FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 25, 1995
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Commission file number 1-11257
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Checkpoint Systems, Inc.
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(Exact name of registrant as specified in its charter)
Pennsylvania 22-1895850
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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)
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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As of August 1, 1995 there were 13,976,079 of the Common Stock
outstanding.
<PAGE>
CHECKPOINT SYSTEMS, INC.
FORM 10-Q
INDEX
Page No.
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statement of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-18
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19-20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 21
Index to Exhibits 22
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
June 25, December 25,
1995 1994
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ASSETS (Unaudited)
------ (Thousands)
CURRENT ASSETS
Cash $ 29,281 $ 944
Accounts receivable, net of allowances
of $1,877,000 and $1,570,000 44,041 33,290
Inventories 38,623 29,486
Other current assets 6,079 4,385
Deferred income taxes 1,117 1,117
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Total current assets 119,141 69,222
REVENUE EQUIPMENT ON OPERATING LEASE, net 14,191 8,875
PROPERTY, PLANT AND EQUIPMENT, net 30,583 27,924
EXCESS OF PURCHASE PRICE OVER FAIR VALUE
OF NET ASSETS ACQUIRED 21,117 10,120
INTANGIBLES 5,782 5,826
OTHER ASSETS 6,797 5,958
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TOTAL ASSETS $197,611 127,925
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Accounts payable $ 13,161 $ 10,064
Accrued compensation and related taxes 3,841 2,635
Income taxes 2,314 2,223
Unearned revenues 4,410 3,357
Other current liabilities 6,431 4,810
Short-term borrowings and current portion
of long-term debt 4,302 6,706
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Total current liabilities 34,459 29,795
LONG-TERM DEBT, LESS CURRENT MATURITIES 36,695 35,556
DEFERRED INCOME TAXES 1,271 1,271
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
14,661,579 and 11,278,511 1,466 1,128
Additional capital 80,483 21,592
Retained earnings 50,362 46,789
Common stock in treasury, at cost,
799,000 shares (5,664) (5,664)
Foreign currency adjustments (1,461) (2,542)
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TOTAL SHAREHOLDERS' EQUITY 125,186 61,303
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $197,611 $127,925
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Quarter (13 Weeks) Ended Six Months (26 Weeks) Ended
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June 25, June 26, June 25, June 26,
1995 1994 1995 1994
-------- -------- -------- --------
(Thousands, except per share data)
Net Revenues $49,744 $28,656 $87,104 $54,879
Cost of Revenues 27,800 15,104 49,069 29,064
------ ------ ------ ------
Gross Profit 21,944 13,552 38,035 25,815
Selling, General
and Administrative
Expenses 16,528 11,934 31,155 22,945
------ ------ ------ ------
Operating Income 5,416 1,618 6,880 2,870
Interest Income 325 173 494 284
Interest Expense 993 611 2,049 1,023
Foreign Exchange
Gain(Loss) 66 241 (220) (7)
------ ------ ------ ------
Earnings Before
Income Taxes 4,814 1,421 5,105 2,124
Income Taxes 1,445 354 1,532 530
------ ------ ------ ------
Net Earnings $ 3,369 $ 1,067 $ 3,573 $ 1,594
====== ====== ====== ======
Net Earnings Per
Share
$ .25 $ .10 $ .29 $ .15
====== ====== ====== ======
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)
Six Months(26 Weeks) Ended June 25, 1995
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Foreign
Common Additional Retained Treasury Currency
Stock Capital Earnings Stock Adjust. Total
------- ------- ------- ------- ------- ------
(Thousands)
Balance,
December 25, 1994 $ 1,128 $21,592 $46,789 $(5,664) $(2,542) $61,303
Net Earnings 3,573 3,573
Exercise of Stock
Options 9 1,015 1,024
Stock issuance in
connection with
business acquisition 20 3,478 3,498
Stock issuance in
connection with equity
offering 309 54,398 54,707
Foreign Currency
Adjustments 1,081 1,081
------- ------- ------- ------- ------- -------
Balance at
June 25, 1995 $ 1,466 $80,483 $50,362 $(5,664) $(1,461)$125,186
======= ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months(26 Weeks) Ended
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June 25, June 26,
1995 1994
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(Thousands)
Cash inflow (outflow) from operating activities:
Net earnings $ 3,573 $ 1,594
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Net book value of rented equipment sold 447 (1,928)
Long-term customer contracts (349) (890)
Depreciation and amortization 6,794 3,980
Provision for losses on accounts receivable 275 (827)
(Increase) decrease in current assets:
Accounts receivable (6,758) (3,067)
Inventories (9,821) (3,409)
Other current assets (499) 730
Increase (decrease) in current liabilities:
Accounts payable 373 (4,571)
Accrued compensation and related taxes 833 1,125
Income taxes (278) 343
Unearned revenues (70) 288
Other current liabilities 672 (1,466)
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Net cash used by operating activities (4,808) (8,098)
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Cash inflow (outflow) from investing activities:
Acquisition of property, plant and equipment (5,841) (2,389)
Acquisition, net of cash acquired (10,061) -
Other investing activities (2,538) (1,649)
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Net cash used by investing activities (18,440) (4,038)
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Cash inflow (outflow) from financing activities:
Proceeds from stock options 1,024 1,454
Proceeds from sale of common stock 54,707 -
Proceeds of debt 40,000 15,307
Payment of debt (44,146) (3,353)
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Net cash provided by financing activities 51,585 13,408
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Net increase (decrease) in cash and cash
equivalents 28,337 1,272
Cash and cash equivalents:
Beginning of period 944 -
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End of period $ 29,281 $ 1,272
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See accompanying notes to consolidated financial statements.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF ACCOUNTING
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. The
consolidated financial statements and related notes are unaudited and do
not contain all disclosures required by generally accepted accounting
principles. Refer to the Company's Annual Report on Form 10-K for the
fiscal year ended December 25, 1994 for the most recent disclosure of the
Company's accounting policies.
The consolidated financial statements include all adjustments necessary to
present fairly the Company's financial position at June 25, 1995 and
December 25, 1994 and its results of operations and changes in cash flows
for the thirteen and twenty-six week periods ended June 25, 1995 and
June 26, 1994.
