
Lenders notwithstanding any provision of Section 8.2 requiring unanimous consent
of the Lenders to changes in interest rates), declare that no Advance may be
made as, converted into or continued as a Eurodollar Advance. During the
continuance of a Default the Required Lenders may, at their option, by notice to
the Borrower (which notice may be revoked at the option of the Required Lenders
notwithstanding any provision of Section 8.2 requiring unanimous consent of the
Lenders to changes in interest rates), declare that (i) each Eurodollar Advance
and each Swing Line Loan bearing interest at an Agreed Swing Line Rate shall
bear interest for the remainder of the applicable Interest Period at the rate
otherwise applicable to such Interest Period plus 2% per annum, (ii) each
Floating Rate Advance and each Swing Line Loan bearing interest at the Floating
Rate shall bear interest at a rate per annum equal to the Floating Rate in
effect from time to time plus 2% per annum, and (iii) the rate used in
determining the Facility LC fee payable pursuant to Section 2.19(d) shall be
increased by an additional 2% per annum; provided that, during the continuance
of a Default under Section 7.6 or 7.7, the interest and fee rates set forth in
clauses (i), (ii) and (iii) above shall be applicable to all Advances and Swing
Line Loans without any election or action on the part of the Agent or any
Lender.
2.12. SWING LINE LOANS. In addition to Advances pursuant to Section
2.1, but subject to the terms and conditions of this Agreement (including but
not limited to those limitations set forth in Section 2.1), the Swing Line
Lender may, in its sole discretion (but shall in no event have any obligation)
to make Swing Line Loans to the Borrower in accordance with this Section 2.12 up
to the amount of the Swing Line Facility Amount. Amounts borrowed under this
Section 2.12 may be borrowed, repaid and reborrowed to, but not including, the
Facility Termination Date. All outstanding Swing Line Loans shall be paid in
full on the Facility Termination Date.
2.12.1. SWING LINE REQUEST. The Borrower may request a Swing Line Loan
from the Swing Line Lender on any Business Day before the Facility Termination
Date by giving the Agent and the Swing Line Lender notice by 10:00 a.m. (Chicago
time) on such Borrowing Date specifying the amount of such Swing Line Loan,
which shall be an amount not less than $500,000 in an integral multiple of
$100,000, and whether the Swing Line Loan is to bear interest at the Floating
Rate or such other rate of interest as may be quoted by the Swing Line Lender to
the Borrower and accepted by the Borrower (any such other rate of interest being
referred to herein as an "Agreed Swing Line Rate").
2.12.2. MAKING OF SWING LINE LOANS. If the Swing Line Lender has
agreed to fund a requested Swing Line Loan, the Swing Line Lender shall, no
later than 2:00 p.m. (Chicago time) on such Borrowing Date, make the funds for
such Swing Line Loan available to the Borrower at the Agent's address or at such
other
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place as indicated in written money transfer instructions from the Borrower in
form and substance satisfactory to the Swing Line Lender.
2.12.3. REPAYMENT OF SWING LINE LOANS. Each Swing Line Loan, together
with interest thereon at the Floating Rate or the Agreed Swing Line Rate, as the
case may be, shall be paid in full by the Borrower on or before the third
Business Day after the Borrowing Date for such Swing Line Loan.
2.12.4. REPAYMENT OF SWING LINE LOANS. The Borrower may at any time
prepay, without penalty or premium, the entire amount of any outstanding Swing
Line Loan bearing interest at the Floating Rate or, in a minimum amount of
$100,000 and in integral multiples of $100,000, any portion of an outstanding
Swing Line Loan bearing interest at the Floating Rate, upon notice to the Agent
and the Swing Line Lender. No Swing Line Loan bearing interest at an Agreed
Swing Line Rate may be prepaid. In addition, the Agent shall: (i) at any time at
the request of the Swing Line Lender and (ii) on the third Business Day after
the Borrowing Date for such Swing Line Loan, require the Lenders (including the
Swing Line Lender) to make a Floating Rate Advance in an amount up to the amount
of Swing Line Loans outstanding on such date for the purpose of repaying Swing
Line Loans. If the Swing Line Lender receives notice from any Lender that a
condition under Section 4.2 has not been satisfied, no Swing Line Loans shall be
made until (a) such notice is withdrawn by that Lender or (b) the Required
Lenders have waived satisfaction of any such condition. The Lenders shall
deliver the proceeds of such Advance to the Agent by 12:00 noon (Chicago time)
on the applicable Borrowing Date for application to the Swing Line Lender's
outstanding Swing Line Loans. Subject to the provisions of the third sentence of
this Section 2.12.4, each Lender's obligation to make available its Percentage
of the Advance referred to in this Section shall be absolute and unconditional
and shall not be affected by any circumstances, including without limitation,
(i) any set-off, counterclaim, recoupment, defense or other right which such
Lender may have against the Swing Line Lender, or anyone else, (ii) the
occurrence or continuance of a Default or Unmatured Default, (iii) any adverse
change in the condition (financial or otherwise) of the Borrower or (iv) any
other circumstances, happening or event whatsoever. If for any reason a Lender
does not make available its Percentage of the foregoing Advance, such Lender
shall be deemed to have unconditionally and irrevocably purchased from the Swing
Line Lender, without recourse or warranty, an undivided interest and
participation in each Swing Line Loan then being repaid, equal to its Percentage
of all such Swing Line Loans being repaid, so long as such purchase would not
cause such Lender to exceed its Revolving Commitment. If any portion of any
amount paid (or deemed paid) to the Agent should be recovered by or on behalf of
the Borrower from the Agent in bankruptcy or otherwise, the loss of the amount
so recovered shall be shared ratably among all Lenders.
2.13. NOTELESS AGREEMENT; EVIDENCE OF INDEBTEDNESS. (i) Each Lender
shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to such Lender resulting
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from each Loan made by such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(ii) The Agent shall also maintain accounts in which it will record
(a) the amount of each Loan made hereunder, the Type thereof and the Interest
Period with respect thereto, (b) the amount of any principal or interest due and
payable or to become due and payable from the Borrower to each Lender hereunder
and (c) the amount of any sum received by the Agent hereunder from the Borrower
and each Lender's share thereof.
(iii) The entries maintained in the accounts maintained pursuant to
paragraphs (i) and (ii) above shall (in the absence of manifest error) be prima
facie evidence of the existence and amounts of the Obligations therein recorded;
provided, however, that the failure of the Agent or any Lender to maintain such
accounts or any error therein shall not in any manner affect the obligation of
the Borrower to repay the Obligations in accordance with their terms.
(iv) Any Lender may request that its Loans be evidenced by a
promissory note (a "Note"). In such event, the Borrower shall prepare, execute
and deliver to such Lender a Note payable to the order of such Lender in a form
supplied by the Agent. Thereafter, the Loans evidenced by such Note and interest
thereon shall at all times (including after any assignment pursuant to Section
12.3) be represented by one or more Notes payable to the order of the payee
named therein or any assignee pursuant to Section 12.3, except to the extent
that any such Lender or assignee subsequently returns any such Note for
cancellation and requests that such Loans once again be evidenced as described
in paragraphs (i) and (ii) above.
2.14. TELEPHONIC NOTICES. The Borrower hereby authorizes the Lenders
and the Agent to extend, convert or continue Advances or Swing Line Loans,
effect selections of Types of Advances or Swing Line Loans, and to transfer
funds based on telephonic notices made by any person or persons the Agent or any
Lender in good faith believes to be acting on behalf of the Borrower. The
Borrower agrees to deliver promptly to the Agent a written confirmation, if such
confirmation is requested by the Agent or any Lender, of each telephonic notice
signed by an Authorized Officer. If the written confirmation differs in any
material respect from the action taken by the Agent and the Lenders, the records
of the Agent and the Lenders shall govern absent manifest error.
2.15. INTEREST PAYMENT DATES; INTEREST AND FEE BASIS. Interest
accrued on each Floating Rate Advance shall be payable on each Payment Date,
commencing with the first such date to occur after the date hereof, on any date
on which the Floating Rate Advance is prepaid, whether due to acceleration or
otherwise, and at maturity. Interest accrued on that portion of the outstanding
principal amount of any Floating Rate Advance converted into a Eurodollar
Advance on a day other than a Payment Date shall be payable on the date of
conversion. Interest accrued on each Eurodollar Advance shall be payable on the
last day of its applicable Interest Period, on any date on which the Eurodollar
Advance is prepaid, whether by acceleration or otherwise, and at maturity.
Interest accrued on
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each Eurodollar Advance having an Interest Period longer than three months shall
also be payable on the last day of each three-month interval during such
Interest Period. Interest computed at the Floating Rate (other than at any time
when such rate is computed using the Federal Funds Effective Rate) shall be
calculated for actual days elapsed on the basis of a 365 (or 366, if
applicable)-day; all other interest and commitment fees hereunder shall be
calculated for actual days elapsed on the basis of a 360-day year. Interest
shall be payable for the day an Advance or Swing Line Loan is made but not for
the day of any payment on the amount paid if payment is received prior to noon
(local time) at the place of payment. If any payment of principal of or interest
on an Advance shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment.
2.16. NOTIFICATION OF ADVANCES, INTEREST RATES, PREPAYMENTS AND
COMMITMENT REDUCTIONS. Promptly after receipt thereof, the Agent will notify
each Lender of the contents of each Aggregate Commitment reduction notice,
Borrowing Notice, Conversion/Continuation Notice, and repayment notice received
by it hereunder. The Agent will notify each Lender of the interest rate
applicable to each Eurodollar Advance promptly upon determination of such
interest rate and will give each Lender prompt notice of each change in the
Alternate Base Rate.
2.17. LENDING INSTALLATIONS. Each Lender may book its Loans at any
Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Loans and any Notes issued hereunder shall be
deemed held by each Lender for the benefit of such Lending Installation. Each
Lender may, by written notice to the Agent and the Borrower in accordance with
Article XIII, designate replacement or additional Lending Installations through
which Loans will be made by it and for whose account Loan payments are to be
made.
2.18. NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Borrower or a
Lender, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to (x) in the case of payment by a
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Lender, the Federal Funds Effective Rate for such day or (y) in the case of
payment by the Borrower, the interest rate applicable to the relevant Loan.
2.19. FACILITY LCS.
(a) The LC Issuer hereby agrees, on the terms and conditions set
forth in this Agreement, to issue stand-by letters of credit (each a "Facility
LC") and to renew, extend, increase, decrease or otherwise modify each Facility
LC (each a "Modification"), from time to time from and including the Closing
Date and prior to the Facility Termination Date upon the request of the
Borrower; provided that immediately after each such Facility LC is issued or
modified, (i) the aggregate amount of the outstanding LC Obligations shall not
exceed $5,000,000 and (ii) the Aggregate Outstanding Credit Exposure shall not
exceed the Aggregate Revolving Commitment; provided, further, that if the
Borrower has requested a Lender other than First Chicago to act as LC Issuer
with respect to the issuance or Modification of a particular Facility LC, such
issuance or Modification shall be made only in the sole discretion of such
Lender. No Facility LC shall have an expiry date later than the earlier of (i)
the fifth Business Day prior to the Facility Termination Date and (ii) the day
which is one year after the date of issuance (or the most recent Modification)
thereof; provided, however, that any Facility LC with a one-year term may
provide for the renewal thereof for additional one-year periods (which shall in
no event extend beyond the date referred to in the preceding clause (i).
(b) Upon the issuance or Modification by the LC Issuer of a
Facility LC in accordance with this Section 2.19, the LC Issuer shall be deemed,
without further action by any party hereto, to have sold to each Lender, and
each Lender shall be deemed, without further action by any party hereto, to have
purchased from the LC Issuer, a participation in such Facility LC (and each
Modification thereof) and the related LC Obligations in proportion to its
Percentage.
(c) Subject to subsection (a), the Borrower shall give the LC
Issuer notice (each a "Facility LC Notice") prior to 10:00 a.m. (Chicago time)
at least three Business Days prior to the proposed date of issuance or
Modification of each Facility LC, specifying the beneficiary, the proposed date
of issuance (or Modification) and the expiry date of such Facility LC, and
describing the proposed terms of such Facility LC and the nature of the
transactions proposed to be supported thereby. Upon receipt of such Facility LC
Notice, the LC Issuer shall promptly notify the Agent, and the Agent shall
promptly notify each Lender, of the contents thereof and of the amount of such
Lender's participation in such proposed Facility LC. The issuance or
Modification by the LC Issuer of any Facility LC shall, in addition to the
conditions precedent set forth in Article IV (the satisfaction of which the LC
Issuer shall have no duty to ascertain, except where any Lender has given
written notice to the LC Issuer as to the failure of such condition to be
satisfied), be subject to the conditions precedent that such Facility LC shall
be satisfactory to the LC Issuer and that the Borrower shall have executed and
delivered such application agreement and/or such other instruments and
agreements relating to such Facility LC as the LC Issuer shall have reasonably
requested (each a "Facility LC Application Agreement").
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In the event of any conflict between the terms of this Agreement and the terms
of any Facility LC Application Agreement, the terms of this Agreement shall
control.
(d) The Borrower shall pay to the Agent, for the account of the
Lenders ratably in accordance with their respective Percentages, a Facility LC
fee equal to a percentage equal to the Applicable Margin for Eurodollar Advances
in effect from time to time on the average daily aggregate amount available for
drawings under all Facility LCs. Each such fee shall be payable in arrears on
each Payment Date and on the Facility Termination Date. The Borrower shall pay
to the LC Issuer (i) a fronting fee equal to one-eighth of one percent (_%) of
the face amount of each Facility LC on the issuance date thereof, and (ii) such
other documentary and processing charges in accordance with the LC Issuer's
standard schedule for such charges with respect to the issuance, amendment,
cancellation, negotiation or transfer of each Facility LC and each drawing made
thereunder, at the time any such actions occur. The LC Issuer shall furnish to
the Agent upon request its calculations with respect to the amount of any fee
payable under this subsection (d).
(e) Upon receipt from the beneficiary of any Facility LC of any
demand for payment under such Facility LC, the LC Issuer shall notify the Agent
and the Agent shall promptly notify the Borrower and each other Lender as to the
amount to be paid by the LC Issuer as a result of such demand and the proposed
payment date (the "LC Payment Date"). The responsibility of the LC Issuer to the
Borrower and each Lender shall be only to determine that the documents
(including each demand for payment) delivered under each Facility LC in
connection with such presentment shall be in conformity in all material respects
with such Facility LC. The LC Issuer shall endeavor to exercise the same care in
the issuance and administration of the Facility LCs as it does with respect to
letters of credit in which no participations are granted, it being understood
that in the absence of any gross negligence or willful misconduct by the LC
Issuer, each Lender shall be unconditionally and irrevocably liable without
regard to the occurrence of any Default or any condition precedent whatsoever,
to reimburse the LC Issuer on demand for (i) such Lender's Percentage of the
amount of each payment made by the LC Issuer under each Facility LC to the
extent such amount is not reimbursed by the Borrower pursuant to subsection (f)
below plus (ii) interest on the foregoing amount to be reimbursed by such
Lender, for each day from the date of the LC Issuer's demand for such
reimbursement (or, if such demand is made after 11:00 a.m. (Chicago time) on
such date, from the next succeeding Business Day) to the date on which such
Lender pays the amount to be reimbursed by it, at a rate of interest per annum
equal to the Federal Funds Effective Rate for such day.
(f) The Borrower shall be irrevocably and unconditionally
obligated to reimburse the LC Issuer on or by the applicable LC Payment Date for
any amounts to be paid by the LC Issuer upon any drawing under any Facility LC,
without presentment, demand, protest or other formalities of any kind; provided
that neither the Borrower nor any Lender shall hereby be precluded from
asserting any claim for direct (but not consequential) damages suffered by the
Borrower or such Lender to the extent, but only to the extent, caused by (i) the
willful misconduct or gross negligence of the LC Issuer in determining whether a
request presented
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under any Facility LC issued by it complied with the terms of such Facility LC
or (ii) the LC Issuer's failure to pay under any Facility LC issued by it after
the presentation to it of a request strictly complying with the terms and
conditions of such Facility LC. All such amounts paid by the LC Issuer and
remaining unpaid by the Borrower shall bear interest, payable on demand, for
each day until paid at a rate per annum equal to (x) the rate applicable to
Floating Rate Advances for such day if such day falls on or before the
applicable LC Payment Date and (y) the sum of 2% plus the rate applicable to
Floating Rate Advances for such day if such day falls after such LC Payment
Date. The LC Issuer will pay to each Lender ratably in accordance with its
Percentage all amounts received by it from the Borrower for application in
payment, in whole or in part, of the Reimbursement Obligation in respect of any
Facility LC issued by the LC Issuer, but only to the extent such Lender has made
payment to the LC Issuer in respect of such Facility LC pursuant to subsection
(e). Subject to the terms and conditions of this Agreement (including without
limitation the submission of a Borrowing Notice in compliance with Section 2.8
and the satisfaction of the applicable conditions precedent set forth in Article
IV), the Borrower may request an Advance hereunder for the purpose of satisfying
any Reimbursement Obligation.
(g) If after the date hereof, the adoption of any applicable law,
rule or regulation, or any change in any applicable law, rule or regulation, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the LC Issuer or any Lender with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall impose, modify or deem
applicable any tax, reserve, special deposit or similar requirement against or
with respect to or measured by reference to Facility LCs issued or to be issued
hereunder or participation therein, and the result shall be to increase the cost
to the LC Issuer or any Lender of issuing or maintaining any Facility LC or any
participation therein, or reduce any amount receivable hereunder by the LC
Issuer or any Lender in respect of any Facility LC (which increase in cost, or
reduction in amount receivable, shall be the result of such Lender's or the LC
Issuer's reasonable allocation of the aggregate of such increases or reductions
resulting from such event), then, upon demand by the LC Issuer or such Lender,
the Borrower agrees to pay to the LC Issuer or such Lender, from time to time as
specified by the LC Issuer or such Lender, such additional amounts as shall be
sufficient to compensate the LC Issuer or such Lender for such increased costs
or reductions in amounts received by the LC Issuer or such Lender. A certificate
of the LC Issuer or such Lender submitted by the LC Issuer or such Lender to the
Borrower shall be conclusive as to the amount thereof in the absence of manifest
error.
(h) The Borrower's obligations under this Section 2.19 shall be
absolute and unconditional under any and all circumstances and irrespective of
any setoff, counterclaim or defense to payment which the Borrower may have or
have had against the LC Issuer, any Lender or any beneficiary of a Facility LC.
