SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 25, 1994 Commission File No. 1-11257
CHECKPOINT SYSTEMS, INC.
(Exact name of Registrant as specified in its Articles of Incorporation)
Pennsylvania 22-1895850
(State of Incorporation) (I.R.S. Employer Identification No.)
101 Wolf Drive, P.O. Box 188, Thorofare, New Jersey 08086
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(Address of principal executive offices) (Zip Code)
609-848-1800
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, Par Value $.10 Per Share
Common Share Purchase Rights
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
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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 the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or on any amendment to this Form 10-K. X
---
As of February 21, 1995, the aggregate market value of the Common Stock
held by non-affiliates of the Registrant was approximately $236,000,000.
As of February 21, 1995, there were 10,733,328 shares of the Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - The Company's definitive proxy statement for its Annual Meeting
of Shareholders, presently scheduled to be held on April 27, 1995.
<PAGE>
PART I
Item 1. BUSINESS
Checkpoint is a designer, manufacturer and distributor of integrated
electronic security systems -- utilizing proprietary radio frequency
("RF") technologies -- designed primarily to help retailers prevent losses
caused by theft of merchandise. The Company markets a wide range of these
systems, including electronic article surveillance ("EAS")systems, closed
circuit television ("CCTV") systems, point-of-sale ("POS") monitoring
systems and access control systems. Over the past four years, the Company
has achieved substantial growth, both through internal expansion and
acquisitions, as a result of the repositioning of the Company by current
management through the introduction of new products, broadened and more
direct distribution (particularly in its international markets) and
increased and more efficient manufacturing capability. The Company holds
or licenses over 200 patents and proprietary technologies relating to its
products and their manufacture.
The Company's key product offerings use a low-cost disposable, paper-thin
target which triggers an alarm when passed through the Company's sensors
at the point of exit from the retail site. These disposable targets, which
are manufactured using the Company's proprietary technology at its state-
of-the-art facility in Puerto Rico, can be easily installed on products or
within packaging at the retail outlet or at the product manufacturing
source and can be easily deactivated without locating the tag. Sales of
these disposable targets and field service of their associated sensors and
deactivation units provide a significant and growing source of recurring
revenues and accounted for approximately 37% of the Company's net revenues
for fiscal year 1994. The Company's business strategy focuses on
capitalizing on retailers' increasing attention to theft prevention
through use of the Company's proprietary RF technology-based products.
The Company's diversified product lines are designed to help retailers
prevent losses caused by theft (both by customers and employees) while at
the same time enabling retailers to capitalize on consumer impulse buying
by openly displaying higher volume, higher margin merchandise, and to
reduce associated selling costs through lower staff requirements. The
Company's broad and flexible product lines, marketed and serviced by its
extensive sales and service organization, have helped the Company emerge
as the preferred supplier to such hard goods retail chains as Caldor,
Circuit City, Lucky's Grocery, Ralph's, Rite-Aid, Ross, Target, and
Walgreens. In addition, the Company's manufacturing facilities have the
current capacity to produce up to three billion disposable RF targets per
year at a low cost.
Beginning in September 1991, the Company's current management started to
reposition the Company through the introduction of new products, broadened
and more direct distribution (particularly in its international markets)
and increased and more efficient manufacturing capability. The Company's
strategy is to continue to increase its sales penetration in existing
markets and develop a significant presence in new geographic markets.
These objectives will be attained by continually enhancing
and expanding its RF technologies and products, providing superior service
to its customers and expanding its direct sales activities through
acquisitions and start-up operations. The Company is focused on providing
its customers with a wide variety of fully integrated electronic security
system solutions characterized by superior quality, ease of use, good
value and merchandising opportunity for the retailer.
<PAGE>
The Company has its principal executive offices at 101 Wolf Drive,
Thorofare, New Jersey 08086, (609-848-1800). Unless the context requires
otherwise, the "Company" means Checkpoint Systems, Inc. and its
subsidiaries on a consolidated basis.
COMPANY HISTORY
In 1969, the Company was incorporated in Pennsylvania as a wholly-owned
subsidiary of Logistics Industries Corporation. In 1977, Logistics,
pursuant to the terms of its merger into Lydall, Inc., distributed the
Company's Common Stock to Logistics' shareholders as a dividend. In
February, 1986, the Company acquired Sielox Systems, Inc., which
developed, produced and marketed access control systems for use in
commercial and institutional applications. In August, 1990, Sielox's
operations were combined with the Company's.
The Company acquired its Canadian Distributor in November of 1992 and
Argentinean Distributor in March of 1993. In addition, the Company set up
direct operations in Mexico during March of 1993 and Australia during June
of 1993. All of these subsidiaries market EAS systems for use in retail
and library applications.
In July of 1993, the Company purchased all the outstanding capital stock
of ID Systems International B.V. and ID Systems Europe B.V., related Dutch
Companies ("ID Systems Group") engaged in the manufacture, distribution
and sale of EAS systems. The acquisition gave the Company direct access
to six Western European countries which include The Netherlands, United
Kingdom, Sweden, Germany, France and Belgium.
On February 1, 1995 the Company purchased Alarmex, Inc. for approximately
$13.5 million ($10 million in cash and the balance in 200,717 shares of
restricted Common Stock of the Company). Alarmex designs and provides
CCTV, POS monitoring, burglar and fire alarm systems and also provides
related central station monitoring services to over 9,000 retail sites in
the United States.
Principle Product Categories
----------------------------
Electronic Article Surveillance
EAS systems act as a deterrent to, and control the increasing problem of
theft in such establishments as retail stores and libraries. Over the
past two decades, retail establishments have recognized that the most
effective theft-prevention method is to monitor articles. Other means of
theft prevention, (special mirrors, security guards, closed-circuit
television systems and surveillance cameras) monitor people, not the
articles to be protected, and this limitation among others is addressed by
EAS systems.
The Company's diversified product lines are designed to help retailers
prevent losses caused by theft (both by customers and employees) while at
the same time enabling retailers to capitalize on consumer impulse buying
by openly displaying higher volume, higher margin merchandise, and to
reduce associated selling costs through lower staff requirements.
Sophisticated data collection systems (primarily bar-code scanners)
available to retailers have highlighted the shrinkage problem and,
consequently, retailers now realize that the implementation of an
effective electronic security system can significantly increase
profitability. Accordingly, the retail industry is becoming increasingly
focused on theft prevention.
<PAGE>
EAS systems are generally comprised of three components: detectable and
deactivatable security circuits (embedded in tags or labels), referred to
as "targets", which are attached to or placed in the articles to be
protected; electronic detection equipment, referred to as "sensors", which
recognize the targets when they enter a detection area, usually located in
the exit path; and deactivation equipment that disarms the target when
patrons follow proper check-out procedures.
Access Control Systems
Electronic access control systems restrict access to areas requiring
protection from intrusion by unauthorized personnel by granting access
only to selected individuals at specified times. Recent developments in
Electronic Signatures(R) processing and other technologies have enhanced
the sophistication of electronic access control systems at a low cost.
Electronic access control systems use an "electronic key", such as a
plastic card with a magnetic strip or embedded magnetic code that is
interpreted by an "electronic reader". The most advanced access control
systems utilize plastic cards containing an encoded digital integrated
circuit as electronic keys. These can be coded with a personal
identification number ("PIN"). Once the cardholder presents the card
containing a PIN, an intelligent controller, which is also part of the
access control system, determines security clearance/access levels. This
data, along with time of entrance and exit, can be recorded for later
analysis.
POS Monitoring Systems
----------------------
Point-of-sale systems sold by the Company through its Alarmex subsidiary
(acquired in early 1995) record and store videotape check-out transactions
which enable retailers to monitor check-out events for questionable
transactions.
Products
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Product Descriptions
EAS Systems
Checkpoint offers a wide variety of EAS solutions to meet the requirements
of different retail store configurations. A Checkpoint EAS system is
primarily comprised of sensors and deactivation units, which respond to or
act upon the Company's targets.
The Company's EAS products are designed and built to comply with
applicable Federal Communications Commissions ("FCC") regulations
governing radio frequencies, signal strengths and other factors. The
Company's present EAS products requiring FCC certification comply with
applicable regulations. In addition, the Company's present EAS products
meet other regulatory specifications for the countries in which they are
sold.
Sensors
The Company's sensor product lines are used principally in retail
establishments and libraries. In retail establishments, EAS system
sensors are usually positioned at the exits from the areas in which
protected articles are displayed. Each sensor unit includes either one or
two vertical posts placed at preset distances (i.e. 3 to 6 feet) apart.
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The symbol(R) represents a registered trademark of the Company.
The symbol(TM) represents a trademark of the Company.
<PAGE>
In libraries, sensors are positioned at the exit paths, and gates or
turnstiles control traffic. Targets are placed inside books and other
materials to be protected. A target passing through the sensor triggers
an alarm, which locks the gate or turnstile. The target can easily be
deactivated or passed around the sensor by library personnel.
EAS system components include twelve styles of sensors (each including
transmitter, receiver and alarm), and the customer's choice of patented
disposable paper targets, reusable flexible targets and reusable hard
plastic targets. The EAS system's transmitter emits an RF signal and the
receiver measures the change in that signal caused by an active target,
causing the system to alarm. For fiscal years 1994, 1993 and 1992, the
percentage of the Company's net revenues from sensors was 27%, 30% and
34%, respectively.
Introduced in 1990, the QS2000(R) is the latest evolution in the Company's
proven Quicksilver(TM)sensor product line. With the addition of
microprocessor-based radio frequency signal processing, the QS2000 has
been engineered to provide excellent target detection with enhanced
target-discrimination capabilities. The QS2000 analyzes RF signals in its
detection zone and can discriminate between unique target signals and
environmental interference. This development greatly reduces false and
"phantom" alarms while increasing target detection. The QS2000 is also
available in a weatherized version for outdoor use. The QX2000 is a
similar system to the microprocessor based QS2000 system with the added
flexibility of modular electronics design. The modular design provides an
improved service capability in addition to permitting the system to
operate at three different RF frequencies.
Introduced in 1993, the Condor(R) sensor is the most technically advanced
RF system on the market today. A significant feature of this system is
the combination of a receiver and transmitter in a single post. Utilizing
a microprocessor and two digital signal processors, the Condor has an
aisle width of 12 feet using two posts. One sensor is capable of three
feet detection on either side of the sensor. Additional features include
the ability to mount full-sized merchandising panels, a customer counter,
an alarm counter and variable alarm tone.
Also introduced in 1993, the QS1500(TM)and QS1600(TM)are value-priced,
reusable target systems designed primarily for providing wide aisle
protection for the apparel marketplace. The QS1500 has three feet of
detection on either side of a single post, or it can protect up to six
feet between two posts. For wider detection, the QS1600 with two
pedestals can detect targets at distances of up to twelve feet, which is
ideal for shopping mall environments. This system is an inexpensive
answer to wide aisle detection.
The Company also offers chrome-finished Quicksilver sensors, solid-oak
Signature(R) sensors, featuring an earlier generation of components, the
QS3000(R), a wide aisle system that can span up to five feet, and the In-
Line Supermarket, which is a narrow aisle system designed specifically for
hypermarkets. Most of the Company's sensors can be used with the various
targets available.
<PAGE>
In 1994, the Company introduced the QS4000(TM) sensor. With digital
signal processing, this advanced sensing systems adjusts its detection to
changing environmental conditions. This new sensor model may be placed in
close proximity to deactivation units or near tagged merchandise so that
stores can maximize selling space. The QS4000 protects aisle widths up to
42 inches using disposable targets, and up to 60 inches using reusable
targets.
Deactivation Units
Deactivation units are used to eliminate the ability of the tag to be
identified by the RF field in the sensor and set off an alarm.
Deactivation usually occurs at the check-out point. In 1986, the Company
introduced Counterpoint(R), a noncontact deactivation unit which
eliminated the need to search for and remove or manually detune disposable
targets. Since 1989, the Company has expanded its deactivation products
with electronic modules that can be installed into numerous bar code
scanners including those manufactured by SpectraPhysics Retail Systems,
Symbol Technologies, Inc., Metrologic, Inc., National Cash Register, Inc.,
ICL Systems, Inc., IBM (International Business Machines) and Fujitsu Ltd.
These modules allow the reading of bar code information, while
deactivating targets in a single step. These deactivation units allow
retail personnel to focus on the customer and minimize errors at check-
out. During 1993, the Company developed an improved deactivation unit,
Counterpoint(R) IV, which increased deactivation height to twelve inches
and improves the rate of product deactivation. In 1994, the Company
increased the deactivation height beyond twelve inches with the
introduction of Counterpoint V. These product improvements significantly
increased the reliability of accurate deactivation. For 1994, 1993, and
1992, the percentage of the Company's net revenues from deactivation units
was 12%, 11% and 11%, respectively.
Five convenient deactivation configurations -- horizontal counter-mounted
slot scanners, a vertical mounted scanner, hand-held scanners, a weigh
scale scanner and a deactivation pad -- are available for a variety of POS
environments. Most of these units transmit an audible tone that alerts
the user that a target has been detected. The tone stops when the target
has been deactivated.
With the exception of the Counterpoint deactivation pad, all of the above
scanners read bar code information while deactivating hidden
Cheklink(R) targets in a single step. Ideal for high-volume environments,
these scanners mount easily at POS, and can deactivate multiple targets on
a single item.
The Counterpoint deactivation pad is placed at the check-out counter, and
targets are deactivated automatically by simply passing protected items
across the low profile pad which audibly signals that targets have been
deactivated. There is no need to see the targets in order to deactivate
them. Two sizes of the pads are available, both of which have a very low
profile on the counter top of 3/4" or less.
<PAGE>
Targets
All targets contain an electronic circuit that unless deactivated
(disposable targets) or removed (reusable targets), triggers an alarm when
passed through the sensors. Customers can choose from a wide variety of
targets, depending on their merchandise mix. Targets can be applied
either in-store or at the point of manufacture.
Disposable Targets
Disposable security targets are affixed to merchandise by pressure
sensitive adhesive or other means. These range in size from 1.125" x 1.5"
to 2.0" x 3.0", enabling retailers to protect smaller, frequently-pilfered
items. Disposable targets must be deactivated at the point-of-sale,
either manually or electronically, or passed around the sensors.
Checkpoint provides labels compatible with a wide variety of standard
pricemarking/barcoding printers. Checkpoint's labels can be integrated
with printers from Sato, Zebra, Monarch, Printronix and Sobar. When used
with electronic deactivation equipment, they represent the Cheklink(R)
concept, developed to combine pricing, merchandising, data collection and
protection in a single step. Targets can be applied at the vendor level,
in the distribution center or in-store. Under the Company's Impulse(R)
program tags can be embedded in products or packaging at the point-of-
manufacture or packaging. For fiscal years 1994, 1993, and 1992, the
percentage of the Company's net revenues from disposable targets was 29%,
30% and 32%, respectively.
In 1992, the Company was licensed to sell and provide targets in roll form
for the Model 4021 label applicator (Pathfinder(R)) printer manufactured
by Monarch Marking Systems. This product is a sophisticated electronic
portable bar code label printer and applicator ideal for use in high
volume mass merchandise, drugstore and supermarket applications. In
addition, Pathfinder has a self-contained keyboard which allows for easy
entry of various types of label data including: bar code, price and size.
The Pathfinder also has built-in scanning capability that can scan
existing package bar codes, then print identical Checkpoint labels for
application without obscuring important product information.
The Company has entered into a business agreement with Hobart Corporation,
a manufacturer and distributor of weigh scales, label printers and meat
wrappers used in supermarket meat rooms. The Company's Hobart tag, 1315
Series, is compatible with the Hobart weigh scales Model 5000 T/TE and
Model 18VP. This labor-saving tag is integrated with the Hobart Weigh
Scale/Printer to display the weight and price of the item.
In addition, the Company has an agreement with A&H Manufacturing, the
dominant U.S. supplier of costume jewelry cards, which grants A&H the
right to embed Checkpoint targets in cards during manufacturing.
<PAGE>
Reusable Targets
Reusable security targets fall into two categories. Flexible targets are
plastic-laminated tags used in a variety of markets that are removed at
the point-of-sale. Hard targets consist of a target and a locking
mechanism within a plastic case. They are used primarily in the apparel
market and present a visible psychological deterrent. Both flexible and
hard targets use a nickel-plated steel pin which is pushed through the
protected item with a magnetic fastener. These targets can also be
attached with a lanyard using the magnetic fastener. An easy-to-use
detacher unit removes reusable targets from protected articles without
damage. For 1994, 1993, and 1992, the percentage of the Company's net
revenues from reusable targets was 12%, 12% and 8%, respectively.
The Company also supplies the UFO hard target. The UFO hard target design
combined with a superior locking device makes the UFO, in the opinion of
the Company's management, a difficult hard target to defeat. The UFO tag,
due to its patented design, combines a unique conical shape with an
interior antenna which, due to its placement at an angle, provides a tag
which can be detected in the system better than tags in which the interior
antenna is placed in a flat position. During 1993, the Company began
manufacturing the Teardrop hard target, which is made to function only
with the QS1500 and QS1600 systems, primarily used in the apparel market.
During 1993, the Company also introduced a line of fluid tags marketed
under the name ChekInk(R) which provides a cost-effective second line of
defense against shoplifters. Unauthorized removal of these targets will
cause sealed vials of dye to break open, rendering the garment unusable.
ChekInk serves as a practical alternative to chaining down valuable
merchandise. Ideal for use in department stores, mass merchandisers, and
sporting goods stores, ChekInk can be removed quickly and easily at check-
out in the same manner as the reusable targets.
During 1994, the Company entered into a business agreement with MW Trading
ApS, a manufacturer and distributor of home entertainment security
products, to license and manufacture these products for the North and
South American marketplace.
Access Control Systems
The electronic access control Threshold(R) product line consists of seven
systems, ranging from small, relatively simple systems, to large,
sophisticated systems which provide a maximum degree of control,
monitoring and reporting. For fiscal years 1994, 1993, and 1992, the
percentage of the Company's net revenues from access control systems was
5%, 5% and 6%, respectively.
<PAGE>
The Threshold product line features a Distributed Network Architecture
(TM)which means no single point of failure can affect the entire system.
These systems are capable of controlling up to 500 doors for access
control and up to 50,000 cardholders. The incorporation of alarm
monitoring and point control (i.e. turning lights on or off) are also
integral features of all seven Threshold systems.
The use of Threshold Remote Software Package allows the connection of
controllers from anywhere in the country via telephone lines. This
functionality opens major markets for communications, utilities and large
scale customers with remote facilities to manage.
All electronic access control systems can also monitor other occurrences,
such as a change in the status of environmental systems, motors, safety
devices or any controller with a digital output. While monitoring these
controllers, any output can, by a pre-programmed decision, cause an alarm
to sound or another event to occur.
The Company has several proprietary proximity card/tag and reader systems
for all environments. The Mirage(R) family of readers provides the
fastest card verification in the industry and the release of the Mirage
SGR allows these readers to be directly mounted on metal without
degradation in performance. The Mirage SG provides the same read
performance in a smaller more aesthetically pleasing package.
The proximity cards are comprised of a custom-integrated circuit implanted
in a plastic card or key tag which is powered by RF energy transmitted
from a reader unit located at the entrance to a controlled door. Access
is gained after a reader controller unit verifies a code transmitted by
the card. The proximity card cannot be copied or duplicated due to the
use of a programmed integrated circuit. In addition, a Mirage reader unit
can be protected from environmental damage or vandalism by installing it
inside a wall or behind a glass window. A Mirage reader unit is usable
throughout the Threshold product line.
POS Monitoring Systems
In December 1991, the Company licensed the worldwide rights to a POS
monitoring system that is marketed under the name Viewpoint(R). Viewpoint
records and stores on videotape every transaction at each check-out, both
the visual and the individual transaction data. Viewpoint connects
directly to the point-of-sale network using a PC compatible computer and
fixed CCTV cameras usually mounted inside domes affixed to a retailer's
ceiling. Because all transaction data is stored in the computer's
relational data base, user-generated reports can match questionable
transactions to events recorded on the tape. The system also features a
remote dial-in capability that allows users to monitor multiple store
locations from one site, significantly lowering personnel costs.
Viewpoint can be linked to Checkpoint EAS systems in order to record
incidents that have caused the EAS system to register an alarm. For fiscal
years 1994, 1993, and 1992, sales for both Viewpoint and CCTV represented
less than 3% of the Company's net revenues.
<PAGE>
Principal Markets, Distribution, and Marketing Strategy
-------------------------------------------------------
The Company markets its products primarily to retailers in the following
market segments: hard goods (supermarkets, drug stores, mass merchandiser
and music/electronics) and soft goods (apparel). The Company is a market
leader in the supermarkets, drugstores and mass merchandiser market
segments with such customers as Caldor, Lucky's Grocery, Ralph's, Rite-
Aid, Target and Walgreens.
In early 1995, the Company acquired Alarmex which designs and provides
CCTV, POS monitoring and fire alarm systems to over 9000 retail sites in
the U.S.
The Company believes the acquisition of Alarmex complements the Company's
current CCTV and POS monitoring products. With the acquisition of Alarmex,
the Company is able to offer its customers a broader and more
sophisticated range of CCTV and POS monitoring products. In addition, the
acquisition of Alarmex enables the Company to enter the burglar and fire
alarm market with related central station alarm monitoring capabilities.
The U.S. Department of Commerce estimates that over 15% of retail costs
are attributable to inventory "shrinkage" (the value of goods which are
not paid for). Shrinkage is caused primarily by shoplifting and employee
theft. Industry sources estimate that shrinkage is a $30 billion annual
problem for the U.S. retail industry and a concern of at least a
comparable magnitude throughout the rest of the world.
Sophisticated data collection systems (primarily bar-code scanners)
available to retailers have highlighted the shrinkage problem and,
consequently, retailers now realize that the implementation of an
effective electronic security system can significantly increase
profitability. Accordingly, the retail industry is becoming increasingly
focused on theft prevention.
Industry sources estimate there are approximately 330,000 major retail
locations in the United States that would benefit from the installation of
an EAS system and the Company estimates that less than one-third of these
locations have installed systems. The Company believes, moreover, that in
the hard goods market less than 10% of such sites are EAS protected. While
industry sources expect the growth of EAS systems in the retail soft goods
market to be about 5% to 10% annually, the retail hard goods market is
expected to grow at approximately 20% per year over the next five years,
thus providing an even more significant growth opportunity.
<PAGE>
Retailers generally apply the targets used in EAS systems at the retail
site. Retailers have expressed interest in moving the insertion or
application of the targets to the point of manufacture ('source tagging').
Manufacturers have been receptive to source tagging in light of the
potential increase in product volume (that is, more sales at the retail
level due to easier customer access to products). According to one
fragrance manufacturer's study, self-service fragrance sales are 60%
greater than sales of products kept under lock and key. In addition, a
study, conducted for the Company by Management Horizons, a division of
Price Waterhouse, reported that consumers made to wait in line or search
for a salesperson to buy batteries or camera film are likely to forego the
purchase. The Company believes that source tagging provides retailers,
manufacturers and retail customers with distinct benefits, principal among
which are: enhanced protection from theft, activation and deactivation
without the need for special training of store employees, more open
display of merchandise resulting in increased sales for manufacturers and
reduced costs for retail products.
In order to interact more closely with retailers and better understand and
respond to their needs (including reducing shrinkage and providing
retailers with enhanced sales opportunities through more open display of
merchandise), the Company is pursuing the following strategies:
- Expanding its direct sales and service capabilities in strategic
geographic areas;
- Broadening its product lines;
- Increasing its penetration of the hard goods retail market
(currently estimated to be less than 10% penetrated by the EAS
industry);
- Continuing to promote source tagging;
- Continuing to improve the Company's highly integrated and state-of-
the-art manufacturing processes and technologies; and
- Continuing to explore strategic acquisitions or start-up
opportunities in the following areas: international direct
distribution, a second source of manufacturing capacity and product
line diversification within the Company's core businesses.
The Company promotes its products primarily through(i) comprehensive tag
and equipment sales and product brochures, (ii) emphasizing environmental
benefits by promoting reduced packaging through source tagging, (iii)
extensive trade show participation and (iv) targeting specific retail
markets that offer substantial opportunity for growth (i.e.,
supermarkets).
<PAGE>
Strategies to increase acceptability of source tagging are to (i)
intensify vertical market focus into key product segments where RF
technology is the only logical choice, such as liquors; (ii) expand source
tagging activities into international markets; (iii) increase staffing for
source tagging efforts supporting manufacturers and suppliers to speed
implementation; and (iv) expand RF target products to accommodate more
packaging schemes.
Distribution
------------
EAS Systems
The Company sells its EAS systems principally throughout North America and
Europe. During 1994, EAS revenues from outside the United States
(principally Europe and Scandinavia) represented approximately 39% of the
Company's net revenues.
In the United States, the Company markets its EAS products through its own
sales personnel, independent representatives and independent dealers.
Independent dealers accounted for less than 1% of the Company's net
revenues in the United States during 1994. The Company, at December 25,
1994, employed 79 salespeople who sell the Company's products to the
domestic retail market and who are compensated by salary plus commissions.
The Company's independent representatives sell the Company's products to
the domestic library market on a commission basis. At the end of 1994,
the Company had 27 such independent representatives. Three members of the
Company's sales management staff are assigned to manage and assist these
independent representatives. Of total EAS domestic revenues during 1994,
92% was generated by the Company's own sales personnel.
Internationally, the Company markets its EAS products principally through
various foreign subsidiaries which sell directly to the end user and
through independent distributors. The Company's foreign subsidiaries, as
of December 25, 1994, employed a total of 102 salespeople who sell the
Company's products to the retail and library markets. The Company's
international sales operations are currently located in Western Europe,
Canada, Mexico, Argentina and Australia ("see Marketing Strategy").
Until 1993, the Company's sales in Western Europe were made principally
through distributors. In mid 1993, the Company acquired a competing EAS
company in Western Europe. In 1994, the European market was characterized
by intense price competition as competitors endeavored to retain market
shares.
Independent distributors accounted for 21% of the Company's international
revenues during 1994. Foreign distributors sell the Company's products to
both the retail and library markets. The Company's distribution
agreements generally appoint an independent distributor for a specified
<PAGE>
term as an exclusive distributor for a specified territory. The
agreements require the distributor to purchase a specified dollar amount
of the Company's products over the term of the agreement. The Company
sells its products to independent distributors at prices significantly
below those charged to end-users because the distributors make volume
purchases and assume marketing, customer training, maintenance and
financing responsibilities.
Access Control Systems
The Company's electronic access control sales personnel, together with
manufacturers' representatives, market its electronic access control
products to approximately 150 independent dealers. The Company employs
five salespeople who are compensated by salary plus commissions. The
Company's one manufacturer's representative is compensated solely by
commissions. Under the independent dealer program, the dealer takes title
to the Company's products and sells them to the end-user customer. The
dealer installs the systems and provides ongoing service to the end-user
customer.
POS Monitoring Systems/CCTV
The Company markets the POS monitoring products throughout the world
through its own sales personnel. Sales of the POS monitoring products are
sold to the Company's existing EAS retail customers along with those
retailers that currently do not have the Company's EAS products.
Salespeople
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The Company presently employs approximately 180 salespeople.
They are an experienced, effective sales force and one of the Company's
most important assets. On the average, the sales people have over four
years experience in the industry. The Company invests heavily in sales
training programs and experiences little turnover among its top
performers.
Backlog
-------
The Company's backlog of orders was approximately $7,053,000 at December
25, 1994, as compared with approximately $6,673,000 at December 26, 1993.
The Company anticipates that substantially all of the backlog at the end
of 1994 will be delivered during 1995. In the opinion of management, the
amount of backlog is not indicative of intermediate or long-term trends in
the Company's business. The Company's business generally follows the
retail cycle so that revenues are weighted toward the last half of the
calendar year as retailers prepare for the holiday season.
<PAGE>
Technology
----------
The Company believes that its patented and proprietary technologies are
important to its business and strategies for growth and provide it with
distinct competitive advantages. The Company holds or licenses over 200
patents and proprietary technologies relating to its products and their
manufacture. Substantially all of the Company's revenues were derived
from products or technologies which are patented or licensed. The
Company's competitive position is supported by its extensive manufacturing
experience and know-how and, to a lesser degree, its technology and
patents. There can be no assurance, however, that a competitor, including
Sensormatic, could not develop a product comparable to that of the
Company.
EAS
The Company is the exclusive worldwide licensee of Arthur D. Little, Inc.
("ADL") for certain patents and improvements thereon related to EAS
products and manufacturing processes. The Company pays a royalty to ADL
ranging from 2% to 5% of net revenues generated by the sale and lease of
the licensed products, with the actual amount of the royalty depending
upon revenue volume.
Royalties amounted to approximately 1.8% of EAS net revenues for each of
the years, 1994, 1993 and 1992. The term of the license is coterminous
with the patents, the first of which expired in 1991 and the last of which
will expire in 2007. In addition, the Company has other less significant
licenses covering certain sensors, magnetic labels and fluid tags. These
licenses arrangements have various expiration dates and royalty terms.
Electronic Access Control
The Company is the worldwide licensee of certain patents and technical
knowledge related to proximity card and card reader products. It pays a
royalty equal to 2% of the net revenues from the licensed products. Such
royalties are payable through January 29, 2000, or until all of the
subject patents have been adjudicated invalid.
Royalty expense for fiscal years 1994, 1993 and 1992 was approximately .6%
of the Company's electronic access control net revenues.
POS Monitoring Systems/CCTV
The Company has a worldwide license to distribute a point-of-sale front-
end monitoring system being marketed under the name Viewpoint. Marketing
of this product began during 1992. The Company pays a one time site
license fee for each site installed.
<PAGE>
Manufacturing, Raw Materials and Inventory
------------------------------------------
EAS
The Company manufactures most of its products in state-of-the-art
facilities located in Puerto Rico and the Dominican Republic and has a
highly integrated manufacturing capability. The Company's manufacturing
strategy is to rely primarily on in-house capability and to vertically
integrate manufacturing operations to the extent economically practical.
This integration and in-house capability provides significant control over
costs, quality and responsiveness to market demand which results in a
distinct competitive advantage.
As part of its total quality management program, the Company practices
concurrent engineering techniques in the design and development of its
products involving engineering, manufacturing, marketing and customers
early in the development process.
Management of the Company believes that it has the manufacturing
capability to satisfy its projected production needs in the foreseeable
future. While the Company sold over 950 million disposable RF targets in
1994, it has the current manufacturing capacity to produce as many as
three billion disposable RF targets per year at a low cost. In addition,
with the expenditure of approximately $2.5 million, the Company could
increase its capacity to produce as many as eight billion disposable RF
targets annually.
The Company purchases raw materials from outside suppliers and assembles
electronic components for the majority of its sensor product lines at its
facilities in Puerto Rico. For its target production, the Company
purchases raw materials and components from outside sources and completes
the manufacturing process at its facilities in Puerto Rico (disposable
targets) and the Dominican Republic (reusable targets). Certain
components of sensors are manufactured at the Company's facilities in the
Dominican Republic and shipped to Puerto Rico for final assembly. The
principal raw materials and components used by Checkpoint in the
manufacture of its targets are electronic components for its systems,
aluminum foil, resins, and paper used for its disposable tags, ferric
chloride solutions for the Company's etching operation of disposable tags
and printed circuit boards. While most of these materials are purchased
from several suppliers, there are numerous alternative sources for all
such materials. In general, there is an adequate supply of raw materials
to satisfy the needs of the industry. The Company's general practice is
to maintain a level of inventory sufficient to meet anticipated demand for
its products.
Access Control Systems
The Company purchases raw materials from outside suppliers and assembles
the electronic components for controllers, proximity cards and proximity
readers at its facilities in the Dominican Republic and Puerto Rico. For
non-proximity electronic access control components, the Company
subcontracts manufacturing activities. All electronic access control
final system assembly and testing is performed at the Company's facilities
in Thorofare, New Jersey.
<PAGE>
POS Monitoring Systems/CCTV
The Company does not manufacture any of the components for the Viewpoint
product line other than small interface circuit boards. The Company
purchases all the hardware components of the Viewpoint products from major
distributors. Limited inventory levels are maintained since the Company
places orders with these distributors as customer orders are received.
The software component of the system is added at the customer's site.
The acquisition of Alarmex provides the Company with facilities and
expertise dedicated to CCTV systems.
Competition
-----------
EAS
Currently, EAS systems are sold to two principal markets: retail
establishments and libraries. The Company has one principal global
competitor - - Sensormatic Electronic Corporation ("Sensormatic").
Sensormatic, a fully integrated supplier of electronic security systems to
retail and other markets, has a dominant market share of the electronic
security systems industry, with approximately 68% of the global market for
electronic security systems. Management estimates that the Company's
market share in the EAS industry is approximately 15%. With revenues of
approximately $656.0 million for its most recent fiscal year, Sensormatic
has economic and other resources substantially greater than those of the
Company.
Within the U.S. market additional competitors included Knogo North
America, Inc.("Knogo"), principally in the retail market, and Minnesota
Mining and Manufacturing Company, principally in the library market.
Within the Company's international markets, mainly Western Europe, Actron
AG, ("Actron"), a subsidiary of ADT. Inc., Knogo (whose international
operations were purchased by Sensormatic on December 29, 1994)and Esselte
Meto, along with Sensormatic, are the Company's most significant
competitors. The markets served by the Company and its competitors is
price sensitive. In 1994, the Western European markets were characterized
by intense price competition as participants adjusted prices to retain
market shares. This price competition is expected to continue through
fiscal year 1995.
The Company's product line offers more diversity than its competition in
protecting different kinds of merchandise with soft disposable targets and
hard and flexible reusable targets, all of which operate with the same RF
system. As a result, the Company believes it appeals to a wider segment
of the market than does its competition and competes in marketing its
products primarily on the basis of their versatility, reliability,
affordability, accuracy and integration into operations. This combination
provides many system solutions which allow for protection of various kinds
of merchandise from theft.
<PAGE>
Electronic Access Control
The Company's electronic access control products compete with other
manufacturers of electronic access control systems as well as with
conventional security systems.
Major competitors are Cardkey Systems, Inc., Software House, Inc. and
Westinghouse Security, Inc. All three competitors are subsidiaries of
much larger companies that have substantially greater resources than the
Company. The Company believes that its products offer higher reliability
than those of its competitors.
POS Monitoring Systems/CCTV
The Company's POS Monitoring products compete primarily with similar
products offered by Sensormatic and Knogo. The Company believes that its
products represent a technological advancement over those of its
competitors, particularly with respect to recording and retrieval of
transaction information.