2. INVENTORIES
June 25, December 25,
1995 1994
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(Thousands)
Raw materials $ 5,894 $ 6,078
Work in process 920 193
Finished goods 31,809 23,215
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$38,623 $29,486
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Inventories are stated at the lower of cost (first-in, first-out method)
or market. Cost includes material, labor and applicable overhead.
3. INCOME TAXES
Income taxes are provided for on an interim basis at an estimated
effective annual tax rate. The Company's net earnings generated by the
operations of its Puerto Rico subsidiary are exempt from Federal income
taxes under Section 936 of the Internal Revenue Code and substantially
exempt from Puerto Rico income taxes. Under Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes",
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.
4. PER SHARE DATA
Per share data is based on the weighted average number of common and
common equivalent shares (stock options) outstanding during the periods.
The number of shares used in the per share computations for the thirteen
and twenty-six week periods ended June 25, 1995 and June 26, 1994 were
13,588,000 and 12,445,000 (1995) and 10,722,000 and 10,613,000 (1994),
respectively.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
5. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for the thirteen and twenty-six week periods ended June 25,
1995 and June 26, 1994, respectively, included interest payments of
$818,000 and $1,385,000(1995) and $494,000 and $896,000(1994) and income
taxes paid of $300,000 and $1,800,000(1995) and $17,000 and $124,000
(1994).
Excluded from the investing activities in the Consolidated Statements of
Cash Flows are net transfers from inventory to property, plant and
equipment. For the thirteen and twenty-six week periods ended June 25,
1995 and June 26, 1994 net transfers relating to equipment rented to
customers were $3,487,000 and $6,178,000 (1995) and $4,245,000 and
$4,616,000 (1994) respectively.
On February 1, 1995, the Company purchased all of the capital stock of
Alarmex, Inc. together with its related Company Bayport Controls, Inc.
(collectively "Alarmex") for $13,559,000. In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired...................$21,656,000
Cash paid and fair value of stock issued for
the capital stock...............................$13,559,000
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Liabilities assumed.............................$ 8,097,000
===========
In addition, excluded from "Acquisitions, net of cash acquired" in the
1995 Consolidated Statement of Cash Flows is the non-cash portion of the
purchase price of Alarmex relating to 200,717 shares of the Company's
common stock valued at $3,498,000.
6. INTANGIBLES
Intangibles consist of patents, licenses, customer lists, and software
development costs. The costs relating to the acquisition of patents and
licenses are amortized on a straight-line basis over their economic/legal
useful lives, which ranges from five to ten years. Accumulated
amortization approximated $1,647,000 and $1,027,000 at June 25, 1995 and
December 25, 1994, 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. Capitalized
software development costs, net of accumulated amortization, totaled
$1,131,000 and $992,000 as of June 25, 1995 and December 25, 1994,
respectively.
7. ACQUISITION
On February 1, 1995, the Company purchased Alarmex for approximately $13.5
million ($10 million in cash and 200,717 shares of Common Stock of the
Company). The Company financed the cash portion of the Alarmex
acquisition with a private placement of the Company's long-term notes.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
7. ACQUISITION (continued)
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.
The following table represents unaudited combined results of operations
for the first six months of 1995 and 1994, as if the acquisition of
Alarmex had occurred at the beginning of those respective periods. 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:
Six Months (26 weeks) Ended
-----------------------------
June 25, June 26,
1995 1994
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(Thousands, except per share data)
Net revenues.................................$87,999 $64,792
Net earnings.................................$ 3,488 $ 1,142
Earnings per common share....................$ .28 $ .11
8. 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.
The Company has purchased certain foreign currency forward contracts in
order to hedge anticipated rate fluctuations in Europe. Transaction gains
or losses resulting from these contracts are recognized over the contract
period.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
9. LONG-TERM DEBT
On January 26, 1995, the Company issued and sold in a private placement
$15,000,000 aggregate principal amount of 9.35% series B Notes (the
"Notes") pursuant to a Note Agreement dated as of January 15, 1995, among
the Company and Principal Mutual Life Insurance Company. The Notes are
due January 30, 2003 and bear interest from the issue date(computed on the
basis of a 360 day year) payable semi-annually on January 30 and July 30
of each year commencing July 30, 1995. Notes of $3,000,000 are due on
each January 30 commencing January 30, 1999 through January 30, 2003. The
Notes are uncollaterized and rank equally with the Company's other funded
debt. The notes contain certain covenants which the Company considers to
be normal in transactions of this type.
On February 15, 1995, the Company entered into a new $25,000,000 revolving
Credit Agreement which replaces the Company's Revolving Credit Agreements
that were in existence at year end. Proceeds of $14,880,000 were used to
pay off borrowings under an existing Revolving Credit Agreement with the
Company's principal lending bank. At June 25, 1995, no borrowings
under this credit agreement were outstanding. This agreement would have
expired on May 1, 1996 and contained certain restrictive covenants which,
among other things, required maintenance of specified minimum financial
ratios including debt to capitalization, interest coverage and tangible
net worth.
On June 29, 1995, the Company entered into an amended and restated $60
million revolving Credit Agreement which replaces the agreement discussed
above. As of June 25, 1995, there were no borrowings outstanding. This
Credit Agreement will expire on June 1, 1998 and contains certain
restrictive covenants which, among other things, requires maintenance of
specified minimum financial ratios including debt to capitalization,
interest coverage and current ratio. In addition, this Credit Agreement
limits the Company's ability to pay cash dividends.
10. CONTINGENCIES
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. A hearing was held
in late July, 1995 on Actron's Motion for a Preliminary Injunction on
certain aspects of the matter. The Court has not yet made a determination
on such motion. The Company intends to defend itself vigorously. While
the outcome of litigation can never be predicted with certainty the
Company does not anticipate that its ultimate outcome will have a material
effect on its operations or financial condition.