The Borrower further agrees with the LC Issuer and the Lenders that the LC
Issuer and the Lenders shall not be responsible for, and the Borrower's
Reimbursement Obligation in respect of any Facility LC shall not be affected by,
among other things, the validity or genuineness of documents or of any
endorsements thereon, even if such
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documents should in fact prove to be in any or all respects invalid, fraudulent
or forged, or any dispute between or among the Borrower, any of its
Subsidiaries, the beneficiary of any Facility LC or any financing institution or
other party to whom any Facility LC may be transferred or any claims or defenses
whatsoever of the Borrower or of any of its Subsidiaries against the beneficiary
of any Facility LC or any such transferee. The LC Issuer shall not be liable for
any error, omission, interruption or delay in transmission, dispatch or delivery
of any message or advice, however transmitted, in connection with any Facility
LC. The Borrower agrees that any action taken or omitted by the LC Issuer or any
Lender under or in connection with each Facility LC and the related drafts and
documents, if done in good faith and without gross negligence, shall be binding
upon the Borrower and shall not put the LC Issuer or any Lender under any
liability to the Borrower. Nothing in this subsection (h) is intended to limit
the right of the Borrower to make a claim against the LC Issuer for damages as
contemplated by the proviso to the first sentence of subsection (f) above.
(i) To the extent not inconsistent with subsection (h) above, the
LC Issuer shall be entitled to rely, and shall be fully protected in relying
upon, any Facility LC, draft, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document believed by it to be genuine and correct and
to have been signed, sent or made by the proper Person or Persons, and upon
advice and statements of legal counsel, independent accountants and other
experts selected by the LC Issuer. The LC Issuer shall be fully justified in
failing or refusing to take any action under this Agreement unless it shall
first have received such advice or concurrence of the Required Lenders as it
reasonably deems appropriate or it shall first be indemnified to its reasonable
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action.
Notwithstanding any other provision of this Section 2.19, the LC Issuer shall in
all cases be fully protected, as among the Lenders and the Agent, in acting or
in refraining from acting under this Agreement in accordance with a request of
the Required Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon the Lenders and all future holders of
participations in any Facility LCs.
(j) The Borrower hereby agrees to indemnify and hold harmless each
Lender, the LC Issuer and the Agent, and their respective directors, officers,
agents and employees from and against any and all claims and damages, losses,
liabilities, costs or expenses which such Lender, the LC Issuer or the Agent may
incur (or which may be claimed against such Lender, the LC Issuer or the Agent
by any Person whatsoever) by reason of or in connection with the execution and
delivery or transfer of or payment or failure to pay under any Facility LC or
any actual or proposed use of any Facility LC, including, without limitation,
any claims, damages, losses, liabilities, costs or expenses which the LC Issuer
may incur by reason of or in connection with (i) the failure of any other Lender
to fulfill or comply with its obligations to the LC Issuer hereunder (but
nothing herein contained shall affect any rights the Borrower may have against
any defaulting Lender) or (ii) by reason of or on account of the LC Issuer
issuing any Facility LC which specifies that the term "Beneficiary" included
therein includes any successor by operation of law of the named Beneficiary, but
which Facility LC does not require that any drawing by any
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such successor Beneficiary be accompanied by a copy of a legal document,
satisfactory to the LC Issuer, evidencing the appointment of such successor
Beneficiary; provided that the Borrower shall not be required to indemnify any
Lender, the LC Issuer or the Agent for any claims, damages, losses, liabilities,
costs or expenses to the extent, but only to the extent, caused by (i) the
willful misconduct or gross negligence of the LC Issuer (including, without
limitation, any such gross negligence or willful misconduct in determining
whether a request presented under any Facility LC complied with the terms of
such Facility LC), or (ii) the LC Issuer's failure to pay under any Facility LC
after the presentation to it of a request strictly complying with the terms and
conditions of such Facility LC. Nothing in this subsection (j) is intended to
limit the obligations of the Borrower under any other provision of this
Agreement.
(k) Each Lender shall, ratably in accordance with its Percentage,
indemnify the LC Issuer, its affiliates and their respective directors,
officers, agents and employees (to the extent not reimbursed by the Borrower)
against any cost, expense (including reasonable counsel fees and disbursements),
claim, demand, action, loss or liability (except such as result from any such
indemnitee's gross negligence or willful misconduct or the LC Issuer's failure
to pay under any Facility LC after the presentation to it of a request strictly
complying with the terms and conditions of the Facility LC) that such
indemnitees may suffer or incur in connection with this Section 2.19 or any
action taken or omitted by such indemnitees hereunder.
(l) In its capacity as a Lender, the LC Issuer shall have the same
rights and obligations as any other Lender.
2.20. METHOD OF PAYMENT. All payments of the Obligations hereunder
shall be made, without setoff, deduction, or counterclaim, in immediately
available funds to the Agent at the Agent's address specified pursuant to
Article XIII, or at any other Lending Installation of the Agent specified in
writing by the Agent to the Borrower, by noon (Chicago time) on the date when
due and shall be applied ratably by the Agent among the Lenders. Each payment
delivered to the Agent for the account of any Lender shall be delivered promptly
by the Agent to such Lender in the same type of funds that the Agent received at
its address specified pursuant to Article XIII or at any Lending Installation
specified in a notice received by the Agent from such Lender. The Agent is
hereby authorized to charge the account of the Borrower maintained with First
Chicago for each payment of principal, interest, fees, and any other Obligations
as it becomes due hereunder.
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ARTICLE III
YIELD PROTECTION; TAXES
3.1. YIELD PROTECTION. If, on or after the date of this Agreement,
the adoption of any law or any governmental or quasi-governmental rule,
regulation, policy, guideline or directive (whether or not having the force of
law), or any change in the interpretation or administration thereof by any
governmental or quasi-governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Lender or applicable Lending Installation with any request or directive (whether
or not having the force of law) of any such authority, central bank or
comparable agency:
(i) subjects any Lender or any applicable Lending Installation to any
Taxes, or changes the basis of taxation of payments (other than
with respect to Excluded Taxes) to any Lender in respect of its
Eurodollar Loans, or
(ii) imposes or increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended
by, any Lender or any applicable Lending Installation (other than
reserves and assessments taken into account in determining the
interest rate applicable to Eurodollar Advances), or
(iii) imposes any other condition the result of which is to increase the
cost to any Lender or any applicable Lending Installation of
making, funding or maintaining its Eurodollar Loans or reduces any
amount receivable by any Lender or any applicable Lending
Installation in connection with its Eurodollar Loans, or requires
any Lender or any applicable Lending Installation to make any
payment calculated by reference to the amount of Eurodollar Loans
held or interest received by it, by an amount deemed material by
such Lender,
and the result of any of the foregoing is to increase the cost to such Lender or
applicable Lending Installation of making or maintaining its Eurodollar Loans or
Revolving Commitment or to reduce the return received by such Lender or
applicable Lending Installation in connection with such Eurodollar Loans or
Revolving Commitment, then, within 15 days of demand by such Lender, the
Borrower shall pay such Lender such additional amount or amounts as will
compensate such Lender for such increased cost or reduction in amount received.
3.2. CHANGES IN CAPITAL ADEQUACY REGULATIONS. If a Lender
determines the amount of capital required or expected to be maintained by such
Lender, any Lending Installation of such Lender or any corporation controlling
such Lender is increased as a result of a Change, then, within 15 days of demand
by such Lender, the Borrower shall pay such Lender the amount
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necessary to compensate for any shortfall in the rate of return on the portion
of such increased capital which such Lender determines is attributable to this
Agreement, its Loans or its Revolving Commitment to make Loans hereunder, or any
Facility LCs or its participation interest therein (in any case after taking
into account such Lender's policies as to capital adequacy). "Change" means (i)
any change after the date of this Agreement in the Risk-Based Capital Guidelines
or (ii) any adoption of or change in any other law, governmental or
quasi-governmental rule, regulation, policy, guideline, interpretation, or
directive (whether or not having the force of law) after the date of this
Agreement which affects the amount of capital required or expected to be
maintained by any Lender or any Lending Installation or any corporation
controlling any Lender. "Risk-Based Capital Guidelines" means (i) the risk-based
capital guidelines in effect in the United States on the date of this Agreement,
including transition rules, and (ii) the corresponding capital regulations in
effect on the date of this Agreement promulgated by regulatory authorities
outside the United States implementing the July 1988 report of the Basle
Committee on Banking Regulation and Supervisory Practices Entitled
"International Convergence of Capital Measurements and Capital Standards,"
including transition rules, and any amendments to such regulations adopted prior
to the date of this Agreement.
3.3. AVAILABILITY OF TYPES OF ADVANCES. If any Lender determines
that maintenance of its Eurodollar Loans at a suitable Lending Installation
would violate any applicable law, rule, regulation, or directive, whether or not
having the force of law, or if the Required Lenders determine that (i) deposits
of a type and maturity appropriate to match fund Eurodollar Advances are not
available or (ii) the interest rate applicable to a Type of Advance does not
accurately reflect the cost of making or maintaining such Advance, then the
Agent shall suspend the availability of the affected Type of Advance and require
any affected Eurodollar Advances to be repaid or converted to Floating Rate
Advances, subject to the payment of any funding indemnification amounts required
by Section 3.4.
3.4. FUNDING INDEMNIFICATION. If any payment of a Eurodollar
Advance occurs on a date which is not the last day of the applicable Interest
Period, whether because of acceleration, prepayment or otherwise, or a
Eurodollar Advance is not made on the date specified by the Borrower for any
reason other than default by the Lenders, the Borrower will indemnify each
Lender for any loss or cost incurred by it resulting therefrom, including,
without limitation, any loss or cost in liquidating or employing deposits
acquired to fund or maintain such Eurodollar Advance.
3.5. TAXES. (i) All payments by the Borrower to or for the account
of any Lender or the Agent hereunder or under any Note shall be made free and
clear of and without deduction for any and all Taxes. If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to any Lender or the Agent, (a) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 3.5) such Lender or the
Agent (as the case may be) receives an amount equal to the sum it would have
received had no such deductions
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been made, (b) the Borrower shall make such deductions, (c) the Borrower shall
pay the full amount deducted to the relevant authority in accordance with
applicable law and (d) the Borrower shall furnish to the Agent the original copy
of a receipt evidencing payment thereof within 30 days after such payment is
made.
(ii) In addition, the Borrower hereby agrees to pay any present or
future stamp or documentary taxes and any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or under
any Note or from the execution or delivery of, or otherwise with respect to,
this Agreement or any Note ("Other Taxes").
(iii) The Borrower hereby agrees to indemnify the Agent and each Lender
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed on amounts payable under this Section 3.5) paid by
the Agent or such Lender and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. Payments due under this
indemnification shall be made within 30 days of the date the Agent or such
Lender makes demand therefor pursuant to Section 3.6.
(iv) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof (each a "Non-U.S. Lender") agrees that it
will, not less than ten Business Days after the date of this Agreement or after
it becomes a Lender pursuant to Section 12.3 (i) deliver to each of the Borrower
and the Agent two duly completed copies of United States Internal Revenue
Service Form 1001 or 4224, certifying in either case that such Lender is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes, and (ii) deliver to each
of the Borrower and the Agent a United States Internal Revenue Form W-8 or W-9,
as the case may be, and certify that it is entitled to an exemption from United
States backup withholding tax. Each Non-U.S. Lender further undertakes to
deliver to each of the Borrower and the Agent (x) renewals or additional copies
of such form (or any successor form) on or before the date that such form
expires or becomes obsolete, and (y) after the occurrence of any event requiring
a change in the most recent forms so delivered by it, such additional forms or
amendments thereto as may be reasonably requested by the Borrower or the Agent.
All forms or amendments described in the preceding sentence shall certify that
such Lender is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes, unless an
event (including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form or amendment with
respect to it and such Lender advises the Borrower and the Agent that it is not
capable of receiving payments without any deduction or withholding of United
States federal income tax.
(v) For any period during which a Non-U.S. Lender has failed to provide
the Borrower with an appropriate form pursuant to clause (iv), above (unless
such failure is due to a change in treaty, law or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
occurring subsequent to the date on which a form originally was
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required to be provided), such Non-U.S. Lender shall not be entitled to
indemnification under this Section 3.5 with respect to Taxes imposed by the
United States; provided that, should a Non-U.S. Lender which is otherwise exempt
from or subject to a reduced rate of withholding tax become subject to Taxes
because of its failure to deliver a form required under clause (iv), above, the
Borrower shall take such steps as such Non-U.S. Lender shall reasonably request
to assist such Non-U.S. Lender to recover such Taxes.
(vi) Any Lender that is entitled to an exemption from or reduction of
withholding tax with respect to payments under this Agreement or any Note
pursuant to the law of any relevant jurisdiction or any treaty shall deliver to
the Borrower (with a copy to the Agent), at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed by
applicable law as will permit such payments to be made without withholding or at
a reduced rate.
3.6. LENDER STATEMENTS; SURVIVAL OF INDEMNITY. To the extent
reasonably possible, each Lender shall designate an alternate Lending
Installation with respect to its Eurodollar Loans to reduce any liability of the
Borrower to such Lender under Sections 3.1, 3.2 and 3.5 or to avoid the
unavailability of Eurodollar Advances under Section 3.3, so long as such
designation is not, in the sole judgment of such Lender, disadvantageous to such
Lender. Each Lender shall deliver a written statement of such Lender to the
Borrower (with a copy to the Agent) as to the amount due, if any, under Section
3.1, 3.2, 3.4 or 3.5. Such written statement shall set forth in reasonable
detail the calculations upon which such Lender determined such amount and shall
be final, conclusive and binding on the Borrower in the absence of manifest
error. Determination of amounts payable under such Sections in connection with a
Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar
Loan through the purchase of a deposit of the type and maturity corresponding to
the deposit used as a reference in determining the Eurodollar Rate applicable to
such Loan, whether in fact that is the case or not. Unless otherwise provided
herein, the amount specified in the written statement of any Lender shall be
payable on demand after receipt by the Borrower of such written statement. The
obligations of the Borrower under Sections 3.1, 3.2, 3.4 and 3.5 shall survive
payment of the Obligations and termination of this Agreement.
3.7. LIMITATION ON CERTAIN PAYMENT OBLIGATIONS. The Borrower shall
not have any obligation to pay any amount to any Lender or the Agent with
respect to claims accruing under Sections 2.19(g), 3.1 or 3.2 hereof prior to
the ninetieth (90th) day preceding written demand therefor from such Lender or
the Agent, except in any instance where the change in law, regulation, rule,
guideline or directive, or in the interpretation or administration thereof,
giving rise to such obligation occurred during such 90-day period and is made
retroactive to a date preceding such 90-day period, in which case the Borrower's
obligation shall extend back to the effective date of such change.
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ARTICLE IV
CONDITIONS PRECEDENT
4.1. INITIAL CREDIT EXTENSION. The Lenders shall not be required to
make the initial Credit Extension hereunder unless the Borrower has furnished to
the Agent the following, all in form and substance satisfactory to the Agent and
the Lenders, with sufficient copies for the Lenders:
(i) Copies of the articles or certificate of incorporation,
together with all amendments, and a certificate of good
standing, each certified by the appropriate governmental
officer in its jurisdiction of organization for each Loan
Party.
(ii) Copies, certified by its Secretary or Assistant Secretary, of
each Loan Party's by-laws and Board of Directors' resolutions
authorizing the execution of the Credit Documents to which
such Loan Party is a party.
(iii) An incumbency certificate, executed by the Secretary or
Assistant Secretary of each Loan Party, which shall identify
by name and title and bear the signatures of the Authorized
Officers and any other officers of such Loan Party authorized
to sign the Credit Documents to which such Loan Party is a
party, upon which certificate the Agent and the Lenders shall
be entitled to rely until informed of any change in writing by
such Loan Party.
(iv) A certificate, signed by the Chief Financial Officer of the
Borrower, stating that on the initial Credit Extension Date
(A) no Default or Unmatured Default has occurred and is
continuing, (B) the representations and warranties set forth
in the Credit Documents are true and correct in all material
respects on such date, and (C) all conditions set forth in
this Article IV have been satisfied or waived in writing by
the Required Lenders.
(v) A written opinion of counsel for the Loan Parties, addressed
to the Lenders in substantially the form of Exhibit A.
(vi) Any Notes requested by a Lender pursuant to Section 2.13
payable to the order of each such requesting Lender.
(vii) Written money transfer instructions, in substantially the form
of Exhibit D, addressed to the Agent and signed by an
Authorized Officer, together with such other related money
transfer authorizations as the Agent may have reasonably
requested.
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(viii) The Subsidiary Guaranty signed by the duly authorized officers
of the Subsidiaries that are parties thereto.
(ix) The Borrower Pledge Agreement duly executed by an Authorized
Officer of the Borrower, together with (i) all stock
certificates and other instruments and documents representing
the "Pledged Securities" (as defined in the Borrower Pledge
Agreement) accompanied by instruments of transfer and stock
powers endorsed in blank, and (ii) Uniform Commercial Code
financing statements naming the Borrower as "debtor" and the
Agent, for the ratable benefit of the Lenders, as the "secured
party" and covering the "Collateral" (as defined in the
Borrower Pledge Agreement), evidencing a first priority pledge
of and security interest in such "Pledged Securities."
(x) The Subsidiary Pledge Agreement duly executed by an authorized
officer of each Subsidiary that is a party thereto, together
with (i) all stock certificates and other documents and
instruments representing the "Pledged Securities" (as defined
in the Subsidiary Pledge Agreement) accompanied by instruments
of transfer and stock powers endorsed in blank, and (ii)
Uniform Commercial Code financing statements naming each
Subsidiary as a "Debtor" and the Agent, for the ratable
benefit of the Lenders, as the "secured party" and covering
the "Collateral" (as defined in the Subsidiary Pledge
Agreement), evidencing a first priority pledge of and security
interest in such "Pledged Securities."
(xi) The Contribution Agreement duly executed by an Authorized
Officer of the Borrower and authorized officers of all
Subsidiaries that are parties thereto.
(xii) The L/C Cash Collateral Agreement duly executed by an
Authorized Officer of the Borrower.
(xiii) Evidence satisfactory to the Agent that the Existing Credit
Agreements have been terminated and all indebtedness,
liabilities, and obligations outstanding thereunder have been
paid in full, and that all Liens on the assets and properties
of the Borrower and its Subsidiaries, other than those
permitted by Section 6.14, have been terminated or cancelled.
(xiv) Evidence satisfactory to the Agent that the Borrower has
received from the initial public offering of its common stock
net cash proceeds not less than $25,000,000, together with
copies of the registration statement and all other documents
filed by or on behalf of the Borrower with the Securities and
Exchange Commission in connection with such public offering.
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(xv) A pro forma consolidated balance sheet for the Borrower and
its Subsidiaries after giving effect to the initial public
offering of the Borrower's common stock, and a three-year
business plan for the Borrower and its Subsidiaries.
(xvi) A compliance and solvency certificate executed by the Chief
Financial Officer of the Borrower.
(xvii) The insurance certificate described in Section 5.19.
(xviii) Evidence satisfactory to the Agent that the NCFC Loan and
Security Agreement has been terminated or has expired, and
that the obligations of The Distribution Group, Inc. under the
Subsidiary Guaranty have become fully effective under the
terms of the Subsidiary Guaranty.