Research and Development
The Company has increased its research and development activities during
the past four years over the prior levels. The Company expended
approximately $4,877,000, $5,392,000 and $4,498,000 in research and
development activities during 1994, 1993 and 1992, respectively. The
emphasis of these activities is the continued broadening of the product
lines offered by the Company and an expansion of the markets and
applications for the Company's products. The Company's continued growth in
revenue can be attributed, in part, to the products and technologies
resulting from these efforts.
Another important source of new products and technologies has been
the Company's acquisitions of companies and products during the last few
years. The Company is expected to make acquisitions of related businesses
or products consistent with its overall product and marketing strategies.
Over the last three years, the Company has introduced 43 new products.
Currently, the Company has under development approximately 60 product
development or enhancement projects. In addition, the Company holds or
licenses over 200 patents and proprietary technologies relating to its
products and their manufacture.
Employees
---------
As of December 25, 1994, the Company had 1,804 employees, including nine
officers, 61 persons engaged in research and development activities and
196 persons engaged in sales and marketing activities. None of the
Company's employees are represented by a union.
<PAGE>
Financial Information About Domestic and Foreign Operations
-----------------------------------------------------------
The following table sets forth certain information concerning the
Company's domestic and foreign operations for each of the last three
fiscal years. Geographic Area 1994 1993 1992
=============== ==== ==== ====
(Thousands)
Net revenues from From United States $88,211 $71,834 $72,166
unaffiliated and Puerto Rico
customers
Net revenues from Western Europe, $40,120 $21,200 $ -
foreign subsidiaries Canada, Mexico,
Argentina, and
Australia
Export net revenues Primarily Europe $10,430 $12,163 $22,732
and Scandinavia
Domestic earnings From United States, $ 6,931 $ 1,720 $ 4,891
before income taxes Puerto Rico, and
Dominican Republic
Foreign earnings Western Europe, $ 1,446 $ 351 $ -
before income taxes Canada, Mexico,
Argentina and
Australia
Domestic identifiable In United States, $92,285 $78,982 $74,333
assets Puerto Rico, and
Dominican Republic
Foreign identifiable Western Europe, $35,640 $26,017 $ -
assets Canada, Mexico,
Argentina, and
Australia
<PAGE>
Item 2. PROPERTIES
The Company's headquarters and distribution center are in leased
facilities located in Thorofare, New Jersey. Of the total 104,000 square
feet, approximately 64,000 square feet are used for office space and
approximately 40,000 square feet are used for storage facilities. The
Company has entered into a twelve year lease for the facilities starting
in 1995. The annual rent during each year of the first five years
starting in 1995 is $692,000.
The Company's principal manufacturing facility for the production of most
of its products is located in Ponce, Puerto Rico. This two-story
building, which was completed in 1990, is owned by the Company and
contains approximately 95,000 square feet. Included in the 95,000 square
feet is approximately 11,000 square feet of office space and approximately
14,000 square feet of warehouse space. In addition, the Company leases a
manufacturing and development facility in Puerto Rico near the
manufacturing facility containing approximately 9,000 square feet. The
lease expires in 1997 with an annual rent of $31,000.
The Company also leases two manufacturing facilities in the Dominican
Republic. One facility, located in La Vega, contains approximately 33,000
square feet. It includes approximately 3,900 square feet of office space
and approximately 3,000 feet of warehouse space. Certain components of
the Company's sensors, hard targets and proximity cards are assembled at
this site. The lease for this property expires in December 2005 with an
annual rent of $17,550. The other facility, located in Los Alcarrizos,
contains approximately 34,000 square feet. It includes approximately
1,800 square feet of office space and approximately 10,000 square feet of
warehouse space. This facility performs the bending, chroming and wiring
of antenna loops used in the Company's Quicksilver sensor products. This
facility also performs certain injection molding production used in the
assembly of the Company's reusable security targets. The lease for the
Los Alcarrizos property expires in December 2001 with an annual rent of
$30,000. The leases for both locations have been prepaid for their entire
terms.
The Company's foreign subsidiaries maintain various sales and distribution
locations in Australia, Argentina, Belgium, Canada, France, Germany,
Mexico, The Netherlands, Sweden and United Kingdom. The locations have an
average of 3,600 square feet of office space and an average of 1,800
square feet of warehouse space. The lease terms of these foreign
subsidiaries range from one to five years with an average lease payment of
$34,200 in 1995.
<PAGE>
Item 3. LEGAL PROCEEDINGS
On March 10, 1993, the United States International Trade Commission
("Commission") instituted an investigation of a complaint filed by the
Company under Section 337 of the Tariff Act of 1930. The complaint, as
amended, alleged that six respondents imported, sold for importation, or
sold in the United States after importation certain anti-theft
deactivatable resonant tags and components thereof that infringed certain
U.S. Letters Patents of which the Company is exclusive licensee. The
Commission's notice of investigation named six respondents, each of whom
was alleged to have committed one or more unfair acts in the importation
or sale of components or finished tags that infringe the asserted patent
claims. Those respondents are: Actron AG; Tokai Denshi Co. Ltd.; ADT,
Limited; All Tag Security AG; Toyo Aluminum Ltd.; and Custom Security
Industries, Inc.
On March 10, 1994 the United States International Trade Commission issued
a Notice of Commission Determination Not to Review an Initial
Determination Finding No Violation of Section 337 of the Tariff Act of
1930. The Company has capitalized approximately $1.9 million in patent
defense costs, which is included in 'Intangibles' as of December 25, 1994.
The ultimate resolution is undetermined at this time due to the various
courses of action available to management. The Company has appealed this
determination to the appropriate United States Court of Appeals. Although
the Company's management ultimately expects a favorable outcome, should
resolution of this matter result in a less than successful defense of the
patents in question the deferred patent costs(approximately $1.9 million
at December 25, 1994) will be written off as a charge to earnings at the
time of such resolution.
The Company, together with two of its senior officers, are defendants in
an action entitled ADT, Inc. and Actron AG v. Checkpoint Systems, Inc. and
Albert E. Wolf and Kevin P. Dowd (D.C.N.J.#95-730) which was filed on
February 9, 1995.
In this action, Actron AG, one of the Company's principal European
competitors, alleges that the Company, in violation of certain common laws
and contractual obligations (1) unlawfully employed in Europe three former
employees of Actron who allegedly are in possession of, and have disclosed
to the Company, certain of Actron's confidential information, (2) has
attempted to employ in Europe certain other of Actron's current
employees,(3) has interfered with certain contractual relationships
between Actron, its former employees, and the supplier of Actron's
disposable EAS tags and (4) has, in allegedly engaging in the activities
complained of, committed acts of unfair competition. The Court has set a
date in early April 1995 to hear arguments on the Company's motion to
dismiss the complaint and has also set a date in mid April 1995 to hear
testimony and arguments relating to Actron's motion to enjoin the Company
from allegedly using Actron's confidential information. Discovery by both
parties has commenced. The Company intends to defend itself vigorously.
While the outcome of litigation can never be predicted with certainty and
the lawsuit is still in its very preliminary stages, the Company does not
anticipate that its ultimate outcome will have a material effect on its
operations or financial condition.
<PAGE>
On March 2, 1995, as a result of a private complaint filed in Switzerland
by Actron against three of its former employees who are now employees of
the Company's Swiss subsidiary, Swiss authorities questioned two of these
employees regarding alleged improper possession and/or use of confidential
information and proprietary data allegedly belonging to Actron. In
addition, Swiss authorities took possession of certain files from the
homes of the employees questioned and from the office of the Company's
Swiss subsidiary. The Company has not been advised that it is the subject
of any legal proceeding in Switzerland. The Company believes that
Actron's private complaint (and the resultant actions of the Swiss
authorities) are directly related to the Company's litigation with Actron
as described above.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1994 to a vote of
security holders.
Item A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain current information concerning the
executive officers of the Company, including their ages, position and
tenure as of the date hereof:
OFFICER
NAME AGE SINCE POSITIONS WITH THE COMPANY
Kevin P. Dowd 46 1988 President, Chief Executive Officer,
Chief Operating Officer, and Director
Luis A. Aguilera 46 1982 Senior Vice President - Manufacturing
Steven G. Selfridge 39 1988 Senior Vice President - Operations,
Chief Financial Officer and Treasurer
Mitchell T. Codkind 35 1992 Corporate Controller and Chief
Accounting Officer
Muns A. Farestad 46 1990 Vice President - Research and
Development
William J. Reilly, Jr. 46 1989 Senior Vice President - Americas' and
Pacific Rim
Michael E. Smith 39 1990 Senior Vice President - Marketing and
Western European Operations
Neil D. Austin 48 1989 Vice President - General Counsel and
Secretary
Lukas A. Geiges 56 1995 Senior Vice President - International
Development of Checkpoint Systems
International B.V.
<PAGE>
Mr. Dowd has been President, Chief Executive Officer and a director of the
Company since January 1, 1995 and President and Chief Operating Officer of
the Company since August 1993. He was Executive Vice President of the
Company from May 1992 to August 1993. Mr. Dowd was Executive Vice
President - Marketing, Sales and Service from April 1989 to May 1992 and
Vice President of Sales from August 1988 to April 1989. Prior to joining
the Company, Mr. Dowd was Director - Industrial Products Group, Mars
Electronics from January 1987 to July 1988.
Mr. Aguilera has been Senior Vice President - Manufacturing since August
1993. He was Vice President - Manufacturing of the Company from April
1982 to August 1993, and Vice President and General Manager of the
Company's Puerto Rico subsidiary since February 1979.
Mr. Selfridge has been Senior Vice President - Operations and Chief
Financial Officer and Treasurer since August 1993. He was Chief Financial
Officer and Vice President - Finance and Treasurer of the Company from
December 1990 to August 1993; and Vice President - Finance and Treasurer
of the Company since September 1989. Mr. Selfridge was Corporate
Controller, Chief Accounting Officer and Secretary from April 1988 to
September 1989 and Controller of Domestic Operations from July 1986 to
April 1988. Mr. Selfridge is a Certified Public Accountant.
Mr. Codkind has been Corporate Controller and Chief Accounting Officer
since January 1992. Mr. Codkind was Controller of Domestic Operations
from January 1990 to January 1992 and Accounting Manager of Domestic
Operations from June 1986 to January of 1990. Mr. Codkind is a Certified
Public Accountant.
Item A. EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Mr. Farestad has been Vice President - Research and Development since
October 1990. He was Director of Process Engineering and Shared Resources
from January 1989 to October 1990 and Director of Manufacturing
Engineering from July 1987 to January 1989.
Mr. Reilly has been Senior Vice President - Americas' and Pacific Rim
since August 1993. He was Vice President - Sales of the Company from
April 1989 to August 1993. Mr. Reilly was Eastern Regional Sales Manager
from March 1989 to April 1989. Prior to joining the Company, Mr. Reilly
was U.S. Sales Manager for Multitone Electronics PLC, London, U.K. from
1982 to 1989.
Mr. Smith has been Senior Vice President - Marketing and Western European
Operations since August 1993. He was Vice President - Marketing from
August 1990 to August 1993. Mr. Smith was Director of Marketing from
April 1989 to August 1990 and Program Manager - National/Major Accounts
from December 1988 to April 1989. Prior to joining the Company, Mr. Smith
was Marketing Manager with Mars Electronics International from June 1987
to November 1988.
<PAGE>
Mr. Austin has been Vice President - General Counsel and Secretary since
September 1990. Mr. Austin was General Counsel and Secretary from
September 1989 to September 1990 and General Counsel from June 1989 to
September 1989. Prior to joining the Company, Mr. Austin was a managing
consultant with Mercer, Meidinger, Hansen Inc. from 1987 to 1989.
Mr. Geiges has been Senior Vice President - International Development of
Checkpoint Systems International B.V. since April 1994 and is considered
to be a person who makes a significant contribution to the Company's
business. Prior to joining the Company, Mr. Geiges was a consultant to
the Actron AG Board of Directors from 1993 to March 1994. Mr. Geiges was
President and Chairman of the Board with Actron AG, a member of the ADT
Group, from 1988 to 1993. Mr. Geiges has advised the Company that, on
March 2, 1995, he was questioned by Swiss authorities with respect to
alleged improper possession and/or use of proprietary data and
confidential information allegedly belonging to Actron AG, his former
employer. The Company is involved in litigation with Actron AG. See
"Legal Proceedings" above.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Common Stock of the Company is traded on the New York Stock Exchange
("NYSE") under the symbol CKP. Prior to October 29, 1993, the Company's
Common Stock was traded in the over-the-counter market on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ")
National Market System, under the symbol CHEK. The following table sets
forth for the indicated periods the closing price range of the Common
Stock as furnished by the NYSE and NASDAQ for the respective periods.
High Low
---- ---
Closing Price
1993:
First Quarter ............................ 20 1/8 8 3/4
Second Quarter ........................... 12 7/8 8 3/4
Third Quarter ............................ 11 3/4 8 1/8
Fourth Quarter ........................... 14 8 1/2
1994:
First Quarter ............................ 14 1/2 10 3/8
Second Quarter ........................... 17 1/4 12 3/4
Third Quarter ............................ 18 7/8 14 7/8
Fourth Quarter ........................... 21 1/2 16 3/8
As of February 21, 1995, there were approximately 1,549 record holders of
the Company's Common Stock.
<PAGE>
The Company has never paid a cash dividend on the Common Stock, does not
anticipate paying any cash dividend in the near future and is limited by
existing covenants in the Company's debt instruments from paying
dividends. The declaration and payment of dividends in the future, and
their amounts, will be determined by the Board of Directors in light of
conditions then existing, including the Company's earnings, its financial
condition and requirements (including working capital needs) and other
factors.
Item 6. SELECTED ANNUAL FINANCIAL DATA
1994 1993 1992 1991 1990
======== ======== ======== ======== ========
(Thousands, except per share data)
FOR YEARS ENDED:
Net revenues $128,331 $ 93,034 $ 72,166 $ 52,943 $ 56,742
Earnings before
income taxes $ 8,377 $ 2,071 $ 4,891 $ 635 $ 6,707
Income taxes
(benefit) $ 2,094 $ 456 $ 463 $ 127 (225)
Net earnings $ 6,283 $ 1,615 $ 4,428 $ 508 $ 6,932
Earnings per
common share $ .58 $ .16 $ .45 $ .05 $ .72
AT YEAR-END:
Working capital $ 39,427 $ 27,984 $ 25,792 $ 14,245 $ 17,915
Long-term debt $ 35,556 $ 24,302 9,322 $ 783 $ -
Shareholders'
equity $ 61,303 $ 53,779 $ 51,061 $ 42,087 $ 41,321
Total assets $127,925 $104,999 $ 74,333 $ 57,675 $ 53,129
SELECTED QUARTERLY FINANCIAL DATA
QUARTERS (unaudited)
--------------------------------------------
First Second Third Fourth Year
----- ------ ----- ------ ----
(Thousands, except per share data)
1994
----
Net revenues $26,223 $28,656 $33,928 $39,524 $128,331
Gross profit $12,262 $13,552 $17,023 $19,134 $ 61,971
Net earnings $ 526 $ 1,067 $ 2,162 $ 2,528 $ 6,283
Earnings per
common share $ .05 $ .10 $ .20 $ .23 $ .58
1993
----
Net revenues $20,016 $18,026 $26,604 $28,388 $93,034
Gross profit $ 8,700 $ 6,880 $11,385 $11,648 $38,613
Net earnings $ 507 $ 884 $ 112 $ 112 $ 1,615
Earnings per
common share $ .05 $ .09 $ .01 $ .01 $ .16
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 7.
Overview
The Company is a designer, manufacturer and distributor of integrated
electronic security systems -- utilizing proprietary RF technologies --
designed primarily to help retailers prevent losses caused by theft of
merchandise. In fiscal year 1991, the Company's revenues declined 6.7%
from the prior fiscal year at a time of substantial growth in the
industry. As a result, the Company's current management adopted a new
strategy which focused on introducing new products to meet retailers'
needs, moving to direct distribution internationally through strategic
acquisitions increasing the number of direct sales and service personnel
and making substantial investments in its manufacturing facility in Puerto
Rico to increase its manufacturing capacity and further integrate the
manufacturing of its disposable targets. The costs associated with the
implementation of this strategy have been significant and have impacted
the Company's profitability. In management's opinion, however, these
investments have positioned the Company for the future.
Net Revenues
The Company's unit volume is driven by product offerings, number of direct
sales personnel, recurring revenues and, to some extent, prices. Since
1991, the Company's unit volume of sales has increased dramatically.
During that time the Company has introduced over 40 new products.
Increases in the Company's U.S. direct sales personnel and, through
various acquisitions, the establishment of a direct sales force in ten
other countries, have resulted in the Company's total sales force growing
to approximately 180 as of December 1994 as compared to 47 as of September
1991. In addition, sales of the Company's disposable targets and field
service revenues related to sensors and deactivation units provide a
significant and growing source of recurring revenues. The Company's
increasing base of installed systems also results in additional unit
volume. For fiscal year 1994, approximately 37% of the Company's net
revenues were attributable to sales of disposable targets and service to
its installed base of customers.
The Company's unique and proprietary product line has enabled it to
increase its domestic prices over the past four years. These price
increases, however, have been substantially offset by volume discounts
offered to national retailers. Internationally, in fiscal year 1993 prices
were favorably impacted by moving to direct sales in various countries. In
fiscal year 1994, however intense price competition in Western Europe
significantly impacted selling prices as competitors moved to protect
market shares. This price sensitivity in Western Europe in expected to
continue and perhaps intensify in 1995.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview (continued)
Cost of Revenues
The principal elements comprising cost of revenues are product cost,
development cost and field and installation cost.
Across all of the Company's product lines, product costs average
approximately 40% of net revenues. The components of cost of revenues are
as follows: 74% -- material, 14% -- labor, and 12% -- manufacturing
overhead. The primary raw materials used in the manufacture of the
Company's products include electronic components for its systems, aluminum
foil, resins, and paper used for its disposable tags, ferric chloride
solutions for the Company's etching operation of disposable tags and
printed circuit boards. Although aluminum, resins and paper are subject to
some commodity pricing, in recent years the Company has generally been
able to offset price increases through volume purchasing and manufacturing
efficiencies.
The Company believes that its manufacturing know-how and efficiencies
relating to disposable and reusable tags give it a significant cost
advantage over its competitors. The Company expects volume increases to
result in a decrease of product cost as a percentage of net revenues
because of the Company's substantial available manufacturing capacity and
its ability to more broadly distribute its fixed manufacturing costs over
more units.
For fiscal year 1994, field service and installation costs approximated 8%
of net revenues and include ongoing product service costs and installation
costs. The Company believes that it has and will continue to make product
design changes which improve product performance and result in easier
installation, thereby reducing these costs as a percentage of net
revenues.
Selling, General and Administrative Expenses
For fiscal year 1994, sales, marketing and customer service comprised
approximately 60% of all selling, general and administrative expenses.
Selling, general and administrative expenses have increased significantly
due to an expansion of the Company's sales force both domestically and
internationally (through acquisitions) from a September 1991 sales force
of 47 people to a December 1994 sales force of approximately 180. During
this same period, significant investment was also made in the
establishment of a multifaceted product management team and a
professional customer service organization.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Overview (continued)
Taxes
The Company's net earnings generated by the operations of its Puerto Rican
subsidiary are exempt from Federal income taxes under section 936 of the
Internal Revenue Code ('Section 936') and are substantially exempt from
Puerto Rican income taxes. As a result, the Company's effective tax rate
for fiscal 1994 was 25%. Changes to Section 936 resulting from the Revenue
Reconciliation Act of 1993 are not expected to have an impact on the
Company's tax status from earnings generated by the operations in Puerto
Rico as a result of substantial investments made by the Company in
property, plant and equipment combined with the large workforce currently
employed by the Company at the facility. The Company anticipates that its
effective tax rate may increase in fiscal year 1995 and beyond due to (i)
increased net income due to the acquisition of Alarmex and other possible
acquisitions, (ii) a change in U.S. tax laws resulting in a partial tax on
Section 936 earnings, whether or not such earnings are repatriated and
(iii) additional taxable income attributable to foreign jurisdictions
where tax rates may be marginally higher than in the U.S.
Exposure to International Operations
Prior to fiscal year 1993, substantially all the Company's international
sales were made to distributors and were paid in U.S. dollars. As a result
of the Company's strategy to increase its direct sales to customers (as
opposed to sales through independent distributors), approximately 79.4% of
the Company's international sales for fiscal year 1994 were made in local
currencies. This increase in sales denominated in currencies other than
U.S. dollars increases the Company's potential exposure to currency
fluctuations which can adversely affect results. During fiscal year 1994,
currency exchange losses amounted to $762,000 compared to losses of
$327,000 for fiscal year 1993. The primary increase in the currency
exchange losses from 1993 and 1994 was the result of the devaluation of
the Mexican peso in late 1994. As a result of the peso devaluation and
continued difficulties in Mexico, the Company's operations in Mexico could
be negatively impacted during fiscal year 1995 but this is not expected to
materially affect the Company's consolidated results.
The Company sells product for international sales to its international
subsidiaries. The subsidiaries, in turn, sell these products to customers
in their respective geographic areas of operation in local currencies.
This method of sales and resale gives rise to the risk of gains or losses
as a result of currency exchange rate fluctuations.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
In order to reduce the Company's exposure resulting from currency
fluctuations the Company has been purchasing currency exchange forward
contracts on a regular basis. These contracts guarantee a predetermined
exchange rate at the time the contract is purchased. This allows the
Company to shift the risk, whether positive or negative, of currency
fluctuations from the date of the contract to a third party. As of
December 25, 1994 the Company had currency exchange forward contracts
totaling approximately $8.8 million. The contracts are in the various
local currencies covering the Company's six Western European operations.
The Company's operations in Canada, Argentina, Mexico and Australia were
not covered by forward exchange contracts at December 25, 1994.
The Company is considering increasing the amount of currencies covered by
forward exchange contracts during fiscal year 1995. In addition, the
Company is evaluating the use of currency options in order to reduce the
impact that exchange rate fluctuations have on the Company's gross margins
for sales made by the Company's international operations. The combination
of forward exchange contracts and currency options should result in
reducing the Company's risks associated with significant exchange rate
fluctuations.
Seasonality
The Company's customers are substantially dependent on retail sales which
are seasonal and subject to significant fluctuations which are difficult
to predict. The Company's sales are impacted by such seasonality and
fluctuations. Historically, the Company has experienced lower sales in
the first and second quarters of each year.
First Quarter 1995
Based upon the Company's sales in January and February 1995 and other
factors, the Company currently believes that its results of operations for
the first quarter of 1995, excluding the impact of the Alarmex Acquisition
will be approximately breakeven or a slight loss. The Company also
estimates that interest and amortization expenses and other charges and
expenses related to the Alarmex Acquisition, to the extent not fully
absorbed by Alarmex's revenues, could adversely impact earnings by up to
an additional $0.03 per share for the first quarter of fiscal 1995.
Anticipated first quarter 1995 sales will be affected by normal seasonality
and stronger than expected shipments in December 1994. Expected results
also reflect planned increases in expenses to support anticipated growth in
the Company's business. Increased planned expenses over the first quarter
of fiscal year 1994 include an increase of approximately $2 million in
selling, general and administrative expenses and increased interest on
higher debt incurred to finance expansion of the Company's business. The
charges and expenses attributable to the Alarmex Acquisition include
increased expenses related to inventory write-ups required by purchase
accounting which will be charged over the first two quarters of fiscal
1995 as this investory is sold, increased interest expense on debt
incurred to finance the acquisition and refinance existing Alarmex debt
and amortization of intangibles, including goodwill, arising from the
acquisition.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
---------------------
For the Year Ended December 25, 1994
------------------------------------
Overview
In fiscal year 1994, the Company began to realize the full
impact of acquisitions completed and new products introduced in fiscal
year 1993. Net revenues increased by approximately $35.3 million over
fiscal year 1993. Continued improvements in the cost of revenues as a
percentage of net revenues resulted in a significant increase in
incremental gross profit from that obtained in fiscal year 1993. This
improvement was driven primarily by increased efficiencies in
manufacturing (achieved through (i) closure of a high cost European
manufacturing operation, (ii) improvement in manufacturing efficiencies of
existing as well as newer generation products introduced in 1993 and (iii)
higher unit volumes (contributing significantly to more efficient overhead
absorption)) in Western Europe as a result of Company-sponsored direct
sales activities (offset, however, by significant price reductions as a
result of intense price competition). These factors combined to produce
operating income of approximately $11.7 million during fiscal year 1994
compared to an operating loss of $.6 million in fiscal year 1993.
Net Revenues
Net revenues increased $35.3 million (or 37.9%) over fiscal year 1993
(from $93.0 million to $128.3 million). Domestic and international net
revenues accounted for approximately 60.6% and 39.4%, respectively, of
total net revenues compared to 64.1% and 35.9% in fiscal year 1993.
Domestic EAS net revenues increased $17.1 million (or 31.3%) primarily as
a result of increased unit sales. In addition, higher prices in certain
product offerings and increases in recurring service revenues also
contributed to the increase. International EAS net revenues increased
$17.2 million (or 51.5%) primarily as a result of higher prices received
by the Company as a result of direct sales as compared to selling through
distributors. However, during fiscal year 1994 the Company's operations
in Western Europe were significantly impacted by severe price competition
as a result of ongoing efforts by competitors in that area to retain their
respective market shares. These price reductions negatively impacted the
Company's earnings from its international operations by approximately $3
million. This price competition is expected to continue and possibly
intensify through fiscal year 1995.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
---------------------
For the Year Ended December 25, 1994(continued)
----------------------------------------------
Cost of Revenues
Cost of revenues increased approximately $12.0 million (or 21.9%) over
fiscal year 1993 (from $54.4 million to $66.4 million). As a percentage of
net revenues, however, cost of revenues decreased 6.8% (from 58.5% to
51.7%) compared to fiscal year 1993 primarily due to (i) increased
production volumes resulting in favorable overhead absorption combined
with greater manufacturing efficiencies, (ii) the relocation of European
production into lower cost Caribbean based facilities and (iii) increased
manufacturing efficiencies of existing as well as newer generation
products introduced in fiscal year 1993. Combined, these items resulted in
lowering production cost as a percentage of revenues by 1.8% (from 41.7%
to 39.9%). Lower spending on research and development from the prior year
(from $5.4 million to $4.9 million) as a result of the completion of new
products during the past several years also contributed to reducing costs
as a percentage of revenues by 2.0%. In addition, the Company's service
costs were positively impacted by the introduction of new deactivation
products, Counterpoint IV and V, with their increased deactivation heights
thereby reducing the frequency of customers' failure to deactivate
disposable labels. Increased service revenues without the cost for
proportionately greater service personnel resulted in reducing service
costs as a percentage of revenues by 3.0%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $11.0 million
(or 28.1%) over fiscal year 1993 (from $39.2 million to $50.2 million).
As a percentage of net revenues, however, selling, general and
administrative expenses decreased by 3.0% (from 42.2% to 39.2%). The
higher expenses (in dollars) were due to (i) increases in variable
selling expenses resulting from higher domestic sales (an increase of
approximately $1.0 million versus fiscal year 1993) and (ii)
increases in selling, general and administrative expenses resulting
from the acquisitions made in fiscal year 1993 (an increase of
approximately $9.0 million versus fiscal year 1993).
Net Earnings
Net earnings were $6.3 million or $.58 per share versus $1.6 million or
$.16 per share for fiscal year 1993. The results for fiscal year 1993,
however, include a one-time benefit of $3.5 million ($2.7 million after
tax) from a settlement of a contract dispute with the Company's former
exclusive distributor for Western Europe.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
---------------------
For the Year Ended December 26, 1993
------------------------------------
Overview
Fiscal year 1993 was characterized by a difficult transition from
distribution to direct sales and introduction of new products with
attendant start-up problems and expenses. Net revenues increased $20.9
million over fiscal year 1992. These revenues, however, generated only
approximately $5.1 million of incremental gross profit. Factors adversely
affecting gross margin were (i) increased manufacturing costs attributable
to a European factory acquired in 1993 (and since closed) as part of
Western European distribution operations,(ii) start-up manufacturing and
installation inefficiencies related to the introduction of certain new
high unit volume products and (iii) reduced unit sales in Western Europe
(and consequently lower fixed cost absorption) attributable to the
reorganization from distribution through independent distributors to
direct sales in Western Europe. At the same time, due primarily to a
change from distribution sales and related service to Company-sponsored
direct sales and service in Western Europe, selling and related expenses
(primarily direct and indirect sales and related product installation and
service costs) increased by approximately $10.9 million over fiscal year
1992. These factors resulted in an operating loss of approximately $.6
million for the year.
Net Revenues
Net revenues increased $20.9 million (or 28.9%) over fiscal year 1992
(from $72.2 million to $93.0 million). Domestic and international net
revenues were 64.1% and 35.9%, respectively, of total net revenues,
compared to 68.7% and 31.3% for fiscal year 1992. Domestic EAS net
revenues increased $9.4 million (or 20.7%) primarily as a result of unit
volume increases across all major product lines and increases in service
revenues. Domestically, these positive effects were somewhat offset by
lower pricing from high volume national retailers. International EAS net
revenues increased $10.8 million (or 47.6%), primarily as a result of
higher unit volumes and price increases on reusable tags combined with
significantly higher prices across other major product lines attributable
to various acquisitions and start up operations made in late 1992 and
throughout 1993 in numerous countries where the Company previously sold
through distributors.
Cost of Revenues
Cost of revenues increased $15.8 million (or 40.8%) over fiscal year 1992
(from $38.7 million to $54.4 million). As a percentage of net revenues,
cost of revenues increased 4.9% (from 53.6% to 58.5%) over fiscal year
1992 thereby reducing gross margin from 46.4% in fiscal year 1992 to 41.5%
in fiscal year 1993. This decrease in gross margin was primarily due to
the factors set forth in the first paragraph of this section.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
---------------------
For the Year Ended December 26, 1993 (continued)
-----------------------------------------------
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $10.9 million (or
38.4%) over fiscal year 1992 (from $28.3 million to $39.2 million) and by
2.9% as a percentage of revenues (from 39.3% to 42.2%). The higher
expenses are primarily due to (i) increases in variable selling and
marketing expenses resulting from higher domestic sales and (ii) sales,
marketing and customer service costs borne by the Company which had been
previously incurred by independent distributors.
Net Earnings
Net earnings were $1.6 million or $.16 per share versus net earnings of
$4.4 million or $.45 per share for fiscal year 1992. Included in the
fiscal year 1993 results is a one-time benefit of $3.5 million ($2.7
million after tax) from a settlement of a contract dispute with the
Company's former exclusive distributor for Western Europe.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's liquidity needs have related to, and are expected to
continue to relate to, capital investments, acquisitions and working
capital requirements. The Company has met its liquidity needs over the
last three years primarily through funds provided by long-term borrowings.
The Company believes that cash provided from operating activities and
funding available under its current credit agreements, together with the
net proceeds from the sale of the shares of Common Stock (discussed
below), will be adequate for its working capital and capital expenditure
requirements. Cash provided (used) by operating activities for fiscal
years 1992, 1993 and 1994, was $1.5 million, $(6.3) million and $(7.6)
million, respectively. In fiscal years 1993 and 1994, cash used by
operating activities was negatively impacted by increases in accounts
receivable and inventories relating to significant sales increases in
those years and increases in rental equipment as a result of allowing
retailers to either test equipment before finalizing a purchase decision
or to lease the equipment under operating leases for a period which
usually ranges from three to five years.
The allowance for doubtful accounts showed a significant reduction between
fiscal years 1993 and 1994 (from $2.2 million to $1.6 million) as a final
determination was made as to the collectability of certain trade
receivables which were acquired as part of the Company's acquisition of
ID Systems in July of 1993. At the time of acquisition, the Company set
up an appropriate allowance totaling $1.6 million in order to reflect the
reduced value of this portfolio.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
During fiscal year 1994 the Company completed a private placement debt
funding of $12 million. A significant portion of the proceeds were used
to repay existing debt under the Company's long-term revolving credit
facility. The remaining proceeds were used for general corporate purposes.
At December 31, 1994, the Company had no availability remaining under its
revolving credit facility with two banks. Subsequent to year end the
Company completed a private placement debt funding of $15 million. In
addition, the Company entered into a new $25 million revolving credit
agreement with a group of banks to replace the existing $15 million in
revolving credit indebtedness outstanding at year end. Of the $25 million
available under the revolving credit agreement, at February 28, 1995 there
was approximately $20 million outstanding at an interest rate of 7.63%,
and $5 million available for future borrowings. A significant portion of
the private placement funding proceeds, approximately $13 million, was
used for the acquisition of Alarmex and the repayment of existing debt
held by Alarmex at the time of acquisition. The balance of the private
placement funding of approximately $2 million was used for general
corporate purposes. Management continues to seek additional funding in
order to support continuing worldwide growth. In this regard the Company
has filed a Form S-3 registration statement under the Securities Act of
1933. This filing relates to an offering by the Company of 3,000,000
shares (not including 450,000 shares subject to the underwriters' over-
allotment option) of the Company's common stock. The Company expects to
complete this offering during the first half of 1995. The net proceeds to
be received by the Company from this offering are expected to approximate
$64 million. The proceeds of the offering which are discussed more fully
in the Company's Form S-3 registration statement are expected to used for
general corporate purposes including (i) funding strategic acquisitions or
start-up opportunities ($24 million), (ii) repaying certain indebtedness
under the Company's revolving credit line ($20 million) and (iii) funding
the Company's leasing programs ($20 million).
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
------------------------------------------
The Company's capital expenditures were $6.1 million in fiscal year 1992,
$4.6 million in fiscal year 1993 and $4.5 million in fiscal year 1994. The
Company expects that for the next several years similar levels of
investments in property, plant and equipment will be made. These capital
expenditures will generally be used for expanding, improving and
maintaining plant efficiency at the Company's various production
facilities located in the Caribbean. As part of its continuing strategy,
the Company is exploring strategic acquisitions in the following areas:
international direct distribution, a second source of manufacturing
capacity and product line diversification within the Company's core
businesses. In order to consummate a particular acquisition, the Company
may require additional debt or equity financing.
The Company has never paid a cash dividend and has no plans to do so in
the foreseeable future. Certain covenants in the Company's debt
instruments limit the amounts available for dividends.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Accountants......................................34
Consolidated Balance Sheets as of December 25, 1994 and
December 26, 1993...................................................35
Consolidated Earnings Statements for each of the years
in the three-year period ended December 25, 1994....................36
Consolidated Statements of Shareholders' Equity for each of the
years in the three-year period ended December 25, 1994..............36
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 25, 1994....................37
Notes to Consolidated Financial Statements...........................38-53
Financial Schedule
Schedule II - Valuation and Qualifying Accounts...................57
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Checkpoint Systems, Inc.