<PAGE>
CHECKPOINT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
10. CONTINGENCIES (continued)
The Company, along with several officers and a director, has been named as
a defendant in two actions entitled Milton Cohen, et al v. Checkpoint
Systems, Inc., et al USDC Case No. 95CV1042 (JHR) filed March 9, 1995 and
Aron and Lisa Derman, et al v. Checkpoint Systems, Inc., et al USDC Case
No. 95CV1046 (JEI) filed March 10, 1995, both of which were filed in the
United States District Court in New Jersey. The complaints, which are
substantially identical, seek class certification and allege generally
that the defendants participated in a course of conduct to conceal adverse
material information about the operating results and future business
prospects of the Company as a result of which the Company's stock price
was artificially inflated during the period October 21, 1994 through March
7, 1995. Plaintiff alleges that the conduct set forth in the preceding
sentence was in violation of certain federal securities laws. The Company
believes that the plaintiffs' allegations are entirely without merit and
intends to defend itself vigorously.
11. EQUITY OFFERING
The Company completed the sale of approximately 3.1 million shares of
Common Stock during the second quarter of this year pursuant to an
underwritten public offering. The net proceeds received by the Company
from this offering were approximately $54.7 million. Of these proceeds,
$25 million was used to reduce the amount outstanding under the Company's
revolving credit line. The balance of the proceeds is expected to be used
for general corporate purposes including (i) funding strategic
acquisitions or start-up opportunities, and (ii) funding the Company's
leasing programs.
12. PATENT DEFENSE COSTS
During the second quarter of 1995 the Company was informed that
the Appeals Court had denied the Company's appeal relating to the
adverse International Trade Commission ("ITC") ruling of March
10, 1994 involving certain domestic patents. The Company has
capitalized approximately $1.9 million in patent defense costs
which have been included in Intangibles since the end of fiscal
1993. The Company is the exclusive licensee of the patents and
related technology which are held by Arthur D. Little ("ADL") for
which the Company has made, and continues to make, royalty
payments. Management believes with the advice of counsel that
certain provisions which are contained in the agreement between
the two companies gives the Company the right to recover these
legal defense costs and management intends to pursue the
Company's rights under the licensing agreement. Accordingly,
these costs remain deferred on the Company's balance sheet as of
June 25, 1995.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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Second Quarter 1995 Compared to Second Quarter 1994
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Overview
During the second quarter of 1995 revenues increased by
approximately $21.0 million (or 73.6%) over the prior year's
second quarter. During the second quarter gross margins in the
Company's base operations (excluding Alarmex) approximated those
obtained in 1994 as a percentage of sales. When combined with
the increase in revenues this resulted in a significant increase
in gross profit dollars from that obtained in last year's second
quarter. Including the Alarmex operations, cost of revenues
increased by 3.2% (from 52.7% to 55.9%). Selling, general and
administrative ("SG&A") expenses increased $4.6 million but
declined as a percentage of revenues by 8.5% (from 41.7% to
33.2%). Income from operations increased $3.8 million (from $1.6
million to $5.4 million). Net earnings for the quarter increased
by $2.3 million (from $1.1 million to $3.4 million) resulting in
earnings per share of $.25 for the quarter versus $.10 achieved
in the prior year's second quarter.
Net Revenues
Net revenues increased approximately $21.0 million (or 73.6%)
over the second quarter of 1994 (from $28.7 million to $49.7
million). Domestic and international net revenues accounted for
approximately 62.3% and 37.7%, respectively, of total net
revenues compared to 58.3% and 41.7% for last year's comparable
quarter. Domestic retail EAS net revenues increased $5.2 million
(or 37.8%) primarily as a result of increased unit sales
resulting from several chain wide installations. International
EAS net revenues increased $6.8 million (or 57.0%) primarily as a
result of: higher unit sales volume generated by the Company's
operations in Europe ($5.2 million) including sales to a major
customer in Spain ($2.6 million); and increased sales by the
Company's subsidiaries in Canada, Mexico, Argentina and Australia
($1.3 million). Sales contributed by the Company's Alarmex
subsidiary which was acquired during the first quarter of 1995
also contributed positively to the increase in revenues by $8.7
million. The Company's Access Control product line had sales
growth of $.4 million or 27.6% (from $1.5 million to $1.9
million) compared to the prior year's second quarter as a result
of increased sales to two primary customers.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)
---------------------
Second Quarter 1995 Compared to Second Quarter 1994
---------------------------------------------------
Cost of Revenues
Cost of revenues increased approximately $12.7 million (or 84.1%)
over the second quarter of 1994 (from $15.1 million to $27.8
million). As a percentage of net revenues, cost of revenues
increased 3.2% (from 52.7% to 55.9%) compared to the prior year's
second quarter. This increase was primarily due to lower gross
margins generally associated with the Alarmex products. Cost of
revenues related to the Company's traditional EAS product lines
increased by .8% (from 52.7% to 53.5%) primarily resulting from
volume pricing to significant customers which are implementing
EAS systems chain wide.
Selling, General and Administrative Expenses
SG&A expenses increased $4.6 million (or 38.5%) over the second
quarter of 1994 (from $11.9 million to $16.5 million). As a
percentage of net revenues, however, SG&A expenses decreased by
8.5% (from 41.7% to 33.2%). The higher expenses (in dollars) were
due to an approximately $3.1 million increase in expenditures
supporting the Company's EAS business and approximately $1.5
million of SG&A expenses related to the Alarmex operations
including amortization of goodwill.
Interest Expense
Interest expense increased by $.4 million over the second quarter
of 1994 (from $.6 million to $1.0 million). This increase is
primarily the result of interest on the issuance of a $15 million
note in connection with the Alarmex acquisition completed during
the first quarter of 1995.
Income Taxes
The effective tax rate of 30.0% is higher than the effective tax
rate used in last year's second quarter of 24.9%. This is
primarily due to (i) higher taxable income attributable to
foreign jurisdictions where tax rates are marginally higher than
the U.S. and (ii) a marginally higher tax rate on the earnings
generated by the Company's Alarmex subsidiary versus the
Company's domestic EAS operations.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)
---------------------
Second Quarter 1995 Compared to Second Quarter 1994
--------------------------------------------------
Net Earnings
Net earnings were $3.4 million or $.25 per share versus $1.1
million or $.10 per share for the second quarter of 1994. The
number of weighted average number of common and common equivalent
shares used in the earnings per share computation for the current
quarter has increased substantially compared to the prior year
(from 10.7 million to 13.6 million) primarily from: Company
shares issued as part of the Alarmex acquisition (200,717); and
shares issued during the quarter in connection with the Company's
recent equity offering (3,086,600) which is further discussed in
"Liquidity and Capital Resources".