(xvix) Such other documents as the Agent or any Lender or its counsel
may have reasonably requested.
(xx) Receipt by the Agent of all fees and expense payments due from
the Borrower on or before the Closing Date.
4.2. EACH CREDIT EXTENSION. The Lenders shall not be required to
make any Credit Extension (other than an Advance that, after giving effect
thereto and to the application of the proceeds thereof, does not increase the
aggregate amount of outstanding Advances), unless on the applicable Credit
Extension Date:
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in Article V are
true and correct as of such Credit Extension Date except to
the extent any such representation or warranty is expressly
stated to relate solely to an earlier date, in which case such
representation or warranty shall have been true and correct in
all material respects on and as of such earlier date.
(iii) All legal matters incident to the making of such Credit
Extension shall be satisfactory to the Agent, the Lenders and
their counsel.
Each Borrowing Notice or Facility LC Notice with respect to each such
Credit Extension shall constitute a representation and warranty by the Borrower
that the conditions contained in Sections 4.2(i) and (ii) have been satisfied.
Any Lender may require a duly completed compliance certificate in substantially
the form of Exhibit B as a condition to making a Credit Extension.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
5.1. EXISTENCE AND STANDING. Each of the Borrower and its
Subsidiaries is a corporation, partnership (in the case of Subsidiaries only) or
limited liability company duly and properly incorporated or organized, as the
case may be, validly existing and (to the extent such concept applies to such
entity) in good standing under the laws of its jurisdiction of incorporation or
organization and has all requisite authority to conduct its business in each
jurisdiction in which its business is conducted.
5.2. AUTHORIZATION AND VALIDITY. The Borrower has the power and
authority and legal right to execute and deliver the Credit Documents to which
it is a party and to perform its obligations thereunder. The execution and
delivery by the Borrower of the Credit Documents to which it is a party and the
performance of its obligations thereunder have been duly authorized by proper
corporate proceedings, and the Credit Documents to which the Borrower is a party
constitute legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their terms, except as enforceability
may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally.
5.3. NO CONFLICT; GOVERNMENT CONSENT. Neither the execution and
delivery by the Borrower or any Subsidiary of the Credit Documents to which it
is a party, nor the consummation of the transactions therein contemplated, nor
compliance with the provisions thereof will violate (i) any law, rule,
regulation, order, writ, judgment, injunction, decree or award binding on the
Borrower or any of its Subsidiaries or (ii) the Borrower's or any Subsidiary's
articles or certificate of incorporation, partnership agreement, certificate of
partnership, articles or certificate of organization, by-laws, or operating or
other management agreement, as the case may be, or (iii) the provisions of any
indenture, instrument or agreement to which the Borrower or any of its
Subsidiaries is a party or is subject, or by which it, or its Property, is
bound, or conflict with or constitute a default thereunder, or result in, or
require, the creation or imposition of any Lien in, of or on the Property of the
Borrower or a Subsidiary pursuant to the terms of any such indenture, instrument
or agreement. No order, consent, adjudication, approval, license, authorization,
or validation of, or filing, recording or registration with, or exemption by, or
other action in respect of any governmental or public body or authority, or any
subdivision thereof, which has not been obtained by the Borrower or any of its
Subsidiaries, is required to be obtained by the Borrower or any of its
Subsidiaries in connection with the execution and delivery of the Credit
Documents, the borrowings under this
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Agreement, the payment and performance by the Borrower of the Obligations or the
legality, validity, binding effect or enforceability of any of the Credit
Documents.
5.4. FINANCIAL STATEMENTS. The audited financial statements of the
"Founding Companies" (as defined in the Prospectus) for the periods ending
December 31, 1995 and December 31, 1996, the unaudited financial statements of
the Founding Companies for the six-month period ending June 30, 1997, and the
unaudited pro forma combined financial statements of the Borrower and its
Subsidiaries for the periods ending December 31, 1996 and June 30, 1997, all as
set forth in the Prospectus, were prepared in accordance with generally accepted
accounting principles in effect on the date such statements were prepared
(subject, in the case of interim statements, to normal year-end audit
adjustments) and fairly present the financial condition and operations of the
Founding Companies and the Borrower and its Subsidiaries, as the case may be, at
such dates and the results of their operations for the periods then ended.
5.5. MATERIAL ADVERSE CHANGE. Since June 30, 1997, there has been
no change in the business, Property, prospects, condition (financial or
otherwise) or results of operations of the Founding Companies, or the Borrower
and its Subsidiaries, as the case may be, which could reasonably be expected to
have a Material Adverse Effect.
5.6. TAXES. The Borrower and its Subsidiaries have filed all United
States federal tax returns and all other tax returns which are required to be
filed and have paid all taxes due pursuant to said returns or pursuant to any
assessment received by the Borrower or any of its Subsidiaries, except such
taxes, if any, as are being contested in good faith and as to which adequate
reserves have been provided in accordance with Agreement Accounting Principles
and as to which no Lien exists. No tax liens have been filed and no claims are
being asserted with respect to any such taxes. The charges, accruals and
reserves on the books of the Borrower and its Subsidiaries in respect of any
taxes or other governmental charges are adequate.
5.7. LITIGATION AND CONTINGENT OBLIGATIONS. Except as set forth on
Schedule 5.7, there is no litigation, arbitration, governmental investigation,
proceeding or inquiry pending or, to the knowledge of any of their officers,
threatened against or affecting the Borrower or any of its Subsidiaries which
could reasonably be expected to have a Material Adverse Effect or which seeks to
prevent, enjoin or delay the making of any Loans. Other than any liability
incident to any litigation, arbitration or proceeding which could not reasonably
be expected to have a Material Adverse Effect, the Borrower has no material
contingent obligations not provided for or disclosed in the financial statements
referred to in Section 5.4.
5.8. SUBSIDIARIES. Schedule 5.8 contains an accurate list of all
Subsidiaries of the Borrower as of the date of this Agreement, setting forth
their respective jurisdictions of organization and the percentage of their
respective capital stock or other ownership interests owned by the Borrower or
other Subsidiaries. All of the issued and outstanding shares of capital stock or
other ownership interests of such Subsidiaries have been
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(to the extent such concepts are relevant with respect to such ownership
interests) duly authorized and issued and are fully paid and non-assessable.
5.9. ERISA. The Unfunded Liabilities of all Single Employer Plans
do not in the aggregate exceed $1,000,000. Neither the Borrower nor any other
member of the Controlled Group has incurred, or is reasonably expected to incur,
any withdrawal liability to Multiemployer Plans in excess of $1,000,000 in the
aggregate. Each Plan complies in all material respects with all applicable
requirements of law and regulations. No Reportable Event has occurred with
respect to any Plan, neither the Borrower nor any other member of the Controlled
Group has withdrawn from any Plan or initiated steps to do so, and no steps have
been taken to reorganize or terminate any Plan except in any such case where
such Reportable Event, withdrawal or intended withdrawal, or reorganization or
termination could not reasonably be expected have a Material Adverse Effect.
5.10. ACCURACY OF INFORMATION. No information, exhibit or report
furnished by the Borrower or any of its Subsidiaries to the Agent or to any
Lender in connection with the negotiation of, or compliance with, the Credit
Documents contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained therein not
misleading.
5.11. REGULATION U. Margin stock (as defined in Regulation U)
constitutes less than 25% of the value of those assets of the Borrower and its
Subsidiaries which are subject to any limitation on sale, pledge, or other
restriction hereunder.
5.12. MATERIAL AGREEMENTS. Neither the Borrower nor any Subsidiary
is a party to any agreement or instrument or subject to any charter or other
corporate restriction which could reasonably be expected to have a Material
Adverse Effect. Neither the Borrower nor any Subsidiary is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in (i) any agreement to which it is a party, which default
could reasonably be expected to have a Material Adverse Effect or (ii) any
agreement or instrument evidencing or governing any Material Obligation.
5.13. COMPLIANCE WITH LAWS. The Borrower and its Subsidiaries have
complied with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency thereof having jurisdiction over the conduct of their respective
businesses or the ownership of their respective Property except for any failure
to comply with any of the foregoing which could not reasonably be expected to
have a Material Adverse Effect.
5.14. OWNERSHIP OF PROPERTIES. Except as set forth on Schedule 5.14,
on the date of this Agreement, the Borrower and its Subsidiaries will have good
title, free of all Liens other than those permitted by Section 6.14, to all of
the Property
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and assets reflected in the Borrower's most recent consolidated financial
statements provided to the Agent as owned by the Borrower and its Subsidiaries.
5.15. PLAN ASSETS; PROHIBITED TRANSACTIONS. The Borrower is not an
entity deemed to hold "plan assets" within the meaning of 29 C.F.R. ss.
2510.3-101 of an employee benefit plan (as defined in Section 3(3) of ERISA)
which is subject to Title I of ERISA or any plan (within the meaning of Section
4975 of the Code), and neither the execution of this Agreement nor the making of
Loans hereunder gives rise to a prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code.
5.16. ENVIRONMENTAL MATTERS. In the ordinary course of its business,
the officers of the Borrower consider the effect of Environmental Laws on the
business of the Borrower and its Subsidiaries, in the course of which they
identify and evaluate potential risks and liabilities accruing to the Borrower
due to Environmental Laws. On the basis of this consideration, the Borrower has
concluded that Environmental Laws cannot reasonably be expected to have a
Material Adverse Effect. Neither the Borrower nor any Subsidiary has received
any notice to the effect that its operations are not in material compliance with
any of the requirements of applicable Environmental Laws or are the subject of
any federal or state investigation evaluating whether any remedial action is
needed to respond to a release of any toxic or hazardous waste or substance into
the environment, which non-compliance or remedial action could reasonably be
expected to have a Material Adverse Effect.
5.17. INVESTMENT COMPANY ACT. Neither the Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
5.18. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor
any Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
5.19. INSURANCE. The certificate signed by the President or Chief
Financial Officer of the Borrower, that attests to the existence and adequacy
of, and summarizes, the property and casualty insurance program carried by the
Borrower with respect to itself and its Subsidiaries and that has been furnished
by the Borrower to the Agent and the Lenders, is complete and accurate. This
summary includes the insurer's or insurers' name(s), policy number(s),
expiration date(s), amount(s) of coverage, type(s) of coverage, exclusion(s),
and deductibles. This summary also includes similar information, and describes
any reserves, relating to any self-insurance program that is in effect.
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5.20. SOLVENCY. (i) Immediately after the consummation of the
transactions to occur on the date hereof and immediately following the making of
each Credit Extension, if any, made on the date hereof and after giving effect
to the application of the proceeds of any Loans made as part thereof (a) the
fair value of the assets of the Borrower and its Subsidiaries on a consolidated
basis, at a fair valuation, will exceed the debts and liabilities, subordinated,
contingent or otherwise, of the Borrower and its Subsidiaries on a consolidated
basis; (b) the present fair saleable value of the property of the Borrower and
its Subsidiaries on a consolidated basis will be greater than the amount that
will be required to pay the probable liability of the Borrower and its
Subsidiaries on a consolidated basis on their debts and other liabilities,
subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured; (c) the Borrower and its Subsidiaries on a
consolidated basis will be able to pay their debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities become
absolute and matured; and (d) the Borrower and its Subsidiaries on a
consolidated basis will not have unreasonably small capital with which to
conduct the businesses in which they are engaged as such businesses are now
conducted and are proposed to be conducted after the date hereof.
(ii) The Borrower does not intend to, or to permit any of its
Subsidiaries to, and does not believe that it or any of its Subsidiaries will,
incur debts beyond its ability to pay such debts as they mature, taking into
account the timing of and amounts of cash to be received by it or any such
Subsidiary and the timing of the amounts of cash to be payable on or in respect
of its Indebtedness or the Indebtedness of any such Subsidiary.
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ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1. FINANCIAL REPORTING. The Borrower will maintain, for itself
and each Subsidiary, a system of accounting established and administered in
accordance with generally accepted accounting principles, and furnish to the
Lenders:
(i) Within 90 days after the close of each of its fiscal years, an
unqualified (except for qualifications relating to changes in
accounting principles or practices reflecting changes in
generally accepted accounting principles and required or
approved by the Borrower's independent certified public
accountants) audit report certified by independent certified
public accountants acceptable to the Lenders, prepared in
accordance with Agreement Accounting Principles on a
consolidated and consolidating basis (consolidating statements
need not be certified by such accountants) for itself and its
Subsidiaries, including balance sheets as of the end of such
period, related profit and loss and reconciliation of surplus
statements, and a statement of cash flows, accompanied by (a)
any management letter prepared by said accountants, and (b) a
certificate of said accountants that, in the course of their
examination necessary for their certification of the
foregoing, they have obtained no knowledge of any Default or
Unmatured Default, or if, in the opinion of such accountants,
any Default or Unmatured Default shall exist, stating the
nature and status thereof
(ii) Within 45 days after the close of the first three quarterly
periods of each of its fiscal years, for itself and its
Subsidiaries, consolidated and consolidating unaudited balance
sheets as at the close of each such period and consolidated
and consolidating profit and loss and reconciliation of
surplus statements and a statement of cash flows for the
period from the beginning of such fiscal year to the end of
such quarter, all certified by its chief financial officer.
(iii) Together with the financial statements required under Sections
6.1(i) and (ii), a compliance certificate in substantially the
form of Exhibit B signed by the Borrower's chief financial
officer showing the calculations necessary to determine
compliance with this Agreement and stating that no Default or
Unmatured Default exists, or if any Default or Unmatured
Default exists, stating the nature and status thereof.
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(iv) Within 270 days after the close of each fiscal year, a
statement of the Unfunded Liabilities of each Single Employer
Plan, certified as correct by an actuary enrolled under ERISA.
(v) As soon as possible and in any event within 10 days after the
Borrower knows that any Reportable Event that could reasonably
be expected to have a Material Adverse Effect has occurred
with respect to any Plan, a statement, signed by the chief
financial officer of the Borrower, describing said Reportable
Event and the action which the Borrower proposes to take with
respect thereto.
(vi) As soon as possible and in any event within 10 days after
receipt by the Borrower, a copy of (a) any notice or claim to
the effect that the Borrower or any of its Subsidiaries is or
may be liable to any Person for an amount in excess of
$1,000,000 as a result of the release by the Borrower, any of
its Subsidiaries, or any other Person of any toxic or
hazardous waste or substance into the environment, and (b) any
notice alleging any violation of any federal, state or local
environmental, health or safety law or regulation by the
Borrower or any of its Subsidiaries, which, in either case,
could reasonably be expected to have a Material Adverse
Effect.
(vii) As soon as possible and in any event within 10 days after the
Borrower has knowledge thereof (A) the filing or commencement
of, or any threat or notice of intention of any Person to file
or commence, in the action, suit or proceeding, whether at law
or in equity or by or before any Governmental Authority,
against any Borrower or Subsidiary, or any Affiliate thereof,
that could reasonably be expected to result in a Material
Adverse Effect, (B) the occurrence, or alleged occurrence, of
any default or event of default in respect of any Material
Obligation or under any other agreement that could reasonably
be expected to result in a Material Adverse Effect, or (C) any
other development that has resulted in, or could reasonably be
expected to result in, a Material Adverse Effect.
(viii) Promptly upon the furnishing thereof to the public
shareholders of the Borrower, copies of all financial
statements, reports and proxy statements so furnished.
(ix) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular
reports which the Borrower or any of its Subsidiaries files
with the Securities and Exchange Commission.
(x) Such other information (including non-financial information)
as the Agent or any Lender may from time to time reasonably
request.
6.2. USE OF PROCEEDS. The Borrower will, and will cause each
Subsidiary to, use the proceeds of the Advances (i) to refinance indebtedness
outstanding under
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the Existing Credit Agreements, (ii) to finance Permitted Acquisitions and Costs
and Expenses incurred in connection therewith, (iii) for working capital and
other general corporate purposes, and (iv) to repay outstanding Credit
Extensions. The Borrower will not, nor will it permit any Subsidiary to, use any
of the proceeds of the Advances to purchase or carry any "margin stock" (as
defined in Regulation U).
6.3. NOTICE OF DEFAULT. Promptly, but not later than five (5)
Business Days after any Authorized Officer becomes aware thereof, the Borrower
will, and will cause each Subsidiary to, give prompt notice in writing to the
Lenders of the occurrence of any Default or Unmatured Default and of any other
development, financial or otherwise, which could reasonably be expected to have
a Material Adverse Effect.
6.4. CONDUCT OF BUSINESS. The Borrower will, and will cause each
Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted and do all things necessary to remain duly incorporated or organized,
validly existing and (to the extent such concept applies to such entity) in good
standing as a domestic corporation, partnership or limited liability company in
its jurisdiction of incorporation or organization, as the case may be, and
maintain all requisite authority to conduct its business in each jurisdiction in
which its business is conducted.
6.5. TAXES. The Borrower will, and will cause each Subsidiary to,
timely file complete and correct United States federal and applicable foreign,
state and local tax returns required by law and pay when due all taxes,
assessments and governmental charges and levies upon it or its income, profits
or Property, except those which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves have been set aside in
accordance with Agreement Accounting Principles. At any time that any of the
Subsidiaries is organized as a limited liability company, each such limited
liability company will qualify for partnership tax treatment under United States
federal tax law.
6.6. INSURANCE. The Borrower will, and will cause each Subsidiary
to, maintain with financially sound and reputable insurance companies insurance
on all their Property in such amounts and covering such risks as is consistent
with sound business practice, and the Borrower will furnish to any Lender upon
request full information as to the insurance carried.
6.7. COMPLIANCE WITH LAWS. The Borrower will, and will cause each
Subsidiary to, comply in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject including, without limitation, all Environmental Laws.
6.8. MAINTENANCE OF PROPERTIES. The Borrower will, and will cause
each Subsidiary to, do all things necessary to maintain, preserve, protect and
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keep its Property in good repair, working order and condition, and make all
necessary and proper repairs, renewals and replacements so that its business
carried on in connection therewith may be properly conducted at all times.
6.9. INSPECTION. The Borrower will, and will cause each Subsidiary
to, permit the Agent and the Lenders, by their respective representatives and
agents, to inspect any of the Property, books and financial records of the
Borrower and each Subsidiary, to examine and make copies of the books of
accounts and other financial records of the Borrower and each Subsidiary, and to
discuss the affairs, finances and accounts of the Borrower and each Subsidiary
with, and to be advised as to the same by, their respective officers at such
reasonable times and intervals as the Agent or any Lender may designate.
6.10. INDEBTEDNESS. The Borrower will not permit the Active
Subsidiaries to create, incur or suffer to exist any Indebtedness, except:
(i) The Subsidiary Guaranty.
(ii) Indebtedness existing on the date hereof and described in
Schedule 6.10.
(iii) Indebtedness arising or deemed to arise in respect of a
securitization or secured financing facility for accounts
receivable of the Borrower and its Subsidiaries, provided that
such facility is approved by the Required Lenders.