We have audited the consolidated financial statements and financial
statement schedule of Checkpoint Systems, Inc. and subsidiaries listed in
item 14(a)of this Form 10-K. These financial statements and financial
statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
and financial statement 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 consolidated financial position of
Checkpoint Systems, Inc. and subsidiaries as of December 25, 1994 and
December 26, 1993, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December
25, 1994 in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information
required to be included therein.
As discussed in Note 1 to the Financial Statements, in 1993, the Company
changed its method of accounting for income taxes.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 15, 1995,
except as to Note 17 for
which the date is March 3, 1995
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
December 25, December 26,
1994 1993
------------ -----------
ASSETS (Thousands)
CURRENT ASSETS
Cash $ 944 $ -
Accounts receivable, net of allowances
of $1,570,000 and $2,237,000 33,290 24,239
Inventories 29,486 25,450
Other current assets 4,385 5,213
Deferred income taxes 1,117 -
------- -------
Total current assets 69,222 54,902
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation and amortization 36,799 30,862
EXCESS OF PURCHASE PRICE OVER FAIR VALUE
OF NET ASSETS ACQUIRED 10,120 8,919
INTANGIBLES 5,826 5,098
DEFERRED TAXES, net of valuation allowance - 479
OTHER ASSETS 5,958 4,739
------- -------
TOTAL ASSETS $127,925 $104,999
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $10,064 $ 9,716
Accrued compensation and related taxes 2,635 1,907
Income taxes 2,223 792
Unearned revenues 3,357 2,645
Other current liabilities 4,810 7,761
Short-term borrowings and current portion
of long-term debt 6,706 4,097
------- -------
Total current liabilities 29,795 26,918
LONG-TERM DEBT, LESS CURRENT MATURITIES 35,556 24,302
DEFERRED INCOME TAXES 1,271 -
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, no par value, authorized
500,000 shares, none issued
Common stock, par value $.10 per share,
authorized 100,000,000 shares, issued
11,278,511 and 10,979,198 1,128 1,097
Additional capital 21,592 18,346
Retained earnings 46,789 40,506
Common stock in treasury, at cost,
799,000 shares (5,664) (5,664)
Foreign currency adjustments (2,542) (506)
------- -------
TOTAL SHAREHOLDERS' EQUITY 61,303 53,779
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $127,925 $104,999
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED EARNINGS STATEMENTS
1994 1993 1992
------- ------- -------
(Thousands, except per share data)
Net Revenues $128,331 $93,034 $72,166
Cost of Revenues 66,360 54,421 38,650
------- ------- -------
Gross Profit 61,971 38,613 33,516
Selling, General and Administrative
Expenses 50,243 39,238 28,342
------- ------- -------
Operating Income (loss) 11,728 (625) 5,174
Contract Settlement Income - 3,500 -
Interest Income 529 476 140
Interest Expense 3,118 953 423
Foreign Exchange Loss 762 327 -
------- ------- -------
Earnings Before Income Taxes 8,377 2,071 4,891
Income Taxes 2,094 456 463
------- ------- -------
Net Earnings $ 6,283 $ 1,615 $ 4,428
======= ======= =======
Net Earnings Per Share $ .58 $ .16 $ .45
======= ======= =======
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Foreign
Common Additional Retained Treasury Currency
Stock Capital Earnings Stock Adjust. Total
------- ------- ------- ------- ------- ------
(Thousands)
Balance,
December 29, 1991 1,026 12,262 34,463 (5,664) - 42,087
Net Earnings 4,428 4,428
Exercise of Stock
Options 54 4,492 4,546
------- ------- ------- ------- ------- -------
Balance,
December 27, 1992 1,080 16,754 38,891 (5,664) - 51,061
Net Earnings 1,615 1,615
Exercise of Stock
Options 17 1,592 1,609
Foreign Currency
Adjustments (506) (506)
------- ------- ------- ------- ------- -------
Balance,
December 26, 1993 1,097 18,346 40,506 (5,664) (506) 53,779
Net Earnings 6,283 6,283
Exercise of Stock
Options 31 3,246 3,277
Foreign Currency
Adjustments (2,036) (2,036)
------- ------- ------- ------- ------- -------
Balance,
December 25, 1994 $ 1,128 $21,592 $46,789 $(5,664) $(2,542) $61,303
======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
1994 1993 1992
(Thousands)
Cash inflow (outflow) from operating
activities:
Net earnings 6,283 $ 1,615 $ 4,428
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Net book value of rented equipment
sold 1,652 1,268 452
Long-term customer contracts (919) 421 (1,111)
Depreciation and amortization 8,023 6,476 3,993
Deferred Taxes 633 (479) -
Provision for losses on accounts
receivable 1,221 520 88
(Increase) decrease in current assets:
Accounts receivable (11,289) (2,716) (1,445)
Inventories (13,095) (10,792) (7,169)
Other current assets 828 (2,024) (833)
Increase (decrease) in current
liabilities:
Accounts payable (669) 2,062 1,284
Accrued compensation and related
taxes 728 (269) 727
Income taxes 1,431 (385) 819
Unearned revenues 712 (7) 220
Other current liabilities (3,151) (2,007) 79
------- ------- -------
Net cash provided (used) by
operating activities (7,612) (6,317) 1,532
Cash inflow (outflow) from investing ------- ------- -------
activities:
Acquisition of property, plant and
equipment (4,532) (4,600) (6,143)
Proceeds of investment securities - - 825
Acquisitions, net of cash acquired (1,786) (3,184) (1,030)
Patent defense costs - (1,998) -
Other investing activities (2,266) (1,662) (1,147)
------- ------- -------
Net cash used by investing
activities (8,584) (11,444) (7,495)
Cash inflow (outflow) from financing ------- ------- -------
activities:
Proceeds from stock options 3,277 1,609 4,546
Proceeds of debt 28,306 14,774 3,830
Payment of debt (14,443) (942) (609)
------- ------- -------
Net cash provided by financing
activities 17,140 15,441 7,767
Net increase (decrease) in cash and ------- ------- -------
cash equivalents 944 (2,320) 1,804
Cash and cash equivalents:
Beginning of year - 2,320 516
------- ------- -------
End of Year $ 944 - $ 2,320
------- ------- -------
See accompanying notes to consolidated financial statements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Checkpoint
Systems, Inc. and its wholly-owned subsidiaries ("Company"). All material
intercompany transactions are eliminated in consolidation.
Fiscal Year
----------
The Company's fiscal year is the 52 or 53 week period ending the last
Sunday of December. References to 1994, 1993 and 1992 are for: the 52
weeks ended December 25, 1994, the 52 weeks ended December 26, 1993, and
the 52 weeks ended December 27, 1992.
Reclassifications
-----------------
Certain reclassifications have been made to the 1993 and 1992 financial
statements and related footnotes to conform to the 1994 presentation.
Revenue Recognition
-------------------
Revenue from the sale of equipment is recognized upon shipment of
equipment or the acceptance of a customer order to purchase equipment
currently rented. Equipment leased to customers under sales-type leases
is accounted for as the equivalent of a sale. The present value of such
lease revenues is recorded as net revenues, and the related cost of the
equipment is charged to cost of revenues. The deferred finance charges
applicable to these leases are recognized over the terms of the leases
using the effective interest method. Rental revenue from equipment under
operating leases is recognized over the term of the lease. Service
revenue is recognized over the contractual period or as services are
performed. Sales to third party leasing companies are recognized as the
equivalent of a sale. These sales were all made on a non-recourse basis.
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out method)
or market. Cost includes material, labor and applicable overhead.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are carried at cost. Depreciation and
amortization generally are provided on a straight-line basis over the
estimated useful lives of the assets; for certain manufacturing equipment,
the units-of-production method is used. Maintenance, repairs and minor
renewals are expensed as incurred. Additions, improvements and major
renewals are capitalized. The cost and accumulated depreciation
applicable to assets retired are removed from the accounts and the gain or
loss on disposition is included in income.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Excess of Purchase Price Over Fair Value of Net Assets Acquired
---------------------------------------------------------------
The excess of purchase price over the fair value of net assets acquired is
amortized on a straight-line basis over their economic useful lives which
is considered to be 20 years. Accumulated amortization approximated
$2,437,000 and $1,852,000 at December 25, 1994 and December 26, 1993,
respectively.
Research and Development Costs
------------------------------
Research and development costs are expensed as incurred, and approximated
$4,877,000, $5,392,000, and $4,498,000 in 1994, 1993 and 1992,
respectively.
Royalty Expense
---------------
Royalty expenses incurred approximated $2,227,000, $1,619,000 and
$1,279,000 in 1994, 1993, and 1992, respectively.
Per Share Data
--------------
Per share data is based on the weighted average number of common and
common equivalent shares (stock options) outstanding during the year. The
number of shares used in the per share computations were 10,806,000
(1994), 10,386,000 (1993), and 9,951,000 (1992).
Intangibles
-----------
Intangibles consist of patents, rights, customer lists and software
development costs. The costs relating to the acquisition of patents,
rights and customer lists are amortized on a straight-line basis over
their useful lives of ten years or legal life, whichever is shorter.
Accumulated amortization approximated $1,027,000 and $473,000 at December
25, 1994 and December 26, 1993, respectively.
The costs of internally developed software are expensed until the
technological feasibility of the software has been established.
Thereafter, all software development costs are capitalized and
subsequently reported at the lower of unamortized cost or net realizable
value. The costs of capitalized software are amortized over the products'
estimated useful lives or five years, whichever is shorter. During 1994
and 1993, $743,000 and $575,000 of software development costs were
capitalized. Accumulated amortization of these costs approximated
$965,000 and $444,000 at December 25, 1994 and December 26, 1993,
respectively.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Taxes on Income
---------------
In 1993, Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes" was adopted. Under this method, deferred
tax liabilities and assets are determined based on the difference between
financial statement and tax basis of assets and liabilities using enacted
statutory tax rates in effect at the balance sheet date. The adoption of
this new standard did not have a material effect on the Company's
financial statements. For 1992, taxes on income are determined under
Accounting Principles Board Opinion 11 (APB 11) whereby the income tax
provision is calculated under the deferred method. Generally, the
deferred method recognizes income taxes on financial statement income and
the tax effect of differences with taxable income are deferred at tax
rates in effect during the period.
Accounting for Foreign Currency Translation and Transactions
------------------------------------------------------------
The Company's balance sheet accounts of foreign subsidiaries are
translated into U.S. dollars at the rate of exchange in effect at the
balance sheet dates. Revenues, costs and expenses of the Company's
foreign subsidiaries are translated into U.S. dollars at the average rate
of exchange in effect during each reporting period. The resulting
translation adjustment is recorded as a separate component of
stockholders' equity. In addition, gains or losses on long-term
intercompany transactions are excluded from the results of operations and
accumulated in the aforementioned separate component of consolidated
stockholders' equity. All other foreign transaction gains and losses are
included in the results of operations.
Aggregate foreign currency transaction losses in 1994, 1993 and 1992 were
$762,000, $327,000 and zero, respectively, and are included in "Foreign
Exchange Loss" in the Consolidated Earnings Statement.
2. INVENTORIES
Inventories consist of the following:
1994 1993
---- ----
(Thousands)
Raw materials $ 6,078 $ 8,256
Work-in-process 193 705
Finished goods 23,215 16,489
------ ------
Totals $29,486 $25,450
====== ======
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY, PLANT AND EQUIPMENT
The major classes are:
1994 1993
---- ----
(Thousands)
Land $ 892 $ 892
Building 9,751 9,733
Equipment rented to customers 10,364 3,736
Machinery and equipment 35,162 31,434
Leasehold improvements 1,129 1,949
Leased equipment under capital
leases 15 15
------- -------
$57,313 $47,759
Accumulated depreciation
and amortization (20,514) (16,897)
------- -------
$36,799 $30,862
======= =======
4. SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT
The short-term debt and current portion of long-term debt at December 25,
1994 and at December 26, 1993 consisted of the following:
December 25, 1994 December 26, 1993
----------------- ------------------
(Thousands)
Current portion of Long-term Debt $3,277 $1,733
$2 million credit line held by
Puerto Rico subsidiary with
interest at 8.5% 2,000 1,000
Line of credit held by Argentine
subsidiary with interest at 13.0% 1,429 1,215
Various loans obtained by the
Company's subsidiaries - 149
------- -------
Total short-term debt and
current portion long-term debt $ 6,706 $ 4,097
======= =======
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. LONG-TERM DEBT
The long-term debt at December 25, 1994 and December 26, 1993 consisted of
the following:
December 25, 1994 December 26, 1993
----------------- -----------------
(Thousands)
$13 million credit line with
interest at 8.5% $12,880 $17,830
Seven year $7 million term
note with interest at 4.9% 5,250 6,300
Six year $8 million term note
with interest at 6.5% 7,059 -
Eight year $12 million private
placement note with interest
at 8.27% 12,000 -
Acquisition of rights in a point
of sale monitoring system with
interest imputed at 6% 281 542
Note payable for the purchase of
licensing agreement 300 -
Three year $1.4 million term note
held by Canadian subsidiary with
interest at 7.868% 823 1,288
Various loans obtained by the
Company's subsidiaries 240 75
------- -------
Total 38,833 26,035
Less current portion (3,277) (1,733)
------- -------
Total long-term portion $35,556 $24,302
======= =======
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has a Revolving Credit Agreement with its principal lending
bank which currently provides a line of credit of up to $13,000,000
through May 1, 1996. At December 25, 1994, borrowings at $12,880,000
under this credit agreement were outstanding with an interest rate of 8.5%.
In December 1992, the Company entered into a $7,000,000 seven year loan
agreement at a fixed rate of 4.9% with its principal lending bank. Three
equal installments of $350,000 are due during each year for a total of
$1,050,000 per year with interest due monthly. At December 25, 1994,
$5,250,000 was outstanding.
In February 1994, the Company entered into a $8,000,000 six year loan
agreement at a fixed rate of 6.5% with its principal lending bank. Three
equal installments of $470,588 are due during each year for a total of
$1,411,764 per year with interest due monthly. At December 25, 1994,
$7,058,824 was outstanding.
In March 1994, the Company entered into a $12,000,000 private placement
debt funding agreement at a fixed rate of 8.27%. Principal payments of
$4,000,000 annually are to be made starting in year 2000 with interest due
semi-annually.
The above loan agreements contain certain restrictive covenants which,
among other things, requires maintenance of specified minimum financial
ratios including debt to capitalization, interest coverage and tangible
net worth. In addition, these agreements limit the Company's ability to
pay dividends.
Long-term debt also relates to the acquisition of a licensing agreement.
Remaining payments of $100,000 under this note are due February 1995,
February 1996 and February 1997.
Long-term debt also relates to the acquisition of rights in a
point-of-sale monitoring system being marketed under the name Viewpoint.
One remaining payment of $280,500 under this note is due December 24,
1995. Interest has been imputed using a 6.5% annual rate. The amount due
on December 24, 1995 is classified as a current portion of long-term debt.
In October 1993, the Company's Canadian subsidiary entered into a three
year $1.4 million term note to finance certain sales-type leases.
Payments are due monthly with a fixed interest rate of 7.87%.
The aggregate maturities on all long-term debt are:
(Thousands)
1995 $3,277
1996 16,070
1997 2,562
1998 2,462
1999 2,462
Thereafter 12,000
-------
Total $38,833
=======
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. STOCK OPTIONS
Under a stock option plan for all employees adopted by the shareholders of
the Company in 1987 ("1987 Plan"), the Company granted either incentive
stock options ("ISOs") or non-incentive stock options to purchase up to
2,000,000 shares of Common Stock (amended in 1990 from a previous level of
1,000,000).
The Company amended, restated and renamed the 1987 plan in 1992 ("1992
Plan") allowing the Company to grant either ISOs or non-incentive stock
options to purchase up to 3,000,000 shares of Common Stock (amended in
1992 from a previous level of 2,000,000 shares). Under the 1992 Plan,
only employees are eligible to receive ISOs and both employees and non-
employee directors of the Company are eligible to receive non-incentive
stock options. Non-incentive stock options issued under the 1992 Plan
through December 25, 1994 total 817,247 shares. At December 25, 1994,
December 26, 1993 and December 27, 1992 a total of 208,500, 364,500 and
845,500 shares, respectively, were available for grant.
All ISO's under the 1992 Plan expire not more than 10 years (plus six
months in the case of non-incentive options) from the date of grant. Both
ISO's and non-incentive options require a purchase price of not less than
100% of the fair market value of the stock at the date of grant.
The 1992 Plan is administered by the Company's Compensation and Stock
Option Committee of the Board of Directors. Of the options outstanding at
December 25, 1994, options for 38,351 shares were not part of any plans
and did not qualify as ISOs. Options that were fully vested and
exercisable totaled 1,446,151 as of December 25, 1994.
The following schedule summarizes stock option activity and status:
1994 1993 1992
---- ---- ----
Outstanding at beginning of year 1,593,464 1,281,114 1,639,500
Granted 198,500 489,000 299,000
Exercised (298,313) (168,650) (548,334)
Canceled (47,500) (8,000) (109,052)
--------- --------- --------
Outstanding at end of year 1,446,151 1,593,464 1,281,114
========= ========= =========
Price range of options outstanding $4.88 to $4.88 to $4.88 to
at end of year $17.25 $16.50 $13.50
Price range of options exercised $4.88 to $4.88 to $4.88 to
during the year $16.50 $13.50 $13.50
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments in 1994, 1993 and 1992, respectively, included payments for
interest of $2,410,000, $860,000 and $423,000 and income taxes of
$375,000, $638,000 and $123,000.
Excluded from the 1994 Consolidated Statements of Cash Flows is a non-cash
activity of $200,000 relating to the purchase of a licensing agreement in
which the Company recorded the full cost of the agreement and the
associated liability. Also excluded from investing activities in the
Consolidated Statements of Cash flows are net transfers from inventory to
property, plant and equipment of $9,059,000, $3,976,000 and $1,188,000 in
1994, 1993 and 1992 respectively, relating to equipment rented to
customers.
In March 1993, the Company purchased all of the capital stock of its
Argentinean distributor for $2,103,000. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired ...................$3,690,000
Cash paid and direct costs
incurred for the capital stock.................$2,103,000
----------
Liabilities assumed..............................$1,587,000
==========
In July 1993, the Company purchased all of the capital stock of ID Systems
International B.V. and ID Systems Europe B.V. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired ...................$14,575,000
Cash paid and direct costs incurred
for the capital stock including advances ........$ 1,690,000
-----------
Liabilities assumed..............................$12,885,000
===========
8. SHAREHOLDERS' EQUITY
In December 1988, the Company's Board of Directors approved a
Shareholders' Rights Plan (the "Plan"), and declared a dividend
distribution of one common share purchase right ("Right") for each
outstanding share of the Company's Common Stock to shareholders of
record on December 29, 1988. The Rights are designed to ensure all
Company shareholders fair and equal treatment in the event of a proposed
takeover of the Company, and to guard against partial tender offers and
other abusive tactics to gain control of the Company without paying all
shareholders a fair price.
The Rights are exercisable only as a result of certain actions (defined by
the Plan) of an Acquiring Person or Adverse Person, as defined.
Initially, upon payment of the exercise price (currently $40), each Right
will be exercisable for one share of Common Stock. Upon the occurrence of
certain events as specified in the Plan, each Right will entitle its
holder (other than an Acquiring Person or an Adverse Person) to purchase a
number of the Company's or Acquiring Person's common shares having a
market value of twice the Right's exercise price. The Rights expire on
December 28, 1998. Generally, within ten days after a person becomes an
Acquiring Person or is determined to be an Adverse Person, the Company
can redeem the Rights.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES
The Company's net earnings generated by the operations of its Puerto Rican
subsidiary are exempt from Federal income taxes under Section 936 of the
Internal Revenue Code and substantially exempt from Puerto Rican income
taxes.
In 1991, the Company was granted a new local tax exemption agreement with
a twenty year 90% local tax exemption retroactive to 1988 on both the
target and sensor manufacturing operations.
Repatriation of the Puerto Rico subsidiary's unremitted earnings could
result in the assessment of Puerto Rico "tollgate" taxes at a maximum rate
of 3.5% of the amount repatriated. During 1994 and 1993, a provision was
made for tollgate taxes and during 1992, no provision was made for
tollgate taxes. The Company has not provided for tollgate taxes on
$24,321,000 of its subsidiary's unremitted earnings since they are
expected to be reinvested indefinitely.
The domestic and foreign components of earnings before income taxes are:
1994 1993 1992
---- ---- ----
Domestic $ 6,931 $ 1,720 $ 4,891
Foreign 1,446 351 -
------- ------- -------
Total $ 8,377 $ 2,071 $ 4,891
======= ======= =======
The related provision for income taxes consist of:
1994 1993 1992
---- ---- ----
Currently Payable (Thousands)
Federal $ 914 $ 369 $ 632
State - 5 94
Puerto Rico 444 186 (263)
Foreign 103 375 -
Deferred
Federal 176 (509) -
State (33) 30 -
Puerto Rico - - -
Foreign 490 - -
------- ------- -------
Total Provision $ 2,094 $ 456 $ 463
======= ======= =======
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES (continued)
Deferred tax liabilities (assets) at December 25, 1994 and
December 26, 1993 consist of:
1994 1993
---- ----
(Thousands)
Depreciation $ 856 $ 805
Deferred maintenance 260 318
Unbilled receivable 155 138
------- --------
Gross deferred tax liabilities 1,271 1,261
------- --------
R & E credit carryforward - (982)
Inventory (332) (277)
Alternative minimum tax (513) (258)
Accounts receivable (117) (100)
Net operating loss carryforwards (4,668) (4,494)
Warranty (52) (41)
Other (103) (82)
------- --------
Gross deferred tax assets (5,785) (6,234)
------- --------
Valuation allowance 4,668 4,494
------- --------
Net deferred tax liability (asset) $ 154 $ (479)
======= ========
Included in net operating loss carryforwards of $13,874,000 is $11,794,000
that were acquired in connection with the acquisition of the ID Systems
Group. If realization of the benefit of such carryforwards occur, the
Company will apply such benefit to goodwill in connection with the
acquisition.
Of the total foreign net operating loss carryforwards available, $500,000
expire beginning January 1999 whereas the remaining portion may be carried
forward indefinitely.
The valuation allowance in 1993 totaling $4,494,000 relates to the net
operation losses acquired in connection with the ID Systems Group along
with subsequent losses. The increase of the valuation allowance by
$174,000 from 1993 to 1994, primarily relates to the incurrence of certain
state net operating losses during fiscal year 1994.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES (continued)
A reconciliation of the statutory U.S. Federal income tax rate with the
effective income tax rate follows:
1994 1993 1992
---- ---- ----
Statutory federal income tax rate 34.0% 34.0% 34.0%
Tax exempt earnings of subsidiary in
Puerto Rico (13.3) (14.0) (23.8)
Change in tax exempt earnings of
subsidiary in Puerto Rico - - (8.5)
Research and Experimentation tax credit (0.8) (17.2) -
Foreign losses with no benefit - 8.4 -
State and local income taxes, net
of federal benefit 3.5 9.1 5.7
Other 1.6 1.7 2.1
------ ------ ------
Effective tax rate 25.0% 22.0% 9.5%
====== ====== ======
During 1992, the effective tax rate was favorably impacted by a refinement
of an estimate relating to tax exempt earnings of the Puerto Rico
subsidiary.
10. EMPLOYEE BENEFIT PLANS
Under the Company's defined contribution savings plans, eligible employees
(see below) may make basic (up to 6% of an employee's earnings) and
supplemental contributions to a trust. The Company matches 50% of
participant's basic contributions. Company contributions vest to
participants in increasing percentages over three to six years of service.
The Company's contributions under the plans approximated $628,000,
$478,000, and $323,000 in 1994, 1993 and 1992, respectively.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. EMPLOYEE BENEFIT PLANS (continued)
Generally, any full-time, non-union employee of the Company (other than
someone holding the position of Vice President or higher) who has
completed one month of service, and any part-time non-union employee of
the Company who has completed one year of service, other than employees of
the Company's subsidiaries, may participate in the Company's United States
Savings Plan. All full-time employees of the Puerto Rico subsidiary who
have completed three months of service may participate in the Company's
Puerto Rico Savings Plan. Part-time employees are not entitled to
participate in the Company's Puerto Rico Savings Plan.
Under the Company's non-qualified Employee Stock Purchase Plan, employees,
other than employees of the Company's subsidiaries in Australia,
Argentina, Europe and Mexico may contribute up to $60 per week to a trust
for the purchase of Company Common Stock at fair market value. The
Company matches employee contributions up to a maximum of $17 per week.
The Company's contributions under this plan approximated $110,000, $94,000
and $76,000 in 1994, 1993 and 1992, respectively.
Under the Company's Profit Incentive Plan, bonuses are provided for
certain executives based on a percentage of the amount by which
consolidated net earnings exceed a specified portion of shareholders'
equity at the beginning of the year. During the last three years net
earnings did not exceed this criteria and, accordingly, no bonuses were
provided.
11. COMMITMENTS AND CONTINGENCIES
The Company leases its offices, distribution center and certain production
facilities. Rental expense for all operating leases approximated
$2,307,000, $1,424,000 and $811,000 in 1994, 1993 and 1992, respectively.
Future minimum payments for operating leases having non-cancellable terms
in excess of one year at December 25 1994 are: $1,611,000 (1995),
$1,495,000 (1996), $1,052,000 (1997), $778,000 (1998), $720,000 (1999) and
$5,440,000 thereafter.
The Company has entered into a twelve year lease agreement for a newly
constructed facility in 1994 which will be the Company's new headquarters
for administrative offices, research and development and warehouse
distribution. These lease payments have been included in the future
minimum payments for operating leases above.
The Company, in order to reduce its exposure to fluctuations in foreign
currency exchange rates, has entered into currency exchange forward
contracts. These agreements involve the exchange of various foreign
currencies for U.S. dollars at some future date. The Company makes
settlement of foreign currencies for U.S. dollars at maturity, at exchange
rates agreed to at inception of the contract. Counterparties to these
agreements are major financial institutions. As of December 25, 1994 and
December 26, 1993, the U.S. dollar equivalent of currency exchange forward
contracts outstanding approximated $8,800,000 and $2,803,000,
respectively. These agreements have various maturities through 1995.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (continued)
The Company is the exclusive worldwide licensee of Arthur D. Little, Inc.
("ADL") for certain patents and improvements thereon related to EAM
products and manufacturing processes. The Company pays a royalty to ADL
ranging from 2% to 5% of net revenues generated by the sale and lease of
the licensed products, with the actual amount of the royalty depending
upon revenue volume.
The Company is the worldwide licensee of certain patents and technical
knowledge related to proximity card and card reader products. It pays a
royalty equal to 2% of the net revenues from the licensed products. Such
royalties are payable through January 29, 2000, or until all of the
subject patents have been adjudicated invalid.
The Company has a worldwide license to distribute a point-of-sale front-
end monitoring system being marketed under the name Viewpoint. Marketing
of this product began during 1992. The Company pays a one time site
license fee for each site installed.
On March 10, 1993, the United States International Trade Commission
("Commission") instituted an investigation of a complaint filed by the
Company under Section 337 of the Tariff Act of 1930. The complaint, as
amended, alleged that six respondents imported, sold for importation, or
sold in the United States after importation certain anti-theft
deactivatable resonant tags and components thereof that infringed certain
U.S. Letters Patents of which the Company is exclusive licensee. The
Commission's notice of investigation named six respondents, each of whom
was alleged to have committed one or more unfair acts in the importation
or sale of components or finished tags that infringe the asserted patent
claims. Those respondents are: Actron AG; Tokai Denshi Co. Ltd.; ADT,
Limited; All Tag Security AG; Toyo Aluminum Ltd.; and Custom Security
Industries, Inc.
On March 10, 1994 the United States International Trade Commission issued
a Notice of Commission Determination Not to Review an Initial
Determination Finding No Violation of Section 337 of the Tariff Act of
1930. The Company has capitalized approximately $1.9 million in patent
defense costs, which is included in 'Intangibles' as of December 25, 1994.
The ultimate resolution is undetermined at this time due to the various
courses of action available to management. The Company has appealed this
determination to the appropriate United States Court of Appeals. Although
the Company's management ultimately expects a favorable outcome, should
resolution of this matter result in a less than successful defense of the
patents in question the deferred patent costs will be written off as a
charge to earnings at the time of such resolution.
Effective January 1, 1995, A.E. Wolf, former Chief Executive Officer, and
current Chairman of the Board of Directors entered into an agreement with
the Company to provide consulting services on an as-needed basis. As
compensation, Mr. Wolf will receive $530,014 per year for five years, of
which $255,014 will be deferred annually. In addition, the Company will
pay the sum of $125,000 in five equal installments of $25,000 each
commencing January 1, 1995 to Mr. Wolf for his agreement not to compete.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. EXPORT SALES
The Company's export sales to foreign distributors which are principally
in Europe and Scandinavia approximated $10,430,000, $12,163,000, and
$22,732,000 in 1994, 1993, and 1992, respectively. Sales of the Company's
foreign subsidiaries in Argentina, Australia, Canada, Western Europe and
Mexico totaled $40,120,000 in 1994 and $21,200,000 in 1993. Sales to one
foreign distributor of the Company's products amounted to $2,786,000,
$5,000,000 and $13,147,000 in 1994, 1993 and 1992 respectively.
13. CONCENTRATION OF CREDIT RISK
Prior to 1993, most of the Company's export sales were to one foreign
distributor. Currently, the Company's foreign subsidiaries, along with
many foreign distributors, provide diversified international sales thus
minimizing credit risk to one or a few distributors. In addition, the
Company maintains foreign credit insurance to provide coverage for
potential foreign political or economic risks. Domestically, the
Company's sales are well diversified among numerous retailers in the
apparel, shoe, drug, mass merchandise, video, music, supermarket and home
entertainment market. The Company performs ongoing credit evaluations of
its customers' financial condition and generally requires no collateral
from its customers.
14. ACQUISITIONS
On March 3, 1993, the Company purchased all of the capital stock of its
Argentinean distributor for $2,103,000 plus a contingent amount to be
determined equal to fifty percent of the Argentinean subsidiary's annual
profits for the four year period ending on November 30, 1996. The Company
paid $564,000 pursuant to this contingent purchase price arrangement
during 1994. The total purchase price shall not exceed $5,000,000. This
acquisition was accounted for under the purchase method, and accordingly
the results of operations of this business have been included with those
of the Company since the date of acquisition. The purchase price resulted
in an excess of acquisition cost over net assets acquired of $2,926,000.
Such excess, (which will increase for any future contingent cash payments)
is being amortized over twenty years.
On March 8, 1993, the Company purchased a customers list from the
Company's former Mexican distributor for $560,000 in connection with the
Company establishing direct operations in Mexico. The cost related to
this customers list is included in "Intangibles" and is being amortized on
a straight line basis over ten years.
On July 8, 1993, the Company purchased all of the capital stock of ID
Systems International B.V. and ID Systems Europe B.V. ("The ID Systems
Group"), related Dutch companies engaged in the manufacture, distribution
and sale of security products and services. The Company advanced the ID
Systems Group $1,290,000 during the period in which the Company held an
option to purchase all the outstanding capital stock. The purchase price
of the capital stock, exclusive of such advances, was $60 plus direct
acquisition cost of approximately $400,000. This acquisition was
accounted for under the purchase method and, accordingly, the results of
operations of this business have been included with those of the Company
since the date of acquisition. The purchase price resulted in an excess
of acquisition cost over net assets acquired of approximately $5,510,000
which is being amortized over twenty years.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. ACQUISITIONS (continued)
The Company acquired three production units in connection with the
purchase of the capital stock of the ID Systems Group. The Company shut
down all three of these facilities during 1994. Accordingly, the
estimated operating losses and shut down costs of these facilities
amounting to $3,434,000 were accrued for in the purchase price allocation.
As a part of the purchase price allocation, the values assigned to these
assets were based upon estimated residual values upon ultimate disposition
which represents a nominal amount.
The following unaudited summary of operations presents the consolidated
results of operations as if the acquisition of the ID Systems Group had
occurred at the beginning of the years presented. Other acquisitions made
during the year were not material to results of operations and thus are
not presented. The following results are not necessarily indicative of
what would have occurred had the acquisition been consummated as of that
date or of future results.
1993 1992
---- ----
(Thousands, except per share data)
Net revenues $99,426 $92,334
Earnings (loss) before
income taxes $(4,059) $(2,270)
Net earnings (loss) $(4,410) $(2,271)
Earnings (loss) per share $ (.41) $ (.23)
15. GEOGRAPHIC SEGMENTS
The following tables shows sales, operating earnings and other financial
information by geographic area for the years 1994 and 1993.
United States
and Puerto Rico Europe Other (1)
1994 --------------- ---------- ---------
---- (Thousands)
Net Revenues from Unaffiliated
Customers $88,211 $23,009 $17,111
Operating Income $ 9,930 $ 587 $ 1,211
Identifiable Assets $92,285 $18,987 $16,653
United States
and Puerto Rico Europe Other
1993 --------------- ---------- --------
---- (Thousands)
Net Revenues from Unaffiliated
Customers $71,834 $ 7,994 $13,206
Operating Income (loss) $(1,224) $ (357) $ 956
Identifiable Assets $78,982 $15,707 $10,310
(1) Other includes the Company's operations in Canada, Mexico, Argentina
and Australia.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. SUBSEQUENT EVENTS
Legal
-----
The Company, together with two of its senior officers, are defendants in
an action entitled ADT, Inc. and Actron AG v. Checkpoint Systems, Inc. and
Albert E. Wolf and Kevin P. Dowd (D.C.N.J.#95-730) which was filed on
February 9, 1995.
In this action, Actron AG, one of the Company's principal European
competitors, alleges that the Company, in violation of certain common laws
and contractual obligations (1) unlawfully employed in Europe three former
employees of Actron who allegedly are in possession of, and have disclosed
to the Company, certain of Actron's confidential information, (2) has
attempted to employ in Europe certain other of Actron's current
employees,(3) has interfered with certain contractual relationships
between Actron, its former employees, and the supplier of Actron's
disposable EAS tags and (4) has, in allegedly engaging in the activities
complained of, committed acts of unfair competition. The Court has set a
date in early April 1995 to hear arguments on the Company's motion to
dismiss the complaint and has also set a date in mid April 1995 to hear
testimony and arguments on the parties' allegations and defendants
relating to Actron's motion to enjoin the Company from allegedly using
Actron's confidential information. Discovery by both parties has
commenced. The Company intends to defend itself vigorously. While the
outcome of litigation can never be predicted with certainty and the
lawsuit is still in its very preliminary stages, the Company does not
anticipate that its ultimate outcome will have a material effect on its
operations or financial condition.
On March 2, 1995, as a result of a private complaint filed in Switzerland
by Actron against three of its former employees who are now employees of
the Company's Swiss subsidiary, Swiss authorities questioned two of
these employees regarding alleged improper possession and/or use of
confidential information and proprietary data allegedly belonging to
Actron. In addition, Swiss authorities took possession of certain files
from the homes of the employees questioned and from the office of the
Company's Swiss subsidiary. The Company has not been advised that it is
the subject of any legal proceeding in Switzerland. The Company believes
that Actron's private complaint (and the resultant actions of the Swiss
authorities) are directly related to the Company's litigation with Actron
as described above.
Financing
---------
On January 25, 1995, the Company filed a registration statement with the
Securities and Exchange Commission seeking to register 3,450,000 shares of
its common stock (including an underwriters' overallotment option of
450,000 shares).
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
This offering is expected to become effective during the first half of
1995. The net proceeds to be received by the Company from this offering
are expected to approximate $67 million. The expected use of proceeds
which are discussed more fully in the Company's S-3 registration is for
general corporate purposes including (i) funding of strategic acquisitions
or start-up opportunities ($27 million), (ii) repaying certain
indebtedness ($20 million) and (iii) funding the Company's leasing
programs ($20 million).
17. SUBSEQUENT EVENTS (continued)
On January 26, 1995, the Company completed a $15,000,000 private placement
debt funding at a fixed rate of 9.35%. Principal payments of $5,000,000
are to be made annually on January 30 of each year starting in year 1999
with interest due semi-annually. This funding was used principally to
finance the Company's acquisition of Alarmex, Inc.
On February 15, 1995, the Company entered into a new $25 million Revolving
Credit Agreement which replaces the Company's Revolving Credit Agreements
that were in existence at year end. Proceeds of approximately $15 million
were used to pay off borrowings under two existing Revolving Credit Lines.
This new agreement expires on May 1, 1996.
Acquisition
-----------
On February 1, 1995 the Company purchased Alarmex, Inc. for approximately
$13.5 million ($10 million in cash and the balance in 200,717 shares of
Common Stock of the Company). Alarmex designs and provides CCTV, POS
monitoring, burglar and fire alarm systems and also provides related
central station monitoring services to over 9,000 retail sites in the
United States.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
PART III
The information called for by Item 10, Directors and Executive Officers of
the Registrant (except for the information regarding executive officers
called for by Item 401 of Regulation S-K which is included in Part I
hereof as Item A in accordance with General Instruction G(3)): Item 11,
Executive Compensation: Item 12, Security Ownership of Certain Beneficial
Owners and Management: Item 13, Certain Relationships and Related
Transactions, is hereby incorporated by reference to the Registrant's
definitive proxy statement for its Annual Meeting of Shareholders
presently scheduled to be held on April 27, 1995, which management expects
to file with the Securities and Exchange Commission within 90 days of the
end of the Registrant's fiscal year.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
1992 Directors Bonus Award Plan
The Directors Bonus Award Plan was adopted on April 29, 1992 for the
purpose of providing additional incentive compensation to those members of
the Board of Directors of Checkpoint who are not employees of the Company.
Any Director who was not an employee of the Company was eligible to
participate in the Plan unless specifically excluded by the Board of
Directors. Awards under the Plan are granted to a Participant in the form
of Performance Units credited to the account maintained for such
Participant. The Board of Directors has the exclusive power to determine
the number of Performance Units to each participant. Awards of
Performance Units under the Plan do not entitle the recipient to any
dividend, voting, or other rights of a shareholder. Upon the earliest of
(a) two years after the date Performance Units are issued to him or her,
(b) retirement, (c) death, or (d) disability, a participant has the right
to receive payment in cash for the Performance Units credited to his
account. The amount of such payment is a function of appreciation in the
price of the common stock of Checkpoint from the date the Units were
granted until the date of the payment event.
On May 21, 1994, approximately, $684,000 was paid out to the eligible
members of the Board of Directors. No amounts remain to be paid under the
plan and no new plan was adopted in 1994.
Consulting Agreements
(i) Effective January 1, 1995, A.E. Wolf, former Chief Executive Officer,
and current Chairman of the Board of Directors entered into an
agreement with the Company to provide consulting services on an as-
needed basis. As compensation, Mr. Wolf will receive $530,014 per
year for five years, of which $255,014 will be deferred annually. In
addition, the Company will pay the sum of $125,000 in five equal
installments of $25,000 each commencing January 1, 1995 to Mr. Wolf
for his agreement not to compete.
(ii) The Company entered into a consulting agreement on November 1, 1994
with The Advisory Board, Inc., a company owned by Robert O. Aders, a
member of the Board of Directors. This agreement is for general
consulting services including assistance in the development of
various sales and marketing strategies. The agreement term is
November 1, 1994 through December 31, 1996. The agreement requires
a payment of $20,000 per quarter during the contract period.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements PAGE
----------------------------
The following consolidated financial statements are
included in Part II, Item 8:
Report of Independent Accountants.........................34
Consolidated Balance Sheets as of December 25, 1994 and
December 26, 1993.......................................35
Consolidated Earnings Statements for each of the years
in the three-year period ended December 25, 1994........36
Consolidated Statements of Shareholders' Equity for each
of the years in the three-year period ended
December 25, 1994.......................................36
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 25, 1994........37
Notes to Consolidated Financial Statements...............38-53
(a) 2. Financial Schedule
---------------------------
The following consolidated schedule is required to be filed
by Part IV, Item, 14(a)2:
Schedule II - Valuation and Qualifying Accounts... 57
All other schedules are omitted either because they are not applicable,
not required, or because the required information is included in the
financial statements or notes thereto:
<PAGE>
(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K
--------------------------------------------------------------------
Exhibit 3(a) Articles of Incorporation are hereby
incorporated by reference to Item 14(a), and
3(i) of the Registrant's Form 10-K, filed with
the SEC on March 14, 1991.
Exhibit 10 Material Contracts, are hereby incorporated by
reference to Items 14(a)(3)(v), (vi) and
(viii) of the Registrant's Form 10-K, filed
with the SEC on March 6, 1984; Item 14(a)(3)
(v) of the Registrant's Form 10-K, filed with
the SEC on February 13, 1985; Item 14(a)(3)
(iv) of the Registrant's Form 10-K, filed with
the SEC on March 11, 1987; Item 20(4.9) of
Registrant's Post-Effective Amendment Number 1
to Form S-8, filed with the SEC on January 20,
1988; Item 2(1) of the Registrant's Form 8-A,
filed with the SEC on December 21, 1988;
Appendix A to the Company's Definitive Proxy
Statement, filed March 23, 1992; Item 10 of
the Registrants Form 8-K, filed on August
25, 1992; and Item 10(a) of the Registrant's
Form 8-K, filed on July 12, 1993.
Exhibit 10(a) Amended and Restated Profit Incentive Plan
Exhibit 10(b) Consultant Agreement by and between the
Company and The Advisory Board, Inc
Exhibit 10(c) Consulting and Deferred Compensation
Agreement by and between the Company and
Albert E. Wolf
Exhibit 10(d) Amended and restated Loan and Agency Agreement
among First Fidelity Bank, N.A., The Banks
Party Hereto and the Company
Exhibit 10(e) Terms and Agreement by and among the Company
and Principal Mutual Life Insurance Company
Exhibit 10(f) First Amendment to Note Agreement by and
between the Company, Principal Mutual Life
Insurance Company and The Mutual Group
Insurance Company
Exhibit 11 Computation of per share data
Exhibit 21 Subsidiaries of the Registrant
Exhibit 23 Consent of Independent Accountant
Exhibit 24 Power of Attorney, contained in signature page
Exhibit 27 Financial Date Schedule
<PAGE>
CHECKPOINT SYSTEMS, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Balance at
Beginning Costs and Deductions End of
Year Classification of Year Expenses(1) (2) Year
---- -------------- --------- --------- ---------- ---------
1994 Allowance for
doubtful accounts $ 2,237 $ 1,221 $ 1,888 $ 1,570
------- ------- ------- -------
1993 Allowance for
doubtful accounts $ 357 $ 2,166 $ 286 $ 2,237
------- ------- ------- -------
1992 Allowance for
doubtful accounts $ 510 $ 51 $ 204 $ 357
------- ------- ------- -------
(1) The addition of $2,166,000 charged to costs and expenses in 1993
includes a provision of $1,646,000 set up by companies acquired.
(2) The deduction of $1,888,000 in 1994 includes a significant portion of
uncollectable accounts associated with the 1993 acquisition of the ID
Systems Group.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
------- -----------
EXHIBIT 10(a) Amended and Restated Profit Incentive
Plan
EXHIBIT 10(b) Consultant Agreement by and between the
Company and The Advisory Board, Inc
EXHIBIT 10(c) Consulting and Deferred Compensation
Agreement by and between the Company
and Albert E. Wolf
EXHIBIT 10(d) Amended and restated Loan and Agency Agreement
among First Fidelity Bank, N.A., the Banks
party hereto and the Company
EXHIBIT 10(e) Terms and Agreement by and among the Company
and Principal Mutual Life Insurance Company
EXHIBIT 10(f) First Amendment to Note Agreement by and
between the Company, Principal Mutual Life
Insurance Company and The Mutual Group
Insurance Company
EXHIBIT 11 Computation of Per Share Data
EXHIBIT 21 Subsidiaries
EXHIBIT 23 Consent of Independent Public Accountant
EXHIBIT 24 Power of Attorney, Contained in Signature
EXHIBIT 27 Financial Data Schedule
<PAGE>
EXHIBIT 24
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized in
Thorofare, New Jersey, on March 7, 1995.
CHECKPOINT SYSTEMS, INC.
/s/ Kevin P. Dowd
President, Chief Executive Officer, Chief Operating Officer and Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kevin P. Dowd, Steven G. Selfridge
and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution in their place and stead, in any and all
capacities, to sign any and all documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act
of 1934, this report has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE Title DATE
/s/ Kevin P. Dowd President, Chief March 7, 1995
Executive Officer,Chief
Operating Officer , and
Director
/s/ Steven G. Selfridge Senior Vice President - March 7, 1995
Operations and Chief
Financial Officer,
and Treasurer
/s/ Mitchell T. Codkind Corporate Controller March 7, 1995
and Chief Accounting Officer
/s/ Robert O. Aders Director March 7, 1995
/s/ Roger D. Blackwell Director March 7, 1995
/s/ Richard J. Censits Director March 7, 1995
/s/ David W. Clark Director March 7, 1995
/s/ Allan S. Kalish Director March 7, 1995
/s/ Jermain B. Porter Director March 7, 1995
/s/Albert Soffa Director March 7, 1995
/s/ Albert E. Wolf Director March 7, 1995
<PAGE>
EXHIBIT 10(a)
CHECKPOINT SYSTEMS, INC.
AMENDED AND RESTATED PROFIT INCENTIVE PLAN
RESOLVED, that the Management Incentive Plan ("MIP") is amended and
restated in its entirety to provide that the revised plan shall be named
the Profit Incentive Plan ("PIP"). The Chief Executive Officer, President
and Chief Operating Officer and all Vice Presidents will participant in
the PIP. Under the PIP, no bonus pool will be created unless pre-tax, pre
bonus earnings exceed 18% of the beginning balance of Shareholders Equity
for the relevant year. If such earnings are attained, a bonus pool will be
created and will be equal to (i) 3% of all pre-tax, pre-bonus earnings in
excess of 18% of the beginning balance of Shareholders Equity, plus (ii)
6% of pre-tax, pre-bonus earnings in excess of 27% of the beginning
balance of Shareholders Equity for the relevant year. Distribution of the
pool, if any, will be as follows: 20% to Mr. Wolf, the Company's Chairman
of the Board of Directors and Chairman of the Executive Committee of the
Board; 15% to Mr. Dowd, the Company's President, Chief Executive Officer
and Chief Operating Officer; 8% to Mr. Aguilera, the Company's Senior Vice
President - Manufacturing; 8% to Mr. Selfridge, the Company's Senior Vice
President - Operations and Chief Financial Officer; 4% to Mr. Austin, the
Company's Vice President - General Counsel and Secretary, 8% to Mr.
Reilly, the Company's Senior Vice President - Americas' and Pacific Rim;
8% to Mr. Smith, the Company's Senior Vice - Marketing and Western
European Operations; 4% to Mr. Farestad, the Company's Vice President -
Research and Development and the remaining 25% divided among the foregoing
at the discretion of the Committee.
CONSULTANT AGREEMENT
THIS CONSULTANT AGREEMENT is effective as of November 1, 1994 by and between
Checkpoint Systems, Inc., a Pennsylvania corporation (the "Corporation") and
The Advisory Board, Inc., a corporation (the "Consultant").
R E C I T A L S:
Corporation wishes to retain Consultant in connection with its trade or
business and Consultant wishes to be so retained. The parties agree as
follows:
1. Consultant will provide general consulting services for the Corporation
including assistance in the development of various sales and marketing
strategies and will represent the Corporation and its staff, as specifically
authorized, to key retailers and manufacturers. The specific services to be
provided by Consultant will be as reasonably requested by the Corporation
taking into consideration the purposes for which Consultant s services are
being retained. Consultant agrees to provide its services in such a manner
as to produce maximum benefit to the Corporation on a reasonable, as needed
basis.
2. Corporation shall pay Consultant for its services hereunder as follows:
A. $20,000 per quarter retainer fee.
B. Consultant shall also be reimbursed for all reasonable business
expenses, based on detailed expense reports in accordance with the
Corporation's standard policies.
All payments and expense reimbursements shall be due and payable on the
15th day of the second month of the quarter. Expense reimbursements are
subject to expense reports and necessary detail.
3. It is understood and agreed that Consultant is free to consult with and
do similar work for other companies except those which may be in competition
with Corporation.
4. This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
<PAGE> 1
5. The term of this Agreement shall be November 1, 1994 through December 31,
1996. This Agreement may be terminated by either party upon the material
breach of its provisions by the other party. Further, the Agreement may be
terminated by either party if the arrangement is considered to be ineffective
or not economical to the business. If terminated before the stated term
expiration, all fees (on a pro-rata basis) and expenses earned are deemed due
and payable to the Consultant.
6. Consultant agrees to execute Corporation's standard confidentially
agreement concurrently with the execution of this agreement.
Executed as of the date set forth above.
CHECKPOINT SYSTEMS, INC. The Advisory Board, Inc.
BY: Kevin P. Dowd BY: Robert O. Aders
President Chairman
<PAGE> 2
CHECKPOINT SYSTEMS, INC.
CONSULTING AND DEFERRED COMPENSATION AGREEMENT
THIS CONSULTING AND DEFERRED COMPENSATION AGREEMENT ("Agreement"),
dated as of December 16 , 1994, is by and between CHECKPOINT
SYSTEMS, INC. ("CSI") and ALBERT E. WOLF ("Participant")(together the
"Parties");
BACKGROUND
WHEREAS, Participant has served and currently does serve as the
Chairman and Chief Executive Officer of CSI; and
WHEREAS, effective January 1, 1995, Participant will continue as
the Chairman of the Board of Directors and will become the Chairman of
the Executive Committee of the Board of CSI and will relinquish the
office of Chief Executive Officer as of that date; and
WHEREAS, the Board of CSI wishes to provide for Participant so
that Participant will continue to provide consulting services to CSI
during a five year transition period beginning on January 1, 1995.
NOW, THEREFORE, the Parties, intending to be legally bound, hereby
agree as follows:
1. Consulting Payments. Participant shall provide, and be
available to provide, on an as-needed basis, consulting services to CSI
<PAGE> 1
for the five year period ending December 31, 1999. In addition to the
other amounts payable under this agreement, Participant shall be paid a
consulting and availability fee equal to $530,014 per calendar year,
commencing January 1, 1995. Participant shall be paid as an independent
contractor of CSI for his services as a consultant, for his availability
to provide such services, and as a member of the Board of Directors,
Chairman of the Board and Chairman of the Executive Committee of the
Board. No amounts will be withheld for federal income tax, Pennsylvania
income tax, New Jersey income tax, or Philadelphia city wage tax.
Participant shall be responsible for his own taxes, including self-
employment taxes (including the Medicare tax) on all payments made to
him and all amounts deferred annually under this agreement.
2. Benefits. As additional compensation, Participant shall be
eligible to be covered under CSI's benefit plans available to employees
leaving CSI after age 55 with 10 or more years of service. Participant
and Participant's spouse will not be entitled to Dental Plan coverage,
but will receive modified Medical Plan coverage, at Participant's cost,
and modified Group Life coverage. Participant will not participate in
CSI's profit sharing plan or any other pension arrangement, except as
provided herein.
3. Deferral. (i) Participant agrees to defer annually $255,014
of the consultant's fees and/or director's fees, as the case may be,
provided in Section 1, to be earned by Participant for services rendered
<PAGE> 2
to CSI, or to a subsidiary or joint venture thereof on behalf of CSI,
during the period beginning on January 1, 1995 and ending on December
31, 1999 (the "Accrual Period").
(ii) Participant's death during the Accrual
Period, or Participant's other failure to provide or to be available
to provide substantial services during the Accrual Period, shall
constitute a forfeiture of the accrual amount for that year, and will
reduce the amount available for payment under Section 6, below, to the
amount actuarially determined after removing such accrual from the
computation.
(iii) Any amount deemed accrued as of the end of any year
shall be deemed vested at that time solely for Participant's purpose of
computing and paying employment taxes and medicare taxes pursuant to
Section 3121(v) of the Internal Revenue Code of 1986, as amended. For
all other income tax purposes, the amounts deferred hereunder shall
remain the unfunded promise of CSI to pay them and shall be includible
in the income of Participant or Participant's spouse only upon their
receipt by Participant or Participant's spouse.
4. Covenant not to Compete. Participant agrees not to compete
in any manner whatsoever, as an employee, shareholder, director,
creditor, joint venturer, consultant, or otherwise, with CSI, or any
currently existing or hereinafter created subsidiary, joint venture, or
business line of CSI, at any time while any payments remain outstanding
<PAGE> 3
under this Agreement, or through December 31, 1999, whichever is the
first to occur, in the area constituting the continental United States.
Any violation of this Agreement by Participant shall constitute a breach
for which there is no remedy at law and Participant hereby consents to
the entry of an order in equity or any other equitable remedy, including
a temporary restraining order or a permanent injunction, as may be
ordered by a court of competent jurisdiction. Nothing herein shall
prohibit Participant from investing in the stock of any competing firm
indirectly through any mutual fund investment where such mutual fund
stands ready to redeem its shares or where the stock of such mutual fund
is readily traded on an established securities market. In exchange for
Participant's agreement not to compete, CSI shall pay to Participant the
sum of $125,000 in five equal installments of $25,000 each commencing on
January 1, 1995, and payable annually thereafter for four consecutive
calendar years. All appropriate taxes shall be withheld by CSI from
such covenant not to compete payments.
5. Time of Payment of Deferred Compensation. Subject to the
terms and conditions of this Agreement, CSI shall commence paying the
deferred compensation specified in Section 6 to Participant, or to
Participant's spouse, as the case may be, upon the occurrence of any of
the following events:
(a) January 31 of the first calendar year commencing after
the calendar year during which the Participant attains age 70;
<PAGE> 4
(b) Death of Participant prior to attaining age 70 (but no
amount will be paid in the event of Participant's prior divorce from
Participant's current spouse, Stephanie G. Wolf);
(c) Termination of Participant's role as a consultant for
CSI, or a subsidiary or joint venture thereof, and/or termination of
Participant's status as a Director of CSI.
6. Amount of Payment. The amount of deferred compensation to
be paid hereunder shall be paid in the form of a joint and survivor
annuity in the maximum amount of $158,166.16 per year. The amount
actually paid shall take into account only those amounts vested pursuant
to Section 3. The amount payable shall be paid in equal monthly
installments on the first day of each calendar month until the date of
death of the last to die of either Participant or Participant's current
spouse, Stephanie G. Wolf. The amount payable as of the first day of
the next month immediately following the month in which occurs the date
of death of the last to die of either Participant or Participant's
spouse shall be paid to the estate of that person and no further amounts
shall be due under this arrangement. In the event of the divorce of
Participant from Participant's current spouse, Stephanie G. Wolf, at any
time after the execution of this Agreement, Deferred Compensation in the
amount provided herein shall be paid only to Participant and shall
terminate on Participant's death.
7. Termination at CSI's Option. Notwithstanding any other
provision of this Agreement, this Agreement may be terminated by CSI at
any time prior to the time of payment provided for herein by making a
<PAGE> 5
lump sum payment to Participant of the present value (using the Wall
Street Journal prime rate on the date of computation as the discount
factor) of the annuity amount as determined in accordance with Section 6
hereof, if the Compensation Committee, in its sole discretion,
determines that any change in federal or state law, or judicial or
administrative interpretation thereof, has materially affected CSI's
cost of providing the benefits otherwise payable to Participant
hereunder.
8. Agreement Not Funded. CSI's obligation to make payments
hereunder is purely contractual and a general obligation of CSI and the
amounts payable hereunder shall not be held by CSI in a trust or
segregated fund for Participant nor shall Participant have any right
against CSI in respect of his deferred compensation other than as a
general creditor.
9. Interests May Not Be Assigned or Alienated. The interests
of Participant under this Agreement are not subject to the claims of
Participant's creditors and may not be voluntarily or involuntarily
assigned, alienated, or encumbered.
10. Appeal Procedure. The Compensation Committee of the CSI
Board of Directors has the exclusive right to interpret the provisions
of this Agreement and to determine the amounts, if any, payable to
Participant hereunder and its decisions shall be final and binding on
all Parties. Participant may appeal to the Compensation Committee, in
<PAGE> 6
writing, any decision or action by CSI, the Compensation Committee's
designee or any other person, which Participant believes adversely
affects Participant.
11. Amendments. With the approval of the Compensation
Committee, this Agreement may be amended by a writing signed by the
Parties hereto.
12. Governing Law. This Agreement and the rights of the Parties
hereunder shall be governed by the laws of the State of New Jersey.
13. Complete Agreement. This Agreement constitutes the complete
Agreement of the Parties and no prior or contemporaneous discussions or
writings shall have any legal, precedential or evidentiary value insofar
all such discussions and writings have merged into this Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement
as of the day and year first above written.
CHECKPOINT SYSTEMS, INC.
Attest:______________________ By: /s/Kevin P. Dowd
President and Chief Operating Officer
_____________________________ /s/Albert E. Wolf
Witness Participant
<PAGE> 7
AMENDED AND RESTATED
LOAN AND AGENCY AGREEMENT
among
FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as Agent
(successor by merger to First Fidelity Bank, N.A., South Jersey)
and
THE BANKS PARTY HERETO
and
CHECKPOINT SYSTEMS, INC.
Dated as of February 15, 1995
<PAGE>
AMENDED AND RESTATED LOAN AND AGENCY AGREEMENT AMONG
FIRST FIDELITY BANK, NATIONAL ASSOCIATION, THE BANKS PARTY HERETO
and
CHECKPOINT SYSTEMS, INC.
TABLE OF CONTENTS
Article Page
I. Definitions. . . . . . . . . . . . . . . . . . . . . 2
II. Credit Accommodations. . . . . . . . . . . . . . . . 11
2.1 The Revolving Credit. . . . . . . . . . . . . 11
2.2 Notices of Borrowing. . . . . . . . . . . . . 15
2.3 Interest under the Revolving Credit Notes . . 16
2.4 Continuation and Conversion of Loans. . . . . 17
2.5 Termination or Reduction of Commitment. . . . 17
2.6 Repayment of Revolving Credit Advances. . . . 18
2.7 Payment to the Agent. . . . . . . . . . . . . 18
2.8 Existing Term Loans . . . . . . . . . . . . . 19
2.9 Post-Default Rate of Interest; Maximum
Rate of Interest. . . . . . . . . . . . . . . 19
2.10 Deposit Accounts. . . . . . . . . . . . . . . 20
2.11 Computation of Interest and Fees. . . . . . . 20
2.12 Manner of Payment . . . . . . . . . . . . . . 20
2.13 Termination of Agreement. . . . . . . . . . . 21
III. Guaranty . . . . . . . . . . . . . . . . . . . . . . 22
3.1 Guaranty Agreement. . . . . . . . . . . . . . 22
IV. Representations and Warranties of the Borrower . . . 22
4.1 Good Standing of the Borrower;
Authorization . . . . . . . . . . . . . . . . 22
4.2 Compliance with Laws and Other Agreements. . . . . . 22
4.3 No Conflict; Governmental Approvals . . . . . 22
4.4 Financial and Other Information Regarding
Borrower and Guarantor. . . . . . . . . . . . 23
4.5 Taxes . . . . . . . . . . . . . . . . . . . . 23
4.6 Encumbrances and Guaranties . . . . . . . . . 24
4.7 Material Adverse Changes. . . . . . . . . . . 24
4.8 Margin Securities . . . . . . . . . . . . . . 24
4.9 ERISA . . . . . . . . . . . . . . . . . . . . 24
4.10 Pending Litigation. . . . . . . . . . . . . . 25
4.11 Valid, Binding and Enforceable. . . . . . . . 25
4.12 Environmental Matters . . . . . . . . . . . . 25
4.13 No Untrue Statements. . . . . . . . . . . . . 26
<PAGE>
V. Conditions Precedent to the Agent's and the
Banks' Obligations . . . . . . . . . . . . . . . . . 26
5.1 Documents to be Delivered by the Borrower
at Closing. . . . . . . . . . . . . . . . . . 26
5.2 Conditions Precedent to Making Revolving
Credit Loans or issuing any Letter of
Credit. . . . . . . . . . . . . . . . . . . . 28
VI. Affirmative Covenants of the Borrower. . . . . . . . 29
6.1 Use of Proceeds . . . . . . . . . . . . . . . 29
6.2 Financial Statements. . . . . . . . . . . . . 29
6.3 Ordinary Course of Business; Records. . . . . 30
6.4 Information for the Agent and Banks . . . . . 30
6.5 Insurance . . . . . . . . . . . . . . . . . . 31
6.6 Maintenance . . . . . . . . . . . . . . . . . 31
6.7 Taxes . . . . . . . . . . . . . . . . . . . . 31
6.8 Leases. . . . . . . . . . . . . . . . . . . . 31
6.9 Corporate Existence; Certain Rights; Laws . . 32
6.10 Notice of Litigation or Other Proceedings . . 32
6.11 Indebtedness. . . . . . . . . . . . . . . . . 32
6.12 Notice of Events of Default . . . . . . . . . 32
6.13 ERISA . . . . . . . . . . . . . . . . . . . . 32
6.14 Deposit Accounts. . . . . . . . . . . . . . . 33
6.15 Financial Covenants . . . . . . . . . . . . . 33
6.16 Compliance with Environmental Laws. . . . . . 33
6.17 Notice of Material Adverse Change . . . . . . 33
6.18 Collateralization of Letters of Credit. . . . 34
VII. Negative Covenants . . . . . . . . . . . . . . . . . 34
7.1 Fundamental Corporate Changes . . . . . . . . 34
7.2 Encumbrances. . . . . . . . . . . . . . . . . 35
7.3 Guaranties. . . . . . . . . . . . . . . . . . 36
7.4 Sales and Lease-Backs . . . . . . . . . . . . 36
7.5 Loans, Investments. . . . . . . . . . . . . . 36
7.6 Change in Business. . . . . . . . . . . . . . 37
7.7 ERISA . . . . . . . . . . . . . . . . . . . . 37
7.8 Restricted Payments . . . . . . . . . . . . . 37
7.9 Compliance with Federal Reserve Board
Regulations . . . . . . . . . . . . . . . . . 37
7.10 Repurchase of Leases. . . . . . . . . . . . . 38
7.11 Funded Indebtedness . . . . . . . . . . . . . 38
VIII. Events of Default. . . . . . . . . . . . . . . . . . 38
8.1 Borrower's Failure to Pay Principal or
Interest. . . . . . . . . . . . . . . . . . . 38
8.2 Borrower's Failure to Pay Fees and
Other Sums. . . . . . . . . . . . . . . . . . 38
8.3 Breach of Covenants or Conditions . . . . . . 39
8.4 Defaults in Other Agreements. . . . . . . . . 39
<PAGE>
8.5 Agreements Invalid. . . . . . . . . . . . . . 39
8.6 False Warranties; Breach of Representations . 39
8.7 Judgments . . . . . . . . . . . . . . . . . . 40
8.8 Bankruptcy or Insolvency of the Borrower
or the Guarantor. . . . . . . . . . . . . . . 40
IX. Remedies . . . . . . . . . . . . . . . . . . . . . . 41
9.1 Further Advances; Acceleration; Setoff. . . . 41
9.2 Further Remedies. . . . . . . . . . . . . . . 42
X. LIBO and Base Rate Loan Provisions . . . . . . . . . 42
10.1 Mandatory Suspension and Conversion of LIBO
Rate Loans. . . . . . . . . . . . . . . . . . 42
10.2 Change of Lending Office. . . . . . . . . . . 43
10.3 Funding Losses. . . . . . . . . . . . . . . . 43
10.4 Determinations. . . . . . . . . . . . . . . . 44
10.5 Capital Adequacy. . . . . . . . . . . . . . . 44
XI. The Agent. . . . . . . . . . . . . . . . . . . . . . 45
11.1 Appointment . . . . . . . . . . . . . . . . . 45
11.2 General Immunity. . . . . . . . . . . . . . . 45
11.3 Proportionate Shares. . . . . . . . . . . . . 46
11.4 Ratable Payments. . . . . . . . . . . . . . . 47
11.5 Agent's Reimbursement and Indemnification . . 48
11.6 Employment of Agents and Counsel. . . . . . . 48
11.7 Rights as a Lender. . . . . . . . . . . . . . 48
11.8 Bank Credit Decision. . . . . . . . . . . . . 48
11.9 Successor Agent . . . . . . . . . . . . . . . 49
XII. Miscellaneous. . . . . . . . . . . . . . . . . . . . 49
12.1 Remedies Cumulative; No Waiver. . . . . . . . 49
12.2 Notices . . . . . . . . . . . . . . . . . . . 49
12.3 Costs, Expenses and Attorneys' Fees . . . . . 51
12.4 Late Payment Fee. . . . . . . . . . . . . . . 51
12.5 Survival of Covenants . . . . . . . . . . . . 52
12.6 Counterparts; Effectiveness . . . . . . . . . 52
12.7 Headings. . . . . . . . . . . . . . . . . . . 52
12.8 Payment Due On A Day Other Than A
Business Day. . . . . . . . . . . . . . . . . 52
12.9 Judicial Proceedings. . . . . . . . . . . . . 52
12.10 Governing Law . . . . . . . . . . . . . . . . 52
12.11 Integration . . . . . . . . . . . . . . . . . 52
12.12 Amendment and Waiver. . . . . . . . . . . . . 53
12.13 Successors and Assigns. . . . . . . . . . . . 53
12.14 Severability of Provisions. . . . . . . . . . 54
12.15 Consent to Jurisdiction and Service
of Process. . . . . . . . . . . . . . . . . . 55
12.16 Indemnification . . . . . . . . . . . . . . . 55
12.17 Confidentiality . . . . . . . . . . . . . . . 56
AMENDED AND RESTATED LOAN AND AGENCY AGREEMENT
<PAGE>
AMENDED AND RESTATED LOAN AND AGENCY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND AGENCY AGREEMENT ("Agreement"),
dated as of February 15, 1995, is among CHECKPOINT SYSTEMS, INC., a
Pennsylvania corporation (the "Borrower"), the BANKS (as hereinafter defined),
and FIRST FIDELITY BANK, NATIONAL ASSOCIATION (successor by merger to First
Fidelity Bank, N.A., South Jersey), a national banking association
(individually as one of the Banks, referred to hereafter as "First Fidelity,"
and as agent for the Banks referred to as the "Agent"), as Agent.
BACKGROUND
A. The Borrower and First Fidelity are parties to a Loan
Agreement dated as of December 23, 1992, and amended by First Amendment to
Loan Agreement dated July 21, 1993, Second Amendment to Loan Agreement dated
October 11, 1993, Third Amendment to Loan Agreement dated December 24, 1993,
Fourth Amendment to Loan Agreement dated January 19, 1994, Fifth Amendment to
Loan Agreement dated March 22, 1994, Sixth Amendment to Loan Agreement dated
June 28, 1994 and Seventh Amendment to Loan Agreement, dated January 23, 1995
(collectively, the "Amendments"; such Loan Agreement as amended by the
Amendments being referred to hereinafter as the "Existing Loan Agreement").
B. In accordance with the terms of the Existing Loan Agreement,
First Fidelity has extended to the Borrower (i) a revolving credit in the
amount of $13,000,000 (the "Existing Revolving Credit") as evidenced by a
Revolving Credit Note, dated December 23, 1992, as amended by that certain
Allonge, dated July 21, 1993, that certain Allonge, dated October 11, 1993 and
that certain Allonge to Revolving Credit Note, dated June 28, 1994 and that
certain Allonge to Revolving Credit Note dated January 23, 1995 (as amended,
the "Existing Revolving Credit Note") pursuant to which there is an
outstanding principal balance on the date hereof of $14,880,000 (the "Existing
Revolving Credit Indebtedness"), (ii) a term loan (the "Existing First Term
Loan") in the amount of $7,000,000 as evidenced by a Term Loan Note, dated
December 23, 1992 (the "Existing First Term Note") pursuant to which there is
an outstanding principal balance on the date hereof of $4,900,000 (the
"Existing First Term Indebtedness"), and (iii) a term loan (the "Existing
Second Term Loan"; together with the Existing First Term Loan, collectively
referred to as the "Existing Term Loans") in the amount of $8,000,000 as
evidenced by a Term Note, dated January 3, 1994 (the "Existing Second Term
Note"; together with the Existing First Term Note, collectively referred to as
the "Existing Term Notes") pursuant to which there is an outstanding principal
balance on the date hereof of $6,588,235.28 (the "Existing Second Term
Indebtedness"; together with the Existing First Term Indebtedness,
collectively referred to as the "Existing Term Indebtedness").
<PAGE>
C. The Existing Revolving Credit Indebtedness and the Existing
Term Indebtedness are secured by a Guaranty, dated December 23, 1992, made by
Checkpoint Systems of Puerto Rico, Inc. in favor of First Fidelity (the
"Existing Guaranty"; together with the Existing Loan Agreement, the Existing
Revolving Credit Note and the Existing Term Notes, collectively referred to
herein as the "Existing Loan Documents").
D. The Agent, the Borrower and the Banks (as hereinafter
defined) desire to amend and restate the Existing Loan Documents to set forth
the terms and conditions pursuant to which (i) the Agent and the Banks will
make available to the Borrower certain credit facilities to be used by the
Borrower, and (ii) the Existing Term Loans will be governed. Accordingly, the
Agent, the Banks and the Borrower, each intending to be legally bound, hereby
agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the following meanings in this
Agreement:
"Adjusted LIBO Rate" means LIBOR plus 1.50%, provided however,
that upon the completion of the Secondary Equity Offering, the term Adjusted
LIBO Rate shall mean LIBOR plus 1.25%.
"Adjusted LIBO Rate Loan" means any Loan or Advance under the
Revolving Credit accruing interest at the Adjusted LIBO Rate.
"Administration Fee" shall have the meaning given such term in
Section 2.1(d) hereof.
"Administrative Office" shall mean the branch or office designated
by the Agent from time to time as the branch or office at which the Agent will
administer the Loans in accordance with the provisions of this Agreement.
"Advance(s)" means the sum or sums loaned to the Borrower by the
Banks from time to time under this Agreement and pursuant to the terms hereof
including, without limitation, (i) the aggregate unpaid Revolving Credit Loans
then outstanding hereunder, and (ii) the aggregate amount drawn under Letters
of Credit for which the Banks have not been reimbursed.
"Affiliate" shall mean any Subsidiary of the Borrower and any
Person or entity that, now or hereafter, directly or indirectly through one
or more intermediaries, controls, is
<PAGE>
controlled by or is under common control with the Borrower. For purposes of
this definition, the terms "control," "controls" and "controlled" shall refer
to the power to determine the management or policies of a Person, whether
resulting from an official position or capacity with such Person, direct or
indirect beneficial ownership of the voting securities or other equity
interests of such Person, by contract or otherwise.
"Agent" means First Fidelity Bank, National Association and its
successors and assigns, as agent for the Banks.
"Aggregate Commitment" shall mean the aggregate of the Commitments
of all the Banks hereunder, which amount may be reduced from time to time as
provided herein.
"Agreement" shall mean this agreement, together with all exhibits,
amendments, modifications and supplements hereto as may be in effect from time
to time.
"Amended and Restated Guaranty Agreement" shall mean the Amended
and Restated Guaranty Agreement, dated the same date as this Agreement, in
form and substance satisfactory to the Agent, by Checkpoint Systems of Puerto
Rico, Inc. as guarantor, as required by Article III of this Agreement,
together with all amendments, modifications, exhibits and schedules thereto as
may be in effect from time to time.
"Applicable Rate" means, with respect to any Revolving Credit
Loan, the Base Rate, or the Adjusted LIBO Rate, all as determined in
accordance with Section 2.3 hereof.
"Banks" shall mean the Agent and the other banks listed on the
signature pages of this Agreement, together with their respective successors
and assigns.
"Base Rate" shall mean the floating annual rate of interest that
is designated from time to time by the Agent as the "Base Rate" and is used by
the Agent as a reference rate with respect to interest rates charged to
borrowers. The determination and statement of the Base Rate shall not in any
way preclude the Agent or the other Banks from making loans to other borrowers
at rates which are higher or lower than the Base Rate.
"Base Rate Loan" means any Loan accruing interest at the Base
Rate.
"Borrower" shall have the meaning specified in the initial
paragraph of this Agreement, together with its successors and assigns.
<PAGE>
"Business Day" shall mean any day upon which the Agent is open for
business at its office in Moorestown, New Jersey.
"Capital Lease" shall mean any lease of property which, in
accordance with GAAP, should be capitalized on the lessee's balance sheet.
"Capital Lease Obligation" shall mean the amount of the liability
which, according to GAAP, should be capitalized or disclosed with respect to a
Capital Lease.
"Change of Control" shall have occurred when:
(i) any person or group within the meaning of Section 13(d)(3)
of the Securities Exchange Act of 1934, as amended (the "1934 Act") and the
rules and regulations promulgated thereunder shall possess, or shall have
acquired, on a cumulative basis, beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act), directly or indirectly, of securities of the
Borrower (or other securities convertible into such securities) representing a
majority of the combined voting power of all securities of the Borrower
entitled to vote in the election of directors (hereinafter called a
"Controlling Person") of the Company (collectively, a "Change of Control");
provided, however, that the occurrence of any such Change of Control shall be
an Event of Default only in the event that such Change of Control was caused
by or occurred as a result of a Hostile Transaction. For purposes of the
preceding sentence, a person shall not be a Controlling Person if such person
holds voting power in good faith and not for the purpose of circumventing this
section as an agent, bank, broker, nominee, trustee, or holder of revocable
proxies given in response to a solicitation pursuant to the 1934 Act, for one
or more beneficial owners who do not individually, or, if they are a group
acting in concert, as a group, have the voting power specified in the
preceding sentence; or
(ii) as the result of or in connection with any cash tender
offer, exchange offer, sale of assets, merger, consolidation or other business
combination of the Borrower with another corporation or entity or contested
election of directors, the persons who were directors of the Borrower
immediately prior to such occurrence shall cease to constitute a majority of
the Board of Directors of the Borrower or the surviving, new or combined
entity and any corporation or entity that shall control the Borrower or the
surviving, new or combined entity; or
(iii) the sale by the Borrower of all or substantially all of the
capital stock, assets or business of the Guarantor.
"Closing" shall mean the execution and delivery to the Agent and
the Banks of all of the documents and instruments
<PAGE>
required by the terms of this Agreement and the closing of the transactions
contemplated by this Agreement.
"Closing Date" shall mean the date on which the Closing takes
place.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commitment" means, for each Bank, the obligation of such Bank to
make Revolving Credit Loans hereunder not exceeding the amount set forth
opposite its signature below, which amount may be reduced from time to time as
provided herein.
"Commitment Fee" shall have the meaning given such term in Section
2.1(e) hereof.
"Default" shall mean the occurrence of any event which with notice
or lapse of time, or both, would become an Event of Default.
"Dollar(s)" and the sign "$" means lawful money of the United
States of America.
"Domestic Lending Office" shall mean the branch or office
designated by each Bank from time to time as the branch or office at which
Base Rate Loans of each Bank are to be made and maintained.
"Encumbrance" shall mean, as to any Person, any mortgage, lien,
pledge, security interest or other encumbrance in or on, or any interest or
title of any vendor, lessor, lender to, or other secured party of the Person
under any conditional sale or other title retention agreement or Capital Lease
with respect to, any property or asset of the Person.
"Environmental Laws" shall mean the Federal Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
Sec. 9601, et seq., the Federal Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Sec. 6901 et seq., the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. Sec.1801, et seq., the New Jersey Spill Compensation
and Control Act, as amended, N.J.S.A. 58:10-23.11 et seq. and all other
federal, state and local environmental laws applicable to the Borrower or its
business, operations or assets now or hereafter enacted, and all rules and
regulations adopted or promulgated pursuant thereto from time to time.
"ERISA" shall mean the federal Employee Retirement Income Security
Act of 1974, as amended.
<PAGE>
"Eurocurrency Reserve Requirements" means, for any day, the
aggregate (without duplication) of the maximum rates (expressed as a decimal)
of reserve requirements for the members of the Federal Reserve (including,
without limitation, basic, supplemental, marginal and emergency reserves), in
effect on such day under Regulation D of the Board of Governors of the Federal
Reserve System (or any successor) with respect to eurocurrency funding
currently referred to as "Eurocurrency liabilities" in Regulation D.
"Eurodollar Business Day" means any Business Day on which dealings
in Dollar deposits are carried on in the relevant interbank market and on
which commercial banks are open for domestic and international business
(including dealings in Dollar deposits) in the jurisdictions in which such
interbank market is located.
"Eurodollar Lending Office" means the branch, office or affiliate
designated by each Bank, from time to time, as the branch, office or affiliate
at which Adjusted LIBO Rate Loans of such Bank are to be made and maintained.
"Event of Default" shall have the meaning set forth in Article
VIII of this Agreement.
"Existing Revolving Credit Indebtedness" shall have the meaning
given such term in the Recitals hereof.
"Existing Term Notes" shall have the meaning given such term in
the Recitals hereof.
"Existing Term Loans" shall have the meaning given such term in
the Recitals hereof.
"Facility Fee" shall have the meaning given such term in Section
2.1(f) hereof.
"Financial Statements" shall have the meaning set forth in Section
4.4(a) of this Agreement.
"Funded Indebtedness" shall mean any obligation for borrowed
money, including any Capital Lease Obligations.
"GAAP" shall mean generally accepted accounting principles, as in
effect at the time of application to the provisions hereof, and consistently
applied.
"Guarantor" shall mean Checkpoint Systems of Puerto Rico, Inc.,
together with its successors and assigns.
<PAGE>
"Guaranty" shall mean any guaranty or agreement to be a surety or
other contingent liability (other than any endorsement for collection or
deposit in the ordinary course of business), direct or indirect, with respect
to any obligation of another Person.
"Hazardous Materials" shall mean all materials of any kind which
are flammable explosives, toxic, radioactive materials, hazardous wastes,
hazardous or toxic substances, asbestos or any material containing asbestos,
including, without limitation, "hazardous wastes," "hazardous substances" and
"contaminants," as such terms are defined by Environmental Laws.
"Hostile Transaction" shall mean (i) any tender offer with respect
to which the Board of Directors of the Borrower does not recommend acceptance;
or (ii) a proxy solicitation, as such term is used in Sec.14(a) of the 1934 Act
for control of the Borrower and/or the Board of Directors of the Borrower, the
result of which is the election of a majority of the Board of Directors
otherwise than pursuant to proxies solicited by the Board of Directors (or the
Borrower), as constituted immediately prior to such proxy solicitation.
"Indebtedness" shall mean any obligation for borrowed money,
including, without limitation:
(a) any money obligation owed for all or any part of the
purchase price of property or other assets or for the cost of property or
other assets constructed or of improvements thereto, other than accounts
payable included in current liabilities and incurred in respect of property or
services purchased in the ordinary course of business;
(b) any obligations with respect to banker's acceptances,
any reimbursement obligations and other obligations under any letter of
credit, currency swap agreement, interest rate swap, cap, collar or floor
agreement, or other interest rate management device, or any forward sale or
purchase agreement for foreign currencies;
(c) obligations pursuant to any Guaranty; and
(d) any Capital Lease Obligation.
"Interest Period" means, with respect to Adjusted LIBO Rate Loans,
a period of one, two or three months duration as the Borrower may elect;
provided, however, that (a) if any Interest Period would otherwise end on a
day which shall not be a Business Day, such Interest Period shall be extended
<PAGE>
to the next succeeding Business Day, subject to clauses (c) and (d) below;(b)
interest shall accrue from and including the first day of each Interest Period
to, but excluding, the day on which such Interest Period expires; (c) any
Interest Period which would otherwise end on a day which is not a Eurodollar
Business Day shall be extended to the next succeeding Eurodollar Business Day,
unless such Eurodollar Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Eurodollar Business
Day; and (d) with respect to any Interest Period which begins on the last
Eurodollar Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) the Interest Period shall end on the last Eurodollar Business
Day of a calendar month.
"Judgment" shall have the meaning set forth in Section 8.7 of this
Agreement.
"LIBOR" for each Interest Period, as applied to an Adjusted LIBO
Rate Loan, means the rate per annum determined pursuant to the following
formula:
London InterBank Offered Rate
LIBOR = 1 - Eurocurrency Reserve Requirements
For purposes hereof, the term "London InterBank Offered Rate" means, for each
Interest Period, as applied to an Adjusted LIBO Rate Loan, the rate of
interest per annum quoted by the Agent, which quotation shall be conclusive,
as the rate for the relevant Interest Period which appears on the Telerate
Page 3750 as of 11:00 a.m., London time, on the day that is two Eurodollar
Business Days prior to the commencement of such Interest Period. If such rate
does not appear on the Telerate Page 3750, the rate to be utilized shall be
the offered rate which appears, or if two or more such rates appear, the
average (rounded up to the next higher 1/16th of 1%) of the offered rate which
appears on the Reuters Screen LIBO Page as of 11 a.m. London time, on the day
that is two Business Days prior to the commencement of such Interest Period.
"Lending Office" means the Domestic Lending Office or the
Eurodollar Lending Office or both. For purposes of Sections 10.1 and 10.2
hereof references to any "Bank" shall be deemed to include a reference to the
applicable Lending Office of such Bank.
"L/C Agreement" has the meaning ascribed to that term in Section
2.1(b) hereof.
"Letters of Credit" has the meaning ascribed to that term in
Section 2.1(b) hereof.
<PAGE>
"Loan Documents" shall mean this Agreement, the Notes, the
Amended and Restated Guaranty Agreement, and the L/C Agreement, as the same
may be amended, extended or renewed, from time to time.
"Loans" shall mean the Revolving Credit Loans and the Existing
Term Loans.
"Material Subsidiary" shall mean any Subsidiary of the Borrower
contributing 10% or more of the consolidated net worth or 10% or more of the
consolidated net revenues of the Borrower and its consolidated Subsidiaries.
"Notes" shall mean the Existing Term Notes, the Revolving Credit
Notes, and all replacements, amendments, extensions and renewals thereof.
"Notice of Borrowing" shall mean a certificate in the form
attached hereto as Exhibit A which shall constitute the Borrower's request for
a Loan under the Revolving Credit.
"Obligations" shall mean the obligations of the Borrower:
(a) To pay the principal, interest, commitment fees and
any other liabilities (whether now existing or hereafter incurred) of the
Borrower to the Agent and the Banks under this Agreement and the other Loan
Documents with respect to the Revolving Credit Loans in accordance with the
terms thereof;
(b) To pay the principal, interest, commitment fees and
any other liabilities (whether now existing or hereinafter incurred) of the
Borrower to First Fidelity under this Agreement and the other Loan Documents
with respect to the Existing Term Loans in accordance with the terms thereof;
(c) Under the L/C Agreement, both absolute and contingent
and including the aggregate dollar amount subject to drawing under any Letters
of Credit issued for the account of the Borrower and any and all charges
imposed in accordance with the L/C Agreement and this Agreement; and
(d) To reimburse the Agent and the Banks, on demand, for
all of the Agent's and the Banks' expenses and costs, including the reasonable
fees and expenses of its counsel, in connection with the negotiation,
preparation, amendment, modification, or enforcement of this Agreement and the
documents required hereunder, including all amounts payable under Section 12.3
hereof.
<PAGE>
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, court or governmental or political subdivision or agency thereof.
"Post-Default Rate" shall mean a rate per annum equal to the Base
Rate as in effect from time to time plus 2% (provided that, if the amount in
default is an Adjusted LIBO Rate Loan and the due date is a day other than the
last day of an Interest Period therefor, the "Post-Default Rate" for such Loan
shall be, for the period commencing on the due date and ending on the last day
of the then current Interest Period thereof, the interest rate for such Loan
for such Interest Period as provided in Section 2.3 hereof plus 2% and
thereafter the Base Rate as in effect from time to time plus 2%).
"Proportionate Share" means the ratio that each Bank's Commitment
bears in proportion to the Aggregate Commitment.
"Required Banks" means (i) Banks having at least 66 2/3% of the
Aggregate Commitment or, if the Aggregate Commitment has been terminated, the
aggregate unpaid principal amount of outstanding Advances, and (ii) Banks
having at least 66 2/3% of the unpaid principal amount of the Existing Term
Loans.
"Reuters Screen LIBO Page" means the display designated as page
"LIBO" on the Reuter Monitor Money Rates Service (or such other page as may
replace the LIBO page on that service for the purpose of displaying London
interbank offered rates of major banks).
"Revolving Credit" shall mean the revolving credit from the Bank
to the Borrower established pursuant to Section 2.1(c) of this Agreement.
"Revolving Credit Loans" shall mean the loans made by the Banks to
the Borrower pursuant to the Revolving Credit.
"Revolving Credit Notes" shall have the meaning set forth in
Section 2.1 of this Agreement, together with all replacements, amendments and
renewals thereof.
"SBLC Fee" shall have the meaning given such term in Section
2.1(b)(2) hereof.
"Secondary Equity Offering" shall mean the receipt by the Borrower
of net cash proceeds (gross proceeds less commissions, selling expenses and
<PAGE>
other expenses related to the offering) from the sale of shares of its capital
stock in an equity offering in an amount not less than $40,000,000.
"Standard Fees" shall have the meaning given such term in Section
2.1(b)(2) hereof.
"Subsidiary" shall mean, as to any designated corporation, any
corporation, the outstanding shares of which having sufficient voting power
(not depending on the happening of a contingency) to elect at least a majority
of the members of its board of directors, are at the time owned directly or
indirectly by the designated corporation.
"Telerate Page 3750" means, the display designated as "Page 3750"
on the Dow Jones Telerate Service (or such other page as may replace that page
on that service for the purpose of displaying London interbank offered rates
of major banks).
"Termination Date" shall have the meaning set forth in Section
2.1(a) of this Agreement.
ARTICLE II
CREDIT ACCOMMODATIONS
2.1 The Revolving Credit. Subject to the terms and conditions
hereof, the Banks agree to make available to the Borrower, commencing on the
Closing Date, a revolving credit ("Revolving Credit") in the maximum principal
amount of $25,000,000 (the "Aggregate Commitment"), upon the terms and
conditions set forth herein.
(a) Generally. Upon the request of the Borrower, at any
time and from time to time during the period commencing on the Closing Date
and ending on the earlier of (i) May 1, 1996 or (ii) a Change of Control (the
"Termination Date"), each Bank severally agrees to make Revolving Credit Loans
to the Borrower from time to time in amounts not to exceed in the aggregate at
any one time outstanding the amount of such Bank's Commitment, which shall be
used by the Borrower to repay to the Agent the Existing Revolving Credit
Indebtedness and for general corporate purposes, including working capital and
capital expenditures, but excluding the acquisition of the assets, stock or
other equity interest in any other business, provided that after the Secondary
Equity Offering, the Borrower shall be permitted to use the proceeds of the
Loans in the acquisition of the assets, stock or other equity interest in any
other business. The Agent and the Banks shall review this facility and the
Borrower's financial statements, operations and business prospects and notify
the Borrower on or prior to June 1, 1995 as to whether the Agent and the Banks
<PAGE>
wish to renew the Revolving Credit beyond May 1, 1996. Each Advance hereunder
shall consist of Revolving Credit Loans made from the several Banks in their
respective Proportionate Shares. Any reduction in the Aggregate Commitment
pursuant to this Agreement shall ratably reduce the Commitment of each Bank in
proportion to such Bank's Commitment. Each Advance shall be in a minimum
amount of Five Hundred Thousand Dollars ($500,000) for a Base Rate Loan, and a
minimum amount of $1,000,000 for an Adjusted LIBO Rate Loan. The aggregate
outstanding principal under the Revolving Credit and the aggregate face amount
of all outstanding Letters of Credit at any time shall not exceed the
Aggregate Commitment. Unless the Agent notifies the Borrower in writing
before June 1, 1995 that the Banks will extend the Revolving Credit beyond May
1, 1996, the Revolving Credit, unless sooner terminated, shall terminate on
May 1, 1996. The Borrower may use the Revolving Credit during the period
referred to in the preceding sentence by borrowing, repaying and reborrowing
in accordance with the terms of this Agreement. Upon the Termination Date,
unless the same has been extended by written agreement between the Agent, the
Banks and the Borrower, the Banks' commitment to make Revolving Credit Loans
shall terminate, all Revolving Credit Loans shall immediately mature and all
Obligations under the Revolving Credit Loans shall be immediately due and
payable in full, except that (i) Letters of Credit may remain outstanding
beyond the Termination Date in accordance with Section 2.1(b)(1) hereof,
provided the Borrower complies with Section 6.18 hereof and reimburses the
Agent and the Banks for any drawing thereunder upon demand, and (ii) the
Existing Term Loans shall be repaid in accordance with the terms of this
Agreement and the Existing Term Notes.
(b) Letters of Credit.
(1) Generally. In addition to making loans to the
Borrower under the Revolving Credit as provided in Section 2.1(a) hereof, the
Agent, on behalf of the Banks, shall, upon the request of the Borrower and
subject to the terms of this Agreement, also issue one or more standby letters
of credit ("Letters of Credit") for the account of the Borrower up to an
aggregate principal amount of $1,000,000 provided that the Borrower in
connection therewith executes and delivers to the Agent the Continuing
Agreement for Letters of Credit in the form attached hereto as Exhibit B or as
such form may be amended from time to time by the Agent, with the consent of
the Required Banks (the "L/C Agreement"). Each Bank shall be obligated under
and shall participate in each Letter of Credit issued by the Agent hereunder,
on behalf of the Banks, in an amount equal to such Bank's Proportionate Share
of such Letter of Credit. In the event of any conflict between the terms of
the L/C Agreement and this Agreement, the terms of this Agreement shall
prevail. Any amount drawn under a Letter of Credit shall be reimbursed to the
Agent by the Borrower on the date on which the draft is paid, and, if not
<PAGE>
reimbursed, shall be deemed to be a Loan made under the Revolving Credit
payable on demand and bearing interest at the Base Rate in effect at such time
in accordance with Section 2.3 hereof and shall be evidenced by the Revolving
Credit Notes, provided that any such Loan shall bear interest at the Default
Rate in effect from time to time after the occurrence of an Event of Default
and the amount available to be borrowed under the Revolving Credit shall be
reduced by the aggregate amounts drawn and available to be drawn at any time
under all outstanding Letters of Credit. In no event shall the aggregate
amount available to be drawn on all outstanding Letters of Credit plus the
outstanding principal balance of Revolving Credit Loans exceed the Aggregate
Commitment, except for the reason and for the period specified in Section
2.1(b)(4) below. The duration of any Letters of Credit shall not extend more
than 180 days beyond the Termination Date without the written consent of all
of the Banks.
(2) Issuance of Letters of Credit. Subject to the
provisions of Section 2.1(b)(1), the Agent, on behalf of the Banks, shall
issue Letters of Credit for the account of the Borrower, provided that the
Borrower (i) provides a written request for each such Letter of Credit
specifying the terms thereof, including, without limitation, the amount and
the name and address of the beneficiary of such Letter of Credit; and (ii)
executes and delivers to the Agent an application for each such Letter of
Credit pursuant to the form provided for such purpose by the Agent. The
Borrower shall pay to the Agent all transactional and customary fees required
by the Agent in connection with the issuance of each Letter of Credit
hereunder, including, without limitation, the Agent's standard remittance,
transfer and issuance fees (collectively, "Standard Fees"), which fees may be
deducted by the Agent from the Borrower's account as such fees are incurred.
Notwithstanding the above, for each standby letter of credit issued on behalf
of the Borrower hereunder, the Borrower shall pay to the Agent for the benefit
of the Banks in their respective Proportionate Share a fee ("SBLC Fee") of
one-percent (1%) per annum of the face amount of such letter of credit in
quarterly installments for as long as the standby Letter of Credit remains
outstanding, with the first installment of one-fourth of the annual fee due
and payable on the date such standby Letter of Credit is issued.
(3) Existing Letters of Credit. Letters of credit
listed on Schedule 2.1(b)(3) have been made by First Fidelity and are the sole
obligation of First Fidelity and shall not be treated as part of the Revolving
Credit or the Existing Term Loans.
(4) Foreign Currency Letters of Credit. The Agent
shall mark to market from time to time the U.S. Dollar exposure of the Agent
<PAGE>
and the Banks under any Letters of Credit issued by the Agent, on behalf of
the Banks, for the account of the Borrower which are denominated in a foreign
currency, provided that the Agent shall not be obligated to issue any Letter
of Credit denominated in a foreign currency which has not been approved by the
Agent, in its reasonable discretion, for the issuance of Letters of Credit.
In the event that such marking to market causes the sum of the aggregate face
amount of all outstanding Letters of Credit and the aggregate outstanding
principal under the Revolving Credit to exceed the Aggregate Commitment, the
Agent shall notify the Borrower and the Borrower shall reduce the outstanding
Revolving Credit Loans within fifteen (15) days of such notice as needed to
eliminate such excess.
(c) Revolving Credit Notes. The obligations of the
Borrower to repay the aggregate outstanding principal under the Revolving
Credit and to pay accrued interest thereon shall be evidenced by promissory
notes, in form and substance satisfactory to the Banks, to be executed and
delivered to each Bank in the amount of such Bank's Commitment hereunder,
concurrently with the execution and delivery of this Agreement (the "Revolving
Credit Notes").
(d) Administration Fee. In addition to the interest
payable by the Borrower in respect of the Revolving Credit Loans, the Borrower
shall pay to the Agent an annual fee (the "Administration Fee") in the amount
of $15,000, payable on the Closing Date and annually in advance on each
December 31 thereafter, provided that if the Termination Date occurs during
the subsequent calendar year, the Administration Fee shall be pro-rated from
January 1 through and including the Termination Date and no Administration Fee
shall be payable for any period after the Termination Date.
(e) Commitment Fee. In addition to the interest payable
by the Borrower in respect of the Revolving Credit Loans, the Borrower shall
pay a fee (the "Commitment Fee") to the Agent, for the benefit of the Banks in
their respective Proportionate Shares, equal to three-eighths of one percent
(3/8%) per annum on the unused portion of the Aggregate Commitment payable
quarterly in arrears on January 1, April 1, July 1, and October 1 of each
year, commencing April 1, 1995, provided however, that such Commitment Fee
shall be equal to one-fourth of one percent (1/4%) per annum on the unused
portion of the Aggregate Commitment from and after the date of the completion
of the Secondary Equity Offering, and, provided further, that outstanding
Letters of Credit shall be deemed to be usage of the Revolving Credit.
(f) Facility Fee. In addition to the interest payable by
the Borrower in respect of the Revolving Credit Loans, the Borrower shall pay
<PAGE>
a fee (the "Facility Fee") to the Agent, for the benefit of the Banks in their
respective Proportionate Shares, equal to one-fourth of one percent (1/4%) on
the total amount of the Aggregate Commitment on or before the Closing Date.
2.2. Notices of Borrowing. The Borrower may ask the Agent for
indications of LIBOR for specified Advances and Interest Periods as applicable
and for indications of Base Rate at any time. Except as otherwise provided
herein, the Borrower may request from time to time, prior to 11:00 A.M.,
Moorestown, NJ time, a Revolving Credit Loan by delivering to the Agent a
completed and executed Notice of Borrowing (which shall be irrevocable and
binding on the Borrower), in writing or by cable, telex, telecopier (with
authorized signatures and with the executed original sent to the Agent under
separate cover) or telephone (a) one Business Day before any Base Rate Loan is
desired, and (b) three Eurodollar Business Days before any Adjusted LIBO Rate
Loan is desired. Each such notice shall, if not written, be confirmed
immediately in writing and such writing shall be sent by first-class mail,
postage prepaid. Each such writing (a "Notice of Borrowing") shall be in the
form of Exhibit A hereto, specifying (i) the requested date of borrowing (the
"Borrowing Date"), (ii) the amount of the Revolving Credit Loan to be made or
converted, and (iii) if applicable, the Interest Period applicable to the
Adjusted LIBO Rate Loan. Upon receipt of any Notice of Borrowing under the
Revolving Credit, the Agent shall promptly notify each Bank thereof (but no
later than 3:00 p.m. Moorestown, N.J. time on the date any Notice of Borrowing
is given). Each Bank is severally obligated to, and will, make the amount of
its Proportionate Share of each borrowing available to the Agent for the
account of the Borrower at the office of the Agent prior to 12:00 Noon on the
Borrowing Date specified in the Notice of Borrowing in funds immediately
available to the Agent. Such funds shall then be made available to the
Borrower by the Agent crediting the Borrower's deposit account with the Agent,
unless otherwise specified in the Notice of Borrowing, in immediately
available funds one Business Day after such Notice of Borrowing referred to in
clause (a) above, or three Eurodollar Business Days after such Notice of
Borrowing referred to in clause (b) above, as the case may be. The same
Notice of Borrowing shall be required with respect to any Advance subject to
an Interest Period which is expiring. Subject to the terms and conditions of
this Agreement, the Borrower may continue any Advance subject to an expiring
Interest Period for an additional Interest Period or convert it to another
Advance, in the Borrower's sole discretion, subject to the provisions of
Section 2.4 hereof. If, with respect to any maturing Adjusted LIBO Rate Loan,
the Agent does not receive a timely Notice of Borrowing, the Borrower shall be
deemed to have given notice for Base Rate Loans in an aggregate amount equal
to the Adjusted LIBO Rate Loan.
<PAGE>
2.3 Interest under the Revolving Credit Notes. Interest shall
accrue on the outstanding principal under the Revolving Credit Notes in
accordance with the following provisions:
(a) At the Borrower's election in accordance with the
provisions of Section 2.2 and subject to Section 2.9 hereof, each Revolving
Credit Loan shall bear interest at one of the following rates:
(i) The Base Rate, such rate to change when and as
the Base Rate changes; or
(ii) The Adjusted LIBO Rate.
(b) The Borrower shall not request, and the Agent shall
not be required to provide, an indication of LIBOR with respect to any
specified Interest Period for Advances of less than $1,000,000, and each
Advance as to which the Borrower elects the Adjusted LIBO Rate shall be in an
amount equal to or in excess of $1,000,000.
(c) The Base Rate in effect on each day shall apply to the
Advances bearing interest at such rate on such day.
(d) All quotations of rate by the Agent hereunder which
are accepted by the Borrower shall be conclusive and binding upon the
Borrower.
(e) If no Interest Period is elected with respect to any
LIBO Rate Advance, the request for such Advance shall be deemed a request for
a one-month Interest Period in respect of any such LIBO Rate Advance.
(f) No more than three Adjusted LIBO Rate Loans shall be
outstanding at any one time. If at any time there are three Adjusted LIBO
Rate Loans outstanding, the Borrower shall not request, and the Agent shall
not be required to provide, an indication of LIBOR with respect to any
specified Interest Period.
(g) The Borrower shall pay interest in arrears on Base
Rate Loans on the first Business Day of each month commencing on the first day
of the first month after the Closing Date and continuing until all of such
Loans made by the Banks to the Borrower are paid in full ("Interest Payment
Dates"). The Borrower shall pay interest in arrears on Adjusted LIBO Rate
Loans on the last day of the applicable expiring Interest Period. All accrued
but unpaid interest on the Loans evidenced by the Revolving Credit Notes shall
<PAGE>
also be payable on the maturity of the Revolving Credit Notes (by their stated
terms, upon prepayment, acceleration or otherwise).
2.4 Continuation and Conversion of Loans. Subject to the
terms of this Agreement, the Borrower shall have the right to continue or
convert a given Revolving Credit Loan subject to an Interest Period then
expiring at the same Applicable Rate or another Applicable Rate, upon the same
advance notice required with respect to the initial Advance subject to such
Applicable Rate as provided in Section 2.2 hereof (and the Notice of Borrowing
requirement therein). Subject to the terms and conditions of this Agreement,
the Borrower may continue any Advances subject to an expiring Interest Period
for an additional Interest Period of similar duration or convert it to an
Advance subject to a different Applicable Rate or Interest Period, in its sole
discretion, subject to the following:
(a) in the case of Adjusted LIBO Rate Loans, the
desired Applicable Rate remains available;
(b) in the case of Adjusted LIBO Rate Loans, no
Interest Period may be elected with respect to any Advance which expires after
the Termination Date;
(c) all unpaid interest accrued under an expiring
Interest Period must be paid by the Borrower when due and no conversion of a
Base Rate Loan to an Adjusted LIBO Rate Loan, and no continuation of an
Adjusted LIBO Rate Loan, shall be made for so long as any Default or Event of
Default shall be continuing;
(d) no continuation or conversion of an Adjusted
LIBO Rate Loan may be effected on other than the last day of an expiring
Interest Period then in effect;
(e) Base Rate Loans may be converted into Adjusted
LIBO Rate Loans only on a Eurodollar Business Day; and
(f) only the Interest Periods provided for in the
definition of Interest Period shall be available for selection.
2.5 Termination or Reduction of Commitment. The Borrower
shall have the right, upon not less than thirty (30) days' written notice to
Agent, to terminate the Revolving Credit, or to reduce the amount of the
Aggregate Commitment provided that (a) any termination of the Revolving Credit
while any Adjusted LIBO Rate Loans are outstanding, and any reduction of the
amount of the Aggregate Commitment that reduces it to a sum which is less than
the aggregate principal amount of the Adjusted LIBO Rate Loans then
<PAGE>
outstanding, may be made only on the last day of the respective Interest
Periods in effect for such outstanding Adjusted LIBO Rate Loans, (b) any
reduction of the Aggregate Commitment which is not in violation of clause (a)
hereof shall be accompanied by the repayment of the Loans, together with
accrued interest on the amount so repaid to the date of such repayment, to the
extent, if any, that the amount of all Revolving Credit Loans then outstanding
hereunder exceeds the Aggregate Commitment as then reduced, and (c) any
termination of the Revolving Credit not in violation of clause (a) hereof
shall be accompanied by repayment in full of all Revolving Credit Loans then
outstanding hereunder, together with accrued interest and fees, if any,
thereon to the date of such repayment. Any such allowable reduction in the
Aggregate Commitment shall be in a minimum amount of $1,000,000, with $100,000
increments above $1,000,000. Any such reduction or reductions shall
permanently reduce the amount of the Aggregate Commitment by such amount(s).
2.6 Repayment of Revolving Credit Advances.
(a) The Borrower may repay the Advances under the
Revolving Credit in whole at any time or in part from time to time, provided,
however:
(i) any such repayments, whether voluntary or
mandatory, made with respect to any Adjusted
LIBO Rate Loan on other than the last day of the
Interest Period for such Loan shall be subject
to Section 10.3 hereof and shall include all
interest accrued thereon;
(ii) all voluntary partial repayments shall be in
amounts of $100,000 or integral multiples
thereof.
Upon any repayment of the Revolving Credit Loans, the Borrower shall notify
the Agent of the Advances to which such payment is to be allocated; in the
absence of such notice any funds received by the Agent shall be allocated to
the portion of the Revolving Credit Loans bearing interest at the Base Rate,
and then to all other portions of the Revolving Credit Loans in such order as
the Agent may elect.
2.7 Payment to the Agent. All sums payable in respect of the
Revolving Credit Loans shall be paid directly to the Agent in immediately
available United States dollars at the times specified herein. The Agent
shall promptly disburse such payments to each Bank in accordance with such
Bank's Proportionate Share or as otherwise provided hereunder. The Agent may
charge against any deposit account of the Borrower all or any part of any
<PAGE>
amount due hereunder. The Agent will send the Borrower statements of all
amounts due hereunder, which statements shall be considered correct and
conclusively binding on the Borrower in the absence of manifest error unless
the Borrower notifies the Agent to the contrary within thirty days of its
receipt of any statement which it deems to be incorrect, except that
statements of interest shall be subject to adjustment in order to effectuate,
retroactively, any change in or necessary correction to the computation of
applicable interest rates. The Agent's failure to deliver any statement to
the Borrower shall in no way affect or diminish the Borrower's obligations to
pay all amounts when due hereunder. Without limiting the generality of the
foregoing, each Bank shall receive its Proportionate Share of the SBLC Fee,
the Commitment Fee and the Facility Fee, but shall not share in the Standard
Fees, the Administration Fee or any fees payable to First Fidelity with
respect to the Existing Term Loans.
2.8 Existing Term Loans. As set forth in the Recitals hereof,
First Fidelity has made available to the Borrower the Existing Term Loans.
The Existing Term Loans shall be payable as provided in this Agreement and in
the Existing Term Notes, and the Banks other than First Fidelity shall have no
interest therein, provided however, that, notwithstanding anything herein to
the contrary, the Existing Term Loans shall be due and payable upon a Change
of Control. Interest shall accrue on the Existing Term Loans at the rate or
rates set forth in the Existing Term Notes. The Borrower may make payments
and prepayments of the Existing Term Loans in whole or in part in multiples of
$1,000,000 at any time and from time to time without penalty or premium upon
notification to the Agent not later than 2:00 p.m. Moorestown, New Jersey time
on the date of the proposed payment or prepayment. Except as otherwise
provided in Section 11.4, (i) all prepayments of the outstanding principal of
the Existing Term Loans shall be applied to installments of principal due
thereunder as First Fidelity and the Borrower may agree, or if there is no
agreement, then in the inverse order of their maturity, and (ii) all payments
received by the Agent in respect of principal, interest or fees due under the
Existing Term Loans shall be for the sole benefit of First Fidelity and First
Fidelity shall not be obligated to apply such funds to outstanding principal
or interest under the Revolving Credit.
2.9 Post-Default Rate of Interest; Maximum Rate of Interest.
(a) During the continuation of any Event of Default (after
as well as before judgment), interest on all Loans shall be due and payable by
the Borrower daily without requirement of demand, on the principal amount of
the Advances outstanding and all other outstanding Obligations, at a rate per
annum equal to the applicable Post-Default Rate to the maximum extent
permitted by Applicable Law.
<PAGE>
(b) Nothing contained in this Agreement or the Notes shall
require the Borrower at any time to pay interest at a rate exceeding the
maximum rate allowable (including the rate as to which the Borrower may not
interpose the defense of usury) under Applicable Law. If interest payable to
the Agent or the Banks for any period would exceed such maximum allowable
amount for such period, it shall be automatically reduced to such amount, and
interest for any subsequent period, to the extent less than such maximum
allowable amount for such subsequent period, shall, to that extent, be
increased by the amount of such reduction. Any interest actually received for
any period in excess of such maximum allowable amount for such period shall be
deemed to have been applied as principal prepayments of the Notes.
2.10 Deposit Accounts.
(a) The Borrower agrees to establish and maintain one or
more deposit accounts with the Agent or an affiliate of the Agent until all of
the Obligations hereunder have been paid in full. The Agent and any affiliate
of the Agent is authorized to charge the Borrower's account for any payments
of principal, interest and fees which are due hereunder or under any of the
Notes. The Agent is also authorized to make Revolving Credit Loans to the
Borrower and to deposit the proceeds thereof to the Borrower's accounts at the
Agent or any affiliate of the Agent if needed to cover overdrafts in any such
account.
(b) All balances of the Borrower maintained with the Agent
or any affiliate of the Agent shall be subject to offset by Agent.
2.11 Computation of Interest and Fees. Interest and all other
charges provided for in this Agreement shall be computed on the basis of a
year of 360 days and paid for the actual number of days elapsed (including the
first but excluding the last day). Interest shall be calculated from and
including the first day thereof to but excluding the last day thereof. If the
date for any payment of principal is extended (whether by operation of this
Agreement, any provision of law or otherwise), interest shall be payable for
such extended time.
2.12 Manner of Payment. All payments (other than payments under
Section 2.1(b) due to the Agent or the Banks hereunder (including each
prepayment), shall be made to the Agent at the Agent's Administrative Office
not later than 12:00 noon, Moorestown, N.J. time, on the due date thereof, in
Dollars in funds immediately available to the Agent at the Agent's
<PAGE>
Administrative Office, for the account of (a) in the case of payments on
account of Adjusted LIBO Rate Loans, the Eurodollar Lending Office of the
Agent, and (b) in the case of all other payments hereunder, the Agent's
Administrative Office, without any deduction whatsoever, including but not
limited to any deduction for any set-off, recoupment, counterclaim (whether
sounding in tort, contract or otherwise), provided that nothing herein shall
prevent the Borrower from asserting a counterclaim. Payments received after
12:00 noon Moorestown, N.J. time shall be deemed received on the next
succeeding Business Day or Eurodollar Business Day, as the case may be, and
interest shall be payable on such amounts, until deemed received, at the
Applicable Rate. The Borrower hereby authorizes and directs the Agent, if and
to the extent payment due the Agent or the Banks hereunder is not otherwise
made when due, to charge any amount so due against any or all of the accounts
of the Borrower with the Agent or any Bank, with the Borrower remaining liable
for any deficiency. Whenever any payment hereunder shall be due on a day that
is not a Business Day, or in the case of payments on account of Adjusted LIBO
Rate Loans, a Eurodollar Business Day, the date of payment thereof shall be
extended to the next succeeding Business Day or Eurodollar Business Day, as
the case may be, unless, in the case of a payment on account of an Adjusted
LIBO Rate Loan, such extension would cause payment to be made in the next
succeeding calendar month, in which case the date of payment shall be the
preceding Eurodollar Business Day.
2.13 Termination of Agreement. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall remain in effect until (i) the
Termination Date has occurred, (ii) all of the Obligations, including the
Obligations under the Existing Term Notes, have been paid in full, and (iii)
the Agent has no further obligations under any Letters of Credit. After the
Termination Date with respect to the Revolving Credit and the termination of
all Letters of Credit and the payment of all Obligations under the Revolving
Credit, (a) this Agreement shall apply to and govern the repayment of the
Existing Term Loans in accordance with the Existing Term Notes, (b) the agency
provisions set forth in Article XI hereof shall be deleted and be no longer of
any effect whatsoever, and (c) First Fidelity shall be deemed to be the only
Bank hereunder, and all provisions applicable to the Agent and the Banks shall
apply only to First Fidelity.
<PAGE>
ARTICLE III
GUARANTY
3.1 Guaranty Agreement. To guarantee the prompt payment,
performance, satisfaction and discharge when due of all the Obligations, the
Borrower shall cause the Amended and Restated Guaranty Agreement to be
executed and delivered to the Agent concurrently with the execution of this
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
In order to induce the Agent and the Banks to execute and deliver
this Agreement and to make the Loans and Letters of Credit available to the
Borrower, the Borrower represents and warrants to the Agent and the Banks, on
behalf of itself and the Guarantor, that, as of the date hereof (and as of the
date of each Advance in accordance with Section 5.2(b)):
4.1 Good Standing of the Borrower; Authorization. The Borrower
and the Guarantor are duly incorporated, organized and existing and in good
standing in the Commonwealth of Pennsylvania and the State of Delaware,
respectively, and are qualified to do business and in good standing in the
State of New Jersey and in the Commonwealth of Puerto Rico, respectively, and
in all other jurisdictions wherein the nature of their business or properties
makes such qualification necessary, except where the failure to be so
qualified would not affect in any material way the Borrower or the Guarantor,
and each has the corporate power to own its properties and to carry on its
business as now conducted. The execution, delivery and performance of this
Agreement, and the Loan Documents have been duly authorized by all necessary
corporate proceedings on the part of the Borrower and the Guarantor.
4.2 Compliance with Laws and Other Agreements. The Borrower and
the Guarantor are in compliance with all laws, rules, regulations, judgments,
decrees, orders, agreements and requirements of law, which non-compliance
might affect in any material way the Borrower or the Guarantor, their assets
or the operation of their businesses and have not received, and have no
knowledge of, any written order or written notice of any governmental
investigation or of any violation or claim of violation of any law,
regulation, judgment, decree, order, agreement, or other governmental
requirement.
4.3 No Conflict; Governmental Approvals. The execution,
delivery, and performance of this Agreement and each of the Loan Documents do
not (i) conflict with, violate, constitute a default under, or result in a
<PAGE>
breach of any provision of any applicable law, rule, regulation, judgment,
decree, order, instrument or other agreement binding upon the Borrower or the
Guarantor, or (ii) conflict with or result in a breach of any provision of the
certificate of incorporation or by-laws of the Borrower or the Guarantor. No
authorization, permit, consent or approval of or other action by, and no
filing, registration or declaration with, any governmental authority or
regulatory body is required to be obtained or made by the Borrower or the
Guarantor for the due execution, delivery and performance of this Agreement or
any of the Loan Documents, except such as have been duly obtained or made
prior to the Closing Date and are in full force and effect as of the Closing
Date (copies of which have been delivered to the Banks on or before the
Closing Date).
4.4 Financial and Other Information Regarding Borrower and
Guarantor.
(a) The Borrower has delivered to the Banks true, correct
and complete copies of the balance sheet of the Borrower and its consolidated
Subsidiaries as of December 26, 1993 and the related consolidated statement of
income for the period then ended, together with notes thereto and the
unqualified report thereon, dated March 22, 1994 of Coopers & Lybrand, LLP;
and the unaudited balance sheet of the Borrower and its consolidated
Subsidiaries as of September 25, 1994 and related consolidated statement of
income for the period then ended. Those financial statements ("Financial
Statements") present fairly in all material respects the financial position of
the Borrower and its consolidated Subsidiaries as of the dates thereof, and
the results of the operations of the Borrower and its consolidated
Subsidiaries for the periods then ended in conformity with GAAP (subject to
year-end audit adjustments and required footnotes in the case of the unaudited
statements).
(b) The Borrower and the Guarantor have no material
Indebtedness other than as shown in the Financial Statements, and as set forth
on Schedule 4.4(b).
(c) The Borrower and the Guarantor have no material
"investment" (as such term is defined under GAAP), whether by stock purchase,
capital contribution, loan, advance, purchase of property or otherwise, in any
Person, other than as reflected in the Financial Statements.
4.5 Taxes. The Borrower and the Guarantor are not delinquent in
payment of any income, property or other tax, except for any delinquency in
the payment of a tax which is contested in good faith by the Borrower or the
Guarantor and for which appropriate reserves have been established in
accordance with GAAP.
<PAGE>
4.6 Encumbrances and Guaranties.
(a) All properties and assets of the Borrower and the
Guarantor are owned by the Borrower and the Guarantor free and clear of all
Encumbrances except (i) those for taxes or other government charges either not
yet delinquent or the nonpayment of which is permitted by Section 4.5 or
Section 6.7 of this Agreement; (ii) those not arising in connection with
Indebtedness that do not materially impair the use or value of the properties
or assets of the Borrower or the Guarantor in the conduct of their businesses;
(iii) Encumbrances whose release and termination is evidenced by the delivery
to the Agent by the Borrower or the Guarantor of appropriate documents on the
Closing Date; and (iv) Encumbrances disclosed in the Financial Statements.
(b) Except as set forth in Schedule 4.6(b), neither the
Borrower nor the Guarantor is obligated under any material Guaranty, except
for the Amended and Restated Guaranty Agreement.
4.7 Material Adverse Changes. Since September 25, 1994, there
has not been any material adverse change in the business, operations,
properties or financial position of the Borrower or the Guarantor. Neither
the Borrower nor the Guarantor knows of any fact (other than matters of a
general economic or political nature) which materially adversely affects, or,
so far as the Borrower or the Guarantor can now reasonably foresee, will
materially adversely affect, the business, operations, properties or financial
position of the Borrower or the Guarantor or the performance by the Borrower
or the Guarantor of their obligations under this Agreement and the other Loan
Documents.
4.8 Margin Securities. The assets of the Borrower and the
Guarantor do not include any "margin stock" within the meaning of Regulations
G or U of the Board of Governors of the Federal Reserve System (12 C.F.R. 207,
221), and neither the Borrower nor the Guarantor has any present intention of
acquiring any margin security.
4.9 ERISA. The provisions of each employee benefit plan as
defined in Section 3(3) of ERISA ("Plan") maintained by the Borrower and the
Guarantor comply in all material respects with all applicable requirements of
ERISA and of the Code, and with all applicable rulings and regulations issued
under the provisions of ERISA and the Code setting forth those requirements.
No reportable event, as defined in Section 4043 of ERISA, has occurred with
respect to any Plan; no Plan to which Section 4021 of ERISA applies has been
terminated; no Plan has incurred any liability to PBGC as provided in Section
4062, 4063 and 4064 of ERISA; no Plan has been involved in any prohibited
transaction within the meaning of Section 406 of ERISA or Section 4975 of the
Code, provided that the representations as to the absence of a prohibited
transaction shall be limited to the best knowledge of the Borrower and the
Guarantor; and there are no unfunded liabilities with respect to any Plan
which are not disclosed in the Financial Statements.
4.10 Pending Litigation. Except as set forth on Schedule 4.10
and except for claims covered by insurance, there are no actions, suits,
proceedings or investigations pending, or, to the knowledge of the Borrower or
the Guarantor, threatened against or affecting the Borrower or the Guarantor,
<PAGE>
before any court, arbitrator or administrative or governmental body which
would, in the aggregate, if determined adversely to the Borrower, adversely
affect any action taken or to be taken by the Borrower or the Guarantor under
this Agreement and the other Loan Documents or which would, in the aggregate,
if determined adversely to the Borrower, materially adversely affect the
business, operations, properties or financial position of the Borrower or the
Guarantor, or the ability of the Borrower or the Guarantor to perform their
obligations under this Agreement and the other Loan Documents.
4.11 Valid, Binding and Enforceable. This Agreement and the Loan
Documents have been duly and validly executed and delivered by the parties
thereto (other than the Agent and the Banks) and constitute the valid and
legally binding obligations of such parties enforceable in accordance with
their respective terms, except as enforcement of this Agreement and the other
Loan Documents may be limited by bankruptcy, insolvency or other laws of
general application relating to or affecting the enforcement of creditors'
rights and except as enforcement is subject to general equitable principles.
4.12 Environmental Matters.
(a) The Borrower and the Guarantor have performed all of
their material obligations under, have obtained all necessary approvals,
permits, authorizations and other consents required by, and are not in
material violation of, any Environmental Laws.
(b) Neither the Borrower nor the Guarantor has received
any notice, citation, summons, directive, order or other communication,
written or oral, from, and neither the Borrower nor the Guarantor has any
knowledge of the filing or giving of any such notice, citation, summons,
<PAGE>
directive, order or other communication by, any governmental or quasi-
governmental authority or agency or any other Person (and if by any Person, in
writing) concerning the presence, generation, treatment, storage,
transportation, transfer, disposal, release or other handling of any Hazardous
Materials within, on, from, related to, or affecting any real property owned
or occupied by the Borrower or the Guarantor.
(c) To the best knowledge of the Borrower and the
Guarantor, after reasonable inquiry (not including inquiry of any landlord of
the Borrower or the Guarantor), no real property owned or occupied by the
Borrower or the Guarantor has ever been used, either by the Borrower or the
Guarantor or any of their predecessors in interest, to generate, treat, store,
transport, transfer, dispose of, release or otherwise handle any Hazardous
Material, except in compliance with applicable law.
(d) To the best knowledge of the Borrower and the
Guarantor, after reasonable inquiry (not including any environmental audit or
any inquiry of any landlord of the Borrower or the Guarantor), there are no
Hazardous Materials within, on or under, in material violation of applicable
Environmental Laws, any real property owned or occupied by the Borrower or the
Guarantor.
4.13 No Untrue Statements. Neither this Agreement, the Loan
Documents nor any other document, certificate or statement furnished or to be
furnished by the Borrower or the Guarantor or by any other party to the Agent
or any Bank in connection herewith contains, or at the time of delivery will
contain, any untrue statement of a material fact or omits or will omit to
state a material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances under which they were made,
not misleading.
ARTICLE V
CONDITIONS PRECEDENT TO THE AGENT'S AND THE BANKS' OBLIGATIONS
The Agent's and the Banks' obligations hereunder are conditioned
upon the satisfaction by the Borrower of the following conditions precedent:
5.1 Documents to be Delivered by the Borrower at Closing. The
Borrower shall deliver or cause to be delivered to the Agent, with copies to
each of the Banks, at the Closing the following:
(a) This Agreement duly executed by the Borrower and the
other parties hereto;
<PAGE>
(b) The Revolving Credit Notes duly executed by the
Borrower;
(c) The Amended and Restated Guaranty Agreement duly
executed by the party named as Guarantor therein;
(d) A certificate of the Secretary or an Assistant
Secretary of the Borrower dated the Closing Date including (i) resolutions
duly adopted by the Borrower authorizing the transactions under the Loan
Documents; (ii) a copy of the by-laws of the Borrower; (iii) evidence of the
incumbency and signature of the officers executing on its behalf any of the
Loan Documents and any other document to be delivered pursuant to any such
documents, together with evidence of the incumbency of such Secretary or
Assistant Secretary; (iv) a copy, certified by the Pennsylvania Secretary of
State, as of the most recent date practicable, of the Borrower's Articles of
Incorporation, together with the certification of the Secretary or Assistant
Secretary of the Borrower as of the Closing Date that such Articles of
Incorporation have not been amended since the date of the aforesaid
certification by the Secretary of State; and (v) certificate of authority or
good standing for the Borrower from the Pennsylvania and New Jersey
Secretaries of State;
(e) A certificate of the Secretary or an Assistant
Secretary of the Guarantor dated the Closing Date including (i) resolutions
duly adopted by the Guarantor authorizing the transactions under the Loan
Documents; (ii) a copy of the by-laws of the Guarantor; (iii) evidence of the
incumbency and signature of the officers executing on its behalf any of the
Loan Documents and any other document to be delivered pursuant to any such
documents, together with evidence of the incumbency of such Secretary or
Assistant Secretary; (iv) a copy, certified by the Delaware Secretary of
State, as of the most recent date practicable, of the Guarantor's Certificate
of Incorporation, together with the certification of the Secretary or
Assistant Secretary of the Guarantor as of the Closing Date that such
Certificate of Incorporation has not been amended since the date of the
aforesaid certification by the Secretary of State; and (v) certificates of
authority or good standing for the Guarantor from the Delaware Secretary of
State and from the Commonwealth of Puerto Rico;
(f) The opinion of Stradley, Ronon, Stevens & Young, dated
as of Closing Date, in the form attached hereto as Schedule 5.1(f);
(g) The opinion of Guarantor's Counsel located in Puerto
Rico dated as of Closing Date, in form and substance reasonably satisfactory
to the Agent and its counsel; and
<PAGE>
(h) The opinion of Neil D. Austin, Esquire, in the form
attached hereto as Schedule 5.1(h).
5.2 Conditions Precedent to Making Revolving Credit Loans or
issuing any Letter of Credit. The Banks shall not be obligated to make any
Revolving Credit Loans or issue any Letter of Credit hereunder unless:
(a) As of the date of the making of such Loan or the
issuance of such Letter of Credit, no Default or Event of Default has occurred
and is continuing;
(b) The representations and warranties contained in
Article IV are true and correct on the date of the proposed Advance, except
that references to the Financial Statements in Section 4.4 shall refer to the
financial statements most recently supplied to the Banks pursuant to Section
6.2 of this Agreement, the Borrower shall have no obligation to update the
representations and warranties of Section 4.4(b) or 4.4(c) to any date beyond
the date of such financial statements, and except for matters which have been
disclosed by written notice given by the Borrower to the Agent and the Banks
concerning events which have occurred since the Closing Date which are not
inconsistent with the Borrower's obligations under this Agreement; and
(c) No material adverse change has occurred in the
financial condition of the Borrower and the Guarantor, taken as a whole, or
the financial condition of the Borrower and its consolidated Subsidiaries,
taken as a whole, since the date hereof;
(d) With respect to the making of any Revolving Credit
Loan, receipt by the Agent of a Notice of Borrowing; and
(e) If a Letter of Credit is to be issued, Agent's receipt
of the L/C Agreement duly executed by the Borrower.
Each Notice of Borrowing under Section 2.2 hereof, and issuance of
each Letter of Credit, shall constitute a representation and warranty by the
Borrower made as of the time of the making of the Loan or the issuance of such
Letter of Credit that the conditions specified in clauses (a) through (c) of
this Section 5.2 have been fulfilled as of such time.
<PAGE>
ARTICLE VI
AFFIRMATIVE COVENANTS OF THE BORROWER
The Borrower and the Guarantor (pursuant to the Consent and
Acknowledgement attached hereto) hereby covenant and agree, that from the date
hereof and until satisfaction in full of the Obligations and the termination
of the Commitments and all Letters of Credit, unless the Required Banks shall
otherwise consent in writing:
6.1 Use of Proceeds. The Borrower shall use the proceeds of the
borrowings hereunder only for the purposes specified in Sections 2.1(a) of
this Agreement.
6.2 Financial Statements. The Borrower shall furnish to each of
the Banks:
(a) within ninety days after the end of each fiscal year,
a balance sheet of the Borrower and its consolidated Subsidiaries as of the
end of such year, a statement of income, statement of retained earnings and
statement of cash flows of the Borrower and its consolidated Subsidiaries for
such year, setting forth in each case in comparative form corresponding
consolidated figures from the preceding annual audit, all in such detail as
the Agent may reasonably request. Such financial statements shall present
fairly in all material respects the financial condition of the Borrower and
its consolidated Subsidiaries as of the close of such year and the results of
their operations and their cash flows during such year, in accordance with
GAAP, and shall be audited and accompanied by both the report and the
management letter, if a management letter is received, satisfactory in form
and substance to the Agent, of a certified public accountant acceptable to the
Required Banks (Coopers & Lybrand, LLP or any other "Big 6" accounting firm
will be deemed acceptable to the Agent), and a certificate signed by the chief
financial officer or the chief accounting officer of the Borrower in the form
of Schedule 6.2(a) to the effect that such officer does not know of any
Default or Event of Default or, if such officer shall have obtained knowledge
of any such Default or Event of Default, specifying the nature thereof;
provided however, that delivery of the Borrower's Annual Report on Form 10-K
for such year as filed with the SEC shall be deemed to satisfy this clause
(a);
(b) on or before January 15 of each year, management
prepared financial projections for the current fiscal year on a consolidated
basis for the Borrower and the Guarantor and all of their Subsidiaries;
<PAGE>
(c) within forty-five days after the end of each quarterly
period (other than the fourth quarter) in each fiscal year, an unaudited
balance sheet of the Borrower and its consolidated Subsidiaries as of the end
of such quarterly period, and a statement of income, statement of retained
earnings and statement of cash flows of the Borrower and its consolidated
Subsidiaries for the period from the beginning of the current fiscal year to
the end of such quarterly period, setting forth in each case the figures for
the corresponding quarterly period in the preceding fiscal year which shall
present fairly in all material respects the financial position of the Borrower
and its consolidated Subsidiaries as of the end of such quarter and the
results of their operations and their cash flows during such period, in
accordance with GAAP, subject to year-end audit adjustments and required
footnotes, and a certificate signed by the chief financial officer or the
chief accounting officer of the Borrower in the form of Schedule 6.2(c) to the
effect that such officer does not know of any Default or Event of Default or,
if such officer shall have obtained knowledge of any such Default or Event of
Default, specifying the nature thereof; provided however, that delivery of the
Borrower's quarterly report on form 10-Q for such quarterly period as filed
with the SEC shall be deemed to satisfy this clause (c); and
(d) within forty-five days after the end of each fiscal
quarter, the unaudited consolidating financial statements of the Borrower and
its Subsidiaries, including a balance sheet and a statement of income and such
other financial statements in such detail as the Required Banks may reasonably
request for the Borrower and each direct or indirect Subsidiary of the
Borrower, which shall present fairly in all material respects the financial
position of the Borrower and each Subsidiary as of the end of such quarter and
the results of its operations during such quarter and for the year-to-date,
prepared in a manner consistent with such unaudited financial statements as
previously delivered to the Agent, certified by the chief financial officer or
the chief accounting officer of the Borrower.
6.3 Ordinary Course of Business; Records. The Borrower and the
Guarantor shall, and shall cause their Subsidiaries to, conduct their business
only in the ordinary course and keep accurate and complete books and records
of their assets, liabilities and operations consistent with sound business
practices and in accordance with GAAP or in accordance with generally accepted
accounting principles applicable in the country in which each foreign
subsidiary is located.
6.4 Information for the Agent and Banks. The Borrower and the
Guarantor shall, and shall cause their Subsidiaries to, make available during
normal business hours for inspection by the Agent and each of the Banks or
their designated representatives any of their books and records when
<PAGE>
reasonably requested (upon reasonable prior notice, if no Event of Default has
occurred and is continuing) by the Agent or any of the Banks to do so, and
furnish the Agent and the Banks any information reasonably requested regarding
their operations, business affairs and financial condition within a reasonable
time after the Agent or any Bank gives notice of its request therefor.
6.5 Insurance. The Borrower and the Guarantor shall, and shall
cause their Subsidiaries to, carry at all times in financially sound and
reputable insurers: (a) all workers' compensation or similar insurance as may
be required under the laws of any jurisdiction; (b) public liability insurance
against claims for personal injury, death or property damage suffered upon, in
or about any premises occupied by it or occurring as a result of the
ownership, maintenance or operation by them of any automobile, truck or other
vehicle or as a result of the use of products manufactured, constructed or
sold by them, or services rendered by them; (c) hazard insurance against such
other hazards as are usually insured against by business entities of
established reputation engaged in like businesses and similarly situated,
including, without limitation, fire (flood, if applicable) and extended
coverage; and pay all premiums on the policies for all such insurance when and
as they become due and take all other actions necessary to maintain such
policies in full force and effect at all times. The insurance specified in
Subsections (b) and (c) shall be maintained in such amounts (and with co-
insurance and deductibles) as such insurance is usually carried by business
entities of established reputation engaged in the same or similar business and
similarly situated.
6.6 Maintenance. The Borrower and the Guarantor shall, and
shall cause their Subsidiaries to, maintain their equipment, real property and
other properties in reasonably good condition and repair (normal wear and tear
excepted).
6.7 Taxes. The Borrower and the Guarantor shall, and shall
cause their Subsidiaries to, pay all taxes, assessments, charges and levies
imposed upon them or on any of their property, or which they are required to
withhold and pay over, except where contested in good faith by appropriate
proceedings and where appropriate reserves therefor have been set aside on
their books in accordance with GAAP or in accordance with generally accepted
accounting principles applicable in the country in which each foreign
subsidiary is located; provided, however, that the Borrower and the Guarantor
shall pay all such taxes, assessments, charges and levies forthwith whenever
foreclosure on any lien which attaches or security therefor appears imminent.
6.8 Leases. The Borrower and the Guarantor shall, and shall
cause their Subsidiaries to, pay all rent or other sums required by every
<PAGE>
lease to which either is a party as the same becomes due and payable, perform
all their obligations as tenant or lessee thereunder except where contested in
good faith by appropriate proceedings and where appropriate reserves therefor
have been set aside in accordance with GAAP; and keep all such leases at all
times in full force and effect during the terms thereof.
6.9 Corporate Existence; Certain Rights; Laws. The Borrower,
the Guarantor and each Material Subsidiary shall do all things necessary to
preserve and keep in full force and effect in each jurisdiction in which they
conduct business the business existence, licenses, permits, rights and
franchises of the Borrower and the Guarantor and comply with all present and
future laws, ordinances, rules, regulations, judgments, orders and decrees
which affect in any material way the Borrower or the Guarantor, their assets
or the operation of their businesses.
6.10 Notice of Litigation or Other Proceedings. Except for
claims which are fully covered by insurance, the Borrower and the Guarantor
shall, and shall cause their Subsidiaries to, give immediate notice to the
Banks of (i) the existence of any dispute, (ii) the institution of any
material litigation, administrative proceeding or governmental investigation
involving the Borrower or the Guarantor including, but not limited to, OSHA
and environmental issues or (iii) the entry of any judgment, decree or order
against or involving the Borrower or the Guarantor, any of which would, if
adversely determined, materially and adversely affect the operation, financial
condition, property or business of the Borrower and its consolidated
Subsidiaries taken as a whole or affect the enforceability of this Agreement
or any of the other Loan Documents.
6.11 Indebtedness. The Borrower and the Guarantor shall, and
shall cause their Subsidiaries to, pay or satisfy or cause to be paid or
satisfied when due (or within applicable grace periods) all of their
Indebtedness.
6.12 Notice of Events of Default. The Borrower and the Guarantor
shall give immediate notice to the Banks if either becomes aware of the
occurrence of any Default or Event of Default.
6.13 ERISA. The Borrower and the Guarantor shall, and shall
cause their Subsidiaries to, maintain each Plan in compliance with all
applicable requirements of ERISA and of the Code and with all applicable
rulings and regulations issued under the provisions of ERISA and of the Code.
As promptly as practicable (but in any event not later than ten days) after
the Borrower, the Guarantor or any Subsidiary receives from the PBGC a notice
of intent to terminate any Plan or to appoint a trustee to administer any
<PAGE>
Plan, after the Borrower, the Guarantor or any Subsidiary has notified the
PBGC that any reportable event, as defined in Section 4043 of ERISA, with
respect to any Plan has occurred, or after the Borrower, the Guarantor or any
Subsidiary has provided a notice of intent to terminate to each affected
party, as defined for purposes of Section 4041(a)(2) of ERISA, with respect to
any Plan, a certificate of the Chief Financial Officer or Chief Accounting
Officer of the Borrower, the Guarantor or such Subsidiary shall be furnished
to the Banks setting forth the details with respect to the events resulting in
such reportable event, as the case may be, and the action which the Borrower,
the Guarantor or such Subsidiary proposes to take with respect thereto,
together with a copy of the notice of intent to terminate or to appoint a
trustee from the PBGC, of the notice of such reportable event or of the
Borrower's, the Guarantor's or such Subsidiary's notice of intent to
terminate, as the case may be. Set forth on Schedule 6.13 is a description of
the pending termination of a defined benefit pension plan as to which no
further notice need be given to the Banks unless the effect of such
termination differs materially from the information set forth in such exhibit.
6.14 Deposit Accounts. Until the termination of the Revolving
Credit and repayment of all amounts of principal, interest and other sums
outstanding thereunder, the Borrower shall use the Agent or an affiliate of
the Agent as its primary depository institution in the United States. Upon
the termination of the Revolving Credit and repayment of all amounts of
principal, interest and other sums outstanding thereunder, the Borrower shall
continue to maintain deposits in such amounts as Borrower shall deem
appropriate at the Agent or an affiliate of the Agent, but shall not be
obligated to use the Agent or any of the Banks as its primary depository
institution.
6.15 Financial Covenants. The Borrower shall observe the
financial covenants set forth on Schedule 6.15 attached hereto and made a part
hereof.
6.16 Compliance with Environmental Laws. The Borrower and the
Guarantor shall, and shall cause their Subsidiaries to, comply in all material
respects with all Environmental Laws and not use any property which they own
or occupy to generate, treat, store, transport, transfer, dispose of, release
or otherwise handle any Hazardous Materials, except in compliance with all
Environmental Laws.
6.17 Notice of Material Adverse Change. The Borrower and the
Guarantor shall give immediate notice to each of the Banks if they become
aware of any material adverse change in their business, operations, properties
or financial position.
<PAGE>
6.18 Collateralization of Letters of Credit. Upon the earlier of
(i) the occurrence of an Event of Default or (ii) the Termination Date, the
Borrower shall replace all Letters of Credit outstanding at such time or fully
collateralize the face amount thereof with cash deposited by the Borrower in a
cash collateral account at the Agent.
ARTICLE VII
NEGATIVE COVENANTS
The Borrower and the Guarantor (pursuant to the Consent and
Acknowledgement attached hereto) hereby covenant and agree, that from the date
hereof and until satisfaction in full of the Obligations and the termination
of the Commitments and all Letters of Credit, they will not do any one or more
of the following without first obtaining the written consent of the Required
Banks:
7.1 Fundamental Corporate Changes.
(a) Enter into or effect, or permit any Subsidiary to
enter into or effect, any merger, consolidation, division, reorganization or
other transaction of like effect, or dissolve, except for a merger involving
the Borrower in which the Borrower is the surviving corporation, or a merger
involving the Guarantor in which the Guarantor is the surviving corporation,
or a merger in which a Subsidiary (other than the Guarantor) is merged with
and into the Borrower, the Guarantor or another Subsidiary, provided that no
Change of Control occurs as a result thereof;
(b) Sell, transfer, lease or otherwise dispose of all or
any material part of its assets, or permit any Subsidiary to, except (i) in
the ordinary course of business; (ii) sales of equipment and other fixed
assets which are obsolete or no longer used or useful in the Borrower's
business; (iii) sales without recourse of the Borrower's interest in leases of
equipment entered into in the ordinary course of business; and (iv) sales
without recourse of accounts receivable having a book value of not more than
$2,000,000 during any fiscal year; or sell any leases or accounts receivable
with recourse, except that the Borrower may sell with recourse, for cash,
leases of equipment in which it is lessor and which were entered into in the
ordinary course of business, provided that, as of the end of each fiscal
quarter, the aggregate net present value of all recourse obligations incurred
in connection with the sale of such leases cannot exceed the greater of $1
million or 25% of the aggregate net present value of the future lease payments
payable under all leases sold by the Borrower to which such recourse
obligations relate; or
<PAGE>
(c) Enter, or permit any Subsidiary to enter, into any
transaction or series of transactions as a result of which the Borrower ceases
to be the primary operating company of the Borrower and its Subsidiaries taken
as a whole, or as a result of which the Guarantor ceases to be a significant
operating company of such group.
7.2 Encumbrances. Create or allow any Encumbrances to be on or
otherwise affect any of their property or assets or the property or assets of
their Subsidiaries except:
(a) Encumbrances in favor of the Agent, for the benefit of
the Banks;
(b) Encumbrances for taxes, assessments and other
governmental charges incurred in the ordinary course of business which are not
yet due and payable or which are being contested in good faith and for which
appropriate reserves have been established in accordance with GAAP;
(c) Pledges or deposits made in the ordinary course of
business to secure payment of workmen's compensation or to participate in any
fund in connection with workmen's compensation, unemployment insurance or
other social security obligations;
(d) Good faith pledges or deposits made in the ordinary
course of business to secure performance of tenders, contracts (other than for
the repayment of Indebtedness) or leases or to secure statutory obligations or
surety, appeal, indemnity, performance or other similar bonds required in the
ordinary course of business;
(e) Liens of mechanics, materialmen, warehousemen,
carriers or other similar liens, securing obligations incurred in the ordinary
course of business that are not yet due and payable;
(f) Encumbrances securing Indebtedness incurred under
agreements for the installment purchase of fixed assets other than real
estate, provided such Indebtedness does not exceed 100% of the installment
purchase price of such equipment;
(g) Easements and other encumbrances on title to real
property which exist on the date hereof and do not secure any obligation for
borrowed money; and
(h) Encumbrances disclosed in the Financial Statements or
in Schedule 7.2.
<PAGE>
7.3 Guaranties. Directly or indirectly make, or permit their
Subsidiaries to make, any Guaranties, in an amount over $1,500,000 in the
aggregate, except for (i) Guaranties of obligations of Subsidiaries at least
eighty percent (80%) of the stock of which is owned directly or indirectly by
the Borrower, and (ii) Guaranties by any of the Subsidiaries of obligations of
the Borrower, the Guarantor or another Subsidiary at least eighty percent
(80%) of the stock of which is owned directly or indirectly by the Borrower.
Notwithstanding the foregoing, the Borrower may make Guaranties related to
sales of equipment in the ordinary course of business to leasing companies,
provided that the aggregate net present value of all such Guaranties incurred
in connection with the sale of such equipment to leasing companies cannot
exceed the greater of (i) $1 million less the net present value of recourse
obligations incurred in connection with the sale of leases pursuant to Section
7.1(b) or (ii) 25% of the aggregate net present value of the future lease
payments payable under all such leases by leasing companies to which such
Guaranties relate.
7.4 Sales and Lease-Backs. Sell, transfer or otherwise dispose
of, or permit their Subsidiaries to sell, transfer or otherwise dispose of,
any property, real or personal, now owned or hereafter acquired, with the
intention of directly or indirectly taking back a lease on such property.
7.5 Loans, Investments. Purchase, invest in, or make any loan
in the nature of an investment in, or permit their Subsidiaries to purchase,
invest in, or make any loan in the nature of an investment in, the stocks,
bonds, notes or other securities or evidence of Indebtedness of any Person, or
make any loan or advance to or for the benefit of any Person, or permit their
Subsidiaries to make any loan or advance to or for the benefit of any Person,
except for (i) short-term obligations of the Treasury of the United States of
America; (ii) certificates of deposit issued by banks with shareholders'
equity of at least $500,000,000; (iii) repurchase agreements not exceeding 29
days in duration issued by banks with shareholders' equity of at least
$500,000,000; (iv) notes and other instruments generally known as "commercial
paper" which arise out of current transactions, which have maturities at the
time of issuance thereof not exceeding nine months and which have, at the time
of such purchase, investment or other acquisition, the highest credit rating
of Standard & Poor's Corporation or Moody's Investors Service, Inc., (v)
loans, advances, or investments in Subsidiaries at least eighty percent (80%)
of the stock of which is owned directly or indirectly by the Borrower,
provided that the Borrower provides to the Agent a schedule, updated on a
quarterly basis, of all such loans, advances or investments; (vi) loans,
advances or investments by the Borrower to or in the Guarantor or any
Subsidiary; (vii) after the completion of the Secondary Offering, purchases of
stock or other securities of corporations which are not Subsidiaries of the
Borrower on the date of this Agreement, but which become Subsidiaries of the
Borrower as a result of such purchase; and (viii) other loans and investments
not exceeding $1,000,000 in aggregate book value outstanding at any time.
<PAGE>
7.6 Change in Business. Discontinue any substantial part, or
change the nature of, or permit any of their Subsidiaries to discontinue any
substantial part, or change the nature of, the business of the Borrower, the
Guarantor or the Subsidiary, as applicable, or enter into any material new
business unrelated to the present business conducted by the Borrower, the
Guarantor or the Subsidiary, as applicable.
7.7 ERISA.
(a) Terminate any Plan maintained by the Borrower or the
Guarantor to which Section 4021 of ERISA applies;
(b) Allow the value of the benefits guaranteed under Title
IV of ERISA to exceed the value of assets allocable to such benefits;
(c) Incur a withdrawal liability within the meaning of
Section 4201 of ERISA.
7.8 Restricted Payments. Declare or pay any dividend (other
than stock dividends), or make any distributions of cash or property, to
holders of any shares of capital stock of the Borrower on account of such
stock, or, directly or indirectly, redeem or otherwise acquire any such shares
or any option, warrant or right to acquire any such shares except pursuant to
the plan disclosed on Schedule 7.8; provided that the Borrower and the
Guarantor may declare and may pay dividends provided no Default or Event of
Default has occurred and is continuing at the time of such declaration or
payment and provided further that the payment of such dividend will not cause
the occurrence of a Default or Event of Default.
7.9 Compliance with Federal Reserve Board Regulations. (i) Use,
or permit any of their Subsidiaries to use, any of the proceeds of the Loans,
directly or indirectly, for the purposes of purchasing or carrying any "margin
stock" within the meaning of Regulations G or U of the Board of Governors of
the Federal Reserve System (12 C.F.R. 207, 221), (ii) use, or permit any of
their Subsidiaries to use, any of the proceeds of the Loans, directly or
indirectly, for the purpose of purchasing, carrying or trading in any
securities under such circumstances as to involve the Borrower in a violation
of Regulation X of such Board (12 C.F.R. 224), or (iii) take or permit to be
<PAGE>
taken, or permit any of their Subsidiaries to take or permit to be taken, any
other action which would result in the Loans or the consummation of any of the
other transactions contemplated hereby being violative of such regulations or
any other regulation of such Board.
7.10 Repurchase of Leases. Make or permit any Subsidiary to
make, any payments to repurchase leases of equipment and sold by the Borrower
or any Subsidiary as lessor with recourse to the Borrower or any Subsidiary
("Recourse Equipment Leases") or to repurchase the equipment subject to any
Recourse Equipment Leases unless after giving effect to such payment, for each
fiscal year set forth below, the aggregate of such payments, net of the
aggregate cash recoupment, cash recovery or other cash realization from the
sale or other disposition of the Recourse Equipment Lease so repurchased or
equipment subject to any Recourse Equipment Lease so repurchased during such
fiscal year would not exceed the amount set forth below opposite the
applicable fiscal year:
Applicable Amount Fiscal Year Ending
$1,500,000 December 31, 1995
2,000,000 December 29, 1996
2,500,000 December 28, 1997
3,000,000 December 27, 1998 and
thereafter
7.11 Funded Indebtedness. Except for the Obligations to the
Banks and the Agent and except as disclosed on Schedule 7.11, have any Funded
Indebtedness prior to the completion of the Secondary Equity Offering.
ARTICLE VIII
EVENTS OF DEFAULT
An event of default ("Event of Default") under this Agreement
shall be deemed to exist if any one or more of the following events occurs and
is continuing, whatever the reason therefor:
8.1 Borrower's Failure to Pay Principal or Interest. The
Borrower fails to pay any amount of principal or interest or any reimbursement
obligation under any Letter of Credit as and when due under this Agreement or
any of the other Loan Documents, whether upon stated maturity, acceleration,
or otherwise, and in the case of a failure to pay interest when due, the
Borrower has not remedied and fully cured such failure to pay within three (3)
Business Days after the date such payment is so due.
8.2 Borrower's Failure to Pay Fees and other Sums. The Borrower
fails to pay any amounts, other than as described in Section 8.1 hereof, of
<PAGE>
fees or other sums as and when due under this Agreement or any of the Loan
Documents, or any other Obligations, whether upon stated maturity,
acceleration, or otherwise and has not remedied and fully cured such failure
to pay within five (5) Business Days after the date such payment is so due.
8.3 Breach of Covenants or Conditions. The Borrower or the
Guarantor (i) fails to perform or observe any term, covenant, agreement or
condition in this Agreement set forth in Sections 6.1, 6.2(a), 6.2(c), 6.11,
6.12, 6.15, 6.17, 6.18 or in Article VII hereof, or (ii) fails to perform or
observe any other term, covenant, agreement or condition in this Agreement or
any of the other Loan Documents or is in violation of or non-compliance with
any other provision of this Agreement or any of the Loan Documents, and has
not remedied and fully cured such failure, violation or non-compliance under
this clause (ii) within thirty (30) days after the earlier of (a) the date the
Borrower or the Guarantor has knowledge of such failure, violation or non-
compliance or (b) the Borrower or the Guarantor receives written notice
thereof from the Agent, provided that such cure period shall not apply to
violations referred to in clause (i) above.
8.4 Defaults in Other Agreements. The Borrower or the Guarantor
fails to perform or observe any term, covenant, agreement or condition
contained in, or there shall occur any default under or as defined in, any
other agreement applicable to the Borrower or the Guarantor or by which any of
them is bound involving Indebtedness in excess of $100,000 in the aggregate of
the Borrower or the Guarantor which shall not be remedied within the period of
time (if any) within which such other agreement permits such default to be
remedied.
8.5 Agreements Invalid. The validity, binding nature of, or
enforceability of any material term or provision of any of the Loan Documents
is disputed by, on behalf of, or in the right or name of the Borrower or the
Guarantor or any material term or provision of any such Loan Document is found
or declared to be invalid, avoidable, or non-enforceable by any court of
competent jurisdiction having jurisdiction over the parties hereto.
8.6 False Warranties; Breach of Representations. Any warranty
or representation made by the Borrower or the Guarantor in this Agreement or
any other Loan Document or in any certificate or other writing delivered under
or pursuant to this Agreement or any other Loan Document, or in connection
with any provision of this Agreement shall prove to have been false, incorrect
or breached in any material respect on the date as of which made.
<PAGE>
8.7 Judgments. A final judgment or judgments is entered, or an
order or orders of any judicial authority or governmental entity is issued
against the Borrower or the Guarantor (such judgment(s) and order(s)
hereinafter collectively referred to as "Judgment") (i) for payment of money,
which Judgment, in the aggregate, exceeds One Hundred Thousand Dollars
($100,000.00) outstanding at any one time, or (ii) for injunctive or
declaratory relief which would have a material adverse effect on the ability
of the Borrower or the Guarantor to conduct its business; and any such
Judgment is not satisfied or discharged or execution thereon or enforcement
thereof stayed pending appeal, within thirty days after entry or issuance
thereof, or, in the event of such a stay, such Judgment is not discharged
within thirty days after such stay expires.
8.8 Bankruptcy or Insolvency of the Borrower or the Guarantor.
(a) The Borrower or the Guarantor becomes insolvent, or
generally fails to pay, or is generally unable to pay, or admits in writing
its inability to pay, its debts as they become due or applies for, consents
to, or acquiesces in, the appointment of a trustee, receiver or other
custodian for the Borrower or the Guarantor, as the case may be, or a
substantial part of its property, or makes a general assignment for the
benefit of creditors.
(b) The Borrower or the Guarantor commences any
bankruptcy, reorganization, debt arrangement, or other case or proceeding
under any state or federal bankruptcy or insolvency law, or any dissolution or
liquidation proceeding.
(c) Any bankruptcy, reorganization, debt arrangement, or
other case or proceeding under any state or federal bankruptcy or insolvency
law, or any dissolution or liquidation proceeding, is involuntarily commenced
against or in respect of the Borrower or the Guarantor, or an order for relief
is entered in any such proceeding.
(d) A trustee, receiver, or other custodian is appointed
for the Borrower or the Guarantor or a substantial part of such Person's
property.
<PAGE>
ARTICLE IX
REMEDIES
9.1 Further Advances; Acceleration; Setoff.
(a) Upon the occurrence and during the continuance of any
one or more Events of Default, the Agent, upon written notice from the
Borrower or any Bank to the Agent that an Event of Default has occurred
hereunder, shall refuse to make any further Advances or Loans to the Borrower
unless and until the Required Banks notify the Agent in writing that further
Advances or Loans to the Borrower are permitted. Upon the request of the
Agent made at the direction of the Required Banks, the Borrower shall deposit
in an account with the Agent, as cash collateral for its obligations under the
Loan Documents, an amount equal to the maximum amount currently or at any time
thereafter available to be drawn on all outstanding Letters of Credit, and the
Borrower hereby pledges to the Agent and the Banks and grants to the Agent and
the Banks a security interest in all such cash as security for such
obligations;
(b) Automatically upon the occurrence of any Event of
Default described in Section 8.8 of this Agreement, the unpaid principal
balance of all Loans, all interest and fees accrued and unpaid thereon, and
all other amounts and Obligations payable by the Borrower under this Agreement
and the other Loan Documents shall immediately become due and payable in full,
all without protest, presentment, demand, or further notice of any kind to the
Borrower, all of which are expressly waived by the Borrower;
(c) Upon the occurrence of any Event of Default other than
as described in Section 8.8, in the sole discretion of the Required Banks, the
unpaid principal balance of all Revolving Credit Loans, all interest and fees
accrued and unpaid thereon, and all other amounts and Obligations payable by
the Borrower under this Agreement and the other Loan Documents in respect of
the Revolving Credit shall immediately become due and payable in full, all of
the foregoing without protest, presentment, demand, or further notice of any
kind to the Borrower, all of which are expressly waived by the Borrower;
(d) Upon the occurrence of any Event of Default other than
as described in Section 8.8 of this Agreement, in the sole discretion of First
Fidelity, the unpaid principal balance of the Existing Term Loans, all
interest and fees accrued and unpaid thereon, and all other amounts and
Obligations payable by the Borrower under this Agreement and the other Loan
Documents in respect of the Existing Term Loans shall immediately become due
<PAGE>
and payable in full, all without protest, presentment, demand, or further
notice of any kind to the Borrower, all of which are expressly waived by the
Borrower; and
(e) If any one or more Events of Default shall have
occurred, the Agent and the Banks, any affiliate of the Agent or any Bank and
any other participant in the Loans shall have the right, in addition to all
other rights and remedies available to them, without notice to the Borrower,
to apply toward and set-off against and apply to the then unpaid balance of
the Notes and the other Obligations any items or funds held by the Agent or
such Bank, any and all deposits (whether general or special, time or demand,
matured or unmatured, fixed or contingent, liquidated or unliquidated) now or
hereafter maintained by the Borrower for its own account with the Agent or
such Bank, any affiliate of such Bank or any participant in the Loans, and any
other indebtedness at any time held or owing by the Agent or such Bank, any
affiliate of the such Bank or any participant in the Loans to or for the
credit or the account of the Borrower. Upon and during the continuance of an
Event of Default, the Agent and the Banks are hereby authorized to charge any
such account or indebtedness for any amounts due to the Agent or such Bank.
Such right of set-off shall exist whether or not the Agent or such Bank shall
have made any demand under this Agreement, the Notes or any other Loan
Document and whether or not the Notes and the other Obligations are matured or
unmatured. The Borrower hereby confirms the Agent's and the Banks' right of
set-off, and nothing in this Agreement shall be deemed any waiver or
prohibition of such right of set-off.
9.2 Further Remedies. Upon the occurrence of any one or more
Events of Default, the Agent and the Banks may proceed to protect and enforce
their rights under this Agreement and the other Loan Documents by exercising
such remedies as are available to the Agent and the Banks in respect thereof
under applicable law, either by suit in equity or by action at law, or both,
whether for specific performance of any provision contained in this Agreement
or any of the other Loan Documents or in aid of the exercise of any power
granted in this Agreement or any of the other Loan Documents.
ARTICLE X
LIBO AND BASE RATE LOAN PROVISIONS
10.1 Mandatory Suspension and Conversion of LIBO Rate Loans. The
Banks' obligations to make, maintain or convert into Adjusted LIBO Rate Loans
of any type shall be suspended, all outstanding Loans of that type shall be
converted on the last day of their applicable Interest Periods (or, if
earlier, in the case of clause (b) below, on the last day the Banks may
<PAGE>
lawfully continue to maintain Loans of that type or, in the case of clause (c)
below, the day determined by the Agent or the Banks to be the last Business
Day before the effective date of the applicable restriction) into, and all
pending requests for the making of or conversion into Advances of such type
shall be deemed requests for, Base Rate Loans, if:
(a) on or prior to the determination of any interest rate
for Adjusted LIBO Rate Loans of that type for any Interest Period, the Agent
or any Bank determines that for any reason appropriate quotations are not
available to it (including, quotations in the interbank market selected by it
for deposits with it) for purposes of determining the Adjusted LIBO Rate or
that such rate would not accurately reflect the cost to any Bank of making,
maintaining or converting into an Adjusted LIBO Rate Loan type for such
Interest Period;
(b) at any time the Agent or any Bank determines that any
change of law or regulation of any governmental agency or central bank makes
it unlawful or impracticable for any Bank to make or maintain any Adjusted
LIBO Rate Loan of that type, or to comply with its obligations hereunder in
respect thereof; or
(c) any Bank determines by reason of any change of law or
regulation of any governmental agency or central bank that it is restricted,
directly or indirectly, in the amount that it may hold of (i) a category of
liabilities that include deposits by reference to which, or on the basis of
which, the interest rate applicable to Adjusted LIBO Rate Loans of that type
is directly or indirectly determined, or (ii) the category of assets that
includes Adjusted LIBO Rate Loans of that type.
The Agent shall promptly give notice to the Borrower of any
circumstance that would make the provisions of this Section 10.1 applicable,
but the failure to give any such notice shall not affect the Agent's or any
Bank's rights hereunder.
10.2 Change of Lending Office. Any Bank may at any time, and
from time to time, change its Lending Office and shall give notice of any such
change to the Borrower. The designation of a new Lending Office by any Bank
shall not make operable the provisions of clause (b) or (c) of Section 10.1
hereof and shall not increase the interest rate payable by the Borrower if the
operability of such clause or such claim or such increased interest rate
results solely from such designation and not from a subsequent regulatory
change.
10.3 Funding Losses. The Borrower shall pay to the Agent, for
the benefit of the Banks, upon request, such amount or amounts as the Agent
and the Banks reasonably determine are necessary to compensate them for any
loss, out-of-pocket cost or expense incurred by them as a result of (a) any
payment, prepayment or conversion of and Adjusted LIBO Rate Loan on a date
<PAGE>
other than the last day of an Interest Period for such Adjusted LIBO Rate Loan
or (b) an Adjusted LIBO Rate Loan for any reason (other than by error of the
Agent or any Bank) not being made or converted, or any payment of principal
thereof or interest thereon not being made, on the date therefor determined in
accordance with the applicable provisions of this Agreement. At the election
of the applicable Bank, and without duplication, such compensation on account
of losses may include an amount equal to the excess of (i) the interest that
would have been received from the Borrower under this Agreement on any amounts
to be reemployed during an Interest Period or its remaining portion over (ii)
the interest component of the return that such Bank determines it could have
obtained had it placed such amount on deposit in the interbank Dollar market
selected by it for a period equal to such Interest Period or its remaining
portion.
10.4 Determinations. In making the determinations contemplated
by Sections 10.1, 10.2 and 10.3 hereof the applicable Bank may make such
estimates, assumptions, allocations and the like that they, in good faith,
determine to be appropriate, but such Bank's selection thereof in accordance
with this Section 10.4, and the good faith determinations, estimates,
assumptions, allocations and the like made by it on the basis thereof, shall
be final, binding and conclusive upon the Borrower, except for error in
computation or transmission. The applicable Bank shall furnish to the
Borrower, upon request, a certificate outlining in reasonable detail the
computation of any amounts claimed by it under this Article X and the
assumptions underlying such computations and that such determination and
assumption are in accordance with policies which are being applied to other
borrowers generally, provided that the failure to deliver a certificate shall
not affect the Banks' right to such amounts.
10.5 Capital Adequacy. If after the date hereof, either (i) the
introduction of, or any change or phasing in or implementation of any law or
regulation or in the interpretation thereof by any central bank or
governmental agency charged with the administration thereof or (ii) compliance
with any directive, guidelines or request issued after the date hereof from
any central bank or governmental agency (whether or not having the force of
law) or (iii) compliance with the capital adequacy requirements of any bank
regulatory agency, affects, after the date hereof, the amount of capital
required or expected to be maintained by any Bank or any corporation directly
or indirectly owning or controlling such Bank shall have reasonably determined
in good faith that such introduction, change or compliance has the effect of
reducing the rate of return on such Bank's capital or the asset value to such
Bank of any Revolving Credit Loans or Advance made by such Bank, as a
consequence, directly or indirectly, of its obligations to make and maintain
the funding of Revolving Credit Loans or Advances hereunder, to a level below
that which such Bank could have achieved but for such introduction, change or
compliance (after taking into account such Bank's policies regarding capital
<PAGE>
adequacy) by an amount reasonably deemed by it to be material, to the extent
such introduction, change or compliance is attributable to such Bank's
Commitment or the Revolving Credit Loans or Advances then, upon demand by the
Agent, which demand shall be preceded by at least sixty (60) days prior
written notice setting forth such Bank's intent to charge additional amounts,
together with an estimate of the increased charges and rates, the Borrower
shall promptly pay to such Bank, such additional amount or amounts as shall be
sufficient to compensate such Bank for such reduction on the rate of return.
Such Bank's good faith determination of such amount or amounts that will
compensate such Bank for such reductions shall be presumed correct absent
error by such Bank. Notwithstanding the foregoing, the Borrower shall not be
required to make additional payments to any Bank under this Section if the
Bank requiring payment does not require other borrowers having commercial
loans from such Bank, similar in size and character to the Loans made
hereunder, to make additional payments to the such Bank by reason of the same
occurrence which requires the Borrower to make additional payments under this
Section.
ARTICLE XI
THE AGENT
11.1 Appointment. Subject to the terms and conditions hereof,
each Bank hereby appoints and irrevocably authorizes the Agent to act as the
Agent of such Bank and to take such action as agent, on its behalf and to
exercise such powers under this Agreement and the Loan Documents as are
delegated to the Agent by the terms thereof, together with such powers as are
reasonably incidental thereto. The Agent shall not have a fiduciary
relationship in respect of any Bank by reason of this Agreement or the Loan
Documents. As to any matters not expressly provided for by the Loan
Documents, the Agent shall have no implied duties to the Banks and shall act
or refrain from acting (and shall be fully protected in so acting or
refraining from acting) in the same manner in which it would act with respect
to a similar transaction for its own account; provided, however, that the
Agent shall not be required to take any action which exposes the Agent to
personal liability or which is contrary to this Agreement or any Loan Document
or applicable law.
11.2 General Immunity. Neither the Agent nor any of its
directors, officers, representatives, agents or employees shall be liable to
the Banks for any action taken or omitted to be taken by any of them except
<PAGE>
for their own gross negligence or willful misconduct. Without limiting the
generality of the foregoing, the Agent: (i) may treat the payee of any Note as
the holder thereof until the Agent receives written notice of the assignment
or transfer thereof signed by such payee and in form satisfactory to the
Agent; (ii) may consult with legal counsel (including counsel for the Borrower
or the Guarantor), independent public accountants (including the Borrower's or
the Guarantor's independent public accountants) and other experts selected by
the Agent and shall not be liable for any action taken or omitted to be taken
in good faith by it in accordance with the advice of such counsel, accountants
or experts; (iii) makes no warranty or representation to the Banks and shall
not be responsible to the Banks for any statements, warranties or
representations made in or in connection with this Agreement or any Loan
Document; (iv) except as specifically set forth in this Agreement, shall not
have any duty to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions of this Agreement or any Loan
Document or to inspect the property (including the books and records) of the
Borrower or the Guarantor; (v) shall not be responsible to the Banks for the
due execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any Loan Document or property covered thereby or
by any other instrument or document furnished pursuant thereto; and (vi) shall
incur no liability under or in respect to this Agreement or any Loan Document
by acting upon any notice, consent, certificate or other instrument or writing
(which may be by telegram, cable or telex) believed by the recipient to be
genuine and signed or sent by the proper party or parties. The Banks
respectively acknowledge that they have entered into this Agreement and the
other Loan Documents based on their direct knowledge and independent
investigations of the Borrower and the Guarantor over a period of time, that
each is fully aware of the financial condition of the Borrower and the
Guarantor, and that each has not relied in whole or in part upon any
representations as to the Borrower or the Guarantor, by the Agent for itself
or as the Agent. The Agent shall not be responsible to the Banks for any
recitals, reports, statements, warranties or representations herein or in any
Loan Document or be bound to ascertain or inquire as to the performance or
observance of any of the terms of this Agreement or of any Loan Document. The
Agent shall in all cases be fully protected in acting, or in refraining from
acting, hereunder or under any of the other Loan Documents in accordance with
written instructions signed by all of the Banks, and such instructions and any
action taken or failure to act pursuant thereto shall be binding on all of the
Banks and on all holders of the Notes.
11.3 Proportionate Shares. Whenever the Agent disburses any
Revolving Credit Loan, the Agent is authorized to advance for the account of
each Bank its Proportionate Share of each such Revolving Credit Loan, and each
<PAGE>
Bank agrees to pay the Agent in federal funds, upon demand, such Proportionate
Share. The Agent agrees that it shall promptly notify each Bank of any
request by the Borrower for a Revolving Credit Loan, and each Bank agrees to
provide its Proportionate Share of such Revolving Credit Loan on the date such
Revolving Credit Loan is to be made. Upon receipt from the Borrower of each
payment of principal or interest on any Revolving Credit Loan, and upon each
payment of fees paid to the Agent, for the benefit of the Banks, or other
amounts required to be shared hereunder, the Agent shall promptly remit, in
federal funds, to each Bank its Proportionate Share thereof as its share of
such payment and, until doing so, shall hold all such payments in trust for
the Banks. The Borrower and the Banks acknowledge and agree that the
obligation of each Bank hereunder is several, and neither the Agent nor any
other Bank shall be responsible to the Borrower or any other Bank for the
obligation and Commitment of any Bank, nor on account of the failure or delay
in performance or breach of any Bank or the Borrower of any of its obligations
hereunder, nor will the failure of any one or more Banks to perform any of its
obligations in any way relieve the other Banks from the performance of their
respective obligations.
11.4 Ratable Payments. If any Bank shall obtain any payment or
prepayment on account of the Revolving Credit Notes held by such Bank in
excess of its Proportionate Share of payments on account of the Revolving
Credit Notes obtained by all the Banks, such Bank shall pay over such excess
payment to the Agent for application and distribution to the Banks in
accordance with this Agreement. If First Fidelity shall obtain any payment or
prepayment on account of the Existing Term Notes, First Fidelity shall apply
such payment to principal or interest due under the Existing Term Notes in
accordance with the provisions thereof. Notwithstanding anything in this
Section or this Agreement or any other Loan Document to the contrary, any
payment made voluntarily by the Borrower and obtained by any Bank which is not
received by such Bank on account of amounts outstanding under this Agreement
and under the Notes may be retained by such Bank and shall not be subject to
the required proportionate sharing of payments as set forth above, provided
however, that if any such payment is to be applied to any of the Obligations,
it shall be paid over to the Agent for application and distribution to the
Banks in accordance with this Agreement. Notwithstanding anything in this
Section or this Agreement or any other Loan Document to the contrary, if any
payment is received by any Bank (whether voluntary, involuntary, through the
exercise of any right of setoff or otherwise) (i) after the occurrence of an
Event of Default and during the continuance thereof, or (ii) upon acceleration
of the repayment of the Loans pursuant to Section 9.1 hereof, such amounts
shall be paid to the Agent and applied pro rata as between the Revolving
Credit Loans and the Existing Term Loans.
<PAGE>
11.5 Agent's Reimbursement and Indemnification. To the extent
that the Agent is not reimbursed therefor by the Borrower, the Banks agree to
reimburse on demand and indemnify the Agent ratably in proportion to their
respective Proportionate Shares for (a) any out-of-pocket expenses incurred by
the Agent, on behalf of the Banks, in connection with the preparation,
execution, delivery, administration and enforcement of this Agreement and the
other Loan Documents and (b) 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 this Agreement or
any other Loan Document or any other document delivered in connection with
this Agreement or any other Loan Document or the transactions contemplated
hereby or thereby or the enforcement of any of the terms hereof or of any such
other documents, provided that no Bank shall be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the Agent.
11.6 Employment of Agents and Counsel. The Agent may execute any
of its duties as Agent hereunder or under any of the other Loan Documents by
or through employees, agents, representatives and attorneys-in-fact and shall
not be answerable to the Banks, except as to money or securities received by
it or its authorized agents, for the default or misconduct of any such agents,
representatives or attorneys-in-fact selected by it with reasonable care. The
Agent shall be entitled to advice of counsel concerning all matters pertaining
to the agency hereby created and its duties hereunder or under any of the
other Loan Documents. 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.
11.7 Rights as a Lender. With respect to the Agent's Commitment,
Revolving Credit Loans made by it and the Note issued to it, the Agent shall
have the same rights and powers hereunder or under any other Loan Document as
any Bank and may exercise the same as though it were not the Agent, and the
term "Bank" or "Banks" shall, unless the context otherwise indicates, include
the Agent in its individual capacity. The Agent may accept deposits from,
lend money to, and generally engage in any kind of banking or trust business
with the Borrower as if it were not the Agent.
11.8 Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based
<PAGE>
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 Loan Documents. Each Bank
also acknowledges that it will, independently and without reliance upon the
Agent or any other Bank 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 Loan
Documents.
11.9 Successor Agent. The Agent may resign at any time by giving
ten Business Days' prior written notice thereof to the Banks and to the
Borrower. Upon any such resignation, the Required Banks shall have the right
to appoint, on behalf of the Borrower and the Banks, any other Bank as a
successor Agent. If no successor Agent shall have been so appointed by the
Required Banks and shall have accepted such appointment within thirty days
after the retiring Agent's giving notice of resignation, then the retiring
Agent may appoint, on behalf of the Borrower and the Banks, any other Bank as
a successor Agent. 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
retiring Agent, and the Retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article XI shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as the Agent hereunder.
ARTICLE XII
MISCELLANEOUS
12.1 Remedies Cumulative; No Waiver. The rights, powers and
remedies of the Bank provided in this Agreement and the other Loan Documents
are cumulative and not exclusive of any right, power or remedy provided by law
or equity, and no failure or delay on the part of the Bank in the exercise of
any right, power, or remedy shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power, or remedy preclude other or
further exercise thereof, or the exercise of any other right, power or remedy.
12.2 Notices. Every notice and communication under this
Agreement or any of the other Loan Documents shall be in writing and shall be
given by either (i) hand-delivery, (ii) first class mail (postage prepaid),
(iii) nationally recognized overnight commercial courier (charges prepaid), or
(iv) telecopy or other means of electronic transmission, if confirmed promptly
<PAGE>
by any of the methods specified in clauses (i), (ii) and (iii) of this
sentence, to the following addresses:
If to the Borrower:
Checkpoint Systems, Inc.
550 Grove Road
Thorofare, NJ 08086
Attn: Mr. Steven G. Selfridge,
Senior Vice President-Operations and Chief Financial
Officer
Fax: (609) 848-2042
With a copy to:
Checkpoint Systems, Inc.
550 Grove Road
Thorofare, NJ 08086
Attn: Neil D. Austin, Esquire
Vice President, General Counsel and Secretary
Fax: (609) 848-2042
And with a copy to:
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, PA 19103-7098
Attn: James M. Papada III, Esquire
Fax: (215) 564-8120
If to the Agent:
First Fidelity Bank, National Association
91 East Main Street, Annex Building
Moorestown, NJ 08057
Attn: Mr. Douglas D. Dimmig, Vice President
Fax: (609) 273-3364
With a copy to:
First Fidelity Bank, National Association
Legal Department
123 South Broad Street
Philadelphia, PA 19109
Attn: S. Fain Hackney, Esquire
Fax: (215) 985-8973
<PAGE>
And with a copy to:
Duane, Morris & Heckscher
One Liberty Place
Philadelphia, PA 19103
Attn: Stephen D. Teaford, Esquire
Fax: (215) 979-1020
If to any Bank:
At the address of such Bank set forth
on the signature pages hereof.
Notice given by telecopy or other means of electronic transmission
shall be deemed to have been given and received when sent. Notice by
overnight courier shall be deemed to have been given and received on the date
delivered. Notice by mail shall be deemed to have been given and received
three (3) calendar days after the date first deposited in the United States
Mail. Notice by hand delivery shall be deemed to have been given and received
upon delivery. A party may change its address by giving written notice to the
other party as specified herein.
12.3 Costs, Expenses and Attorneys' Fees. Whether or not the
transactions contemplated by this Agreement and the other Loan Documents are
fully consummated, the Borrower shall promptly pay (or reimburse, as the Agent
may elect) all reasonable costs and expenses which the Agent or any Bank has
incurred or may hereafter incur in connection with the negotiation,
preparation, and enforcement of this Agreement and the other Loan Documents,
the collection of all amounts due hereunder and thereunder, and any amendment,
modification, consent or waiver which may be hereafter requested by the
Borrower or otherwise required. Such reasonable costs and expenses shall
include, without limitation, the reasonable fees and disbursements of counsel
to the Agent and the Banks, and similar costs and expenses incurred by the
Agent and the Banks. Upon the occurrence of an Event of Default, such costs
shall also include the fees of any accountants, consultants or other
professionals retained by the Agent. The Borrower's reimbursement obligations
under this Section shall survive any termination of this Agreement for a
period of 90 days.
12.4 Late Payment Fee. The Borrower shall pay a late payment fee
in an amount equal to three percent (3%) of all amounts which have not been
paid when due (i) to the Agent, for the benefits of the Banks, for payments
under the Revolving Credit, and (ii) to First Fidelity for payments under the
Existing Term Loans, unless such late payment is caused by the Agent's or any
Bank's failure to charge an account for such payment.
<PAGE>
12.5 Survival of Covenants. This Agreement and all covenants,
agreements, representations and warranties made herein and in any certificates
delivered pursuant hereto shall survive the making of the Loans and the
execution and delivery of the Notes and, subject to the provisions of Section
12.16 hereof, shall continue in full force and effect until all of the
Obligations have been fully paid, satisfied and discharged.
12.6 Counterparts; Effectiveness. This Agreement may be executed
in any number of counterparts and by the different parties on separate
counterparts. Each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute one and the same Agreement.
This Agreement shall be deemed to have been executed and delivered when the
Bank has received counterparts hereof executed by all parties listed on the
signature page(s) hereto.
12.7 Headings. The headings of sections have been included
herein for convenience only and shall not be considered in interpreting this
Agreement.
12.8 Payment Due On A Day Other Than A Business Day. Subject to
Section 2.12, if any payment due or action to be taken under this Agreement or
any Loan Document falls due or is required to be taken on a day which is not a
Business Day, such payment or action shall be made or taken on the next
succeeding Business Day and such extended time shall be included in the
computation of interest.
12.9 Judicial Proceedings. Each party to this Agreement agrees
that any suit, action or proceeding, whether claim or counterclaim, brought or
instituted by any party hereto or any successor or assign of any party, on or
with respect to this Agreement or any of the other Loan Documents or the
dealings of the parties with respect hereto, or thereto, shall be tried only
by a court and not by a jury. EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING. Further, each party waives any right it may have to claim or
recover, in any such suit, action or proceeding, any special, exemplary,
punitive or consequential damages or any damages other than, or in addition
to, actual damages. THE BORROWER ACKNOWLEDGES AND AGREES THAT THIS SECTION IS
A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT.
12.10 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the Commonwealth of Pennsylvania
without regard to the conflict of laws provisions thereof.
12.11 Integration. This Agreement and the other Loan Documents
constitute the sole agreement of the parties with respect to the subject
<PAGE>
matter hereof and thereof and supersede all oral negotiations and prior
writings with respect to the subject matter hereof and thereof.
12.12 Amendment and Waiver. With the written consent of the
Required Banks, the Agent, acting on behalf of all the Banks, and the Borrower
may from time to time enter into written agreements amending or changing any
provision of this Agreement or any other Loan Document or the rights of the
Banks or the Borrower hereunder or thereunder, and may grant written waivers
or consents to a departure from the due performance of the obligations of the
Borrower hereunder or thereunder, and any such agreement, waiver or consent
made with such written consent shall be effective to bind all the Banks;
provided, that, without the written consent of all the Banks, no such
agreement, waiver or consent may be made which will:
(a) Reduce the amount of any fees payable to any Bank
hereunder;
(b) Whether or not any Advances are outstanding, renew the
Revolving Credit, extend the time for payment of principal or interest of any
Advance, or reduce the principal amount of or the rate of interest borne by
any Advance, or otherwise affect the terms of payment of the principal of or
interest of any Advance;
(c) Release any collateral or other security, if any, for
the Borrower's obligations hereunder or under the other Loan Documents;
(d) Release any guarantor of the Obligations;
(e) Modify the Commitment of any Bank; or
(f) Amend Sections 8.1, 8.2, 9.1, 12.12, the definition of
Required Banks, the definition of Commitments, or the definition of Aggregate
Commitment, or change any requirement providing for all of the Banks to
authorize the taking of any action hereunder.
12.13 Successors and Assigns.
(a) Generally. This Agreement (i) shall be binding upon
the Borrower, the Agent and the Banks and their respective successors and
assigns, and (ii) shall inure to the benefit of the Borrower, the Agent and
the Banks and their respective successors and assigns, provided, however, that
the Borrower may not assign its rights hereunder or any interest herein
without the prior written consent of all of the Banks, and any such assignment
<PAGE>
or attempted assignment by the Borrower shall be void and of no effect with
respect to the Agent and the Banks. Neither the Agent nor any Bank may assign
this Agreement or any other Loan Documents to any other financial institution,
except for (i) an assignment by any Bank to an affiliate thereof engaged in
commercial banking, (ii) an assignment by any Bank to any other Bank, and
(iii) where so ordered by applicable banking legislation or bank regulatory
agencies without the prior written consent of the Borrower, which consent
shall not be unreasonably withheld.
(b) Participations. Notwithstanding Section 12.13(a)
above, the Agent or any Bank may from time to time sell or otherwise grant
participations in the Advances, the Loans, the Notes and all other Loan
Documents, provided such sales or grants shall comply with federal and
applicable state securities laws, provided further that any such participant
agrees to be bound by the provisions of Section 11.4 hereof, and provided
further that (i) the Agent's and the Banks' obligations under this Agreement
shall remain unchanged, (ii) the Agent and the Banks shall remain solely
responsible to the Borrower for the performance of such obligations and (iii)
the Borrower shall continue to deal solely and directly with the Agent in
connection with the Agent's and the Banks' rights and obligations under this
Agreement. Notwithstanding the foregoing, upon the occurrence of an Event of
Default, the holder of such a participation may exercise any and all rights of
set-off with respect thereto, as fully as though the Borrower and the
Guarantor were directly indebted to the holder of such participation in the
amount of such participation. The Agent shall give notice to the Borrower of
the grant of such participation; however, the failure to give such notice
shall not affect any of the Agent's or any Bank's rights hereunder. The Agent
or any Bank may furnish information in its possession concerning the Borrower
to a participant, provided that the Agent or such Bank shall require such
participant (whether prospective or otherwise) to agree in writing to maintain
the confidentiality of such information to the same extent as would apply if
such participant were a signatory to this Agreement. In addition to the
participations permitted under this Section, any Bank may, without the consent
of the Borrower or any other Bank, assign and pledge all or any portion of its
Loans and its Note to any Federal Reserve Bank as collateral security pursuant
to Regulation A of the Board of Governors of the Federal Reserve System and
any Operating Circular issued by such Federal Reserve Bank.
12.14 Severability of Provisions. Any provision in this Agreement
that is held to be inoperative, unenforceable, voidable, or invalid in any
jurisdiction shall, as to that jurisdiction, be ineffective, unenforceable,
void or invalid without affecting the remaining provisions in any other
<PAGE>
jurisdiction, and to this end the provisions of this Agreement are declared to
be severable.
12.15 Consent to Jurisdiction and Service of Process. The
Borrower irrevocably appoints each and every officer of the Borrower as its
attorneys upon whom may be served, by regular or certified mail at the address
set forth in Section 12.2 hereof, the complaint or any other initial pleadings
in any action or proceeding against it arising out of or in connection with
this Agreement or any of the other Loan Documents; and the Borrower, the Agent
and the Banks hereby consent that any action or proceeding by one of them
against the other be commenced and maintained in any court within the
Commonwealth of Pennsylvania or in the United States District Court for the
Eastern District of Pennsylvania by service of process on any officer thereof;
and the Borrower, the Agent and the Banks agree that the courts of the
Commonwealth of Pennsylvania and the United States District Court for the
Eastern District of Pennsylvania shall have jurisdiction with respect to the
subject matter hereof and the person of the Borrower, the Agent and the Banks.
Notwithstanding the foregoing, the Agent or any Bank, in its absolute
discretion may also initiate proceedings in the courts of any other
jurisdiction in which the Borrower may be found or in which any of its
properties may be located.
12.16 Indemnification
(a) If, after receipt of any payment of all or any part of
the Obligations, the Agent or any Bank is compelled to surrender such payment
to any Person or entity for any reason (including, without limitation, a
determination that such payment is void or voidable as a preference or
fraudulent conveyance, an impermissible setoff, or a diversion of trust
funds), then this Agreement and the other Loan Documents shall continue in
full force and effect, and the Borrower shall be liable for, and shall
indemnify, defend and hold harmless the Agent and such Bank with respect to
the full amount so surrendered.
(b) The Borrower shall indemnify, defend and hold harmless
the Agent and each Bank with respect to any and all claims, expenses, demands,
losses, costs, fines or liabilities of any kind (including, without
limitation, those involving death, personal injury or property damage and
including reasonable attorneys fees and costs) arising from or in any way
related to any Hazardous Materials or dangerous environmental condition
within, on, from, related to or affecting any real property owned or occupied
by the Borrower.
(c) The provisions of this section shall survive the
termination of this Agreement and the other Loan Documents and shall be and
remain effective notwithstanding the payment of the Obligations, the
<PAGE>
cancellation of any of the Notes, the release of any Encumbrance securing the
Obligations or any other action which the Bank may have taken in reliance upon
its receipt of such payment. Any cancellation of any of the Notes, release of
any Encumbrance or other such action shall be deemed to have been conditioned
upon any payment of the Obligations having become final and irrevocable.
12.17 Confidentiality. The parties agree that any
information concerning the Borrower, the Guarantor or any other Subsidiary of
the Borrower given hereunder or in connection herewith which has been marked
"Confidential" by the Borrower and which has not been made public in a filing
or an exhibit to a filing made with the Securities and Exchange Commission,
or by the issuance of a press release or which has not otherwise become in the
public domain (without being released by any Bank) shall be deemed confidential
and proprietary information of the Borrower, the Guarantor and any other
Subsidiary of the Borrower ("Confidential Information"). The Agent and each
Bank agree that they shall not disclose or release any Confidential
Information to any person (either orally or in writing,), except to (i)
employees, agents, attorneys and accountants of the Agent or such Bank in the
ordinary course of the Agent's or such Bank's business and in accordance with
its customary practices and procedures, (ii) bank regulatory agencies and
authorities; (iii) participants in the Loans and assignees of the Loans, and
(iv) pursuant to an order of court or governmental authority or subpoena or
similar legal process. In such regard, any other bank which becomes (or is
considering becoming) a participant in the Loans or an assignee of the Agent
or any Bank shall be informed of, and shall expressly agree in writing to be
bound by, the terms hereof as though such bank were a signatory hereto. The
Agent and the Banks and any such participant or assignee shall have no
liability to the Borrower for any breach of this paragraph except in the case
of gross negligence or willful misconduct.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to
be executed by their duly authorized officers on the date first above written.
Attest: CHECKPOINT SYSTEMS, INC.
By:_________________________ By:____________________________
Title:______________________ Title:_________________________
<PAGE>
COMMITMENTS:
$ 12,000,000
FIRST FIDELITY BANK, NATIONAL
ASSOCIATION (successor by merger to
First Fidelity, N.A., South Jersey),
Individually and as Agent
By:
Title:
ADDRESS:
91 East Main Street
Annex Building
Moorestown, NJ 08057
Attention: Douglas D. Dimmig
Vice President
<PAGE>
$8,000,000 MIDLANTIC BANK, N.A.
By:
Title:
ADDRESS:
6000 Midlantic Drive
P.O. Box 6000
Mt. Laurel, NJ 08054
Attention: Denise Killen
Vice President
<PAGE>
$5,000,000
THE FIRST NATIONAL BANK OF BOSTON
By:
Title:
ADDRESS:
100 Federal Street
Mail Stop 01-09-05
Boston, MA 02106
Attention: Patti Stoll
Director
- ----------------------------------
$25,000,000 Aggregate Commitment
TERMS AGREEMENT
THIS TERMS AGREEMENT is made and entered into as of January 15,
1995 (this "Terms Agreement") by and among Checkpoint Systems, Inc., a
Pennsylvania corporation (the "Company"), and the Purchasers listed on
the attached Schedule I (the "Series B Purchasers");
R E C I T A L S
A. The Company has entered into a Note Agreement (the "Series A
Note Agreement"), dated as of March 1, 1994, with each of the purchasers
listed on Schedule I thereto; and
B. The Company desires to issue and sell, and the Series B
Purchasers desire to purchase, an additional series of unsecured
promissory notes (Series B) in accordance with the terms specified
below;
NOW, THEREFORE, subject to compliance with all of the conditions
to closing and funding set forth in Section 9 hereof, and the delivery
of such additional closing documents and opinions as the Series B
Purchasers or their counsel may request, the parties signatory hereto
agree as follows:
1. The Company will authorize the issuance and sale of
$15,000,000 aggregate principal amount of its 9.35% Series B Senior
Notes (the "Series B Notes") to be dated the date of issue, to bear
interest from such date at the rate of 9.35% per annum, payable semi-
annually on January 30 and July 30 in each year (commencing July 30,
1995) and at maturity and to bear interest on overdue principal
(including any overdue prepayment of principal) and Make-Whole Amount,
if any, and (to the extent legally enforceable) on any overdue
installment of interest at the rate of 11.35% per annum, whether by
acceleration or otherwise, until paid. The Series B Notes will mature
on January 30, 2003 (the "Series B Maturity Date") and will be
substantially in the form of Exhibit A attached to the Series A Note
Agreement, with such changes therein as are required to reflect the
terms of the Series B Notes specified above. The term "Series B Notes"
as used herein shall include any and all of the 9.35% Series B Notes
delivered pursuant to this Terms Agreement and each such Series B Note
delivered in substitution or exchange therefor.
2. The Company will issue and sell to the Series B Purchasers,
and the Series B Purchasers will purchase from the Company on the
Series B Closing Date (as hereinafter defined) the Series B Notes of the
Company in the aggregate principal amount set forth opposite their
respective names on the attached Schedule I at a price of 100% of the
principal amount thereof.
<PAGE> 1
Delivery of the Series B Notes will be made at the offices of
Gardner, Carton & Douglas, 321 North Clark Street, Quaker Tower,
Chicago, Illinois 60610-4795 against payment therefor in Federal funds
or other funds in U.S. dollars immediately available at First Fidelity
Bank, N.A., Philadelphia, Pennsylvania A.B.A. No. 031201467, for deposit
in the Company's Account No. 4920450, in the amount of the purchase
price determined in accordance with Section 2 above not later than 9:00
a.m., Chicago time, on January 30, 1995 or such earlier date as the
Company and the Series B Purchasers shall mutually agree upon (the
"Series B Closing Date").
3. The proceeds from the sale of the Series B Notes will be
used to finance the Company's acquisition of all of the stock of
Alarmex, Inc., a Minnesota corporation and of Bayport Controls, Inc.,
a Minnesota corporation and for general corporate purposes.
4. The Series B Notes will be guaranteed by Checkpoint Systems
of Puerto Rico, Inc. (the "Series B Guarantor") pursuant to the Guaranty
Agreement dated the Series B Closing Date (the "Series B Guaranty
Agreement") of the Series B Guarantor in substantially the form attached
as Exhibit D to the Series A Note Agreement. The Company covenants and
agrees to cause the Series B Guarantor to obtain and deliver to the
Series B Purchasers and their special counsel, no later than February
15, 1995, the written consent of Banco Santander to the Series B
Guaranty Agreement. The Company covenants and agrees that in the event
any Subsidiary is required to guaranty any Indebtedness of the Company
or any other Subsidiary, the Company shall promptly cause such
Subsidiary to guaranty the Series B Notes and to execute and deliver to
the Series B Purchasers and their special counsel a guaranty agreement
substantially in the form of the Series B Guaranty Agreement.
5. The Company shall repay the Series B Notes in accordance
with the repayment provisions set forth in the attached Schedule II.
In addition, unless otherwise specified in Schedule II, the Series B
Notes shall be subject to mandatory and optional prepayment in
accordance with the optional and mandatory prepayment provisions of
Section 2.2 of the Series A Note Agreement, as if each reference to
"Notes" therein shall be deemed to refer to the Series B Notes issued
pursuant to this Terms Agreement.
6. Except to the extent in conflict with any of the provisions
of this Terms Agreement, the Company hereby agrees to comply with each
of the covenants, agreements and other provisions of the Series A Note
Agreement, which covenants, agreements and other provisions, together
with the related definitions of terms used therein and the exhibits
referred to therein, are incorporated by reference into this Terms
Agreement with the same effect as if such covenants, agreements and
provisions were set forth in full herein, except that all references to
"Purchasers" and "you" therein shall be deemed to refer to the Series B
Purchasers hereunder, all references to "this Agreement" shall be deemed
to refer to this Terms Agreement, all references to "Notes" therein
shall be deemed to refer to the Series B Notes issued pursuant to this
Terms Agreement, all references to "Guarantor" shall be deemed to refer
to the Series B Guarantor, and all references to "Guaranty Agreement"
shall be deemed to refer to the Series B Guaranty Agreement. Any
<PAGE> 2
amendment, supplement, modification, change or waiver of any of the
covenants, agreements or provisions of the Series A Note Agreement, or
any of the definitions of terms used therein or exhibits referred to
therein, shall not have any force and effect under this Terms Agreement
unless the holders of not less than 66-2/3% of the principal amount of
the Series B Notes outstanding hereunder shall have consented in writing
to such amendment, supplement, modification, change or waiver.
7. As an inducement to, and as part of the consideration for,
your purchase of the Series B Notes pursuant to this Terms Agreement,
the Company represents and warrants to the Series B Purchasers that each
of the representations and warranties contained in the Series A Note
Agreement is true and correct as of the date hereof (i) except that all
references to "Purchasers" and "you" therein shall be deemed to refer
to the Series B Purchasers hereunder, all references to "this Agreement"
shall be deemed to refer to this Terms Agreement, all references to
"Notes" therein shall be deemed to refer to the Series B Notes issued
pursuant to this Terms Agreement, and all references to the "Guaranty
Agreement" shall be deemed to refer to the Series B Guaranty Agreement
and (ii) except for changes in the Annexes to the Series A Note
Agreement, if any, which changes are set forth on the attached Annex I
or changes to those representations and warranties which are set forth
on the attached Annex II.
8. The Company covenants and agrees that the transactions
contemplated by the drafts of those certain Stock Purchase Agreements
dated as of January __, 1995 between the Company and Mary E. Frederick
and the Company and Daniel J. Frederick, respectively (the "Acquisition
Agreements") delivered to the Series B Purchasers January 20, 1995 shall
be consummated on substantially the terms set forth in such drafts no
later than three (3) Business Days after the Series B Closing Date.
Simultaneous with the closing of the transactions evidenced by the
Acquisition Agreements, the Company shall deliver an opinion of its
general counsel (or such other counsel as the Series B Purchasers shall
reasonably agree to) to the effect that such transactions have been
completed, that the Company owns the stock of Alarmex, Inc. and Bayport
Controls, Inc. free and clear of all liens and encumbrances and covering
such additional matters as the Series B Purchasers or their counsel may
reasonably request. Any default in the observance of the covenants
contained in the immediately preceding two sentences shall constitute
a default hereunder pursuant to Section 8.1(d) of the Series A Note
Agreement. The Company represents and warrants to the Series B
Purchasers that the representations and warranties contained in the
Acquisition Agreements by whomever made are true and correct.
9. The Series B Purchasers represent and warrant that the
representations and warranties contained in Section 3.2 (a)-(c) of the
Series A Note Agreement are true and correct as of the date hereof.
10. The Series B Purchasers' obligation to purchase the Series
B Notes on the Series B Closing Date shall be subject to the terms of
Section 4 of the Series A Note Agreement, except that (i) all references
to "Notes" therein shall be deemed to refer to the Series B Notes issued
pursuant to the terms of this Terms Agreement, all references to
"Purchasers" or "you" therein shall be deemed to refer to the Series B
<PAGE> 3
Purchasers hereunder, all references to "this Agreement" shall be deemed
to refer to this Terms Agreement, all references to "Closing Date"
therein shall be deemed to refer to the Series B Closing Date, all
references to "Guarantor" shall be deemed to refer to the Series B
Guarantor, and all references to "Guaranty Agreement" shall be deemed
to refer to the Series B Guaranty Agreement and (ii) Section 4.5 of the
Series A Note Agreement shall be amended in its entirety as follows:
4.5. Sale of Series B Notes to Other Series B Purchasers.
The Company shall have consummated the sale of the entire
$15,000,000 principal amount of the Series B Notes to be sold on
the Series B Closing Date pursuant to this Terms Agreement.
11. The Company agrees that, for so long as any amount remains
unpaid on any Series B Note, the Company shall comply with all of the
terms and conditions of Sections 6 and 7 of the Series A Note Agreement
except that for the purposes of this Terms Agreement, Section 7.1 (Net
Worth), Section 7.3 (Funded Debt) and 7.6 (Restricted Payments) shall
be amended in their entirety as follows:
7.1 Net Worth. The Company will not permit at any time
its Consolidated Net Worth to be less than $45,000,000 plus the
cumulative sum of 45% of its Consolidated Net Earnings (without
reduction for any losses) for each of its fiscal quarters ending
after December 26, 1993, plus 50% of the net cash proceeds from
the sale of shares by the Company of any class of common or
nonredeemable preferred stock of the Company and plus 50% of any
contribution to its capital.
7.3 Funded Debt. The Company will not, and will not
permit any Subsidiary to, permit to exist, create, assume, incur,
maintain or otherwise be or become liable for, directly or
indirectly, any Funded Debt other than:
(a) the Notes issued under the Series A Note Agreement, and the
Series B Notes issued under this Terms Agreement;
(b) Funded Debt of the Company and its Subsidiaries outstanding
on the Closing Date under the Series A Note Agreement and
described in the attached Annex VI thereto and extensions,
renewals, replacements, refundings or refinancings thereof,
provided that there is no increase in the principal amount of such
Funded Debt; and
(c) additional Funded Debt, provided that at the time of
incurring such additional Funded Debt and after giving effect
thereto and to the application of the proceeds therefrom, (i) the
Funded Debt of the Company and its Subsidiaries then to be
outstanding does not exceed (x) 55% of Consolidated Total
Capitalization prior to an Equity Offering or (y) 50% of
Consolidated Total Capitalization following an Equity Offering and
(ii) if such Funded Debt is incurred or assumed in connection with
an acquisition, the Company would be in compliance with Section
7.2 of the Series A Note Agreement for the applicable period
<PAGE> 4
ending as of its most recently completed fiscal quarter,
(A) calculating Consolidated Net Earnings Available for Fixed
Charges, on a pro forma basis, as if the acquisition had occurred
on the first day of the period of four consecutive fiscal quarters
ending with the most recently completed fiscal quarter, and
(B) calculating Fixed Charges, on a projected basis, giving effect
to any Funded Debt incurred in connection with the acquisition for
the four fiscal quarters following the acquisition.
7.6 Restricted Payments. The Company will not, except as
hereinafter provided:
declare or pay any dividends, either in cash or
property, on any shares of its capital stock of any class (except
dividends or other distributions payable solely in shares of
common stock of the Company);
directly or indirectly, or through any Subsidiary,
purchase, redeem or retire any shares of its capital stock of any
class or any warrants, rights or options to purchase or acquire
any shares of its capital stock;
make any other payment or distribution, directly or
indirectly, or through any Subsidiary, in respect of its capital
stock; or
make, or permit any Subsidiary to make, any Restricted
Investment;
(all such declarations, payments, purchases, redemptions,
retirements, distributions and Investments described in clauses
(a) through (d) being herein collectively referred to as
"Restricted Payments") if, after giving effect thereto, the
aggregate amount of Restricted Payments made after December 26,
1993 to and including the date of the making of the Restricted
Payment in question would exceed the sum of (i) $10,000,000, plus
(ii) 50% of Consolidated Net Earnings (or less 100% of any
deficit) for each fiscal quarter of the Company subsequent to
December 26, 1993, plus (iii) 50% of the net cash proceeds
received by the Company after December 26, 1993 from the sale of
shares of any class of its common or nonredeemable preferred stock
or from any contribution to its capital, plus (iv) the net cash
proceeds received by the Company after December 26, 1993 from the
maturation, sale or other disposition of any Restricted
Investment.
12. For the purposes of this Terms Agreement the following terms
shall have the meanings set forth herein:
Consolidated Net Worth - The sum of consolidated
shareholders' equity of the Company and its Subsidiaries and the
Company's ownership interest in any Person (other than a
Subsidiary), as determined in accordance with generally accepted
accounting principles, less the sum of all goodwill incurred and
all non-tax deductible intangible assets acquired after the
Closing Date (other than such goodwill and such intangible assets
not in excess of $13,500,000 in the aggregate resulting from the
acquisition of Alarmex, Inc., a Minnesota corporation and Bayport
Controls, Inc., a Minnesota corporation); provided that
Consolidated Net Worth shall be determined without adjustment
(whether positive or negative) for any foreign currency
translation.
<PAGE> 5
Equity Offering - A public offering or series of public
offerings by the Company resulting in the receipt by the Company on a
cumulative basis of at least $40,000,000 of net cash proceeds from the
sale of shares of any class of the Company's common or nonredeemable
preferred stock.
IN WITNESS WHEREOF, the Company and the Series B Purchasers have
caused this Terms Agreement to be executed and delivered by their
respective officer or officers thereunto duly authorized.
COMPANY: CHECKPOINT SYSTEMS, INC.
By:
Title:
PURCHASERS: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By:
Title:
By:
Title:
<PAGE> 6
CHECKPOINT SYSTEMS, INC.
FIRST AMENDMENT TO NOTE AGREEMENT
Re:
$12,000,000 Original Principal Amount of
8.27% Series A Senior Notes Due April 1, 2002
Dated as of January 15, 1995
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392-0800
Attention: Investment Department,
Securities Division
TMG Life Insurance Company
Ladies and Gentlemen:
Reference is made to the Note Agreement dated as of March 1,
1994 (the "Note Agreement") among Checkpoint Systems, Inc., a
Pennsylvania corporation (the "Company") and Principal Mutual
Life Insurance Company and TMG Life Insurance Company
(collectively, the "Holders") pursuant to which the Company
issued $12,000,000 original principal amount of its 8.27% Series
A Senior Notes due April 1, 2002.
Capitalized terms used and not otherwise defined herein
shall have the meanings ascribed to such terms in the Note
Agreement.
Pursuant to the Note Agreement the Company has the ability
to issue additional series of parity Notes. The Company has
entered into a Terms Agreement dated as of January 15, 1995 (the
"Terms Agreement") with Principal Mutual Life Insurance Company
(the "Series B Purchaser") pursuant to which it has issued
$15,000,000 principal amount of its 9.35% Series B Senior Notes
due January 30, 2003 (the "Series B Notes"). The Terms Agreement
incorporates by reference all of and modifies certain of the
terms of the Note Agreement. The Company would like to amend the
Note Agreement to incorporate certain of the modifications set
forth in the Terms Agreement.
In consideration of the sum of One Dollar ($1.00) and for
other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged by the Holders, the Company
requests an amendment to certain of the terms of the Note
Agreement.
<PAGE> 1
Upon your acceptance hereof and upon satisfaction of the
conditions hereof, this First Amendment to Note Agreement (the
"First Amendment") shall constitute a contract among us, amending
the provisions of the Note Agreement and the Notes in certain
respects, but only in the respects hereinafter set forth:
SECTION 1. DEFINED TERMS
1.1. Insert the following in alphabetical order in the
list of defined terms contained in Section 5.1 of the Note
Agreement:
Consolidated Net Worth - The sum of consolidated
shareholders' equity of the Company and its Subsidiaries and the
Company's ownership interest in any Person (other than a
Subsidiary), as determined in accordance with generally accepted
accounting principles, less the sum of all goodwill incurred and
all non-tax deductible intangible assets acquired after the
Closing Date (other than such goodwill and such intangible assets
not in excess of $13,500,000 in the aggregate resulting from the
acquisition of Alarmex, Inc., a Minnesota corporation and Bayport
Controls, Inc., a Minnesota corporation); provided that
Consolidated Net Worth shall be determined without adjustment
(whether positive or negative) for any foreign currency
translation.
Equity Offering - A public offering or series of
public offerings by the Company resulting in the receipt by the
Company on a cumulative basis of at least $40,000,000 of net cash
proceeds from the sale of shares of any class of the Company's
common or nonredeemable preferred stock.
1.2 All other terms defined in this First Amendment
shall be deemed incorporated into the Note Agreement, as amended
hereby.
SECTION 2. AMENDMENTS
2.1. Amendment of Sections 7.1, 7.3 and 7.6 of the Note
Agreement. The parties hereto agree that Sections 7.1, 7.3 and
7.6 are amended by deleting them in their entirety and inserting
in lieu thereof, the following:
7.1 Net Worth. The Company will not permit at
any time its Consolidated Net Worth to be less than $45,000,000
plus the cumulative sum of 45% of its Consolidated Net Earnings
(without reduction for any losses) for each of its fiscal
quarters ending after December 26, 1993, plus 50% of the net cash
proceeds from the sale of shares by the Company of any class of
common or nonredeemable preferred stock of the Company and plus
50% of any contribution to its capital.
<PAGE> 2
7.3 Funded Debt. The Company will not, and will
not permit any Subsidiary to, permit to exist, create, assume,
incur, maintain or otherwise be or become liable for, directly or
indirectly, any Funded Debt other than:
(a) the Notes issued under the Note Agreement,
and the Series B Notes issued under the Terms Amendment;
(b) Funded Debt of the Company and its
Subsidiaries outstanding on the Closing Date under the Note
Agreement and described in the attached Annex VI thereto, as
amended hereby, and extensions, renewals, replacements,
refundings or refinancings thereof, provided that there is no
increase in the principal amount of such Funded Debt; and
(c) additional Funded Debt, provided that at the
time of incurring such additional Funded Debt and after giving
effect thereto and to the application of the proceeds therefrom,
(i) the Funded Debt of the Company and its Subsidiaries then to
be outstanding does not exceed (x) 55% of Consolidated Total
Capitalization prior to an Equity Offering or (y) 50% of
Consolidated Total Capitalization following an Equity Offering
and (ii) if such Funded Debt is incurred or assumed in connection
with an acquisition, the Company would be in compliance with
Section 7.2 of the Note Agreement for the applicable period
ending as of its most recently completed fiscal quarter, (A)
calculating Consolidated Net Earnings Available for Fixed
Charges, on a pro forma basis, as if the acquisition had occurred
on the first day of the period of four consecutive fiscal
quarters ending with the most recently completed fiscal quarter,
and (B) calculating Fixed Charges, on a projected basis, giving
effect to any Funded Debt incurred in connection with the
acquisition for the four fiscal quarters following the
acquisition.
7.6 Restricted Payments. The Company will not,
except as hereinafter provided:
(a) declare or pay any dividends, either in cash
or property, on any shares of its capital stock of any class
(except dividends or other distributions payable solely in shares
of common stock of the Company);
(b) directly or indirectly, or through any
Subsidiary, purchase, redeem or retire any shares of its capital
stock of any class or any warrants, rights or options to purchase
or acquire any shares of its capital stock;
(c) make any other payment or distribution,
directly or indirectly, or through any Subsidiary, in respect of
its capital stock; or
(d) make, or permit any Subsidiary to make, any
Restricted Investment;
<PAGE> 3
(all such declarations, payments, purchases, redemptions,
retirements, distributions and Investments described in clauses
(a) through (d) being herein collectively referred to as
"Restricted Payments") if, after giving effect thereto, the
aggregate amount of Restricted Payments made after December 26,
1993 to and including the date of the making of the Restricted
Payment in question would exceed the sum of (i) $10,000,000, plus
(ii) 50% of Consolidated Net Earnings (or less 100% of any
deficit) for each fiscal quarter of the Company subsequent to
December 26, 1993, plus (iii) 50% of the net cash proceeds
received by the Company after December 26, 1993 from the sale of
shares of any class of its common or nonredeemable preferred
stock or from any contribution to its capital, plus (iv) the net
cash proceeds received by the Company after December 26, 1993
from the maturation, sale or other disposition of any Restricted
Investment.
2.2. Amendment to Annexes. Annex VI to the Note
Agreement is amended by deleting it in its entirety and inserting
in lieu thereof the attached Annex I hereto.
SECTION 3. REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The
Company represents and warrants that the representations and
warranties contained in the Note Agreement are true and correct
as of the date hereof except for changes to those representations
and warranties set forth on the attached Annex II.
SECTION 4. EFFECTIVE DATE
4.1. Provided there exists no Default or Event of Default
under the Note Agreement, this First Amendment shall become
effective as of the date first above written upon receipt by the
Holders of the following:
(a) Counterparts of this First Amendment executed by all
parties.
(b) Evidence of the satisfactory consummation of the
transactions contemplated by the Terms Agreement.
(c) Such other documents and instruments as the Holders
shall reasonably request.
SECTION 5. MISCELLANEOUS
5.1. Ratification. Except to the extent waived or
amended hereby, the terms and provisions of the Note Agreement
shall remain in full force and effect and are ratified, confirmed
and approved in all respects.
5.2. Reference to and Effect on the Note Agreement. Upon
the effectiveness of this First Amendment, each reference in the
Note Agreement and in other documents describing or referencing
the Note Agreement to the "Agreement," "Note Agreement,"
"hereunder," "hereof," "herein," or words of like import
referring to the Note Agreement, shall mean and be a reference to
the Note Agreement, as amended hereby.
<PAGE> 4
5.3. Expenses. The Company shall be fully responsible
for all reasonable fees and expenses of special counsel to the
Holders.
5.4. Binding Effect. This First Amendment shall be
binding upon and inure to the benefit of the respective
successors and assigns of the parties hereto.
5.5 Governing Law. This First Amendment shall be
governed by and construed in accordance with Illinois law.
5.6. Counterparts. This First Amendment may be executed
in any number of counterparts, each executed counterpart
constituting an original but altogether only one instrument.
IN WITNESS WHEREOF, the Company and the Holders have caused
this First Amendment to be executed and delivered by their
respective officer or officers thereunto duly authorized.
COMPANY: CHECKPOINT SYSTEMS, INC.
By:
Title:
HOLDERS: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By:
Title:
By:
Title:
TMG Life Insurance Company
By: THE MUTUAL GROUP, Its agent
By:
Name:
Title:
By:
Name:
Title:
<PAGE> 5
EXHIBIT 11
CHECKPOINT SYSTEMS, INC.
COMPUTATION OF PER SHARE DATA
Years Ended
----------------------------------------
December 25, December 26, December 27,
1994 1993 1992
----------- ------------ ------------
(Thousands, except per share data)
Net Earnings $ 6,283 $ 1,615 $ 4,428
======= ======= =======
Weighted average number of
common and common equivalent
shares outstanding:
Common shares
Shares outstanding at
beginning of year 10,978 10,803 10,257
Shares held in treasury (799) (799) (799)
Shares issued from exercise of
common stock options 133 153 213
Common equivalent shares, based on
assumed exercise of common stock
options 494 229 280
------- ------- -------
10,806 10,386 9,951
======= ======= =======
Net Earnings Per Share $ .58 $ .16 $ .45
======= ======= =======
60<PAGE>
EXHIBIT 21
CHECKPOINT SYSTEMS, INC.
SUBSIDIARIES
Checkpoint Systems, Inc. of Puerto Rico, Inc. - Delaware
Checkpoint Caribbean, Inc. - Delaware
Checkpoint FSC, Inc. - Virgin Islands
Electronic Signatures, Inc. - Delaware
Checkpoint International, Inc. - Delaware
Checkpoint Newco Limited - Canada
Checkpoint Canada, Inc. - Canada
Checkpoint Systems, S.A. - Argentina
Neil Acquisition, S.A. - Argentina
Checkpoint de Mexico, S.A. de C.V. - Mexico
Checkpoint Systems Belgium N.V. - Belgium
Checkpoint Systems France SARL - France
Checkpoint Systems Deutschland - Germany
Checkpoint Systems Nederland B.V. - The Netherlands
Checkpoint Holland Holding B.V. - The Netherlands
Checkpoint Holland Trading B.V. - The Netherlands
Checkpoint Systems Europe B.V. - The Netherlands
Checkpoint Systems International B.V. - The Netherlands
Checkpoint Systems Productie B.V. - The Netherlands
Checkpoint Systems Scandinavia A.B. - Sweden
Checkpoint Systems U.K. Limited - United Kingdom
Checkpoint Systems Australia PTY LTD - Australia
Punto De Control Checkpoint, S.A. - Spain
Checkpoint AG Switzerland - Switzerland
61<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
We consent to the incorporation by reference in the registration
statements of Checkpoint Systems, Inc. on Forms S-8, Numbers 33-16721,
29-00025, 33-10211, 29-03376, 33-37996 and 33-49191 of our report dated
February 15, 1995, except as to Note 17 for which the date is March 3,
1995, on our audits of the consolidated financial statements and financial
statement schedule of Checkpoint Systems, Inc. as of December 25, 1994 and
December 26, 1993, and for the three years in the period ended December
25, 1994, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, PA
March 7, 1995
62<PAGE>
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