Exposure To International Operations
Approximately 71% of the Company's international sales during the
second quarter of 1995 were made in local currencies. Sales
denominated in currencies other than U.S. dollars increased the
Company's potential exposure to currency fluctuations which can
affect results. For the second quarter of 1995, currency
exchange gains amounted to $.1 million compared to gains of $.2
million for the comparable period in the prior year.
United States International Trade Commission Ruling
During the second quarter of 1995 the Company was informed that
the Appeals Court had denied the Company's appeal relating to the
adverse International Trade Commission ("ITC") ruling of March
10, 1994 involving certain domestic patents. The Company has
capitalized approximately $1.9 million in patent defense costs
which have been included in Intangibles since the end of fiscal
1993. The Company is the exclusive licensee of the patents and
related technology which are held by Arthur D. Little ("ADL") for
which the Company has made, and continues to make, royalty
payments. Management believes with the advice of counsel that
certain provisions which are contained in the agreement between
the two companies gives the Company the right to recover these
legal defense costs and management intends to pursue the
Company's rights under the licensing agreement. Accordingly,
these costs remain deferred on the Company's balance sheet as of
June 25, 1995.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS
---------------------
First Half 1995 Compared to First Half 1994
--------------------------------------------------
Overview
During the first half of 1995 revenues increased by approximately
$32.2 million (or 58.7%) over the prior year's first half. During
the first half gross margins in the Company's base operations
(excluding the Alarmex acquisition) increased by approximately
.3% which combined with the increase in revenues resulted in a
significant increase in gross profit from that obtained in last
year's first half. Including the Alarmex operations, cost of
revenues increased by 3.3% (from 53.0% to 56.3%). SG&A expenses
increased $8.2 million but declined as a percentage of revenues
by 6.0% (from 41.8% to 35.8%). Income from operations increased
$4.0 million (from $2.9 million to $6.9 million). Net earnings
for the first half increased by $2.0 million (from $1.6 million
to $3.6 million) resulting in earnings per share of $.29 for the
quarter versus $.15 achieved in the prior year's first half.
Net Revenues
Net revenues increased approximately $32.2 million (or 58.7%)
over the first half of 1994 (from $54.9 million to $87.1
million). Domestic and international net revenues accounted for
approximately 62.6% and 37.4%, respectively, of total net
revenues compared to 59.7% and 40.3% for last year's first half.
Domestic retail EAS net revenues increased $7.1 million (or
25.9%) primarily as a result of increased unit sales resulting
from several chain wide installations. International EAS net
revenues increased $10.4 million (or 47.2%) primarily as a result
of: higher unit sales volume generated by the Company's
operations in Europe ($8.0 million) including sales to a major
customer in Spain ($4.1 million); and increased sales by the
Company's subsidiaries in Canada, Mexico, Argentina and Australia
($2.1 million). Sales contributed by the Company's Alarmex
subsidiary which was acquired on February 1, 1995 also
contributed positively to the increase in revenues by $14.2
million. The Company's Access Control product line had sales
growth of $.8 million or 29.1% (from $2.7 million to $3.4
million) compared to the prior year's first half as a result of
increased sales to two primary customers.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)
---------------------
First Half 1995 Compared to First Half 1994
-------------------------------------------
Cost of Revenues
Cost of revenues increased approximately $20.0 million (or 68.8%)
over the first half of 1994 (from $29.1 million to $49.1
million). As a percentage of net revenues, cost of revenues
increased 3.3% (from 53.0% to 56.3%) compared to the prior year's
first half. This increase was primarily due to lower gross
margins generally associated with the Alarmex products. Cost of
revenues related to the Company's traditional EAS product lines
decreased by .3% (from 47.0% to 46.7%) primarily resulting from
lower production costs due to higher manufacturing volumes and
increased efficiencies offset partially by volume pricing to
significant customers which are implementing EAS systems chain
wide.
Selling, General and Administrative Expenses
SG&A expenses increased $8.2 million (or 35.8%) over the first
half of 1994 (from $23.0 million to $31.2 million). As a
percentage of net revenues, however, SG&A expenses decreased by
6.0% (from 41.8% to 35.8%). The higher expenses (in dollars) were
due to an approximately $5.9 million increase in expenditures
supporting the Company's EAS business and approximately $2.3
million of SG&A expenses related to the Alarmex operations
including amortization of goodwill.
Interest Expense
Interest expense increased by $1.0 million over the first half of
1994 (from $1.0 million to $2.0 million). This increase is
primarily the result of higher outstanding loan balances during
the first half compared to the prior year including interest on
the issuance of a $15 million note in connection with the Alarmex
acquisition (representing $.6 million of interest) which occurred
during the first quarter of 1995.
Income Taxes
The effective tax rate of 30.0% is higher than the effective tax
rate used in last year's first half of 25.0%. This is primarily
due to (i) higher taxable income attributable to foreign
jurisdictions where tax rates are marginally higher than the U.S.
and (ii) a marginally higher tax rate on the earnings generated
by the Company's Alarmex subsidiary versus the Company's domestic
EAS operations.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)
---------------------
First Half 1995 Compared to First Half 1994
-------------------------------------------
Net Earnings
Net earnings were $3.6 million or $.29 per share versus $1.6
million or $.15 per share for the first half of 1994. The
increase in the number of shares used in the earnings per share
computation was discussed in the second quarter 1995 compared to
second quarter 1994 results.
Exposure To International Operations
Approximately 72% of the Company's international sales (27% of
total revenues) during the first half of 1995 were made in local
currencies. Sales denominated in currencies other than U.S.
dollars increased the Company's potential exposure to currency
fluctuations which can affect results. For the first half of
1995, currency exchange losses amounted to $.2 million compared
to a small loss of $7,000 for the comparable period in the prior
year. The primary increase in the currency exchange losses was
the result of the continued devaluation of the Mexican peso
through the first quarter of the current year. As a result of
the peso devaluation and continued economic difficulties in
Mexico, the Company's operations in Mexico could continue to be
negatively impacted during the balance of 1995; however any such
impact is not expected to materially affect the Company's
consolidated results for the remainder of the fiscal year.