(iv) Indebtedness arising under foreign exchange and currency swap
contracts entered into in the ordinary course of business and
not for speculative purposes, provided that the Net
Mark-to-Market Exposure arising from such contracts does not
exceed (A) in the case of any Subsidiary, an amount equal to
five percent (5%) of such Subsidiary's total assets, or (B) in
the case of all such Subsidiaries, an amount equal to two
percent (2%) of the consolidated total assets of the Borrower
and its Subsidiaries, in each case as measured as at the end
of the most recent fiscal quarter of such Subsidiary or the
Borrower, as the case may be.
(v) Indebtedness not described in clause (ii) above (A) incurred
or assumed for the purpose of financing or refinancing all or
any part of the cost of acquiring or constructing any specific
fixed asset, or (B) owing by any Subsidiary at the time such
Subsidiary is acquired by the Borrower or merged into or
consolidated with the Borrower or another Subsidiary, so long
as such Indebtedness was not incurred in contemplation of such
acquisition, merger or consolidation; provided that the sum of
all Indebtedness described in this clause (v), together with
all Indebtedness secured by Liens permitted pursuant to
Section 6.14(vii) and the amount of the transactions permitted
pursuant to Section 6.17(B) (but without duplication of such
amounts), does not exceed an amount equal to ten percent
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(10%) of the consolidated total assets of the Borrower and its
Subsidiaries as measured as at the end of the most recent
fiscal quarter of the Borrower.
(vi) Other Indebtedness not described in the preceding clauses (i)
through (v) not to exceed an amount equal to five percent (5%)
of the consolidated total assets of the Borrower and its
Subsidiaries as measured as at the end of the most recent
fiscal quarter of the Borrower.
6.11. MERGER. The Borrower will not, nor will it permit any
Subsidiary to, merge or consolidate with or into any other Person, except (i)
that a Subsidiary may merge into the Borrower or a Wholly-Owned Subsidiary, (ii)
that a Subsidiary may merge or consolidate with or into any other Person as part
of a Permitted Acquisition, and (iii) any other Person may merge or consolidate
with or into any Subsidiary or the Borrower as part of a Permitted Acquisition.
6.12. SALE OF ASSETS. The Borrower will not, nor will it permit any
Subsidiary to, lease, sell or otherwise dispose of its Property to any other
Person, except:
(i) Sales of inventory in the ordinary course of business.
(ii) Sales or other dispositions of obsolete or unnecessary
equipment in the ordinary course of business.
(iii) Sales of accounts receivable of the Borrower and/or its
Subsidiaries in a securitization facility permitted by Section
6.10(iii).
(iv) Leases, sales or other dispositions of its Property that,
together with all other Property of the Borrower and its
Subsidiaries previously leased, sold or disposed of (other
than as provided in clauses (i) through (iii) above) as
permitted by this Section during the twelve-month period
ending with the month in which any such lease, sale or other
disposition occurs, do not constitute a Substantial Portion of
the Property of the Borrower and its Subsidiaries.
6.13. INVESTMENTS AND ACQUISITIONS. The Borrower will not, nor will
it permit any Subsidiary to, make or suffer to exist any Investments (including
without limitation, loans and advances to, and other Investments in,
Subsidiaries), or commitments therefor, or to create any Subsidiary or to become
or remain a partner in any partnership or joint venture, or to make any
Acquisition of any Person, except:
(i) Cash Equivalent Investments.
(ii) Investments in Active Subsidiaries and other Investments in
existence on the date hereof and described in Schedule 6.13.
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(iii) Permitted Acquisitions and additional Investments in Active
Subsidiaries organized or acquired in connection with any such
Permitted Acquisition.
(iv) Investments made after the date of this Agreement in
Subsidiaries that are not Active Subsidiaries in an aggregate
amount not to exceed $1,000,000.
(v) Interest rate or foreign currency swap contracts entered into
in the ordinary course of business and not for speculative
purposes.
(vi) Investments made in any wholly owned Subsidiary organized for
the purpose of purchasing and selling and/or pledging accounts
receivable of the Borrower and/or its Subsidiaries in a
securitization or secured financing facility permitted by
Section 6.10(iii).
6.14. LIENS. The Borrower will not, nor will it permit any
Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the
Property of the Borrower or any of its Subsidiaries, except:
(i) Liens for taxes, assessments or governmental charges or levies
on its Property if the same shall not at the time be
delinquent or thereafter can be paid without penalty, or are
being contested in good faith and by appropriate proceedings
and for which adequate reserves in accordance with Agreement
Accounting Principles shall have been set aside on its books.
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the
ordinary course of business which secure payment of
obligations not more than 60 days past due or which are being
contested in good faith by appropriate proceedings and for
which adequate reserves shall have been set aside on its
books.
(iii) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions,
or other social security or retirement benefits, or similar
legislation.
(iv) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a
nature generally existing with respect to properties of a
similar character and which do not in any material way affect
the marketability of the same or interfere with the use
thereof in the business of the Borrower or its Subsidiaries.
(v) Liens existing on the date hereof and described in Schedule
6.14.
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(vi) Liens in favor of the Agent, for the benefit of the Lenders,
granted pursuant to any Collateral Document.
(vii) Any Lien not described in clause (v) above and existing on any
specific fixed asset (A) of any Person at the time such Person
becomes a Subsidiary of the Borrower and not created in
contemplation of such event, (B) securing Indebtedness
incurred or assumed for the purposes of financing or
refinancing all or any part of the cost of acquiring or
constructing such asset, where such acquisition is not in
connection with the purchase of all or substantially all of
the assets of a Person, (C) of any Person existing at the time
such Person is merged or consolidated with or into the
Borrower or any of its Subsidiaries and not created in
contemplation of such event, and (D) prior to the acquisition
of such asset by the Borrower or any of its Subsidiaries and
not created in contemplation of such acquisition; provided
that the Indebtedness secured by all such Liens described in
this clause (vii), (x) is otherwise permitted by Section 6.10,
and (y) when taken together with all Indebtedness described in
Section 6.10(v) and the amount of the transactions permitted
pursuant to Section 6.17(B) (but without duplication of such
amounts), does not exceed an amount equal to ten percent (10%)
of the consolidated total assets of the Borrower and its
Subsidiaries as measured as at the end of the most recent
fiscal quarter of the Borrower.
(viii) Liens securing Indebtedness owing by a Subsidiary to the
Borrower or another wholly owned Subsidiary of the Borrower.
(ix) Any Lien arising out of the refinancing, extension, renewal or
refunding of any Indebtedness secured by any Lien permitted
under any of the foregoing clauses of this Section, provided
that (x) such Indebtedness is not secured by any additional
assets, and (y) the amount of such Indebtedness secured by any
Lien is not increased.
(x) Zoning ordinances, easements, licenses or restrictions on the
use of real property and minor irregularities of title thereto
which do not materially impair the use of such property and
the operation of the business of the Borrower or any
Subsidiary (as the case may be) thereon or the value of such
property.
(xi) Inchoate Liens arising under ERISA to secure current service
pension liabilities as they are incurred under the provisions
of Plans from time to time in effect.
(xii) Rights reserved to or invested in any municipality or
governmental, statutory or public authority to control or
regulate any property of the Borrower or any of its
Subsidiaries, as the case may be, or to use such property in a
manner which does not materially impair the use of such
property for the purposes of which it is held by such Person.
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(xiii) Liens granted with respect to accounts receivable of the
Borrower and/or its Subsidiaries in a securitization or
secured financing facility permitted by Section 6.10(iii).
6.15. AFFILIATES.
(a) The Borrower will not, and will not permit any
Subsidiary to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment or
transfer to, any Affiliate except in the ordinary course of business and
pursuant to the reasonable requirements of the Borrower's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Borrower or
such Subsidiary than the Borrower or such Subsidiary would obtain in a
comparable arms-length transaction.
(b) The Borrower will not, nor will it permit any of its
Subsidiaries to, create or otherwise cause or suffer to exist or become
effective, any consensual encumbrance or restriction (excluding any such
encumbrance or restriction under this Agreement) on the ability of any such
Subsidiary to (i) pay dividends or make any other distributions on any of its
Capital Stock, or (ii) pay any indebtedness owed to the Borrower or any of its
Subsidiaries, or (iii) transfer of any of its assets to the Borrower or any of
its Subsidiaries, except any such encumbrance or restriction imposed by a
creditor extending purchase money financing in respect of any asset or assets of
the Borrower or any Subsidiary, or any proceeds thereof, so long as such
encumbrance or restriction does not so encumber or restrict any other assets or
property of the Borrower or any Subsidiary.
6.16. SUBORDINATED INDEBTEDNESS. The Borrower will not, and will not
permit any Subsidiary to, make any amendment or modification to the indenture,
note or other agreement evidencing or governing any Subordinated Indebtedness,
or directly or indirectly voluntarily prepay, defease or in substance defease,
purchase, redeem, retire or otherwise acquire, any Subordinated Indebtedness,
except that this Section 6.16 shall not apply to any Indebtedness owing by any
Subsidiary which was incurred by such Subsidiary prior to its becoming a
Subsidiary of the Borrower and which was not incurred in contemplation of its
becoming a Subsidiary of the Borrower.
6.17. SALE AND LEASEBACK TRANSACTIONS AND OTHER OFF-BALANCE SHEET
LIABILITIES. The Borrower will not, nor will it permit any Subsidiary to, enter
into or suffer to exist (i) any Sale and Leaseback Transaction or (ii) any other
transaction pursuant to which it incurs or has incurred Off-Balance Sheet
Liabilities, except for (A) Rate Hedging Obligations or other interest rate or
foreign currency swap contracts entered into in the ordinary course of business
and not for speculative purposes, and (B) Sale and Leaseback Transactions or
"synthetic lease" transactions entered into by the Borrower or any of its
Subsidiaries for the acquisition or construction of office, distribution or
other facilities to be used by the Borrower or its Subsidiaries, provided that
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the aggregate value of the assets that are the subject of such transactions
(measured at the higher of book value and fair market value at the time of such
transaction as determined in good faith by the Board of Directors of the
Borrower), taken together with the total amount of Indebtedness permitted
pursuant to Section 6.10(v) and Section 6.14(vii) (but without duplication of
such amounts), does not exceed an amount equal to ten percent (10%) of the
consolidated total assets of the Borrower and its Subsidiaries as measured as at
the end of the most recent fiscal quarter of the Borrower.
6.18. CONTINGENT OBLIGATIONS. The Borrower will not, nor will it
permit any Subsidiary to, make or suffer to exist any Contingent Obligation
(including, without limitation, any Contingent Obligation with respect to the
obligations of a Subsidiary), except (i) by endorsement of instruments for
deposit or collection in the ordinary course of business, (ii) the Subsidiary
Guaranty, (iii) Contingent Objections of the Borrower in respect of
Indebtedness, Off-Balance Sheet Liabilities or obligations under Operating
Leases of any Subsidiary that are otherwise permitted to exist or be incurred by
such Subsidiary pursuant to the terms of this Agreement, and (iv) Contingent
Obligations of any Subsidiary in respect of such Subsidiary's own Indebtedness,
Off-Balance Sheet Liabilities or obligations under Operating Leases that are
otherwise permitted to exist or be incurred by such Subsidiary pursuant to the
terms of this Agreement.
6.19. FINANCIAL COVENANTS.
6.19.1. COVERAGE RATIO. The Borrower will not permit the
ratio, determined as of the end of each of its fiscal quarters for the
then most-recently ended four fiscal quarters, of (i) Consolidated
EBITDA plus Consolidated Rentals, to (ii) Consolidated Interest Expense
plus Consolidated Rentals, to be less than 2.50 to 1.00.
6.19.2. DEBT TO CASH FLOW RATIO. The Borrower will not permit
the ratio, determined as of the end of each of its fiscal quarters, of
(i) Consolidated Indebtedness to (ii) Adjusted Consolidated EBITDA for
the then most-recently ended four fiscal quarters to be greater than
3.25 to 1.00.
6.19.3. MINIMUM NET WORTH. The Borrower will at all times
maintain Consolidated Net Worth of not less than the sum of (i)
$73,500,000, (ii) 50% of Consolidated Net Income (without deduction for
losses) for each preceding fiscal year (commencing with the fiscal year
ending December 31, 1997), and (iii) the aggregate amount of all Net
Proceeds of Capital Stock received or deemed received after the date of
this Agreement.
6.20. ADDITIONAL LOAN PARTIES. The Borrower shall cause each Active
Subsidiary organized under the laws of the United States of America or any state
thereof, the District of Columbia, or any territory thereof (a "Domestic Active
Subsidiary") that is not in existence, or does not constitute such a Domestic
Active Subsidiary, as of the date
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of this Agreement, to execute and deliver to the Agent a Subsidiary Guaranty
Supplement, a Contribution Agreement Supplement, and a Subsidiary Pledge
Agreement Supplement. In addition, the Borrower and/or each Subsidiary that owns
or holds any Capital Stock of such Domestic Active Subsidiary, or owns or holds
any Capital Stock of an active Subsidiary that is not a Domestic Active
Subsidiary (a "Non-Domestic Active Subsidiary") that is not in existence, or
does not constitute a Non-Domestic Active Subsidiary, as of the date of this
Agreement, shall execute and deliver to the Agent a supplement to the Borrower
Pledge Agreement and/or Subsidiary Pledge Agreement, as the case may be,
providing for the inclusion of such Capital Stock as a portion of the Collateral
subject to a first priority pledge and security interest in favor of the Agent
for the ratable benefit of the Lenders; provided, however, that in the case of
each Non-Domestic Active Subsidiary, the Capital Stock of such Subsidiary to be
pledged thereunder shall be limited to 66% of all outstanding Capital Stock
thereof. In each case, all such documents shall be delivered to the Agent within
10 Business Days after the creation or Acquisition of such Active Subsidiary, or
the date any Subsidiary of the Borrower otherwise becomes an Active Subsidiary,
and shall be accompanied by (i) such documents evidencing the organization of
such Active Subsidiary and the due authorization, execution, delivery, and
enforceability of such documents (e.g., certificate or articles of
incorporation, by-laws, articles of organization, operating and management
agreements, authorizing resolutions of the board of directors or other governing
body and opinions of counsel) as the Agent may reasonably request, and (ii) all
certificates and other instruments and documents representing the Capital Stock
of such Active Subsidiary, together with instruments of transfer and stock
powers duly endorsed in blank and Uniform Commercial Code financing statements
naming the owner or holder thereof as "debtor" and the Agent, for the ratable
benefit of the Lenders, as "secured party" and covering the Collateral evidenced
thereby.
6.21. RESTRICTED PAYMENTS AFTER DEFAULT. The Borrower will not
declare or pay any dividends, or make any distributions on its Capital Stock
(other than dividends payable in its own Capital Stock), or redeem, repurchase
or otherwise acquire or retire any of its Capital Stock at any time outstanding,
if at the time of such declaration, payment, distribution, redemption,
repurchase, acquisition or retirement there exists, or would occur or exist as a
result thereof, any Default.
6.22. CHANGE IN FISCAL YEARS. The Borrower will not change its
Fiscal Year without the consent of the Required Lenders, which consent shall not
be unreasonably withheld or delayed.
6.23 USE OF NCFC LOAN AND SECURITY AGREEMENT. Neither the Borrower
nor any Subsidiary shall borrow or have outstanding any loans, advances, letters
of credit, or other extensions of credit under the NCFC Loan and Security
Agreement at any time after the date of this Agreement, nor shall the NCFC Loan
and Security Agreement remain in effect or be outstanding at any time after
March 16, 1998.
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ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall
constitute a Default:
7.1. Any representation or warranty made or deemed made by or on
behalf of the Borrower or any of its Subsidiaries to the Lenders or the Agent
under or in connection with this Agreement, any Loan, or any certificate or
information delivered in connection with this Agreement or any other Credit
Document shall be materially false or misleading on the date as of which made.
7.2. Nonpayment of principal of any Loan when due, or nonpayment of
interest upon any Loan, any Commitment Fee, and Facility LC Fee, or other
obligations under any of the Credit Documents within five days after the same
becomes due.
7.3. The breach by the Borrower of any of the terms or provisions
of Sections 6.2, 6.3, 6.10 through 6.19 inclusive, 6.21 or 6.23.
7.4. The breach by the Borrower (other than a breach which
constitutes a Default under another Section of this Article VII) of any of the
terms or provisions of this Agreement which is not remedied within 30 days after
written notice from the Agent or any Lender.
7.5. Failure of the Borrower or any of its Subsidiaries to pay when
due any Indebtedness aggregating in excess of $1,000,000 or any obligation
aggregating in excess of $1,000,000 in respect of a transaction described in
Section 6.17 (in either such case, a "Material Obligation"); or the default by
the Borrower or any of its Subsidiaries in the performance (beyond the
applicable grace period with respect thereto, if any) of any term, provision or
condition contained in any agreement under which any such Material Obligation
was created or is governed, or any other event shall occur or condition exist,
the effect of which default or event is to cause, or to permit the holder or
holders of such Material Obligation to cause, such Material Obligation to become
due prior to its stated maturity; or any Material Obligation of the Borrower or
any of its Subsidiaries shall be declared to be due and payable or required to
be prepaid or repurchased (other than by a regularly scheduled payment) prior to
the stated maturity thereof; or the Borrower or any of its Subsidiaries shall
not pay, or admit in writing its inability to pay, its debts generally as they
become due.
7.6. The Borrower or any of its Subsidiaries shall (i) have an
order for relief entered with respect to it under the Federal bankruptcy laws as
now or hereafter in effect, (ii) make an assignment for the benefit of
creditors, (iii) apply for, seek, consent to, or acquiesce in, the appointment
of a receiver, custodian, trustee, examiner, liquidator or similar official for
it or any
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Substantial Portion of its Property, (iv) institute any proceeding seeking an
order for relief under the Federal bankruptcy laws as now or hereafter in effect
or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution,
winding up, liquidation, reorganization, arrangement, adjustment or composition
of it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or fail to file an answer or other pleading
denying the material allegations of any such proceeding filed against it, (v)
take any corporate or partnership action to authorize or effect any of the
foregoing actions set forth in this Section 7.6 or (vi) fail to contest in good
faith any appointment or proceeding described in Section 7.7.
7.7. Without the application, approval or consent of the Borrower
or any of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Borrower or any of its Subsidiaries or any
Substantial Portion of their Property, or a proceeding described in Section
7.6(iv) shall be instituted against the Borrower or any of its Subsidiaries and
such appointment continues undischarged or such proceeding continues undismissed
or unstayed for a period of 30 consecutive days.
7.8. Any court, government or governmental agency shall condemn,
seize or otherwise appropriate, or take custody or control of, all or any
portion of the Property of the Borrower and its Subsidiaries which, when taken
together with all other Property of the Borrower and its Subsidiaries so
condemned, seized, appropriated, or taken custody or control of, during the
twelve-month period ending with the month in which any such action occurs,
constitutes a Substantial Portion.
7.9. The Borrower or any of its Subsidiaries shall fail within 30
days to pay, bond or otherwise discharge any judgment or order for the payment
of money in excess of $1,000,000, which is not stayed on appeal or otherwise
being appropriately contested in good faith.
7.10. The Unfunded Liabilities of all Single Employer Plans shall
exceed in the aggregate $1,000,000 or any Reportable Event shall occur in
connection with any Plan that could reasonably be expected to have a Material
Adverse Effect.
7.11. The Borrower or any other member of the Controlled Group shall
have been notified by the sponsor of a Multiemployer Plan that it has incurred
withdrawal liability to such Multiemployer Plan in an amount which, when
aggregated with all other amounts required to be paid to Multiemployer Plans by
the Borrower or any other member of the Controlled Group as withdrawal liability
(determined as of the date of such notification), exceeds $1,000,000 or requires
payments exceeding $250,000 per annum.
7.12. The Borrower or any other member of the Controlled Group shall
have been notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or is being terminated, within the
meaning of Title IV of ERISA, if as a result of such reorganization or
termination the aggregate annual contributions of the Borrower and the other
members of the Controlled Group (taken as a whole) to all Multiemployer Plans
which are
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then in reorganization or being terminated have been or will be increased over
the amounts contributed to such Multiemployer Plans for the respective plan
years of each such Multiemployer Plan immediately preceding the plan year in
which the reorganization or termination occurs by an amount exceeding
$1,000,000.
7.13. The Borrower or any of its Subsidiaries shall (i) be the
subject of any proceeding or investigation pertaining to the release by the
Borrower, any of its Subsidiaries or any other Person of any toxic or hazardous
waste or substance into the environment, or (ii) violate any Environmental Law,
which, in the case of an event described in clause (i) or clause (ii), could
reasonably be expected to have a Material Adverse Effect.
7.14. Any Change in Control shall occur.
7.15. The occurrence of any "Event of Default" as defined in any
Credit Document (other than this Agreement), or the breach of any of the terms
or provisions of any Credit Document (other than this Agreement), which default
or breach continues beyond any period of grace therein provided.
7.16. The Subsidiary Guaranty shall fail to remain in full force or
effect or any action shall be taken to discontinue or to assert the invalidity
or unenforceability of the Subsidiary Guaranty, or any Subsidiary shall fail to
comply with any of the terms or provisions of the Subsidiary Guaranty, or any
Subsidiary shall deny that it has any further liability under the Subsidiary
Guaranty, or shall give notice to such effect.
7.17. Any Collateral Document shall for any reason fail to create a
valid and perfected first priority security interest in any collateral purported
to be covered thereby, except as permitted by the terms of any Collateral
Document, or any Collateral Document shall fail to remain in full force or
effect or any action shall be taken to discontinue or to assert the invalidity
or unenforceability of any Collateral Document, or the Borrower or any
Subsidiary shall fail to comply with any of the terms or provisions of any
Collateral Document applicable to it.
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ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1. ACCELERATION. If any Default described in Section 7.6 or 7.7
occurs with respect to the Borrower or any Active Subsidiary, the obligations of
the Lenders to make Credit Extensions hereunder shall automatically terminate
and the Obligations shall immediately become due and payable without any
election or action on the part of the Agent or any Lender. If any other Default
occurs, the Required Lenders (or the Agent with the consent of the Required
Lenders) may terminate or suspend the obligations of the Lenders to make Credit
Extensions hereunder, or declare the Obligations to be due and payable, or both,
whereupon the Obligations shall become immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which the Borrower
hereby expressly waives.
If, within 30 days after acceleration of the maturity of the
Obligations or termination of the obligations of the Lenders to make Credit
Extensions hereunder as a result of any Default (other than any Default as
described in Section 7.6 or 7.7 with respect to the Borrower) and before any
judgment or decree for the payment of the Obligations due shall have been
obtained or entered, the Required Lenders (in their sole discretion) shall so
direct, the Agent shall, by notice to the Borrower, rescind and annul such
acceleration and/or termination.
8.2. FACILITY LCS. Upon acceleration of the maturity of the
Obligations as provided in Section 8.1, (i) an amount equal to the maximum
amount which would be available at any time to be drawn under Facility LCs then
outstanding (whether or not any beneficiary under any Facility LC shall have
presented, or shall be entitled at such time to present, the drafts or other
documents required to draw under such Facility LC), and all reimbursement
obligations in respect of such outstanding Facility LCs shall become forthwith
due and payable without presentment, demand, protest or any other notice of any
kind, all of which are hereby waived by the Borrower, (ii) the Agent may, with
the consent of the Lenders, cause to be advanced for the account of the Borrower
an Advance consisting of Loans bearing interest at the rate provided in Section
2.11(ii) in an amount equal to the aggregate amount so becoming due and payable,
the proceeds of which Advance shall be paid directly into the LC Cash Collateral
Account as hereinafter provided (such Advance to be funded by the Lenders in the
manner provided in Section 2.1), and (iii) the Agent may exercise any rights or
remedies under the LC Cash Collateral Assignment. So long as any Facility LC
shall remain outstanding, any amounts described in clauses (i) and (ii) above
with respect to the Facility LCs, when received by the Agent, shall be deposited
in the LC Cash Collateral Account as cash collateral for the obligations of the
Borrower hereunder in the event of any drawing under a Facility LC, and upon
drawing under any outstanding Facility LC in respect of which the Agent has
deposited in the LC Cash Collateral Account any amounts described in clause (i)
above, the Agent shall pay such amounts held in the LC Cash Collateral Account
to the LC Issuer to reimburse the LC Issuer for the amount of such drawing.
8.3. AMENDMENTS. Subject to the provisions of this Article VIII,
the Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Credit Documents or
changing in any manner the rights of the
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Lenders or the Borrower hereunder or waiving any Default hereunder; provided,
however, that no such supplemental agreement shall, without the consent of all
of the Lenders:
(i) Extend the final maturity of any Loan or forgive all or any
portion of the principal amount thereof, or reduce the rate or
extend the time of payment of interest or fees thereon.
(ii) Reduce the percentage specified in the definition of Required
Lenders.
(iii) Extend the Facility Termination Date, or reduce the amount or
extend the payment date for, the mandatory payments required
under Section 2.2, or increase the amount of the Commitment of
any Lender hereunder, or permit the Borrower to assign its
rights under this Agreement.
(iv) Amend this Section 8.3 or any section of this Agreement that
by its express terms requires the consent or approval of all
of the Lenders.
(v) Release the Borrower or any Subsidiary from of the Obligations
or, except as provided in the Collateral Documents, release
all or any portion of the Collateral.
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent. The Agent may waive payment
of the fee required under Section 12.3.2 without obtaining the consent of any
other party to this Agreement.
8.4. PRESERVATION OF RIGHTS. No delay or omission of the Lenders or
the Agent to exercise any right under the Credit Documents shall impair such
right or be construed to be a waiver of any Default or an acquiescence therein,
and the making of a Credit Extensions notwithstanding the existence of a Default
or the inability of the Borrower to satisfy the conditions precedent to such
Credit Extensions shall not constitute any waiver or acquiescence. Any single or
partial exercise of any such right shall not preclude other or further exercise
thereof or the exercise of any other right, and no waiver, amendment or other
variation of the terms, conditions or provisions of the Credit Documents
whatsoever shall be valid unless in writing signed by the Lenders required
pursuant to Section 8.3, and then only to the extent in such writing
specifically set forth. All remedies contained in the Credit Documents or by law
afforded shall be cumulative and all shall be available to the Agent and the
Lenders until the Obligations have been paid in full.
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ARTICLE IX
GENERAL PROVISIONS
9.1. SURVIVAL OF REPRESENTATIONS. All representations and
warranties of the Borrower contained in this Agreement shall survive the making
of the Credit Extensions herein contemplated.
9.2. GOVERNMENTAL REGULATION. Anything contained in this Agreement
to the contrary notwithstanding, no Lender shall be obligated to extend credit
to the Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
9.3. HEADINGS. Section headings in the Credit Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Credit Documents.
9.4. ENTIRE AGREEMENT. The Credit Documents embody the entire
agreement and understanding among the Borrower, the Agent and the Lenders and
supersede all prior agreements and understandings among the Borrower, the Agent
and the Lenders relating to the subject matter thereof other than the fee letter
described in Section 10.13.
9.5. SEVERAL OBLIGATIONS; BENEFITS OF THIS AGREEMENT. The
respective obligations of the Lenders hereunder are several and not joint and no
Lender shall be the partner or agent of any other (except to the extent to which
the Agent is authorized to act as such). The failure of any Lender to perform
any of its obligations hereunder shall not relieve any other Lender from any of
its obligations hereunder. This Agreement shall not be construed so as to confer
any right or benefit upon any Person other than the parties to this Agreement
and their respective successors and assigns, provided, however, that the parties
hereto expressly agree that the Arranger shall enjoy the benefits of the
provisions of Sections 9.6, 9.10 and 10.11 to the extent specifically set forth
therein and shall have the right to enforce such provisions on its own behalf
and in its own name to the same extent as if it were a party to this Agreement.
9.6. EXPENSES; INDEMNIFICATION. (i) The Borrower shall reimburse
the Agent and the Arranger for any reasonable costs, internal charges and
out-of-pocket expenses (including attorneys' fees and time charges of attorneys
for the Agent, which attorneys may be employees of the Agent) actually paid or
incurred by the Agent or the Arranger in connection with the preparation,
negotiation, execution, delivery, syndication, review, amendment, modification,
and administration of the Credit Documents. The Borrower also agrees to
reimburse the Agent, the Arranger and the Lenders for any reasonable costs,
internal charges and out-of-pocket expenses (including attorneys' fees and time
charges of attorneys for the Agent, the Arranger and the Lenders, which
attorneys may be employees of the Agent, the Arranger or the Lenders) actually
paid or incurred by the Agent, the Arranger or any Lender in connection with the
collection and enforcement of the Credit Documents.
(ii) The Borrower hereby further agrees to indemnify the Agent, the
Arranger and each Lender, its directors, officers and employees against all
losses, claims, damages, penalties,
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judgments, liabilities and expenses (including, without limitation, all expenses
of litigation or preparation therefor whether or not the Agent, the Arranger or
any Lender is a party thereto) which any of them may pay or incur arising out of
or relating to this Agreement, the other Credit Documents, the transactions
contemplated hereby or the direct or indirect application or proposed
application of the proceeds of any Loan hereunder except to the extent that they
are determined in a final non-appealable judgment by a court of competent
jurisdiction to have resulted from the gross negligence or willful misconduct of
the party seeking indemnification. The obligations of the Borrower under this
Section 9.6 shall survive the termination of this Agreement.
9.7. NUMBERS OF DOCUMENTS. All statements, notices, closing
documents, and requests hereunder shall be furnished to the Agent with
sufficient counterparts so that the Agent may furnish one to each of the
Lenders.
9.8. ACCOUNTING. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles.
9.9. SEVERABILITY OF PROVISIONS. Any provision in any Credit
Document that is held to be inoperative, unenforceable, or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or
invalid without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Credit Documents are
declared to be severable.
9.10. NONLIABILITY OF LENDERS. The relationship between the Borrower
on the one hand and the Lenders and the Agent on the other hand shall be solely
that of borrower and lender. Neither the Agent, the Arranger nor any Lender
shall have any fiduciary responsibilities to the Borrower. Neither the Agent,
the Arranger nor any Lender undertakes any responsibility to the Borrower to
review or inform the Borrower of any matter in connection with any phase of the
Borrower's business or operations. The Borrower agrees that neither the Agent,
the Arranger nor any Lender shall have liability to the Borrower (whether
sounding in tort, contract or otherwise) for losses suffered by the Borrower in
connection with, arising out of, or in any way related to, the transactions
contemplated and the relationship established by the Credit Documents, or any
act, omission or event occurring in connection therewith, unless it is
determined in a final non-appealable judgment by a court of competent
jurisdiction that such losses resulted from the gross negligence or willful
misconduct of the party from which recovery is sought. Neither the Agent, the
Arranger nor any Lender shall have any liability with respect to, and the
Borrower hereby waives, releases and agrees not to sue for, any special,
indirect or consequential damages suffered by the Borrower in connection with,
arising out of, or in any way related to the Credit Documents or the
transactions contemplated thereby.
9.11. CONFIDENTIALITY. Each Lender agrees to hold any confidential
information which it may receive from the Borrower pursuant to this Agreement in
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confidence, except for disclosure (i) to its Affiliates and to other Lenders and
their respective Affiliates, (ii) to legal counsel, accountants, and other
professional advisors to that Lender or to a Transferee, (iii) to regulatory
officials, (iv) to any Person as requested pursuant to or as required by law,
regulation, or legal process, (v) to any Person in connection with any legal
proceeding to which that Lender is a party, and (vi) permitted by Section 12.4.
9.12. NONRELIANCE. Each Lender hereby represents that it is not
relying on or looking to any margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System) for the repayment of the Loans
provided for herein.
ARTICLE X
THE AGENT
10.1. APPOINTMENT; NATURE OF RELATIONSHIP. The First National Bank
of Chicago is hereby appointed by each of the Lenders as its contractual
representative (herein referred to as the "Agent") hereunder and under each
other Credit Document, and each of the Lenders irrevocably authorizes the Agent
to act as the contractual representative of such Lender with the rights and
duties expressly set forth herein and in the other Credit Documents. The Agent
agrees to act as such contractual representative upon the express conditions
contained in this Article X. Notwithstanding the use of the defined term
"Agent," it is expressly understood and agreed that the Agent shall not have any
fiduciary responsibilities to any Lender by reason of this Agreement or any
other Credit Document and that the Agent is merely acting as the contractual
representative of the Lenders with only those duties as are expressly set forth
in this Agreement and the other Credit Documents. In its capacity as the
Lenders' contractual representative, the Agent (i) does not hereby assume any
fiduciary duties to any of the Lenders, (ii) is a "representative" of the
Lenders within the meaning of Section 9-105 of the Uniform Commercial Code and
(iii) is acting as an independent contractor, the rights and duties of which are
limited to those expressly set forth in this Agreement and the other Credit
Documents. Each of the Lenders hereby agrees to assert no claim against the
Agent on any agency theory or any other theory of liability for breach of
fiduciary duty, all of which claims each Lender hereby waives.
10.2. POWERS. The Agent shall have and may exercise such powers
under the Credit Documents as are specifically delegated to the Agent by the
terms of each thereof, together with such powers as are reasonably incidental
thereto. The Agent shall have no implied duties to the Lenders, or any
obligation to the Lenders to take any action thereunder except any action
specifically provided by the Credit Documents to be taken by the Agent.
10.3. GENERAL IMMUNITY. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any
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Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Credit Document or in connection herewith or therewith except
to the extent such action or inaction is determined in a final non-appealable
judgment by a court of competent jurisdiction to have arisen from the gross
negligence or willful misconduct of such Person.
10.4. NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. Neither the Agent
nor any of its directors, officers, agents or employees shall be responsible for
or have any duty to ascertain, inquire into, or verify (a) any statement,
warranty or representation made in connection with any Credit Document or any
borrowing hereunder; (b) the performance or observance of any of the covenants
or agreements of any obligor under any Credit Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender; (c) the satisfaction of any condition specified in Article IV, except
receipt of items required to be delivered solely to the Agent; (d) the existence
or possible existence of any Default or Unmatured Default; (e) the validity,
enforceability, effectiveness, sufficiency or genuineness of any Credit Document
or any other instrument or writing furnished in connection therewith; (f) the
value, sufficiency, creation, perfection or priority of any Lien in any
collateral security; or (g) the financial condition of the Borrower or any
guarantor of any of the Obligations or of any of the Borrower's or any such
guarantor's respective Subsidiaries. The Agent shall have no duty to disclose to
the Lenders information that is not required to be furnished by the Borrower to
the Agent at such time, but is voluntarily furnished by the Borrower to the
Agent (either in its capacity as Agent or in its individual capacity).
10.5. ACTION ON INSTRUCTIONS OF LENDERS. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, hereunder and
under any other Credit Document in accordance with written instructions signed
by the Required Lenders, and such instructions and any action taken or failure
to act pursuant thereto shall be binding on all of the Lenders. The Lenders
hereby acknowledge that the Agent shall be under no duty to take any
discretionary action permitted to be taken by it pursuant to the provisions of
this Agreement or any other Credit Document unless it shall be requested in
writing to do so by the Required Lenders. The Agent shall be fully justified in
failing or refusing to take any action hereunder and under any other Credit
Document unless it shall first be indemnified to its satisfaction by the Lenders
pro rata against any and all liability, cost and expense that it may incur by
reason of taking or continuing to take any such action.
10.6. EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute any of
its duties as Agent hereunder and under any other Credit Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Agent and the Lenders
and all matters pertaining to the Agent's duties hereunder and under any other
Credit Document.
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10.7. RELIANCE ON DOCUMENTS; COUNSEL. The Agent shall be entitled to
rely upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.8. AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree
to reimburse and indemnify the Agent ratably in proportion to their respective
Revolving Commitments (or, if the Revolving Commitments have been terminated, in
proportion to their Revolving Commitments immediately prior to such termination)
(i) for any amounts not reimbursed by the Borrower for which the Agent is
entitled to reimbursement by the Borrower under the Credit Documents, (ii) for
any other expenses incurred by the Agent on behalf of the Lenders, in connection
with the preparation, execution, delivery, administration and enforcement of the
Credit Documents (including, without limitation, for any expenses incurred by
the Agent in connection with any dispute between the Agent and any Lender or
between two or more of the Lenders) and (iii) for any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind and nature whatsoever which may be imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of the Credit Documents or any other document delivered in connection therewith
or the transactions contemplated thereby (including, without limitation, for any
such amounts incurred by or asserted against the Agent in connection with any
dispute between the Agent and any Lender or between two or more of the Lenders),
or the enforcement of any of the terms of the Credit Documents or of any such
other documents, provided that no Lender shall be liable for any of the
foregoing to the extent any of the foregoing is found in a final non-appealable
judgment by a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the Agent. The obligations of the Lenders
under this Section 10.8 shall survive payment of the Obligations and termination
of this Agreement.
10.9. NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Unmatured Default
hereunder unless the Agent has received written notice from a Lender or the
Borrower referring to this Agreement describing such Default or Unmatured
Default and stating that such notice is a "notice of default". In the event that
the Agent receives such a notice, the Agent shall give prompt notice thereof to
the Lenders.
10.10. RIGHTS AS A LENDER. In the event the Agent is a Lender, the
Agent shall have the same rights and powers hereunder and under any other Credit
Document with respect to its Commitment and its Loans as any Lender and may
exercise the same as though it were not the Agent, and the term "Lender" or
"Lenders" shall, at any time when the Agent is a Lender, unless the context
otherwise indicates, include the Agent in its individual capacity. The Agent and
its Affiliates may accept deposits from, lend money to, and generally engage in
any kind of trust, debt, equity or other transaction, in addition to those
contemplated by
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this Agreement or any other Credit Document, with the Borrower or any of its
Subsidiaries in which the Borrower or such Subsidiary is not restricted hereby
from engaging with any other Person.
10.11. LENDER CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon the Agent, the Arranger or any other
Lender and based on the financial statements prepared by the Borrower and such
other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and the other Credit
Documents. Each Lender also acknowledges that it will, independently and without
reliance upon the Agent, the Arranger or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Credit Documents.
10.12. SUCCESSOR AGENT. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower, such resignation to be
effective upon the appointment of a successor Agent or, if no successor Agent
has been appointed, forty-five days after the retiring Agent gives notice of its
intention to resign. The Agent may be removed at any time with or without cause
by written notice received by the Agent from the Required Lenders, such removal
to be effective on the date specified by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint, on
behalf of the Lenders, a successor Agent. If no successor Agent shall have been
so appointed by the Required Lenders within thirty days after the resigning
Agent's giving notice of its intention to resign, then the resigning Agent may
appoint, on behalf of the Lenders, a successor Agent. Notwithstanding the
previous sentence, the Agent may at any time without the consent of the Borrower
or any Lender, appoint any of its Affiliates which is a commercial bank as a
successor Agent hereunder. If the Agent has resigned or been removed and no
successor Agent has been appointed, the Lenders may perform all the duties of
the Agent hereunder and the Borrower shall make all payments in respect of the
Obligations to the applicable Lender and for all other purposes shall deal
directly with the Lenders. No successor Agent shall be deemed to be appointed
hereunder until such successor Agent has accepted the appointment. Any such
successor Agent shall be a commercial bank having capital and retained earnings
of at least $100,000,000. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
resigning or removed Agent. Upon the effectiveness of the resignation or removal
of the Agent, the resigning or removed Agent shall be discharged from its duties
and obligations hereunder and under the Credit Documents. After the
effectiveness of the resignation or removal of an Agent, the provisions of this
Article X shall continue in effect for the benefit of such Agent in respect of
any actions taken or omitted to be taken by it while it was acting as the Agent
hereunder and under the other Credit Documents. In the event that there is a
successor to the Agent by merger, or the Agent assigns its duties and
obligations to an Affiliate pursuant to this Section 10.12, then the term
"Corporate Base Rate" as used in this Agreement shall mean the prime rate, base
rate or other analogous rate of the new Agent.
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10.13. AGENT'S FEE. The Borrower agrees to pay to the Agent, for its
own account, the fees agreed to by the Borrower and the Agent pursuant to that
certain letter agreement dated September 5, 1997, or as otherwise agreed from
time to time.
10.14. DELEGATION TO AFFILIATES. The Borrower and the Lenders agree
that the Agent may delegate any of its duties under this Agreement to any of its
Affiliates. Any such Affiliate (and such Affiliate's directors, officers, agents
and employees) which performs duties in connection with this Agreement shall be
entitled to the same benefits of the indemnification, waiver and other
protective provisions to which the Agent is entitled under Articles IX and X.
10.15. EXECUTION OF COLLATERAL DOCUMENTS. The Lenders hereby empower
and authorize the Agent to execute and deliver to the Borrower on their behalf
the Security Agreement(s) and all related financing statements and any financing
statements, agreements, documents or instruments as shall be necessary or
appropriate to effect the purposes of the Security Agreement(s).
10.16. COLLATERAL RELEASES. The Lenders hereby empower and authorize
the Agent to execute and deliver to the Borrower on their behalf any agreements,
documents or instruments as shall be necessary or appropriate to effect any
releases of Collateral which shall be permitted by the terms hereof or of any
other Credit Document or which shall otherwise have been approved by the
Required Lenders (or, if required by the terms of Section 8.2, all of the
Lenders) in writing.
ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.1. SETOFF. In addition to, and without limitation of, any rights
of the Lenders under applicable law, upon the existence or occurrence, and
during the continuation, of any Default, any and all deposits (including all
account balances, whether provisional or final and whether or not collected or
available) and any other Indebtedness at any time held or owing by any Lender or
any Affiliate of any Lender to or for the credit or account of the Borrower may
be offset and applied toward the payment of the Obligations owing to such
Lender, whether or not the Obligations, or any part hereof, shall then be due.
11.2. RATABLE PAYMENTS. If any Lender, whether by setoff or
otherwise, has payment made to it upon its Credit Extensions (other than
payments received pursuant to Section 3.1, 3.2, 3.4 or 3.5) in a greater
proportion than that received by any other Lender, such Lender agrees, promptly
upon demand, to purchase a portion of the Credit Extensions held by the other
Lenders so that after such purchase each Lender will hold its ratable
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proportion of Credit Extensions. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligations or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral ratably
in proportion to their Credit Extensions. In case any such payment is disturbed
by legal process, or otherwise, appropriate further adjustments shall be made.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.1. SUCCESSORS AND ASSIGNS. The terms and provisions of the Credit
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under the
Credit Documents without the written consent of all of the Lenders, and (ii) any
assignment by any Lender must be made in compliance with Section 12.3.
Notwithstanding clause (ii) of this Section, any Lender may at any time, without
the consent of the Borrower or the Agent, assign all or any portion of its
rights under this Agreement and any Note to a Federal Reserve Bank; provided,
however, that no such assignment to a Federal Reserve Bank shall release the
transferor Lender from its obligations hereunder. The Agent may treat the Person
which made any Loan or which holds any Note as the owner thereof for all
purposes hereof unless and until such Person complies with Section 12.3 in the
case of an assignment thereof or, in the case of any other transfer, a written
notice of the transfer is filed with the Agent. Any assignee or transferee of
the rights to any Loan or any Note agrees by acceptance of such transfer or
assignment to be bound by all the terms and provisions of the Credit Documents.
Any request, authority or consent of any Person, who at the time of making such
request or giving such authority or consent is the owner of the rights to any
Loan (whether or not a Note has been issued in evidence thereof), shall be
conclusive and binding on any subsequent holder, transferee or assignee of the
rights to such Loan.
12.2. PARTICIPATIONS.
12.2.1 PERMITTED PARTICIPANTS; EFFECT. Any Lender may, in the
ordinary course of its business and in accordance with applicable law,
at any time sell to one or more banks or other entities
("Participants") participating interests in any Loan owing to such
Lender, any Note held by such Lender, any Commitment of such Lender or
any other interest of such Lender under the Credit Documents. In the
event of any such sale by a Lender of participating interests to a
Participant, such Lender's obligations under the Credit Documents shall
remain unchanged, such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, such
Lender shall remain the owner of its Loans and the
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holder of any Note issued to it in evidence thereof for all purposes
under the Credit Documents, all amounts payable by the Borrower under
this Agreement shall be determined as if such Lender had not sold such
participating interests, and the Borrower and the Agent shall continue
to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under the Credit Documents.
12.2.2. VOTING RIGHTS. Each Lender shall retain the sole right
to approve, without the consent of any Participant, any amendment,
modification or waiver of any provision of the Credit Documents other
than any amendment, modification or waiver with respect to any Credit
Extensions or Commitment in which such Participant has an interest
which forgives principal, interest or fees or reduces the interest rate
or fees payable with respect to any such Credit Extensions or
Commitment, extends the Facility Termination Date, postpones any date
fixed for any regularly-scheduled payment of principal of, or interest
or fees on, any such Credit Extensions or Commitment, releases any
guarantor of any such Credit Extensions or releases all or
substantially all of the collateral, if any, securing any such Credit
Extensions.
12.2.3. BENEFIT OF SETOFF. The Borrower agrees that each
Participant shall be deemed to have the right of setoff provided in
Section 11.1 in respect of its participating interest in amounts owing
under the Credit Documents to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under the
Credit Documents, provided that each Lender shall retain the right of
setoff provided in Section 11.1 with respect to the amount of
participating interests sold to each Participant. The Lenders agree to
share with each Participant, and each Participant, by exercising the
right of setoff provided in Section 11.1, agrees to share with each
Lender, any amount received pursuant to the exercise of its right of
setoff, such amounts to be shared in accordance with Section 11.2 as if
each Participant were a Lender.
12.3. ASSIGNMENTS
12.3.1. PERMITTED ASSIGNMENTS. Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any
time assign to one or more banks or other entities ("Purchasers") all
or any part of its rights and obligations under the Credit Documents.
Such assignment shall be substantially in the form of Exhibit C or in
such other form as may be agreed to by the parties thereto. The consent
of the Borrower and the Agent shall be required prior to an assignment
becoming effective with respect to a Purchaser which is not a Lender or
an Affiliate thereof; provided, however, that if a Default has occurred
and is continuing, the consent of the Borrower shall not be required.
Such consents shall not be unreasonably withheld or delayed. Each such
assignment shall (unless each of the Borrower and the Agent otherwise
consents) be in an amount not less than the lesser of (i) $10,000,000
or (ii) the remaining amount of the assigning Lender's Commitment
(calculated as at the date of such assignment).
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12.3.2. EFFECT; EFFECTIVE DATE. Upon (i) delivery to the Agent
of a notice of assignment, substantially in the form attached as
Exhibit I to Exhibit C (a "Notice of Assignment"), together with any
consents required by Section 12.3.1, and (ii) payment of a $3,500 fee
to the Agent for processing such assignment, such assignment shall
become effective on the effective date specified in such Notice of
Assignment. The Notice of Assignment shall contain a representation by
the Purchaser to the effect that none of the consideration used to make
the purchase of the Commitment and Loans under the applicable
assignment agreement are "plan assets" as defined under ERISA and that
the rights and interests of the Purchaser in and under the Credit
Documents will not be "plan assets" under ERISA. On and after the
effective date of such assignment, such Purchaser shall for all
purposes be a Lender party to this Agreement and any other Credit
Document executed by or on behalf of the Lenders and shall have all the
rights and obligations of a Lender under the Credit Documents, to the
same extent as if it were an original party hereto, and no further
consent or action by the Borrower, the Lenders or the Agent shall be
required to release the transferor Lender with respect to the
percentage of the Aggregate Commitment and Loans assigned to such
Purchaser. Upon the consummation of any assignment to a Purchaser
pursuant to this Section 12.3.2, the transferor Lender, the Agent and
the Borrower shall, if the transferor Lender or the Purchaser desires
that its Loans be evidenced by Notes, make appropriate arrangements so
that new Notes or, as appropriate, replacement Notes are issued to such
transferor Lender and new Notes or, as appropriate, replacement Notes,
are issued to such Purchaser, in each case in principal amounts
reflecting their respective Commitments, as adjusted pursuant to such
assignment.
12.3.3. CERTAIN ASSIGNMENTS. If (i) any Taxes referred to in
Section 3.5(i) have been levied or imposed so as to require
withholdings or deductions by the Borrower and payment by the Borrower
of additional amounts to any Lender as a result thereof, or (ii) any
Lender shall make demand for payment of any material additional amounts
as compensation for increased costs or for its reduced rate of return
pursuant to Section 2.19(g), 3.1 or 3.2 hereof, then and in any such
event, upon request by the Borrower delivered to such Lender and the
Agent, such Lender shall assign, in accordance with the provisions of
this Section 12.3, all of its rights and obligations under this
Agreement and the other Credit Documents to another Lender or another
assignee selected by the Borrower and acceptable to the Agent (and the
Agent shall not unreasonably withhold its acceptance thereof) upon
payment by such assignee to such Lender of the principal of and the
interest on the outstanding Loans of such Lender accrued to the date of
such assignment and the assumption of such Lender's Revolving
Commitment hereunder, together with any and all other amounts owing to
such Lender under the provisions of this Agreement and the other Credit
Documents accrued to the date of such assignment, and compliance in all
other respects with the provisions of this Section 12.3.
Page 66
<PAGE> 67
12.4. DISSEMINATION OF INFORMATION. The Borrower authorizes each
Lender to disclose to any Participant or Purchaser or any other Person acquiring
an interest in the Credit Documents by operation of law (each a "Transferee")
and any prospective Transferee any and all information in such Lender's
possession concerning the creditworthiness of the Borrower and its Subsidiaries,
including without limitation any information contained in any Reports; provided
that each Transferee and prospective Transferee agrees to be bound by Section
9.11 of this Agreement.
12.5. TAX TREATMENT. If any interest in any Credit Document is
transferred to any Transferee which is organized under the laws of any
jurisdiction other than the United States or any State thereof, the transferor
Lender shall cause such Transferee, concurrently with the effectiveness of such
transfer, to comply with the provisions of Section 3.5(iv), and such Transferee
shall be subject to all other terms and conditions of Section 3.5.
ARTICLE XIII
NOTICES
13.1. NOTICES. Except as otherwise permitted by Section 2.13 with
respect to borrowing notices, all notices, requests and other communications to
any party hereunder shall be in writing (including electronic transmission,
facsimile transmission or similar writing) and shall be given to such party: (x)
in the case of the Borrower or the Agent, at its address or facsimile number set
forth on the signature pages hereof, (y) in the case of any Lender, at its
address or facsimile number set forth below its signature hereto or (z) in the
case of any party, at such other address or facsimile number as such party may
hereafter specify for the purpose by notice to the Agent and the Borrower in
accordance with the provisions of this Section 13.1. Each such notice, request
or other communication shall be effective (i) if given by facsimile
transmission, when transmitted to the facsimile number specified in this Section
and confirmation of receipt is received, (ii) if given by mail, three Business
Days after such communication is deposited in the mails with first class postage
prepaid, addressed as aforesaid, or (iii) if given by any other means, when
delivered (or, in the case of electronic transmission, received) at the address
specified in this Section; provided that notices to the Agent under Article II
shall not be effective until received.
13.2. CHANGE OF ADDRESS. The Borrower, the Agent and any Lender may
each change the address for service of notice upon it by a notice in writing to
the other parties hereto.
Page 67
<PAGE> 68
ARTICLE XIV
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Borrower, the
Agent and the Lenders and each party has notified the Agent by facsimile
transmission or telephone that it has taken such action.
ARTICLE XV
CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL
15.1. CHOICE OF LAW. THE CREDIT DOCUMENTS (OTHER THAN THOSE
CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE
OF GEORGIA, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
15.2. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR
ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENTS AND THE BORROWER HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY
BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION
IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING
PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY
JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY
AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
Page 68
<PAGE> 69
CONNECTED WITH ANY CREDIT DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO,
ILLINOIS.
15.3. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER
HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY CREDIT DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
Page 69
<PAGE> 70
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have
executed this Agreement as of the date first above written.
INDUSTRIAL DISTRIBUTION GROUP, INC.
By: /s/ Douglass C. Smith
-------------------------------------
Title: President
------------------------------
2500 Royal Place
Tucker, Georgia 30084
Attention: Chief Financial Officer
Telephone: 770/243-9007
FAX: 770/243-9040
Page 70
<PAGE> 71
Revolving Commitments
$20,000,000 THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Judith Cornell
-------------------------------
Title: Authorized Agent
-------------------------
One First National Plaza
Mail Suite 0324
Chicago, Illinois 60670
Attention: Judith L. Cornwell
Telephone: (312) 732-6274
FAX: (312) 732-5296
Page 71
<PAGE> 72
Revolving Commitments
$12,500,000 BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Michael J. McKenney
Title: Vice President
---------------------------------
1230 Peachtree Street, Suite 3800
Atlanta, GA 30309
Attention: Michael J. McKenney
Telephone: (404) 249-6913
FAX: (404) 249-6938
Lending Installation:
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Joycelyn Gay
Telephone: (312) 828-3801
FAX: (312) 974-9626
Page 72
<PAGE> 73
Revolving Commitments
$12,500,000 FIRST UNION NATIONAL BANK
By: /s/ Irene M. Barton
Title: Vice President
-----------------------------
4570 Ashford Dunwoody Road
2nd Floor
Atlanta, GA 30346
Attention: Irene Barton
Telephone: (404) 865-2353
FAX: (404) 865-2388
Page 73
<PAGE> 74
Revolving Commitments
$12,500,000 FLEET NATIONAL BANK
By: /s/ Lisa S. Coney
--------------------------------------
Title: Senior Vice President
-------------------------------
One Federal Street
3rd Floor
Boston, MA 02211
Attention: Lisa Coney
Telephone: (617) 346-0618
FAX: (617) 346-0575
Page 74
<PAGE> 75
Revolving Commitments
$17,500,000 WACHOVIA BANK, N.A.
By: /s/ Rusty Boozer
------------------------------------
Title: Vice President
------------------------------
191 Peachtree Street, N.E.
Atlanta, GA 30303-1757
Attention: Rusty Boozer
Telephone: (404) 332-5755
FAX: (404) 332-6920
Page 75
<PAGE> 76
PRICING SCHEDULE
<TABLE>
<CAPTION>
================================================================================
APPLICABLE LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
MARGIN STATUS STATUS STATUS STATUS STATUS
================================================================================
<S> <C> <C> <C> <C> <C>
Eurodollar Rate .625% .75% 1.00% 1.25% 1.375%
================================================================================
Floating Rate 0% 0% 0% .25% .375%
================================================================================
</TABLE>
<TABLE>
<CAPTION>
================================================================================
APPLICABLE FEE LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
RATE STATUS STATUS STATUS STATUS STATUS
================================================================================
<S> <C> <C> <C> <C> <C>
Commitment .20% .225% .25% .25% .30%
Fee
================================================================================
</TABLE>
For the purposes of this Schedule, the following terms have the
following meanings, subject to the final paragraph of this Schedule:
"FINANCIALS" means the annual or quarterly consolidated financial
statements of the Borrower and its Subsidiaries delivered pursuant to Section
6.1(i) or (ii).
"LEVEL I STATUS" exists at any date if, as of the last day of the
fiscal quarter of the Borrower referred to in the most recent Financials, the
Leverage Ratio is less than or equal to 1.00 to 1.00.
"LEVEL II STATUS" exists at any date if, as of the last day of the
fiscal quarter of the Borrower referred to in the most recent Financials, (i)
the Borrower does not qualify for Level I Status and (ii) the Leverage Ratio is
less than or equal to 2.00 to 1.00.
"LEVEL III STATUS" exists at any date if, as of the last day of the
fiscal quarter of the Borrower referred to in the most recent Financials, (i)
the Borrower does not qualify for Level I Status or Level II Status and (ii) the
Leverage Ratio is less or equal to than 2.50 to 1.00.
"LEVEL IV STATUS" exists at any date if, as of the last day of the
fiscal quarter of the Borrower referred to in the most recent Financials, (i)
the Borrower does not qualify for Level I Status, Level II Status or Level III
Status, and (ii) the Leverage Ratio is less or equal to than 3.00 to 1.00.
"LEVEL V STATUS" exists at any date if the Borrower does not qualify
for Level I, Level II, Level III, or Level IV Status.
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<PAGE> 77
"STATUS" means either Level I Status, Level II Status, Level III
Status, Level IV Status, or Level V Status.
The Applicable Margin and Applicable Fee Rate shall be determined in
accordance with the foregoing table based on the Borrower's Status as reflected
in the then most recent Financials. Adjustments, if any, to the Applicable
Margin or Applicable Fee Rate shall be effective five Business Days after the
Agent has received the applicable Financials. If the Borrower fails to deliver
the Financials to the Agent at the time required pursuant to Section 6.1, then
the Applicable Margin and Applicable Fee Rate shall be the highest Applicable
Margin and Applicable Fee Rate set forth in the foregoing table until five
Business Days after such Financials are so delivered. Notwithstanding the
foregoing, from and after the Closing Date until five Business Days after the
date the Financials for the period ending December 31, 1997 are received by the
Agent, or until the date the Borrower has failed to deliver such Financials at
the time required pursuant to Section 6.1, as the case may be, the Borrower
shall be deemed to have Level I Status.
Page 77
<PAGE> 78
Exhibits to Credit Agreement
Exhibit A Opinion of Counsel to Borrower
Exhibit B Compliance Certificate
Exhibit C Assignment Agreement
Exhibit D Loan/Credit Related Money Transfer Instruction
Exhibit E-1 Revolving Credit Note
Exhibit E-2 Swing Line Note
Exhibit F Subsidiary Guaranty
Exhibit G Contribution Agreement
Exhibit H Borrower Pledge and Security Agreement
Exhibit I Subsidiary Pledge and Security Agreement
Exhibit J LC Cash Collateral Assignment Agreement
<PAGE> 1
EXHIBIT 10.15(b)
FIRST AMENDMENT AND
RESTATEMENT OF CREDIT AGREEMENT
THIS FIRST AMENDMENT AND RESTATEMENT OF CREDIT AGREEMENT (this "First
Amendment") is made and entered into as of December 11, 1998, among INDUSTRIAL
DISTRIBUTION GROUP, INC., a Delaware corporation (the "Borrower"), the lending
institutions listed on the signature pages of this First Amendment and each
other lending institution becoming a "Lender" hereunder (collectively, the
"Lenders"), THE FIRST NATIONAL BANK OF CHICAGO, in its capacities as agent for
the Lenders (in such capacity, the "Agent") and as issuing bank for the
"Facility LCs" as provided herein (in such capacity, the "LC Issuer"), BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, in its capacity as Co-Agent for
the Lenders, and FIRST UNION NATIONAL BANK, in its capacity as Co-Agent for the
Lenders.
WITNESSETH:
WHEREAS, the Borrower, certain of the Lenders, and the Agent and LC
Issuer are parties to a certain Credit Agreement dated as of December 11, 1997
(the "1997 Agreement");
WHEREAS, the Borrower has requested that (i) the "Aggregate Revolving
Commitment" under the 1997 Agreement be increased from $75,000,000 to
$125,000,000, (ii) the aggregate amount of "LC Obligations" permitted to be
outstanding under the 1997 Agreement be increased from $5,000,000 to
$10,000,000, (iii) the "Facility Termination Date" under the 1997 Agreement be
extended from December 11, 2000 to December 11, 2001, and (iv) certain other
amendments to the 1997 Agreement be made as set forth herein;
WHEREAS, those Lenders that are parties to the 1997 Agreement, and the
other Lender that is becoming a party to the 1997 Agreement pursuant to this
First Amendment, have agreed to amend the 1997 Agreement on the terms, and
subject to the conditions and requirements, set forth herein, and to restate the
1997 Agreement in its entirety to read as set forth in the 1997 Agreement as in
effect on the date hereof with the amendments set forth herein;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. DEFINED TERMS. Except as otherwise expressly defined herein,
capitalized terms used in this First Amendment that are defined in the 1997
Agreement are used in this First Amendment with the respective meanings assigned
to such capitalized terms in the 1997 Agreement.
<PAGE> 2
2. AMENDMENTS TO ARTICLE I ("DEFINITIONS").
(a) Article I of the 1997 Agreement is hereby amended by deleting
the defined terms "Aggregate Revolving Commitment", "Facility Termination Date",
"Net Proceeds of Capital Stock" and "Operating Lease" and the accompanying
definitions for such defined terms in their entirety, and substituting in lieu
thereof the following defined terms and accompanying definitions:
"AGGREGATE REVOLVING COMMITMENT" means the aggregate of the
Revolving Commitments of all the Lenders, which amount (i) on and after
the Closing Date and prior to the First Amendment Effective Date is
$75,000,000, and (ii) on and after the First Amendment Effective Date
is $125,000,000, as such amount may be reduced from time to time
pursuant to the terms hereof.
"FACILITY TERMINATION DATE" means December 11, 2001 or any
earlier date on which the Aggregate Revolving Commitment is reduced to
zero or otherwise terminated pursuant to the terms hereof.
"NET PROCEEDS OF CAPITAL STOCK" means any proceeds received or
deemed received by the Borrower or any Subsidiary in respect of the
issuance or sale of Capital Stock or the conversion of any Indebtedness
to Capital Stock, after deducting therefrom all reasonable and
customary costs and expenses incurred by the Borrower or such
Subsidiary directly in connection with such issuance, sale or
conversion. In the case of an Acquisition where some or all of the
consideration for the Acquisition is Capital Stock, the amount of
proceeds received or deemed received in respect of such Capital Stock
shall be the amount, if any, by which Consolidated Net Worth, after
giving effect to the Acquisition and related accounting adjustments as
reflected in the financial statements of the Borrower, has increased
over Consolidated Net Worth before giving effect to such Acquisition
and related accounting adjustments, all as determined in accordance
with GAAP, provided that in no instance shall "Net Proceeds of Capital
Stock" as so calculated be less than zero.
"OPERATING LEASE" of a Person means any lease of Property
(other than a Capitalized Lease) by such Person as lessee which has an
original term (including any required renewals and any renewals
effective at the option of the lessor) of one year or longer.
(b) Article I of the 1997 Agreement is hereby amended by adding
the following new defined terms and accompanying definitions in appropriate
alphabetical order:
"ADDITIONAL LENDER" means Compass Bank.
"FIRST AMENDMENT" means the First Amendment and Restatement of
Credit Agreement dated as of December 11, 1998, among the Borrower, the
Lenders, and the Agent and LC Issuer.
"FIRST AMENDMENT CREDIT DOCUMENTS" means, collectively, the
First Amendment and the Notes, Subsidiary Guaranty Supplement, Borrower
Pledge
<PAGE> 3
Agreement Supplement, Subsidiary Pledge Agreement Supplement, and
Contribution Agreement Supplement required to be executed and delivered
to the Agent pursuant to Section 4.3.
"FIRST AMENDMENT EFFECTIVE DATE" means the date on which all
conditions and requirements set forth in Section 4.3 have been
satisfied or waived in writing by the Required Lenders.
"FIRST AMENDMENT FEES" means, collectively, (i) the fee
payable to each Initial Lender on the amount of such Initial Lender's
Revolving Commitment as in effect under the Agreement immediately
before giving effect to the First Amendment, in an amount equal to
0.125% of such Revolving Commitment, (ii) the fee payable to each
Initial Lender on the amount, if any, by which such Initial Lender's
Revolving Commitment as set forth in the First Amendment exceeds such
Initial Lender's Revolving Commitment under the Agreement immediately
before giving effect to the First Amendment, in an amount equal to
0.375% of such excess amount, and (iii) the fee payable to the
Additional Lender on the entire amount of such Additional Lender's
Revolving Commitment as set forth in the First Amendment, in an amount
equal to 0.375% of such Revolving Commitment.
"INITIAL LENDERS" means those Lenders that are parties to the
1997 Agreement before giving effect to the First Amendment, such
Lenders being The First National Bank of Chicago, Bank of America
National Trust and Savings Association, First Union National Bank,
Fleet National Bank, and Wachovia Bank, N.A.
"1998 SUBSIDIARIES" means, collectively, those Subsidiaries of
the Borrower organized or acquired after the Closing Date and prior to
the First Amendment Effective Date, such Subsidiaries being E.C.
Blackstone Company, a Georgia corporation, Continental Air Tool, Inc.,
a California corporation, Northern Tool & Supply, Inc., a Michigan
corporation, REFCO, Inc., a Georgia corporation, Hawley Industrial
Supplies, Inc., a Connecticut corporation, The New England Group
Industrial Distributors, Inc., a New Hampshire corporation, Industrial
& Tool Suppliers Limited Liability Company, a Maine limited liability
company, Buford Bros., Inc., a Tennessee corporation, Knox Industrial,
Inc., a California corporation, L.D. Supply, Inc., a Georgia
corporation, Cardinal Machinery, Inc., a Tennessee corporation, Petry &
Morrow, Inc., a Pennsylvania corporation, JM Tool and Supply, Inc., a
Michigan corporation, Austin Ford Logan, Inc., a New York corporation,
Atlantic Industrial Supply Co., Inc., a Massachusetts corporation, and
IDG Real Properties, Inc., a Georgia corporation.
"YEAR 2000 ISSUES" means the actual and anticipated costs,
claims, losses, and liabilities associated with the inability of
certain computer applications to handle effectively data that includes
dates on and after January 1, 2000, as such inability in respect of the
Borrower and its Subsidiaries and in respect of their respective
material customers, suppliers and vendors affects the business,
operations, and financial condition of the Borrower and its
Subsidiaries.
<PAGE> 4
3. AMENDMENT TO SECTION 2.19 ("FACILITY LCS"). Subsection (a) of Section
2.19 of the 1997 Agreement is hereby amended by deleting from the first sentence
of such subsection (a) clause (i) in its entirety and substituting in lieu
thereof the following clause (i):
(i) The aggregate amount of the outstanding LC
Obligations shall not exceed $10,000,000 and
4. ADDITION OF SECTION 2.21 ("INCREASE IN COMMITMENTS"). Article II of the
1997 Agreement is hereby amended by adding a new Section 2.21 as follows:
2.21. INCREASE IN COMMITMENTS.
(a) On the First Amendment Effective Date, the Aggregate Revolving
Commitment shall be increased from $75,000,000 to $125,000,000, with such
increase being the result of increases in the Revolving Commitments of certain
Initial Lenders, and the issuance by the Additional Lender of a new Revolving
Commitment. After giving effect to the foregoing actions, the Revolving
Commitments and the Percentages of the Lenders (including the Additional Lender)
shall be as set forth on the signature pages to the First Amendment. On the
First Amendment Effective Date, all outstanding Loans shall be prepaid in full,
together with all interest accrued and unpaid thereon through the date of such
prepayment, and all amounts required to be paid pursuant to Section 3.4 as a
result of such prepayment occurring on a date other than the last day of an
Interest Period. All Loans (including, without limitation, all Loans made to the
Borrower on the First Amendment Effective Date to prepay all Loans then
outstanding) and all continuations and conversions of outstanding Loans made on
and after the First Amendment Effective Date shall be made on the basis of the
revised Revolving Commitments and Percentages as set forth in the First
Amendment.
(b) On the First Amendment Effective Date, with respect to each
Facility LC that may previously have been issued and be outstanding, the
respective participations in such Facility LC purchased by the Initial Lenders
pursuant to Section 2.19(b) shall be increased or decreased, as the case may be,
in accordance with the change in each such Initial Lender's Percentage pursuant
to the First Amendment, without further action by any party hereto. In addition,
the LC Issuer shall be deemed, without further action by any party hereto, to
have sold to the Additional Lender, and such Additional Lender shall be deemed,
without further action by any party hereto, to have purchased from the LC
Issuer, a participation in such Facility LC and the related LC Obligations in
proportion to its Percentage as established pursuant to the First Amendment.
(c) The Borrower's obligations to pay the principal of, and
interest on, all Loans shall be evidenced by the records of the Agent and each
such Lender and, if such Lender has received a Note executed by the Borrower
pursuant to Section 2.13, 4.1 or 4.3, by such Note payable to such Lender
completed in conformity with this Agreement.
(d) From and after the First Amendment Effective Date, all
references in this Agreement to the Revolving Commitments shall be deemed to
include the Revolving
<PAGE> 5
Commitments as increased by this Section 2.21 (subject, however, to subsequent
decreases from time to time as a result of any reduction thereof pursuant to the
provisions of this Agreement).
5. ADDITION OF SECTION 4.3 ("EFFECTIVENESS OF FIRST AMENDMENT"). Article
IV of the 1997 Agreement is hereby amended by adding a new Section 4.3 as
follows:
4.3. EFFECTIVENESS OF FIRST AMENDMENT. The First Amendment
shall not become effective until all of the following conditions and
requirements have been satisfied and performed:
(a) The Borrower shall have furnished to the Agent the
following, all in form and substance satisfactory to the Agent and the
Lenders, with sufficient copies for the Lenders:
(i) Copies of the articles or certificate of
incorporation, certificate of limited
partnership, articles of organization, or
similar organizational documents of each
Loan Party (including, without limitation,
each 1998 Subsidiary), together with all
amendments thereto, and a certificate of
good standing, each certified by the
appropriate governmental officer in its
jurisdiction of organization for such Loan
Party.
(ii) Copies, certified by its Secretary or
Assistant Secretary or similar
representative, of each Loan Party's
(including, without limitation, each 1998
Subsidiary's) by-laws, partnership
agreement, operating or management
agreement, or similar organizational
documents, and resolutions of its board of
directors, managers, or similar officials,
authorizing the execution of the First
Amendment Credit Documents to which each
such Loan Party is a party.
(iii) An incumbency certificate, executed by the
Secretary or Assistant Secretary or similar
representative of each Loan Party
(including, without limitation, each 1998
Subsidiary), which shall identify by name
and title and bear the signatures of the
authorized officers and any other
representative of such Loan Party authorized
to sign the First Amendment Credit Documents
to which such Loan Party is a party, upon
which certificate the Agent and the Lenders
shall be entitled to rely until informed of
any change in writing by such Loan Party.
(iv) A certificate, signed by the Chief Financial
Officer of the Borrower, stating that on the
First Amendment Effective Date (A) no
Default or Unmatured Default has occurred
and is continuing, (B) the representations
and warranties set forth in the First
Amendment and the other First Amendment
Credit Documents are true and correct in all
material respects, and (C) all conditions
and
<PAGE> 6
requirements set forth in this Article IV
have been satisfied and performed or waived
in writing by the Required Lenders.
(v) A written opinion of counsel for the Loan
Parties (including, without limitation, the
1998 Subsidiaries), addressed to the Lenders
in substantially the form of Exhibit K
attached to the First Amendment.
(vi) Any Notes requested by Lenders pursuant to
Section 2.13 payable to the order of such
requesting Lenders.
(vii) A Subsidiary Guaranty Supplement duly
executed by an authorized officer or other
representative of each of the 1998
Subsidiaries.
(viii) A Borrower Pledge Agreement Supplement, duly
executed by an Authorized Officer of the
Borrower, in respect of all of the issued
and outstanding capital stock of the 1998
Subsidiaries owned or held by the Borrower,
together with (i) all stock certificates and
other instruments and documents representing
the "Additional Pledged Securities" (as
defined in the Borrower Pledge Agreement
Supplement) accompanied by instruments of
transfer and stock powers endorsed in blank,
and (ii) Uniform Commercial Code financing
statements naming the Borrower as "debtor"
and the Agent, for the ratable benefit of
the Lenders, as the "secured party" and
covering the "Additional Collateral" (as
defined in the Borrower Pledge Agreement
Supplement), evidencing a first priority
pledge of and security interest in such
"Additional Pledged Securities."
(ix) A Subsidiary Pledge Agreement Supplement,
duly executed by an authorized officer or
other representative of each Subsidiary
(including, without limitation, each 1998
Subsidiary) that owns or holds any capital
stock of any of the 1998 Subsidiaries, in
respect of all such capital stock owned or
held by it, together with (i) all stock
certificates and other documents and
instruments representing the "Additional
Pledged Securities" as defined in the
Subsidiary Pledge Agreement Supplement)
accompanied by instruments of transfer and
stock powers endorsed in blank, and (ii)
Uniform Commercial Code financing statements
naming each Subsidiary as "debtor" and the
Agent, for the ratable benefit of the
Lenders, as the "secured party" and covering
the "Additional Collateral" (as defined in
the Subsidiary Pledge Agreement Supplement),
evidencing a first priority pledge of and
security interest in such "Additional
Pledged Securities."
<PAGE> 7
(x) A Contribution Agreement Supplement duly
executed by an authorized officer or other
representative of each of the 1998
Subsidiaries.
(xi) Evidence satisfactory to the Agent that the
Existing Credit Agreements have been
terminated and indebtedness, liabilities,
and obligations outstanding thereunder have
been paid in full, and that all Liens on the
assets and properties of the Borrower and
its Subsidiaries, other than those permitted
by Section 6.14, have been terminated or
canceled.
(xii) A compliance and solvency certificate
executed by the Chief Financial Officer of
the Borrower.
(xiii) Satisfactory written information from the
Borrower indicating that the Borrower and
its Subsidiaries (i) have done a
comprehensive review of their computer
programs and systems to identify those
programs and systems that would be affected
by Year 2000 Issues as such Issues pertain
to the computer programs and systems of the
Borrower and its Subsidiaries, and are in
the process of reviewing their Year 2000
exposure to third party customers, suppliers
and vendors, and evaluating the costs of
modifications to program logic control
systems, (ii) have developed or are in the
process of developing a realistic and
achievable program for remediating in all
material respects all currently known Year
2000 Issues on a timely basis as such Issues
pertain to the computer programs and systems
of the Borrower and its Subsidiaries, and
(iii) based on their review, consultants'
reports and other information currently
available to them, do not reasonably
anticipate that Year 2000 Issues will have a
Material Adverse Effect.
(xiv) Such other documents as the Agent or any
Lender or its counsel may have reasonably
requested.
(b) The Borrower shall have paid (i) to the Agent for the benefit
of the respective Lenders (including, without limitation, the Additional Lender)
the full amount of the First Amendment Fees, (ii) to the Agent the annual
administrative fee as previously agreed by the Borrower, and (iii) to the
Arranger the arrangement fee due in respect of the First Amendment as previously
agreed by the Borrower.
(c) The First Amendment shall have been executed and delivered by
the Borrower, each of the Lenders (including, without limitation, the Additional
Lender), the Agent and LC Issuer and the Co-Agents, and the Acknowledgment and
Agreement of Guarantors attached to the First Amendment shall have been executed
and delivered by all Domestic Active Subsidiaries (including, without
limitation, the 1998 Subsidiaries).
<PAGE> 8
(d) Since June 30, 1998, there shall have been no change in the
business, Property, prospects, condition (financial or otherwise) or results of
operations of the Borrower and its Subsidiaries which could reasonably be
expected to have a Material Adverse Effect.
6. AMENDMENT TO SECTION 5.8 ("SUBSIDIARIES"). The first sentence of
Section 5.8 is hereby amended by deleting such first sentence in its entirety
and substituting in lieu thereof the following sentence:
"Schedule 5.8 as attached to the First Amendment contains an
accurate list of all Subsidiaries of the Borrower as of the First
Amendment Effective Date, setting forth their respective jurisdictions
of organization and the percentage of their respective capital stock or
other ownership interests owned by the Borrower and its other
Subsidiaries in all such Subsidiaries.
7. ADDITION OF SECTION 5.21 ("YEAR 2000 ISSUES"). Article V of the 1997
Agreement is hereby amended by adding a new Section 5.21 as follows:
5.21. YEAR 2000 ISSUES. The Borrower and its Subsidiaries (i)
have done a comprehensive review of their computer programs and systems
to identify those programs and systems that would be affected by Year
2000 Issues as such Issues pertain to the computer programs and systems
of the Borrower and its Subsidiaries, and are in the process of
reviewing their Year 2000 exposure to third party customers, suppliers
and vendors, and evaluating the costs of modifications to program logic
control systems, (ii) have developed or are in the process of
developing a realistic and achievable program for remediating in all
material respects all currently known Year 2000 Issues on a timely
basis as such Issues pertain to the computer programs and systems of
the Borrower and its Subsidiaries, and (iii) based on their review,
consultants' reports, and all other information currently available to
them, do not reasonably anticipate that Year 2000 Issues will have a
Material Adverse Effect.
8. AMENDMENT TO SECTION 6.10 ("INDEBTEDNESS").
(a) Section 6.10 of the 1997 Agreement is hereby amended by
deleting the introductory phrase thereof (such phrase being the portion of the
first sentence of Section 6.10 immediately preceding clause (i) thereof) in its
entirety and substituting in lieu thereof the following phrase:
The Borrower will not, and will not permit the Active
Subsidiaries to, create, incur or suffer to exist any
Indebtedness other than Indebtedness arising under this
Agreement and the other Credit Documents, except:
(b) Section 6.10 of the 1997 Agreement is hereby further amended
by deleting clause (vi) thereof in its entirety and substituting in lieu thereof
the following clauses (vi) and (vii) as follows:
<PAGE> 9
(vi) Other Indebtedness not described in the preceding
clauses (i) through (v), or in the following clause
(vii), not to exceed an amount equal to five percent
(5%) of the consolidated total assets of the Borrower
and its Subsidiaries as measured as at the end of the
most recent fiscal quarter of the Borrower.
(vii) Other Indebtedness not described in clause (ii) or
(v) above incurred after the First Amendment
Effective Date in an aggregate amount not to exceed
$7,500,000 for the purpose of financing purchases by
the Borrower and its Subsidiaries of computer
hardware and software.
9. AMENDMENT TO SECTION 6.19.3 ("MINIMUM NET WORTH"). Section 6.19.3 of
the 1997 Agreement is hereby amended by deleting such Section 6.19.3 in its
entirety and substituting in lieu thereof the following Section 6.19.3:
6.19.3. MINIMUM NET WORTH. The Borrower will maintain, at all
times on and after June 30, 1998, Consolidated Net Worth of not less
than the sum of (i) $95,000,000, (ii) 50% of Consolidated Net Income
(without deduction for losses) for each preceding fiscal quarter
(commencing with the third fiscal quarter of the Borrower's 1998 fiscal
year), and (iii) the aggregate amount of all Net Proceeds of Capital
Stock received or deemed received after June 30, 1998.
10. ADDITION OF SECTION 6.24 ("YEAR 2000 ISSUES"). Article VI of the 1997
Agreement is hereby amended by adding a new Section 6.24 as follows:
6.24. YEAR 2000 ISSUES. The Borrower will take, and cause
its Subsidiaries to take, all actions reasonably necessary to assure
that the Year 2000 Issues, as such issues pertain to the computer
programs and systems of the Borrower and its Subsidiaries, will not
have a Material Adverse Effect. The Borrower and its Subsidiaries will
use their best efforts to assure that their third-party customers,
suppliers and vendors develop and implement programs to remediate in
all material respects all Year 2000 Issues that would otherwise
reasonably be anticipated by the Borrower or its Subsidiaries to have a
Material Adverse Effect. Upon request by the Agent or any Lender, the
Borrower will provide the Lenders a written description of its Year
2000 program, including updates and progress reports. The Borrower will
promptly advise the Agent and the Lenders of any reasonably anticipated
Material Adverse Effect as a result of any Year 2000 Issues.
11. AMENDMENT TO PRICING SCHEDULE. The Pricing Schedule attached to the
1997 Agreement is hereby amended by deleting such Pricing Schedule in its
entirety and substituting in lieu thereof the Pricing Schedule attached to this
First Amendment. On and after the First Amendment Effective Date, interest on
all Loans and Commitment Fees on the daily unused portion of each Lender's
Revolving Commitment shall be calculated on the basis of the applicable interest
rate margins and fee rates as set forth in the Pricing Schedule attached to this
First Amendment.
<PAGE> 10
12. AMENDMENT TO SCHEDULE 5.8 ("SUBSIDIARIES"). Schedule 5.8 attached to
the 1997 Agreement is hereby amended by deleting said Schedule 5.8 in its
entirety and substituting in lieu thereof Schedule 5.8 as attached to this First
Amendment.
13. ADDITIONAL LENDER; LENDER INFORMATION. On and after the First Amendment
Effective Date, the Additional Lender shall, for all purposes of the 1997
Agreement and the other Credit Documents, as amended by this First Amendment, be
a "Lender" having in effect the Revolving Commitment as shown for such
Additional Lender on its signature page attached to this First Amendment. The
address for notices and specification of its Lending Installation shall be as
shown on its signature page as attached to this First Amendment. The Additional
Lender agrees that, on and after the First Amendment Effective Date, such
Additional Lender shall be a party to the 1997 Agreement as amended by this
First Amendment, and hereby assumes and agrees to pay and perform all
obligations that it may have or incur as a "Lender" under the terms of the 1997
Agreement and the other Credit Documents as amended by this First Amendment, to
the same extent and with the same effect as though such Additional Lender had
originally been a Lender that was a party to the 1997 Agreement.
14. REPRESENTATIONS AND WARRANTIES. In order to induce the Lenders and the
Agent and LC Issuer to enter into this First Amendment, the Borrower represents
and warrants to the Lenders and the Agent and LC Issuer as follows:
(a) All representations and warranties set forth in the 1997
Agreement, as amended by this First Amendment, are true and correct in all
material respects with the same effect as though such representations and
warranties had been made on and as of the date of this First Amendment, except
to the extent that such representations and warranties are expressly made with
respect to a specific date, in which case such representations and warranties
are true and correct in all material respects as of such specific date.
(b) No Default or Unmatured Default has occurred and is continuing
on the date hereof. Since June 30, 1998, there has been no change in the
business, Property, prospects, condition (financial or otherwise) or results of
operations of the Borrower and its Subsidiaries which could reasonably be
expected to have a Material Adverse Effect.
(c) Each of the Borrower and the other Loan Parties (including,
without limitation, the 1998 Subsidiaries) has the organizational power and
authority to make, deliver and perform their respective obligations under this
First Amendment and the other First Amendment Credit Documents and has taken all
necessary organizational action to authorize the execution, delivery and
performance of this First Amendment and the other First Amendment Credit
Documents. No consent or authorization of, or filing with, any Person
(including, without limitation, any governmental authority), is required in
connection with the execution, delivery or performance by the Borrower or any
such other Loan Party, or the validity or enforceability against the Borrower or
any such other Loan Party, or any of the First Amendment Credit Documents, other
than such consents, authorizations or filings which have been made or obtained.
(d) Each of the First Amendment Credit Documents has been duly
executed and delivered by the Borrower and the other Loan Parties (including,
without limitation, the 1998
<PAGE> 11
Subsidiaries), as applicable, and each of the First Amendment Credit Documents
constitutes the legal, valid and binding obligation of the Borrower and such
other Loan Parties, respectively, enforceable against the Borrower and such
other Loan Parties in accordance with their respective terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity. The execution, delivery and performance by the
Borrower and such other Loan Parties of the First Amendment Credit Documents
will not violate any applicable legal requirements or cause a breach or default
under any of their respective contractual obligations.
(e) The Borrower acknowledges and agrees that there are no
defenses, claims, counterclaims, or rights of setoff in its favor against any
Lender or the Agent or LC Issuer with regard to any of the obligations and
liabilities of the Borrower or any of its Subsidiaries under the terms of the
1997 Agreement, the other Credit Documents, this First Amendment or the other
First Amendment Credit Documents.
15. REFERENCES TO AGREEMENT. On and after the First Amendment Effective
Date, each and every reference in the Credit Documents to the 1997 Agreement
shall be deemed to refer to and mean the 1997 Agreement as amended and restated
by this First Amendment. The parties further confirm and agree that (i) except
as expressly amended herein, the 1997 Agreement remains in full force and effect
in accordance with its terms, and (ii) except as expressly amended or
supplemented by the First Amendment Credit Documents, all other Credit Documents
remain in full force and effect in accordance with their respective terms.
16. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
reasonable costs and expenses of the Agent in connection with the preparation,
execution and delivery of this First Amendment and the other First Amendment
Credit Documents, including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for the Agent with respect thereto and with
respect to advising the Agent as to its rights and responsibilities hereunder
and thereunder. In addition, the Borrower shall pay any and all stamp and other
taxes payable or determined to be payable in connection with the execution and
delivery of this First Amendment and the other First Amendment Credit Documents,
and agrees to save the Agent and each Lender harmless from and against any and
all liabilities with respect to or resulting from any delay in paying such
taxes.
17. GOVERNING LAW. This First Amendment shall be governed by, and construed
in accordance with, the laws of the State of Georgia.
18. ENTIRE UNDERSTANDING. This First Amendment sets forth the entire
understanding of the parties with respect to the matters set forth herein, and
shall supersede any prior negotiations, commitment letters, or agreements,
whether written or oral, with respect to such matters.
19. COUNTERPARTS. This First Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts and may be
delivered by telecopier. Each counterpart so executed and delivered shall be
deemed an original and all of which taken together shall constitute but one and
the same instrument.
20. NO WAIVER. The Borrower agrees that nothing herein shall constitute a
waiver by the Lenders of any Default or Unmatured Default, whether known or
unknown, which may exist under the 1997 Agreement, the other Credit Documents,
this First Amendment, or the other First Amendment Credit Documents.
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment through their authorized officers as of the date first above written.
INDUSTRIAL DISTRIBUTION GROUP, INC.
By: /s/ Jack P. Healey
----------------------------------------
Title: Senior Vice President,
Chief Financial Officer
----------------------------------
2500 Royal Place
Tucker, Georgia 30084
Attention: Chief Financial Officer
Telephone: 770/243-9007
` FAX: 770/243-9040
<PAGE> 13
Revolving Commitment:
$30,000,000 THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
Percentage:
By: /s/ Judith L. Cornwell
24.00% ----------------------------------
Title: Vice President
----------------------------
Lending Installation: One First National Plaza
Mail Suite 0324
First Chicago Capital Markets, Inc. Chicago, Illinois 60670
One First National Plaza
Mail Suite 0324 Attention: Judith L. Cornwell
Chicago, IL 60670 Telephone: (312) 732-6274
FAX: (312) 732-5296
<PAGE> 14
Revolving Commitment:
$23,750,000 BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
Individually and as Co-Agent
Percentage:
By: /s/ Nancy S. Goldman
--------------------------------------------
19.00%
Title: Vice President
--------------------------------------
600 Peachtree Street, N.E., 9th Floor
Atlanta, GA 30308-2213
Attention: Nancy Goldman
Telephone: (404) 607-5539
FAX: (404) 607-6467
Lending Installation:
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Glen Rylko
Telephone: (312) 828-3809
FAX: (312) 974-9626
<PAGE> 15
Revolving Commitment:
$23,750,000 FIRST UNION NATIONAL BANK,
Individually and as Co-Agent
Percentage:
By: /s/ William J. Bartlett
19.00% ---------------------------------------
Title: Vice President
---------------------------------
999 Peachtree Street
Ninth Floor
MC 9084
Atlanta, GA 30309
Attention: William J. Bartlett
Telephone: (404) 225-4149
FAX: (404) 225-4286
Lending Installation:
999 Peachtree Street
Ninth Floor
MC 9084
Atlanta, GA 30309
Attention: William J. Bartlett
Telephone: (404) 225-4149
FAX: (404) 225-4286
<PAGE> 16
Revolving Commitment:
$20,000,000 FLEET NATIONAL BANK
Percentage:
By: /s/ Deonne M. Horn
16.00% -------------------------------------
Title: Vice President
-------------------------------
One Federal Street
7th Floor, Mail Stop MA 0F D07L
Boston, MA 02110
Attention: Deanne Horn
Telephone: (617) 346-5847
FAX: (617) 346-0145
Lending Installation:
One Federal Street
7th Floor, Mail Stop MA 0F D07K
Boston, MA 02110
Attention: Matthew Correia
Telephone: (617) 346-0621
FAX: (617) 346-0595
<PAGE> 17
Revolving Commitment:
$17,500,000 WACHOVIA BANK, N.A.
Percentage:
By: /s/ Rusty Boozer
14.00% -------------------------------------
Title: Senior Vice President
------------------------------
191 Peachtree Street, N.E.
Atlanta, GA 30303-1757
Attention: Rusty Boozer
Telephone: (404) 332-5755
FAX: (404) 332-6920
Lending Installation:
191 Peachtree Street, N.E.
Atlanta, GA 30303-1757
Attention: Rusty Boozer
Telephone: (404) 332-5755
FAX: (404) 332-6920
<PAGE> 18
Revolving Commitment:
$10,000,000 COMPASS BANK
Percentage:
By: /s/ Dana H. Tucker
8.00% -------------------------------------
Title: Vice President
------------------------------
Lenox Towers, Suite 800
3400 Peachtree Road
Atlanta, GA 30326
Attention: Ms. Dana Tucker
Telephone: (404) 504-6142
FAX: (404) 504-6147
Lending Installation:
15 South 20th Street
15th Floor
Birmingham, AL 35233
Attention: Ms. Yvonne Evans
Telephone: (205) 933-3980
FAX: (205) 933-3901
<PAGE> 19
PRICING SCHEDULE
<TABLE>
<CAPTION>
================================================================
APPLICABLE LEVEL I LEVEL II LEVEL III LEVEL IV
MARGIN STATUS STATUS STATUS STATUS
================================================================
<S> <C> <C> <C> <C>
Eurodollar Rate 1.000% 1.25% 1.50% 1.75%
=================================================================
Floating Rate 0% 0.25% 0.50% 0.75%
=================================================================
</TABLE>
<TABLE>
<CAPTION>
=================================================================
APPLICABLE FEE LEVEL I LEVEL II LEVEL III LEVEL IV
RATE STATUS STATUS STATUS STATUS
=================================================================
<S> <C> <C> <C> <C>
Commitment 0.25% 0.25% 0.30% 0.35%
Fee
=================================================================
</TABLE>
For the purposes of this Schedule, the following terms have the
following meanings, subject to the final paragraph of this Schedule:
"FINANCIALS" means the annual or quarterly consolidated financial
statements of the Borrower and its Subsidiaries delivered pursuant to
Section 6.1(i) or (ii).
"LEVEL I STATUS" exists at any date if, as of the last day of the
fiscal quarter of the Borrower referred to in the most recent
Financials, the Leverage Ratio is less than or equal to 2.00 to 1.00.
"LEVEL II STATUS" exists at any date if, as of the last day of the
fiscal quarter of the Borrower referred to in the most recent
Financials, (i) the Borrower does not qualify for Level I Status and
(ii) the Leverage Ratio is less than or equal to 2.50 to 1.00.
"LEVEL III STATUS" exists at any date if, as of the last day of the
fiscal quarter of the Borrower referred to in the most recent
Financials, (i) the Borrower does not qualify for Level I Status or
Level II Status, and (ii) the Leverage Ratio is less than or equal to
3.00 to 1.00.
"LEVEL IV STATUS" exists at any date if the Borrower does not qualify
for Level I, Level II, or Level III Status.
"STATUS" means either Level I Status, Level II Status, Level III
Status, or Level IV Status, as the case may be.
The Applicable Margin and Applicable Fee Rate shall be determined in
accordance with the foregoing table based on the Borrower's Status as
reflected in the then most recent Financials. Adjustments, if any, to
the Applicable Margin or Applicable Fee Rate shall be effective five
Business Days after the Agent has received the applicable Financials.
If the Borrower fails to deliver the Financials to the Agent at the
time required pursuant to Section 6.1, then the Applicable Margin and
Applicable Fee Rate shall be the highest Applicable Margin and
Applicable Fee Rate set forth in the foregoing table until five
Business Days after such Financials are so delivered.
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Company
<TABLE>
<CAPTION>
Subsidiary State of Incorporation
- ---------- ----------------------
<S> <C>
Associated Suppliers, Inc. Oregon
Atlantic Industrial Supply Co., Inc. Massachusetts
Austin Ford Logan, Inc. New York
B & J Industrial Supply Company Washington
Buford Bros., Inc. Tennessee
Cardinal Machinery, Inc. Tennessee
Cramer Industrial Supplies, Inc. New York
Continental Air Tool, Inc. California
Dynamic Tool & Abrasives, Inc. Michigan
E.C. Blackstone Company Georgia
Hawley Industrial Supplies, Inc. Connecticut
IDG Real Properties, Inc. Georgia
Industrial & Tool Suppliers, LLC Maine
J.J. Stangel Co. Wisconsin
Knox Industrial Supplies, Inc. California
L.D. Supply, Inc. Kansas
Northern Tool & Supply, Inc. Michigan
Petry & Morrow, Inc. Pennsylvania
Refco, Inc. Massachusetts
R. F. Ker Co., Inc. Missouri
Shearer Industrial Supply Co. Pennsylvania
Slater Industrial Supplies, Inc. California
The Distribution Group, Inc. Georgia
The Innovative Distributor Group, Inc. Ohio
The New England Group
Industrial Distributors, Inc. Connecticut
Tri-Star Industrial Supply, Inc. Missouri
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 12, 1999 included in this Form 10-K,
into the Company's previously filed Registration Statements (File Nos.
333-45323 and 333-41921).
Arthur Andersen LLP
Atlanta, Georgia
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF INDUSTRIAL DISTRIBUTION GROUP, INC. FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,285
<SECURITIES> 0
<RECEIVABLES> 59,025
<ALLOWANCES> (1,566)
<INVENTORY> 60,949
<CURRENT-ASSETS> 133,128
<PP&E> 27,216
<DEPRECIATION> (2,597)
<TOTAL-ASSETS> 211,465
<CURRENT-LIABILITIES> 86,139
<BONDS> 0
0
0
<COMMON> 85
<OTHER-SE> 113,510
<TOTAL-LIABILITY-AND-EQUITY> 211,465
<SALES> 437,610
<TOTAL-REVENUES> 437,610
<CGS> 337,185
<TOTAL-COSTS> 427,139
<OTHER-EXPENSES> (994)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,319
<INCOME-PRETAX> 10,146
<INCOME-TAX> 3,931
<INCOME-CONTINUING> 6,215
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