<PAGE>
CHECKPOINT SYSTEMS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
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 and in fiscal 1995, through the issuance
of common stock in an underwritten public offering. The Company
believes that cash provided from operating activities and funding
available under its current credit agreements, together with the
net proceeds generated from the sale of shares of the Company's
Common Stock (discussed below), will be adequate for its
presently foreseeable working capital and capital investment
requirements.
The Company's operating activities consumed approximately $4.8
million during the first half of 1995 compared to $8.1 million in
the prior year's first half. This use of cash was primarily the
result of (i) an increase in finished goods inventories in order
to place equipment at customer's locations under operating lease
agreements and to meet anticipated product demand, and (ii) an
increase in accounts receivable levels related to greater sales
volumes.
During the first half of 1995 the Company also completed a
private placement of debt totaling $15 million. A significant
portion of the proceeds, approximately $13 million, was used for
the acquisition of Alarmex (see Note 7 of the Notes to
Consolidated Financial Statements) and the repayment of existing
debt owed by Alarmex at the time of acquisition. The balance of
the proceeds, approximately $2 million, was used for general
corporate purposes. Subsequent to the second quarter, the
Company entered into an amended and restated $60 million
revolving credit agreement with a group of banks to replace the
existing $25 million in revolving credit indebtedness which had
been established during the first quarter of 1995. This amended
and restated agreement is a three year agreement which expires on
June 1, 1998 (see Note 9 of the Notes to Consolidated Financial
Statements).
The Company also completed the sale of approximately 3.1 million
shares of Common Stock during the second quarter of this year
pursuant to an underwritten public offering. The net proceeds
received by the Company from this offering approximated $54.7
million. Of these proceeds, $25 million was used to reduce in its
entirety the amount outstanding under the Company's revolving
credit line. The balance of the proceeds are expected to be used
for general corporate purposes including (i) funding strategic
acquisitions or start-up opportunities, and (ii) funding the
Company's leasing programs.
<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 during the first half totaled
$5.8 million compared to $2.4 million during the first half of
1994. The Company expects that for the full year investments in
property, plant and equipment will approximate $9.0 million.
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 any one or more particular
acquisitions, the Company may require additional debt or equity
financing.
The Company exports products for international sales to its
foreign subsidiaries. The subsidiaries, in turn, sell these
products to customers in their respective geographic areas of
operation, generally in local currencies. This method of sale
and resale gives rise to the risk of gains or losses as a result
of currency exchange rate fluctuations.
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 June 25, 1995 the Company
had currency exchange forward contracts totaling approximately
$12.6 million. The contracts are in the various local currencies
covering primarily the Company's six Western European operations
along with the Company's Canadian operations. The Company's
operations in Argentina, Mexico and Australia were not covered by
currency exchange forward contracts at June 25, 1995. However,
management is evaluating a strategy to minimize the Company's
existing foreign exchange exposure in Mexico and Argentina.
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 could limit the
Company's risks associated with significant exchange rate
fluctuations.
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 prohibit the amounts available for cash
dividends.
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
ITC 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 the 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. During the second quarter of 1995 the Company was informed that the
Appeals Court had denied the Company's appeal relating to the adverse
International Trade Commission ("ITC") ruling of March 10, 1994 involving
certain domestic patents. The Company has capitalized approximately $1.9
million in patent defense costs which have been included in Intangibles
since the end of fiscal 1993. The Company is the exclusive licensee of the
patents and related technology which are held by Arthur D. Little ("ADL")
for which the Company has made, and continues to make, royalty payments.
Management believes that certain provisions contained in the agreement
between the two companies gives the Company the right to recover these
legal defense costs and management intends to pursue the Company's rights
under the licensing agreement. Accordingly, these costs remain deferred
on the Company's balance sheet as of June 25, 1995.
Actron AG Litigation
--------------------
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.
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS (continued)
Actron AG Litigation (continued)
-------------------------------
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. A hearing was held
in late July, 1995 on Actron's Motion for a Preliminary Injunction on
certain aspects of the matter. The Court has not yet made a determination
on such motion. The Company intends to defend itself vigorously. While
the outcome of litigation can never be predicted with certainty 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 AG 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.
Cohen Litigation
----------------
The Company, along with several officers and a director, has been named as
a defendant in two actions entitled Milton Cohen, et al v. Checkpoint
Systems, Inc., et al USDC Case No. 95CV1042 (JHR) filed March 9, 1995 and
Aron and Lisa Derman, et al v. Checkpoint Systems, Inc., et al USDC Case
No. 95CV1046 (JEI) filed March 10, 1995, both of which were filed in the
United States District Court in New Jersey. The complaints, which are
substantially identical, seek class certification and allege generally
that the defendants participated in a course of conduct to conceal adverse
material information about the operating results and future business
prospects of the Company as a result of which the Company's stock price
was artificially inflated during the period October 21, 1994 through March
7, 1995. Plaintiff alleges that the conduct set forth in the preceding
sentence was in violation of certain federal securities laws. The Company
believes that the plaintiffs' allegations are entirely without merit and
intends to defend itself vigorously.
<PAGE>
Item 5. OTHER INFORMATION
On June 29, 1995, the Company entered into an amended and restated Credit
Agreement which replaces the credit agreement that was entered into on
February 15, 1995. Under the new Credit Agreement, a group of banks have
agreed to provide up to $60 million of credit to the Company on an
unsecured basis at varying rates of interest depending on the Company's
election. As of June 25, 1995 and as of the date of this report there
were no borrowings outstanding under either of these agreements. This new
agreement will expire on June 1, 1998. This Credit Agreement contains
certain restrictive covenants which, among other things, requires
maintenance of specified minimum financial ratios including debt to
capitalization, interest coverage and current ratio. In addition, this
Credit Agreement limits the Company's ability to pay cash dividends.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10 (i) Second Amended and Restated Loan and Agency Agreement dated as of
June 29, 1995
(b) No reports on Form 8-K have been filed during the second quarter of
1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHECKPOINT SYSTEMS, INC.
August 8, 1995 Steven G. Selfridge
Senior Vice President - Operations,
Chief Financial Officer
August 8, 1995 Mitchell T. Codkind
Vice President, Corporate Controller
and Chief Accounting Officer
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
-------
Exhibit 10(i) Second Amended and Restated Loan and Agency
Agreement
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000215419
<NAME> CHECKPOINT SYSTEMS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-25-1995
<CASH> 29,281
<SECURITIES> 0
<RECEIVABLES> 45,918
<ALLOWANCES> 1,877
<INVENTORY> 38,623
<CURRENT-ASSETS> 119,141
<PP&E> 53,909
<DEPRECIATION> 9,135
<TOTAL-ASSETS> 197,611
<CURRENT-LIABILITIES> 34,459
<BONDS> 0
<COMMON> 1,466
0
0
<OTHER-SE> 123,720
<TOTAL-LIABILITY-AND-EQUITY> 197,611
<SALES> 87,104
<TOTAL-REVENUES> 87,104
<CGS> 49,069
<TOTAL-COSTS> 31,155
<OTHER-EXPENSES> (274)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,049
<INCOME-PRETAX> 5,105
<INCOME-TAX> 1,532
<INCOME-CONTINUING> 3,573
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,573
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
SECOND AMENDED AND RESTATED LOAN AND AGENCY AGREEMENT
among
FIRST FIDELITY BANK, NATIONAL ASSOCIATION, as Agent
and
THE BANKS PARTY HERETO
and
CHECKPOINT SYSTEMS, INC.
Dated as of June 29, 1995
<PAGE>
SECOND 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
I. Definitions
II. Credit Accommodations
2.1 The Revolving Credit
2.2 Notices of Borrowing
2.3 Interest under the Revolving Credit Notes
2.4 Continuation and Conversion of Loans
2.5 Termination or Reduction of Commitment
2.6 Repayment of Revolving Credit Advances
2.7 Payment to the Agent
2.8 Existing Term Loans
2.9 Post-Default Rate of Interest; Maximum Rate of Interest
2.10 Deposit Accounts
2.11 Computation of Interest and Fees
2.12 Manner of Payment
2.13 Termination of Agreement
III. Guaranty
3.1 Guaranty Agreement
IV. Representations and Warranties of the Borrower
4.1 Good Standing of the Borrower; Authorization
4.2 Compliance with Laws and Other Agreements
4.3 No Conflict; Governmental Approvals
4.4 Financial and Other Information Regarding Borrower and Guarantor
4.5 Taxes
4.6 Encumbrances and Guaranties
4.7 Material Adverse Changes
4.8 Margin Securities
4.9 ERISA
4.10 Pending Litigation
4.11 Valid, Binding and Enforceable
4.12 Environmental Matters
4.13 No Untrue Statements
<PAGE>
V. Conditions Precedent to the Agent's and the Banks' Obligations
5.1 Documents to be Delivered by the Borrower at Closing
5.2 Conditions Precedent to Making Revolving Credit Loans or issuing
any Letter of Credit
VI. Affirmative Covenants of the Borrower
6.1 Use of Proceeds
6.2 Financial Statements
6.3 Ordinary Course of Business; Records
6.4 Information for the Agent and Banks
6.5 Insurance
6.6 Maintenance
6.7 Taxes
6.8 Leases
6.9 Corporate Existence; Certain Rights; Laws
6.10 Notice of Litigation or Other Proceedings
6.11 Indebtedness
6.12 Notice of Events of Default
6.13 ERISA
6.14 Deposit Accounts
6.15 Financial Covenants
6.16 Compliance with Environmental Laws
6.17 Notice of Material Adverse Change
6.18 Collateralization of Letters of Credit
VII. Negative Covenants
7.1 Fundamental Corporate Changes
7.2 Encumbrances
7.3 Guaranties
7.4 Sales and Lease-Backs
7.5 Loans, Investments
7.6 Change in Business
7.7 ERISA
7.8 Restricted Payments
7.9 Compliance with Federal Reserve Board Regulations
7.10 Repurchase of Leases
VIII. Events of Default
8.1 Borrower's Failure to Pay Principal or Interest
8.2 Borrower's Failure to Pay Fees and Other Sums
8.3 Breach of Covenants or Conditions
8.4 Defaults in Other Agreements
8.5 Agreements Invalid
<PAGE>
8.6 False Warranties; Breach of Representations
8.7 Judgments
8.8 Bankruptcy or Insolvency of the Borrower or the Guarantor
IX. Remedies
9.1 Further Advances; Acceleration; Setoff
9.2 Further Remedies
X. LIBO and Base Rate Loan Provisions
10.1 Mandatory Suspension and Conversion of LIBO Rate Loans
10.2 Change of Lending Office
10.3 Funding Losses
10.4 Determinations
10.5 Capital Adequacy
XI. The Agent
11.1 Appointment
11.2 General Immunity
11.3 Proportionate Shares
11.4 Ratable Payments
11.5 Agent's Reimbursement and Indemnification
11.6 Employment of Agents and Counsel
11.7 Rights as a Lender
11.8 Bank Credit Decision
11.9 Successor Agent
XII. Miscellaneous
12.1 Remedies Cumulative; No Waiver
12.2 Notices
12.3 Costs, Expenses and Attorneys' Fees
12.4 Late Payment Fee
12.5 Survival of Covenants
12.6 Counterparts; Effectiveness
12.7 Headings
12.8 Payment Due On A Day Other Than A Business Day
12.9 Judicial Proceedings
12.10 Governing Law
12.11 Integration
12.12 Amendment and Waiver
12.13 Successors and Assigns
12.14 Severability of Provisions
12.15 Consent to Jurisdiction and Service of Process
12.16 Indemnification
12.17 Confidentiality
<PAGE>
SECOND AMENDED AND RESTATED LOAN AND AGENCY AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN AND AGENCY AGREEMENT
("Agreement"), dated as of June 29, 1995, is among CHECKPOINT SYSTEMS,
INC., a Pennsylvania corporation (the "Borrower"), the BANKS (as
hereinafter defined), and FIRST FIDELITY BANK, NATIONAL ASSOCIATION, 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, the Banks and the Agent are parties to an Amended
and Restated Loan and Agency Agreement dated as of February 15, 1995 (the
"Existing Loan Agreement").
B. In accordance with the terms of the Existing Loan Agreement,
the Banks have extended to the Borrower a revolving credit in the amount
of $25,000,000 (the "Existing Revolving Credit") as evidenced by
Revolving Credit Notes dated February 15, 1995 (the "Existing Revolving
Credit Notes") pursuant to which there is an aggregate outstanding
principal balance on the date hereof of $ -0- (the "Existing
Revolving Credit Indebtedness"). In addition, as stated in the Existing
Loan Agreement, First Fidelity has made (i) a term loan (the "Existing
First Term Loan") to the Borrower 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 (ii) a term loan (the "Existing Second Term Loan";
together with the Existing First Term Loan, collectively referred to as
the "Existing Term Loans") to the Borrower 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 $6,588,236 (the
"Existing Second Term Indebtedness"; together with the Existing First
Term Indebtedness, collectively referred to as the "Existing Term
Indebtedness").
C. The Existing Revolving Credit Indebtedness and the Existing
Term Indebtedness are secured by a Guaranty, dated February 15, 1995,
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 Notes 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 Agreement to increase the
maximum amount of the Revolving Credit and to make other changes which
<PAGE>
have been agreed to by the Borrower, the Banks and the Agent.
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 Base Rate" means Base Rate or Base Rate minus the basis
points specified below for the Leverage Ratio achieved by the Borrower as
adjusted on the first day of each fiscal quarter in accordance with
Section 2.3(a) hereof, provided that the Adjusted Base Rate shall in no
event be less than the Federal Funds Rate plus fifty (50) basis points:
Leverage Ratio Interest Rate
1.10 x to .86x prior to Base Rate
6/30/96 and 1.0 x to .86x
thereafter
.85x to .70x Base Rate minus 50 basis points
less than .70x Base Rate minus 100 basis points
"Adjusted Base Rate Loan" means any Loan under the Revolving Credit
accruing interest at the Adjusted Base Rate.
"Adjusted LIBO Rate" means LIBOR plus the basis points specified
below for the Leverage Ratio achieved by the Borrower as adjusted on the
first day of each fiscal quarter in accordance with Section 2.3(a)
hereof:
Leverage Ratio Interest Rate
1.10 x to .86x prior to LIBOR plus 100 basis points
6/30/96 and 1.0 x to .86x
thereafter
.85x to .70x LIBOR plus 75 basis points
less than .70x LIBOR plus 50 basis points
"Adjusted LIBO Rate Loan" means any Loan or Advance under the
Revolving Credit accruing interest at the Adjusted LIBO Rate.
<PAGE>
"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 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 Adjusted Base Rate, or the Adjusted LIBO Rate, all as determined in
accordance with Section 2.3 hereof.
<PAGE>
"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.
"Borrower" shall have the meaning specified in the initial paragraph
of this Agreement, together with its successors and assigns.
"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
<PAGE>
(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 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.
"Eligible Investments" shall mean investments made in accordance
with Section 4.0 of the Borrower's corporate investment policy as it
exists on the date hereof, which investment policy has been delivered to
the Agent and certified as true and correct by an authorized officer of
the Borrower.
"Encumbrance" shall mean, as to any Person, any mortgage, lien,
pledge, security interest or other encumbrance in or on, or any interest
<PAGE>
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. 9601, et seq., the Federal Resource Conservation and Recovery
Act, as amended, 42 U.S.C. 6901 et seq., the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. 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.
"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.
<PAGE>
"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.
"Federal Funds Rate" shall mean, for any day, the rate of interest
per annum equal to the average of the rates on overnight federal funds
transactions with members of the Federal Reserve System offered by
brokers to the Agent at the opening of business for purchase on such day
as determined by the Agent.
"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.
"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:
<PAGE>
(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 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
<PAGE>
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.
"Leverage Ratio" shall have the meaning set forth in Schedule 6.15
to this Agreement.
"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;
<PAGE>
(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.
"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
"LIB" 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).
<PAGE>
"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.
"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 $60,000,000 (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) June 1, 1998 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
<PAGE>
Commitment, which shall be used by the Borrower for general corporate
purposes, including working capital, capital expenditures and
acquisitions. Upon the Borrower's request, 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 the first
anniversary of the Closing Date as to whether the Agent and the Banks
wish to extend the Revolving Credit for an additional period of one year.
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 an Adjusted Base Rate Loan, and a minimum
amount of One Million Dollars ($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 that the Banks will extend the Revolving
Credit beyond June 1, 1998, the Revolving Credit, unless sooner
terminated, shall terminate on June 1, 1998. 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
<PAGE>
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 reimbursed,
shall be deemed to be a Loan made under the Revolving Credit payable on
demand and bearing interest at the Adjusted 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 issued by First Fidelity and are the sole
<PAGE>
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
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 annually in advance on each December 31,
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 one-eighth of
one percent (1/8%) per annum (such rate to become effective as of the
Closing Date) 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 July 1, 1995, provided however, 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, effective as of the
<PAGE>
Closing Date, the Borrower shall pay a fee (the "Facility Fee") to the
Agent, for the benefit of the Banks in their respective Proportionate
Shares, equal to one-eighth of one percent (1/8%) per annum on the total
amount of the Aggregate Commitment payable quarterly in advance on
January 1, April 1, July 1 and October 1 of each year, commencing July 1,
1995 (with a payment at the Closing for the period from the Closing Date
through June 30, 1995).
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) on the Business Day on which any Adjusted Base Rate Loan is desired,
and (b) two 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 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 on
the Business Day on which such Notice of Borrowing referred to in clause
(a) above is received, or two Eurodollar Business Days after such Notice
of Borrowing referred to in clause (b) above is received, 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
<PAGE>
receive a timely Notice of Borrowing, the Borrower shall be deemed to
have given notice for an Adjusted Base Rate Loan in an aggregate amount
equal to the Adjusted LIBO Rate Loan.
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 Adjusted Base Rate, such rate to change when and
as the Base Rate changes; or
(ii) The Adjusted LIBO Rate.
In calculating the Adjusted Base Rate or the Adjusted LIBO Rate, the
Leverage Ratio will be measured as of the last day of each fiscal quarter
and will be used to determine the applicable Adjusted Base Rate or
Adjusted LIBO Rate during the second subsequent fiscal quarter, provided
however, that if the Borrower requests a Revolving Credit Loan which
would increase aggregate Revolving Credit Loans outstanding by more than
$30 million or repays Revolving Credit Loans outstanding by more than $30
million during any period of thirty (30) consecutive days, any such
request or repayment shall be accompanied by a certificate signed by the
chief financial officer or chief accounting officer of the Borrower
calculating the Leverage Ratio as of the end of the previous month but
including such additional borrowing or repayment, and the calculation of
the Adjusted Base Rate or the Adjusted LIBO Rate (as to Adjusted LIBO
Rate Loans made or rolling over thereafter) will be based upon such
Leverage Ratio effective as of the date on which such aggregate increase
or decrease in Revolving Credit Loans exceeds $30 million.
(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 Adjusted Base Rate in effect on each day shall apply
to the Advances bearing interest at such rate on such day.
<PAGE>
(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
Adjusted LIBO Rate Loan, the request for such Loan shall be deemed a
request for a one-month Interest Period in respect of any such Adjusted
LIBO Rate Loan.
(f) No more than five Adjusted LIBO Rate Loans shall be
outstanding at any one time. If at any time there are five 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 additional Adjusted LIBO Rate Loans.
(g) The Borrower shall pay interest in arrears on Adjusted
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 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;
<PAGE>
(c) all unpaid interest accrued under an expiring
Interest Period must be paid by the Borrower when due and no conversion
of an Adjusted 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) Adjusted 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 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;
<PAGE>
(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 Adjusted 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 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.
<PAGE>
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.
(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.
<PAGE>
(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 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 by the Guarantor 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.
<PAGE>
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
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 25, 1994 and the related consolidated
statement of income for the period then ended, together with notes
thereto and the unqualified report thereon, dated February 15, 1995 of
Coopers & Lybrand, LLP; and the unaudited balance sheet of the Borrower
and its consolidated Subsidiaries as of March 26, 1995 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).
<PAGE>
(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.
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 March 25, 1995, 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.
<PAGE>
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, 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.
<PAGE>
(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,
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:
<PAGE>
(a) This Agreement duly executed by the Borrower and the other
parties hereto;
(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);
<PAGE>
(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
(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;
(c) within forty-five days after the end of each quarterly
period (other than the fourth quarter) in each fiscal year, an unaudited
<PAGE>
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 other than the fourth quarter, and within 90 days after the end
of each fourth 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 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.
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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.
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.
<PAGE>
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 $4,000,000 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 $2 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
(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.
<PAGE>
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.
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.
<PAGE>
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) Eligible Investments; (ii)
loans, advances, or investments in Subsidiaries at least eighty percent
(80%) of the stock of which is owned directly or indirectly by the
Borrower; (iii) loans, advances or investments by the Borrower to or in
the Guarantor or any Subsidiary; (iv) purchases of stock or other
securities of corporations which become Subsidiaries of the Borrower as a
result of such purchase; and (v) other loans and investments not
authorized specifically by Borrower's corporate investment policy as it
exists on the date hereof but which are permitted by, and approved in
accordance with, Section 8.0 of such policy, not exceeding $1,000,000.00
in aggregate book value outstanding at any time.
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.
<PAGE>
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 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 in which the Borrower or
any Subsidiary was lessor and which were sold by the Borrower or any
Subsidiary with recourse ("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
<PAGE>
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 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 the date (a) 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.
<PAGE>
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 $1,000,000
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.
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 or Judgments, in the aggregate, exceeds
One Million Dollars ($1,000,000.00) 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.
<PAGE>
(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.
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;
<PAGE>
(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 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.
<PAGE>
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 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,
Adjusted 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.
<PAGE>
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 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)
<PAGE>
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 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.
<PAGE>
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
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.
<PAGE>
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 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 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.
<PAGE>
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 by any of the methods specified in clauses (i), (ii)
and (iii) of this sentence, to the following addresses:
<PAGE>
If to the Borrower:
Checkpoint Systems, Inc.
101 Wolf Drive
Thorofare, NJ 08086
Attn: Mr. Jeffrey A. Reinhold
Vice President and Treasurer
Fax: (609) 848-2042
With a copy to:
Checkpoint Systems, Inc.
101 Wolf Drive
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
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.
<PAGE>
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.
12.4 Late Payment Fee. The Borrower shall pay a late payment fee in
an amount equal to two percent (2%) 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.
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.
<PAGE>
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
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;
<PAGE>
(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 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
<PAGE>
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 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.
<PAGE>
(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
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:
$25,000,000
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>
$20,000,000 MIDLANTIC BANK, N.A.
By:
Title:
ADDRESS: 6000 Midlantic Drive
P.O. Box 6000
Mt. Laurel, NJ 08054
Attention: John T. Callaghan
Vice President
<PAGE>
$15,000,000 THE FIRST NATIONAL BANK OF BOSTON
By:
Title:
ADDRESS: 100 Federal Street
Mail Stop 01-09-05
Boston, MA 02106
Attention: J. Peter Mitchell
Director
$60,000,000 Aggregate Commitment
<PAGE>
CONSENT AND ACKNOWLEDGEMENT
The undersigned Guarantor, intending to be legally bound, hereby
consents to the foregoing Second Amended and Restated Loan and Agency
Agreement between Checkpoint Systems, Inc., the Agent and the Banks and
is executing this Consent and Acknowledgement to acknowledge such Second
Amended and Restated Loan and Agency Agreement and to join in and be
bound by the provisions of Articles VI and VII hereof which are
applicable to the Guarantor.
Attest: CHECKPOINT SYSTEMS OF PUERTO RICO, INC.
By: By:
Title: Title:
