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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 1-9335
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SCHAWK, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 36-2545354
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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1695 RIVER ROAD
DES PLAINES, ILLINOIS 60018
(Address of principal executive office)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 847-827-9494
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Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class: Name of Exchange on Which Registered:
CLASS A COMMON STOCK, NEW YORK STOCK EXCHANGE
$.008 PAR VALUE
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Indicated 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 [ ]
Indicated by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value on March 15, 2000, of the voting stock held by
non-affiliates of the Registrants was approximately $57,308,491
The number of shares outstanding of each of the issuer's classes of common stock
as of March 15, 2000, are: 21,205,101 shares, Class A Common Stock, $.008 par
value
DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENT PART AND ITEM NUMBER OF FORM 10-K INTO WHICH INCORPORATED.
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1. Proxy Statement for the 1999 Annual Part III, Items 10, 11, 12 and 13.
Meeting of Stockholders to be held May 24,
2000 (the "Proxy Statement").
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SCHAWK, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
DECEMBER 31, 1999
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 10
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5. Market for the Registrants' Common Stock and Related
Stockholder Matters......................................... 12
Item 6. Selected Financial Data..................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14
Item 7a. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 18
Item 8. Financial Statements and Supplementary Data................. 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures................................... 38
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 38
Item 11. Executive Compensation...................................... 38
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 38
Item 13. Certain Transactions........................................ 38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 38
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PART I
ITEM 1. BUSINESS
THE COMPANY
Schawk, Inc. ("Schawk" or the "Company") has one current operating business
segment, Digital Imaging Graphics Arts for consumer products packaging and
advertising and promotional applications. The Company is incorporated under the
laws of the State of Delaware.
BUSINESS
GENERAL
The Company is the largest independent provider of digital imaging prepress
services to the consumer products packaging market in the world. The Company's
facilities produce conventional, electronic and desktop color separations,
creative design, art production, electronic retouching, conventional and digital
platemaking and digital press proofs for the three main printing processes used
in the graphic arts industry: lithography, flexography and gravure. The
Company's services also include both digital and analog image database archival
and management as well as digital photography and various related outsourcing
services. These services require skilled, highly trained technicians applying
various computerized design, manipulation and assembly techniques. The
preparation of film, digital tape and press proofs for lithography, flexography
and other printing processes related to packaging accounted for over 70% net
sales during 1999, 1998 and 1997. The balance of the Company's business consists
of the production of similar, advertising and promotional applications.
The Company has particular expertise in preparing color images for high
volume print production runs of consumer products packaging. The Company
functions as a vital interface between its Fortune 1000 consumer products
clients, their creative designers and their converters or printers in assuring
the production of consistent, high quality packaging materials in increasingly
shorter turnaround and delivery times. The Company's ability to provide high
quality, customized prepress services quickly makes it a valued player in new
product introduction and promotional activity.
The Company maintains both digital and analog data archives of product
package layouts and designs as a value-added service which improves the
Company's efficiency in accommodating clients' rapidly changing packaging design
modifications and product line extensions. By continuing to provide such
high-end, value-added services, the Company commands a significant share of the
market for prepress services for the food and beverage industry, which uniquely
positions it to benefit from positive industry trends.
The Company believes that its clients have increasingly chosen to outsource
their imaging needs to the Company because of its: (i) high quality customized
imaging capabilities; (ii) rapid turnaround and delivery times; (iii) up-to-date
knowledge of the printing press specifications of converters and printers
located throughout the United States, Canada, Mexico and Asia, (iv) digital
imaging asset management; (v) art production; and (vi) ability to service its
clients' global prepress requirements through the Company's North American
facilities and international subsidiaries and alliance partners.
PREPRESS SERVICES INDUSTRY
"Prepress services" are the tasks involved in preparing images and text for
reproduction to exact specifications for a variety of media, including packaging
for consumer products, point-of-sale displays and other promotional materials.
Packaging for consumer products encompasses folding cartons, boxes, trays, cans,
containers, packaging labels and wrap. While prepress work represents a
relatively small percentage of overall product packaging and promotion costs,
the visual impact and effectiveness of product packaging and promotions are
largely dependent upon the quality of prepress work.
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Prepress services do not entail the actual printing or production of such
packaging materials, but rather include the various preparatory steps such as
art production design, digital photography, retouching, color separation and
other platemaking services, for use in lithography, flexography and gravure.
"Color separation" refers to preparing color images, text and layout for the
printing process. Prepress services such as color separation work have
traditionally been performed by skilled craftspeople almost entirely by hand,
using what is known as the "conventional" method. With the development of
digital technology, prepress firms such as the Company have become almost
totally computerized, relying instead on digital imaging, in which digitized
images and text are manipulated according to client and converter
specifications. On an increasing basis, clients supply material to the Company
in a digitized format on a variety of media, including tape, floppy disk, CD-ROM
and via the Internet. More recently there is a trend toward an all digital work
flow, from creative design through printing. The most recent innovation is the
production of plates directly from a digital file, hence the term "direct to
plate" (DTP) or "computer to plate" (CTP). This innovation eliminates the step
of preparing photographic film and exposing the film on a plate. This CTP
technology is more precise and reduces the time to produce a printing plate.
The prepress industry in North America has over 1,300 market participants,
principally independent color separators, such as the Company, converters,
printers and consumer products companies that perform these services in-house.
The majority of prepress providers specialize in high volume, commodity-oriented
publication work that includes textbooks, advertising, catalogs, newspapers and
magazines. The Company's target market, however, is high-end packaging for the
consumer products industry. The North American market for prepress services for
packaging to the consumer products industry is estimated by the Company to range
from $1.5 billion to $1.7 billion, while the worldwide market is estimated by
the Company to be as high as $6.0 billion. The consumer products prepress
industry is highly fragmented with hundreds of market participants, only a small
number of which have annual revenues exceeding $30.0 million. The Company
believes that the number of participants in the North American prepress market
for the consumer products industry will diminish due to consolidation and
attrition caused by competitive forces such as accelerating technological
requirements for advanced systems, equipment and highly skilled personnel and
the growing demands of clients for full-service global capabilities.
The rapid development of lower-cost, faster desktop publishing software
systems has increased the potential for competition in the prepress industry by
lowering barriers to entry relating to equipment costs. However, this
development has also resulted in the proliferation of software systems, many of
which have created training issues. Frequent changes in software necessitates
continuous training and education and investment in faster equipment. It has
also created the demand from clients for increasingly faster turnaround and
delivery times. As technology advances in the imaging industry, speed has
become, and continues to be a significant differentiator between the Company and
its competition.
There is also a more significant barrier to entry that has always
existed -- hundreds of "technician years" of expertise in working with all of
major printers and convertors to make sure a package is printed according to the
client's specifications. For this reason, new upstarts have difficulty competing
with Schawk.
The Company focuses on three primary markets: consumer product packaging,
advertising agencies, and promotion. The food and beverage segment of the
consumer products industry has packaging requirements that are complex and
demanding due to variations in packaging materials, shapes and sizes, custom
colors, varying storage conditions and marketing enhancements. Product
extensions and frequent packaging redesigns have resulted in an increasing
volume of color separation and related work in the consumer products industry
and in particular for the food and beverage segment. Additional industry trends
include: (i) the shorter turnaround and delivery time requirements from the
creative design phase to final distribution of the packaged product; (ii) an
increasing number of SKUs competing for shelf space and market share; (iii) the
increasing importance of package appearance and promotions due to demonstrated
point-of-sale consumer purchasing behavior; and (iv) the increasing requirements
for worldwide quality and consistency in packaging as companies attempt to build
global brand name recognition. Increasingly, the advertising and promotion
markets require coordination of these efforts, with the initiatives coming from
advertising agencies. The Company's expansion into these markets strengthens and
enhances the overall service offering to the unified marketing approach of our
clients.
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Meeting the requirements of the advertising and promotional business
demands production of work under extremely short timelines, usually in under 24
hours. Creative retouching, color correction and composition in multiple file
formats are produced to meet requirements of the printers. The Company is a
leader in conventional, computer to plate and digital ad delivery to
publications.
THE COMPANY'S GROWTH STRATEGY
The Company's primary goal is to enhance its leadership positions in the
prepress imaging market serving the consumer products, advertising and promotion
markets. Key aspects of the Company's business strategy to achieve this goal
include the following:
- Growth through Acquisitions and Start-up Operations. The Company's
profitability and ready access to capital have enabled it to make
strategic acquisitions of companies that range in size from $2 million to
$20 million in revenues. In its 45-year business history, the Company has
integrated more than 43 prepress and imaging businesses into its
operations while streamlining overhead and improving margins in the
aggregate. The Company acquired 8 businesses in 1999 with combined
annualized revenues of in excess of $37 million. These acquisitions are
part of the Company's growth strategy to acquire market niche companies
with Fortune 1000 client lists, excellent client service or proprietary
products and solid management who will continue to operate the business
after the acquisition. These managers of acquired businesses receive
performance incentives to continue to profitably grow the business.
The Company intends to continue expanding through acquisitions of
well-managed companies with solid market positions a reputation for
quality work and established client lists. Schawk believes that an
emphasis on complementary acquisitions of companies serving targeted
markets will allow it to broaden its service offerings and provide single
source prepress and imaging and image database services to its clients.
The Company believes it has greater versatility in meeting the various
requirements of its clients than smaller, less integrated competitors
lacking technical expertise, and that this versatility will result in
greater opportunities for internal growth as well as enhancing the
Company's image as an attractive purchaser for potential consolidation
candidates. Schawk believes that there will continue to be a number of
attractive acquisition candidates in the fragmented and consolidating
industry in which it operates. The Company expects to strengthen its
market position by applying its management and operational philosophies
and practices, which have been successful in its graphic arts businesses,
to newly acquired businesses.
The Company has also had some success in establishing start-up operations
in response to client and market requirements. Schawk intends to continue
this strategy as opportunities warrant. See "-- Acquisitions and Start-up
Operations."
- Exploitation of Industry Trends; Outsourcing. The Company has
historically attempted to strengthen its market position by identifying
and exploiting industry trends. As a consequence, the Company has been
uniquely positioned to benefit as consumer products companies continue to
reduce both their prepress staffs and total number of suppliers. The
Company's on-site strategy developed as clients outsource imaging
functions in an attempt to cut costs and improve turnaround and delivery
times. The Company intends to expand this effort, as clients increasingly
require on-site service. As of December 31, 1999 the Company had 41
on-site locations staffed by over 130 Schawk employees, approximately 9%
of our total workforce. Further, the Company believes that its commitment
to client service and its broad array of premium service offerings
position the Company as a cost effective, value-added supplier of digital
imaging services. As clients continue to cut their staffing levels, they
are expanding the number of services required of their prepress
suppliers. As a result, fewer of the Company's competitors have the full
complement of capabilities required in the marketplace. The Company
believes outsourcing trends will continue.
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Exploitation of Technology Advancements: The Company is dedicated to
keeping abreast of and initiating technological process developments in
its industry. To build upon its leadership position, the Company actively
evaluates systems and software products of various computer and software
manufacturers and also independently develops software for implementation
at its operating facilities. The Company continually invests in new
technology designed to support its high quality prepress services. The
Company concentrates its efforts on understanding the systems and
equipment available in the marketplace and creating solutions using
off-the-shelf products, customized to meet a variety of specific client
and internal requirements.
MANAGEMENT PHILOSOPHY
The Company believes that by adhering to its management philosophy, the
Company has gained in market share and improved margin performance in its core
business. The proof of the strength of its management philosophy is the fact
that the company increased sales and had operating income in its digital imaging
business in 18 of the last 21 years. The Company's management philosophy
incorporates the following key concepts:
Total Quality Management. A cornerstone of the Company's management
philosophy is its emphasis on high quality. The Company is committed to the
principles of "Total Quality Management" ("TQM") and stresses to all employees,
regardless of level, the importance of striving to meet or exceed client
expectations. Historically, the Company has been committed to employee training
and technological improvements to achieve this level of performance. Through the
Company's application of TQM, employees have adopted the necessary commitment to
client service that is essential to quick turnaround and consistent delivery of
high quality services and products. Such increased quality results in decreased
costs to clients and the Company in the long run. The Company views itself as a
service provider to its clients. Understanding the needs of its clients and
customizing its services and products is part of the TQM process that has helped
the Company differentiate itself from the competition. Consequently, the Company
makes the necessary investments to ensure that these services continue to meet
the highest quality standards and needs of its clients. A number of the
Company's operations are, or are soon to be, ISO 9000 and/or ISO 9002 certified.
Client Service. Another key component of the Company's management
philosophy has been its commitment to client service. The Company believes that
this commitment has contributed to the confidence and loyalty its clients have
shown. Because of the increasingly competitive markets faced by its clients, the
Company must be flexible enough to modify its operations in order to meet the
specialized needs of its clients. The Company's emphasis on on-site client
representatives and operations helps to address this requirement and has further
solidified existing client relationships.
Employee Training and Investment in Equipment. The Company believes that
its most valuable assets are its employees because its ability to provide
clients with high quality services and products depends upon their dedication
and expertise. The Company provides extensive and continuous training to keep
its employees abreast of the latest technological developments and the
particular needs of its clients. Providing its employees with the latest
equipment, software and training are fundamental to the Company's philosophy.
Technical Expertise. The Company is able to provide its clients with high
quality services and products and quick response time because of its efficient
utilization of state-of-the-art equipment, software, digital server, storage
technology and telecommunication systems. As part of its commitment to maintain
its technological expertise, the Company has historically worked with software
developers to create software that fully addresses the Company's and its
clients' needs. The Company acts as a test site for numerous hardware and
software products. In order to facilitate the exchange of information among its
various facilities, in 1991, the Company established the Schawk Technical
Advisory Board for the purpose of coordinating the research and evaluation of
new technologies in the graphic arts industry. This group continues to be
recognized for its efforts and has been invited to lecture at numerous national
and international symposiums and conferences.
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SERVICES
The Company offers comprehensive, high quality digital imaging prepress
services. The Company's facilities produce conventional, electronic and desktop
color separations, electronic production design, film preparation, platemaking
and press proofs for lithography, flexography and gravure. The Company's
services also include both digital and analog image database archival and
management as well as creative design, art production and various related
outsourcing services.
The Company interfaces between consumer products manufacturers and the
creative designers and converters used by those businesses to produce packaging,
such as folding cartons, boxes, trays, cans, containers, packaging labels and
wrap and related point-of-sale and promotional materials. The Company's services
consist principally of the electronic and digital production of art design,
color separations and color proofs to client and converter specifications and
imaging asset management. These services are an intermediate step between
creative artwork and the actual printing of graphic materials. The production of
color separations requires well-trained and highly skilled technicians applying
various digital and analog image manipulation, assembly and color management
techniques in order to preserve the integrity of the original image when
translated into print and to ensure consistency of the printed materials.
The Company specializes in digital imaging prepress services relating to
the packaging and promotional needs of clients in the consumer products industry
and in the advertising and promotion markets. The Company serves Fortune 1000
companies and their advertising agencies to ensure worldwide quality and
consistency in the packaging and related imagery of their products with the wide
array of consumer products in the marketplace. Because there is no consistent
size, shape, color or packaging material, the Company functions as a network of
custom job shops taking advantage of its size for technical expertise while
being able to respond quickly to the varying needs of global clients.
Image quality and consistency and ever-shortening response and delivery
times are becoming increasingly important to consumer products manufacturers as
packaging assumes a greater role in promotion. While prepress work represents a
relatively small percentage of overall packaging costs, the visual impact and
effectiveness of product packaging is largely dependent upon the quality of the
prepress work.
The Company's clients typically outsource their prepress requirements and
assign the Company the responsibility of interfacing with the clients'
designated graphic designers, who design the packaging and the converters or
printers who print and produce the packaging and related materials. The Company
competes on the basis of offering its multi-national client base: (i) high
quality customized imaging; (ii) rapid turnaround and delivery times; (iii)
up-to-date knowledge of the printing press specifications of converters and
printers located throughout the United States and Canada; (iv) digital imaging
asset management; (v) art production; and (vi) the ability to service its
clients' global prepress requirements through the Company's North American
facilities and international subsidiaries and alliance partners.
As technology has created opportunities for quicker production turnarounds
and deliveries, most of the Company's Fortune 1000 consumer products clients
have capitalized on the opportunity to modify their packaging more frequently in
order to customize their promotional activities on a regional, seasonal or
sporting event basis. This activity has greatly increased the importance of
maintaining the integrity of the digital and analog image design and text data
for each package variation.
With its expansion into electronic art production design, the Company is
utilizing its technical expertise to serve clients' requirements in a variety of
outsourcing services including image database archiving, telecommunication and
trafficking. The Company has the capacity to archive and manage past, current
and future package design data and, accordingly, serves as a quick access
library of accurate file data for its clients. The Company is continuously
updating and improving its imaging database management system, called PaRTs(TM)
(Packaging and Resource Tracking system). The Company believes that PaRTs(TM)
enhances a client's ability to manage its imaging assets more efficiently and
with reduced time commitments. When compared to other database management
systems available in the market place, the Company believes that PaRTs(TM)
contributes to the Company's ability to meet its clients' quick turnaround and
delivery times and quality standards.
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The Company has also developed a customized client electronic communication
system called CLICk(TM) (Client Linked Information Centers) for its authorized
clients, designated converters and other authorized personnel. Compatible with
all major platforms and operating systems, CLICk(TM) allows clients to
efficiently communicate with the Company and others on the system using
telephone lines and/or the Internet.
Given the increased computerization of the prepress services industry,
highly trained technicians are essential to the quality of the end product.
Requirements of turnaround speed without a reduction in quality are increasing
as clients strive for differentiation and customization of their products and
brands. Schawk has met these requirements by continuously reinvesting in
technology, training its personnel and establishing numerous satellite on-site
operations to complement its main operating facilities.
To capitalize on market trends, management believes that the Company must
continue to be able to provide clients the ability to make numerous changes and
enhancements with shorter turnaround times than ever before. Accordingly, the
Company has focused its efforts on improving its response times and continues to
invest in rapidly emerging technology and the continuing education of its
employees. The Company also educates clients on the opportunities and
complexities of state-of-the-art equipment and software. The Company believes
that its ability to provide quick turnaround and delivery times, dependability
and value-added training and education programs will continue to give it a
competitive advantage in serving clients who require high volume, high quality
product imagery.
The Company's services are distinguished by its ability to complete
prepress services for packaging designs in increasingly compressed time frames
and with high standards of quality. In order to satisfy client requirements, the
Company is frequently required to provide services in as little as 24 hours. The
following core competencies of the Company are described in more detail below:
- Technical Expertise. The Company places an emphasis on investment in
state-of-the-art systems and equipment and the need for continual
training and development of its employees through programs offered at the
Company-owned training center and operating facilities and on-site at
client locations. The Company has had success in elevating its employees'
competency and its clients' standards to levels requiring the superior
technical expertise and capabilities that distinguish the Company's
services.
- On-Site Personnel. The Company has placed over 130 employees on-site at
or near 41 client locations in an effort to further integrate its
prepress services directly with the client operations. This facilitates
faster turnaround and delivery times and fosters stronger client
relationships.
- Strong Relationships with Converters and Printers. As each client selects
its own converter(s) and/or printer(s) the Company coordinates
extensively with the converter to ensure uniformity in color and
appearance of the printed product packages. Each client generally selects
its printing services on a bid basis. By using the Company as its imaging
specialist, the print/read imagery information is not captive at any one
printer or converter. This affords each client consistent image
replication at any printing site because the Company can supply any
printer or converter with film customized for its printing press.
Additionally, this allows the client to reproduce its image consistently
across many printing sources and it also provides the client with
information as to location and cost of its press runs.
Over the course of its 46-year business history, the Company has developed
strong relationships with many of the major converters and printers in the
United States and Canada.. As a result, the Company has extensive
knowledge of their equipment, thereby enabling the Company to increase the
overall efficiency of the printing process. Internal operating procedures
and conditions may vary from printer to printer, affecting the quality of
the color image. In order to minimize the effects of these variations, the
Company makes necessary adjustments to its color separation work to
account for irregularities or idiosyncrasies in the printing presses of
each of its clients' converters. The Company strives to afford its clients
total control over their imaging processes with customized and coordinated
services designed to fit each individual client's particular needs, all
aimed at ensuring that the color quality, accuracy and consistency of a
client's printed matter are maintained.
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- Imaging Asset Management. The Company maintains and manages a database
for its clients' images and package designs. Once an image is in the
Company's database, the client can make frequent regional, seasonal or
event-related adjustments to the file image prior to printing. The
Company's ability to quickly manipulate digital images enables its
clients to deliver their products to the market faster. The Company's
capabilities also allow it to send an image for output and printing
virtually anywhere in the world. As more and more multi-national consumer
products companies strengthen their international packaging quality
control to enhance their global brand image, they are requiring a more
consistent worldwide image. In response to this trend, the Company is
playing an increasing role in ensuring that its clients' images are
satisfactory and consistent both domestically and internationally. The
acquisition of 65% of the Laserscan Group in September, 1999 with
operations in China, Malaysia and Singapore is indicative of Schawk's
commitment to its clients on a world-wide basis.
ACQUISITIONS AND START-UP OPERATIONS
The Company has acquired and integrated more than 43 prepress and imaging
businesses into its operations since the business was founded in 1953.
Throughout its history, the Company has successfully identified acquisition
candidates that represent market niche companies with Fortune 1000 client lists,
excellent client service or proprietary products and solid management. The
Company favors businesses with management teams that will continue to operate
the businesses as autonomous units. The Company has also commenced a number of
start-up operations over the years when client servicing requirements or market
conditions warranted.
During 1999 the Company made eight acquisitions: Cactus Imaging Centres in
Toronto, Canada; Color One in Cincinnati, OH; Deluxe Engraving in Cincinnati,
OH; Designer's Atelier in New York, NY; Inter-Process Service in Stamford, CT;
The Mackinder Group in New York, NY; Plewes-Bertouche in Toronto, Canada and
Laserscan, with operations in China, Malaysia, and Singapore.
The Company also established a start-up operation in Kobe, Japan.
The Company intends to continue expanding through acquisitions of
well-managed companies with solid market positions and established client lists.
The Company believes that emphasis on complementary acquisitions of businesses
serving targeted markets will allow it to broaden its product offerings and
provide its clients with a single source for imaging and image database
services. The Company will also continue to analyze and investigate start-up
operations on an ongoing basis.
RESEARCH AND DEVELOPMENT
The Company is dedicated to keeping abreast of and, in a number of cases,
initiating technological process developments in its industry that have
applications for packaging. To build upon its leadership position, the Company
is actively involved in system and software technical evaluations of various
computer systems and software manufacturers and also independently pursues
software development for implementation at its operating facilities. The Company
continually invests in new technology designed to support its high quality
prepress services. The Company concentrates its efforts in understanding systems
and equipment available in the marketplace and creating solutions using
off-the-shelf products, customized to meet a variety of specific client and
internal requirements. PaRTS(TM) and CLICk(TM) are examples of the Company's
commitment to systems development.
As an integral part of its commitment to research and development, the
Company has established the Schawk Technical Advisory Board for the purpose of
researching and evaluating new technologies in the graphic arts and
telecommunications industries. The Advisory Board meets formally, at least
quarterly, to review new equipment and programs, then disseminates the
information to the entire Company and to clients as appropriate.
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MARKETING AND DISTRIBUTION
The Company markets its services nationally and internationally through
seminars, newsletters and training sessions targeted at existing and potential
clients. The Company sells its services through a group of approximately 150
direct salespersons and 200 client service technicians who call on consumer
products manufacturers, including those in the food and beverage, home products,
pharmaceutical and cosmetics industries and mass merchant retailers. The Company
has adopted a team approach to marketing, reflective of its TQM philosophy. Both
the Company's salespersons and the Company's client service technicians share
responsibility for marketing the Company's offerings to existing and potential
clients, thereby fostering long-term institutional relationships with its
clients.
In addition to its numerous operations in the United States and Canada, the
Company has operations in Queretaro, Mexico, Kobe, Japan, Malaysia, China and
Singapore through the acquisition of Laserscan, and a network of global
affiliations in Australia, Europe and Asia.
CLIENTS
The Company's clients consist of direct purchasers of color separations,
including end-use consumer product manufacturers and mass merchant retailers,
converters and advertising agencies. Many of the Company's clients, a large
percentage of which are Fortune 1000 companies, are multi-national in scope and
often use numerous converters both domestically and internationally. Because
these clients desire uniformity of color and image quality across a variety of
media, the Company plays a very important role in coordinating their printing
activities by maintaining current equipment specifications regarding its clients
and converters. Management believes that this role has enabled the Company to
establish closer and more stable relationships with these clients. Converters
also have a great deal of confidence in the quality of the Company's services
and have worked closely with the Company to reduce the converters' required
lead-time, thereby lowering their costs. End-use clients often select and
utilize the Company to ensure better control of their packaging or other needs
and depend upon the Company to act as their agent to ensure quality management
of data along with consistency among numerous converters and packaging media.
The Company has established 41 on-site locations at or near clients that require
high volume, specialized service. As its art production services continue to
expand, the Company anticipates that it will further develop its on-site
services to its client base.
Many of the Company's clients place orders on a daily and weekly basis and
work closely with the Company year-round as they frequently redesign product
packaging or introduce new products. While certain promotional activities are
seasonal, such as those relating to summer, back-to-school time and holidays,
shorter technology-driven prepress cycle time has enabled consumer products
manufacturers to tie their promotional activities to regional and/or current
events (such as sporting events or motion picture releases). This prompts such
manufacturers to redesign their packages more frequently, resulting in a
correspondingly higher number of packaging redesign assignments. This
technology-driven trend toward more frequent packaging changes has offset
previous seasonal fluctuations in the volume of the Company's business (also see
"Seasonality and Cyclicality"). In addition, consumer product manufacturers have
a tendency to single-source their prepress work with respect to a particular
product line, so that continuity can be assured in changes to the product image.
As a result, the Company has developed a base of steady clients in the food and
beverage industry. During 1999 no single client accounted for more than 5% of
the Company's net sales, and the 10 largest clients in the aggregate accounted
for approximately 28% of net sales.
COMPETITION
The Company's competition comes primarily from other independent color
separators and converters and printers that have prepress service capabilities.
Independent color separators are companies whose business is performing prepress
services for one or more of the principal printing processes. The Company
believes that only two firms, Applied Graphics Technologies, Inc., through it's
Wace Group subsidiary, and Southern Graphics, a subsidiary of Reynolds Metals,
compete with Schawk on a national basis. The remaining independent color
separators are regional or local firms that compete in specific markets. To
remain
8
<PAGE> 11
competitive, each firm must maintain client relationships and recognize, develop
and exploit state-of-the-art technology and contend with the increasing demands
for speed.
Some converters with prepress service capabilities compete with the Company
by performing such services in connection with printing work. Independent color
separators such as the Company, however, may offer greater technical
capabilities, image quality control and speed of delivery. In addition,
converters often utilize the services of the Company because of the rigorous
demands being placed on them by clients who are requiring faster turnaround
times. Increasingly, converters are being required to invest in technology to
improve speed in the printing process and have avoided spending on prepress
technology.
As requirements of speed continue to be critical, along with the
recognition of the importance of focusing on their core competencies, clients
have increasingly recognized that the Company provides services at a rate and
cost that makes outsourcing more cost effective and efficient.
PURCHASING AND RAW MATERIALS
The Company purchases photographic film and chemicals, storage media, ink,
plate materials and various other supplies and chemicals on consignment for use
in its business. These items are purchased from a variety of sources and are
available from a number of producers, both foreign and domestic. Materials and
supplies account for only a small portion of the Company's cost of production,
and no shortages are anticipated. Furthermore, as a growing proportion of the
workflow is digital, the already low percentage of materials in cost of sales
will continue to be reduced. Historically, the Company has negotiated and enjoys
significant volume discounts on materials and supplies from most of its major
suppliers.
INTELLECTUAL PROPERTY
The Company owns no significant patents. The trademarks "Schawk,"
"Clockface and Creole," "CLICk" and "PaRTS" and the trade names "Amber Design,"
"Color Data East," "Schawkgraphics," "Schawk Client Services Group," "Schawk
Prep," "Interchange," "Interchange Digital," "Interchange Digital Management
Services," "Lincoln Graphics," "Litho Colorplate," "LSI/Atlanta," "LSI/Kala,"
"Process Color Plate," "Total Reproductions," "Weston Engraving," "The Palm
Group," "Stebbins Photography," "Blue Barrel," "StanMont," "PrinterNet,"
"CyberImages," "Batten Graphics," "Fishbowl," "Deluxe Engraving,"
"Interprocess," "Mackinder Group," "Schawk Asia," "Schawk Japan," "Laserscan,"
"Laserscan Toyo Flexographic," "Rave Design," and "Xzact" are the most
significant trademarks and trade names used by the Company.
EMPLOYEES
As of December 31, 1999, the Company had approximately 1,600 full-time
employees. Of this number, approximately 30% are production employees
represented by local units of the Graphic Arts International Union and by local
units of the Toronto Typographical Union. The Company's union employees are
vital to its operations. Collective bargaining agreements covering the Company's
union employees in four facilities are subject to renegotiations. Three are
subject to renegotiations during 1999-2000. The Company considers its
relationships with its employees and unions to be good.
BACKLOG
The Company does not have or keep backlog figures as projects or orders are
generally in and out of the facilities within five to seven days. Generally, the
Company does not have contracts with its clients, but maintains client
relationships by delivering timely prepress services, providing technology
enhancements to make the process more efficient and bringing extensive
experience with and knowledge of printers and converters.
9
<PAGE> 12
SEASONALITY AND CYCLICALITY
The Company's digital imaging prepress business for the consumer product
packaging prepress market is not currently seasonal because of the number of
design changes that are able to be processed as a result of speed-to-market
concepts and all-digital workflows. On the other hand, there is a two to three
year cycle for major design changes that the Company has experienced in the last
six years resulting in greater volumes in certain years followed by more modest
volumes as only small changes are made before the next major redesign cycle.
With respect to the advertising and promotional markets, some seasonality exists
in that the months of December and January are typically the slowest months of
the year in this market because advertising agencies and their clients typically
finish their work by mid December and don't start up again until mid January.
Advertising and promotion is generally cyclical as the consumer economy is
cyclical. When consumer spending and GDP decreases, ad pages decline. When ad
pages decline the Company's advertising and promotion business declines.
ITEM 2. PROPERTIES
FACILITIES
The Company owns or leases the following office and operating facilities:
<TABLE>
<CAPTION>
LEASE
SQUARE OWNED/ EXPIRATION
LOCATION FEET LEASED PURPOSE DATE DIVISION
- -------- ------------- ------ ------------------ -------------- --------------------
(APPROXIMATE)
<S> <C> <C> <C> <C> <C>
Ardsley, New York.......... 23,200 Leased General Offices, December 2003 Color Data East
Operating Facility
Charlotte, North 4,800 Leased General Offices, September 2004 Schawk Charlotte
Carolina................. Operating Facility
Cherry Hill, New Jersey.... 35,000 Owned General Offices, N/A Lincoln Graphics
Operating Facility
Chicago, Illinois.......... 42,000 Leased General Offices, June 2002 Process Color Plate
Operating Facility Co.
Cincinnati, Ohio........... 9,700 Leased Client Services October 2000 Schawk Cincinnati
Cincinnati, Ohio........... 74,200 Leased General Offices, August 2004 Deluxe Engraving
Operating Facility
Cincinnati, Ohio........... 12,000 Leased General Offices August 2004 Deluxe Engraving
Operating Facility
Cincinnati, Ohio........... 11,425 Leased General Offices May 2000 Color One
Operating Facility
Costa Mesa, California..... 1,625 Leased General Offices, April 2001 929 Design
Operating Facility
Des Plaines, Illinois...... 20,000 Owned Executive Offices N/A Corporate
Des Plaines, Illinois...... 60,000 Leased General Offices, February 2000 Schawkgraphics
Operating Facility
Des Plaines, Illinois...... 8,000 Owned Storage N/A Schawk, Inc.
Franklin Park, Illinois.... 62,000 Owned General Offices, N/A PCP Imaging
Hackettstown, New Jersey... 3,000 Leased General Offices, December 2000 Amber Design
Operating Facility Associates
Kalamazoo, Michigan........ 67,000 Owned General Offices, N/A LSI/Kala
Operating Facility
Kallang Place, Singapore... 4,631 Leased General Offices November 2000 Laserscan (Singapore)
Operating Facility
Kuala Lumpur, Malaysia..... 5,280 Leased General Offices August 2077 Laserscan Sdn Bhd
Operating Facility
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
LEASE
SQUARE OWNED/ EXPIRATION
LOCATION FEET LEASED PURPOSE DATE DIVISION
- -------- ------------- ------ ------------------ -------------- --------------------
(APPROXIMATE)
<S> <C> <C> <C> <C> <C>
Minneapolis, Minnesota..... 31,000 Owned General Offices, N/A Weston Engraving
Operating Facility Company, Inc. Litho
Colorplate, Inc. The
Palm Group Stebbins
Photography
Montreal, Quebec, Canada... 5,000 Leased General Offices, September 2004 StanMont, Inc. XZact
Operating Facility
Montreal, Quebec, Canada... 30,000 Owned General Offices, N/A StanMont, Inc.
Operating Facility
New Berlin, Wisconsin...... 43,000 Leased General Offices, June 2003 S&M Rotogravure
Operating Facility
New York, New York......... 2,000 Leased General Offices, December 2003 Chromart
Operating Facility
New York, New York......... 31,000 Leased General Offices, April 2003 Horan Imaging
Operating Facility Solutions
New York, New York......... 6,000 Leased General Offices, December 2000 Designer's Atelier
Operating Facility
Penang, Malaysia........... 34,000 Leased General Offices March 2057 Laserscan Sdn Berhad
Operating Facility
Penang, Malaysia........... 1,706 Owned General Offices N/A Laserscan
Operating Facility Flexographic
Penang, Malaysia........... 2,330 Owned General Offices N/A Laserscan Technology
Operating Facility
Roseville, Minnesota....... 28,000 Leased General Offices, May 2004 Dimension Imaging
Operating Facility
Shanghai, China............ 9,468 Leased General Offices September 2000 Toyo Laserscan
Operating Facility Flexographic
Smyrna, Georgia............ 25,200 Leased General Offices, October 2003 LSI/Atlanta
Operating Facility
Stamford, Connecticut...... 2,600 Leased General Offices, May 2001 Intergraphx, Inc.
Operating Facility
Stamford, Connecticut...... 20,000 Leased General Offices, August 2004 Inter-Process
Operating Facility Services, Inc.
Toronto, Ontario, Canada... 30,000 Leased General Offices, December 2004 Batten Graphics
Operating Facility CyberImages
Toronto, Ontario, Canada... 6,000 Leased General Offices, October 2003 Design Partners
Operating Facility
Toronto, Ontario, Canada... 53,000 Leased General Offices, October 2003 Herzig Sommerville
Operating Facility
Toronto, Ontario, Canada... 496 Leased General Offices, September 2000 Cactus Imaging
Operating Facility Centres
Toronto, Ontario, Canada... 17,500 Leased General Offices, November 2007 Cactus Imaging
Operating Facility Centres
Toronto, Ontario, Canada... 5,300 Leased General Offices, August 2003 Plewes-Bertouche
Operating Facility Design Group
</TABLE>
11
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
From time to time, the Company has been a party to routine pending or
threatened legal proceedings and arbitrations. The Company insures some, but not
all, of its exposure with respect to such proceedings. Based upon information
presently available, and in light of legal and other defenses available to the
Company, management does not consider the liability from any threatened or
pending litigation to be material to the Company. The Company has not
experienced any significant environmental problems.
As a part of the final settlement of certain stockholders' litigation
against the Company and its directors relating to the merger with Filtertek,
Inc. on December 30, 1994, Clarence W. Schawk and David A. Schawk transferred
159,521 shares of Class A Common Stock to a settlement fund for the benefit of
settlement class members. The shares are subject to a put agreement whereby the
class members may require the Company to purchase the shares at a price ranging
from $7.00 to $9.50 per share. The actual price depends upon the time of
exercise over the exercise period which begins on the final settlement date and
ends on the later of the second anniversary of the final court approval of the
settlement agreement (which occurred on May 21, 1997) or 180 days after the
shares are distributed to class members. Shares were distributed to class
members in March, 1999.
The settlement involves no expenditure or payment by Schawk other than the
$80,000 for expenses and possible contingent expenditures by Schawk in respect
to any stock buybacks. There also is no issuance of capital stock by Schawk,
however, current accounting rules and SEC regulations require Schawk to take a
nonoperating charge in connection with this settlement in the amount of
approximately $1.4 million. This amount was included in the discontinued
operations charge taken by Schawk during 1996, in connection with the sale by
Schawk of its Plastics Group.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No items were submitted to a vote of security holders for the three months
ended December 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
SCHAWK, INC. SUPPLEMENTAL STOCKHOLDER INFORMATION QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- ------------- ------------ --------- -------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $31,011 $34,050 $37,692 $42,636 $41,977 $44,453 $47,188 $51,186
Cost of sales........ 16,352 18,334 20,577 23,841 23,513 25,907 27,127 31,639
------- ------- ------- ------- ------- ------- ------- -------
Gross Profit......... 14,659 15,716 17,115 18,795 18,464 18,546 20,061 19,547
Net income........... 3,952 5,019 4,285 4,442 4,064 3,598 3,518 618
Earnings per share(a)
Basic.............. 0.45 0.23 0.19 0.20 0.19 0.17 0.17 0.03
Diluted............ 0.45 0.22 0.19 0.20 0.19 0.17 0.17 0.03
</TABLE>
- ---------------
(a) Included in earnings per share for the quarter ended March 31, 1998 is $0.27
for the discount on redemption of preferred stock.
12
<PAGE> 15
DIVIDENDS DECLARED
<TABLE>
<CAPTION>
PER CLASS A
COMMON SHARE
-----------------
QUARTER ENDED: 1999 1998
- -------------- ------- -------
<S> <C> <C>
March 31.................................................... $0.0650 $0.0650
June 30..................................................... 0.0650 0.0650
September 30................................................ 0.0650 0.0650
December 31................................................. 0.0325 0.0650
------- -------
Total............................................. $0.2275 $0.2600
======= =======
</TABLE>
STOCK PRICES
<TABLE>
<CAPTION>
QUARTER ENDED: 1999 HIGH/LOW 1998 HIGH/LOW
- -------------- ----------------- ----------------
<S> <C> <C>
March 31........................................... $14 1/8 - 7 1/8 $12 7/8 - 9 3/8
June 30............................................ 12 15/16 - 8 7/16 17 3/8 - 12
September 30....................................... 11 1/16 - 8 3/16 16 1/2 - 13 1/4
December 31........................................ 9 3/4 - 7 15/16 15 3/8 - 12 7/8
</TABLE>
The Registrant's stock is listed on the NYSE. The Registrant has
approximately 997 stockholders of record as of March 15, 2000.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT
INFORMATION(a)
Net Sales............................. $184,804 $145,389 $116,053 $ 90,763 $ 87,204
Operating Income...................... 23,661 28,308 19,865 13,373 11,022
Income From Continuing Operations
Before Income Taxes................ 20,038 29,748 20,446 9,056 7,243
Income Taxes.......................... 8,240 12,050 8,297 3,530 945(d)
Income From Continuing Operations..... 11,798 17,698 12,149 5,526 6,298
Income From Continuing Operations Per
Common Share(b)
Basic.............................. $ 0.55 $ 1.07 $ 0.56 $ 0.22 $ 0.26
Diluted............................ 0.55 1.06 0.55 0.22 0.26
CONSOLIDATED BALANCE SHEET
INFORMATION(c)
Working Capital....................... $ 22,364 $ 35,453 $ 26,283 $ 21,881 $ 26,875
Total Assets.......................... 177,261 138,510 126,923 160,840 184,463
Long-Term Debt, Capital Lease
Obligations and Redeemable
Preferred Stock.................... 67,494 39,619 44,854 67,785 75,582
Stockholders' Equity.................. 66,658 65,023 55,908 48,926 76,429
OTHER DATA
Cash Dividends per Common Share(c).... $ 0.2275 $ 0.26 $ 0.26 $ 0.26 $ 0.26
Depreciation and Amortization(c)...... 12,310 7,741 6,949 15,435 16,219
Capital Expenditures(c)............... 17,874 9,508 7,148 16,823 11,027
</TABLE>
- ---------------
(a) On February 7, 1997, the Company sold the Plastics business segment for
$93,485 plus working capital adjustments. The consolidated income statement
information for 1996 and prior has been restated to exclude discontinued
operations.
(b) 1998 earnings per share includes $0.27 for the discount on redemption of
preferred stock.
(c) Includes data from discontinued Plastics Group in 1996 and 1995.
(d) Income taxes in 1995 includes a credit of $1,632 for net operating loss
carry forwards previously recorded.
13
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Statements contained herein that relate to the Company's beliefs or
expectations as to future events relating to, among other things, the
anticipated revenues from recent acquisitions, the success of the Company's
growth strategy, the ability of the Company to exploit industry trends, such as
outsourcing, the Company's exploitation of technological advancements in the
imaging industry, are not statements of historical fact and are forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act and are subject to the "Safe Harbor" created thereby.
Although the Company believes that the assumptions upon which such
forward-looking statements are based are reasonable within the bounds of its
knowledge of its business and operations, it can give no assurance that the
assumptions will prove to have been correct. Important factors that could cause
actual results to differ materially and adversely from the Company's
expectations and beliefs include the level of business activity at the Company's
clients and the ability of the Company to implement its growth strategy, to
identify and exploit industry trends and to exploit technological advances in
the imaging industry.
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of selected items in the Company's consolidated income
statement:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 56.2 54.4 58.5
Gross profit................................................ 43.8 45.6 41.5
Selling, general and administrative......................... 25.7 25.3 25.9
Goodwill amortization....................................... 1.0 0.8 1.1
Restructuring and other charges............................. -- -- 1.7
Operating income............................................ 17.1 19.5 12.8
Income before income taxes.................................. 17.6 20.5 10.8
Net income.................................................. 10.5% 12.2% 6.4%
</TABLE>
1999 COMPARED TO 1998
Net sales. Net sales for 1999 increased 27.1% to $184.8 million from $145.4
million in 1998. The increase in revenues was all attributable to revenues from
acquisitions in 1999. The market for digital imaging for high end consumer
product packaging was soft throughout 1999. As a result, lower than anticipated
volumes were experienced throughout the year at both the Company's historical
operations and at its acquired businesses.
Operating income. Operating income decreased 16.4% to $23.7 million in 1999
from $28.3 million in 1998. Excluding restructuring and other charges, operating
income decreased 5.4% to $26.0 million in 1999 from $28.3 million in 1998. The
lower operating income was due to lower volumes at most of the Company's
divisions in 1999. The Company has acquired 13 businesses over the last two
years. As part of the Company's continuing process of integrating these
businesses and improving the profitability of all of its 25 divisions, it is
moving aggressively toward consolidating certain operations. The Company has
identified certain operations that will be combined and/or moved and the costs
related to the combinations and relocations resulted in a $2.2 million dollar
pretax charge in the fourth quarter. A restructuring plan has been adopted to
accomplish these changes. In addition, the Company has identified certain assets
that will be written down to reflect the impairment of these assets, caused by
among other things, replacement with newly acquired technically advanced
hardware and software that provided more efficient throughput, rendering
existing equipment obsolete. This charge is $0.9 million on a pretax basis.
Cost of sales for 1999 increased as a percent of sales to 58.5% from 54.4%
for 1998 because of reduced efficiencies from the reduced volumes. Selling,
general and administrative expenses increased as a percentage
14
<PAGE> 17
of sales to 25.9% in 1999 from 25.3% for 1998 as a result of a full year of
higher commission costs in the businesses acquired in 1998 that serve the
advertising and promotional markets.
Restructuring. The Company acquired thirteen businesses in the last 22
months. As a result, the Company has multiple businesses operating in certain
geographic areas. After a review of all of the Company's operations in the
fourth quarter of 1999, management of the Company decided to consolidate certain
operations.
In addition, due to the soft market experienced by the industry in 1999,
the Company reviewed all of its new and existing operations and developed a
restructuring plan that resulted in a reduction in staffing levels at certain
operations.
Restructuring of existing operations. In the fourth quarter of 1999,
the Company approved a restructuring plan ("the Plan") and recorded a
charge of $2.2 million, consisting of $1.7 million of lease termination
costs and $0.5 million of severance costs. This charge relates to the
planned consolidation of four facilities in the following states: Illinois,
Ohio (two facilities consolidating into one) and New York. The
consolidations were started in December 1999, and are scheduled to be
completed by September 30, 2000. With regard to workforce reductions, a
total of 50 employees were laid off at four existing facilities either as
part of an early retirement program or as normal terminations. In addition,
the Plan included eleven layoffs at an operation in Wisconsin due to lower
sales volumes. All of the above is described in more detail in the
following paragraphs.
The Illinois facility will be relocated to a facility that will
provide a more efficient layout for the operations as well as improved
access to the Company's distribution channels. The existing lease, which
expires in June 30, 2002, is with a related party who is in the process of
selling the building. Based on a review of the current market demand for
the area, it has been estimated that the building will be sold by December
31, 2000. Therefore, although there is no assurance the building will be
sold by December 31, 2000, $245,000 representing rent charges to December
31, 2000 has been recorded as part of restructuring and other expense in
the Statement of Operations.
Certain of the operations of the aforementioned facility are being
consolidated with another Illinois facility. In anticipation of the
Illinois consolidation, a headcount reduction program was carried out that
was completed in the fourth quarter of 1999. There were 24 affected
employees (approximately 12% of the combined Illinois workforce). This
program had two components: normal terminations and early retirements. The
normal terminations required a charge of $46,000. The early retirements
required a charge of $365,000. Both of these amounts are included in the
restructuring charge.
In New York, the Company had leased a facility in 1999 to enter a new
market related to the large format imaging needs of its food and beverage
clients in the East Coast market. The market had not developed as fast as
Company Management had anticipated and monthly losses were being incurred
at the facility. In addition, several months after opening the new
facility, the Company acquired a business in Stamford, Connecticut in
September 1999. In December 1999, in connection with the Plan, the Company
decided to close the new large format facility and move the operation in
with the Stamford operation to reduce costs. The New York facility will be
vacated by April 30, 2000. The existing lease at the facility to be closed
expires December 31, 2003. Therefore, a charge for lease abandonment cost
of $1.0 million has been included in the restructuring charge which assumes
the Company will be able to sublease at the existing lease rate for half of
the remaining lease term after we vacate the facility. Severance cost at
the business being relocated was $10,000 at December 31, 1999.
The Ohio facility is being vacated and combined with another operation
at a site that the Company is leasing in connection with an acquisition of
a business in Cincinnati in September 1999. The consolidation of operations
is taking place because the Company operates three businesses in the
Cincinnati area and the Plan calls for locating all three businesses at one
site that has excess capacity thereby reducing costs and better
coordinating our efforts in the Mid-East regional marketplace. There are
only nine months left on the current lease, which is with an unrelated
third party. The charge to vacate the current site is approximately
$100,000, which represents rent after vacating the facility, net of
15
<PAGE> 18
estimated recoveries from sublease income. Leasehold improvements of
$75,000 were written off in the restructuring charge in connection with the
relocation as well.
As part of the Plan, the Company carried out a workforce reduction at
an operation in Wisconsin in the fourth quarter resulting in a charge of
$105,000. Eleven employees were terminated (approximately 17% of the
workforce). The operation was experiencing a decline in volume due to a
continued weakness in sales with current customers and weak new business
development results. The workforce reduction creates an ongoing cost
structure that allows the operation to be profitable at the sales volume
level that is expected for the next twelve months.
Restructuring at Acquired Companies. There are two operations that
were acquired in the months of September 1999 and November 1999 that are
part of the Plan. The September acquisition in Stamford, Connecticut is
being restructured (as planned for at the acquisition date), because
certain client accounts that the Stamford operation shared with our New
Jersey operation when the two operations were competitors, are now
consolidating at the Company's New Jersey operation at the request of a
significant client. The client wants all of its work done at one Schawk
facility. Conversely, one customer that was splitting its work between the
two operations has requested that all of their work be handled out of
Stamford going forward. The net impact of both of these volume shifts,
however, is a reduction in sales volume at the Stamford operation. As a
result, as contemplated at the acquisition date, the Company initiated a
workforce reduction in the fourth quarter and eleven employees
(approximately 15% of the workforce) were terminated in November 1999 at a
cost of $35,000. The workforce reduction resulted in an adjustment of
purchase price allocation increasing severance liability and increasing
excess cost over net assets acquired (goodwill) and did not result in a
charge to earnings.
In addition, the Company's second Cincinnati acquisition in 1999,
which was consummated in November 1999, is being restructured. As
contemplated at the acquisition date, the Company is combining all three of
its Cincinnati operations at one location. This consolidation includes the
Company's historical operation moving from the "Ohio facility" described
above in "Restructuring of Existing Operations". The cost of closing the
duplicate facility from the November acquisition will be an adjustment of
the purchase price allocation and not result in a charge to earnings. The
estimated cost of closing the duplicate facility is less than $50,000.
Impairment of machinery and equipment. In connection with the Plan,
the Company performed a comprehensive review of all its fixed assets to
identify any obsolete and impaired assets. As a result of this review,
equipment with a net book value of $0.9 million was deemed to be impaired
and a charge for that amount was recorded in the fourth quarter of 1999.
The single largest dollar item included in the charge related to a short
run digital press that was purchased four years ago in response to the
Company's customers needs. However, the demand for short run products was
not as great as management expected. As a result, the press is idle and a
write down of $357,000 was taken in the impairment charge. The remaining
net book value is at a level that we believe the Company can sell the press
for in the used equipment market.
In addition, two high-end workstations with a net book value of
$81,000 were determined to no longer be in use and are being written off.
The technology that the workstations used is no longer state of the art and
is not as efficient or versatile as more advanced equipment that the
Company uses currently. Therefore, the salvage value was determined to be
negligible.
The balance of the impairment charge relates to over one hundred
individual pieces of equipment or software that for the most part are
obsolete due to the fast pace of change in technology in the graphics arts
industry. These items have been replaced by more modern equipment and as a
result, were determined to have a negligible salvage value and were
therefore written off completely.
Income before income taxes. Income before income taxes for 1999 decreased
32.6% to $20.0 million from $29.7 in 1998. The pretax income margin for 1999 was
12.8% compared with 19.5% in 1998. The reduction in pretax income margin was
primarily due to reduced sales volume, and the restructuring and other charges
previously described. Additionally, interest and dividend income decreased to
$0.6 million in 1999
16
<PAGE> 19
from $2.6 million in 1998 as the Company liquidated its investment portfolio to
provide funds for acquisitions. The Company had gains on the sale of investments
in 1999 of $0.2 million compared with $2.4 million in 1998. Interest expense
increased to $4.4 million in 1999 from $3.6 million in 1998 as the Company's
outstanding debt increased.
Net income. Net income decreased 33.3% to $11.8 million for 1999 from $17.7
for 1998 for the reasons previously discussed.
Earnings per share. Both basic and diluted earnings per share decreased to
$0.55 for 1999 from $1.07 and $1.06 respectively in 1998. A discount on the
redemption of preferred stock increased earnings per share by $0.27 in 1998.
1998 COMPARED TO 1997
Net sales. Net sales from continuing operations for 1998 increased 25.3% to
$145.4 million from $116.1 million in 1997. The increase in sales is
attributable to internal revenue growth of approximately 11.3% and revenue
growth from acquisitions of approximately 14.0%. The internal growth was due to
increased demands related to promotional activities by clients, the continuing
trend by our clients toward consolidating suppliers which has resulted in
additional business for the Company, and new customers won through ongoing sales
and marketing programs.
Operating income. Operating income increased 42.5% to $28.3 million in 1998
from $19.9 million in 1997 due to increased sales volume and increased operating
efficiency. Cost of sales for 1998 decreased as a percent of sales to 54.4% from
56.2% for 1997 as the increased sales volume resulted in increased operating
efficiency. Selling, general and administrative expenses increased $7.0 million
or 22.7% but decreased as a percent of net sales from 26.7% to 26.1% as the
Company was able to leverage the increased sales volume against the
administrative cost structure.
Income before income taxes. Income before income taxes for 1998 increased
45.5% to $29.7 million from $20.5 in 1997. The pretax income margin for 1998 was
19.5% compared with 17.1% in 1997. The improvement in pretax income margin was
primarily due to increased sales volume, the resulting increased operating
efficiencies, and the gain on the sale of investments during the year. The
Company had gains on the sale of investments in 1998 of $2.5 million compared
with $1.3 million in 1997. Interest expense, net of interest income increased by
$.3 million from 1997 to 1998 as the Company's investment portfolio was sold to
provide cash for acquisitions.
Net income. Income from continuing operations and net income increased
45.7% to $17.7 million for 1998 from $12.1 for 1997 for the reasons previously
discussed.
Earnings per share. Basic and diluted earnings per share increased to $1.07
and $1.06, respectively for 1998 from $.56 and $.55 respectively in 1997. A
discount on the redemption of preferred stock increased earnings per share by
$0.27 in 1998. Preferred dividends reduced earnings per share by $0.0 in 1998
and $0.06 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company presently finances its business from available cash and from
cash generated from operations. Cash generated from operations in 1999 totaled
$24.7 million. The Company maintains a $65 million unsecured credit facility,
expiring May 2004, of which approximately $31.5 million was available for
borrowings at December 31, 1999. The Company also maintains a $15 million
unsecured demand line of credit to provide financing and working capital
flexibility. At December 31, 1999, approximately $6.6 million was available for
borrowings under the demand line of credit.
Long-term debt and capital lease obligations increased to $67.5 million at
December 31, 1999 from $39.6 million at December 31, 1998 as the Company
borrowed for acquisitions and other corporate needs.
17
<PAGE> 20
The Company held invested balances of $3.6 million in bond mutual funds and
U.S. Treasury and U.S. Government notes at December 31, 1999. These funds are
available for sale to provide for acquisitions and corporate requirements.
At December 31, 1999, outstanding debt of the Company consisted of: (i)
unsecured notes issued pursuant to a Note Purchase Agreement dated August 18,
1995, for $35.0 million with terms ranging from 2000 through 2005 (averaging
seven years) at an average interest rate of 6.92%; and (ii) $33.4 million of
borrowings under the Company's unsecured credit facility; and (iii) $8.4 million
of borrowings under its demand credit line.
Management believes that the level of working capital is adequate for the
Company's liquidity needs related to normal operations both currently and in the
foreseeable future, and that the Company has sufficient resources to support its
growth, either through currently available cash, through cash generated from
future operations or through short-term financing.
The Company had capital expenditures in 1999 of $17.9 million, in 1998 of
$9.5 million, and in 1997 of $7.1 million. Capital expenditures made in 1999,
1998, and 1997 were principally for machinery, equipment and computer hardware
and software to expand production facilities and improve productivity, and for
the land and for building renovations.
The Company had depreciation of $10.4 million in 1999, $6.6 million in
1998, and $5.8 million in 1997. Amortization of goodwill totaled $1.9 million in
1999, $1.1 in 1998, and $1.2 million in 1997.
Cash paid for acquisitions totaled $41.6 million in 1999, $28.6 million in
1998, and negligible in 1997.
The Company repurchased $8.2 million of Class A Common Stock during 1999,
$8.1 million during 1998 and $1.8 million during 1997 under a share repurchase
program approved by the Board of Directors.
STOCK OFFERING
In February 1998, the company issued 1,950,000 shares of Class A Common
Stock in an underwritten public offering at a price of $9.00 per share. The
proceeds from the sale of the stock, net of underwriting discounts, commissions
and estimated expenses, were approximately $16.3 million. Proceeds from the sale
of the stock were used to repurchase 15,400 shares of Series A Preferred Stock
of the Company and 5,207 shares of Series B Preferred Stock of the Company.
IMPACT OF INFLATION
The Company believes that over the past three years inflation has not had a
significant impact on the Company's results of operations.
YEAR 2000 ISSUE
The Company made a concerted effort to prepare for the Year 2000 issue and
there was no impact on the Company's hardware or software or other systems in
January 2000 as a result of the date change. Given the above, management of the
Company believe that there will not be any noticeable impact with respect with
the year 2000 issue.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to the Registrant for the reporting period.
18
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS COVERED BY
REPORTS OF INDEPENDENT AUDITORS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Responsibilities for Financial Reporting.......
Report of Independent Auditors..............................
FINANCIAL STATEMENTS
Consolidated Balance Sheets -- December 31, 1999 and
1998...................................................
Consolidated Statements of Operations -- Years Ended
December 31, 1999, 1998 and 1997.......................
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1999, 1998 and 1997.......................
Consolidated Statements of Stockholders' Equity -- Years
Ended December 31, 1999, 1998, and 1997................
Notes to Consolidated Financial Statements................
FINANCIAL STATEMENT SCHEDULES...............................
SCHEDULE II-- Valuation Reserves............................
</TABLE>
19
<PAGE> 22
MANAGEMENT'S RESPONSIBILITIES FOR FINANCIAL REPORTING
The management of Schawk, Inc. is responsible for the preparation and
integrity of all financial statements and other information contained in the
Schawk, Inc. Form 10-K Annual Report. The consolidated financial statements have
been prepared in conformity with generally accepted accounting principles and
necessarily include amounts based on judgments and estimates by management
giving due consideration to materiality. The Company maintains internal control
systems designed to provide reasonable assurance that the Company's financial
records reflect the transactions of the Company and that its assets are
protected from loss or unauthorized use.
The Company's financial statements have been audited by Ernst & Young LLP,
independent auditors, whose report thereon follows. As part of their audit of
the Company's financial statements, Ernst & Young LLP considered the Company's
system of internal control to the extent they deemed necessary to determine the
nature, timing and extent of their audit tests. Management has made available to
Ernst & Young LLP the Company's financial records and related data.
The Audit Committee of the Board of Directors is responsible for reviewing
and evaluating the overall performance of the Company's financial reporting and
accounting practices. The Committee meets periodically and independently with
management and the independent auditors to discuss the Company's internal
accounting controls, auditing and financial reporting matters. The independent
auditors have unrestricted access to the Audit Committee.
/s/ DAVID A. SCHAWK
------------------------------------
David A. Schawk
President and Chief Executive
Officer
Principal Executive Officer
/s/ JAMES J. PATTERSON
------------------------------------
James J. Patterson
Senior Vice President and
Chief Financial Officer
Principal Financial Officer
/s/ DENNIS D. WILSON
------------------------------------
Dennis D. Wilson
Director of Financial Reporting and
Chief Accounting Officer
Principal Accounting Officer
20
<PAGE> 23
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Schawk, Inc.
We have audited the accompanying consolidated balance sheets of Schawk,
Inc. as of December 31, 1999 and 1998, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1999. Our audits also included the financial
statement schedule listed in the index at item 8. These financial statements and
schedule are the responsibility of Schawk, Inc. management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Schawk, Inc. at December 31, 1999 and 1998, and the consolidated results of its'
operations and its' cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Chicago, Illinois
February 15, 2000
21
<PAGE> 24
SCHAWK, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,893 $ 2,226
Short term investments.................................... 3,604 16,137
Trade accounts receivable, less allowance for doubtful
accounts of $636 in 1999 and $730 in 1998.............. 41,441 34,426
Inventories............................................... 7,813 5,948
Prepaid expenses and other................................ 3,629 3,456
Refundable income taxes................................... 252 1,475
Deferred income taxes..................................... 1,197 830
-------- --------
Total current assets.............................. 60,829 64,498
Property and equipment, net................................. 48,777 36,421
Excess of cost over net assets acquired, less accumulated
amortization of $7,180 in 1999 and $5,236 in 1998......... 64,529 34,913
Other assets................................................ 3,126 2,678
-------- --------
Total assets...................................... $177,261 $138,510
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 6,928 $ 6,143
Accrued expenses.......................................... 17,116 11,691
Income taxes payable...................................... 356 2,660
Notes payable to banks.................................... 8,400 2,941
Current portion of long-term debt and capital lease
obligations............................................ 5,665 5,610
-------- --------
Total current liabilities......................... 38,465 29,045
Long-term debt.............................................. 63,370 35,000
Capital lease obligations................................... 4,124 4,619
Other....................................................... 1,013 1,174
Deferred income taxes....................................... 2,403 3,649
Minority interest in consolidated subsidiary................ 1,228 --
Stockholders' Equity:
Common stock.............................................. 182 181
Additional paid-in capital................................ 82,951 80,262
Retained earnings (deficit)............................... 3,410 (3,503)
Accumulated comprehensive loss, net....................... (263) (491)
-------- --------
86,280 76,449
Treasury stock, at cost................................... (19,622) (11,426)
-------- --------
Total stockholders' equity........................ 66,658 65,023
-------- --------
Total liabilities and stockholders' equity........ $177,261 $138,510
======== ========
</TABLE>
See accompanying notes.
22
<PAGE> 25
SCHAWK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $184,804 $145,389 $116,053
Cost of sales............................................... 108,186 79,104 65,244
Selling, general, and administrative expenses............... 47,901 36,834 29,775
Goodwill amortization....................................... 1,944 1,143 1,169
Restructuring and other charges............................. 3,112 -- --
-------- -------- --------
Operating income............................................ 23,661 28,308 19,865
Other income (expense):
Interest and dividend income.............................. 624 2,627 2,980
Interest expense.......................................... (4,424) (3,598) (3,688)
Other income.............................................. 177 2,411 1,289
-------- -------- --------
(3,623) 1,440 581
-------- -------- --------
Income before income taxes.................................. 20,038 29,748 20,446
Income tax provision........................................ 8,240 12,050 8,297
-------- -------- --------
Net income.................................................. 11,798 17,698 12,149
Preferred dividends......................................... -- (114) --
Discount on redemption of preferred stock................... -- 5,832 --
-------- -------- --------
Net income available for common shares............ $ 11,798 $ 23,416 $ 12,149
======== ======== ========
Earnings per share:
Basic..................................................... $ 0.55 $ 1.07 $ 0.56
Diluted................................................... 0.55 1.06 0.55
Dividends per Class A common share.......................... $ 0.22 $ 0.26 $ 0.26
</TABLE>
See accompanying notes.
23
<PAGE> 26
SCHAWK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 11,798 $ 17,698 $ 12,149
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation.............................................. 10,366 6,598 5,780
Amortization.............................................. 1,944 1,143 1,169
Deferred income taxes..................................... (1,613) (1,031) 1,104
Loss on write-off of equipment............................ 869 -- --
Gain realized on sale of marketable securities............ (84) (2,504) (1,316)
Changes in operating assets and liabilities, net of
effects from acquisitions:
Trade accounts receivable.............................. 1,463 (1,445) (3,590)
Inventories............................................ (843) (249) (789)
Prepaid expenses and other............................. 234 47 3,441
Trade accounts payable and accrued expenses............ 1,846 295 (1,381)
Income taxes refundable/payable........................ (1,323) (3,083) 4,061
-------- -------- --------
Net cash provided by (used in) operating
activities...................................... 24,657 17,469 20,628
INVESTING ACTIVITIES
Proceeds from sale of division.............................. -- -- 93,485
Income taxes paid on sale of division....................... -- -- (16,729)
Costs related to sale of division........................... -- -- (4,068)
Proceeds from sale of marketable securities................. 20,116 47,108 12,803
Proceeds from disposal of property and equipment............ -- -- 478
Purchase of marketable securities........................... (7,563) (14,574) (55,513)
Purchases of property and equipment......................... (17,874) (9,508) (7,148)
Acquisitions, net of cash acquired.......................... (41,569) (28,607) --
Other....................................................... 230 1,163 (46)
-------- -------- --------
Net cash provided by (used in) investing
activities...................................... (46,660) (4,418) 23,262
FINANCING ACTIVITIES
Proceeds from debt.......................................... 38,829 -- --
Issuance of common stock.................................... 2,690 16,153 1,306
Redemption of preferred stock............................... -- (14,715) --
Principal payments on debt.................................. (5,000) (1,911) (27,401)
Principal payments on capital lease obligations............. (899) (493) (392)
Principal payments on notes payable to stockholders......... -- -- (5,765)
Cash dividends.............................................. (4,885) (5,893) (6,295)
Purchase of common stock.................................... (8,241) (8,127) (1,804)
Other....................................................... 176 139 --
-------- -------- --------
Net cash provided by (used in) financing
activities...................................... 22,670 (14,847) (40,351)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 667 (1,796) 3,539
Cash and cash equivalents beginning of period............... 2,226 4,022 483
-------- -------- --------
Cash and cash equivalents end of period..................... $ 2,893 $ 2,226 $ 4,022
======== ======== ========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Stock issued in connection with acquisitions................ $ 791 $ 5,017 $ --
Stock options issued in connection with acquisitions........ 700 324 --
Dividends issued in the form of Class A common stock........ 26 21 7
Cash paid for interest...................................... 3,778 3,023 3,847
Cash paid for income taxes.................................. 10,331 15,400 18,365
</TABLE>
See accompanying notes.
24
<PAGE> 27
SCHAWK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 1998, AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL RETAINED ACCUMULATED
COMMON COMMON PAID-IN EARNINGS TREASURY NOTES RECEIVABLE COMPREHENSIVE
STOCK STOCK CAPITAL (DEFICIT) STOCK FROM EMPLOYEES INCOME
------- ------- ---------- --------- -------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996....... $159 $ 9 $ 77,928 $(26,987) $ (1,523) $(660) $ --
Net income......................... -- -- -- 12,149 -- -- --
Cancellation of Class B Common
stock in connection with sale of
Plastics Group................... -- (9) 9 -- -- -- --
Cancellation of notes receivable
from employees in connection with
sale of Plastics Group........... -- -- -- -- -- 660 --
Cash dividends..................... -- -- -- (6,295) -- -- --
Foreign currency translation
adjustment....................... -- -- -- -- -- -- (309)
Conversion of Series A preferred
stock............................ 1 -- (1) -- -- -- --
Issuance of Class A common stock... -- -- 1,307 -- -- -- --
Purchase of Class A treasury
stock............................ -- -- -- -- (1,804) -- --
Issuance of Class A common stock
under dividend reinvestment
plan............................. -- -- -- (7) 7 -- --
Unrealized appreciation on
marketable securities............ -- -- -- -- -- -- 1,274
---- --- -------- -------- -------- ----- -------
BALANCE AT DECEMBER 31, 1997....... $160 $-- $ 79,243 $(21,140) $ (3,320) $ -- $ 965
Net income......................... -- -- -- 17,698 -- -- --
Sale of Class A common stock....... 16 -- 16,137 -- -- -- --
Purchase of Class A treasury
stock............................ -- -- -- -- (8,127) -- --
Foreign currency translation
adjustment....................... -- -- -- -- -- -- (246)
Decrease in unrealized appreciation
of marketable securities......... -- -- -- -- -- -- (1,210)
Issuance of Class A Common stock
under dividend reinvestment
plan............................. -- -- -- -- 21 -- --
Redemption of preferred stock...... -- -- (20,607) 5,832 -- -- --
Issuance of Class A common stock
for acquisitions................. 5 -- 5,012 -- -- -- --
Issuance of Class A restricted
shares to employees.............. -- -- 118 -- -- -- --
Stock options issued in
acquisitions..................... -- -- 324 -- -- -- --
Cash dividends..................... -- -- -- (5,893) -- -- --
Other.............................. -- -- 35 -- -- -- --
---- --- -------- -------- -------- ----- -------
BALANCE AT DECEMBER 31, 1998....... $181 $-- $ 80,262 $ (3,503) $(11,426) $ -- $ (491)
Net income......................... -- -- -- 11,798 -- -- --
Sale of Class A and B common
stock............................ -- -- 47 -- -- -- --
Purchase of Class A treasury
stock............................ -- -- -- -- (8,241) -- --
Issuance of Class A common
restricted shares to employees... -- -- 182 -- -- -- --
Stock options issued in
acquisitions..................... -- -- 700 -- -- -- --
Stock issued under employee stock
purchase plan.................... -- -- 520 -- -- -- --
Foreign currency translation
adjustment....................... -- -- -- -- -- -- 292
Issuance of Class A stock in
connection with acquisition...... 1 -- 790 -- -- -- --
Issuance of Class A common stock
under dividend reinvestment
program.......................... -- -- -- -- 45 -- --
Cash dividends..................... -- -- -- (4,885) -- -- --
Other.............................. -- -- 450 -- -- -- --
Decrease in unrealized appreciation
of marketable securities......... -- -- -- -- -- -- (64)
---- --- -------- -------- -------- ----- -------
BALANCE AT DECEMBER 31, 1999....... $182 $-- $ 82,951 $ 3,410 $(19,622) $ -- $ (263)
==== === ======== ======== ======== ===== =======
</TABLE>
See accompanying notes.
25
<PAGE> 28
SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Schawk, Inc. (the Company) is a leading provider of digital imaging
prepress services for the consumer products industry in North America and Asia.
The Company focuses on providing these services to multi-national clients in
three primary markets: consumer products packaging, advertising agencies and
promotion.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company recognizes revenue at the later of delivery of the goods and/or
services to the customer or the acceptance of the goods and/or services by the
customer.
CASH EQUIVALENTS
Cash equivalents include highly liquid debt instruments and time deposits
with an original maturity of three months or less. Cash equivalents are stated
at cost, which approximates market.
INVENTORIES
Inventories are stated at the lower of cost or market. Certain inventories,
which approximate 31% of total inventories in 1999 and 47% in 1997 are
determined on the last in, first out (LIFO) cost basis. The remaining
inventories are determined on the first in, first out (FIFO) cost basis.
INVESTMENTS
Generally Accepted Accounting Principles require that investments in debt
securities and marketable equity securities be designated as trading,
held-to-maturity or available-for-sale. Management determines the appropriate
classification of its securities at the time of purchase and reevaluates such
designation as of each balance sheet date. All of the Company's investments were
designated as available-for-sale at December 31, 1999. Available-for-sale
securities are carried at fair value, with unrealized gains and losses, net of
income taxes, reported in a separate component of stockholders' equity. Realized
gains and losses and declines in value judged to be other than temporary are
included in investment income. The cost of securities sold is determined by the
specific identification method. Interest and dividends on available-for-sale
securities are included in investment income.
PROPERTY AND EQUIPMENT
Property and equipment, including capitalized leases, is stated at cost,
less accumulated depreciation and amortization and are being depreciated and
amortized using the straight-line method over the estimated useful lives of the
assets or the term of the leases, ranging from 3 to 40 years.
EXCESS OF COST OVER NET ASSETS ACQUIRED
Excess of cost over net assets acquired (goodwill) is being amortized using
the straight-line method over periods with a life of 40 years. The Company
continually evaluates the existence of goodwill impairment on the basis of
whether the goodwill is fully recoverable from projected, undiscounted net cash
flows of the related business unit.
FOREIGN CURRENCY TRANSLATION
The Company's foreign subsidiaries use the local currency as their
functional currency. Accordingly, foreign currency assets and liabilities are
translated at the rate of exchange existing at year-end and income
26
<PAGE> 29
SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and expense amounts are translated at the average of the monthly exchange rates.
Adjustments resulting from the translation of foreign currency financial
statements are included in accumulated comprehensive income (loss) as a
component of stockholders' equity.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. A valuation allowance is provided when it is more likely than not
that some portion of the deferred tax assets arising from temporary differences
and net operating losses will not be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
COMPREHENSIVE INCOME
The components of comprehensive income, net of related tax, for the years
ended December 31, 1999 and 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income.............................................. $11,798 $17,698 $12,149
Increase (decrease) in unrealized appreciation of
available-for-sale securities......................... (64) (1,210) 1,274
Foreign currency translation adjustments................ 292 (247) (309)
------- ------- -------
Comprehensive income.................................... $12,026 $16,241 $13,114
======= ======= =======
</TABLE>
The components of accumulated comprehensive income (loss), net of related
tax, at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Unrealized appreciation of investments...................... $ -- $ 64
Foreign currency translation adjustments.................... (263) (555)
----- -----
Accumulated comprehensive income (loss)..................... $(263) (491)
===== =====
</TABLE>
NOTE 3. RESTRUCTURING
The Company acquired thirteen businesses in the last 22 months. As a
result, in certain markets the Company operates multiple businesses in the same
geographic area. After a review of all of the Company's operations, management
of the Company determined that consolidation opportunities existed in certain of
these geographic markets. In addition, due the soft market experienced by the
industry in 1999, the Company reviewed all of its new and existing operations
and developed a restructuring plan that included reduction of staffing levels at
certain operations.
RESTRUCTURING OF EXISTING OPERATIONS
In the fourth quarter of 1999, the Company approved a restructuring plan
("the Plan") and incurred charges of $2.2 million, consisting of $1.7 million of
lease termination costs and $0.5 million of severance
27
<PAGE> 30
SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
costs. These charges are included in "Restructuring and other charges" on the
Consolidated Statement of Operations. This restructuring includes the planned
shutdown and consolidation of four facilities in the following states: Illinois,
Ohio (two facilities consolidating into one) and New York. The shutdowns and
consolidations were started in December 1999, and are scheduled to be completed
by September 30, 2000. With regard to workforce reductions, a total of 50
employees were laid off at four existing facilities either as part of an early
retirement program or as normal terminations. In addition, the Plan included the
layoff of eleven employees at an operation in Wisconsin due to lower sales
volumes.
RESTRUCTURING AT ACQUIRED COMPANIES
There are two operations that were acquired in the months of September 1999
and November 1999 that are part of the Plan. The September acquisition in
Stamford, Connecticut is being restructured (as planned for at the acquisition
date) and had a workforce reduction in the fourth quarter and eleven employees
(approximately 15% of the workforce) were terminated in November 1999 at a cost
of $35,000. The workforce reduction resulted in an adjustment of purchase price
allocation increasing severance liability and increasing excess cost over net
assets acquired (goodwill).
The second acquisition involved in a restructuring is the Cincinnati
acquisition in November 1999. As contemplated at the acquisition date, the
Company is combining all three of its Cincinnati operations at one location. The
cost of closing the duplicate facility from the November acquisition has been
accounted for as an adjustment of the purchase price allocation. The estimate of
the cost of closing the duplicate facility is approximately $50,000.
NOTE 4. IMPAIRMENT OF MACHINERY AND EQUIPMENT
In connection with the Restructuring, all of the Company's fixed assets
were reviewed to determine whether there were any asset impairments either in
the operations being consolidated or in any other of the Company's operations.
As a result of this review, assets with a net book value of $869,000 were deemed
to be impaired and a charge for that amount was recorded in the fourth quarter
of 1999. All of the assets written down were either equipment or software. The
charge is included as part of "Restructuring and other charges" on the Statement
of Operations. The largest part of the charge related to a short- run digital
press that was purchased in response to the Company's customers need for short
run sales samples and other collateral items. The demand for short run products
was not as great as the Company thought it would be. As a result, the press is
idle and is held for disposal. The press was written down to net realizable
value of $200,000 that resulted in a write down of $357,000. The estimated net
realizable value was determined to be the amount management believes the asset
can be sold for in the used equipment market. The remaining items consist of
equipment which has become obsolete due to technological changes.
NOTE 5. ACQUISITIONS
The following acquisitions made during 1998 and 1999 have been accounted
for using the purchase method of accounting (no acquisitions were made during
1997). Accordingly, the purchase price has been allocated to the respective net
assets acquired based on the fair value of such assets, including certain
noncompete agreements and liabilities as of the date of the acquisitions, and
the results of operations have been included in the accompanying consolidated
statements of operations from the effective date of the
28
<PAGE> 31
SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respective acquisitions. Pro-forma financial information has not been presented
because the effects of the operations of the acquired companies prior to the
date of acquisition were not significant.
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Fair value of assets acquired, net of cash acquired of
$2,043 in 1999 and $2,230 in 1998......................... $11,961 $18,109
Cost in excess of net assets acquired....................... 31,560 22,904
Liabilities assumed......................................... (459) (7,066)
Stock options issued in connection with acquisition......... (700) (324)
Class A common stock issued (82 shares in 1999 and 395
shares in 1998)........................................... (791) (5,016)
------- -------
Cash paid, net of cash acquired............................. $41,569 $28,607
======= =======
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Included in prepaid expenses and other at December 31, 1999 and 1998, was
approximately $2 and $369, respectively, of advances to Geneva Waterfront, Inc.,
which is owned by a stockholder of the Company. Interest is charged on these
balances at the prime rate.
The Company also leases land and a building from a related party, see Note
12.
NOTE 7. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Raw materials............................................... $ 2,521 $ 1,429
Work in process............................................. 6,500 5,706
9,021 7,135
Less: LIFO reserve.......................................... (1,208) (1,187)
------- -------
$ 7,813 $ 5,948
======= =======
</TABLE>
NOTE 8. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Land and improvements....................................... $ 1,211 $ 1,125
Buildings and improvements.................................. 10,112 7,850
Machinery and equipment..................................... 78,655 60,241
Leasehold improvements...................................... 7,014 5,054
Building and improvements under capital leases.............. 7,500 7,500
-------- --------
104,492 81,770
Accumulated depreciation and amortization................... (55,715) (45,349)
-------- --------
$ 48,777 $ 36,421
======== ========
</TABLE>
Accumulated depreciation and amortization includes $3,576 and $3,161 for
building and improvements under capital leases at December 31, 1999 and 1998,
respectively.
29
<PAGE> 32
SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. INVESTMENTS
At December 31, 1999 and 1998 all of the Company's securities were
classified as available for sale. Unrealized appreciation on these securities
totaled $107 ($64 net of tax effect) at December 31, 1998, and is included in
accumulated comprehensive income (loss) in stockholders' equity. For the year
ended December 31, 1999, the value of a bond mutual fund with a cost of $3,972
was determined to be permanently impaired and was written down to fair market
value at December 31, 1999, and a loss of $368 was recorded in other income
(expense) in the accompanying consolidated statement of operations. The
investment was disposed of subsequent to December 31, 1999.
The following table summarizes available-for-sale securities at December
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999
--------------------------------
GROSS
UNREALIZED ESTIMATED
GAINS FAIR
COST (LOSSES) VALUE
------- ---------- ---------
<S> <C> <C> <C>
Bond mutual funds...................................... $ 3,604 $ -- $ 3,604
======= ==== =======
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------------------
GROSS ESTIMATED
UNREALIZED FAIR
COST GAINS VALUE
------- ---------- ---------
<S> <C> <C> <C>
Equity securities and equity mutual funds.............. $ 58 $(31) $ 27
Bond mutual funds...................................... 15,972 138 16,110
------- ---- -------
$16,030 $107 $16,137
======= ==== =======
</TABLE>
During the years ended December 31, 1999 and 1998, marketable equity
securities were sold or determined permanently impaired, which resulted in gross
realized gains of $84 and $2,504 respectively, which are included in other
income in the accompanying consolidated statement of operations.
The following table is a summary of available-for-sale securities at
December 31, 1999 and 1998 by maturity date:
<TABLE>
<CAPTION>
1999
--------------------
ESTIMATED
COST FAIR VALUE
------- ----------
<S> <C> <C>
Due in one year or less..................................... $ 3,604 $ 3,604
======= =======
</TABLE>
<TABLE>
<CAPTION>
1998
--------------------
ESTIMATED
COST FAIR VALUE
------- ----------
<S> <C> <C>
Due in one year or less..................................... $12,344 $12,586
Due after one year through five years....................... 3,628 3,524
Due after five years through ten years...................... 0 0
------- -------
Total debt securities....................................... 15,972 16,110
Equity securities........................................... 58 27
------- -------
$16,030 $16,137
======= =======
</TABLE>
30
<PAGE> 33
SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Accrued compensation and payroll taxes...................... $ 8,460 $ 6,558
Accrued restructuring charges............................... 1,805 --
Other....................................................... 6,851 5,133
------- -------
$17,116 $11,691
======= =======
</TABLE>
NOTE 11. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Series A senior note payable................................ $ 5,000 $10,000
Series B senior note payable................................ 30,000 30,000
------- -------
35,000 40,000
Bank credit agreement....................................... 33,370 --
------- -------
68,370 40,000
Less amounts due in one year or less........................ (5,000) (5,000)
------- -------
$63,370 $35,000
======= =======
</TABLE>
The Series A note bears interest at 6.58% and are payable in annual
installments of $5 million. The Series B note bears interest at 6.98% and are
payable in annual installments of $6 million from 2001 to 2005. The notes may be
prepaid in whole or in part at any time.
The borrowings under the bank credit agreement are unsecured and are at a
floating rate of interest over the Federal Funds or Eurocurrency rates based
upon certain financial ratios. The effective interest rate on these borrowings
was 7.12% at December 31, 1999 (6.14% on approximately $1,870 borrowed through a
Canadian subsidiary). The credit agreement is for $65,000 and expires on May 6,
2004. The Company had approximately $31,630 available to borrow under this line
at December 31, 1999.
Borrowings under the above agreements are subject to certain restrictive
covenants. In addition, the agreements require the Company to maintain certain
net worth and other financial ratio requirements. The fair value of these
obligations approximates carrying value at December 31, 1999 and 1998.
Annual maturities of long-term debt at December 31, 1999 are as follows:
<TABLE>
<S> <C>
2001....................................................... $ 6,000
2002....................................................... 6,000
2003....................................................... 6,000
2004....................................................... 39,370
2005....................................................... 6,000
-------
$63,370
=======
</TABLE>
31
<PAGE> 34
SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has an unsecured $15 million demand line of credit with a bank
in the United States to provide financing and working capital flexibility. At
December 31, 1999, the Company had $8,400 outstanding under this facility.
NOTE 12. STOCKHOLDERS' EQUITY
Stockholders' equity includes the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Common stock:
Class A voting, $0.008 par value, 40,000,000 shares
authorized; 22,907,563 and 22,709,594 shares issued at
December 31, 1999 and 1998, respectively; 21,205,101
and 21,871,458 shares outstanding at December 31, 1999
and 1998, respectively................................. $ 182 $ 181
======= =======
Treasury stock:
1,702,462 and 898,136 shares of Class A common stock at
December 31, 1999 and 1998, respectively............... $19,622 $11,426
======= =======
</TABLE>
The Company also has 1,000,000 shares of Series A and Series B Preferred
stock authorized, of which none were issued and outstanding at December 31, 1999
and 1998.
NOTE 13. INCOME TAXES
The provision (credit) for income taxes for continuing operations is
comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Current:
Federal................................................ $ 7,140 $ 9,571 $6,217
State.................................................. 1,182 1,520 759
Foreign................................................ 1,531 666 216
------- ------- ------
9,853 11,757 7,192
Deferred:
Federal................................................ (1,428) 165 978
State.................................................. (191) 26 120
Foreign................................................ 6 102 7
------- ------- ------
(1,613) 293 1,105
------- ------- ------
Total.......................................... $ 8,240 $12,050 $8,297
======= ======= ======
</TABLE>
32
<PAGE> 35
SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of deferred income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Current deferred income taxes:
Inventory................................................. $ 217 $ 215
Accruals and reserves not currently deductible............ 968 604
Foreign taxes............................................. 12 11
------- -------
Net current asset................................. $ 1,197 $ 830
======= =======
Noncurrent deferred income taxes:
Depreciation.............................................. $ 331 $ 331
Property and equipment acquisition basis differences...... (1,618) (1,618)
Unrealized gains on marketable securities................. -- (43)
Other..................................................... (1,116) (2,319)
------- -------
Net noncurrent liability.......................... $(2,403) $(3,649)
======= =======
</TABLE>
A reconciliation between the provision for income taxes for continuing
operations computed by applying the federal statutory tax rate to income before
incomes taxes and the actual provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income taxes at statutory rate............................. 35.0% 35.0% 35.0%
Nondeductible expenses..................................... 3.4 1.1 --
State income taxes......................................... 4.9 4.8 4.3
Other...................................................... (2.2) (0.4) 1.3
---- ---- ----
41.1% 40.5% 39.0%
==== ==== ====
</TABLE>
Other liabilities accrued in prior years but no longer required have been
reduced during the current year which have lowered the effective tax rate by
approximately 2.2% in 1999.
The undistributed earnings of foreign subsidiaries were approximately
$3,314 and $1,043 at December 31, 1999 and 1998, respectively. No income taxes
are provided on the undistributed earnings because they are considered
permanently reinvested. The foreign component of income before income taxes was
$3,808 for 1999, 1,810 for 1998 and $556 for 1997.
NOTE 14. LEASES AND COMMITMENTS
The Company leases land and a building from an unrelated party. This lease
requires monthly installments of approximately $57 through January 2010. A
related party has an option to purchase the land and building in January 2000.
The Company also leases land and a building from a related party, with
monthly installments of approximately $32 through June 2002. The agreement
contains an option to purchase the land and building at the end of the lease for
90% of fair market value at the end of the lease. The Company is required to pay
utilities, real estate taxes, and insurance on the property on both leases. Both
of these land and building leases are recorded as capital leases.
33
<PAGE> 36
SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also leases various plant facilities and equipment under
noncancellable operating leases that expire at various dates through February
2010. Total rent expense incurred under all operating leases was approximately
$2,490, $1,389 and $971 for the years ended December 31, 1999, 1998 and 1997,
respectively.
Future minimum payments under leases with terms of one year or more are as
follows at December 31, 1999:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
2000........................................................ $1,269 $2,177
2001........................................................ 1,052 2,064
2002........................................................ 790 2,198
2003........................................................ 579 1,792
2004........................................................ 579 577
Thereafter.................................................. 2,931 173
------ ------
7,200 $8,981
======
Less: Amounts representing interest......................... 2,411
------
4,789
Less: Current portion....................................... 665
------
$4,124
======
</TABLE>
NOTE 15. EMPLOYEE BENEFIT PLANS
The Company has various defined-contribution plans for the benefit of its
employees. The plans provide a 100% match of employee contributions based on a
discretionary percentage determined by management. The matching percentage of
wages (as defined) was 5.5% in 1999, 5% in 1998 and 4% in 1997. Contributions to
the plans were $1,780, $1,357 and $987 in 1999, 1998 and 1997, respectively.
The Company is required to contribute to certain defined benefit union
pension plans under various labor contracts covering union employees. Pension
expense related to the union plans, which is determined based upon payroll data,
was approximately $1,145, $1,036 and $777 in 1999, 1998 and 1997, respectively.
NOTE 16. STOCK/EQUITY OPTION PLANS
The Company has an Equity Option Plan that provides for the granting of
options to purchase up to 2,252 shares of Class A common stock to key employees.
The Company has also adopted an Outside Directors' Formula Stock Option Plan
authorizing unlimited grants of options to purchase shares of Class A common
stock to outside directors. Options granted under these plans have an exercise
price equal to the market price of the underlying stock at the date of grant and
are exercisable for a period of ten years from the date of grant and vest over a
three-year period.
34
<PAGE> 37
SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of options outstanding at each of the three years ended December
31, 1999, 1998 and 1997, and other data for the three years then ended under all
option plans is as follows:
<TABLE>
<CAPTION>
OUTSTANDING
OPTIONS OF CLASS A WEIGHTED AVERAGE
COMMON STOCK EXERCISE PRICE
------------------ ----------------
<S> <C> <C>
Balance, December 31, 1996............................ 1,172 8.80
Granted............................................... 269 8.04
Exercised............................................. (160) 8.18
Cancelled............................................. (622) 7.75
-----
Balance, December 31, 1997............................ 659 8.80
Granted............................................... 172 11.88
Exercised............................................. (18) 8.00
Cancelled............................................. (124) 14.87
-----
Balance, December 31, 1998............................ 689 9.29
Granted............................................... 548 10.09
Exercised............................................. (7) 7.00
Cancelled............................................. -- --
-----
Balance, December 31, 1998............................ 1,230 9.65
=====
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED AVERAGE OPTIONS EXERCISABLE
REMAINING ---------------------------------
RANGE OF NUMBER CONTRACTUAL LIFE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE OF
EXERCISE PRICE OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE EXERCISABLE PRICE
- -------------- ----------- ---------------- ---------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
$ 6.00-$ 7.50........ 45 6.0 $ 7.00 45 $ 7.00
7.51- 9.00........ 324 6.7 8.05 320 8.04
9.01- 10.50........ 593 8.1 9.57 297 9.59
10.51- 12.00........ 182 8.3 11.47 119 11.44
12.01- 13.50........ 66 9.0 13.50 23 13.50
13.51- 15.00........ 20 8.4 14.66 13 14.66
----- ---
1,230 817
===== ===
</TABLE>
Options available for grant under the plans were 1,183, 1,563 and 1,717 at
December 31, 1999, 1998 and 1997, respectively. Options exercisable under the
plans were 487 in 1998 and 460 in 1997.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), in accounting for its
employee stock options because, as discussed below, the alternative fair value
accounting provided for under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation (Statement 123)," requires the use
of option-valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the number of shares is fixed and the
exercise price of the Company's employee stock options approximates the market
price of the underlying stock on the date of grant, no compensation is
recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123 as if the Company has accounted for its employee stock
options granted subsequent to December 31, 1994, under the fair value method of
that Statement. For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the vesting period.
35
<PAGE> 38
SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's pro forma information follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Income from continuing operations....................... $11,798 $17,698 $12,149
Pro forma income........................................ 11,147 16,426 11,912
Earnings per share
Basic................................................. $ 0.55 $ 1.07 $ 0.56
Diluted............................................... $ 0.55 $ 1.06 $ 0.55
Pro forma earnings per share
Operations
Basic................................................. $ 0.52 $ 1.05 $ 0.54
Diluted............................................... $ 0.52 $ 1.04 $ 0.54
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option valuation model with the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ----------
<S> <C> <C> <C>
Expected dividend yield.............................. 1.5% 3.0% 3.0%
Expected stock price volatility...................... 33.94% 33.94% 25.7%
Risk-free interest rate range........................ 5.0%-5.7% 5.6%-5.8% 5.8%-6.7%
Weighted-average expected life of options............ 7 years 7 years 7 years
</TABLE>
Option valuation models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate in management's
opinion, the existing method does not necessarily provide a reliable single
measure of the fair value of its employee stock options.
NOTE 17. EARNINGS PER SHARE
Basic earnings per share and diluted earnings per share are shown on the
face of the statement of operations. Basic earnings per share is computed by
dividing net income less preferred dividends by the weighted average shares
outstanding for the year. Diluted earnings per share is computed by dividing net
income less preferred dividends by the weighted average number of common shares
and common stock equivalent shares outstanding (stock options) for the year.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Net income.............................................. $11,798 $17,698 $12,149
Preferred stock dividends............................... -- (114) (1,140)
Discount on redemption of preferred stock............... -- 5,832 --
------- ------- -------
Income available for common shareholders................ $11,798 $23,416 $11,009
------- ------- -------
Weighted average shares................................. 21,421 21,924 19,815
Effect of dilutive employee stock options............... 86 235 96
------- ------- -------
Adjusted weighted average shares and assumed
conversions........................................... 21,507 22,159 19,911
======= ======= =======
Basic earnings per share................................ $ 0.55 $ 1.07 $ 0.56
======= ======= =======
Diluted earnings per share.............................. $ 0.55 $ 1.06 $ 0.55
======= ======= =======
</TABLE>
36
<PAGE> 39
SCHAWK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options to purchase 746 shares of Class A common stock at exercise prices
ranging from $8.62-$15 per share were outstanding at December 31, 1999 but were
not included in the computation of diluted earnings per share because the
options were anti-dilutive. The options expire at various dates through December
31, 2009.
Options to purchase 232 shares of Class A common stock at exercise prices
ranging from $9.75-$15 per share were outstanding at December 31, 1997 but were
not included in the computation of diluted earnings per share because the
options were anti-dilutive. The options expire at various dates through December
16, 2007.
NOTE 19. GEOGRAPHIC REPORTING
The Company operates a single business segment, Imaging and Information
Technologies. The Company operates primarily in two geographic areas, the United
States and Canada. Summary financial information for continuing operations by
geographic area for 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------- -------
<S> <C> <C>
1999
Sales....................................................... $142,702 $40,182
Identifiable assets......................................... 159,097 29,928
1998
Sales....................................................... $123,096 $22,293
Identifiable assets......................................... 119,802 18,708
1997
Sales....................................................... $ 97,964 $18,089
Identifiable assets......................................... 113,166 13,757
</TABLE>
Identifiable assets are those assets that are identified with the
operations in each geographic area and include cash and marketable securities
held at those locations.
NOTE 20. YEAR 2000 ISSUE
The Company made a concerted effort to prepare for the Year 2000 issue and
as a result there was no impact on the Company's hardware or software or other
systems in January 2000 as a result of the date change. Given the above,
management of the Company believe that there will not be any noticeable impact
with respect with the year 2000 issue.
37
<PAGE> 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has no items to report under item 9 of this Annual Report on
Form 10-K.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and persons nominated to become directors
and information regarding executive officers of the Registrant is included in
the Proxy Statement for the Annual Meeting of Stockholders to be held Wednesday,
May 24, 2000, and is to be filed with the Securities and Exchange Commission on
or before April 30, 1999 ("the Proxy Statement"), and such information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is included in the Proxy Statement
under the heading "Executive Compensation" and "Proposal 1; Election of
Directors" and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item is included in the Proxy Statement
under the heading of "Security Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by reference.
ITEM 13. CERTAIN TRANSACTIONS
Information with respect to this item is included in the Proxy Statement
under the heading of "Certain Transactions" and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements are included in Item 8:
1. All financial statements
Reports of independent auditors and independent public accountants
FINANCIAL STATEMENTS:
Consolidated Balance Sheets -- Years Ended December 31, 1999 and 1998
Consolidated Statements of Operations -- Years Ended December 31,
1999, 1998 and 1997
Consolidated Statements of Cash Flows -- Years Ended December 31,
1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity -- Years Ended
December 31, 1999, 1998
and 1997
Notes to Consolidated Financial Statements
2. The following financial schedules for the years 1999, 1998 and 1997
are submitted herewith:
SCHEDULE II -- Valuation Reserves
38
<PAGE> 41
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant for the fourth
quarter of 1999 through the filing date of this document:
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION INCORPORATED
------- ----------- ------------
<C> <S> <C>
3.1 -- Certificate of Incorporation of Schawk, Inc., as Registration Statement
amended. No. 33-85152
3.3 -- By-Laws of Schawk, Inc., as amended. Registration Statement
No. 333-39113
4.1 -- Specimen Class A Common Stock Certificate. Registration Statement
No. 33-85152
10.12* -- Schawk, Inc. 1988 Equity Option Plan. 1988 10-K
10.13a* -- First Amendment to Schawk, Inc. 1988 Equity Option 1992 10-K
Plan.
10.13b* -- Second Amendment to Schawk, Inc. 1988 Equity Option Registration Statement
Plan. No. 33-85152
10.22 -- Lease Agreement dated as of July 1, 1987, and Registration Statement
between Process Color Plate, a division of Schawk, No. 33-85152
Inc. and The Clarence W. Schawk 1979 Children's
Trust.
10.23 -- Lease Agreement dated as of June 1, 1989, by and Registration Statement
between Schawk Graphics, Inc., a division of Schawk, No. 33-85152
Inc. and C.W. Properties.
10.26* -- Schawk, Inc. 1991 Outside Directors' Formula Stock Registration Statement
Option Plan, as amended. No. 33-85152
10.27* -- Form of Clarence W. Schawk Amended and Restated Registration Statement
Employment Agreement between Clarence W. Schawk and No. 33-85152
Schawk, Inc.
10.28* -- Form of David A. Schawk Amended and Restated Registration Statement
Employment Agreement between David A. Schawk and No. 33-85152
Schawk, Inc.
10.31 -- Form of Registration Rights Agreement dated December Registration Statement
30, 1994, by and among Schawk, Inc. and certain No. 33-85152
investors.
10.32 -- Money Market Demand Note dated February 7, 1997 from Registration Statement
Schawk, Inc., borrower, to the Northern Trust No. 333-39113
Company, lender.
10.33 -- Demand Note Agreement dated September 12, 1996 Registration Statement
between Schawk Canada, Inc. and First Chicago NBD No. 33-39113
Canada and related continuing Guaranty of Schawk,
Inc.
10.35 -- Letter of Agreement dated September 21, 1992, by and Registration Statement
between Schawk, Inc. and Judith W. McCue. No. 33-85152
10.37* -- Schawk, Inc. Retirement Trust effective January 1, 1996 10-K
1996.
10.38* -- Schawk, Inc. Retirement Plan for Imaging Employees 1996 10-K
Amended and Restated effective January 1, 1996.
10.42 -- Schawk, Inc. Note Agreement dated as of August 18, 1996 10-K
1995.
10.43 -- Stockholder Investment Program dated July 28, 1995. Registration Statement
No. 33-61375
</TABLE>
39
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION INCORPORATED
------- ----------- ------------
<C> <S> <C>
10.44a -- Credit Agreement dated January 23, 1999 by and Form 8-K dated January
between Schawk, Inc. and The First National Bank of 28, 1999
Chicago.
10.44b -- Amendment No. 1 to Credit Agreement dated March 15, Form 8-K dated March
1999 dated by and between Schawk, Inc. and The First 17, 1999
National Bank of Chicago.
10.45* -- Schawk, Inc. Employee Stock Purchase Plan effective Registration Statement
January 1, 1999. No. 333-68521
10.46** -- Second Amended and Restated Credit Agreement dated
as of October 29, 1999, by and among Schawk, Inc.
and Bank One, NA, excluding exhibits
21 -- List of Subsidiaries.
23a -- Consent of Expert.
27 -- Financial Data Schedule -- 1999
</TABLE>
- ---------------
* Represents management contract or compensation plan or arrangement required
to be filed pursuant to Item 14(c) of Regulation S-K.
** Document attached hereto.
40
<PAGE> 43
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized, in Cook County,
State of Illinois, on the 28th day of March, 2000.
Schawk, Inc.
By: /s/ CLARENCE W. SCHAWK
----------------------------------
Clarence W. Schawk
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 26th day of March, 1999.
<TABLE>
<CAPTION>
SIGNATURE ------------------------------------------- TITLE --------------------------------------
<C> <S>
/s/ CLARENCE W. SCHAWK Chairman of the Board and Director
- -----------------------------------------------------
Clarence W. Schawk
/s/ DAVID A. SCHAWK President, Chief Executive Officer, and
- ----------------------------------------------------- Director
David A. Schawk
/s/ A. ALEX SARKISIAN, ESQ. Executive Vice President, Corporate
- ----------------------------------------------------- Secretary and Director
A. Alex Sarkisian, Esq.
/s/ JAMES J. PATTERSON Chief Financial Officer, Senior Vice
- ----------------------------------------------------- President
James J. Patterson
/s/ DENNIS D. WILSON Chief Accounting Officer and Director of
- ----------------------------------------------------- Financial Reporting
Dennis D. Wilson
/s/ JOHN T. MCENROE, ESQ. General Counsel, Assistant Secretary, and
- ----------------------------------------------------- Director
John T. McEnroe, Esq.
/s/ JUDITH W. MCCUE, ESQ. Director
- -----------------------------------------------------
Judith W. McCue, Esq.
/s/ ROBERT F. MEINKEN Director
- -----------------------------------------------------
Robert F. Meinken
/s/ HOLLIS W. RADEMACHER Director
- -----------------------------------------------------
Hollis W. Rademacher
</TABLE>
41
<PAGE> 44
SCHAWK, INC.
SCHEDULE II -- VALUATION RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1999 1998 1997
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance beginning of year................................... $730 $464 $ 760
Provision................................................... (94) 266 (45)
Deductions.................................................. -- -- (251)(1)
---- ---- -----
Balance end of year......................................... $636 $730 $ 464
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
42
<PAGE> 1
EXECUTION COPY
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of October 29, 1999
among
SCHAWK, INC.,
as the Borrower
THE INSTITUTIONS FROM TIME TO TIME
PARTIES HERETO AS LENDERS
and
BANK ONE, NA (having its principal office in Chicago, Illinois)
as Agent
SIDLEY & AUSTIN
<PAGE> 2
1 Bank One Plaza
10 South Dearborn Street
Chicago, Illinois 60603
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
ARTICLE I: DEFINITIONS 10
ARTICLE II: REVOLVING LOAN FACILITIES 34
2.1. [Reserved]. 34
2.5 Optional Payments; Mandatory Prepayments. 37
2.13 Evidence of Debt. 42
(C) Commitment Fees. 44
2.21 Alternate Currency Loans. 49
ARTICLE III: THE LETTER OF CREDIT FACILITY 53
3.8 Letter of Credit Fees. The Borrower agrees to pay: 56
ARTICLE IV: CHANGE IN CIRCUMSTANCES 58
ARTICLE V: CONDITIONS PRECEDENT 60
ARTICLE VI: REPRESENTATIONS AND WARRANTIES 63
6.2 Authority. 63
6.4 Financial Statements. 65
6.6 Taxes. 65
6.17 Labor Matters. 69
6.18 [Reserved]. 69
ARTICLE VII : COVENANTS 71
7.1 Reporting. The Borrower shall: 72
7.2 Affirmative Covenants. 76
7.3 Negative Covenants. 78
(L) ERISA. (a) The Borrower shall not 84
7.4 Financial Covenants. The Borrower shall comply with the following: 86
ARTICLE VIII: DEFAULTS 87
ARTICLE X: GENERAL PROVISIONS 93
10.7 Expenses; Indemnification. 94
10.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL. 96
ARTICLE XI: THE AGENT 97
ARTICLE XII: SETOFF; RATABLE PAYMENTS 100
12.4 Relations Among Lenders. 102
ARTICLE XIII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 102
13.2 Participations. 102
13.3 Assignments. 103
ARTICLE XIV: NOTICES 105
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE XV: COUNTERPARTS 105
ARTICLE XVI: SCHEDULES 106
</TABLE>
4
<PAGE> 5
EXHIBITS AND SCHEDULES
EXHIBITS
<TABLE>
<S> <C> <C>
EXHIBIT A -- Revolving Loans
(Definitions)
EXHIBIT A-1 -- Eurocurrency Payment Offices
EXHIBIT B -- Form of Borrowing/Conversion/Continuation Notice (Section 2.3
and Section 2.8 and Section 2.10)
EXHIBIT C -- Form of Request for Letter of Credit (Section 3.4)
EXHIBIT D -- Form of Assignment and Acceptance Agreement
(Sections 2.20 and 13.3)
EXHIBIT E -- Form of Borrowers' US Counsel's Opinion and Form of Borrowers'
Foreign Counsel's Opinion (Section 5.1)
EXHIBIT F -- List of Closing Documents
(Section 5.1)
EXHIBIT G -- Form of Officer's Certificate
(Sections 5.2 and 7.1(A)(iii))
EXHIBIT H -- Form of Compliance Certificate
(Sections 5.2 and 7.1(A)(iii)
EXHIBIT I -- Form of Subsidiary Guaranty
(Definitions)
EXHIBIT J -- Form of Alternate Currency Addendum
(Definitions)
EXHIBIT K -- Form of Revolving Loan Note (If Requested)
</TABLE>
5
<PAGE> 6
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 1.1.1 -- Permitted Existing Indebtedness (Definitions)
Schedule 1.1.2 -- Permitted Existing Investments (Definitions)
Schedule 1.1.3 -- Permitted Existing Liens (Definitions)
Schedule 1.1.4 -- Permitted Existing Contingent Obligations (Definitions)
Schedule 3.2 -- Transitional Letters of Credit (Section 3.2)
Schedule 6.3 -- Conflicts; Governmental Consents (Section 6.3)
Schedule 6.4 -- Pro Forma Financial Statements (Section 6.4(A))
Schedule 6.7 -- Litigation; Loss Contingencies (Section 6.7)
Schedule 6.8 -- Subsidiaries (Section 6.8)
Schedule 6.9 -- ERISA (Section 6.9)
Schedule 6.16 -- Insurance (Sections 6.16 and 7.2(E))
Schedule 6.19 -- Environmental Matters (Section 6.19)
</TABLE>
6
<PAGE> 7
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This Second Amended and Restated Credit Agreement dated as of October
29, 1999 is entered into among SCHAWK, INC., a Delaware corporation (the
"BORROWER"), one or more Subsidiaries of the Borrower (whether now existing or
hereafter formed and party to an Alternate Currency Addendum, collectively
referred to herein as the "ALTERNATE CURRENCY BORROWERS"), the institutions from
time to time parties hereto as Lenders, whether by execution of this Agreement
or an Assignment Agreement pursuant to Section 13.3, and Bank One, NA, in its
capacity as contractual representative for itself and the other Lenders to amend
and restate the Amended and Restated Credit Agreement entered into as of May 7,
1999 among the Borrower, and Bank One, NA, formerly known as The First National
Bank of Chicago, as a lender and as agent thereunder (the "AMENDED CREDIT
AGREEMENT"), and, from and after the Effective Date, the Amended Credit
Agreement is hereby amended and restated in its entirety. The parties hereto
agree as follows:
ARTICLE I: DEFINITIONS
1.1 Certain Defined Terms. In addition to the terms defined above, the
following terms used in this Agreement shall have the following meanings,
applicable both to the singular and the plural forms of the terms defined.
As used in this Agreement:
"ACQUISITION" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Subsidiaries (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or division thereof,
whether through purchase of assets, merger or otherwise or (ii) directly or
indirectly acquires (in one transaction or as the most recent transaction in a
series of transactions) at least a majority (in number of votes) of the
securities of a corporation which have ordinary voting power for the election of
directors (other than securities having such power only by reason of the
happening of a contingency) or a majority (by percentage of voting power) of the
outstanding equity interests of another Person.
"ADVANCE" means a borrowing hereunder consisting of the aggregate
amount of the several Loans made by the Lenders to the Borrower of the same Type
and, in the case of Eurocurrency Rate Advances and Alternate Currency Loans, in
the same currency and for the same Interest Period.
"AFFECTED LENDER" is defined in Section 2.20 hereof.
"AFFILIATE" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person is the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of greater than nine and nine-tenths percent (9.90%) or more of any
class of voting securities (or other voting interests) of the controlled Person
or possesses, directly or indirectly, the power to direct or cause the direction
of the management or policies of the controlled Person, whether through
ownership of Capital Stock, by contract or otherwise.
7
<PAGE> 8
"AGENT" means Bank One in its capacity as contractual representative
for itself and the Lenders pursuant to Article XI hereof and any successor Agent
appointed pursuant to Article XI hereof.
"AGGREGATE REVOLVING LOAN COMMITMENT" means the aggregate of the
Revolving Loan Commitments of all the Lenders, as may be reduced from time to
time pursuant to the terms hereof. The initial Aggregate Revolving Loan
Commitment is Sixty-Five Million and 00/100 Dollars ($65,000,000.00).
"AGREED CURRENCIES" means (i) Dollars and (ii) so long as such currency
remains an Eligible Currency, Canadian Dollars, and (iii) any other Eligible
Currency which the Borrower requests the Agent to include as an Agreed Currency
hereunder and which is acceptable to one-hundred percent (100%) of the Lenders
with a Revolving Loan Commitment; provided that the Agent shall promptly notify
each such Lender of each such request and each such Lender shall be deemed not
to have agreed to each such request unless its written consent thereto has been
received by the Agent within five (5) Business Days from the date of such
notification by the Agent to such Lender.
"AGREEMENT" means this Second Amended and Restated Credit Agreement, as
it may be amended, restated or otherwise modified and in effect from time to
time.
"AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted accounting
principles as in effect in the United States as of the date of this Agreement,
applied in a manner consistent with that used in preparing the financial
statements of the Borrower referred to in Section 6.4(B)(1) hereof, provided,
however, that with respect to the calculation of financial ratios and other
financial tests required by this Agreement, "Agreement Accounting Principles"
means generally accepted accounting principles as in effect in the United States
as of the date of this Agreement, applied in a manner consistent with that used
in preparing the financial statements of the Borrower referred to in Section
6.4(A) hereof; provided, further, however, all pro forma financial statements
reflecting Acquisitions shall be prepared in accordance with the requirements
established by the Commission for acquisition accounting for reporting
acquisitions by public companies (whether or not such Acquisitions are required
to be publicly reported); provided, further, that no change in accounting
principles shall be made from those used in preparing the financial statements
referred to in Section 6.4 hereof, including, without limitation, with respect
to the nature or classification of accounts, closing proceedings, levels of
reserves, or levels of accruals other than as a result of objective changes in
the underlying business; provided, further, that for purposes of the preceding
clauses, "changes in accounting principles" or "changes in Agreement Accounting
Principles" includes all changes in accounting principles, policies, practices,
procedures, or methodologies with respect to financial statements, their
classification, or their display, as well as all changes in practices, methods,
conventions, or assumptions used in making accounting estimates.
"ALTERNATE BASE RATE" means, for any day, a fluctuating rate of
interest per annum equal to the higher of (i) the Corporate Base Rate for such
day and (ii) the sum of (a) the Federal Funds Effective Rate for such day and
(b) one-half of one percent (0.5%) per annum.
"ALTERNATE CURRENCY" shall mean (i) only so long as such currency
remains an Eligible Currency, Canadian Dollars and (ii) any other Eligible
Currency which the applicable Borrower
8
<PAGE> 9
requests the Alternate Currency Bank to include as an Alternate Currency
hereunder and which is acceptable to the Alternate Currency Bank and with
respect to which an Alternate Currency Addendum has been executed by an
Alternate Currency Borrower and the Alternate Currency Bank in connection
therewith.
"ALTERNATE CURRENCY ADDENDUM" means an addendum substantially in the
form of Exhibit J with such modifications thereto as shall be approved by the
Alternate Currency Bank.
"ALTERNATE CURRENCY BANK" means Bank One (or any Affiliate, branch or
agency thereof) to the extent it is party to an Alternate Currency Addendum. If
any agency, branch or Affiliate of Bank One shall be a party to an Alternate
Currency Addendum, such agency, branch or Affiliate shall, to the extent of any
commitment extended and any Loans made by it, have all the rights of Bank One
hereunder; provided, however, that Bank One shall to the exclusion of such
agency, branch or Affiliate, continue to have all the voting rights vested in it
by the terms hereof.
"ALTERNATE CURRENCY BORROWER" means each of the Borrower's
Subsidiaries, whether now existing or hereafter formed, that is a party to an
Alternate Currency Addendum and its respective successors and assigns, including
a debtor-in-possession on behalf of such Alternate Currency Borrower.
"ALTERNATE CURRENCY BORROWING" means any borrowing consisting of a Loan
made in an Alternate Currency.
"ALTERNATE CURRENCY COMMITMENT" means, for the Alternate Currency Bank
for each Alternate Currency, the obligation of such Alternate Currency Bank to
make Alternate Currency Loans not exceeding the Dollar Amount set forth in the
applicable Alternate Currency Addendum, as such amount may be modified from time
to time pursuant to the terms of this Agreement and the applicable Alternate
Currency Addendum.
"ALTERNATE CURRENCY INTEREST PERIOD" means, with respect to any
Alternate Currency Loan, the Interest Period as set forth on the applicable
Alternate Currency Addendum.
"ALTERNATE CURRENCY LOAN" means any Loan denominated in an Alternate
Currency made by the Alternate Currency Bank to an Alternate Currency Borrower
pursuant to Section 2.21 and an Alternate Currency Addendum.
"ALTERNATE CURRENCY RATE" means, for any day for any Alternate Currency
Loan, the per annum rate of interest selected by the applicable Alternate
Currency Borrower under and as set forth in the applicable Alternate Currency
Addendum.
"APPLICABLE COMMITMENT FEE PERCENTAGE" means, as at any date of
determination, the rate per annum then applicable in the determination of the
amount payable under
Section 2.15(C)(i) hereof determined in accordance with the provisions of
Section 2.15(D)(ii) hereof.
9
<PAGE> 10
"APPLICABLE EUROCURRENCY MARGIN" means, as at any date of
determination, the rate per annum then applicable to Eurocurrency Rate Loans
determined in accordance with the provisions of Section 2.15(D)(ii) hereof.
"APPLICABLE FLOATING RATE MARGIN" means, as at any date of
determination, the rate per annum then applicable to Floating Rate Loans
determined in accordance with the provisions of Section 2.15(D)(ii) hereof.
"APPLICABLE L/C FEE PERCENTAGE" means, as at any date of determination,
a rate per annum equal to the Applicable Eurocurrency Margin for Eurocurrency
Rate Loans in effect on such date.
"APPROVED FUND" means, with respect to any Lender that is a fund or
commingled investment vehicle that invests in commercial loans, any other fund
that invests in commercial loans and is managed or advised by the same
investment advisor as such Lender or by an Affiliate of such investment advisor.
"APPROXIMATE EQUIVALENT AMOUNT" means any currency with respect to any
amount of Dollars shall mean the Equivalent Amount of such currency with respect
to such amount of Dollars at such date, rounded up to the nearest amount of such
currency as determined by the Agent from time to time.
"ARRANGER" means Banc One Capital Markets, Inc., in its capacity as the
arranger for the loan transaction evidenced by this Agreement.
"ASSIGNMENT AGREEMENT" means an assignment and acceptance agreement
entered into in connection with an assignment pursuant to Section 13.3 hereof in
substantially the form of Exhibit D.
"ASSET SALE" means, with respect to any Person, the sale, lease,
conveyance, disposition or other transfer by such Person of any of its assets
(including by way of a sale-leaseback transaction, and including the sale or
other transfer of any of the Equity Interests of any Subsidiary of such Person)
to any Person other than the Borrower or any of its wholly-owned Subsidiaries
other than (i) the sale of Inventory in the ordinary course of business, (ii)
the sale or other disposition of any obsolete, excess, damaged or worn-out
Equipment disposed of in the ordinary course of business and (iii) leases of
personal property (including leases or licenses of intellectual property).
"AUTHORIZED OFFICER" means any of the President, any Vice President or
Chief Financial Officer of the Borrower, acting singly.
"BANK ONE" means Bank One, NA, having its principal office in Chicago,
Illinois, in its individual capacity, and its successors.
"BENEFIT PLAN" means a defined benefit plan as defined in Section 3(35)
of ERISA (other than a Multiemployer Plan) in respect of which the Borrower or
any other member of the Controlled Group is, or within the immediately preceding
six (6) years was, an "employer" as defined in Section 3(5) of ERISA.
10
<PAGE> 11
"BORROWER" means Schawk, Inc., a Delaware corporation, together with
its successors and assigns, including a debtor-in-possession on behalf of the
Borrower, and "BORROWERS" shall mean, collectively, the Borrower and the
Alternate Currency Borrowers.
"BORROWING DATE" means a date on which an Advance or Swing Line Loan is
made hereunder.
"Borrowing/Conversion/Continuation Notice" is defined in Section 2.8
hereof.
"BUSINESS DAY" means (i) with respect to any borrowing, payment or rate
selection of Loans bearing interest at the Eurocurrency Rate, a day (other than
a Saturday or Sunday) on which banks are open for business in Chicago, Illinois
and New York, New York and on which dealings in Dollars and the other Agreed
Currencies are carried on in the London interbank market and (ii) for all other
purposes a day (other than a Saturday or Sunday) on which banks are open for
business in Chicago, Illinois and New York, New York.
"CANADIAN DOLLARS" OR "CDH" means the lawful currency of Canada.
"CAPITAL EXPENDITURES" means, for any period, the aggregate of all
expenditures (whether or not paid in cash and including Capitalized Leases and
purchase money indebtedness) by the Borrower and its consolidated Subsidiaries
during that period that, in conformity with Agreement Accounting Principles, are
required to be included in or reflected by the property, plant, equipment or
similar fixed asset accounts reflected in the consolidated balance sheet of the
Borrower and its Subsidiaries; provided, however, that the term "Capital
Expenditures" shall not include (a) expenditures made in connection with the
replacement, substitution or restoration of assets (i) to the extent financed
from insurance proceeds paid on account of the loss of or damage to the assets
being replaced or restored or (ii) with awards of compensation arising from the
taking by eminent domain or condemnation of the assets being replaced; (b) the
purchase price of equipment that is purchased simultaneously with the trade-in
of existing equipment to the extent that the gross amount of such purchase price
is reduced by the credit granted by the seller of such equipment for the
equipment being traded in at such time; (c) the purchase of plant, property or
equipment made within one year of the sale of any asset to the extent purchased
with the proceeds of such sale; (d) the portion of the purchase price in
connection with any acquisition that would otherwise be included as additions to
property, plant or equipment; and (e) expenditures made in connection with any
acquisition.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership, partnership
interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person;
provided, however, that "Capital Stock" shall not include any debt securities
convertible into equity securities prior to such conversion.
"CAPITALIZED LEASE" of a Person means any lease of property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with Agreement Accounting Principles.
11
<PAGE> 12
"CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be capitalized
on a balance sheet of such Person prepared in accordance with Agreement
Accounting Principles.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued or
unconditionally guaranteed by the governments of the United States and backed by
the full faith and credit of the United States government; (ii) domestic and
Eurocurrency certificates of deposit and time deposits, bankers' acceptances and
floating rate certificates of deposit issued by any commercial bank organized
under the laws of the United States, any state thereof, the District of
Columbia, any foreign bank, or its branches or agencies (fully protected against
currency fluctuations for any such deposits with a term of more than ninety (90)
days); (iii) shares of money market, mutual or similar funds having assets in
excess of $100,000,000 and the investments of which are limited to investment
grade securities (i.e., securities rated at least Baa by Moody's Investors
Service, Inc. or at least BBB by Standard & Poor's Ratings Group); and (iv)
commercial paper of United States and foreign banks and bank holding companies
and their subsidiaries and United States and foreign finance, commercial
industrial or utility companies which, at the time of acquisition, are rated A-1
(or better) by Standard & Poor's Ratings Group or P-1 (or better) by Moody's
Investors Services, Inc.; provided that the maturities of such Cash Equivalents
shall not exceed three hundred sixty-five (365) days from the date of
acquisition thereof.
"CHANGE" is defined in Section 4.2 hereof.
"CHANGE OF CONTROL" means an event or series of events by which:
(a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the exchange Act of 1934), becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act of 1934, provided that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
thirty-five percent (35%) or more of the combined voting power of the Borrower's
outstanding Capital Stock ordinarily having the right to vote at an election of
directors; or
(b) the majority of the board of directors of the Borrower fails to
consist of Continuing Directors; or
(c) the Borrower consolidates with or merges into another corporation
or conveys, transfers or leases all or substantially all of its property to any
Person, or any corporation consolidates with or merges into the Borrower, in
either event pursuant to a transaction in which the outstanding Capital Stock of
the Borrower is reclassified or changed into or exchanged for cash, securities
or other property; or
(d) the Borrower shall cease to own and control at least eighty percent
(80%) of the economic and voting rights associated with all of the outstanding
Capital Stock of its existing Subsidiaries as of the Closing Date.
"CLOSING DATE" means January 23, 1999.
12
<PAGE> 13
"CODE" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"COMMISSION" means the Securities and Exchange Commission of the United
States of America and any Person succeeding to the functions thereof.
"CONSOLIDATED NET WORTH" means, at a particular date, all amounts which
would be included under shareholders' equity on the consolidated balance sheet
for the Borrower and its consolidated Subsidiaries determined in accordance with
Agreement Accounting Principles, plus an amount equal to any non-recurring
expenses related to the reorganization, restructuring and rationalization of the
Borrower and its Subsidiaries when and as charged to reduce net worth to the
extent charged during the first three years following any Permitted Acquisition
up to amounts not to be in excess of $5,000,000, on a pre-tax basis, with
respect to any Permitted Acquisition, or $10,000,000, on a pre-tax basis, in the
aggregate.
"CONSOLIDATED TANGIBLE ASSETS" means the total assets of the Borrower
and its Subsidiaries on a consolidated basis (determined in accordance with
Agreement Accounting Principles), but excluding therefrom all items that are
treated as intangibles under Agreement Accounting Principles.
"CONTAMINANT" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos, polychlorinated biphenyls ("PCBS"), or any
constituent of any such substance or waste, and includes but is not limited to
these terms as defined in Environmental, Health or Safety Requirements of Law.
"CONTINGENT OBLIGATION", as applied to any Person, means any
Contractual Obligation, contingent or otherwise, of that Person with respect to
any Indebtedness of another or other obligation or liability of another,
including, without limitation, any such Indebtedness, obligation or liability of
another directly or indirectly guaranteed, endorsed (otherwise than for
collection or deposit in the ordinary course of business), co-made or discounted
or sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable, including Contractual Obligations
(contingent or otherwise) arising through any agreement to purchase, repurchase,
or otherwise acquire such Indebtedness, obligation or liability or any security
therefor, or to provide funds for the payment or discharge thereof (whether in
the form of loans, advances, stock purchases, capital contributions or
otherwise), or to maintain solvency, assets, level of income, or other financial
condition, or to make payment other than for value received. The amount of any
Contingent Obligation shall be equal to the present value of the portion of the
obligation so guaranteed or otherwise supported, in the case of known recurring
obligations, and the maximum reasonably anticipated liability in respect of the
portion of the obligation so guaranteed or otherwise supported assuming such
Person is required to perform thereunder, in all other cases.
"CONTINUING DIRECTOR" means, with respect to any Person as of any date
of determination, any member of the board of directors of such Person who (a)
was a member of such board of directors on the date of this Agreement, or (b)
was nominated for election or elected to such board of directors with the
approval of the Continuing Directors who were members of such board at the time
of such nomination or election.
13
<PAGE> 14
"CONTRACTUAL OBLIGATION", as applied to any Person, means any provision
of any equity or debt securities issued by that Person or any indenture,
mortgage, deed of trust, security agreement, pledge agreement, guaranty,
contract, undertaking, agreement or instrument, in any case in writing, to which
that Person is a party or by which it or any of its properties is bound, or to
which it or any of its properties is subject.
"CONTROLLED GROUP" means the group consisting of (i) any corporation
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as the Borrower; (ii) a partnership or
other trade or business (whether or not incorporated) which is under common
control (within the meaning of Section 414(c) of the Code) with the Borrower;
and (iii) a member of the same affiliated service group (within the meaning of
Section 414(m) of the Code) as the Borrower, any corporation described in clause
(i) above or any partnership or trade or business described in clause (ii)
above.
"CONTROLLED SUBSIDIARY" of any Person means a Subsidiary of such Person
(i) ninety percent (90%) or more of the total Equity Interests or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more wholly-owned Subsidiaries of
such Person and (ii) of which such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies, whether
through the ownership of voting securities, by agreement or otherwise.
"CORPORATE BASE RATE" means the corporate base rate of interest
announced by Bank One from time to time, changing when and as said corporate
base rate changes.
"CURE LOAN" is defined in Section 9.2(iii) hereof.
"CUSTOMARY PERMITTED LIENS" means:
(i) Liens (other than Environmental Liens and Liens in favor of
the IRS or the PBGC) with respect to the payment of taxes, assessments
or governmental charges in all cases which are not yet due or (if
foreclosure, distraint, sale or other similar proceedings shall not
have been commenced or any such proceeding after being commenced is
stayed) which are being contested in good faith by appropriate
proceedings properly instituted and diligently conducted and with
respect to which adequate reserves or other appropriate provisions are
being maintained in accordance with Agreement Accounting Principles;
(ii) statutory Liens of landlords and Liens of suppliers,
mechanics, carriers, materialmen, warehousemen or workmen and other
similar Liens imposed by law created in the ordinary course of
business for amounts not yet due or which are being contested in good
faith by appropriate proceedings properly instituted and diligently
conducted and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with
Agreement Accounting Principles;
(iii) Liens (other than Environmental Liens and Liens in favor of
the IRS or the PBGC) incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance or other types of social security benefits or to secure the
performance of bids, tenders, sales, contracts (other than for the
repayment of borrowed money), surety, appeal and performance bonds;
provided that (A) all such Liens do not in the aggregate materially
detract from the value of the Borrower's or such Subsidiary's
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assets or property taken as a whole or materially impair the use
thereof in the operation of the businesses taken as a whole, and (B)
all Liens securing bonds to stay judgments or in connection with
appeals do not secure at any time an aggregate amount exceeding
$10,000,000;
(iv) Liens arising with respect to zoning restrictions,
easements, encroachments, licenses, reservations, covenants,
rights-of-way, utility easements, building restrictions and other
similar charges, restrictions or encumbrances on the use of real
property which do not in any case materially detract from the value of
the property subject thereto or materially interfere with the ordinary
use or occupancy of the real property or with the ordinary conduct of
the business of the Borrower or any of its Subsidiaries;
(v) Liens of attachment or judgment with respect to judgments,
writs or warrants of attachment, or similar process against the
Borrower or any of its Subsidiaries which do not constitute a Default
under Section 8.1(H) hereof; and
(vi) any interest or title of the lessor in the property subject
to any operating lease entered into by the Borrower or any of its
Subsidiaries in the ordinary course of business.
"DEFAULT" means an event described in Article VIII hereof.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is ninety-one (91) days after the Revolving Loan Termination Date.
"DOL" means the United States Department of Labor and any Person
succeeding to the functions thereof.
"DOLLAR" and "$" means dollars in the lawful currency of the United
States of America.
"DOLLAR AMOUNT" of any currency at any date shall mean (i) the amount
of such currency if such currency is Dollars or (ii) the Equivalent Amount of
Dollars if such currency is any currency other than Dollars.
"DOMESTIC INCORPORATED SUBSIDIARY" means a Subsidiary of the Borrower
organized under the laws of a jurisdiction located in the United States of
America.
"EBITDA" means, for any period, on a consolidated basis for the
Borrower and its Subsidiaries, the sum of the amounts for such period, without
duplication, of (i) Net Income, plus (ii) Interest Expense to the extent
deducted in computing Net Income, plus (iii) charges against income for foreign,
federal, state and local taxes to the extent deducted in computing Net Income,
plus (iv) depreciation expense to the extent deducted in computing Net Income,
plus (v) amortization expense, including, without limitation, amortization of
goodwill and other intangible assets to the extent deducted in computing Net
Income, plus (vi) other non-cash charges classified as long-term deferrals in
accordance with Agreement Accounting Principles to the extent deducted in
computing Net Income, plus (vii) other extraordinary non-cash charges to the
extent deducted in computing Net Income, minus (viii) other extraordinary
non-cash credits
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<PAGE> 16
to the extent added in computing Net Income, plus (ix) nonrecurring after-tax
losses (or minus nonrecurring after-tax gains), plus (x) an amount equal to the
amount of any reduction of Net Income for such period attributable to the
adjustment to the value of assets made in connection with any Permitted
Acquisition, plus (xi) an amount equal to any non-cash write-down of assets made
as a result of integration and rationalization related to acquisitions made at
any time within the first three fiscal years after the Closing Date plus (xii)
any non-recurring expenses related to the reorganization, restructuring and
rationalization of the Borrower and its Subsidiaries which are charged to
operating expenses when and as charged during the first three fiscal years
following any Permitted Acquisition up to amounts not to be in excess of
$5,000,000, on a pre-tax basis, with respect to any Permitted Acquisition, or
$10,000,000, on a pre-tax basis, in the aggregate, to the extent such charges
are deducted in computing Net Income. EBITDA shall be calculated on a pro forma
basis giving effect to acquisitions and Asset Sales on a last twelve (12)
months' basis.
"EFFECTIVE DATE" means October 29, 1999.
"ELIGIBLE CURRENCY" means any currency other than Dollars with respect
to which the Agent or the Borrower has not given notice in accordance with
Section 2.23 and that is readily available, freely traded, in which deposits are
customarily offered to banks in the London interbank market, convertible into
Dollars in the international interbank market available to the Lenders in such
market and as to which an Equivalent Amount may be readily calculated. If, after
the designation by the Lenders of any currency as an Agreed Currency or
Alternate Currency, currency control or other exchange regulations are imposed
in the country in which such currency is issued with the result that different
types of such currency are introduced, such country's currency is, in the
determination of the Agent, no longer readily available or freely traded or (ii)
as to which, in the determination of the Agent, an Equivalent Amount is not
readily calculable (each of clause (i) and (ii), a "DISQUALIFYING EVENT"), then
the Agent shall promptly notify the Lenders and the Borrower, and such country's
currency shall no longer be an Agreed Currency or Alternate Currency until such
time as the Disqualifying Event(s) no longer exist, but in any event within five
(5) Business Days of receipt of such notice from the Agent, the Borrower shall
repay all Loans in such currency to which the Disqualifying Event applies or
convert such Loan into Loans in Dollars or another Agreed Currency or Alternate
Currency, subject to the other terms contained in Articles II and IV.
"ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS OF LAW" means all
Requirements of Law derived from or relating to foreign, federal, state and
local laws or regulations relating to or addressing pollution or protection of
the environment, or protection of worker health or safety, including, but not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq., the Occupational Safety and Health Act of
1970, 29 U.S.C. Section 651 et seq., and the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. Section 6901 et seq., in each case including any
amendments thereto, any successor statutes, and any regulations or guidance
promulgated thereunder, and any state or local equivalent thereof.
"ENVIRONMENTAL LIEN" means a lien in favor of any Governmental
Authority for (a) any liability under Environmental, Health or Safety
Requirements of Law, or (b) damages arising from, or costs incurred by such
Governmental Authority in response to, a Release or threatened Release of a
Contaminant into the environment.
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"ENVIRONMENTAL PROPERTY TRANSFER ACT" means any applicable requirement
of law that conditions, restricts, prohibits or requires any notification or
disclosure triggered by the closure of any property or the transfer, sale or
lease of any property or deed or title for any property for environmental
reasons, including, but not limited to, any so-called "Industrial Site Recovery
Act" or "Responsible Property Transfer Act."
"EQUIPMENT" means all of the Borrower's present and future (i)
equipment, including, without limitation, machinery, manufacturing,
distribution, selling, data processing and office equipment, assembly systems,
tools, molds, dies, fixtures, appliances, furniture, furnishings, vehicles,
vessels, aircraft, aircraft engines, and trade fixtures, (ii) other tangible
personal property (other than the Borrower's Inventory), and (iii) any and all
accessions, parts and appurtenances attached to any of the foregoing or used in
connection therewith, and any substitutions therefor and replacements, products
and proceeds thereof.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock). Equity Interests will not
include any Incentive Arrangements or obligations or payments thereunder.
"EQUIVALENT AMOUNT" of any currency with respect to any amount of
Dollars at any date shall mean the equivalent in such currency of such amount of
Dollars, calculated on the basis of the arithmetic mean of the buy and sell spot
rates of exchange of the Agent or Alternate Currency Bank, as applicable, in the
London interbank market (or other market where the Agent's or Alternate Currency
Bank's, as applicable, foreign exchange operations in respect of such currency
are then being conducted) for such other currency at or about 11:00 a.m. (local
time) two (2) Business Days prior to the date on which such amount is to be
determined, rounded up to the nearest amount of such currency as determined by
the Alternate Currency Bank from time to time; provided, however, that if at the
time of any such determination, for any reason, no such spot rate is being
quoted, the Agent or Alternate Currency Bank's, as applicable, may use any
reasonable method it deems appropriate to determine such amount, and such
determination shall be conclusive absent manifest error.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time including (unless the context otherwise requires) any
rules or regulations promulgated thereunder.
"EURO" means the euro referred to in the Council Regulation (EC) No.
1103/97 dated 17 June 1997 passed by the Council of the European Union, or, if
different, the then lawful currency of the member states of the European Union
that participate in the third stage of the Economic and Monetary Union.
"EUROCURRENCY BASE RATE" means, with respect to a Eurocurrency Rate
Loan for any specified Interest Period, either (i) the rate of interest per
annum equal to the rate for deposits in the applicable Agreed Currency in the
approximate amount of the pro rata share of the Agent of such Eurocurrency Rate
Advance with a maturity approximately equal to such Interest Period which
appears on Telerate Page 3740 or Telerate Page 3750, as applicable, or, if there
is more than one such rate, the average of such rates rounded to the nearest
1/100 of 1%, as of 11:00 a.m. (London time) two (2) Business Days prior to the
first day of such Interest Period or (ii) if no
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<PAGE> 18
such rate of interest appears on Telerate Page 3740 or Telerate Page 3750, as
applicable, for any specified Interest Period, the rate at which deposits in the
applicable Agreed Currency are offered by the Agent to first-class banks in the
London interbank market at approximately 11:00 a.m. (London time) two (2)
Business Days prior to the first day of such Interest Period, in the approximate
amount of the Pro Rata Share of Bank One of such Eurocurrency Rate Loan and
having a maturity approximately equal to such Interest Period, in each case, as
adjusted for Reserves. The terms "Telerate Page 3740" and "Telerate Page 3750"
mean the display designated as "Page 3740" and "Page 3750", as applicable, on
the Associated Press-Dow Jones Telerate Service (or such other page as may
replace Page 3740 or Page 3750, as applicable, on the Associated Press-Dow Jones
Telerate Service or such other service as may be nominated by the British
Bankers' Association as the information vendor for the purpose of displaying
British Bankers' Association interest rate settlement rates for the relevant
Agreed Currency). Any Eurocurrency Base Rate determined on the basis of the rate
displayed on Telerate Page 3740 or Telerate Page 3750 in accordance with the
foregoing provisions of this subparagraph shall be subject to corrections, if
any, made in such rate and displayed by the Associated Press-Dow Jones Telerate
Service within one hour of the time when such rate is first displayed by such
service.
"EUROCURRENCY PAYMENT OFFICE" of the Agent shall mean, for each of the
Agreed Currencies, any agency, branch or Affiliate of the Agent, specified as
the "Eurocurrency Payment Office" for such Agreed Currency in Exhibit A-1 hereto
or such other agency, branch, Affiliate or correspondence bank of the Agent, as
it may from time to time specify to the Borrower and each Lender as its
Eurocurrency Payment Office.
"EUROCURRENCY RATE" means, with respect to a Eurocurrency Rate Loan for
the relevant Interest Period, the Eurocurrency Base Rate applicable to such
Interest Period plus the then Applicable Eurocurrency Margin.
"EUROCURRENCY RATE ADVANCE" means an Advance which bears interest at
the Eurocurrency Rate.
"EUROCURRENCY RATE LOAN" means a Loan made on a fully syndicated basis
pursuant to Section 2.2, which bears interest at the Eurocurrency Rate.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"FINANCING" means, with respect to any Person, the issuance or sale by
such Person of any Equity Interests of such Person or any Indebtedness
consisting of debt securities of such Person.
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"FIRREA" means the Financial Institutions Reform, Recovery, and
Enforcement Act of 1983, as amended, modified or supplemented from time to time.
"FIXED CHARGE COVERAGE RATIO" is defined in Section 7.4(A) hereof.
"FLOATING RATE" means, for any day for any Loan, a rate per annum equal
to the Alternate Base Rate for such day, changing when and as the Alternate Base
Rate changes, plus the then Applicable Floating Rate Margin.
"FLOATING RATE ADVANCE" means an Advance which bears interest at the
Floating Rate.
"FLOATING RATE LOAN" means a Loan, or portion thereof, which bears
interest at the Floating Rate.
"FOREIGN INCORPORATED SUBSIDIARY" means a Subsidiary of the Borrower
which is not a Domestic Incorporated Subsidiary.
"FOREIGN SUBSIDIARY INVESTMENT" means the sum of (a) all intercompany
loans made on or after the Closing Date from either the Borrower or any Domestic
Incorporated Subsidiary to any Foreign Incorporated Subsidiary; (b) all
Investments made on or after the Closing Date by either the Borrower or any
Domestic Incorporated Subsidiary in any Foreign Incorporated Subsidiary; and (c)
an amount equal to the net benefit derived by the Foreign Incorporated
Subsidiaries resulting from any non-arms length transactions, or any other
transfer of assets conducted other than in the ordinary course of business,
between the Borrower and/or any Domestic Incorporated Subsidiary, on the one
hand, and such Foreign Incorporated Subsidiaries, on the other hand.
"GOVERNMENTAL ACTS" is defined in Section 3.10(A) hereof.
"GOVERNMENTAL AUTHORITY" means any nation or government, any federal,
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative authority or
functions of or pertaining to government, including any authority or other
quasi-governmental entity established to perform any of such functions.
"GROSS NEGLIGENCE" means recklessness, or actions taken or omitted with
conscious indifference to or the complete disregard of consequences. Gross
Negligence does not mean the absence of ordinary care or diligence, or an
inadvertent act or inadvertent failure to act. If the term "gross negligence" is
used with respect to the Agent or any Lender or any indemnitee in any of the
other Loan Documents, it shall have the meaning set forth herein.
"GUARANTY" means each of (i) those certain Guaranties executed from
time to time by each of the Domestic Incorporated Subsidiaries of the Borrower
in favor of the Agent for the benefit of itself and the Holders of Obligations
and, (ii) the guaranty by the Borrower of all of the Obligations of the
Alternate Currency Borrowers pursuant to this Agreement and the Alternate
Currency Addenda, in each case as amended, restated, supplemented or otherwise
modified from time to time, in substantially the form of Exhibit I attached
hereto.
"HEDGING AGREEMENTS" is defined in Section 7.3(P) hereof.
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"HEDGING OBLIGATIONS" of a Person means any and all obligations of such
Person, whether absolute or contingent and howsoever and whensoever created,
arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, commodity prices,
exchange rates or forward rates applicable to such party's assets, liabilities
or exchange transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"HOLDERS OF OBLIGATIONS" means the holders of the Obligations from time
to time and shall include their respective successors, transferees and assigns.
"INCENTIVE ARRANGEMENTS" means any stock appreciation rights, "phantom"
stock plans, employment agreements, non-competition agreements, subscription and
stockholders agreements and other incentive and bonus plans and similar
arrangements made in connection with the retention of executives, officers or
employees of the Borrower.
"INDEBTEDNESS" of a person means, without duplication, such person's
(i) obligations for borrowed money, including, without limitation, subordinated
indebtedness, (ii) obligations representing the deferred purchase price of
property or services (other than accounts payable arising in the ordinary course
of such person's business payable on terms customary in the trade and other than
earn-outs or other similar forms of contingent purchase prices), (iii)
obligations, whether or not assumed, secured by liens on or payable out of the
proceeds or production from property now or hereafter owned or acquired by such
person, (iv) obligations which are evidenced by notes, acceptances, or other
instruments, (v) Capitalized Lease Obligations, (vi) outstanding principal
balances (representing securitized but unliquidated assets) under asset
securitization agreements (including, without limitation, the outstanding
principal balance of accounts receivable under receivables transactions) and
(vii) the implied debt component of synthetic leases of which such person is
lessee or any other off-balance sheet financing arrangements (including, without
limitation, any such arrangements giving rise to any Off-Balance Sheet
Liabilities).
"INDEMNIFIED MATTERS" is defined in Section 10.7(B) hereof.
"INDEMNITEES" is defined in Section 10.7(B) hereof.
"INTEREST EXPENSE" means, for any period, the total interest expense of
the Borrower and its consolidated Subsidiaries, whether paid or accrued
(including the interest component of Capitalized Leases, commitment fees and
fees for stand-by letters of credit, the discount with respect to asset
securitization agreements and the implied interest component of synthetic
leases), all as determined in conformity with Agreement Accounting Principles.
Interest Expense shall not include any interest which in accordance with
Agreement Accounting Principals has been capitalized.
"INTEREST PERIOD" means, (i) any Alternate Currency Interest Period and
(ii) with respect to a Eurocurrency Rate Loan, a period of one (1), two (2),
three (3) months or six (6) months,
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and, to the extent available to all of the Lenders, upon request of the
Borrower, and only if the Lenders, in their discretion, shall agree, twelve (12)
months, commencing on a Business Day selected by the Borrower on which a
Eurocurrency Rate Advance is made to the Borrower pursuant to this Agreement.
Such Interest Period shall end on (but exclude) the day which corresponds
numerically to such date one, two, three or six months and, if applicable,
twelve months thereafter; provided, however, that if there is no such
numerically corresponding day in such next, second, third or sixth and, if
applicable, twelfth succeeding month and, if applicable, twelfth succeeding
month, such Interest Period shall end on the last Business Day of such next,
second, third or sixth succeeding month. If an Interest Period would otherwise
end on a day which is not a Business Day, such Interest Period shall end on the
next succeeding Business Day, provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day.
"INVENTORY" shall mean any and all goods, including, without
limitation, goods in transit, wheresoever located, whether now owned or
hereafter acquired by the Borrower or any of its Subsidiaries, which are held
for sale or lease, furnished under any contract of service or held as raw
materials, work in process or supplies, and all materials used or consumed in
the business of Borrower or any of its Subsidiaries, and shall include all
right, title and interest of the Borrower or any of its Subsidiaries in any
property the sale or other disposition of which has given rise to Receivables
and which has been returned to or repossessed or stopped in transit by the
Borrower or any of its Subsidiaries.
"INVESTMENT" means, with respect to any Person, (i) any purchase or
other acquisition by that Person of any Indebtedness, Equity Interests or other
securities, or of a beneficial interest in any Indebtedness, Equity Interests or
other securities, issued by any other Person, (ii) any purchase by that Person
of all or substantially all of the assets of a business (whether of a division,
branch, unit operation, or otherwise) conducted by another Person, and (iii) any
loan, advance (other than deposits with financial institutions available for
withdrawal on demand, prepaid expenses, accounts receivable, advances to
employees and similar items made or incurred in the ordinary course of business)
or capital contribution by that Person to any other Person, including all
Indebtedness to such Person arising from a sale of property by such Person other
than in the ordinary course of its business.
"IRS" means the Internal Revenue Service and any Person succeeding to
the functions thereof.
"ISSUING BANKS" means Bank One or any of its Affiliates in its separate
capacity as an issuer of Letters of Credit pursuant to Section 3.1. The
designation of any Lender as an Issuing Bank after the date hereof shall be
subject to the prior written consent of the Agent.
"LAST TWELVE-MONTH PERIOD" is defined in Section 7.4(A) hereof.
"L/C DOCUMENTS" is defined in Section 3.4 hereof.
"L/C DRAFT" means a draft drawn on an Issuing Bank pursuant to a Letter
of Credit.
"L/C INTEREST" shall have the meaning ascribed to such term in Section
3.6 hereof.
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"L/C OBLIGATIONS" means, without duplication, an amount equal to the
sum of (i) the aggregate of the Dollar Amount then available for drawing under
each of the Letters of Credit, (ii) the Dollar Amount equal to the face amount
of all outstanding L/C Drafts corresponding to the Letters of Credit, which L/C
Drafts have been accepted by the applicable Issuing Bank, (iii) the aggregate
outstanding Dollar Amount of all Reimbursement Obligations at such time and (iv)
the aggregate Dollar Amount equal to the face amount of all Letters of Credit
requested by the Borrower but not yet issued (unless the request for an unissued
Letter of Credit has been denied).
"LENDERS" means the lending institutions listed on the signature pages
of this Agreement and their respective successors and assigns.
"LENDING INSTALLATION" means, with respect to a Lender or the Agent,
any office, branch, subsidiary or affiliate of such Lender or the Agent.
"LETTER OF CREDIT" means the letters of credit to be (a) issued by the
Issuing Banks pursuant to Section 3.1 hereof or (b) deemed issued by the Issuing
Banks pursuant to Section 3.2 hereof.
"LEVERAGE RATIO" is defined in Section 7.4(B) hereof.
"LIEN" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, the interest of a vendor or lessor
under any conditional sale, Capitalized Lease or other title retention
agreement).
"LOAN(S)" means, with respect to a Lender, such Lender's portion of any
Advance made pursuant to Section 2.2 hereof, as applicable, and in the case of
the Swing Line Bank, any Swing Line Loan made pursuant to Section 2.3 hereof,
and in the case of any Alternate Currency Loan, any Alternate Currency Loan made
pursuant to Section 2.21 and the applicable Alternate Currency Addendum, and
collectively, all Revolving Loans, Swing Line Loans and Alternate Currency
Loans.
"LOAN ACCOUNT" is defined in Section 2.13(A) hereof.
"LOAN DOCUMENTS" means this Agreement, each Alternate Currency
Addendum, that certain Letter Agreement, dated as of January 19, 1999, by and
among the Borrower, the Agent and the Arranger, and all other documents,
instruments, notes and agreements executed in connection therewith or
contemplated thereby, as the same may be amended, restated or otherwise modified
and in effect from time to time.
"MARGIN STOCK" shall have the meaning ascribed to such term in
Regulation U.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower, or the Borrower and its Subsidiaries,
taken as a whole, (b) the collective ability of the Borrower or any of its
Subsidiaries to perform their respective obligations under the Loan Documents in
any material respect, or (c) the ability of the Lenders or the Agent to enforce
in any material respect the Obligations.
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"MAXIMUM EUROCURRENCY AMOUNT" means $15,000,000 or such other greater
amount as the Borrower may from time to time designate in writing to the Agent
provided such designated amount shall be agreed to by the Required Lenders.
"MEASUREMENT PERIOD" is defined in Section 7.4(A) hereof.
"MULTIEMPLOYER PLAN" means a "Multiemployer Plan" as defined in Section
4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years
was, contributed to by either the Borrower or any member of the Controlled
Group.
"NATIONAL CURRENCY UNIT" means the unit of currency (other than a euro
unit) of each member state of the European Union that participates in the third
stage of Economic and Monetary Union.
"NET CASH PROCEEDS" means, with respect to any Asset Sale or Financing
by any Person, (a) cash or Cash Equivalents (freely convertible into Dollars)
received by such Person or any Subsidiary of such Person from such Asset Sale
(including cash received as consideration for the assumption or incurrence of
liabilities incurred in connection with or in anticipation of such Asset Sale)
or Financing, after (i) provision for all income or other taxes measured by or
resulting from such Asset Sale or Financing, (ii) payment of all brokerage
commissions and other fees and expenses and commissions related to such Asset
Sale or Financing, (iii) repayment of Indebtedness (and any premium or penalty
thereon) secured by a Lien on any asset disposed of in such Asset Sale or which
is or may be required (by the express terms of the instrument governing such
Indebtedness or by applicable law) to be repaid in connection with such Asset
Sale (including payments made to obtain or avoid the need for the consent of any
holder of such Indebtedness), and (iv) deduction of appropriate amounts to be
provided by such Person or a Subsidiary of such Person as a reserve, in
accordance with Agreement Accounting Principles, against any liabilities
associated with the assets sold or disposed of in such Asset Sale and retained
by such Person or a Subsidiary of such Person after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with the assets sold or disposed of in such Asset Sale;
and (b) cash or Cash Equivalents payments in respect of any other consideration
received by such Person or any Subsidiary of such Person from such Asset Sale or
Financing upon receipt of such cash payments by such Person or such Subsidiary.
"NET INCOME" means, for any period, the net income (or loss) after
taxes of the Borrower and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period determined in conformity with
Agreement Accounting Principles.
"NON PRO RATA LOAN" is defined in Section 9.2 hereof.
"NOTICE OF ASSIGNMENT" is defined in Section 13.3(B) hereof.
"OBLIGATIONS" means all Loans, L/C Obligations, advances, debts,
liabilities, obligations, covenants and duties owing by the Borrowers or any of
their Subsidiaries to the Agent, any Lender, the Swing Line Bank, the Arranger,
any Affiliate of the Agent or any Lender, any Issuing Bank or any Indemnitee, of
any kind or nature, present or future, arising under this Agreement, the L/C
Documents, any Alternate Currency Addendum or any other Loan
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Document, whether or not evidenced by any note, guaranty or other instrument,
whether or not for the payment of money, whether arising by reason of an
extension of credit, loan, guaranty, indemnification, or in any other manner,
whether direct or indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising and however
acquired. The term includes, without limitation, all interest, charges,
expenses, fees, reasonable attorneys' fees and disbursements, reasonable
paralegals' fees (in each case whether or not allowed), and any other sum
chargeable to the Borrower or any of its Subsidiaries under this Agreement or
any other Loan Document.
"OFF-BALANCE SHEET LIABILITIES" of a Person means (a) any repurchase
obligation or liability of such Person or any of its Subsidiaries with respect
to accounts or notes receivable sold by such Person or any of its Subsidiaries,
(b) any liability of such Person or any of its Subsidiaries under any sale and
leaseback transactions which do not create a liability on the consolidated
balance sheet of such Person, (c) any liability of such Person or any of its
Subsidiaries under any financing lease or so-called "synthetic" lease
transaction, or (d) any obligations of such Person or any of its Subsidiaries
arising with respect to any other transaction which is the functional equivalent
of or takes the place of borrowing but which does not constitute a liability on
the consolidated balance sheets of such Person and its Subsidiaries.
"OTHER TAXES" is defined in Section 2.15(E)(ii) hereof.
"PARTICIPANTS" is defined in Section 13.2(A) hereof.
"PAYMENT DATE" means the last Business Day of each month.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"PERMITTED ACQUISITION" is defined in Section 7.3(G) hereof.
"PERMITTED EXISTING CONTINGENT OBLIGATIONS" means the Contingent
Obligations of the Borrower and its Subsidiaries identified as such on Schedule
1.1.4 to this Agreement.
"PERMITTED EXISTING INDEBTEDNESS" means the Indebtedness of the
Borrower and its Subsidiaries identified as such on Schedule 1.1.1 to this
Agreement.
"PERMITTED EXISTING INVESTMENTS" means the Investments of the Borrower
and its Subsidiaries identified as such on Schedule 1.1.2 to this Agreement.
"PERMITTED EXISTING LIENS" means the Liens on assets of the Borrower
and its Subsidiaries identified as such on Schedule 1.1.3 to this Agreement.
"PERMITTED FOREIGN SUBSIDIARY INVESTMENT AMOUNT" means the sum of (i)
$25,000,000 plus (ii) Investments in Foreign Incorporated Subsidiaries made in
compliance with Section 7.3(D)(xi).
"PERMITTED PURCHASE MONEY INDEBTEDNESS" is defined in Section
7.3(A)(vii) hereof.
"PERMITTED REFINANCING INDEBTEDNESS" means any replacement, renewal,
refinancing or extension of any Indebtedness permitted by this Agreement that
(i) does not exceed the aggregate
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principal amount (plus accrued interest and any applicable premium and
associated fees and expenses) of the Indebtedness being replaced, renewed,
refinanced or extended, (ii) does not have a Weighted Average Life to Maturity
at the time of such replacement, renewal, refinancing or extension that is less
than the Weighted Average Life to Maturity of the Indebtedness being replaced,
renewed, refinanced or extended, (iii) does not rank at the time of such
replacement, renewal, refinancing or extension senior to the Indebtedness being
replaced, renewed, refinanced or extended, and (iv) does not contain terms
(including, without limitation, terms relating to security, amortization,
interest rate, premiums, fees, covenants, event of default and remedies)
materially less favorable to the Borrower or to the Lenders than those
applicable to the Indebtedness being replaced, renewed, refinanced or extended.
"PERSON" means any individual, corporation, firm, enterprise,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, limited liability company or other entity of any kind, or
any government or political subdivision or any agency, department or
instrumentality thereof.
"PLAN" means an employee benefit plan defined in Section 3(3) of ERISA,
other than a Multiemployer Plan, in respect of which the Borrower or any member
of the Controlled Group is, or within the immediately preceding six (6) years
was, an "employer" as defined in Section 3(5) of ERISA.
"PRO RATA SHARE" means, with respect to any Lender, the percentage
obtained by dividing (x) such Lender's Revolving Loan Commitment at such time
(in each case, as adjusted from time to time in accordance with the provisions
of this Agreement) by (y) the Aggregate Revolving Loan Commitment at such time;
provided, however, if all of the Revolving Loan Commitments are terminated
pursuant to the terms of this Agreement, then "Pro Rata Share" means the
percentage obtained by dividing (x) the sum of (A) such Lender's Revolving
Loans, plus (B) such Lender's share of the obligations to purchase
participations in Swing Line Loans, Alternate Currency Loans and Letters of
Credit, by (y) the sum of (A) the aggregate outstanding amount of all Revolving
Loans, plus (B) the aggregate outstanding amount of all Swing Line Loans, all
Alternate Currency Loans and all Letters of Credit.
"PURCHASERS" is defined in Section 13.3(A) hereof.
"RATE OPTION" means the Eurocurrency Rate or the Floating Rate or the
Alternate Currency Rate, as applicable.
"RECEIVABLE(S)" means and includes all of the Borrower's presently
existing and hereafter arising or acquired accounts, accounts receivable, and
all present and future rights of the Borrower to payment for goods sold or
leased or for services rendered (except those evidenced by instruments or
chattel paper), whether or not they have been earned by performance, and all
rights in any merchandise or goods which any of the same may represent, and all
rights, title, security and guaranties with respect to each of the foregoing,
including, without limitation, any right of stoppage in transit.
"REGISTER" is defined in Section 13.3(C) hereof.
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"REGULATION T" means Regulation T of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by and to brokers and dealers of securities for the purpose
of purchasing or carrying margin stock (as defined therein).
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks, non-banks and non-broker lenders for the purpose
of purchasing or carrying Margin Stock applicable to member banks of the Federal
Reserve System.
"REGULATION X" means Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by foreign lenders for the purpose of purchasing or carrying
margin stock (as defined therein).
"REIMBURSEMENT OBLIGATION" is defined in Section 3.7 hereof.
"RELEASE" means any release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, including the movement of Contaminants
through or in the air, soil, surface water or groundwater.
"RENTALS" of a Person means the aggregate fixed amounts payable by such
Person under any lease of real or personal property that has an initial or
remaining non-cancelable lease term in excess of one year but does not include
any amounts payable under Capitalized Leases of such Person.
"REPLACEMENT LENDER" is defined in Section 2.20 hereof.
"REPORTABLE EVENT" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within thirty (30)
days after such event occurs, provided, however, that a failure to meet the
minimum funding standards of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"REQUIRED LENDERS" means Lenders whose Pro Rata Shares, in the
aggregate, are greater than fifty percent (50%); provided, however, that, if any
of the Lenders shall have failed to fund its Pro Rata Share of (i) any Revolving
Loan requested by the Borrower, (ii) any Revolving Loan required to be made in
connection with reimbursement for any L/C Obligations, (iii) any participation
in any Alternate Currency Loan pursuant to Section 2.21(E), or (iv) any Swing
Line Loan as requested by the Agent, which such Lenders are obligated to fund
under the terms of this Agreement, and any such failure has not been cured, then
for so long as such failure continues, "REQUIRED LENDERS" means Lenders
(excluding all Lenders whose failure to fund their respective Pro Rata Shares of
such Revolving Loans or Swing Line Loans or Alternate Currency Loans has not
been so cured) whose Pro Rata Shares represent greater than fifty percent (50%)
of
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the aggregate Pro Rata Shares of such Lenders; provided further, however, that,
if the Revolving Loan Commitments have been terminated pursuant to the terms of
this Agreement, "REQUIRED LENDERS" means Lenders (without regard to such
Lenders' performance of their respective obligations hereunder) whose aggregate
ratable shares (stated as a percentage) of the aggregate outstanding principal
balance of all Loans and L/C Obligations are greater than fifty percent (50%);
provided, further, however, that if any Lender shall have a Pro Rata Share or
aggregate ratable share (stated as a percentage), as applicable, greater than
fifty percent (50%), "Required Lenders" shall mean such Lender plus at least one
additional Lender.
"REQUIREMENTS OF LAW" means, as to any Person, the charter and by-laws
or other organizational or governing documents of such Person, and any law, rule
or regulation, or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is subject
including, without limitation, the Securities Act of 1933, the Securities
Exchange Act of 1934, Regulations T, U and X, ERISA, the Fair Labor Standards
Act, the Worker Adjustment and Retraining Notification Act, Americans with
Disabilities Act of 1990, and any certificate of occupancy, zoning ordinance,
building, environmental or land use requirement or permit or environmental,
labor, employment, occupational safety or health law, rule or regulation,
including Environmental, Health or Safety Requirements of Law.
"RESERVES" shall mean the maximum reserve requirement, as prescribed by
the Board of Governors of the Federal Reserve System (or any successor) with
respect to "Eurocurrency liabilities" or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Eurocurrency Rate Loans is determined or category of extensions of credit or
other assets which includes loans by a non-United States office of any Lender to
United States residents.
"RESTRICTED PAYMENT" means (i) any dividend or other distribution,
direct or indirect, on account of any Equity Interests of the Borrower now or
hereafter outstanding, except a dividend payable solely in the Borrower's
Capital Stock (other than Disqualified Stock) or in options, warrants or other
rights to purchase such Capital Stock, (ii) any redemption, retirement, purchase
or other acquisition for value, direct or indirect, of any Equity Interests of
the Borrower or any of its Subsidiaries now or hereafter outstanding, other than
in exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Borrower) of other Equity Interests of the
Borrower (other than Disqualified Stock), (iii) any redemption, purchase,
retirement, defeasance, prepayment or other acquisition for value, direct or
indirect, of any Indebtedness subordinated to the Obligations, and (iv) any
payment of a claim for the rescission of the purchase or sale of, or for
material damages arising from the purchase or sale of, any Indebtedness (other
than the Obligations) or any Equity Interests of the Borrower, or any of its
Subsidiaries, or of a claim for reimbursement, indemnification or contribution
arising out of or related to any such claim for damages or rescission.
"REVOLVING CREDIT AVAILABILITY" means, at any particular time, the
amount by which (x) the Aggregate Revolving Loan Commitment at such time exceeds
(y) the Dollar Amount of the Revolving Credit Obligations outstanding at such
time.
"REVOLVING CREDIT OBLIGATIONS" means, at any particular time, the sum
of (i) the outstanding principal Dollar Amount of the Revolving Loans at such
time, plus (ii) the
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outstanding principal amount of the Swing Line Loans at such time, plus (iii)
the outstanding L/C Obligations at such time, plus (iv) the Dollar Amount of the
outstanding principal amount of the Alternate Currency Loans at such time.
"REVOLVING LOAN" is defined in Section 2.2 hereof.
"REVOLVING LOAN COMMITMENT" means, for each Lender, the obligation of
such Lender to make Revolving Loans and to purchase participations in Letters of
Credit and to participate in Swing Line Loans and Alternate Currency Loans not
exceeding the amount set forth on Exhibit A to this Agreement opposite its name
thereon under the heading "Revolving Loan Commitment" or the signature page of
the assignment and acceptance by which it became a Lender, as such amount may be
modified from time to time pursuant to the terms of this Agreement or to give
effect to any applicable assignment and acceptance.
"REVOLVING LOAN TERMINATION DATE" means May 7, 2004.
"RISK-BASED CAPITAL GUIDELINES" is defined in Section 4.2 hereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.
"SINGLE EMPLOYER PLAN" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"SOLVENT" means, when used with respect to any Person, that at the time
of determination:
(i) the fair value of its assets (both at fair valuation and at
present fair saleable value) is equal to or in excess of the total
amount of its liabilities, including, without limitation, contingent
liabilities; and
(ii) it is then able and expects to be able to pay its debts as
they mature; and
(iii) it has capital sufficient to carry on its business as
conducted and as proposed to be conducted.
With respect to contingent liabilities (such as litigation, guarantees and
pension plan liabilities), such liabilities shall be computed at the amount
which, in light of all the facts and circumstances existing at the time,
represent the amount which can be reasonably be expected to become an actual or
matured liability.
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than fifty percent (50%) of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a "Subsidiary"
means a Subsidiary of the Borrower.
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"SWING LINE BANK" means Bank One or any other Lender as a successor
Swing Line Bank pursuant to the terms hereof.
"SWING LINE COMMITMENT" means the obligation of the Swing Line Bank to
make Swing Line Loans up to a maximum principal amount of $15,000,000 at any one
time outstanding.
"SWING LINE LOAN" means a Loan made available to the Borrower by the
Swing Line Bank pursuant to Section 2.3 hereof.
"TAXES" is defined in Section 2.15(E)(i) hereof.
"TERMINATION DATE" means the earlier of (a) the Revolving Loan
Termination Date, and (b) the date of termination in whole of the Aggregate
Revolving Loan Commitment pursuant to Section 2.6 hereof or the Revolving Loan
Commitments pursuant to Section 9.1 hereof.
"TERMINATION EVENT" means (i) a Reportable Event with respect to any
Benefit Plan; (ii) the withdrawal of the Borrower or any member of the
Controlled Group from a Benefit Plan during a plan year in which the Borrower or
such Controlled Group member was a "substantial employer" as defined in Section
4001(a)(2) of ERISA or the cessation of operations which results in the
termination of employment of twenty percent (20%) of Benefit Plan participants
who are employees of the Borrower or any member of the Controlled Group; (iii)
the imposition of an obligation on the Borrower or any member of the Controlled
Group under Section 4041 of ERISA to provide affected parties written notice of
intent to terminate a Benefit Plan in a distress termination described in
Section 4041(c) of ERISA; (iv) the institution by the PBGC of proceedings to
terminate a Benefit Plan; (v) any event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Benefit Plan; or (vi) the partial or complete
withdrawal of the Borrower or any member of the Controlled Group from a
Multiemployer Plan.
"TRANSFEREE" is defined in Section 13.5 hereof.
"TYPE" means, with respect to any Loan, its nature as a Floating Rate
Loan or a Eurocurrency Rate Loan.
"UNFUNDED LIABILITIES" means (i) in the case of Single Employer Plans,
the amount (if any) by which the present value of all vested nonforfeitable
benefits under all Single Employer Plans exceeds the fair market value of all
such Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plans, and (ii) in the case of Multiemployer
Plans, the withdrawal liability that would be incurred by the Controlled Group
if all members of the Controlled Group completely withdrew from all
Multiemployer Plans.
"UNMATURED DEFAULT" means an event which, but for the lapse of time or
the giving of notice, or both, would constitute a Default.
"WEIGHTED AVERAGE LIFE TO MATURITY" means when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by
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(b) the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"WORKING CAPITAL" means, as at any date of determination and in
conformity with Agreement Accounting Principles, the excess, if any, of (i) the
Borrower's consolidated current assets, except cash and Cash Equivalents, over
(ii) the Borrower's consolidated current liabilities, except current maturities
of long-term Indebtedness and Revolving Credit Obligations as of such date and
all accrued interest as of such date.
"YEAR 2000 ISSUES" means, with respect to any Person, anticipated
costs, problems and uncertainties associated with the inability of certain
computer applications and imbedded systems to effectively handle data, including
dates, prior to, on and after January 1, 2000, as it affects the business,
operations, and financial condition of such Person, and such Person's customers,
suppliers and vendors.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms. Any accounting terms used in
this Agreement which are not specifically defined herein shall have the meanings
customarily given them in accordance with generally accepted accounting
principles in existence as of the date hereof.
1.2 References. Any references to Subsidiaries of the Borrower set
forth herein shall (i) with respect to representations and warranties which deal
with historical matters be deemed to include the Borrower and its Subsidiaries
shall not in any way be construed as consent by the Agent or any Lender to the
establishment, maintenance or acquisition of any Subsidiary, except as may
otherwise be permitted hereunder.
1.3 Supplemental Disclosure. At any time at the request of the Agent
and at such additional times as the Borrower determines, the Borrower shall
supplement each schedule or representation herein or in the other Loan Documents
with respect to any matter hereafter arising which, if existing or occurring at
the date of this Agreement, would have been required to be set forth or
described in such schedule or as an exception to such representation or which is
necessary to correct any information in such schedule or representation which
has been rendered inaccurate thereby. Unless any such supplement to such
schedule or representation discloses the existence or occurrence of events,
facts or circumstances which are not prohibited by the terms of this Agreement
or any other Loan Documents, such supplement to such schedule or representation
shall not be deemed an amendment thereof unless expressly consented to in
writing by Agent and the Required Lenders, and no such amendments, except as the
same may be consented to in a writing which expressly includes a waiver, shall
be or be deemed a waiver by the Agent or any Lender of any Default disclosed
therein.
1.4. Rounding and Other Consequential Changes. Without prejudice to any
method of conversion or rounding prescribed by any legislative measures of the
Council of the European Union, each reference in this Agreement to a fixed
amount or to fixed amounts in a National Currency Unit to be paid to or by the
Agent shall be replaced by a reference to such comparable and convenient fixed
amount or fixed amounts in the euro as the Agent may from time to time specify
unless such National Currency Unit remains available and the Borrower and the
Agent agree to use such National Currency Unit instead of the euro.
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ARTICLE II: REVOLVING LOAN FACILITIES
2.1. [Reserved].
2.2 Revolving Loans. (A) Upon the satisfaction of the conditions
precedent set forth in Sections 5.1 and 5.2, as applicable, from and including
the Closing Date and prior to the Termination Date, each Lender severally and
not jointly agrees, on the terms and conditions set forth in this Agreement, to
make revolving loans to the Borrower from time to time, in Dollars or
Eurocurrency Loans in any Agreed Currency, in a Dollar Amount not to exceed such
Lender's Pro Rata Share of Revolving Credit Availability at such time (each
individually, a "REVOLVING LOAN" and, collectively, the "REVOLVING LOANS");
provided, however, at no time shall the Dollar Amount of the Revolving Credit
Obligations exceed the Aggregate Revolving Loan Commitment; provided, further,
however, that upon giving effect to each Advance, the aggregate outstanding
principal Dollar Amount of all Eurocurrency Rate Advances in Agreed Currencies
other than Dollars and all L/C Obligations in Agreed Currencies other than
Dollars and all Alternate Currency Loans shall not exceed the Maximum
Eurocurrency Amount at any time prior to the Termination Date; provided,
further, however, that upon giving effect to each Advance, the aggregate
outstanding principal Dollar Amount of all Alternate Currency Loans in Canadian
Dollars shall not exceed $5,000,000. Subject to the terms of this Agreement, the
Borrower may borrow, repay and reborrow Revolving Loans at any time prior to the
Termination Date. The Revolving Loans made on the Closing Date or on or before
the third (3rd) Business Day thereafter shall initially be Floating Rate Loans
and thereafter may be continued as Floating Rate Loans or converted into
Eurocurrency Rate Loans in the manner provided in Section 2.10 and subject to
the other conditions and limitations therein set forth and set forth in this
Article II and set forth in the definition of Interest Period. Revolving Loans
made after the third (3rd) Business Day after the Closing Date shall be, at the
option of the Borrower, selected in accordance with Section 2.10, either
Floating Rate Loans or Eurocurrency Rate Loans. On the Termination Date, the
Borrower shall repay in full the outstanding principal balance of the Revolving
Loans. Each Advance under this Section 2.2 shall consist of Revolving Loans made
by each Lender ratably in proportion to such Lender's respective Pro Rata Share.
Subject to the terms and conditions hereof, during the term of this Agreement,
the Alternate Currency Bank hereby agrees to make Alternate Currency Loans to
the Alternate Currency Borrowers pursuant to the applicable Alternate Currency
Addendum as the applicable Alternate Currency Borrower may from time to time
request pursuant to Section 2.21 and the applicable Alternate Currency Addendum.
(B) Borrowing/Conversion/Continuation Notice. The Borrower shall
deliver to the Agent a Borrowing/Conversion/Continuation Notice, signed by it,
in accordance with the terms of Section 2.8. The Agent shall promptly notify
each Lender with a Revolving Loan Commitment greater than zero of such request.
(C) Making of Revolving Loans. Promptly after receipt of the
Borrowing/Conversion/Continuation Notice under Section 2.8 in respect of
Revolving Loans, the Agent shall notify each Lender with a Revolving Loan
Commitment greater than zero by telex or telecopy, or other similar form of
transmission, of the requested Revolving Loan. Each Lender with a Revolving Loan
Commitment greater than zero shall make available its Revolving Loan in
accordance with the terms of Section 2.7. The Agent will promptly make the funds
so received from the Lenders available to the Borrower at the Agent's office in
Chicago, Illinois on
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the applicable Borrowing Date and shall disburse such proceeds in accordance
with the Borrower's disbursement instructions set forth in such
Borrowing/Conversion/Continuation Notice. The failure of any Lender to deposit
the amount described above with the Agent on the applicable Borrowing Date shall
not relieve any other Lender of its obligations hereunder to make its Revolving
Loan on such Borrowing Date.
2.3 Swing Line Loans. (A) Amount of Swing Line Loans. Upon the
satisfaction of the conditions precedent set forth in Section 5.1 and 5.2, as
applicable, from and including the Closing Date and prior to the Termination
Date, the Swing Line Bank agrees, on the terms and conditions set forth in this
Agreement, to make swing line loans to the Borrower from time to time, in
Dollars, in an amount not to exceed the Swing Line Commitment (each,
individually, a "SWING LINE LOAN" and collectively, the "SWING LINE LOANS");
provided, however, at no time shall the Dollar Amount of the Revolving Credit
Obligations exceed the Aggregate Revolving Loan Commitment; and provided,
further, that at no time shall the sum of (a) the Swing Line Lender's Pro Rata
Share of the Swing Line Loans, plus (b) the outstanding Dollar Amount of
Revolving Loans made by the Swing Line Bank pursuant to Section 2.2, exceed the
Swing Line Bank's Revolving Loan Commitment at such time. Subject to the terms
of this Agreement, the Borrower may borrow, repay and reborrow Swing Line Loans
at any time prior to the Termination Date.
(B) Borrowing/Conversion/Continuation Notice. The Borrower shall
deliver to the Agent and the Swing Line Bank a Borrowing/Conversion/Continuation
Notice, signed by it, not later than 2:00 p.m. (Chicago time) on the Borrowing
Date of each Swing Line Loan, specifying (i) the applicable Borrowing Date
(which date shall be a Business Day and which may be the same date as the date
the Borrowing/Conversion/Continuation Notice is given), and (ii) the aggregate
amount of the requested Swing Line Loan which shall be an amount not less than
$200,000. The Swing Line Loans shall at all times be Floating Rate Loans.
(C) Making of Swing Line Loans. Promptly after receipt of the
Borrowing/Conversion/ Continuation Notice under Section 2.3(B) in respect of
Swing Line Loans, the Agent shall notify each Lender by telex or telecopy, or
other similar form of transmission, of the requested Swing Line Loan. Not later
than 3:00 p.m. (Chicago time) on the applicable Borrowing Date, the Swing Line
Bank shall make available its Swing Line Loan, in funds immediately available in
Chicago to the Agent at its address specified pursuant to Article XIV. The Agent
will promptly make the funds so received from the Swing Line Bank available to
the Borrower on the Borrowing Date at the Agent's aforesaid address.
(D) Repayment of Swing Line Loans. Each Swing Line Loan shall be paid
in full by the Borrower on or before the fifth (5th) Business Day after the
Borrowing Date for such Swing Line Loan. The Borrower may at any time pay,
without penalty or premium, all outstanding Swing Line Loans or, in a minimum
amount of $200,000 and increments of $100,000 in excess thereof, any portion of
the outstanding Swing Line Loans, upon notice to the Agent and the Swing Line
Bank. In addition, the Agent (i) may at any time in its sole discretion with
respect to any outstanding Swing Line Loan, or (ii) shall on the fifth (5th)
Business Day after the Borrowing Date of any Swing Line Loan, require each
Lender (including the Swing Line Bank) to make a Revolving Loan in the amount of
such Lender's Pro Rata Share of such Swing Line Loan, for the purpose of
repaying such Swing Line Loan. Not later than 2:00 p.m. (Chicago time) on the
date of any notice received pursuant to this Section 2.3(D), each Lender shall
make available its
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required Revolving Loan or Revolving Loans, in funds immediately available in
Chicago to the Agent at its address specified pursuant to Article XIV. Revolving
Loans made pursuant to this Section 2.3(D) shall initially be Floating Rate
Loans and thereafter may be continued as Floating Rate Loans or converted into
Eurocurrency Rate Loans in the manner provided in Section 2.10 and subject to
the other conditions and limitations therein set forth and set forth in this
Article II. Unless a Lender shall have notified the Swing Line Bank, prior to
its making any Swing Line Loan, that any applicable condition precedent set
forth in Sections 5.1 and 5.2, as applicable, had not then been satisfied, such
Lender's obligation to make Revolving Loans pursuant to this Section 2.3(D) to
repay Swing Line Loans shall be unconditional, continuing, irrevocable and
absolute and shall not be affected by any circumstances, including, without
limitation, (a) any set-off, counterclaim, recoupment, defense or other right
which such Lender may have against the Agent, the Swing Line Bank or any other
Person, (b) the occurrence or continuance of a Default or Unmatured Default, (c)
any adverse change in the condition (financial or otherwise) of the Borrower, or
(d) any other circumstances, happening or event whatsoever. In the event that
any Lender fails to make payment to the Agent of any amount due under this
Section 2.3(D), the Agent shall be entitled to receive, retain and apply against
such obligation the principal and interest otherwise payable to such Lender
hereunder until the Agent receives such payment from such Lender or such
obligation is otherwise fully satisfied. In addition to the foregoing, if for
any reason any Lender fails to make payment to the Agent of any amount due under
this Section 2.3(D), such Lender shall be deemed, at the option of the Agent, to
have unconditionally and irrevocably purchased from the Swing Line Bank, without
recourse or warranty, an undivided interest and participation in the applicable
Swing Line Loan in the amount of such Revolving Loan, and such interest and
participation may be recovered from such Lender together with interest thereon
at the Federal Funds Effective Rate for each day during the period commencing on
the date of demand and ending on the date such amount is received. On the
Termination Date, the Borrower shall repay in full the outstanding principal
balance of the Swing Line Loans.
2.4 Rate Options for all Advances; Maximum Interest Periods. The Swing
Line Loans shall be Floating Rate Advances at all times. The Revolving Loans may
be Floating Rate Advances or Eurocurrency Rate Advances, or a combination
thereof, selected by the Borrower in accordance with Section 2.10. The Borrower
may select, in accordance with Section 2.10, Rate Options and Interest Periods
applicable to portions of the Revolving Loans and Alternate Currency Loans;
provided that there shall be no more than nine (9) Interest Periods in effect
with respect to all of the Loans at any time (unless otherwise provided in the
applicable Alternate Currency Addendum with respect to Alternate Currency
Loans). Each Alternate Currency Loan shall bear interest on the outstanding
principal amount thereof, for the Interest Period applicable thereto, at the
Alternate Currency Rate as set forth in the applicable Alternate Currency
Addendum.
2.5 Optional Payments; Mandatory Prepayments.
(A) Optional Payments. The Borrower may from time to time and at any
time upon at least one (1) Business Day's prior written notice repay or prepay,
without penalty or premium all or any part of outstanding Floating Rate Advances
in an aggregate minimum amount of $1,000,000 and in integral multiples of
$1,000,000 in excess thereof. Eurocurrency Rate Advances may be voluntarily
repaid or prepaid prior to the last day of the applicable Interest Period,
subject to the indemnification provisions contained in Section 4.4, provided,
that the Borrower may not so prepay Eurocurrency Rate Advances unless it shall
have provided at least
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<PAGE> 34
five (5) Business Days' prior written notice to the Agent of such prepayment.
Each Alternate Currency Borrower may, upon prior written notice to the Agent and
to the Alternate Currency Bank as prescribed in the applicable Alternate
Currency Addendum and specifying that it is prepaying all or a portion of its
Alternate Currency Loans, prepay its Alternate Currency Loans in whole at any
time, or from time to time in part in amounts aggregating $1,000,000 or any
larger multiple of $500,000 (or as otherwise specified in the applicable
Alternate Currency Addendum) by paying the principal amount to be paid together
with all accrued and unpaid interest thereon to and including the date of
payment provided any such payment occurs on the last day of any Interest Period
related to such Alternate Currency Loan.
(B) Mandatory Prepayments of Revolving Loans. (i) If at any time and
for any reason (other than fluctuations in currency exchange rates) the Dollar
Amount of the Revolving Credit Obligations are greater than the Aggregate
Revolving Loan Commitment, the Borrower shall immediately make a mandatory
prepayment of the Obligations in an amount equal to such excess. In addition, if
the Dollar Amount of the L/C Obligations (calculated as of the last Business Day
of each fiscal quarter, or, at the Agent's option, as of the last Business Day
of each calendar month) outstanding at any time is greater than the lesser of
(A) the Aggregate Revolving Loan Commitment at such time minus the sum of the
outstanding principal Dollar Amount of the Revolving Loans at such time and the
outstanding principal amount of the Swing Line Loans at such time and the
outstanding principal Dollar Amount of the Alternate Currency Loans at such time
and (B) $15,750,000 (or the Equivalent Amount in Dollars), the Borrower shall
either repay Revolving Loans or deposit cash collateral in a cash collateral
account established with the Agent, in either case, in an amount in Dollars
equal to such excess.
(ii) If on the last Business Day of any month:
(x) the Dollar Amount of the Revolving Credit Obligations
exceeds one hundred five percent (105%) of the Aggregate
Revolving Loan Commitment, the Borrower for the ratable
benefit of the Lenders shall immediately prepay Loans (to be
applied to such Loans as the Borrower shall direct at the
time of such payment) in an aggregate amount such that after
giving effect thereto the Dollar Amount of the Revolving
Credit Obligations is less than or equal to the Aggregate
Revolving Loan Commitment; or
(y) the Dollar Amount of all outstanding Alternate Currency
Loans under the Alternate Currency Addenda exceeds one
hundred five percent (105%) of the aggregate Alternate
Currency Commitments with respect thereto, the Borrower
shall on such date prepay, or cause to be prepaid, Alternate
Currency Loans in an aggregate amount such that after giving
effect thereto the Dollar Amount of all such Alternate
Currency Loans is less than or equal to the aggregate
Alternate Currency Commitments with respect thereto; or
(z) the Dollar Amount of the aggregate outstanding principal
amount of Alternate Currency Loans in the same Alternate
Currency exceeds the aggregate Alternate Currency
Commitments with respect thereto, the applicable Borrowers
shall on such date prepay Alternate Currency Loans in such
Alternate Currency in an aggregate amount such that after
giving effect thereto the Dollar amount of all Alternate
Currency Loans is less than or equal to the aggregate
Alternate Currency Commitments with respect thereto.
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<PAGE> 35
(iii) All of the mandatory prepayments made under this Section 2.5(B)
shall be applied first to Floating Rate Loans and Alternate Currency Loans
bearing a fluctuating Alternate Currency Rate and to any Eurocurrency Rate Loans
and Alternate Currency Loans bearing a fixed Alternate Currency Rate maturing on
such date and then to subsequently maturing Eurocurrency Rate Loans and
Alternate Currency Loans bearing a fixed Alternate Currency Rate in order of
maturity.
2.6 Reduction of Commitments. The Borrower may permanently reduce the
Aggregate Revolving Loan Commitment in whole, or in part ratably among the
Lenders, in an aggregate minimum amount of $5,000,000 with respect thereto and
integral multiples of $1,000,000 in excess of that amount with respect thereto
(unless the Aggregate Revolving Loan Commitment is reduced in whole), upon at
least three (3) Business Day's prior written notice to the Agent, which notice
shall specify the amount of any such reduction; provided, however, that the
amount of the Aggregate Revolving Loan Commitment may not be reduced below the
aggregate principal Dollar Amount of the outstanding Revolving Credit
Obligations. All accrued commitment fees shall be payable on the effective date
of any termination of the obligations of the Lenders to make Loans hereunder.
Each Alternate Currency Borrower may, upon three (3) Business Days prior written
notice to the Agent and to the Alternate Currency Bank, terminate entirely at
any time or reduce from time to time by an aggregate amount of $1,000,000 or any
larger multiple of $100,000, (or as set forth on the applicable Alternate
Currency Addendum) the unused portions of the applicable Alternate Currency
Commitment as specified by the applicable Alternate Currency Borrower in such
notice to the Agent and the Alternate Currency Bank; provided, however, that at
no time shall the Alternate Currency Commitments be reduced to a figure less
than the total of the outstanding principal amount of all Alternate Currency
Loans.
2.7 Method of Borrowing. Not later than 2:00 p.m. (Chicago time) on
each Borrowing Date, each Lender shall make available its Revolving Loan in
immediately available funds in the Agreed Currency to the Agent at its address
specified pursuant to Article XIV, unless the Agent has notified the Lenders
that such Loan is to be made available to the Borrower at the Agent's
Eurocurrency Payment office, in which case each Lender shall make available its
Loan or Loans, in funds immediately available to the Agent at its Eurocurrency
Payment Office, not later than 1:00 p.m. (local time in the city of the Agent's
Eurocurrency Payment Office) in the Agreed Currency designated by the Agent. The
Agent will promptly make the funds so received from the Lenders available to the
Borrower at the Agent's aforesaid address.
2.8 Method of Selecting Types and Interest Periods for Advances. The
Borrower and the Alternate Currency Borrowers, as applicable, shall select the
Type of Advance and, in the case of each Alternate Currency Loan and
Eurocurrency Rate Advance, the Interest Period, Agreed Currency and Alternate
Currency applicable to each Advance from time to time. The Borrower shall give
the Agent irrevocable notice in substantially the form of Exhibit B hereto (a
"BORROWING/CONVERSION/ CONTINUATION NOTICE") not later than 10:00 a.m. (Chicago
time) (a) on or before the Borrowing Date of each Floating Rate Advance, and (b)
three (3) Business Days before the Borrowing Date for each Eurocurrency Rate
Advance to be made in Dollars, and (c) four (4) Business Days before the
Borrowing Date for each Eurocurrency Rate Advance to be made in any Agreed
Currency other than Dollars and (d) five (5) Business Days before the Borrowing
Date for each Alternate Currency Loan (or such other period as may be agreed to
by the Agent), and the applicable Alternate Currency Borrower shall give the
Alternate Currency Bank irrevocable notice by 10:00 a.m. (local time) two (2)
Business Days prior to the Borrowing
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Date for such Alternate Currency Loan (or such other period as may specified in
the applicable Alternate Currency Addendum), specifying: (i) the Borrowing Date
(which shall be a Business Day) of such Advance; (ii) the aggregate amount of
such Advance; (iii) the Type of Advance selected; and (iv) in the case of each
Eurocurrency Rate Advance and Alternate Currency Loan, the Interest Period and
Agreed Currency or Alternate Currency applicable thereto. The Borrower shall
select Interest Periods so that, to the best of the Borrower's knowledge, it
will not be necessary to prepay all or any portion of any Eurocurrency Rate
Advance or Alternate Currency Loan prior to the last day of the applicable
Interest Period in order to make mandatory prepayments as required pursuant to
the terms hereof. Each Floating Rate Advance, each Alternate Currency Loan
bearing a fluctuating Alternate Currency Rate and all Obligations other than
Loans shall bear interest from and including the date of the making of such
Advance, in the case of Loans, and the date such Obligation is due and owing in
the case of such other Obligations, to (but not including) the date of repayment
thereof at the Floating Rate or Alternate Currency Rate, as applicable, changing
when and as such Floating Rate or Alternate Currency Rate, as applicable,
changes. Changes in the rate of interest on that portion of any Advance
maintained as a Floating Rate Loan will take effect simultaneously with each
change in the Alternate Base Rate. Changes in the rate of interest on any
portion of any Alternate Currency Loan bearing a fluctuating Alternate Currency
Rate will take effect simultaneously with each change in such Alternate Currency
Rate. Each Eurocurrency Rate Advance and each Alternate Currency Loan bearing a
fixed Alternate Currency Rate shall bear interest from and including the first
day of the Interest Period applicable thereto to (but not including) the last
day of such Interest Period at the interest rate determined as applicable to
such Eurocurrency Rate Advance or Alternate Currency Loan, as applicable.
2.9 Minimum Amount of Each Advance. Each Advance (other than an Advance
to repay Swing Line Loans or a Reimbursement Obligation) shall be in the minimum
amount of $1,000,000 (or the approximate Equivalent Amount of any Agreed
Currency other than Dollars or any Alternate Currency) and in multiples of
$200,000 (or the Approximate Equivalent amount of any Agreed Currency other than
Dollars or any Alternate Currency) if in excess thereof (or such other amounts
as may be specified in the applicable Alternate Currency Addendum), provided,
however, that any Floating Rate Advance may be in the amount of the unused
Aggregate Revolving Loan Commitment.
2.10 Method of Selecting Types and Interest Periods for Conversion and
Continuation of Advances.
(A) Right to Convert. The Borrower may elect from time to time, subject
to the provisions of Section 2.4 and this Section 2.10, to convert all or any
part of a Loan of any Type into any other Type or Types of Loans; provided that
any conversion of any Eurocurrency Rate Advance and any Alternate Currency Loan
shall be made on, and only on, the last day of the Interest Period applicable
thereto.
(B) Automatic Conversion and Continuation. Floating Rate Loans shall
continue as Floating Rate Loans unless and until such Floating Rate Loans are
converted into Eurocurrency Rate Loans. Eurocurrency Rate Loans shall continue
as Eurocurrency Rate Loans until the end of the then applicable Interest Period
therefor, at which time such Eurocurrency Rate Loans shall be automatically
converted into Floating Rate Loans unless the Borrower shall have given the
Agent notice in accordance with Section 2.10(D) requesting that, at the end of
such Interest
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<PAGE> 37
Period, such Eurocurrency Rate Loans continue as a Eurocurrency Rate Loan.
Unless a Borrowing/Conversion/Continuation Notice shall have timely been given
in accordance with the terms of this Section 2.10, Eurocurrency Rate Advances in
an Agreed Currency other than Dollars and Alternate Currency Loans shall
automatically continue as Eurocurrency Rate Advances in the same Agreed Currency
or Alternate Currency Loans in the same Alternate Currency, as applicable, with
an Interest Period of one (1)month.
(C) No Conversion Post-Default or Post-Unmatured Default.
Notwithstanding anything to the contrary contained in Section 2.10(A) or Section
2.10(B), no Loan may be converted into or continued as a Eurocurrency Rate Loan
(except with the consent of the Required Lenders) when any Default or Unmatured
Default has occurred and is continuing.
(D) Borrowing/Conversion/Continuation Notice. The Borrower shall give
the Agent irrevocable notice (a "BORROWING/CONVERSION/CONTINUATION NOTICE") of
each conversion of a Floating Rate Loan into a Eurocurrency Rate Loan or
continuation of a Eurocurrency Rate Loan not later than 10:00 a.m. (Chicago
time) (x) three (3) Business Days prior to the date of the requested conversion
or continuation, with respect to any Loan to be converted or continued as a
Eurocurrency Rate Loan in Dollars, (y) four (4) Business Days prior to the date
of the requested conversion or continuation with respect to any Loan to be
converted or continued as a Eurocurrency Rate Loan in an Agreed Currency other
than Dollars, and (z) five (5) Business Days before the date of the requested
conversion or continuation Borrowing Date with respect to the conversion or
continuation of any Alternate Currency Loan (or such other period as may be
agreed to by the Agent), and the applicable Alternate Currency Borrower shall
give the Alternate Currency Bank irrevocable notice by 10:00 a.m. (local time)
two (2) Business Days prior to the conversion or continuation of such Alternate
Currency Loan (or such other period as may specified in the applicable Alternate
Currency Addendum), specifying: (1) the requested date (which shall be a
Business Day) of such conversion or continuation; (2) the amount and Type of the
Loan to be converted or continued; and (3) the amount of Eurocurrency Rate
Loan(s) or Alternate Currency Loan(s), as applicable, into which such Loan is to
be converted or continued, the Agreed Currency or Alternate Currency, as
applicable, and the duration of the Interest Period applicable thereto.
(E) Notwithstanding anything herein to the contrary, (x) Eurocurrency
Rate Advances in an Agreed Currency may be converted and/or continued as
Eurocurrency Rate Advances only in the same Agreed Currency, and (y) Alternate
Currency Loans in an Alternate Currency may be converted and/or continued as
Alternate Currency Loans only in the same Alternate Currency.
2.11 Default Rate. After the occurrence and during the continuance of a
Default, at the direction of the Required Lenders, the interest rate(s)
applicable to the Obligations and to the fees payable under Section 3.8 with
respect to Letters of Credit shall be equal to the then highest interest rate(s)
hereunder plus two percent (2.0%) per annum. After the occurrence of a Default,
the principal balance of, and, to the extent permitted by law, any overdue
interest on any Alternate Currency Loan shall bear interest, payable upon
demand, for each day until paid at the rate per annum equal to two percent
(2.00%) plus the interest rate applicable to such Alternate Currency Loan
immediately prior to the Default.
2.12 Method of Payment. All payments of principal, interest, fees,
commissions and L/C Obligations hereunder shall be made, without setoff,
deduction or counterclaim (unless indicated
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<PAGE> 38
otherwise in Section 2.15(E)), in immediately available funds to the Agent (i)
at the Agent's address specified pursuant to Article XIV with respect to
Advances or other Obligations denominated in Dollars and (ii) at the Agent's
Eurocurrency Payment Office with respect to any Advance or other Obligations
denominated in an Agreed Currency other than Dollars, or at any other Lending
Installation of the Agent specified in writing by the Agent to the Borrower, by
2:00 p.m. (Chicago time) on the date when due and shall be made ratably among
the Lenders (unless such amount is not to be shared ratably in accordance with
the terms hereof). Each Advance shall be repaid or prepaid in the Agreed
Currency in which it was made in the amount borrowed and interest payable
thereon shall also be paid in such currency. Each payment delivered to the Agent
for the account of any Lender shall be delivered promptly by the Agent to such
Lender in the same type of funds which the Agent received at its address
specified pursuant to Article XIV or at any Lending Installation specified in a
notice received by the Agent from such Lender. The Borrower authorizes the Agent
to charge the account of the Borrower maintained with Bank One for each payment
of principal, interest, fees, commissions and L/C Obligations as it becomes due
hereunder. Each reference to the Agent in this Section 2.12 shall also be deemed
to refer, and shall apply equally, to each Issuing Bank, in the case of payments
required to be made by the Borrower to any Issuing Bank pursuant to Article III.
All payments to be made by the Borrowers hereunder in respect of any
Alternate Currency Loans shall be made in the currencies in which such Loans are
denominated and in funds immediately available, at the office or branch from
which the Loan was made pursuant to Section 2.21 and the applicable Alternate
Currency Addendum not later than 3:00 p.m. (local time) on the date on which
such payment shall become due. Promptly upon receipt of any payment of principal
of the Alternate Currency Loans the Alternate Currency Bank shall give written
notice to the Agent by telex or telecopy of the receipt of such payment.
Notwithstanding the foregoing provisions of this Section, if, after the
making of any Advance in any currency other than Dollars, currency control or
exchange regulations are imposed in the country which issues such Agreed
Currency or Alternate Currency, as applicable, with the result that different
types of such Agreed Currency or Alternate Currency, as applicable, (the "NEW
CURRENCY") are introduced and the type of currency in which the Advance was made
(the "ORIGINAL CURRENCY") no longer exists or any Borrower is not able to make
payment to the Agent for the account of the Lenders or Alternate Currency Bank,
as applicable, in such Original Currency, then all payments to be made by the
Borrowers hereunder in such currency shall be made to the Agent or Alternate
Currency Bank, as applicable, in such amount and such type of the New Currency
or Dollars as shall be equivalent to the amount of such payment otherwise due
hereunder in the Original Currency, it being the intention of the parties hereto
that the Borrowers take all risks of the imposition of any such currency control
or exchange regulations. In addition, notwithstanding the foregoing provisions
of this Section, if, after the making of any Advance in any currency other than
Dollars, the Borrower is not able to make payment to the Agent for the account
of the Lenders or the Alternate Currency Bank in the type of currency in which
such Advance was made because of the imposition of any such currency control or
exchange regulation, then such Advance shall instead be repaid when due in
Dollars in a principal amount equal to the Dollar Amount (as of the date of
repayment) of such Advance.
2.13 Evidence of Debt.
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(A) Each Lender shall maintain in accordance with its usual practice an
account or accounts (a "LOAN ACCOUNT") evidencing the indebtedness of the
Borrower to such Lender owing to such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time hereunder.
(B) The Register maintained by the Agent pursuant to Section 13.3(C)
shall include a control account, and a subsidiary account for each Lender, in
which accounts (taken together) shall be recorded (i) the date and the amount of
each Loan made hereunder, the Type thereof and the Interest Period, if any,
applicable thereto, (ii) the amount of any principal or interest due and payable
or to become due and payable from the Borrowers to each Lender hereunder, (iii)
the effective date and amount of each Assignment Agreement delivered to and
accepted by it and the parties thereto pursuant to Section 13.3, (iv) the amount
of any sum received by the Agent hereunder for the account of the Lenders and
each Lender's share thereof, and (v) all other appropriate debits and credits as
provided in this Agreement, including, without limitation, all fees, charges,
expenses and interest.
(C) The entries made in the Loan Account, the Register and the other
accounts maintained pursuant to subsections (A) or (B) of this Section shall be
conclusive and binding for all purposes, absent manifest error, unless the
applicable Borrower objects to information contained in the Loan Accounts, the
Register or the other accounts within thirty (30) days of the applicable
Borrower's receipt of such information; provided that the failure of any Lender
or the Agent to maintain such accounts or any error therein shall not in any
manner affect the obligation of the Borrowers to repay the Loans in accordance
with the terms of this Agreement.
(D) Any Lender may request that the Revolving Loans made by it each be
evidenced by a promissory note in substantially the forms of Exhibit K to
evidence such Lender's Revolving Loans. In such event, the applicable Borrower
shall prepare, execute and deliver to such Lender a promissory note for such
Loans payable to the order of such Lender and in a form approved by the Agent
and consistent with the terms of this Agreement. Thereafter, the Loans evidenced
by such promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 13.3) be represented by one or more promissory
notes in such form payable to the order of the payee named therein.
2.14 Telephonic Notices. The Borrowers authorize the Lenders and the
Agent to extend Advances, effect selections of Types of Advances and to transfer
funds based on telephonic notices made by any person or persons the Agent or any
Lender in good faith believes to be acting on behalf of the applicable Borrower.
The Borrowers agree to deliver promptly to the Agent a written confirmation,
signed by an Authorized Officer, if such confirmation is requested by the Agent
or any Lender, of each telephonic notice. If the written confirmation differs in
any material respect from the action taken by the Agent and the Lenders, the
records of the Agent and the Lenders shall govern absent manifest error. In case
of disagreement concerning such notices, if the Agent has recorded telephonic
borrowing notices, such recordings will be made available to the applicable
Borrower upon the Borrower's request therefor.
2.15 Promise to Pay; Interest and Commitment Fees; Interest Payment
Dates; Interest and Fee Basis; Taxes; Loan and Control Accounts.
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(A) Promise to Pay. The Borrower unconditionally promises to pay when
due the principal amount of each Loan and all other Obligations incurred by it,
and to pay all unpaid interest accrued thereon, in accordance with the terms of
this Agreement and the other Loan Documents.
(B) Interest Payment Dates. Interest accrued on each Floating Rate Loan
and each Alternate Currency Loan bearing a fluctuating Alternate Currency Rate
shall be payable on each Payment Date, commencing with the first such date to
occur after the date hereof, upon any prepayment whether by acceleration or
otherwise, and at maturity (whether by acceleration or otherwise). Interest
accrued on each Eurocurrency Rate Loan and each Alternate Currency Loan bearing
a fixed Alternate Currency Rate shall be payable on the last day of its
applicable Interest Period, on any date on which the Eurocurrency Rate Loan or
Alternate Currency Loan is prepaid, whether by acceleration or otherwise, and at
maturity. Interest accrued on each Eurocurrency Rate Loan and each Alternate
Currency Loan bearing a fixed Alternate Currency Rate having an Interest Period
longer than three months shall also be payable on the last day of each
three-month interval during such Interest Period. Interest accrued on the
principal balance of all other Obligations shall be payable in arrears (i) on
the last day of each calendar month, commencing on the first such day following
the incurrence of such Obligation, (ii) upon repayment thereof in full or in
part, and (iii) if not theretofore paid in full, at the time such other
Obligation becomes due and payable (whether by acceleration or otherwise).
(C) Commitment Fees.
(i) The Borrower shall pay to the Agent, for the account of the
Lenders in accordance with their Pro Rata Shares, from and after the
date of this Agreement until the date on which the Aggregate Revolving
Loan Commitment shall be terminated in whole, a commitment fee
accruing at the rate of the then Applicable Commitment Fee Percentage,
on the amount by which (A) the Aggregate Revolving Loan Commitment in
effect from time to time exceeds (B) the Dollar Amount of the
Revolving Credit Obligations (including the outstanding principal
amount of the Swing Line Loans) in effect from time to time (as
determined by the Agent in accordance with its customary practices).
All such commitment fees payable under this clause (C) shall be
payable quarterly in arrears on the last day of each fiscal quarter of
the Borrower occurring after the date of this Agreement (with the
first such payment being calculated for the period from the date of
this Agreement and ending on March 31, 1999, and, in addition, on the
date on which the Aggregate Revolving Loan Commitment shall be
terminated in whole.
(ii) The Borrower agrees to pay to the Agent for the sole account
of the Agent and the Arranger (unless otherwise agreed between the
Agent and the Arranger and any Lender) the fees set forth in the
letter agreement between the Agent, the Arranger and the Borrower
dated January 19, 1999, payable at the times and in the amounts set
forth therein.
(iii) The applicable Borrower agrees to pay to the Alternate
Currency Bank, for its sole account, a fronting fee a equal to 0.125%
per annum on the average daily outstanding Dollar Amount of all
Alternate Currency Loans.
(D) Interest and Fee Basis; Applicable Floating Rate Margin, Applicable
Eurocurrency Margin and Applicable Commitment Fee Percentage.
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(i) Interest on all Eurocurrency Rate Loans, all Alternate
Currency Loans (except as provided otherwise in the applicable
Alternate Currency Addendum) and on all fees shall be calculated for
actual days elapsed on the basis of a 360-day year. Interest on all
Floating Rate Loans shall be calculated for actual days elapsed on the
basis of a 365-, or when appropriate 366-, day year. Interest shall be
payable for the day an Obligation is incurred but not for the day of
any payment on the amount paid if payment is received prior to 2:00
p.m. (Chicago time) at the place of payment. If any payment of
principal of or interest on a Loan or any payment of any other
Obligations shall become due on a day which is not a Business Day,
such payment shall be made on the next succeeding Business Day and, in
the case of a principal payment, such extension of time shall be
included in computing interest, fees and commissions in connection
with such payment.
(ii) The Applicable Floating Rate Margin, Applicable Eurocurrency
Margin and Applicable Commitment Fee Percentage shall be determined on
the basis of the then applicable Leverage Ratio as described in this
Section 2.15(D)(ii), from time to time by reference to the following
table:
<TABLE>
<CAPTION>
- ------------------------------------- ----------------------- ----------------------- -----------------------
APPLICABLE
APPLICABLE FLOATING APPLICABLE EUROCURRENCY COMMITMENT
RATE MARGIN MARGIN FEE PERCENTAGE
LEVERAGE RATIO
- ------------------------------------- ----------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Greater than 2.50 to 1.0 0.3125% 1.5625% 0.30%
- ------------------------------------- ----------------------- ----------------------- -----------------------
Greater than 2.00 to 1.0
and less than or equal 0.0625% 1.3125% 0.25%
to 2.50 to 1.0
- ------------------------------------- ----------------------- ----------------------- -----------------------
Greater than 1.50 to
1.0 and less than or 0.0% 1.0625% 0.25%
equal to 2.00 to 1.0
- ------------------------------------- ----------------------- ----------------------- -----------------------
Less than or equal to
1.5 to 1.0 0.0% 0.9375% 0.20%
- ------------------------------------- ----------------------- ----------------------- -----------------------
</TABLE>
For purposes of this Section 2.15(D)(ii), the Leverage Ratio shall be calculated
as provided in Section 7.4(B). Upon receipt of the financial statements
delivered pursuant to Sections 7.1(A)(i) and (ii), as applicable, the Applicable
Floating Rate Margin, Applicable Eurocurrency Margin and Applicable Commitment
Fee Percentage shall be adjusted, such adjustment being effective five (5)
Business Days following the Agent's receipt of such financial statements and the
compliance certificate required to be delivered in connection therewith pursuant
to Section 7.1(A)(iii); provided, that if the Borrower shall not have timely
delivered its financial statements in accordance with Section 7.1(A)(i) or (ii),
as applicable, and such failure continues for five (5) days after notice from
the Agent to the Borrower, then, at the discretion of the Required Lenders,
commencing on the date upon which such financial statements should have been
delivered and continuing until such financial statements are actually delivered,
it shall be assumed for purposes of determining the Applicable Floating Rate
Margin, Applicable Eurocurrency Margin and Applicable Commitment Fee Percentage
that the Leverage Ratio was greater than 2.5 to 1.0.
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<PAGE> 42
(iii) Notwithstanding anything herein to the contrary, from the
date of this Agreement to but not including the fifth (5th) Business
Day following receipt of the Borrower's financial statements delivered
pursuant to Section 7.1(A)(i) for the fiscal quarter ending September
30, 1999, the Applicable Floating Rate Margin, Applicable Eurocurrency
Margin and Applicable Commitment Fee Percentage shall be determined
based upon a Leverage Ratio less than or equal to 1.5 to 1.0.
(E) Taxes.
(i) Any and all payments by the Borrower hereunder shall be made
free and clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or withholdings or
any liabilities with respect thereto imposed by any Governmental
Authority including those arising after the date hereof as a result of
the adoption of or any change in any law, treaty, rule, regulation,
guideline or determination of a Governmental Authority or any change
in the interpretation or application thereof by a Governmental
Authority but excluding, in the case of each Lender and the Agent, (i)
such taxes (including income taxes, franchise taxes and branch profit
taxes) as are imposed on or measured by such Lender's or Agent's, as
the case may be, net income or similar taxes imposed by the United
States of America or any Governmental Authority of the jurisdiction
under the laws of which such Lender or Agent, as the case may be, is
organized or maintains a Lending Installation (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings, and
liabilities which the Agent or a Lender determines to be applicable to
this Agreement, the other Loan Documents, the Revolving Loan
Commitments, the Loans or the Letters of Credit being hereinafter
referred to as "TAXES") and (ii) if such Lender or the Agent is
entitled at such time to a total or partial exemption from withholding
that is required to be evidenced by an IRS Form 1001, 4224, W-8 or W-9
or, in each case, any successor or additional form, taxes imposed by
reason of any failure of such Lender or the Agent to deliver to the
Agent or Borrower, from time to time as required by the Agent or
Borrower, such Form 1001, 4224, W-8 or W-9 (as applicable) or, in each
case, any successor or additional form, completed in a manner
reasonably satisfactory to the Agent and the Borrower. If the Borrower
or the Agent shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder or under the other Loan Documents
to any Lender or the Agent, (i) the sum payable shall be increased as
may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
Section 2.15(E)) such Lender or the Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions,
and (iii) the Borrower shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with
applicable law. If any Tax, including, without limitation, any
withholding tax, of the United States of America or any other
Governmental Authority shall be or become applicable (y) after the
date of this Agreement, to such payments by the Borrower made to the
Lending Installation or any other office that a Lender may claim as
its Lending Installation, or (z) after such Lender's selection and
designation of any other Lending Installation, to such payments made
to such other Lending Installation, such Lender shall use reasonable
efforts to make, fund and maintain its Loans through another Lending
Installation of such Lender in another jurisdiction so as to reduce
the Borrower's liability hereunder, if the making, funding or
maintenance of such Loans through such other Lending Installation of
such Lender does not, in the reasonable judgment of such Lender,
otherwise adversely and materially affect such Loans, or obligations
under the Revolving Loan Commitments or such Lender.
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<PAGE> 43
(ii) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property
taxes, charges, or similar levies which arise from any payment made
hereunder, from the issuance of Letters of Credit hereunder, or from
the execution, delivery or registration of, or otherwise with respect
to, this Agreement, the other Loan Documents, the Revolving Loan
Commitments, the Loans or the Letters of Credit (hereinafter referred
to as "OTHER TAXES").
(iii) The Borrower indemnifies each Lender and the Agent for the
full amount of Taxes and Other Taxes (including, without limitation,
any Taxes or Other Taxes imposed by any Governmental Authority on
amounts payable under this Section 2.15(E)) paid by such Lender or the
Agent (as the case may be) and any liability (including penalties,
interest, and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally
asserted. This indemnification shall be made within thirty (30) days
after the date such Lender or the Agent (as the case may be) makes
written demand therefor. A certificate as to any additional amount
payable to any Lender or the Agent under this Section 2.15(E)
submitted to the Borrower and the Agent (if a Lender is so submitting)
by such Lender or the Agent shall show in reasonable detail the amount
payable and the calculations used to determine such amount and shall,
absent manifest error, be final, conclusive and binding upon all
parties hereto. With respect to such deduction or withholding for or
on account of any Taxes and to confirm that all such Taxes have been
paid to the appropriate Governmental Authorities, the Borrower shall
promptly (and in any event not later than thirty (30) days after
receipt) furnish to each Lender and the Agent such certificates,
receipts and other documents as may be required (in the judgment of
such Lender or the Agent) to establish any tax credit to which such
Lender or the Agent may be entitled.
(iv) Within thirty (30) days after the date of any payment of
Taxes or Other Taxes by the Borrower, the Borrower shall furnish to
the Agent the original or a certified copy of a receipt evidencing
payment thereof.
(v) Without prejudice to the survival of any other agreement of
the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 2.15(E) shall survive the payment in full of
principal and interest hereunder, the termination of the Letters of
Credit and the termination of this Agreement.
(vi) Each Lender that is not created or organized under the laws
of the United States of America or a political subdivision thereof
shall deliver to the Borrower and the Agent on or before the Closing
Date, or, if later, the date on which such Lender becomes a Lender
pursuant to Section 13.3, a true and accurate certificate executed in
duplicate by a duly authorized officer of such Lender, in a form
satisfactory to the Borrower and the Agent, to the effect that such
Lender is eligible under the provisions of an applicable tax treaty
concluded by the United States of America (in which case the
certificate shall be accompanied by two (2) executed copies of Form
1001 of the IRS or successor applicable form) or under Section 1442 of
the Code (in which case the certificate shall be accompanied by two
copies of Form 4224 of the IRS or successor applicable form) or, if
such Lender is not a "bank" within the meaning of Section 881(c)(3)(A)
of the Code, two complete copies of IRS Form W-8 or W-9 or successor
applicable form to receive payments of interest hereunder without
deduction or withholding of United States federal income tax. Each
such Lender further agrees to deliver to the Borrower and the Agent
from time to time a true and accurate certificate executed in
duplicate by a duly authorized officer of such Lender substantially in
a form satisfactory to the Borrower and the Agent, before or promptly
upon
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<PAGE> 44
the occurrence of any event requiring a change in the most recent
certificate previously delivered by it to the Borrower and the Agent
pursuant to this Section 2.15(E)(vi).
2.16 Notification of Advances, Interest Rates, Prepayments and
Aggregate Revolving Loan Commitment Reductions. Promptly after receipt thereof,
the Agent will notify each Lender of the contents of each Aggregate Revolving
Loan Commitment reduction notice, Borrowing/Conversion/Continuation Notice, and
repayment notice received by it hereunder. The Agent will notify each Lender of
the interest rate and Agreed Currency applicable to each Eurocurrency Rate Loan
promptly upon determination of such interest rate and Agreed Currency and will
give each Lender prompt notice of each change in the Alternate Base Rate.
2.17 Lending Installations. Each Lender may book its Loans or Letters
of Credit at any Lending Installation selected by such Lender and may change its
Lending Installation from time to time. All terms of this Agreement shall apply
to any such Lending Installation. Each Lender may, by written or facsimile
notice to the Agent and the Borrower, designate a Lending Installation through
which Loans will be made by it and for whose account Loan payments and/or
payments of L/C Obligations are to be made.
2.18 Non-Receipt of Funds by the Agent. Unless the Borrower or a
Lender, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers such
amount at a rate per annum equal to (i) in the case of payment by a Lender, the
Federal Funds Effective Rate for such day or (ii) in the case of payment by the
Borrower, the interest rate applicable to the relevant Loan.
2.19 Termination Date. This Agreement shall be effective until the
Termination Date. Notwithstanding the termination of this Agreement, until (A)
all of the Obligations (other than contingent indemnity obligations) shall have
been fully and indefeasibly paid and satisfied, (B) all financing arrangements
among the Borrower and the Lenders shall have been terminated (other than under
Hedging Agreements or other agreements with respect to Hedging Obligations) and
(C) all of the Letters of Credit shall have expired, been canceled or terminated
(collectively, the "TERMINATION CONDITIONS"), all of the rights and remedies
under this Agreement and the other Loan Documents shall survive. Upon
satisfaction of the Termination Conditions, the Agent shall execute and deliver
to the Borrower and the Subsidiaries of the Borrower all Uniform Commercial Code
termination statements, mortgage assignments or satisfactions and similar
documents which Borrower and the Subsidiaries of the Borrower shall reasonably
request to evidence such termination.
2.20 Replacement of Certain Lenders. In the event a Lender ("AFFECTED
LENDER") shall have: (i) failed to fund its Pro Rata Share of any Advance
requested by the Borrower, or to fund a Revolving Loan in order to repay Swing
Line Loans pursuant to Section 2.3(D), or to make
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<PAGE> 45
payment in respect of any Alternate Currency Loan purchased by such Lender
pursuant to Section 2.21(E), which such Lender is obligated to fund under the
terms of this Agreement and which failure has not been cured, (ii) requested
compensation from the Borrower under Sections 2.15(E), 4.1 or 4.2 to recover
Taxes, Other Taxes or other additional costs incurred by such Lender which are
not being incurred generally by the other Lenders, (iii) delivered a notice
pursuant to Section 4.3 claiming that such Lender is unable to extend
Eurocurrency Rate Loans to the Borrower for reasons not generally applicable to
the other Lenders or (iv) has invoked Section 10.2, then, in any such case, the
Borrower or the Agent may make written demand on such Affected Lender (with a
copy to the Agent in the case of a demand by the Borrower and a copy to the
Borrower in the case of a demand by the Agent) for the Affected Lender to
assign, and such Affected Lender shall use commercially reasonable efforts to
assign pursuant to one or more duly executed Assignment Agreements five (5)
Business Days after the date of such demand, to one or more financial
institutions that comply with the provisions of Section 13.3(A) which the
Borrower or the Agent, as the case may be, shall have engaged for such purpose
("REPLACEMENT LENDER"), all of such Affected Lender's rights and obligations
under this Agreement and the other Loan Documents (including, without
limitation, its Revolving Loan Commitment, all Loans owing to it, all of its
participation interests in existing Letters of Credit, and its obligation to
participate in additional Letters of Credit and Swing Line Loans and Alternate
Currency Loans hereunder) in accordance with Section 13.3. The Agent agrees,
upon the occurrence of such events with respect to an Affected Lender and upon
the written request of the Borrower, to use its reasonable efforts to obtain the
commitments from one or more financial institutions to act as a Replacement
Lender. The Agent is authorized to execute one or more of such assignment
agreements as attorney-in-fact for any Affected Lender failing to execute and
deliver the same within five (5) Business Days after the date of such demand.
Further, with respect to such assignment the Affected Lender shall have
concurrently received, in cash, all amounts due and owing to the Affected Lender
hereunder or under any other Loan Document, including, without limitation, the
aggregate outstanding principal amount of the Loans owed to such Lender,
together with accrued interest thereon through the date of such assignment,
amounts payable under Sections 2.15(E), 4.1, and 4.2 with respect to such
Affected Lender and compensation payable under Section 2.15(C) in the event of
any replacement of any Affected Lender under clause (ii) or clause (iii) of this
Section 2.20; provided that upon such Affected Lender's replacement, such
Affected Lender shall cease to be a party hereto but shall continue to be
entitled to the benefits of Sections 2.15(E), 4.1, 4.2, 4.4, and 10.7, as well
as to any fees accrued for its account hereunder and not yet paid, and shall
continue to be obligated under Section 11.8. Upon the replacement of any
Affected Lender pursuant to this Section 2.20, the provisions of Section 9.2
shall continue to apply with respect to Loans which are then outstanding with
respect to which the Affected Lender failed to fund its Pro Rata Share and which
failure has not been cured.
2.21 Alternate Currency Loans.
(A) Upon the satisfaction of the conditions precedent set forth in
Article V hereof and set forth in the applicable Alternate Currency Addendum,
from and including the later of the date of this Agreement and the date of
execution of the applicable Alternate Currency Addendum and prior to Termination
Date (unless an earlier termination date shall be specified in or pursuant to
the applicable Alternate Currency Addendum), the Alternate Currency Bank agrees,
on the terms and conditions set forth in this Agreement and in the applicable
Alternate Currency Addendum,
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<PAGE> 46
to make Alternate Currency Loans under such Alternate Currency Addendum to the
applicable Alternate Currency Borrower party to such Alternate Currency Addendum
from time to time in the applicable Alternate Currency, in an amount not to
exceed each such Alternate Currency Bank's applicable Alternate Currency
Commitment; provided, however, at no time shall the Dollar Amount of the
outstanding principal amount of the Alternate Currency Loans for all Alternate
Currencies exceed $15,000,000 other than as a result of currency fluctuations
and then only to the extent permitted in Section 2.5(B)(ii); provided, further,
at no time shall the Dollar Amount of the Alternate Currency Loans for any
specific Alternate Currency exceed the maximum amount specified as the maximum
amount for such Alternate Currency in the applicable Alternate Currency Addendum
other than as a result of currency fluctuations and then only to the extent
permitted in Section 2.5(B)(ii). Subject to the terms of this Agreement and the
applicable Alternate Currency Addendum, the applicable Alternate Currency
Borrowers may borrow, repay and reborrow Alternate Currency Loans at any time
prior to the Termination Date (unless an earlier termination date shall be
specified in or pursuant to the applicable Alternate Currency Addendum). On the
Termination Date (unless an earlier termination date shall be specified in or
pursuant to the applicable Alternate Currency Addendum), the outstanding
principal balance of the Alternate Currency Loans shall be paid in full by the
applicable Alternate Currency Borrower and prior to Termination Date (unless an
earlier termination date shall be specified in or pursuant to the applicable
Alternate Currency Addendum) prepayments of the Alternate Currency Loans shall
be made by the applicable Alternate Currency Borrower if and to the extent
required in Section 2.5(B)(ii).
(B) Borrowing Notice. When the applicable Alternate Currency Borrower
desires to borrow under this Section 2.21, the applicable Alternate Currency
Borrower shall deliver to the Alternate Currency Bank and the Agent a
Borrowing/Conversion/Continuation Notice, signed by it, as provided in Section
2.8 specifying that the Alternate Currency Borrower is requesting an Alternate
Currency Loan pursuant to this Section 2.21. Any
Borrowing/Conversion/Continuation Notice given pursuant to this Section 2.21
shall be irrevocable.
(C) Termination. Except as otherwise required by applicable law, in no
event shall the Alternate Currency Bank have the right to accelerate the
Alternate Currency Loans outstanding under any Alternate Currency Addendum or to
terminate its commitments (if any) thereunder to make Alternate Currency Loans
prior to the stated termination date in respect thereof, except that the
Alternate Currency Bank shall have such rights upon an acceleration of the Loans
and a termination of the Revolving Credit Commitments pursuant to Article IX.
(D) Statements. The Alternate Currency Bank shall furnish to the Agent
not less frequently than monthly, and at any other time at the reasonable
request of the Agent, a statement setting forth the outstanding Alternate
Currency Loans made and repaid during the period since the last such report
under such Alternate Currency Addendum.
(E) Risk Participation. Immediately and automatically upon the
occurrence of an Event of Default under Sections 8.1(A), (F) or (G), each Lender
shall be deemed to have unconditionally and irrevocably purchased from the
Alternate Currency Bank, without recourse or warranty, an undivided interest in
and participation in each Alternate Currency Loan ratably in accordance with
such Lender's Pro Rata Share of the amount of such Loan, and immediately and
automatically all Alternate Currency Loans shall be converted to and
redenominated in Dollars
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<PAGE> 47
equal to the Dollar Amount of each such Alternate Currency Loan determined as of
the date of such conversion; provided, that to the extent such conversion shall
occur other than at the end of an Interest Period, the applicable Borrower shall
pay to the Alternate Currency Bank, all losses and breakage costs related
thereto in accordance with Section 4.4. Each of the Lenders shall pay to the
Alternate Currency Bank not later than two (2) Business Days following a request
for payment from such Alternate Currency Bank, in Dollars, an amount equal to
the undivided interest in and participation in the Alternate Currency Loan
purchased by such Lender pursuant to this Section 2.21(E). In the event that any
Lender fails to make payment to the Alternate Currency Bank of any amount due
under this Section 2.21(E), the Agent shall be entitled to receive, retain and
apply against such obligation the principal and interest otherwise payable to
such Lender hereunder until the Agent receives from such Lender an amount
sufficient to discharge such Lender's payment obligation as prescribed in this
Section 2.21(E) together with interest thereon at the Federal Funds Effective
Rate for each day during the period commencing on the date of demand by the
Alternate Currency Bank and ending on the date such obligation is fully
satisfied. The Agent will promptly remit all payments received as provided above
to the Alternate Currency Bank. In consideration of the risk participations
prescribed in this Section 2.21(E), each Lender shall receive, from the accrued
interest paid by the applicable Borrower on each Alternate Currency Loan, a fee
equal to such Lender's Pro Rata Share of a portion of the interest accrued on
such Loan at the Applicable Eurocurrency Margin or Applicable Floating Rate
Margin, as applicable, minus 0.25% as in effect from time to time during the
period such interest accrued. Such portion of the interest paid by the
applicable Borrower on Alternate Currency Loans to the applicable Alternate
Currency Bank shall be paid as promptly as possible by such Alternate Currency
Bank to the Agent, and the Agent shall as promptly as possible convert such
amount into Dollars at the spot rate of exchange in accordance with its normal
banking practices and apply such resulting amount ratably among the Lenders
(including the Alternate Currency Banks) in proportion to their Pro Rata Share.
(F) Other Provisions Applicable to Alternate Currency Loans. The
specification of payment of Alternate Currency Loans in the related Alternate
Currency at a specific place pursuant to this Agreement is of the essence. Such
Alternate Currency shall be the currency of account and payment of such Loans
under this Agreement and the applicable Alternate Currency Addendum.
Notwithstanding anything in this Agreement, the obligation of the applicable
Alternate Currency Borrower in respect of such Loans shall not be discharged by
an amount paid in any other currency or at another place, whether pursuant to a
judgment or otherwise, to the extent the amount so paid, on prompt conversion
into the applicable Alternate Currency and transfer to such Lender under normal
banking procedure, does not yield the amount of such Alternate Currency due
under this Agreement, the applicable Alternate Currency Addendum. In the event
that any payment, whether pursuant to a judgment or otherwise, upon conversion
and transfer, does not result in payment of the amount of such Alternate
Currency due under this Agreement or the applicable Alternate Currency Addendum,
such Lender shall have an independent cause of action against each of the
Borrowers for the currency deficit.
2.22 Judgment Currency. If, for the purposes of obtaining judgment in
any court, it is necessary to convert a sum due from any Borrower hereunder in
the currency expressed to be payable herein (the "SPECIFIED CURRENCY") into
another currency, the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be that at which in
accordance with normal banking procedures the Agent could purchase the specified
currency
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<PAGE> 48
with such other currency at the Agent's main office in Chicago, Illinois on the
Business Day preceding that on which the final, non-appealable judgment is
given. The obligations of each Borrower in respect of any sum due to any Lender
or the Agent hereunder shall, notwithstanding any judgment in a currency other
than the specified currency, be discharged only to the extent that on the
Business Day following receipt by such Lender or the Agent (as the case may be)
of any sum adjudged to be so due in such other currency such Lender or the Agent
(as the case may be) may in accordance with normal, reasonable banking
procedures purchase the specified currency with such other currency. If the
amount of the specified currency so purchased is less than the sum originally
due to such Lender or the Agent, as the case may be, in the specified currency,
each Borrower agrees, to the fullest extent that it may effectively do so, as a
separate obligation and notwithstanding any such judgment, to indemnify such
Lender or the Agent, as the case may be, against such loss, and if the amount of
the specified currency so purchased exceeds (a) the sum originally due to any
Lender or the Agent, as the case may be, in the specified currency and (b) any
amounts shared with other Lenders as a result of allocations of such excess as a
disproportionate payment to such Lender under Section 12.2, such Lender or the
Agent, as the case may be, agrees to remit such excess to such Borrower.
2.23 Market Disruption; Denomination of Amounts in Dollars; Dollar
Equivalent of Reimbursement Obligations. (A) Notwithstanding the satisfaction of
all conditions referred to in this Article II with respect to any Advance in any
Agreed Currency other than Dollars or Alternate Currency, as applicable, if
there shall occur on or prior to the date of such Advance any change in national
or international financial, political or economic conditions or currency
exchange rates or exchange controls which would in the reasonable opinion of the
Borrower, any Alternate Currency Borrower, the Alternate Currency Bank, Agent or
the Required Lenders make it impracticable for the Eurocurrency Rate Loans or
Alternate Currency Loans comprising such Advance to be denominated in the Agreed
Currency or Alternate Currency, as applicable, specified by the applicable
Borrower, then the Agent shall forthwith give notice thereof to such Borrower ,
the Alternate Currency Bank and the Lenders, or the Borrower shall give notice
to the Agent, the Alternate Currency Bank and the Lenders, as the case may be,
and such Eurocurrency Rate Loans or Alternate Currency Loans shall not be
denominated in such currency but shall be made on such Borrowing Date in
Dollars, in an aggregate principal amount equal to the Dollar Amount of the
aggregate principal amount specified in the related Borrowing Notice, as
Floating Rate Loans, unless the Borrower notifies the Agent at least one (1)
Business Day before such date that (i) it elects not to borrow on such date or
(ii) it elects to borrow on such date in a different Agreed Currency or
Alternate Currency, as the case may be, in which the denomination of such Loans
would in the opinion of the Agent, the Alternate Currency Bank, if applicable,
and the Required Lenders be practicable and in an aggregate principal amount
equal to the Dollar Amount of the aggregate principal amount specified in the
related Borrowing Notice.
(B) Except as set forth below, all amounts referenced in this Article
II shall be calculated using the Dollar Amount determined based upon the
Equivalent Amount in effect as of the date of any determination thereof;
provided, however, that payment by the Borrower of any Advance denominated in an
currency other than Dollars, shall be in Dollars using the Dollar Amount of the
Advance (calculated based upon the Equivalent Amount in effect on the date of
payment thereof) and in the event that the Borrower does not reimburse the Agent
and the Lenders are required to fund a purchase of a participation in such
Advance, such purchase shall be made in Dollars in an amount equal to the Dollar
Amount of such Advance (calculated based upon the
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<PAGE> 49
Equivalent Amount in effect on the date of payment thereof). Notwithstanding
anything herein to the contrary, the full risk of currency fluctuations shall be
borne by the Borrower and the Borrower agrees to indemnify and hold harmless
each Issuing Bank, the Agent and the Lenders from and against any loss resulting
from any borrowing denominated in a currency other than in Dollars and for which
the Lenders are not reimbursed on the day of such borrowing.
2.24 Payments to be Free and Clear. (A) All sums payable by each
Borrower hereunder, whether in respect of principal, interest, fees or
otherwise, shall be paid without deduction for any present and future taxes,
levies, imposts, deductions, charges or withholdings imposed by any government
or any political subdivision or taxing authority thereof (other than any tax on
or measured by the net income, profits or gains of any Lender) and all interest,
penalties or similar liabilities with respect thereto (collectively, "taxes"),
which amounts shall be paid by the applicable Borrower as provided in this
Section 2.24.
(B) Grossing-up of Payments. If: (a) any Borrower or any other
Person is required by law to make any deduction or withholding on account of any
such taxes from any sum paid or expressed to be payable by the applicable
Borrower to any Lender under this Agreement; or (b) any party to this Agreement
(or any Person on its behalf) other than any Borrower is required by law to make
any deduction or withholding from, or any payment on or calculated by reference
to the amount of, any such sum received or receivable (other than on account of
any excluded taxes) by any Lender under this Agreement then:
(i) the applicable party shall notify the Agent and, if such
party is not the applicable Borrower, the Agent will notify the
applicable Borrower of any such requirement or any change in any such
requirement as soon as such party becomes aware of it;
(ii) the applicable Borrower shall pay any such taxes before the
later of (i) the date on which penalties attached thereto become due
and payable or (ii) fifteen (15) days after the date of receipt by the
applicable Borrower of such written notification provided by the Agent
in accordance with paragraph (i) if such applicable party is not the
applicable Borrower, such payment to be made (if the liability to pay
is imposed on such Borrower) for its own account or (if that liability
is imposed on any party to this Agreement) on behalf of and in the
name of that party; and
(iii) the sum payable by the applicable Borrower in respect of
which the relevant deduction, withholding or payment is required shall
(except, in the case of any such payment, to the extent that the
amount thereof is not ascertainable when that sum is paid) be
increased to the extent necessary to ensure that, after the making of
that deduction, withholding or payment, that party receives on the due
date and retains (free from any liability in respect of any such
deduction, withholding or payment) a sum equal to that which it would
have received and so retained had no such deduction, withholding or
payment been required or made.
ARTICLE III: THE LETTER OF CREDIT FACILITY
3.1 Obligation to Issue Letters of Credit. Subject to the terms and
conditions of this Agreement and in reliance upon the representations,
warranties and covenants of the Borrower herein set forth, each Issuing Bank
hereby agrees to issue for the account of the Borrower
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through such Issuing Bank's branches as it and the Borrower may jointly agree,
one or more Letters of Credit denominated in Dollars or an Agreed Currency in
accordance with this Article III, from time to time during the period,
commencing on the Closing Date and ending on the Business Day prior to the
Termination Date.
3.2 Transitional Provision. Schedule 3.2 contains a schedule of certain
letters of credit issued for the account of the Borrower prior to the Closing
Date. Subject to the satisfaction of the conditions contained in Sections 5.1
and 5.2, from and after the Closing Date such letters of credit shall be deemed
to be Letters of Credit issued pursuant to this Article III.
3.3 Types and Amounts. No Issuing Bank shall have any obligation to and
no Issuing Bank shall:
(A) issue (or amend) any Letter of Credit if on the date of
issuance (or amendment), before or after giving effect to the Letter
of Credit requested hereunder, (i) the Dollar Amount of the Revolving
Credit Obligations at such time would exceed the lesser of the
Aggregate Revolving Loan Commitment at such time, or (ii) the
aggregate outstanding Dollar Amount of the L/C Obligations would
exceed $15,000,000, or (iii) the Dollar Amount of all Eurocurrency
Rate Loans and Letters of Credit in Agreed Currencies other than
Dollars would exceed the Maximum Eurocurrency Amount; or
(B) issue (or amend) any Letter of Credit which has an expiration
date later than the date which is the earlier of one (1) year after
the date of issuance thereof or five (5) Business Days immediately
preceding the Termination Date.
3.4 Conditions. In addition to being subject to the satisfaction of the
conditions contained in Sections 5.1 and 5.2, the obligation of an Issuing Bank
to issue any Letter of Credit is subject to the satisfaction in full of the
following conditions:
(A) the Borrower shall have delivered to the applicable Issuing
Bank at such times and in such manner as such Issuing Bank may
reasonably prescribe, a request for issuance of such Letter of Credit
in substantially the form of Exhibit C hereto (each such request a
"REQUEST FOR LETTER OF CREDIT"), duly executed applications for such
Letter of Credit, and such other documents, instructions and
agreements as may be required pursuant to the terms thereof (all such
applications, documents, instructions, and agreements being referred
to herein as the "L/C DOCUMENTS"), and the proposed Letter of Credit
shall be reasonably satisfactory to such Issuing Bank as to form and
content; and
(B) as of the date of issuance no order, judgment or decree of
any court, arbitrator or Governmental Authority shall purport by its
terms to enjoin or restrain the applicable Issuing Bank from issuing
such Letter of Credit and no law, rule or regulation applicable to
such Issuing Bank and no request or directive (whether or not having
the force of law) from a Governmental Authority with jurisdiction over
such Issuing Bank shall prohibit or request that such Issuing Bank
refrain from the issuance of Letters of Credit generally or the
issuance of that Letter of Credit.
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3.5 Procedure for Issuance of Letters of Credit. (A) Subject to the
terms and conditions of this Article III and provided that the applicable
conditions set forth in Sections 5.1 and 5.2 hereof have been satisfied, the
applicable Issuing Bank shall, on the requested date, issue a Letter of Credit
on behalf of the Borrower in accordance with such Issuing Bank's usual and
customary business practices and, in this connection, such Issuing Bank may
assume that the applicable conditions set forth in Section 5.2 hereof have been
satisfied unless it shall have received notice to the contrary from the Agent or
a Lender or has knowledge that the applicable conditions have not been met.
(B) The applicable Issuing Bank shall give the Agent written or telex
notice, or telephonic notice confirmed promptly thereafter in writing, of the
issuance of a Letter of Credit, provided, however, that the failure to provide
such notice shall not result in any liability on the part of such Issuing Bank.
(C) No Issuing Bank shall extend or amend any Letter of Credit unless
the requirements of this Section 3.5 are met as though a new Letter of Credit
was being requested and issued.
3.6 Letter of Credit Participation. On the date of this Agreement, with
respect to the Letters of Credit identified on Schedule 3.2, and immediately
upon the issuance of each Letter of Credit hereunder, each Lender with a Pro
Rata Share shall be deemed to have automatically, irrevocably and
unconditionally purchased and received from the applicable Issuing Bank an
undivided interest and participation in and to such Letter of Credit, the
obligations of the Borrower in respect thereof, and the liability of such
Issuing Bank thereunder (collectively, an "L/C INTEREST") in an amount equal to
the Dollar Amount available for drawing under such Letter of Credit multiplied
by such Lender's Pro Rata Share. Each Issuing Bank will notify each Lender
promptly upon presentation to it of an L/C Draft or upon any other draw under a
Letter of Credit. On or before the Business Day on which an Issuing Bank makes
payment of each such L/C Draft or, in the case of any other draw on a Letter of
Credit, on demand by the Agent or the applicable Issuing Bank, each Lender shall
make payment to the Agent, for the account of the applicable Issuing Bank, in
immediately available funds in the Agreed Currency in an amount equal to such
Lender's Pro Rata Share of the Dollar Amount of such payment or draw. The
obligation of each Lender to reimburse the Issuing Banks under this Section 3.6
shall be unconditional, continuing, irrevocable and absolute. In the event that
any Lender fails to make payment to the Agent of any amount due under this
Section 3.6, the Agent shall be entitled to receive, retain and apply against
such obligation the principal and interest otherwise payable to such Lender
hereunder until the Agent receives such payment from such Lender or such
obligation is otherwise fully satisfied; provided, however, that nothing
contained in this sentence shall relieve such Lender of its obligation to
reimburse the applicable Issuing Bank for such amount in accordance with this
Section 3.6.
3.7 Reimbursement Obligation. The Borrower agrees unconditionally,
irrevocably and absolutely to pay immediately to the Agent, for the account of
the Lenders, the amount of each advance drawn under or pursuant to a Letter of
Credit or an L/C Draft related thereto (such obligation of the Borrower to
reimburse the Agent for an advance made under a Letter of Credit or L/C Draft
being hereinafter referred to as a "REIMBURSEMENT OBLIGATION" with respect to
such Letter of Credit or L/C Draft), each such reimbursement to be made by the
Borrower no later than the Business Day on which the applicable Issuing Bank
makes payment of each such L/C Draft or, if the Borrower shall have received
notice of a Reimbursement Obligation later
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than 12:00 p.m. (Chicago time), on any Business Day or on a day which is not a
Business Day, no later than 12:00 p.m. (Chicago time), on the immediately
following Business Day or, in the case of any other draw on a Letter of Credit,
the date specified in the demand of such Issuing Bank. If the Borrower at any
time fails to repay a Reimbursement Obligation pursuant to this Section 3.7, the
Borrower shall be deemed to have elected to borrow Revolving Loans from the
Lenders, as of the date of the advance giving rise to the Reimbursement
Obligation, equal in amount to the Dollar Amount of the unpaid Reimbursement
Obligation. Such Revolving Loans shall be made as of the date of the payment
giving rise to such Reimbursement Obligation, automatically, without notice and
without any requirement to satisfy the conditions precedent otherwise applicable
to an Advance of Revolving Loans. Such Revolving Loans shall constitute a
Floating Rate Advance, the proceeds of which Advance shall be used to repay such
Reimbursement Obligation. If, for any reason, the Borrower fails to repay a
Reimbursement Obligation on the day such Reimbursement Obligation arises and,
for any reason, the Lenders are unable to make or have no obligation to make
Revolving Loans, then such Reimbursement Obligation shall bear interest from and
after such day, until paid in full, at the interest rate applicable to a
Floating Rate Advance.
3.8 Letter of Credit Fees. The Borrower agrees to pay:
(A) quarterly, in arrears, to the Agent for the ratable benefit
of the Lenders, except as set forth in Section 9.2, a letter of credit
fee at a rate per annum equal to the Applicable L/C Fee Percentage on
the average daily outstanding Dollar Amount available for drawing
under all Letters of Credit;
(B) quarterly, in arrears, to the applicable Issuing Bank, a
letter of credit fronting fee equal to 0.125% per annum on the average
daily outstanding face amount available for drawing under all Letters
of Credit issued by such Issuing Bank; and
(C) to the applicable Issuing Bank, all customary fees and other
issuance, amendment, document examination, negotiation and presentment
expenses and related charges in connection with the issuance,
amendment, presentation of L/C Drafts, and the like customarily
charged by such Issuing Banks with respect to standby and commercial
Letters of Credit, including, without limitation, standard commissions
with respect to commercial Letters of Credit, payable at the time of
invoice of such amounts.
3.9 Issuing Bank Reporting Requirements. In addition to the notices
required by Section 3.5(C), each Issuing Bank shall, no later than the tenth
(10th) Business Day following the last day of each month, provide to the Agent,
upon the Agent's request, schedules, in form and substance reasonably
satisfactory to the Agent, showing the date of issue, account party, Agreed
Currency and amount in such Agreed Currency, expiration date and the reference
number of each Letter of Credit issued by it outstanding at any time during such
month and the aggregate amount payable by the Borrower during such month. In
addition, upon the request of the Agent, each Issuing Bank shall furnish to the
Agent copies of any Letter of Credit and any application for or reimbursement
agreement with respect to a Letter of Credit to which the Issuing Bank is party
and such other documentation as may reasonably be requested by the Agent. Upon
the request of any Lender, the Agent will provide to such Lender information
concerning such Letters of Credit.
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3.10 Indemnification; Exoneration. (A) In addition to amounts payable
as elsewhere provided in this Article III, the Borrower hereby agrees to
protect, indemnify, pay and save harmless the Agent, each Issuing Bank and each
Lender from and against any and all liabilities and costs which the Agent, such
Issuing Bank or such Lender may incur or be subject to as a consequence, direct
or indirect, of (i) the issuance of any Letter of Credit other than, in the case
of the applicable Issuing Bank, as a result of its Gross Negligence or willful
misconduct, as determined by the final judgment of a court of competent
jurisdiction, or (ii) the failure of the applicable Issuing Bank to honor a
drawing under a Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto Governmental
Authority (all such acts or omissions herein called "GOVERNMENTAL ACTS").
(B) As among the Borrower, the Lenders, the Agent and the Issuing
Banks, the Borrower assumes all risks of the acts and omissions of, or misuse of
such Letter of Credit by, the beneficiary of any Letters of Credit. In
furtherance and not in limitation of the foregoing, subject to the provisions of
the Letter of Credit applications and Letter of Credit reimbursement agreements
executed by the Borrower at the time of request for any Letter of Credit,
neither the Agent, any Issuing Bank nor any Lender shall be responsible (in the
absence of Gross Negligence or willful misconduct in connection therewith, as
determined by the final judgment of a court of competent jurisdiction): (i) for
the form, validity, sufficiency, accuracy, genuineness or legal effect of any
document submitted by any party in connection with the application for and
issuance of the Letters of Credit, even if it should in fact prove to be in any
or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii)
for the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of a
Letter of Credit to comply duly with conditions required in order to draw upon
such Letter of Credit; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex, or
other similar form of teletransmission or otherwise; (v) for errors in
interpretation of technical trade terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof; (vii) for the
misapplication by the beneficiary of a Letter of Credit of the proceeds of any
drawing under such Letter of Credit; and (viii) for any consequences arising
from causes beyond the control of the Agent, the Issuing Banks and the Lenders,
including, without limitation, any Governmental Acts. None of the above shall
affect, impair, or prevent the vesting of any Issuing Bank's rights or powers
under this Section 3.10.
(C) In furtherance and extension and not in limitation of the specific
provisions hereinabove set forth, any action taken or omitted by any Issuing
Bank under or in connection with the Letters of Credit or any related
certificates shall not, in the absence of Gross Negligence or willful
misconduct, as determined by the final judgment of a court of competent
jurisdiction, put the applicable Issuing Bank, the Agent or any Lender under any
resulting liability to the Borrower or relieve the Borrower of any of its
obligations hereunder to any such Person.
(D) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 3.10 shall survive the payment in full of principal and interest
hereunder, the termination of the Letters of Credit and the termination of this
Agreement.
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3.11 Cash Collateral. Notwithstanding anything to the contrary herein
or in any application for a Letter of Credit, upon payout or termination of this
Agreement in full in cash, the Borrower shall, on the Business Day that it
receives Agent's demand, deliver to the Agent for the benefit of the Lenders and
the Issuing Banks, cash, or other collateral of a type satisfactory to the
Required Lenders, having a value, as determined by such Lenders, equal to one
hundred five percent (105%) of the aggregate Dollar Amount of the outstanding
L/C Obligations. In addition, if the Revolving Credit Availability is at any
time less than the Dollar Amount of all contingent L/C Obligations outstanding
at any time, the Borrower shall deposit cash collateral with the Agent in
Dollars in an amount equal to one-hundred five percent (105%) of the Dollar
Amount by which such L/C Obligations exceed such Revolving Credit Availability.
Any such collateral shall be held by the Agent in a separate account
appropriately designated as a cash collateral account in relation to this
Agreement and the Letters of Credit and retained by the Agent for the benefit of
the Lenders and the Issuing Banks as collateral security for the Borrower's
obligations in respect of this Agreement and each of the Letters of Credit and
L/C Drafts. Such amounts shall be applied to reimburse the Issuing Banks for
drawings or payments under or pursuant to Letters of Credit or L/C Drafts, or if
no such reimbursement is required, to payment of such of the other Obligations
as the Agent shall determine. If no Default shall be continuing, amounts
remaining in any cash collateral account established pursuant to this Section
3.11 which are not to be applied to reimburse an Issuing Bank for amounts
actually paid or to be paid by such Issuing Bank in respect of a Letter of
Credit or L/C Draft, shall be returned to the Borrower within one (1) Business
Day (after deduction of the Agent's expenses incurred in connection with such
cash collateral account).
ARTICLE IV: CHANGE IN CIRCUMSTANCES
4.1 Yield Protection. If any law or any governmental or
quasi-governmental rule, regulation, policy, guideline or directive (whether or
not having the force of law) adopted after the date of this Agreement and having
general applicability to all banks within the jurisdiction in which such Lender
operates (excluding, for the avoidance of doubt, the effect of and phasing in of
capital requirements or other regulations or guidelines passed prior to the date
of this Agreement), or any interpretation or application thereof by any
Governmental Authority charged with the interpretation or application thereof,
or the compliance of any Lender therewith,
(A) subjects any Lender or any applicable Lending Installation to
any tax, duty, charge or withholding on or from payments due from the
Borrower (excluding taxation of the overall net income of any Lender
or taxation of a similar basis, which are governed by Section
2.15(E)), or changes the basis of taxation of payments to any Lender
in respect of its Loans, its L/C Interests, the Letters of Credit or
other amounts due it hereunder, or
(B) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, any Lender or any applicable Lending Installation (other
than reserves and assessments taken into account in determining the
interest rate applicable to Eurocurrency Rate Loans) with respect to
its Loans, L/C Interests or the Letters of Credit, or
(C) imposes any other condition the result of which is to
increase the cost to any Lender or any applicable Lending Installation
of making, funding or maintaining the Loans,
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the L/C Interests or the Letters of Credit or reduces any amount
received by any Lender or any applicable Lending Installation in
connection with Loans or Letters of Credit, or requires any Lender or
any applicable Lending Installation to make any payment calculated by
reference to the amount of Loans or L/C Interests held or interest
received by it or by reference to the Letters of Credit, by an amount
deemed material by such Lender;
and the result of any of the foregoing is to increase the cost to that Lender of
making, renewing or maintaining its Loans, L/C Interests, or Letters of Credit
or to reduce any amount received under this Agreement, then, within fifteen (15)
days after receipt by the Borrower of written demand by such Lender pursuant to
Section 4.5, the Borrower shall pay such Lender that portion of such increased
expense incurred or reduction in an amount received which such Lender determines
is attributable to making, funding and maintaining its Loans, L/C Interests,
Letters of Credit and its Revolving Loan Commitment.
4.2 Changes in Capital Adequacy Regulations. If a Lender determines (i)
the amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a "Change" (as defined below), and (ii) such
increase in capital will result in an increase in the cost to such Lender of
maintaining its Loans, L/C Interests, the Letters of Credit or its obligation to
make Loans hereunder, then, within fifteen (15) days after receipt by the
Borrower of written demand by such Lender pursuant to Section 4.5, the Borrower
shall pay such Lender the amount necessary to compensate for any shortfall in
the rate of return on the portion of such increased capital which such Lender
determines is attributable to this Agreement, its Loans, its L/C Interests, the
Letters of Credit or its obligation to make Loans hereunder (after taking into
account such Lender's policies as to capital adequacy). "CHANGE" means (i) any
change after the date of this Agreement in the "Risk-Based Capital Guidelines"
(as defined below) excluding, for the avoidance of doubt, the effect of any
phasing in of such Risk-Based Capital Guidelines or any other capital
requirements passed prior to the date hereof, or (ii) any adoption of or change
in any other law, governmental or quasi-governmental rule, regulation, policy,
guideline, interpretation, or directive (whether or not having the force of law)
after the date of this Agreement and having general applicability to all banks
and financial institutions within the jurisdiction in which such Lender operates
which affects the amount of capital required or expected to be maintained by any
Lender or any Lending Installation or any corporation controlling any Lender.
"RISK-BASED CAPITAL GUIDELINES" means (i) the risk-based capital guidelines in
effect in the United States on the date of this Agreement, including transition
rules, and (ii) the corresponding capital regulations promulgated by regulatory
authorities outside the United States implementing the July 1988 report of the
Basle Committee on Banking Regulation and Supervisory Practices Entitled
"International Convergence of Capital Measurements and Capital Standards,"
including transition rules, and any amendments to such regulations adopted prior
to the date of this Agreement.
4.3 Availability of Types of Advances. If (i) any Lender determines
that maintenance of its Eurocurrency Rate Loans at a suitable Lending
Installation would violate any applicable law, rule, regulation or directive,
whether or not having the force of law, or (ii) the Required Lenders determine
that (x) deposits of a type, currency or maturity appropriate to match fund
Eurocurrency Rate Advances are not available or (y) the interest rate applicable
to a Eurocurrency Rate Advance or Alternate Currency Advance does not accurately
reflect the cost of making or maintaining such an Advance, then the Agent shall
suspend the availability of the
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affected Type of Advance and, in the case of any occurrence set forth in clause
(i), require any Advances of the affected Type to be repaid or converted into
another Type.
4.4 Funding Indemnification. Subject to Sections 2.5(B)(i), (ii), and
(iii), if any payment of a Eurocurrency Rate Advance occurs on a date which is
not the last day of the applicable Interest Period, whether because of
acceleration, prepayment, or otherwise, or a Eurocurrency Rate Advance is not
made on the date specified by the Borrower for any reason other than default by
the Lenders, the Borrower indemnifies each Lender for any loss or cost incurred
by it resulting therefrom, including, without limitation, any loss or cost in
liquidating or employing deposits acquired to fund or maintain the Eurocurrency
Rate Advance. In connection with any assignment by any Lender of any portion of
the Loans made pursuant to Section 13.3, and if, notwithstanding the provisions
of Section 2.4, the Borrower has requested and the Agent has consented to the
use of the Eurocurrency Rate, the Borrower shall be deemed to have repaid all
outstanding Eurocurrency Rate Advances as of the effective date of such
assignment and reborrowed such amount as a Floating Rate Advance and/or
Eurocurrency Rate Advance (chosen in accordance with the provisions of Section
2.4) and the indemnification provisions under this Section 4.4 shall apply.
4.5 Lender Statements; Survival of Indemnity. If reasonably possible,
each Lender shall designate an alternate Lending Installation with respect to
its Eurocurrency Rate Loans to reduce any liability of the Borrower to such
Lender under Sections 4.1 and 4.2 or to avoid the unavailability of a Type of
Advance under Section 4.3, so long as such designation is not disadvantageous to
such Lender. Each Lender requiring compensation pursuant to Section 2.15(E) or
to this Article IV shall use its reasonable efforts to notify the Borrower and
the Agent in writing of any Change, law, policy, rule, guideline or directive
giving rise to such demand for compensation not later than ninety (90) days
following the date upon which the responsible account officer of such Lender
knows or should have known of such Change, law, policy, rule, guideline or
directive. Any demand for compensation pursuant to this Article IV shall be in
writing and shall state the amount due, if any, under Section 4.1, 4.2 or 4.4
and shall set forth in reasonable detail the calculations upon which such Lender
determined such amount. Such written demand shall be rebuttably presumed correct
for all purposes. Determination of amounts payable under such Sections in
connection with a Eurocurrency Rate Loan shall be calculated as though each
Lender funded its Eurocurrency Rate Loan through the purchase of a deposit of
the type, currency and maturity corresponding to the deposit used as a reference
in determining the Eurocurrency Rate applicable to such Loan, whether in fact
that is the case or not. The obligations of the Borrower under Sections 4.1, 4.2
and 4.4 shall survive payment of the Obligations and termination of this
Agreement.
ARTICLE V: CONDITIONS PRECEDENT
5.1 Initial Advances and Letters of Credit. The Borrower hereby
confirms that on or prior to the Closing Date, the Borrower has furnished to the
Agent each of the following, with sufficient copies for the Lenders, all in form
and substance satisfactory to the Agent and the Lenders:
(1) Copies of the Certificate of Incorporation of the Borrower,
together with all amendments and a certificate of good standing, both
certified by the appropriate governmental officer in its jurisdiction
of incorporation;
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(2) Copies, certified by the Secretary or Assistant Secretary of
the Borrower, of its By-Laws and of its Board of Directors'
resolutions (and resolutions of other bodies, if any are deemed
necessary by counsel for any Lender) authorizing the execution of the
Loan Documents;
(3) An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Borrower, which shall identify by name and
title and bear the signature of the officers of the Borrower
authorized to sign the Loan Documents and to make borrowings
hereunder, upon which certificate the Lenders shall be entitled to
rely until informed of any change in writing by the Borrower;
(4) A certificate, in form and substance satisfactory to the
Agent, signed by the chief financial officer of the Borrower, stating
that on the date of this Agreement all the representations in this
Agreement are true and correct in all material respects (unless such
representation and warranty is made as of a specific date, in which
case, such representation and warranty shall be true in all material
respects as of such date) and no Default or Unmatured Default has
occurred and is continuing;
(5) The written opinions of each opinion of the Borrower's US
counsel, addressed to the Agent and the Lenders, in substantially the
form attached hereto as Exhibit E;
(6) Evidence reasonably satisfactory to the Agent that the
Borrower and each of its Subsidiaries (a) has made an assessment of
the Year 2000 Issues; (b) has a program from remediating the Year 2000
Issues, including a timetable and budget of anticipated costs; and (c)
has source of funds as required in such budget;
(7) Evidence reasonably satisfactory to the Agent that there
exists no injunction or temporary restraining order which, in the
reasonable judgment of the Agent, would prohibit the making of the
Loans and the other transactions contemplated by the Loan Documents or
any litigation seeking such an injunction or restraining order;
(8) Such other documents as the Agent or any Lender or its
counsel may have reasonably requested, including, without limitation,
all of the documents reflected on the List of Closing Documents
attached as Exhibit F to this Agreement;
(9) The Agent shall have received opinions of value, solvency and
other appropriate factual information and advice in form and substance
reasonably satisfactory to it and from the chief financial officer of
the Borrower supporting the conclusions that after giving effect to
the transactions contemplated herein, the Borrower and its
Subsidiaries on a consolidated basis is Solvent and will be Solvent
subsequent to incurring the indebtedness contemplated under the Loan
Documents, will be able to pay its debts and liabilities as they
become due and will not be left with unreasonably small working
capital for general corporate purposes;
(10) Evidence satisfactory to the Agent that the Borrower has
paid to the Agent and the Arranger the fees agreed to in the fee
letter dated January 19, 1999, among the Agent, the Arranger and the
Borrower.
5.2 Each Advance and Letter of Credit. The Lenders shall not be
required to make any Advance, or issue any Letter of Credit, unless on the
applicable Borrowing Date, or in the case of a Letter of Credit, the date on
which the Letter of Credit is to be issued:
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(A) There exists no Default or Unmatured Default;
(B) The representations and warranties contained in Article VI
are true and correct in all material respects as of such Borrowing
Date (unless such representation and warranty is made as of a specific
date, in which case, such representation and warranty shall be true in
all material respects as of such date) except for changes in the
Schedules to this Agreement reflecting transactions permitted by or
not in violation of this Agreement or reflecting changes made on or
prior to the Closing Date that are not reasonably expected to evidence
a Material Adverse Effect; and
(C) (i) The Revolving Credit Obligations do not, and after making
such proposed Advance or issuing such Letter of Credit would not,
exceed the Aggregate Revolving Loan Commitment, and (ii) the aggregate
outstanding principal Dollar Amount of all Eurocurrency Rate Advances
in Agreed Currencies other than Dollars and all L/C Obligations in
Agreed Currencies other than Dollars and all Alternate Currency Loans
does not and would not exceed the Maximum Eurocurrency Amount.
Each Borrowing/Conversion/Continuation Notice with respect to each such
Advance and the letter of credit application with respect to each Letter of
Credit shall constitute a representation and warranty by the Borrower that the
conditions contained in Sections 5.2(A), (B) and (C) have been satisfied. Any
Lender may require a duly completed officer's certificate in substantially the
form of Exhibit G hereto and/or a duly completed compliance certificate in
substantially the form of Exhibit H hereto as a condition to making an Advance.
5.3 Effectiveness of this Agreement. The Lenders shall not be required
to make any Loans or issue any Letters of Credit hereunder, the Swing Line Bank
shall not be required to make any Swing Line Loans hereunder, and this Agreement
shall not become effective, unless (i) such initial Loans are made not later
than October 29, 1999; (ii) the Borrower shall have paid all outstanding fees
and expenses (including, without limitation, all unpaid arrangement fees,
commitment fees and legal expenses of the Agent) due and payable under the
Amended Credit Agreement; and (iii) the Borrower has furnished to the Agent each
of the following, with sufficient copies for the Lenders:
(1) Copies, certified by the Secretary or Assistant Secretary of
the Borrower, of the Borrower's Boards of Directors' resolutions
authorizing the execution of this Agreement;
(2) Incumbency certificate, executed by the Secretary or
Assistant Secretary of the Borrower, which shall identify by name and
title and bear the signature of the officers of the Borrower
authorized to sign this Agreement and any other Loan Documents entered
into in connection herewith, and of each of the Authorized Officers
authorized to make borrowings and request Letters of Credit hereunder,
upon which certificate the Lenders shall be entitled to rely until
informed of any change in writing by the Borrower;
(3) A certificate, in form and substance satisfactory to the
Agent, signed by an Authorized Officer, stating that on the Closing
Date all the representations in this Agreement are true and correct
and no Default or Unmatured Default has occurred and is continuing.
and
(4) The written opinions of the Borrowers' and the Guarantors'
U.S. counsel, and each Alternate Currency Borrower's foreign counsel,
in each case, addressed to the Agent,
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the Alternate Currency Banks and the Lenders, in form and substance
acceptable to the Agent and its counsel, with respect to the due
authorization, execution and enforceability of this Agreement.
ARTICLE VI: REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this
Agreement and to make the Loans and the other financial accommodations to the
Borrower and to issue the Letters of Credit described herein, the Borrower
represents and warrants as follows to each Lender and the Agent as of the date
of this Agreement and on the Closing Date, giving effect to the consummation of
the transactions contemplated by the Loan Documents on the Closing Date, and
thereafter on each date as required by Section 5.2:
6.1 Organization; Corporate Powers. The Borrower and each of its
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (ii) except in
respect to the failure of Chromart Corporation and Designer's Atelier, Inc. to
be qualified to do business in the state of New York, is duly qualified to do
business as a foreign corporation and is in good standing under the laws of each
jurisdiction in which failure to be so qualified and in good standing could not
reasonably be expected to have a Material Adverse Effect, and (iii) has all
requisite corporate power and authority to own, operate and encumber its
property and to conduct its business as presently conducted and as proposed to
be conducted.
6.2 Authority.
(A) The Borrower and each of its Subsidiaries has the requisite
corporate power and authority to execute, deliver and perform each of the Loan
Documents which have been executed by it as required by this Agreement and the
other Loan Documents on or prior to Closing Date and (ii) to file the Loan
Documents which have been filed by it as required by this Agreement, the other
Loan Documents or otherwise on or prior to the Closing Date with any
Governmental Authority.
.
(B) The execution, delivery, performance and filing, as the case may
be, of each of the Loan Documents which have been executed or filed as required
by this Agreement, the other Loan Documents or otherwise on or prior to the
Closing Date and to which the Borrower or any of its Subsidiaries is party, and
the consummation of the transactions contemplated thereby, have been duly
approved by the respective boards of directors and, if necessary, the
shareholders of the Borrower and its Subsidiaries, and such approvals have not
been rescinded. No other corporate action or proceedings on the part of the
Borrower or its Subsidiaries are necessary to consummate such transactions.
(C) Each of the Loan Documents to which the Borrower or any of its
Subsidiaries is a party has been duly executed, delivered or filed, as the case
may be, by it and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms (except as enforceability
may be limited by bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally), is in full force and effect and no
material term or condition thereof has been amended, modified or waived from the
terms and conditions
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contained in the Loan Documents delivered to the Agent pursuant to Section 5.1
without the prior written consent of the Agent, and the Borrower and its
Subsidiaries have, and, to the best of the Borrower's and its Subsidiaries'
knowledge, all other parties thereto have, performed and complied with all the
terms, provisions, agreements and conditions set forth therein and required to
be performed or complied with by such parties on or before the Closing Date, and
no unmatured default, default or breach of any covenant by any such party exists
thereunder.
6.3 No Conflict; Governmental Consents. The execution, delivery and
performance of each of the Loan Documents to which the Borrower or any of its
Subsidiaries is a party do not and will not (i) conflict with the certificate or
articles of incorporation or by-laws of the Borrower or any such Subsidiary,
(ii) constitute a tortious interference with any Contractual Obligation of any
Person or conflict with, result in a breach of or constitute (with or without
notice or lapse of time or both) a default under any Requirement of Law
(including, without limitation, any Environmental Property Transfer Act) or
Contractual Obligation of the Borrower or any such Subsidiary, or require
termination of any Contractual Obligation, except such interference, breach,
default or termination which individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect, (iii) with respect to
the Loan Documents, constitute a tortious interference with any Contractual
Obligation of any Person or conflict with, result in a breach of or constitute
(with or without notice or lapse of time or both) a default under any
Requirement of Law (including, without limitation, any Environmental Property
Transfer Act) or Contractual Obligation of the Borrower or any such Subsidiary,
or require termination of any Contractual Obligation, except such interference,
breach, default or termination which individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect, (iv) result in or
require the creation or imposition of any Lien whatsoever upon any of the
property or assets of the Borrower or any such Subsidiary, other than Liens
permitted or created by the Loan Documents, or (v) require any approval of the
Borrower's or any such Subsidiary's Board of Directors or shareholders except
such as have been obtained. Except as set forth on Schedule 6.3 to this
Agreement, the execution, delivery and performance of each of the Loan Documents
to which the Borrower or any of its Subsidiaries is a party do not and will not
require any registration with, consent or approval of, or notice to, or other
action to, with or by any Governmental Authority, including under any
Environmental Property Transfer Act, except filings, consents or notices which
have been made, obtained or given, or which, if not made, obtained or given,
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
6.4 Financial Statements.
(A) The combined pro forma balance sheet, income statements and
statements of cash flow of the Borrower and its Subsidiaries, copies of which
are attached hereto as Schedule 6.4 to this Agreement, present on a pro forma
basis the financial condition of the Borrower and such Subsidiaries as of such
date, and reflect on a pro forma basis those liabilities reflected in the notes
thereto and resulting from consummation of the transactions contemplated by this
Agreement, and the payment or accrual of all transaction costs payable on the
Closing Date with respect to any of the foregoing and demonstrate that the
Borrower and its Subsidiaries can repay their debt and satisfy their other
obligations as and when due, and can comply with the requirements of this
Agreement. The projections and assumptions expressed in the pro forma financials
referenced in this Section 6.4(A) were prepared in good faith and represent
management's opinion based on the information available to the Borrower at the
time so
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furnished and, since the preparation thereof and up to the Closing Date, there
has occurred no change in the business, financial condition, operations, or
prospects of the Borrower or any of its Subsidiaries, or the Borrower and its
Subsidiaries taken as a whole which has had or could reasonably be expected to
have a Material Adverse Effect.
(B) Complete and accurate copies of the audited financial statements
and the audit report related thereto of the Borrower and its Subsidiaries as at
December 31, 1998 and December 31, 1997 have been delivered to the Agent.
6.5 No Material Adverse Change. (A) Since December 31, 1998 up to the
Closing Date, there has occurred no change in the business, properties,
condition (financial or otherwise), performance or results of operations of the
Borrower, or the Borrower and its Subsidiaries taken as a whole or any other
event which has had or could reasonably be expected to have a Material Adverse
Effect.
(B) Since the Closing Date, there has occurred no change in the
business, properties, condition (financial or otherwise), performance or results
of operations of the Borrower or the Borrower and its Subsidiaries taken as a
whole or any other event which has had or could reasonably be expected to have a
Material Adverse Effect.
6.6 Taxes.
(A) Tax Examinations. All material deficiencies which have been
asserted against the Borrower or any of the Borrower's Subsidiaries as a result
of any federal, state, local or foreign tax examination for each taxable year in
respect of which an examination has been conducted have been fully paid or
finally settled or are being contested in good faith, and as of the Closing Date
no issue has been raised by any taxing authority in any such examination which,
by application of similar principles, reasonably can be expected to result in
assertion by such taxing authority of a material deficiency for any other year
not so examined which has not been reserved for in the Borrower's consolidated
financial statements to the extent, if any, required by Agreement Accounting
Principles. Except as permitted pursuant to Section 7.2(D), neither the Borrower
nor any of the Borrower's Subsidiaries anticipates any material tax liability
with respect to the years which have not been closed pursuant to applicable law.
(B) Payment of Taxes. All tax returns and reports of the Borrower and
its Subsidiaries required to be filed have been timely filed, and all material
taxes, assessments, fees and other governmental charges thereupon and upon their
respective property, assets, income and franchises which are shown in such
returns or reports to be due and payable have been paid except those items which
are being contested in good faith and have been reserved for in accordance with
Agreement Accounting Principles. The Borrower has no knowledge of any proposed
tax assessment against the Borrower or any of its Subsidiaries that will have or
could reasonably be expected to have a Material Adverse Effect.
6.7 Litigation; Loss Contingencies and Violations. Except as set forth
in Schedule 6.7 to this Agreement, there is no action, suit, proceeding,
arbitration or (to the Borrower's knowledge) investigation before or by any
Governmental Authority or private arbitrator pending or, to the Borrower's
knowledge, threatened against the Borrower or any of its Subsidiaries or any
property of any of them (i) challenging the validity or the enforceability of
any material
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provision of the Loan Documents or (ii) which will have or could reasonably be
expected to have a Material Adverse Effect. There is no material loss
contingency within the meaning of Agreement Accounting Principles which has not
been reflected in the consolidated financial statements of the Borrower prepared
and delivered pursuant to Section 7.1(A) for the fiscal period during which such
material loss contingency was incurred. Neither the Borrower nor any of its
Subsidiaries is (A) in violation of any applicable Requirements of Law which
violation will have or could reasonably be expected to have a Material Adverse
Effect, or (B) subject to or in default with respect to any final judgment,
writ, injunction, restraining order or order of any nature, decree, rule or
regulation of any court or Governmental Authority which will have or could
reasonably be expected to have a Material Adverse Effect.
6.8 Subsidiaries. Schedule 6.8 to this Agreement (i) contains a
description of the corporate structure of the Borrower, its Subsidiaries and any
other Person in which the Borrower or any of its Subsidiaries holds an Equity
Interest; and (ii) accurately sets forth (A) the correct legal name, the
jurisdiction of incorporation and the jurisdictions in which each of the
Borrower and the direct and indirect Subsidiaries of the Borrower are qualified
to transact business as a foreign corporation, (B) the authorized, issued and
outstanding shares of each class of Capital Stock of the Borrower and each of
its Subsidiaries and the owners of such shares (both as of the Closing Date and
on a fully-diluted basis), and (C) a summary of the direct and indirect
partnership, joint venture, or other Equity Interests, if any, of the Borrower
and each Subsidiary of the Borrower in any Person that is not a corporation.
Except as disclosed on Schedule 6.8, none of the issued and outstanding Capital
Stock of the Borrower or any of the Borrower's Subsidiaries is subject to any
vesting, redemption, or repurchase agreement, and there are no warrants or
options outstanding with respect to such Capital Stock. The outstanding Capital
Stock of the Borrower and each of the Borrower's Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and is not Margin
Stock.
6.9 ERISA. Except as disclosed on Schedule 6.9, no Benefit Plan has
incurred any accumulated funding deficiency (as defined in Sections 302(a)(2) of
ERISA and 412(a) of the Code) whether or not waived. Neither the Borrower nor
any member of the Controlled Group has incurred any material liability to the
PBGC which remains outstanding other than the payment of premiums, and there are
no premium payments which have become due which are unpaid. Schedule B to the
most recent annual report filed with the IRS with respect to each Benefit Plan
and furnished to the Lenders is complete and accurate. Since the date of each
such Schedule B, there has been no material adverse change in the funding status
or financial condition of the Benefit Plan relating to such Schedule B. Neither
the Borrower nor any member of the Controlled Group has (i) failed to make a
required contribution or payment to a Multiemployer Plan or (ii) made a complete
or partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer
Plan. Neither the Borrower nor any member of the Controlled Group has failed to
make a required installment or any other required payment under Section 412 of
the Code on or before the due date for such installment or other payment.
Neither the Borrower nor any member of the Controlled Group is required to
provide security to a Benefit Plan under Section 401(a)(29) of the Code due to a
Plan amendment that results in an increase in current liability for the plan
year. Except as set forth on Schedule 6.9, neither the Borrower nor any of its
Subsidiaries maintains or contributes to any employee welfare benefit plan
within the meaning of Section 3(1) of ERISA which provides benefits to employees
after termination of employment other than as required by Section 601 of ERISA.
Each Plan which is intended to be
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qualified under Section 401(a) of the Code as currently in effect is so
qualified in all material respects, and each trust related to any such Plan is
exempt from federal income tax under Section 501(a) of the Code as currently in
effect. The Borrower and all Subsidiaries are in compliance in all material
respects with the responsibilities, obligations and duties imposed on them by
ERISA and the Code with respect to all Plans. Neither the Borrower nor any of
its Subsidiaries nor any fiduciary of any Plan has engaged in a nonexempt
prohibited transaction described in Sections 406 of ERISA or 4975 of the Code
which could reasonably be expected to subject the Borrower to liability in
excess of $5,000,000. Neither the Borrower nor any member of the Controlled
Group has taken or failed to take any action which would constitute or result in
a Termination Event, which action or inaction could reasonably be expected to
subject the Borrower or any of its Subsidiaries to liability, individually or in
the aggregate, in excess of $5,000,000. Neither the Borrower nor any Subsidiary
is subject to any liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of
ERISA and no other member of the Controlled Group is subject to any liability
under Sections 4063, 4064, 4069, 4204 or 4212(c) of ERISA which could reasonably
be expected to subject the Borrower or any of its Subsidiaries to liability,
individually or in the aggregate, in excess of $5,000,000 (other than
liabilities of any ERISA affiliate which could not, by operation of law or
otherwise, become a liability of the Borrower or any Subsidiary). Except as set
forth on Schedule 6.9, neither the Borrower nor any of its Subsidiaries has, by
reason of the transactions contemplated hereby, any obligation to make any
payment to any employee pursuant to any Plan or existing contract or
arrangement.
6.10 Accuracy of Information. To the knowledge of the Borrower, the
information, exhibits and reports furnished by or on behalf of the Borrower and
any of its Subsidiaries to the Agent or to any Lender in connection with the
negotiation of, or compliance with, the Loan Documents, the representations and
warranties of the Borrower and its Subsidiaries contained in the Loan Documents,
and all certificates and documents delivered to the Agent and the Lenders
pursuant to the terms thereof, taken as a whole, do not contain as of the date
thereof any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances under which they were made, not misleading in any material
respect.
6.11 Securities Activities. Neither the Borrower nor any of its
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
6.12 Material Agreements. Neither the Borrower nor any Subsidiary is a
party to any Contractual Obligation which, as of the Closing Date or as of the
date on which such Contractual Obligation was incurred individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
Neither Borrower nor any Subsidiary is subject to any charter or other corporate
restriction which individually or in the aggregate has had or could reasonably
be expected to have a Material Adverse Effect. Neither the Borrower nor any of
its Subsidiaries has received written notice that (i) it is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any Contractual Obligation applicable to it, or (ii) any
condition exists which, with the giving of notice or the lapse of time or both,
would constitute a default with respect to any such Contractual Obligation, in
each case, except where such default or defaults, if any, individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
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6.13 Compliance with Laws. The Borrower and its Subsidiaries are in
compliance with all Requirements of Law applicable to them and their respective
businesses, in each case where the failure to so comply individually or in the
aggregate could reasonably be expected to have a Material Adverse Effect.
6.14 Assets and Properties. The Borrower and each of its Subsidiaries
has good and marketable title to all of its assets and properties (tangible and
intangible, real or personal) owned by it or a valid leasehold interest in all
of its leased assets (except insofar as marketability may be limited by any laws
or regulations of any Governmental Authority affecting such assets), and all
such assets and property are free and clear of all Liens, except Liens permitted
under Section 7.3(C). Substantially all of the assets and properties owned by,
leased to or used by the Borrower and/or each such Subsidiary of the Borrower
are in adequate operating condition and repair, ordinary wear and tear excepted.
Neither this Agreement nor any other Loan Document, nor any transaction
contemplated under any such agreement, will affect any right, title or interest
of the Borrower or such Subsidiary in and to any of such assets in a manner that
could reasonably be expected to have a Material Adverse Effect.
6.15 Statutory Indebtedness Restrictions. Neither the Borrower nor any
of its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the
Investment Company Act of 1940, or any other federal or state statute or
regulation which limits its ability to incur indebtedness or its ability to
consummate the transactions contemplated hereby.
6.16 Insurance. Schedule 6.16 to this Agreement accurately sets forth
as of the Closing Date all insurance policies and programs currently in effect
with respect to the respective properties and assets and business of the
Borrower and its Subsidiaries, specifying, for each such policy and program, (i)
the amount thereof, (ii) the risks insured against thereby, (iii) the name of
the insurer and each insured party thereunder, (iv) the policy or other
identification number thereof, (v) the expiration date thereof, (vi) the annual
premium with respect thereto, and (vii) any reserves relating to any
self-insurance program that is in effect. Such insurance policies and programs
reflect coverage that is reasonably consistent with prudent industry practice.
6.17 Labor Matters.
As of the Closing Date, no attempt to organize the employees of the
Borrower, and no labor disputes, strikes or walkouts affecting the operations of
the Borrower or any of its Subsidiaries, is pending, or, to the Borrower's
knowledge, threatened, planned or contemplated which could reasonably be
expected to have a Material Adverse Effect.
6.18 [Reserved].
6.19 Environmental Matters. (A) Except as disclosed on Schedule 6.19 to
this Agreement
(i) the operations of the Borrower and its Subsidiaries comply in
all material respects with Environmental, Health or Safety
Requirements of Law;
(ii) the Borrower and its Subsidiaries have all permits, licenses
or other authorizations required under Environmental, Health or Safety
Requirements of Law and are in material compliance with such permits;
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(iii) neither the Borrower, any of its Subsidiaries nor any of
their respective present property or operations, or, to the Borrower's
or any of its Subsidiaries' knowledge, any of their respective past
property or operations, are subject to or the subject of, any
investigation known to the Borrower or any of its Subsidiaries, any
judicial or administrative proceeding, order, judgment, decree,
settlement or other agreement respecting: (A) any material violation
of Environmental, Health or Safety Requirements of Law; (B) any
remedial action; or (C) any material claims or liabilities arising
from the Release or threatened Release of a Contaminant into the
environment;
(iv) there is not now, nor to the Borrower's or any of its
Subsidiaries' knowledge has there ever been, on or in the property of
the Borrower or any of its Subsidiaries any landfill, waste pile,
underground storage tanks, aboveground storage tanks, surface
impoundment or hazardous waste storage facility of any kind, any
polychlorinated biphenyls (PCBs) used in hydraulic oils, electric
transformers or other equipment, or any asbestos containing material;
and
(v) to the knowledge of the Borrower or any of its Subsidiaries,
neither the Borrower nor any of its Subsidiaries has any material
Contingent Obligation in connection with any Release or threatened
Release of a Contaminant into the environment.
(B) For purposes of this Section 6.19 "material" means any
noncompliance or basis for liability which could reasonably be likely to subject
the Borrower or any of its Subsidiaries to liability, individually or in the
aggregate, in excess of $5,000,000.
6.20 Solvency. After giving effect to (i) the Loans to be made on the
Closing Date or such other date as Loans requested hereunder are made, (ii) the
other transactions contemplated by this Agreement and the other Loan Documents
and (iii) the payment and accrual of all transaction costs with respect to the
foregoing, the Borrower and its Subsidiaries taken as a whole are Solvent.
6.21 Year 2000 Issues. Each of the Borrower and its Subsidiaries has
made an assessment of the Year 2000 Issues and has a program for remediating the
Year 2000 Issues on a timely basis. Based on this assessment and program, the
Borrower does not reasonably anticipate any Material Adverse Effect on its
Subsidiaries' operations, business or financial condition as a result of Year
2000 Issues.
6.22 Representations and Warranties of each Alternate Currency
Borrower. Each Alternate Currency Borrower represents and warrants to the
Lenders that:
(A) Organization and Corporate Powers. Such Alternate Currency Borrower
(i) is a company duly formed and validly existing and in good standing under the
laws of the state or country of its organization (such jurisdiction being
hereinafter referred to as the "Home County"); (ii) has the requisite power and
authority to own its property and assets and to carry on its business
substantially as now conducted except where the failure to have such requisite
authority would not have a material adverse effect on such Alternate Currency
Borrower; and (iii) has the requisite power and authority and legal right to
execute and deliver the Alternate Currency Addendum to which it is a party and
each other Loan Document to which it is a party and the performance by it of its
obligations thereunder have been duly authorized by proper corporate
proceedings.
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(B) Binding Effect. The Alternate Currency Addendum and each other Loan
Document executed by such Alternate Currency Borrower is the legal, valid and
binding obligations of such Alternate Currency Borrower enforceable in
accordance with their respective terms, except as enforceability may be limited
by bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and general equitable principles.
(C) No Conflict; Government Consent. Neither the execution and delivery
by such Alternate Currency Borrower of the Loan Documents to which it is a
party, nor the consummation by it of the transactions therein contemplated to be
consummated by it, nor compliance by such Alternate Currency Borrower with the
provisions thereof will violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on such Alternate Currency
Borrower or any of its Subsidiaries or such Alternate Currency Borrower's or any
of its Subsidiaries' memoranda or articles of association or the provisions of
any indenture, instrument or agreement to which such Alternate Currency Borrower
or any of its Subsidiaries is a party or is subject, or by which it, or its
property, is bound, or conflict with or constitute a default thereunder, or
result in the creation or imposition of any lien in, of or on the property of
such Alternate Currency Borrower or any of its Subsidiaries pursuant to the
terms of any such indenture, instrument or agreement in any such case which
violation, conflict, default, creation or imposition could reasonably be
expected to have a material adverse effect on such Alternate Currency Borrower.
No order, consent, approval, license, authorization, or validation of, or
filing, recording or registration with, or exemption by, any governmental agency
is required to authorize, or is required in connection with the execution,
delivery and performance of, or the legality, validity, binding effect or
enforceability of, any of the Loan Documents.
(D) Filing. To ensure the enforceability or admissibility in evidence
of this Agreement, the Alternate Currency Addendum to which such Alternate
Currency Borrower is a party and each other Loan Document to which such
Alternate Currency Borrower is a party in its Home Country, it is not necessary
that this Agreement, such Alternate Currency Addendum, or any other Loan
Document to which such Alternate Currency Borrower is a party or any other
document be filed or recorded with any court or other authority in its Home
Country or that any stamp or similar tax be paid to or in respect of this
Agreement, such Alternate Currency Addendum or any other Loan Document of such
Alternate Currency Borrower. The qualification by any Lender or the Agent for
admission to do business under the laws of such Alternate Currency Borrower's
Home Country does not constitute a condition to, and the failure to so qualify
does not affect, the exercise by any Lender or the Agent of any right,
privilege, or remedy afforded to any Lender or the Agent in connection with the
Loan Documents to which such Alternate Currency Borrower is a party or the
enforcement of any such right, privilege, or remedy against Alternate Currency
Borrower. The performance by any Lender or the Agent of any action required or
permitted under the Loan Documents will not (i) violate any law or regulation of
such Alternate Currency Borrower's Home Country or any political subdivision
thereof, (ii) result in any tax or other monetary liability to such party
pursuant to the laws of such Alternate Currency Borrower's Home Country or
political subdivision or taxing authority thereof (provided that, should any
such action result in any such tax or other monetary liability to the Lender or
the Agent, the Borrower hereby agrees to indemnify such Lender or the Agent, as
the case may be, against (x) any such tax or other monetary liability and (y)
any increase in any tax or other monetary liability which results from such
action by such Lender or the Agent and, to the extent the Borrower makes such
indemnification, the incurrence of such liability by the
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Agent or any Lender will not constitute a Default) or (iii) violate any rule or
regulation of any federation or organization or similar entity of which the such
Alternate Currency Borrower's Home Country is a member.
(E) No Immunity. Neither such Alternate Currency Borrower nor any of
its assets is entitled to immunity from suit, execution, attachment or other
legal process. Such Alternate Currency Borrower's execution and delivery of the
Loan Documents to which it is a party constitute, and the exercise of its rights
and performance of and compliance with its obligations under such Loan Documents
will constitute, private and commercial acts done and performed for private and
commercial purposes.
(F) Application of Representations and Warranties. It is understood and
agreed by the parties hereto that the representations and warranties of each
Alternate Currency Borrower in this Section 6.22 shall only be applicable to
such Alternate Currency Borrower on and after the date of its execution of a
Alternate Currency Addendum.
ARTICLE VII : COVENANTS
The Borrower covenants and agrees that so long as any Revolving Loan
Commitments are outstanding and thereafter until payment in full of all of the
Obligations (other than contingent indemnity obligations) and termination of all
Letters of Credit, unless the Required Lenders shall otherwise give prior
written consent:
7.1 Reporting. The Borrower shall:
(A) Financial Reporting. Furnish to the Agent (with sufficient copies
for each of the Lenders):
(i) Quarterly Reports. As soon as practicable, and in any event
within fifty (50) days after the end of the first three fiscal
quarters, the consolidated and consolidating balance sheet of the
Borrower and its Subsidiaries as at the end of such period and the
related consolidated and consolidating statements of income and cash
flows of the Borrower and its Subsidiaries for such fiscal quarter and
for the period from the beginning of the then current fiscal year to
the end of such fiscal quarter, certified by the chief financial
officer of the Borrower on behalf of the Borrower as fairly presenting
in all material respects the consolidated and consolidating financial
position of the Borrower and its Subsidiaries as at the dates
indicated and the results of their operations and cash flows for the
periods indicated in accordance with Agreement Accounting Principles,
subject to normal year-end audit adjustments.
(ii) Annual Reports. As soon as practicable, and in any event
within ninety-five (95) days after the end of each fiscal year, (a)
the consolidated balance sheet of the Borrower and its Subsidiaries as
at the end of such fiscal year and the related consolidated statements
of income, stockholders' equity and cash flows of the Borrower and its
Subsidiaries for such fiscal year, and in comparative form the
corresponding figures for the previous fiscal year along with
consolidating schedules in form and substance sufficient to calculate
the financial covenants set forth in Section 7.4, and (b) an audit
report on the items listed in clause (a) hereof (other than the
consolidating schedules) of independent certified public accountants
of
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recognized national standing, which audit report shall be unqualified
and shall state that such financial statements fairly present the
consolidated financial position of the Borrower and its Subsidiaries
as at the dates indicated and the results of their operations and cash
flows for the periods indicated in conformity with Agreement
Accounting Principles and that the examination by such accountants in
connection with such consolidated financial statements has been made
in accordance with generally accepted auditing standards. The
deliveries made pursuant to this clause (ii) shall be accompanied by
(x) any management letter prepared by the above-referenced
accountants, and (y) a certificate of such accountants that, in the
course of their examination necessary for their certification of the
foregoing, they have obtained no knowledge of any Default or Unmatured
Default, or if, in the opinion of such accountants, any Default or
Unmatured Default shall exist, stating the nature and status thereof.
(iii) Officer's Certificate. Together with each delivery of any
financial statement (a) pursuant to clauses (i) and (ii) of this
Section 7.1(A), an Officer's Certificate of the Borrower,
substantially in the form of Exhibit G attached hereto and made a part
hereof, stating that (x) the representations and warranties of the
Borrower contained in Article VI hereof shall have been true and
correct in all material respects (unless such representation or
warranty is made as of a specific date, in which case, such
representation and warranty shall be true in all material respects as
of such date) at all times during the period covered by such financial
statements and as of the date of such Officer's Certificate and (y) as
of the date of such Officer's Certificate no Default or Unmatured
Default exists, or if any Default or Unmatured Default exists, stating
the nature and status thereof and (b) pursuant to clauses (i) and (ii)
of this Section 7.1(A), a compliance certificate, substantially in the
form of Exhibit H attached hereto and made a part hereof, signed by
the Borrower's chief financial officer, setting forth calculations for
the period then ended for Section 2.5(B), if applicable, which
demonstrate compliance, when applicable, with the provisions of
Sections 7.3(A) through (G) and Section 7.4, and which calculate the
Leverage Ratio for purposes of determining the then Applicable
Floating Rate Margin, Applicable Eurocurrency Margin and Applicable
Commitment Fee Percentage.
(B) Notice of Default. Promptly upon any of the chief executive
officer, chief operating officer, chief financial officer, treasurer or
controller of the Borrower obtaining actual knowledge (i) of any condition or
event which constitutes a Default or Unmatured Default, or becoming aware that
any Lender or Agent has given any written notice to any Authorized Officer with
respect to a claimed Default or Unmatured Default under this Agreement, or (ii)
that any Person has given any written notice to any Authorized Officer of the
Borrower or any Subsidiary of the Borrower or taken any other action with
respect to a claimed default or event or condition of the type referred to in
Section 8.1(E), the Borrower shall deliver to the Agent and the Lenders an
Officer's Certificate specifying (a) the nature and period of existence of any
such claimed default, Default, Unmatured Default, condition or event, (b) the
notice given or action taken by such Person in connection therewith, and (c)
what action the Borrower has taken, is taking and proposes to take with respect
thereto.
(C) Lawsuits. (i) Promptly upon the Borrower obtaining actual knowledge
of the institution of, or written threat of, any action, suit, proceeding,
governmental investigation or arbitration, by or before any Governmental
Authority, against or affecting the Borrower or any of its Subsidiaries or any
property of the Borrower or any of its Subsidiaries not previously
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disclosed pursuant to Section 6.7, which action, suit, proceeding, governmental
investigation or arbitration exposes, or in the case of multiple actions, suits,
proceedings, governmental investigations or arbitrations arising out of the same
general allegations or circumstances which expose, in the Borrower's reasonable
judgment, the Borrower or any of its Subsidiaries to liability in an amount
aggregating $5,000,000 or more (exclusive of claims covered by insurance
policies of the Borrower or any of its Subsidiaries unless the insurers of such
claims have disclaimed coverage or reserved the right to disclaim coverage on
such claims and exclusive of claims covered by the indemnity of a financially
responsible indemnitor in favor of the Borrower or any of its Subsidiaries
unless the indemnitor has disclaimed or reserved the right to disclaim coverage
thereof), give written notice thereof to the Agent and the Lenders and provide
such other information as may be reasonably available to enable each Lender and
the Agent and its counsel to evaluate such matters; and (ii) in addition to the
requirements set forth in clause (i) of this Section 7.1(C), upon request of the
Agent or the Required Lenders, promptly give written notice of the status of any
action, suit, proceeding, governmental investigation or arbitration covered by a
report delivered pursuant to clause (i) above and provide such other information
as may be reasonably available to it that would not jeopardize any
attorney-client privilege by disclosure to the Lenders to enable each Lender and
the Agent and its counsel to evaluate such matters.
(D) ERISA Notices. Deliver or cause to be delivered to the Agent and
the Lenders, at the Borrower's expense, the following information and notices as
soon as reasonably possible, and in any event:
(i) (a) within ten (10) Business Days after the Borrower obtains
knowledge that a Termination Event has occurred, a written statement
of the chief financial officer of the Borrower describing such
Termination Event and the action, if any, which the Borrower has
taken, is taking or proposes to take with respect thereto, and when
known, any action taken or threatened by the IRS, DOL or PBGC with
respect thereto and (b) within ten (10) Business Days after any member
of the Controlled Group obtains knowledge that a Termination Event has
occurred which could reasonably be expected to subject the Borrower to
liability in excess of $5,000,000, a written statement of the chief
financial officer of the Borrower describing such Termination Event
and the action, if any, which the member of the Controlled Group has
taken, is taking or proposes to take with respect thereto, and when
known, any action taken or threatened by the IRS, DOL or PBGC with
respect thereto;
(ii) within ten (10) Business Days after the Borrower or any of
its Subsidiaries obtains knowledge that a prohibited transaction
(defined in Sections 406 of ERISA and Section 4975 of the Code) has
occurred, a statement of the chief financial officer of the Borrower
describing such transaction and the action which the Borrower or such
Subsidiary has taken, is taking or proposes to take with respect
thereto;
(iii) within ten (10) Business Days after the material increase
in the benefits of any existing Benefit Plan or the establishment of
any new Benefit Plan or the commencement of, or obligation to
commence, material contributions to any Benefit Plan or Multiemployer
Plan to which the Borrower or any member of the Controlled Group was
not previously contributing, notification of such increase,
establishment, commencement or obligation to commence and the amount
of such contributions;
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(iv) within ten (10) Business Days after the Borrower or any of
its Subsidiaries receives notice of any unfavorable determination
letter from the IRS regarding the qualification of a Plan under
Section 401(a) of the Code, copies of each such letter;
(v) within ten (10) Business Days after the establishment of any
material foreign employee benefit plan (other than the establishment
of a defined contribution plan under English law within one hundred
eighty (180) days of the Closing Date) or the commencement of, or
obligation to commence, material contributions to any foreign employee
benefit plan to which the Borrower or any Subsidiary was not
previously contributing, notification of such establishment,
commencement or obligation to commence and the amount of such
contributions;
(vi) within ten (10) Business Days after the filing thereof with
the DOL, IRS or PBGC, copies of each annual report (form 5500 series),
including Schedule B thereto, filed with respect to each Benefit Plan;
(vii) within ten (10) Business Days after receipt by the Borrower
or any member of the Controlled Group of each actuarial report for any
Benefit Plan or Multiemployer Plan and each annual report for any
Multiemployer Plan, copies of each such report;
(viii) within ten (10) Business Days after the filing thereof
with the IRS, a copy of each funding waiver request filed with respect
to any Benefit Plan and all communications received by the Borrower or
a member of the Controlled Group with respect to such request;
(ix) within ten (10) Business Days after receipt by the Borrower
or any member of the Controlled Group of the PBGC's intention to
terminate a Benefit Plan or to have a trustee appointed to administer
a Benefit Plan, copies of each such notice;
(x) within ten (10) Business Days after receipt by the Borrower
or any member of the Controlled Group of a notice from a Multiemployer
Plan regarding the imposition of withdrawal liability, copies of each
such notice;
(xi) within ten (10) Business Days after the Borrower or any
member of the Controlled Group fails to make a required installment or
any other required payment under Section 412 of the Code on or before
the due date for such installment or payment, a notification of such
failure; and
(xii) within ten (10) Business Days after the Borrower or any
member of the Controlled Group knows or has reason to know that (a) a
Multiemployer Plan has been terminated, (b) the administrator or plan
sponsor of a Multiemployer Plan intends to terminate a Multiemployer
Plan, or (c) the PBGC has instituted or will institute proceedings
under Section 4042 of ERISA to terminate a Multiemployer Plan.
For purposes of this Section 7.1(D), the Borrower, any of its Subsidiaries and
any member of the Controlled Group shall be deemed to know all facts known by
the administrator of any Plan of which the Borrower or any member of the
Controlled Group or such Subsidiary is the plan sponsor. In addition, for
purposes of this Section 7.1(D), "material" means any noncompliance or basis for
liability which could reasonably be likely to subject the Borrower or any of its
Subsidiaries to liability, individually or in the aggregate, in excess of
$5,000,000.
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(E) Labor Matters. Notify the Agent and the Lenders in writing,
promptly upon an Authorized Officer of the Borrower learning of (i) any material
labor dispute to which the Borrower or any of its Subsidiaries may become a
party, including, without limitation, any strikes, lockouts or other disputes
relating to such Persons' plants and other facilities which could reasonably be
expected to have a Material Adverse Effect and (ii) any Worker Adjustment and
Retraining Notification Act liability incurred with respect to the closing of
any plant or other facility of the Borrower or any of its Subsidiaries.
(F) Other Indebtedness. Deliver to the Agent (i) a copy of each regular
report, notice or communication regarding potential or actual defaults
(including any accompanying officer's certificate) delivered by or on behalf of
the Borrower to the holders of funded Indebtedness with an aggregate outstanding
principal amount in excess of $5,000,000 pursuant to the terms of the agreements
governing such Indebtedness, such delivery to be made at the same time and by
the same means as such notice of default is delivered to such holders, and (ii)
a copy of each notice or other communication received by the Borrower from the
from the holders of funded Indebtedness with an aggregate outstanding principal
amount in excess of $5,000,000 regarding potential or actual defaults pursuant
to the terms of such Indebtedness, such delivery to be made promptly after such
notice or other communication is received by the Borrower.
(G) Other Reports. Deliver or cause to be delivered to the Agent and
the Lenders copies of (i) all financial statements, reports and notices, if any,
sent or made available generally by the Borrower to its securities holders or
filed with the Commission by the Borrower, and (ii) all notifications received
from the Commission by the Borrower or its Subsidiaries pursuant to the
Securities Exchange Act of 1934 and the rules promulgated thereunder. Borrower
shall include the Agent and the Lenders on its standard distribution lists for
all press releases made available generally by the Borrower or any of the
Borrower's Subsidiaries to the public concerning material developments in the
business of the Borrower or any such Subsidiary.
(H) Environmental Notices. As soon as possible and in any event within
twenty (20) days after receipt by the Borrower, a copy of (i) any notice or
claim to the effect that the Borrower or any of its Subsidiaries is or may be
liable to any Person as a result of the Release by the Borrower, any of its
Subsidiaries, or any other Person of any Contaminant into the environment, and
(ii) any notice alleging any violation of any Environmental, Health or Safety
Requirements of Law by the Borrower or any of its Subsidiaries if, in either
case, such notice or claim relates to an event which could reasonably be
expected to subject the Borrower and each of its Subsidiaries to liability
individually or in the aggregate in excess of $5,000,000.
(I) Other Information. Promptly upon receiving a request therefor from
the Agent, prepare and deliver to the Agent and the Lenders such other
information with respect to the Borrower, any of its Subsidiaries, including,
without limitation, schedules identifying any Asset Sale or Financing (and the
use of the Net Cash Proceeds thereof), as from time to time may be reasonably
requested by the Agent.
7.2 Affirmative Covenants.
(A) Corporate Existence, Etc. Except as permitted pursuant to Section
7.3(I), the Borrower shall, and shall cause each of its Subsidiaries to, at all
times maintain its corporate
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existence and preserve and keep, or cause to be preserved and kept, in full
force and effect its rights and franchises material to its businesses.
(B) Corporate Powers; Conduct of Business. The Borrower shall, and
shall cause each of its Subsidiaries to, qualify and remain qualified to do
business in each jurisdiction in which the nature of its business requires it to
be so qualified and where the failure to be so qualified will have or could
reasonably be expected to have a Material Adverse Effect. Borrower shall cause
Chromart Corporation and Designer's Atelier, Inc. to become qualified to do
business in the state of New York as promptly as commercially practical. The
Borrower will, and will cause each Subsidiary to, carry on and conduct its
business in substantially the same manner and in substantially the same fields
of enterprise as it is presently conducted.
(C) Compliance with Laws, Etc. The Borrower shall, and shall cause its
Subsidiaries to, (a) comply with all Requirements of Law and all restrictive
covenants affecting such Person or the business, properties, assets or
operations of such Person, and (b) obtain as needed all permits necessary for
its operations and maintain such permits in good standing unless failure to
comply or obtain such permits could not reasonably be expected to have a
Material Adverse Effect.
(D) Payment of Taxes and Claims; Tax Consolidation. The Borrower shall
pay, and cause each of its Subsidiaries to pay, (i) all material taxes,
assessments and other governmental charges imposed upon it or on any of its
properties or assets or in respect of any of its franchises, business, income or
property before any penalty or interest accrues thereon, and (ii) all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
may become a Lien (other than a Lien permitted by Section 7.3(C)) upon any of
the Borrower's or such Subsidiary's property or assets, prior to the time when
any penalty or fine shall be incurred with respect thereto; provided, however,
that no such taxes, assessments and governmental charges referred to in clause
(i) above or claims referred to in clause (ii) above (and interest, penalties or
fines relating thereto) need be paid if being contested in good faith by
appropriate proceedings diligently instituted and conducted and if such reserve
or other appropriate provision, if any, as shall be required in conformity with
Agreement Accounting Principles shall have been made therefor.
(E) Insurance. The Borrower shall maintain for itself and its
Subsidiaries, or shall cause each of its Subsidiaries to maintain in full force
and effect, the insurance policies and programs listed on Schedule 6.16 to this
Agreement or substantially similar policies and programs or other policies and
programs as reflect coverage that is reasonably consistent with prudent industry
practice for companies operating in the same or similar locations. The Borrowers
shall deliver to the Agent endorsements (x) to all "All Risk" physical damage
insurance policies on all of the Borrowers' tangible real and personal property
and assets and business interruption insurance policies naming the Agent loss
payee, and (y) to all general liability and other liability policies naming the
Agent an additional insured. In the event the Borrower or any of its
Subsidiaries at any time or times hereafter shall fail to obtain or maintain any
of the policies or insurance required herein or to pay any premium in whole or
in part relating thereto, then the Agent, without waiving or releasing any
obligations or resulting Default hereunder, may at any time or times thereafter
(but shall be under no obligation to do so) obtain and maintain such policies of
insurance and pay such premiums and take any other action with respect thereto
which the Agent reasonably deems advisable. All sums so disbursed by the Agent
shall constitute part of the Obligations, payable as provided in this Agreement.
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(F) Inspection of Property; Books and Records; Discussions. The
Borrower shall permit and cause each of the Borrower's Subsidiaries to permit,
any authorized representative(s) designated by either the Agent or any Lender to
visit and inspect any of the properties of the Borrower or any of its
Subsidiaries, to examine, audit, check and make copies of their respective
financial and accounting records, books, journals, orders, receipts and any
correspondence and other data relating to their respective businesses or the
transactions contemplated hereby (including, without limitation, in connection
with environmental compliance, hazard or liability), and to discuss their
affairs, finances and accounts with their officers, all upon reasonable notice
and at such reasonable times during normal business hours, as often as may be
reasonably requested. The Borrower shall keep and maintain, and cause each of
the Borrower's Subsidiaries to keep and maintain, in all material respects,
proper books of record and account in which entries in conformity with Agreement
Accounting Principles shall be made of all dealings and transactions in relation
to their respective businesses and activities. If a Default has occurred and is
continuing, the Borrower, upon the Agent's request, shall provide copies of such
records to the Agent or its representatives.
(G) ERISA Compliance. The Borrower shall, and shall cause each of the
Borrower's Subsidiaries to, establish, maintain and operate all Plans to comply
in all material respects with the provisions of ERISA, the Code, all other
applicable laws, and the regulations and interpretations thereunder and the
respective requirements of the governing documents for such Plans.
(H) Maintenance of Property. The Borrower shall cause all property used
or useful in the conduct of its business or the business of any Subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Borrower may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section 7.2(H) shall prevent the
Borrower from discontinuing the operation or maintenance of any of such property
if such discontinuance is, in the judgment of the Borrower, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Agent or the Lenders.
(I) Environmental Compliance. The Borrower and its Subsidiaries shall
comply with all Environmental, Health or Safety Requirements of Law, except
where noncompliance will not have or is not reasonably likely to subject the
Borrower or any of its Subsidiaries to liability, individually or in the
aggregate, in excess of $5,000,000.
(J) Use of Proceeds. The Borrower shall use the proceeds of the
Revolving Loans to provide funds for the additional working capital needs and
other general corporate purposes of the Borrower and its Subsidiaries. The
Borrower will not, nor will it permit any Subsidiary to, use any of the proceeds
of the Loans to purchase or carry any Margin Stock or to make any Acquisition,
other than a Permitted Acquisition pursuant to Section 7.3(G).
(K) Subsidiary Guarantees. The Borrower will (a) cause each material
Domestic Incorporated Subsidiary to execute the Guaranty (and from and after the
Closing Date cause each Domestic Incorporated Subsidiary to execute and deliver
to the Agent, within twenty (20) days after becoming a Subsidiary of the
Borrower, an assumption agreement pursuant to which it
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agrees to be bound by the terms and provisions of the Subsidiary Guaranty
(whereupon such Subsidiary shall become a "Guarantor" under this Agreement)),
and (b) deliver and cause such Subsidiaries to deliver corporate resolutions,
opinions of counsel, and such other corporate documentation as the Agent may
reasonably request, all in form and substance reasonably satisfactory to the
Agent.
(L) Year 2000 Issues. The Borrower shall, and shall cause each of its
Subsidiaries to, take all actions reasonably necessary to ensure that the Year
2000 Issues will not have a Material Adverse Effect. The Borrower shall provide
the Agent and each of the Lenders information regarding the Borrower's and its
Subsidiaries' program to address Year 2000 Issues. The Borrower shall advise the
Agent if any Year 2000 Issues will have or would reasonably be expected to have
a Material Adverse Effect.
7.3 Negative Covenants.
(A) Indebtedness. Neither the Borrower nor any of its Subsidiaries
shall directly or indirectly create, incur, assume or otherwise become or remain
directly or indirectly liable with respect to any Indebtedness, except:
(i) the Obligations;
(ii) Permitted Existing Indebtedness and Permitted Refinancing
Indebtedness;
(iii) Indebtedness in respect of obligations secured by Customary
Permitted Liens;
(iv) Indebtedness constituting Contingent Obligations permitted
by Section 7.3(E);
(v) Indebtedness arising from intercompany loans and advances (a)
from any Subsidiary to the Borrower or any wholly-owned Subsidiary or
(b) from the Borrower to any wholly-owned Domestic Incorporated
Subsidiary or (c) from the Borrower to any wholly-owned Foreign
Incorporated Subsidiary; provided, that if the Borrower is the obligor
on such Indebtedness, such Indebtedness shall be expressly subordinate
to the payment in full in cash of the Obligations; provided, further,
that the aggregate of all Foreign Subsidiary Investments does not
exceed the Permitted Foreign Subsidiary Investment Amount at any time;
(vi) Indebtedness in respect of Hedging Obligations permitted
under Section 7.3(P);
(vii) secured or unsecured purchase money Indebtedness (including
Capitalized Leases) incurred by the Borrower or any of its
Subsidiaries after the Closing Date to finance the acquisition of
fixed assets or in conjunction with a Permitted Acquisition, if (1) at
the time of such incurrence, no Default or Unmatured default has
occurred and is continuing or would result from such incurrence, (2)
such Indebtedness has a scheduled maturity and is not due on demand,
(3) such Indebtedness does not exceed the lower of the fair market
value or the cost of the applicable fixed assets on the date acquired,
(4) such Indebtedness does not exceed $30,000,000 in the aggregate
outstanding at any time, and (5) any Lien securing such Indebtedness
is permitted under Section 7.3(C) (such Indebtedness being referred to
herein as "PERMITTED PURCHASE MONEY INDEBTEDNESS");
(viii) Indebtedness with respect to surety, appeal and
performance bonds obtained by the Borrower or any of its Subsidiaries
in the ordinary course of business;
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(ix) Indebtedness incurred by the Borrower to the seller in any
Permitted Acquisition as part of the consideration therefor, provided
that such Indebtedness is unsecured and, if in excess of $15,000,000
in the aggregate, is subordinated to the Obligations, on terms
reasonably acceptable to the Agent; and
(x) additional unsecured Indebtedness in an aggregate amount at
any time outstanding not exceeding $25,000,000.
(B) Sales of Assets. Neither the Borrower nor any of its Subsidiaries
shall consummate any Asset Sale, except:
(i) licenses or sublicenses by the Borrower or its Subsidiaries
of software, customer lists, trademarks, service marks, patents, trade
names and copyrights and other intellectual property in the ordinary
course of business; provided, that such licenses or sublicenses shall
not interfere with the business of the Borrower or any such
Subsidiary;
(ii) transfers of assets between the Borrower and any
wholly-owned Subsidiary of the Borrower or between wholly-owned
Subsidiaries of the Borrower not otherwise prohibited by this
Agreement; provided, that the aggregate of all Foreign Subsidiary
Investments does not exceed the Permitted Foreign Subsidiary
Investment Amount at any time; and
(iii) sales, assignments, transfers, leases, conveyances or other
dispositions of other assets if such transaction (a) is for not less
than fair market value (as determined in good faith by the Borrower's
board of directors), and (b) when combined with all such other
transactions (each such transaction being valued at book value) (i)
during the immediately preceding twelve-month period, represents the
disposition of not greater than ten percent (10%) of the Borrower's
Consolidated Tangible Assets at the end of the fiscal year immediately
preceding that in which such transaction is proposed to be entered
into, and (ii) during the period from the Closing Date to the date of
such proposed transaction, represents the disposition of not greater
than twenty-five percent (25%) of the Borrower's Consolidated Tangible
Assets at the end of the fiscal year immediately preceding that in
which such transaction is proposed to be entered into; and
(iv) sales in connection with the reorganization, restructuring
and rationalization of the Borrower and its Subsidiaries; provided,
that the non-recurring expenses arising from such reorganization,
restructuring and rationalization which are charged to operating
expenses are charged during the first three (3) fiscal years following
any Permitted Acquisition and do not exceed $5,000,000, on a pre-tax
basis, with respect to any Permitted Acquisition, or $10,000,000, on a
pre-tax basis, in the aggregate.
(C) Liens. Neither the Borrower nor any of its Subsidiaries shall
directly or indirectly create, incur, assume or permit to exist any Lien on or
with respect to any of their respective property or assets except:
(i) Liens created by the Loan Documents or otherwise securing the
Obligations;
(ii) Permitted Existing Liens;
(iii) Customary Permitted Liens; and
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(iv) purchase money Liens (including the interest of a lessor
under a Capitalized Lease and Liens to which any property is subject
at the time of the Borrower's acquisition thereof) securing Permitted
Purchase Money Indebtedness; provided that such Liens shall not apply
to any property of the Borrower or its Subsidiaries other than that
purchased or subject to such Capitalized Lease.
(v) Liens with respect to property acquired by the Borrower or
any of its Subsidiaries after the Closing Date (and not created in
contemplation of such acquisition) pursuant to a Permitted
Acquisition; provided, that such Liens shall extend only to the
property so acquired; and
(vi) other Liens securing Indebtedness not to exceed $5,000,000
in the aggregate.
In addition, neither the Borrower nor any of its Subsidiaries shall become a
party to any agreement, note, indenture or other instrument, or take any other
action, which would prohibit the creation of a Lien on any of its properties or
other assets in favor of the Agent for the benefit of itself and the Holders of
Obligations, as collateral for the Obligations; provided that any agreement,
note, indenture or other instrument in connection with Permitted Purchase Money
Indebtedness (including Capitalized Leases) may prohibit the creation of a Lien
in favor of the Agent for the benefit of itself and the Holders of Obligations
on the items of property obtained with the proceeds of such Permitted Purchase
Money Indebtedness.
(D) Investments. Except to the extent permitted pursuant to paragraph
(G) below, neither the Borrower nor any of its Subsidiaries shall directly or
indirectly make or own any Investment except:
(i) Investments in cash and Cash Equivalents;
(ii) Permitted Existing Investments in an amount not greater than
the amount thereof on the Closing Date;
(iii) Investments in trade receivables or received in connection
with the bankruptcy or reorganization of suppliers and customers and
in settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
(iv) Investments consisting of deposit accounts maintained by the
Borrower;
(v) Investments consisting of non-cash consideration from a sale,
assignment, transfer, lease, conveyance or other disposition of
property permitted by Section 7.3(B);
(vi) Investments consisting of (a) intercompany loans from any
Subsidiary of the Borrower to the Borrower or any other Subsidiary
permitted by Section 7.3(A)(v) and (b) intercompany loans from the
Borrower to its Subsidiaries; provided, that the aggregate of all
Foreign Subsidiary Investments made pursuant to this Section
7.3(D)(vi) shall not exceed $25,000,000 at any time;
(vii) Investments constituting Permitted Acquisitions;
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(viii) Investments constituting Indebtedness permitted by Section
7.3(A) or Contingent Obligations permitted by Section 7.3(E) or
Restricted Payments permitted by Section 7.3(F) or Capital
Expenditures permitted by Section 7.4(E);
(ix) Investments consisting of loans or advances made by any
party to the Loan Documents to employees and officers of the Borrower
or any of the Borrower's wholly-owned Domestic Incorporated
Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business in an aggregate principal amount
outstanding at any one time not to exceed $2,000,000;
(x) Investments consisting of any right of the Borrower or its
wholly-owned Domestic Incorporated Subsidiaries to payment for goods
sold or for services rendered, whether or not it has been earned by
performance; and
(xi) Investments in addition to those referred to elsewhere in
this Section 7.3(D) in an amount not to exceed $15,000,000 in the
aggregate at any time outstanding;
provided, however, that the Investments described in clause (vii) above shall
not be permitted to be made at a time when either a Default or an Unmatured
Default which is not in the process of being cured shall have occurred and be
continuing or would result therefrom.
(E) Contingent Obligations. Neither the Borrower nor any of its
Subsidiaries shall directly or indirectly create or become or be liable with
respect to any Contingent Obligation, except: (i) recourse obligations resulting
from endorsement of negotiable instruments for collection in the ordinary course
of business; (ii) Permitted Existing Contingent Obligations; (iii) obligations,
warranties, guaranties and indemnities, not relating to Indebtedness of any
Person, which have been or are undertaken or made in the ordinary course of
business and not for the benefit of or in favor of an Affiliate of the Borrower
or such Subsidiary; (iv) Contingent Obligations with respect to surety, appeal
and performance bonds obtained by the Borrower or any Subsidiary in the ordinary
course of business, (v) Contingent Obligations of the Subsidiaries of the
Borrower under the Guaranty to which they are a party, (vi) obligations arising
under or related to the Loan Documents, and (vii) Contingent Obligations in
respect to earn-outs or other similar forms of contingent purchase price payable
in respect of Permitted Acquisitions, and (viii) Contingent Obligations in
respect of representations and warranties customarily given in respect of Asset
Sales otherwise permitted hereunder.
(F) Restricted Payments. The Borrower shall not declare or make any
Restricted Payment, except Restricted Payments in an amount not to exceed
$15,000,000 in the aggregate during any twelve-month period and except
Restricted Payments by a Subsidiary to the Borrower or another Subsidiary;
provided, however, that in no event shall any Restricted Payments (other than
Restricted Payments to Borrower) be declared or made if either a Default or an
Unmatured Default shall have occurred and be continuing at the date of
declaration or payment thereof or would result therefrom.
(G) Conduct of Business; Subsidiaries; Acquisitions. Neither the
Borrower nor any of its Subsidiaries shall engage in any business other than the
businesses engaged in by the Borrower on the date hereof and any business or
activities which are substantially similar, related or incidental thereto or
logical extensions thereof. The Borrower shall not create, acquire or capitalize
any Subsidiary after the date hereof unless (i) no Default or Unmatured Default
which
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is not being cured shall have occurred and be continuing or would result
therefor; (ii) after such creation, acquisition or capitalization, all of the
representations and warranties contained herein shall be true and correct in all
material respects (unless such representation and warranty is made as of a
specific date, in which case, such representation or warranty shall be true in
all material respects as of such date); and (iii) after such creation,
acquisition or capitalization the Borrower shall be in compliance with the terms
of Section 7.2(K). The Borrower shall not make any Acquisitions, other than
Acquisitions meeting the following requirements or otherwise approved by the
Required Lenders (each such Acquisition constituting a "PERMITTED ACQUISITION"):
(i) no Default or Unmatured Default shall have occurred and be
continuing or would result from such Acquisition or the incurrence of
any Indebtedness in connection therewith;
(ii) after giving effect to such transaction, the aggregate of
all Foreign Subsidiary Investments would not exceed the Permitted
Foreign Subsidiary Investment Amount;
(iii) in the case of an Acquisition of Equity Interests of an
entity, the Acquisition shall be of at least thirty-three and
one-third percent (33 1/3%) of the Equity Interests of such entity,
and such acquired entity shall be (x) merged with and into the
Borrower immediately following such Acquisition, with the Borrower
being the surviving corporation following such merger or (y) the
results of operations of such entity shall be reported on a
consolidated basis with the Borrower and its consolidated
Subsidiaries;
(iv) the purchase is consummated pursuant to a negotiated
acquisition agreement on a non-hostile basis;
(v) if the purchase price payable in respect to any such
acquisition exceeds $10,000,000, the acquisition documents shall be
reasonably satisfactory to the Agent (including, without limitation,
in respect of representations, indemnities and opinions) and the
results of due diligence in respect of such purchase shall be
reasonably satisfactory to the Agent and prior to each such
Acquisition, the Borrower shall deliver to the Agent and the Lenders a
certificate from one of the Authorized Officers, demonstrating to the
satisfaction of the Agent that after giving effect to such Acquisition
and the incurrence of any Indebtedness permitted by Section 7.3(A) in
connection therewith, on a pro forma basis using historical audited or
reviewed unaudited financial statements obtained from the seller(s) in
respect of each such Acquisition as if the Acquisition and such
incurrence of Indebtedness had occurred on the first day of the
twelve-month period ending on the last day of the Borrower's most
recently completed fiscal quarter, the Borrower would have been in
compliance with the financial covenants in Section 7.4 and not
otherwise in Default;
(vi) the purchase price for the Acquisition shall not exceed
without the prior written consent of the Required Lenders an amount
equal to $15,000,000 (including the incurrence or assumption of any
Indebtedness in connection therewith), and in any event shall not
exceed, together with all other Permitted Acquisitions permitted under
this Section 7.3(G), shall not exceed an amount equal to (x)
$40,000,000 (including the incurrence or assumption of any
Indebtedness in connection therewith) in the aggregate any fiscal year
and (y) $75,000,000 (including the incurrence or assumption of any
Indebtedness in connection therewith) in the aggregate during the term
of this Agreement, and the Borrower shall have complied with all of
the requirements of the Loan Documents in respect thereof for purposes
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of this clause (v), purchase price payable in the form of Capital
Stock shall not be counted toward the numerical limits referred to
above; and
(vii) the businesses being acquired shall be substantially
similar, related or incidental to, or a logical extension of, the
businesses or activities engaged in by the Borrower on the Closing
Date.
(H) Transactions with Shareholders and Affiliates. Neither the Borrower
nor any of its Subsidiaries shall directly or indirectly (i) enter into or
permit to exist any transaction (including, without limitation, the purchase,
sale, lease or exchange of any property or the rendering of any service) with
any holder or holders of any of the Equity Interests of the Borrower, or with
any Affiliate of the Borrower which is not its Subsidiary, on terms that are
less favorable to the Borrower or any of its Subsidiaries, as applicable, than
those that might be obtained in an arm's length transaction at the time from
Persons who are not such a holder or Affiliate, except for Restricted Payments
permitted by Section 7.3(F) and Investments permitted by Section 7.3(D) or (ii)
enter into or permit to exist any such non-arm's length transaction between
either the Borrower or any Domestic Incorporated Subsidiary, on the one hand,
and any Foreign Incorporated Subsidiary, on the other hand, if as a result
thereof the aggregate of all Foreign Subsidiary Investments would at any time
exceed the Permitted Foreign Subsidiary Investment Amount. Agent and Lenders
acknowledge and consent to the transactions between the Borrower and its
Affiliates described in the Borrower's public filings as of the date hereof.
(I) Restriction on Fundamental Changes. Neither the Borrower nor any of
its Subsidiaries shall enter into any merger or consolidation, or liquidate,
wind-up or dissolve (or suffer any liquidation or dissolution), or convey,
lease, sell, transfer or otherwise dispose of, in one transaction or series of
transactions, all or substantially all of the Borrower's consolidated business
or property, whether now or hereafter acquired, except (i) transactions
permitted under Sections 7.3(B), 7.3(D) or 7.3(G) and, (ii) a Subsidiary of the
Borrower may be merged into or consolidated with the Borrower (in which case the
Borrower shall be the surviving corporation) or any wholly-owned Subsidiary of
the Borrower, and (iii) any liquidation of any Subsidiary of the Borrower into
the Borrower or another Subsidiary of the Borrower, as applicable.
(J) Sales and Leasebacks. Neither the Borrower nor any of its
Subsidiaries shall become liable, directly, by assumption or by Contingent
Obligation, with respect to any lease, whether an operating lease or a
Capitalized Lease, of any property (whether real or personal or mixed), (i)
which it or one of its Subsidiaries sold or transferred or is to sell or
transfer to any other Person, or (ii) which it or one of its Subsidiaries
intends to use for substantially the same purposes as any other property which
has been or is to be sold or transferred by it or one of its Subsidiaries to any
other Person in connection with such lease, unless in either case the sale
involved is not prohibited under Section 7.3(B) and the lease involved is not
prohibited under Section 7.3(A) and any related Investment is not prohibited
under Section 7.3(D).
(K) Margin Regulations. Neither the Borrower nor any of its
Subsidiaries, shall use all or any portion of the proceeds of any credit
extended under this Agreement to purchase or carry Margin Stock.
(L) ERISA. (a) The Borrower shall not
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(i) engage, or permit any of its Subsidiaries to engage, in any
prohibited transaction described in Sections 406 of ERISA or 4975 of
the Code for which a statutory or class exemption is not available or
a private exemption has not been previously obtained from the DOL;
(ii) permit to exist any material accumulated funding deficiency
(as defined in Sections 302 of ERISA and 412 of the Code), with
respect to any Benefit Plan, whether or not waived;
(iii) fail, or permit any Controlled Group member to fail, to pay
timely required material contributions or annual installments due with
respect to any waived funding deficiency to any Benefit Plan;
(iv) terminate, or permit any Controlled Group member to
terminate, any Benefit Plan which would result in any material
liability of the Borrower or any Controlled Group member under Title
IV of ERISA;
(v) fail to make any material contribution or payment to any
Multiemployer Plan which the Borrower or any Controlled Group member
may be required to make under any agreement relating to such
Multiemployer Plan, or any law pertaining thereto;
(vi) fail, or permit any Controlled Group member to fail, to pay
any required material installment or any other payment required under
Section 412 of the Code on or before the due date for such installment
or other payment; or
(vii) amend, or permit any Controlled Group member to amend, a
Plan resulting in a material increase in current liability for the
plan year such that the Borrower or any Controlled Group member is
required to provide security to such Plan under Section 401(a)(29) of
the Code.
(b) For purposes of this Section 7.3(L), "material" means any
noncompliance or basis for liability which could reasonably be likely
to subject the Borrower or any of its Subsidiaries to liability,
individually or in the aggregate, in excess of $5,000,000.
(M) Corporate Documents. Neither the Borrower nor any of its
Subsidiaries shall amend, modify or otherwise change any of the terms or
provisions in any of their respective constituent documents as in effect on the
date hereof in any manner materially adverse to the interests of the Lenders,
without the prior written consent of the Required Lenders, except in connection
with a Permitted Acquisition.
(N) Fiscal Year. Neither the Borrower nor any of its consolidated
Subsidiaries shall change its fiscal year for accounting or tax purposes from a
period consisting of the 12-month period ending on the last day of December of
each year, except as required by Agreement Accounting Principles (including
fiscal year end changes required as a result of the Transactions) or by law and
disclosed to the Lenders and the Agent.
(O) Subsidiary Covenants. The Borrower will not, and will not permit
any Subsidiary to, create or otherwise cause to become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary to pay
dividends or make any other distribution on its stock, or make any other
Restricted Payment, pay any Indebtedness or other Obligation owed to the
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Borrower or any other Subsidiary, make loans or advances or other Investments in
the Borrower or any other Subsidiary, or sell, transfer or otherwise convey any
of its property to the Borrower or any other Subsidiary.
(P) Hedging Obligations. The Borrower shall not and shall not permit
any of its Subsidiaries to enter into any interest rate, commodity or foreign
currency exchange, swap, collar, cap or similar agreements evidencing Hedging
Obligations, other than interest rate, foreign currency or commodity exchange,
swap, collar, cap or similar agreements entered into by the Borrower pursuant to
which the Borrower has hedged its actual interest rate, foreign currency or
commodity exposure. Such permitted hedging agreements entered into by the
Borrower and any Lender or any affiliate of any Lender are sometimes referred to
herein as "HEDGING AGREEMENTS."
(Q) Issuance of Disqualified Stock. From and after the Closing Date,
neither the Borrower, nor any of its Subsidiaries shall issue any Disqualified
Stock. All issued and outstanding Disqualified Stock shall be treated as
Indebtedness for all purposes of this Agreement (and as funded Indebtedness for
purposes of Section 7.1(F)), and the amount of such deemed Indebtedness shall be
the aggregate amount of the liquidation preference of such Disqualified Stock.
7.4 Financial Covenants. The Borrower shall comply with the following:
(A) Minimum Fixed Charge Coverage Ratio. The Borrower and its
consolidated Subsidiaries shall maintain a ratio ("FIXED CHARGE COVERAGE RATIO")
of:
(i) the sum of (a) EBITDA during such period plus (b) Rentals
during such period minus (c) maintenance Capital Expenditures,
to
(ii) the sum of the amounts of (a) Interest Expense during such
period (net of interest income) plus (b) Rentals during such
period plus (c) scheduled principal payments of Indebtedness,
plus (d) scheduled dividend payments on Borrower's preferred
stock,
which shall not be less than 1.75 to 1.00 for each four (4) fiscal quarter
period beginning with the four (4) fiscal quarter period ending on September 30,
1999. In each case, the Fixed Charge Coverage Ratio shall be determined as of
the last day of each fiscal quarter for the four (4) fiscal quarter period
ending on such day (the "LAST TWELVE-MONTH PERIOD"), provided, that the Fixed
Charge Coverage Ratio shall be calculated, with respect to Permitted
Acquisitions, on a pro forma basis using historical audited and reviewed
unaudited financial statements obtained from the seller(s) in such Permitted
Acquisition, broken down by fiscal quarter as if such Permitted Acquisition
(including the uses and applications of proceeds in respect thereof and the
Indebtedness incurred in conjunction therewith) had occurred (i) for each fiscal
quarter ending on or prior to June 30, 2000, on July 1, 1999, and (ii) for each
fiscal quarter thereafter, on the first day of the Last Twelve-Month Period (the
"MEASUREMENT PERIOD") (including cost savings actually realized during such
prior period, as though such costs savings had been realized from the first day
of the Measurement Period in the Borrower's reasonable judgment), provided such
pro forma statements and such costs savings shall be substantiated by supporting
information reasonably acceptable to the Agent. Interest Expense shall be
calculated for the purpose of
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clause (ii) by excluding the effect of amortization of deferred financing fees,
to the extent it is an Interest Expense.
(B) Maximum Leverage Ratio. The Borrower and its consolidated
Subsidiaries shall not permit the ratio (the "LEVERAGE RATIO") of (i)
Indebtedness (net of cash and Cash Equivalents of the Borrower and its
consolidated Subsidiaries) to (ii) EBITDA to be greater than 3.00 to 1.00 for
each four (4) fiscal quarter period beginning with the fiscal quarter ending
September 30, 1999 and thereafter.
The Leverage Ratio shall be calculated, in each case, determined as of the last
day of each fiscal quarter based upon (a) for Indebtedness, Indebtedness as of
the last day of each such fiscal quarter; and (b) for EBITDA, the actual amount
for Last Twelve-Month Period, provided, that the Leverage Ratio shall be
calculated, with respect to Permitted Acquisitions, on a pro forma basis using
historical audited and reviewed unaudited financial statements obtained from the
seller(s) in such Permitted Acquisition, broken down by fiscal quarter in the
Borrower's reasonable judgment as if such Permitted Acquisition (including the
uses and applications of proceeds in respect thereof and the Indebtedness
incurred in conjunction therewith) had occurred (i) for each fiscal quarter
ending on or prior to June 30, 2000, on July 1, 1999, and (ii) for each fiscal
quarter thereafter, on the first day of the Measurement Period (including cost
savings actually realized during such prior period, as though such costs savings
had been realized from the first day of the Measurement Period in the Borrower's
reasonable judgment), provided such pro forma statements and such costs savings
shall be substantiated by supporting information reasonably acceptable to the
Agent.
(C) Minimum Consolidated Net Worth. The Borrower shall not permit its
Consolidated Net Worth at any time to be less than the sum of (a) $55,000,000
plus (b) fifty percent (50%) of Net Income (if positive) calculated separately
for each fiscal quarter commencing with the fiscal quarter ending on June 30,
1999, plus (c) one hundred percent (100%) of the net cash proceeds resulting
from the issuance by the Borrower of any Capital Stock other than shares of
Capital Stock issued pursuant to employee stock option or ownership plans.
ARTICLE VIII: DEFAULTS
8.1 Defaults. Each of the following occurrences shall constitute a
Default under this Agreement:
(A) Failure to Make Payments When Due. The Borrower or any Alternate
Currency Borrower shall (i) fail to pay when due any of the Obligations
consisting of principal with respect to the Loans or (ii) shall fail to pay
within five (5) Business Days of the date when due any of the other Obligations
under this Agreement or the other Loan Documents.
(B) Breach of Certain Covenants. The Borrower shall fail duly and
punctually to perform or observe any agreement, covenant or obligation binding
on the Borrower under:
(i) Sections 7.1, 7.2, 7.3(C), 7.3(E), 7.3(L) or 7.3(O) and such
failure shall continue unremedied for fifteen (15) Business Days, or
if such failure is not capable of being cured within such fifteen (15)
day period, forty-five (45) days if the Borrower at all times
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during such forty-five (45) day period is promptly and diligently
attempting to effect such cure; or
(ii) Sections 7.3 (other than Sections 7.3(C), 7.3(E), 7.3(L) and
7.3(O)) or 7.4.
(C) Breach of Representation or Warranty. Any representation or
warranty made or deemed made by the Borrower to the Agent or any Lender herein
or by the Borrower or any Alternate Currency Borrower or any of their
Subsidiaries in any of the other Loan Documents or in any statement or
certificate at any time given by any such Person pursuant to any of the Loan
Documents shall be false or misleading in any material respect on the date as of
which made (or deemed made).
(D) Other Defaults. The Borrower shall default in the performance of or
compliance with any term contained in this Agreement (other than as covered by
paragraphs (A) or (B) of this Section 8.1), or the Borrower or any Alternate
Currency Borrower or any of their Subsidiaries shall default in the performance
of or compliance with any term contained in any of the other Loan Documents, and
such default shall continue for thirty (30) days after the occurrence thereof.
(E) Default as to Other Indebtedness. The Borrower or any of its
Subsidiaries shall fail to make any payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) with respect
to any Indebtedness (other than Indebtedness hereunder, but including, without
limitation, Disqualified Stock), beyond any period of grace provided with
respect thereto, which individually or together with other such Indebtedness as
to which any such failure exists has an aggregate outstanding principal amount
in excess of $5,000,000; or any breach, default or event of default shall occur,
or any other condition shall exist under any instrument, agreement or indenture
pertaining to any such Indebtedness having such aggregate outstanding principal
amount, beyond any period of grace, if any, provided with respect thereto, if
the effect thereof is to cause an acceleration, mandatory redemption, a
requirement that the Borrower offer to purchase such Indebtedness or other
required repurchase of such Indebtedness, or permit the holder(s) of such
Indebtedness to accelerate the maturity of any such Indebtedness or require a
redemption or other repurchase of such Indebtedness; or any such Indebtedness
shall be otherwise declared to be due and payable (by acceleration or otherwise)
or required to be prepaid, redeemed or otherwise repurchased by the Borrower or
any of its Subsidiaries (other than by a regularly scheduled required
prepayment) prior to the stated maturity thereof.
(F) Involuntary Bankruptcy; Appointment of Receiver, Etc.
(i) An involuntary case shall be commenced against the Borrower
or any of the Borrower's Subsidiaries and the petition shall not be
dismissed, stayed, bonded or discharged within sixty (60) days after
commencement of the case; or a court having jurisdiction in the
premises shall enter a decree or order for relief in respect of the
Borrower or any of the Borrower's Subsidiaries in an involuntary case,
under any applicable bankruptcy, insolvency or other similar law now
or hereinafter in effect; or any other similar relief shall be granted
under any applicable federal, state, local or foreign law.
(ii) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having
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similar powers over the Borrower or any of the Borrower's Subsidiaries
or over all or a substantial part of the property of the Borrower or
any of the Borrower's Subsidiaries shall be entered; or an interim
receiver, trustee or other custodian of the Borrower or any of the
Borrower's Subsidiaries or of all or a substantial part of the
property of the Borrower or any of the Borrower's Subsidiaries shall
be appointed or a warrant of attachment, execution or similar process
against any substantial part of the property of the Borrower or any of
the Borrower's Subsidiaries shall be issued and any such event shall
not be stayed, dismissed, bonded or discharged within sixty (60) days
after entry, appointment or issuance.
(G) Voluntary Bankruptcy; Appointment of Receiver, Etc. The Borrower or
any of the Borrower's Subsidiaries shall (i) commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (ii) consent to the entry of an order for relief in an involuntary case,
or to the conversion of an involuntary case to a voluntary case, under any such
law, (iii) consent to the appointment of or taking possession by a receiver,
trustee or other custodian for all or a substantial part of its property, (iv)
make any assignment for the benefit of creditors or (v) take any corporate
action to authorize any of the foregoing.
(H) Judgments and Attachments. Any money judgment(s) (other than a
money judgment covered by insurance as to which the applicable insurance company
has not disclaimed or reserved the right to disclaim coverage), writ or warrant
of attachment, or similar process against the Borrower or any of its
Subsidiaries or any of their respective assets involving in any single case or
in the aggregate an amount in excess of $5,000,000 is or are entered and shall
remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60)
days or in any event later than fifteen (15) days prior to the date of any
proposed sale thereunder.
(I) Dissolution. Any order, judgment or decree shall be entered against
the Borrower decreeing its involuntary dissolution or split up and such order
shall remain undischarged and unstayed for a period in excess of sixty (60)
days; or the Borrower shall otherwise dissolve or cease to exist except as
specifically permitted by this Agreement.
(J) Loan Documents. At any time, for any reason, any Loan Document as a
whole that materially affects the ability of the Agent, or any of the Lenders to
enforce the Obligations or ceases to be in full force and effect or the Borrower
or any of the Borrower's Subsidiaries party thereto seeks to repudiate its
obligations thereunder.
(K) Termination Event. Any Termination Event occurs which the Required
Lenders believe is reasonably likely to subject the Borrower to liability in
excess of $5,000,000.
(L) Waiver of Minimum Funding Standard. If the plan administrator of
any Plan applies under Section 412(d) of the Code for a waiver of the minimum
funding standards of Section 412(a) of the Code and any Lender believes the
substantial business hardship upon which the application for the waiver is based
could reasonably be expected to subject either the Borrower or any Controlled
Group member to liability in excess of $5,000,000.
(M) Change of Control. A Change of Control shall occur.
(N) Hedging Agreements. Nonpayment by the Borrower of any obligation in
excess of $2,500,000 under any Hedging Agreement which remains unpaid for sixty
(60) days or the
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breach by the Borrower of any term, provision or condition contained in any such
Hedging Agreement.
(O) Environmental Matters. The Borrower or any of its Subsidiaries
shall be the subject of any proceeding or investigation pertaining to (i) the
Release by the Borrower or any of its Subsidiaries of any Contaminant into the
environment, (ii) the liability of the Borrower or any of its Subsidiaries
arising from the Release by any other Person of any Contaminant into the
environment, or (iii) any violation of any Environmental, Health or Safety
Requirements of Law which by the Borrower or any of its Subsidiaries, which, in
any case, has or is reasonably likely to subject the Borrower to liability in
excess of $5,000,000.
(P) Guarantor Revocation. Any guarantor of the Obligations shall
terminate or revoke any of its obligations under the applicable Guaranty or
breach any of the material terms of such Guaranty.
A Default shall be deemed "continuing" until cured or until waived in
writing in accordance with Section 9.3.
ARTICLE IX: ACCELERATION, DEFAULTING LENDERS; WAIVERS, AMENDMENTS AND REMEDIES
9.1 Termination of Revolving Loan Commitments; Acceleration. If any
Default described in Section 8.1(F) or 8.1(G) occurs with respect to the
Borrower, the obligations of the Lenders to make Loans (including, without
limitation, Alternate Currency Loans) hereunder and the obligation of any
Issuing Banks to issue Letters of Credit hereunder shall automatically terminate
and the Obligations shall immediately become due and payable without any
election or action on the part of the Agent or any Lender. If any other Default
occurs, the Required Lenders may terminate or suspend the obligations of the
Lenders to make Loans (including, without limitation, Alternate Currency Loans)
hereunder and the obligation of the Issuing Banks to issue Letters of Credit
hereunder, or declare the Obligations to be due and payable, or both, whereupon
the Obligations shall become immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which the Borrower expressly
waives.
9.2 Defaulting Lender. In the event that any Lender fails to fund its
Pro Rata Share of any Advance requested or deemed requested by the Borrower,
which such Lender is obligated to fund under the terms of this Agreement (the
funded portion of such Advance being hereinafter referred to as a "NON PRO RATA
LOAN"), until the earlier of such Lender's cure of such failure and the
termination of the Revolving Loan Commitments, the proceeds of all amounts
thereafter repaid to the Agent by the Borrower and otherwise required to be
applied to such Lender's share of all other Obligations pursuant to the terms of
this Agreement shall be advanced to the Borrower by the Agent on behalf of such
Lender to cure, in full or in part, such failure by such Lender, but shall
nevertheless be deemed to have been paid to such Lender in satisfaction of such
other Obligations. Notwithstanding anything in this Agreement to the contrary:
(i) the foregoing provisions of this Section 9.2 shall apply only
with respect to the proceeds of payments of Obligations and shall not
affect the conversion or continuation of Loans pursuant to Section
2.10;
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(ii) any such Lender shall be deemed to have cured its failure to
fund its Pro Rata Share, of any Advance at such time as an amount
equal to such Lender's original Pro Rata Share of the requested
principal portion of such Advance is fully funded to the Borrower,
whether made by such Lender itself or by operation of the terms of
this Section 9.2, and whether or not the Non Pro Rata Loan with
respect thereto has been repaid, converted or continued;
(iii) amounts advanced to the Borrower to cure, in full or in
part, any such Lender's failure to fund its Pro Rata Share of any
Advance ("CURE Loans") shall bear interest at the rate applicable to
Floating Rate Loans in effect from time to time, and for all other
purposes of this Agreement shall be treated as if they were Floating
Rate Loans;
(iv) regardless of whether or not a Default has occurred or is
continuing, and notwithstanding the instructions of the Borrower as to
its desired application, all repayments of principal which, in
accordance with the other terms of this Agreement, would be applied to
the outstanding Floating Rate Loans shall be applied first, ratably to
all Floating Rate Loans constituting Non Pro Rata Loans, second,
ratably to Floating Rate Loans other than those constituting Non Pro
Rata Loans or Cure Loans and, third, ratably to Floating Rate Loans
constituting Cure Loans;
(v) for so long as and until the earlier of any such Lender's
cure of the failure to fund its Pro Rata Share of any Advance and the
termination of the Revolving Loan Commitments, the term "Required
Lenders" for purposes of this Agreement shall mean Lenders (excluding
all Lenders whose failure to fund their respective Pro Rata Share of
such Advance have not been so cured) whose Pro Rata Shares represent
greater than fifty percent (50%) of the aggregate Pro Rata Shares of
such Lenders; provided, that if any Lender (other than a Lender whose
failure to find its Pro Rata Share of such Advance has not been so
cured) shall have a Pro Rata Share greater than fifty percent (50%),
"Required Lenders" shall mean such Lender plus at least one additional
Lender (other than a Lender whose failure to find its Pro Rata Share
of such Advance has not been cured); and
(vi) for so long as and until any such Lender's failure to fund
its Pro Rata Share of any Advance is cured in accordance with Section
9.2(ii), (A) such Lender shall not be entitled to any commitment fees
with respect to its Revolving Loan Commitment and (B) such Lender
shall not be entitled to any letter of credit fees, which commitment
fees and letter of credit fees shall accrue in favor of the Lenders
which have funded their respective Pro Rata Share of such requested
Advance, shall be allocated among such performing Lenders ratably
based upon their relative Revolving Loan Commitments, and shall be
calculated based upon the average amount by which the aggregate
Revolving Loan Commitments of such performing Lenders exceeds the sum
of (I) the outstanding principal amount of the Loans owing to such
performing Lenders, plus (II) the outstanding Reimbursement
Obligations owing to such performing Lenders, plus (III) the aggregate
participation interests of such performing Lenders arising pursuant to
Section 3.6 with respect to undrawn and outstanding Letters of Credit.
9.3 Amendments. Subject to the provisions of this Article IX, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into
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agreements supplemental hereto for the purpose of adding or modifying any
provisions to the Loan Documents or changing in any manner the rights of the
Lenders or the Borrower hereunder or waiving any Default hereunder; provided,
however, that no such supplemental agreement shall, without the consent of each
Lender (which is not a defaulting Lender under the provisions of Section 9.2)
affected thereby:
(i) Postpone or extend the Revolving Loan Termination Date or any
other date fixed for any payment of principal of, or interest on, the
Loans, the Reimbursement Obligations or any fees or other amounts
payable to such Lender (except with respect to (a) any modifications
of the provisions relating to prepayments of Loans and other
Obligations and (b) a waiver of the application of the default rate of
interest pursuant to Section 2.11 hereof).
(ii) Reduce the principal amount of any Loans or L/C Obligations,
or reduce the rate or extend the time of payment of interest or fees
thereon.
(iii) Reduce the percentage specified in the definition of
Required Lenders or any other percentage of Lenders specified to be
the applicable percentage in this Agreement to act on specified
matters or amend the definitions of "Required Lenders" or "Pro Rata
Share".
(iv) Increase the amount of the Revolving Loan Commitment of any
Lender hereunder or increase any Lender's Pro Rata Share.
(v) Permit the Borrower to assign its rights under this
Agreement.
(vi) other than pursuant to a transaction permitted by the terms
of this Agreement, release any guarantor from its obligations under
the Guaranty.
(vii) Amend Section 7.4 (or any of the definitions of the terms
utilized therein) or this Section 9.3.
No amendment of any provision of this Agreement relating to (a) the Agent shall
be effective without the written consent of the Agent, (b) Swing Line Loans
shall be effective without the written consent of the Swing Line Bank and (c)
any Issuing Bank shall be effective without the written consent of such Issuing
Bank. The Agent may waive payment of the fee required under Section 13.3(B)
without obtaining the consent of any of the Lenders. Notwithstanding anything
herein to the contrary, the Agent (acting reasonably and after consultation with
other parties hereto) may by reasonable prior notice to the other parties hereto
amend this Agreement after consultation with the Borrower unilaterally for the
exclusive purpose of effectuating changes hereto which are necessary to the
integration of the issuance of Letters of Credit hereunder in euro and only in a
manner which shall not result in a deterioration of the position of any Agent or
Lender from its respective position as of the date of this Agreement.
The Agent may notify the other parties to this Agreement of any
amendments to this Agreement which the Agent reasonably determines to be
necessary as a result of the commencement of the third stage of the European
Economic and Monetary Union. Notwithstanding anything to the contrary contained
herein, any amendments so notified shall take effect in accordance with the
terms of the relevant notification; provided, however, that if
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and to the extent that the Agent determines it is not possible to put all
parties into such position, the Agent may give priority to putting the Agent,
the Arranger and the Lenders into that position.
9.4 Preservation of Rights. No delay or omission of the Lenders or the
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan or the issuance of a Letter of Credit notwithstanding the
existence of a Default or the inability of the Borrower to satisfy the
conditions precedent to such Loan or issuance of such Letter of Credit shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders required pursuant to Section 9.3, and then only
to the extent in such writing specifically set forth. All remedies contained in
the Loan Documents or by law afforded shall be cumulative and all shall be
available to the Agent and the Lenders until the Obligations have been paid in
full.
ARTICLE X: GENERAL PROVISIONS
10.1 Survival of Representations. All representations and warranties of
the Borrower contained in this Agreement shall survive delivery of this
Agreement and the making of the Loans herein contemplated so long as any
principal, accrued interest, fees, or any other amount due and payable under any
Loan Document is outstanding and unpaid (other than contingent reimbursement and
indemnification obligations) and so long as the Revolving Loan Commitments have
not been terminated.
10.2 Governmental Regulation. Anything contained in this Agreement to
the contrary notwithstanding, no Lender shall be obligated to extend credit to
the Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
10.3 Performance of Obligations. The Borrower agrees that the Agent
may, but shall have no obligation to (i) at any time, pay or discharge taxes,
liens, security interests or other encumbrances levied or placed on or
threatened against any property of the Borrower to the extent the Borrower is
required by the terms hereof to pay any such amount, but has not done so and
(ii), after the occurrence and during the continuance of a Default, to make any
other payment or perform any act required of the Borrower under any Loan
Document or take any other action which the Agent in its discretion deems
necessary or desirable to protect or preserve such property of the Borrower. The
Agent shall use its reasonable efforts to give the Borrower notice of any action
taken under this Section 10.3 prior to the taking of such action or promptly
thereafter provided the failure to give such notice shall not affect the
Borrower's obligations in respect thereof. The Borrower agrees to pay the Agent,
upon demand, the principal amount of all funds advanced by the Agent under this
Section 10.3, together with interest thereon at the rate from time to time
applicable to Floating Rate Loans from the date of such advance until the
outstanding principal balance thereof is paid in full. If the Borrower fails to
make payment in respect of any such advance under this Section 10.3 within one
(1)
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Business Day after the date the Borrower receives written demand therefor from
the Agent, the Agent shall promptly notify each Lender and each Lender agrees
that it shall thereupon make available to the Agent, in Dollars in immediately
available funds, the amount equal to such Lender's Pro Rata Share of such
advance. If such funds are not made available to the Agent by such Lender within
one (1) Business Day after the Agent's demand therefor, the Agent will be
entitled to recover any such amount from such Lender together with interest
thereon at the Federal Funds Effective Rate for each day during the period
commencing on the date of such demand and ending on the date such amount is
received. The failure of any Lender to make available to the Agent its Pro Rata
Share of any such unreimbursed advance under this Section 10.3 shall neither
relieve any other Lender of its obligation hereunder to make available to the
Agent such other Lender's Pro Rata Share of such advance on the date such
payment is to be made nor increase the obligation of any other Lender to make
such payment to the Agent.
10.4 Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
10.5 Entire Agreement. The Loan Documents embody the entire agreement
and understanding among the Borrower, the Agent and the Lenders and supersede
all prior agreements and understandings among the Borrower, the Agent and the
Lenders relating to the subject matter thereof.
10.6 Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other Lender (except to the extent to which
the Agent is authorized to act as such). The failure of any Lender to perform
any of its obligations hereunder shall not relieve any other Lender from any of
its obligations hereunder. This Agreement shall not be construed so as to confer
any right or benefit upon any Person other than the parties to this Agreement
and their respective successors and assigns.
10.7 Expenses; Indemnification.
(A) Expenses. The Borrower shall reimburse the Agent, the Alternate
Currency Bank and the Arranger for any reasonable costs, internal charges and
out-of-pocket expenses (including reasonable attorneys' and paralegals' fees and
time charges of attorneys and paralegals for the Agent, which attorneys and
paralegals may be employees of the Agent) paid or incurred by the Agent, the
Alternate Currency Bank or the Arranger in connection with the preparation,
negotiation, execution, delivery, syndication, review, amendment, modification,
and administration of the Loan Documents. The Borrower also agrees to reimburse
the Agent, the Alternate Currency Bank and the Arranger and the Lenders for any
costs, internal charges and out-of-pocket expenses (including reasonable
attorneys' and paralegals' fees and time charges of attorneys and paralegals for
the Agent, the Alternate Currency Bank and the Arranger and the Lenders, which
attorneys and paralegals may be employees of the Agent, the Alternate Currency
Bank or the Arranger or the Lenders) paid or incurred by the Agent or the
Arranger, the Alternate Currency Bank or any Lender in connection with the
collection of the Obligations and enforcement of the Loan Documents. In addition
to expenses set forth above, the Borrower agrees to reimburse the Agent,
promptly after the Agent's request therefor, for each audit, or other business
analysis performed by or for the benefit of the Lenders in connection with this
Agreement or the other Loan Documents in an amount equal to the Agent's then
customary charges for each person employed to perform such audit or analysis,
plus all reasonable costs and expenses (including without limitation, travel
expenses) incurred by the Agent in the performance of such audit or analysis.
The foregoing notwithstanding, the Borrower shall not be
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required to reimburse the Agent for its audit or business analysis in amounts in
excess of $10,000 per annum unless a Default has occurred and is continuing.
Agent shall provide the Borrower with a detailed statement of all reimbursements
requested under this Section 10.7(A).
(B) Indemnity. The Borrower further agrees to defend, protect,
indemnify, and hold harmless the Agent, the Arranger, the Alternate Currency
Bank and each and all of the Lenders and each of their respective Affiliates,
and each of such Agent's, Arranger's, the Alternate Currency Bank's, Lender's,
or Affiliate's respective officers, directors, trustees, investment advisors,
employees, attorneys and agents (including, without limitation, those retained
in connection with the satisfaction or attempted satisfaction of any of the
conditions set forth in Article V) (collectively, the "INDEMNITEES") from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses of any kind or nature
whatsoever (including, without limitation, the fees and disbursements of counsel
for such Indemnitees in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitees shall be designated a party
thereto), imposed on, incurred by, or asserted against such Indemnitees in any
manner relating to or arising out of:
(i) this Agreement or any of the other Loan Documents, or any
act, event or transaction related or attendant thereto or to the
making of the Loans, and the issuance of and participation in Letters
of Credit hereunder, the management of such Loans or Letters of
Credit, the use or intended use of the proceeds of the Loans or
Letters of Credit hereunder, or any of the other transactions
contemplated by the Loan Documents; or
(ii) any liabilities, obligations, responsibilities, losses,
damages, personal injury, death, punitive damages, economic damages,
consequential damages, treble damages, intentional, willful or wanton
injury, damage or threat to the environment, natural resources or
public health or welfare, costs and expenses (including, without
limitation, attorney, expert and consulting fees and costs of
investigation, feasibility or remedial action studies), fines,
penalties and monetary sanctions, interest, direct or indirect, known
or unknown, absolute or contingent, past, present or future relating
to violation of any Environmental, Health or Safety Requirements of
Law arising from or in connection with the past, present or future
operations of the Borrower, its Subsidiaries or any of their
respective predecessors in interest, or, the past, present or future
environmental, health or safety condition of any respective property
of the Borrower or its Subsidiaries, the presence of
asbestos-containing materials at any respective property of the
Borrower or its Subsidiaries or the Release or threatened Release of
any Contaminant into the environment (collectively, the "INDEMNIFIED
MATTERS");
provided, however, the Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Matters caused solely by or resulting
solely from the willful misconduct or Gross Negligence of such Indemnitee with
respect to the Loan Documents, as determined by the final non-appealed judgment
of a court of competent jurisdiction. If the undertaking to indemnify, pay and
hold harmless set forth in the preceding sentence may be unenforceable because
it is violative of any law or public policy, the Borrower shall contribute the
maximum portion which it is permitted to pay and satisfy under applicable law,
to the payment and satisfaction of all Indemnified Matters incurred by the
Indemnitees.
(C) Waiver of Certain Claims; Settlement of Claims. The Borrower
further agrees to assert no claim against any of the Indemnitees on any theory
of liability seeking consequential, special, indirect, exemplary or punitive
damages. No settlement shall be entered into by the Borrower or
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any if its Subsidiaries with respect to any claim, litigation, arbitration or
other proceeding relating to or arising out of the transactions evidenced by
this Agreement, the other Loan Documents unless such settlement releases all
Indemnitees from any and all liability with respect thereto.
(D) Survival of Agreements. The obligations and agreements of the
Borrower under this Section 10.7 shall survive the termination of this
Agreement.
10.8 Numbers of Documents. All statements, notices, closing documents,
and requests hereunder shall be furnished to the Agent with sufficient
counterparts so that the Agent may furnish one to each of the Lenders.
10.9 Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles.
10.10 Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
10.11 Nonliability of Lenders. The relationship between the Borrower
and the Lenders and the Agent shall be solely that of borrower and lender.
Neither the Agent nor any Lender shall have any fiduciary responsibilities to
the Borrower. Neither the Agent nor any Lender undertakes any responsibility to
the Borrower to review or inform the Borrower of any matter in connection with
any phase of the Borrower's business or operations.
10.12 GOVERNING LAW. THE AGENT ACCEPTS THIS AGREEMENT, ON BEHALF OF
ITSELF AND THE LENDERS, AT CHICAGO, ILLINOIS BY ACKNOWLEDGING AND AGREEING TO IT
THERE. ANY DISPUTE BETWEEN THE BORROWER AND THE AGENT, ANY LENDER OR ANY OTHER
HOLDER OF OBLIGATIONS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL
TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT
OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT,
EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS
(INCLUDING 735 ILCS 105/5-1 ET SEQ. BUT OTHERWISE WITHOUT REGARD TO THE
CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS.
10.13 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH
OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG
THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS
WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED
EXCLUSIVELY
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BY STATE OR FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, BUT THE PARTIES HERETO
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF CHICAGO, ILLINOIS. EACH OF THE PARTIES HERETO WAIVES IN ALL
DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE
TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
(B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT THE AGENT, ANY LENDER
OR ANY OTHER HOLDER OF OBLIGATIONS SHALL HAVE THE RIGHT TO PROCEED AGAINST THE
BORROWER OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1)
OBTAIN PERSONAL JURISDICTION OVER THE BORROWER OR (2) IN ORDER TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER
AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING
BROUGHT BY SUCH PERSON TO REALIZE ON ANY SECURITY FOR THE OBLIGATIONS OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. THE BORROWER
WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH
PERSON HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B).
(C) VENUE. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH
IN ANY JURISDICTION SET FORTH ABOVE.
(D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(E) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENT TO EACH OTHER
PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE
PROVISIONS OF SECTION 10.7 AND THIS SECTION 10.13, WITH ITS COUNSEL.
ARTICLE XI: THE AGENT
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11.1 Appointment; Nature of Relationship. Bank One is appointed by the
Lenders as the Agent hereunder and under each other Loan Document, and each of
the Lenders irrevocably authorizes the Agent to act as the contractual
representative of such Lender with the rights and duties expressly set forth
herein and in the other Loan Documents. The Agent agrees to act as such
contractual representative upon the express conditions contained in this Article
XI. Notwithstanding the use of the defined term "Agent," it is expressly
understood and agreed that the Agent shall not have any fiduciary
responsibilities to any Holder of Obligations by reason of this Agreement and
that the Agent is merely acting as the representative of the Lenders with only
those duties as are expressly set forth in this Agreement and the other Loan
Documents. In its capacity as the Lenders' contractual representative, the Agent
(i) does not assume any fiduciary duties to any of the Holders of Obligations,
(ii) is a "representative" of the Holders of Obligations within the meaning of
Section 9-105 of the Uniform Commercial Code and (iii) is acting as an
independent contractor, the rights and duties of which are limited to those
expressly set forth in this Agreement and the other Loan Documents. Each of the
Lenders, for itself and on behalf of its affiliates as Holders of Obligations,
agrees to assert no claim against the Agent on any agency theory or any other
theory of liability for breach of fiduciary duty, all of which claims each
Holder of Obligations waives.
11.2 Powers. The Agent shall have and may exercise such powers under
the Loan Documents as are specifically delegated to the Agent by the terms of
each thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties or fiduciary duties to the Lenders, or
any obligation to the Lenders to take any action hereunder or under any of the
other Loan Documents except any action specifically provided by the Loan
Documents required to be taken by the Agent.
11.3 General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
to the extent such action or inaction is found in a final judgment by a court of
competent jurisdiction to have arisen solely from the Gross Negligence or
willful misconduct of such Person.
11.4 No Responsibility for Loans, Creditworthiness, Recitals, Etc.
Neither the Agent nor any of its directors, officers, agents or employees shall
be responsible for or have any duty to ascertain, inquire into, or verify (i)
any statement, warranty or representation made in connection with any Loan
Document or any borrowing hereunder; (ii) the performance or observance of any
of the covenants or agreements of any obligor under any Loan Document; (iii) the
satisfaction of any condition specified in Article V, except receipt of items
required to be delivered solely to the Agent; (iv) the existence or possible
existence of any Default or (v) the validity, effectiveness or genuineness of
any Loan Document or any other instrument or writing furnished in connection
therewith. The Agent shall not be responsible to any Lender for any recitals,
statements, representations or warranties herein or in any of the other Loan
Documents, or for the execution, effectiveness, genuineness, validity, legality,
enforceability, collectibility, or sufficiency of this Agreement or any of the
other Loan Documents or the transactions contemplated thereby, or for the
financial condition of any guarantor of any or all of the Obligations, the
Borrower or any of its Subsidiaries.
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11.5 Action on Instructions of Lenders. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders (or all of the Lenders in the event that and to the extent that
this Agreement expressly requires such), and such instructions and any action
taken or failure to act pursuant thereto shall be binding on all of the Lenders
and on all owners of Loans and on all Holders of Obligations. The Agent shall be
fully justified in failing or refusing to take any action hereunder and under
any other Loan Document unless it shall first be indemnified to its satisfaction
by the Lenders pro rata against any and all liability, cost and expense that it
may incur by reason of taking or continuing to take any such action.
11.6 Employment of Agents and Counsel. The Agent may execute any of its
duties as the Agent hereunder and under any other Loan Document by or through
employees, agents, and attorney-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning the contractual arrangement between the Agent and the Lenders
and all matters pertaining to the Agent's duties hereunder and under any other
Loan Document.
11.7 Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any 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.
11.8 The Agent's and the Alternate Currency Bank's Reimbursement and
Indemnification. The Lenders agree to reimburse and indemnify the Agent and the
Alternate Currency Bank ratably in proportion to their respective Pro Rata
Shares (i) for any amounts not reimbursed by the Borrower for which the Agent
and the Alternate Currency Bank is entitled to reimbursement by the Borrower
under the Loan Documents, (ii) for any other expenses incurred by the Agent or
the Alternate Currency Bank on behalf of the Lenders, in connection with the
preparation, execution, delivery, administration and enforcement of the Loan
Documents and (iii) for any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against the Agent or the Alternate Currency Bank in any way relating to or
arising out of the Loan Documents or any other document delivered in connection
therewith or the transactions contemplated thereby, or the enforcement of any of
the terms thereof or of any such other documents, provided that no Lender shall
be liable for any of the foregoing to the extent any of the foregoing is found
in a final non-appealable judgment by a court of competent jurisdiction to have
arisen solely from the Gross Negligence or willful misconduct of the Agent or
the Alternate Currency Bank.
11.9 Rights as a Lender. With respect to its Revolving Loan Commitment,
Loans made by it, and Letters of Credit issued by it, the Agent shall have the
same rights and powers hereunder and under any other Loan Document as any Lender
or Issuing Bank and may exercise the same as though it were not the Agent, and
the term "Lender" or "Lenders", "Issuing Bank" or "Issuing 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 trust, debt, equity or other transaction, in addition to those
contemplated by this Agreement or
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any other Loan Document, with the Borrower or any of its Subsidiaries in which
such Person is not prohibited hereby from engaging with any other Person.
11.10 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent, the Arranger or any other
Lender and based on the financial statements prepared by the Borrower and such
other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and the other Loan
Documents. Each Lender also acknowledges that it will, independently and without
reliance upon the Agent, the Arranger or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement and the other Loan Documents.
11.11 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right to appoint, on behalf of
the Borrower and the Lenders, a successor Agent. If no successor Agent shall
have been so appointed by the Required Lenders 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 Lenders, a successor Agent. Notwithstanding anything herein to the contrary,
so long as no Default has occurred and is continuing, each such successor Agent
shall be subject to approval by the Borrower, which approval shall not be
unreasonably withheld. Such successor Agent shall be a commercial bank having
capital and retained earnings of at least $500,000,000. Upon the acceptance of
any appointment as the 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 and under the other Loan
Documents. 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 and under the other Loan Documents.
ARTICLE XII: SETOFF; RATABLE PAYMENTS
12.1 Setoff. In addition to, and without limitation of, any rights of
the Lenders under applicable law, if any Default occurs and is continuing, any
Indebtedness from any Lender to the Borrower (including all account balances,
whether provisional or final and whether or not collected or available) may be
offset and applied toward the payment of the Obligations owing to such Lender,
whether or not the Obligations, or any part hereof, shall then be due.
12.2 Ratable Payments. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Loans (other than payments received pursuant to
Sections 4.1, 4.2 or 4.4) in a greater proportion than that received by any
other Lender, such Lender agrees, promptly upon demand, to purchase a portion of
the Loans held by the other Lenders so that after such purchase each Lender will
hold its ratable proportion of Loans. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligation or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral ratably
in proportion to the obligations owing to them. In case any such
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<PAGE> 96
payment is disturbed by legal process, or otherwise, appropriate further
adjustments shall be made.
12.3 Application of Payments. Subject to the provisions of Section 9.2,
the Agent shall, unless otherwise specified at the direction of the Required
Lenders which direction shall be consistent with the last sentence of this
Section 12.3, apply all payments and prepayments in respect of any Obligations
in the following order:
(A) first, to pay interest on and then principal of any portion
of the Loans which the Agent may have advanced on behalf of any Lender
for which the Agent has not then been reimbursed by such Lender or the
Borrower;
(B) second, to pay interest on and then principal of any advance
made under Section 10.3 for which the Agent has not then been paid by
the Borrower or reimbursed by the Lenders;
(C) third, to pay Obligations in respect of any fees, expenses,
reimbursements or indemnities then due to the Agent;
(D) fourth, to pay Obligations in respect of any fees, expenses,
reimbursements or indemnities then due to the Lenders and the
issuer(s) of Letters of Credit;
(E) fifth, to pay interest due in respect of Swing Line Loans;
(F) sixth, to pay interest due in respect of Loans (other than
Swing Line Loans) and L/C Obligations;
(G) seventh, to the ratable payment or prepayment of principal
outstanding on Swing Line Loans;
(H) eighth, to the ratable payment or prepayment of principal
outstanding on Loans (other than Swing Line Loans), Reimbursement
Obligations and Hedging Obligations under Hedging Agreements in such
order as the Agent may determine in its sole discretion;
(I) ninth, to provide required cash collateral, if required
pursuant to Section 3.11 and
(J) tenth, to the ratable payment of all other Obligations.
Unless otherwise designated (which designation shall only be applicable prior to
the occurrence of a Default) by the Borrower, all principal payments in respect
of Loans (other than Swing Line Loans) shall be applied first, to repay
outstanding Floating Rate Loans, and then to repay outstanding Eurocurrency Rate
Loans with those Eurocurrency Rate Loans which have earlier expiring Interest
Periods being repaid prior to those which have later expiring Interest Periods.
The order of priority set forth in this Section 12.3 and the related provisions
of this Agreement are set forth solely to determine the rights and priorities of
the Agent, the Lenders, the Swing Line Bank and the issuer(s) of Letters of
Credit as among themselves. The order of priority set forth in clauses (D)
through (J) of this Section 12.3 may at any time and from time to time be
changed by the Required Lenders without necessity of notice to or consent of or
approval by the Borrower, or any other Person; provided, that the order of
priority of payments in respect of Swing Line Loans may be changed only with the
prior written consent of the Swing Line Bank.
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<PAGE> 97
The order of priority set forth in clauses (A) through (C) of this Section 12.3
may be changed only with the prior written consent of the Agent.
12.4 Relations Among Lenders.
(A) Except with respect to the exercise of set-off rights of any Lender
in accordance with Section 12.1, the proceeds of which are applied in accordance
with this Agreement, and except as set forth in the following sentence, each
Lender agrees that it will not take any action, nor institute any actions or
proceedings, against the Borrower or any other obligor hereunder or with respect
to any Loan Document, without the prior written consent of the Required Lenders
or, as may be provided in this Agreement or the other Loan Documents, at the
direction of the Agent.
(B) The Lenders are not partners or co-venturers, and no Lender shall
be liable for the acts or omissions of, or (except as otherwise set forth herein
in case of the Agent) authorized to act for, any other Lender. The Agent shall
have the exclusive right on behalf of the Lenders to enforce on the payment of
the principal of and interest on any Loan after the date such principal or
interest has become due and payable pursuant to the terms of this Agreement.
ARTICLE XIII: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
13.1 Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (A) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents without the consent of all of the Lenders, and any such
assignment in violation of this Section 13.1(A) shall be null and void, and (B)
any assignment by any Lender must be made in compliance with Section 13.3
hereof. Notwithstanding clause (B) of this Section 13.1 or Section 13.3, (i) any
Lender may at any time, without the consent of the Borrower or the Agent, assign
all or any portion of its rights under this Agreement to a Federal Reserve Bank
and (ii) any Lender which is a fund or commingled investment vehicle that
invests in commercial loans in the ordinary course of its business may at any
time, without the consent of the Borrower or the Agent, pledge or assign all or
any part of its rights under this Agreement to a trustee or other representative
of holders of obligations owed or securities issued by such Lender as collateral
to secure such obligations or securities; provided, however, that no such
assignment or pledge shall release the transferor Lender from its obligations
hereunder. The Agent may treat each Lender as the owner of the Loans made by
such Lender hereunder for all purposes hereof unless and until such Lender
complies with Section 13.3 hereof in the case of an assignment thereof or, in
the case of any other transfer, a written notice of the transfer is filed with
the Agent. Any assignee or transferee of a Loan, Revolving Loan Commitment, L/C
Interest or any other interest of a lender under the Loan Documents agrees by
acceptance thereof to be bound by all the terms and provisions of the Loan
Documents. Any request, authority or consent of any Person, who at the time of
making such request or giving such authority or consent is the owner of any
Loan, shall be conclusive and binding on any subsequent owner, transferee or
assignee of such Loan.
13.2 Participations.
(A) Permitted Participants; Effect. Subject to the terms set forth in
this Section 13.2, any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any
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<PAGE> 98
time sell to one or more banks or other entities ("PARTICIPANTS") participating
interests in any Loan owing to such Lender, any Revolving Loan Commitment of
such Lender, any L/C Interest of such Lender or any other interest of such
Lender under the Loan Documents on a pro rata or non-pro rata basis. Notice of
such participation to the Borrower and the Agent shall be required prior to any
participation becoming effective with respect to a Participant which is not a
Lender or an Affiliate thereof. In the event of any such sale by a Lender of
participating interests to a Participant, such Lender's obligations under the
Loan Documents shall remain unchanged, such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
such Lender shall remain the owner of all Loans made by it for all purposes
under the Loan Documents, all amounts payable by the Borrower under this
Agreement shall be determined as if such Lender had not sold such participating
interests, and the Borrower and the Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under the Loan Documents except that, for purposes of Article IV
hereof, the Participants shall be entitled to the same rights as if they were
Lenders.
(B) Voting Rights. Each Lender shall retain the sole right to approve,
without the consent of any Participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Loan, Letter of Credit or Revolving Loan Commitment
in which such Participant has an interest which forgives principal, interest or
fees or reduces the interest rate or fees payable pursuant to the terms of this
Agreement with respect to any such Loan or Revolving Loan Commitment, postpones
any date fixed for any regularly-scheduled payment of principal of, or interest
or fees on, any such Loan or Revolving Loan Commitment.
(C) Benefit of Setoff. The Borrower agrees that each Participant shall
be deemed to have the right of setoff provided in Section 12.1 hereof in respect
to its participating interest in amounts owing under the Loan Documents to the
same extent as if the amount of its participating interest were owing directly
to it as a Lender under the Loan Documents, provided that each Lender shall
retain the right of setoff provided in Section 12.1 hereof with respect to the
amount of participating interests sold to each Participant except to the extent
such Participant exercises its right of setoff. The Lenders agree to share with
each Participant, and each Participant, by exercising the right of setoff
provided in Section 12.1 hereof, agrees to share with each Lender, any amount
received pursuant to the exercise of its right of setoff, such amounts to be
shared in accordance with Section 12.2 as if each Participant were a Lender.
13.3 Assignments.
(A) Permitted Assignments. Any Lender (each such assigning Lender under
this Section 13.3 being a "Seller") may, in the ordinary course of its business
and in accordance with applicable law, at any time assign to one or more banks
or other entities ("PURCHASERS") all or a portion of its rights and obligations
under this Agreement (including, without limitation, its Revolving Loan
Commitment, all Loans owing to it, all of its participation interests in
existing Letters of Credit, and its obligation to participate in additional
Letters of Credit hereunder) in accordance with the provisions of this Section
13.3. Each assignment shall be of a constant, and not a varying, ratable
percentage of all of the Seller's rights and obligations under this Agreement.
Such assignment shall be substantially in the form of Exhibit D hereto and shall
not be permitted hereunder unless such assignment is either for all of such
Seller's rights and obligations under the Loan Documents or, without the prior
written consent of the Agent and the
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<PAGE> 99
Alternate Currency Bank, involves loans and commitments in an aggregate amount
of at least $5,000,000 (which minimum amount (i) shall not apply to any
assignment between Lenders, or to an Affiliate or Approved Fund of any Lender,
and (ii) in any event may be waived by the Required Lenders after the occurrence
of a Default or Unmatured Event of Default). The written consent of the Agent
and the Alternate Currency Bank, and, prior to the occurrence of a Default, and
only with respect to any assignment other than to another Lender, the Borrower
(which consent, in each such case, shall not be unreasonably withheld), shall be
required prior to an assignment becoming effective with respect to a Purchaser
which is not a Lender or an Affiliate or Approved Fund of such Lender.
(B) Effect; Effective Date. Upon (i) delivery to the Agent and the
Alternate Currency Bank of a notice of assignment, substantially in the form
attached as Appendix I to Exhibit D hereto (a "NOTICE OF ASSIGNMENT"), together
with any consent required by Section 13.3(A) hereof, (ii) payment of a $3,500
fee by the assignee or the assignor (as agreed) to the Agent for processing such
assignment, and (iii) the completion of the recording requirements in Section
13.3(C), such assignment shall become effective on the later of such date when
the requirements in clauses (i), (ii), and (iii) are met or the effective date
specified in such Notice of Assignment. The Notice of Assignment shall contain a
representation by the Purchaser to the effect that none of the consideration
used to make the purchase of the Revolving Loan Commitment, Loans and L/C
Obligations under the applicable assignment agreement are "plan assets" as
defined under ERISA and that the rights and interests of the Purchaser in and
under the Loan Documents will not be "plan assets" under ERISA. On and after the
effective date of such assignment, such Purchaser, if not already a Lender,
shall for all purposes be a Lender party to this Agreement and any other Loan
Documents executed by the Lenders and shall have all the rights and obligations
of a Lender under the Loan Documents, to the same extent as if it were an
original party hereto, and no further consent or action by the Borrower, the
Lenders, the Alternate Currency Bank or the Agent shall be required to release
the Seller with respect to the percentage of the Aggregate Revolving Loan
Commitment, Loans and Letter of Credit participations assigned to such
Purchaser. Upon the consummation of any assignment to a Purchaser pursuant to
this Section 13.3(B), the Seller, the Agent, the Alternate Currency Bank and the
Borrower shall make appropriate arrangements so that, to the extent notes have
been issued to evidence any of the transferred Loans, replacement notes are
issued to such Seller and new notes or, as appropriate, replacement notes, are
issued to such Purchaser, in each case in principal amounts reflecting their
Revolving Loan Commitment, as adjusted pursuant to such assignment.
Notwithstanding anything to the contrary herein, the Borrower shall not, at any
time, be obligated to pay under Section 2.15(E) to any Lender that is a
Purchaser, assignee or transferee any sum in excess of the sum which the
Borrower would have been obligated to pay to the Lender that was the Seller,
assignor or transferor had such assignment or transfer not been effected.
(C) The Register. The Agent shall maintain at its address referred to
in Section 14.1 a copy of each assignment delivered to and accepted by it
pursuant to this Section 13.3 and a register (the "REGISTER") for the
recordation of the names and addresses of the Lenders and the Revolving Loan
Commitment of, principal amount of and interest on the Loans owing to, each
Lender from time to time and whether such Lender is an original Lender or the
assignee of another Lender pursuant to an assignment under this Section 13.3.
The entries in the Register shall be conclusive and binding for all purposes,
absent manifest error, and the Borrower and each of its Subsidiaries, the Agent
and the Lenders may treat each Person whose name is
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<PAGE> 100
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
13.4 Confidentiality. Subject to Section 13.5, the Agent and the
Lenders and their respective representatives shall hold all nonpublic
information obtained pursuant to the requirements of this Agreement and
identified as such by the Borrower in accordance with such Person's customary
procedures for handling confidential information of this nature and in
accordance with safe and sound commercial lending or investment practices and in
any event may make disclosure reasonably required by a prospective Transferee in
connection with the contemplated participation or assignment or as required or
requested by any Governmental Authority or any securities exchange or similar
self-regulatory organization or representative thereof or pursuant to a
regulatory examination or legal process, or to any direct or indirect
contractual counterparty in swap agreements or such contractual counterparty's
professional advisor, and shall require any such Transferee to agree (and
require any of its Transferees to agree) to comply with this Section 13.4. In no
event shall the Agent or any Lender be obligated or required to return any
materials furnished by the Borrower; provided, however, each prospective
Transferee shall be required to agree that if it does not become a participant
or assignee it shall return all materials furnished to it by or on behalf of the
Borrower in connection with this Agreement.
13.5 Dissemination of Information. The Borrower authorizes each Lender
to disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "TRANSFEREE") and any
prospective Transferee any and all information in such Lender's possession
concerning the Borrower and its Subsidiaries; provided that prior to any such
disclosure, such prospective Transferee shall agree to preserve in accordance
with Section 13.4 the confidentiality of any confidential information described
therein.
ARTICLE XIV: NOTICES
14.1 Giving Notice. Except as otherwise permitted by Section 2.14 with
respect to Borrowing/Conversion/Continuation Notices, all notices and other
communications provided to any party hereto under this Agreement or any other
Loan Documents shall be in writing or by telex or by facsimile and addressed or
delivered to such party at its address set forth below its signature hereto or
at such other address as may be designated by such party in a notice to the
other parties. Any notice, if mailed and properly addressed with postage
prepaid, shall be deemed given when received; any notice, if transmitted by
telex or facsimile, shall be deemed given when transmitted (answerback confirmed
in the case of telexes).
14.2 Change of Address. The Borrower, the Agent and any Lender may each
change the address for service of notice upon it by a notice in writing to the
other parties hereto.
ARTICLE XV: COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been
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executed by the Borrower, the Agent and the Lenders and each party has notified
the Agent by telex or telephone, that it has taken such action.
ARTICLE XVI: SCHEDULES
If as after date of this Agreement, Borrower has not furnished to Agent
and Lenders any schedule required by the terms hereof, Borrower shall furnish
any such schedule to Agent and Lenders as promptly as practical, but in any
event at least five (5) days prior to the Closing Date.
[Remainder of This Page Intentionally Blank]
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<PAGE> 102
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have
executed this Agreement as of the date first above written.
SCHAWK, INC., as the Borrower
By:
-----------------------------------
Name:
Title:
Address: 165 North River Road
Des Plaines, Illinois 60018
Attention: Chief Financial Officer
Telephone No.:(847) 827-9494 ext. 235
Facsimile No.: (847) 827-7770
102
<PAGE> 103
BANK ONE, NA, HAVING ITS PRINCIPAL OFFICE IN
CHICAGO, ILLINOIS, AS AGENT, AS SWING LINE
LENDER, AS ISSUING BANK AND AS A LENDER
By:
----------------------------------------
Name:
Title:
Address:
1 Bank One Plaza
Chicago, Illinois 60670
Attention: Rick Bedell
Telephone No.: (312) 732-2413
Facsimile No.: (312) 732-1117
103
<PAGE> 104
THE NORTHERN TRUST COMPANY,
as a Lender
By:
---------------------------------------
Name:
Title:
Address:
50 South LaSalle Street
Floor B-2
Chicago, Illinois 60675
Attention: Sarah Dwortz
Telephone No.: 312-444-5658
Facsimile No.: 312-
--------------
104
<PAGE> 105
BANK OF AMERICA, N.A.,
AS A LENDER
By:
---------------------------------
Name:
Title:
Address:
231 South LaSalle Street, 6th Floor
Chicago, Illinois 60697
Attention: Dan Lange
Telephone No.: 312-828-2756
Facsimile No.: 312-
--------------
105
<PAGE> 106
EXHIBIT A-1
EUROCURRENCY PAYMENT OFFICES
<TABLE>
<CAPTION>
- --------------------------------- -------------------------------------------
AGREED CURRENCY BANK ONE, NA AS AGENT AND SWING LOAN LENDER
- --------------------------------- -------------------------------------------
<S> <C>
DOLLARS Bank One, NA
Attn: Rick Bedell
1 Bank One Plaza
Chicago, Illinois 60670
- --------------------------------- -------------------------------------------
CANADIAN DOLLARS Bank One, NA
Attn: Rick Bedell
1 Bank One Plaza
Chicago, Illinois 60670
- --------------------------------- -------------------------------------------
</TABLE>
106
<PAGE> 107
CONSENT
Each of the Subsidiaries of the Borrower that is a Guarantor
under the Guaranty dated as of May 7, 1999, in each case in favor of the Holders
of Obligations, hereby consents to this Agreement and hereby confirms and agrees
that, notwithstanding the effectiveness of this Agreement, (x) the Guaranty and
each of the other Loan Documents to which it is a party are, and shall continue
to be, in full force and effect and each of the Guaranty and such other Loan
Documents is hereby confirmed and ratified in all respects, (y) this Agreement
merely re-evidences the indebtedness hitherto evidenced by the Amended Credit
Agreement, and (z) this Agreement is in no way intended to constitute a novation
of the indebtedness hitherto evidenced by the Amended Credit Agreement.
Dated: October 29, 1999
DESIGNER'S ATELIER, INC.
CHROMART CORPORATION
SCHAWK USA, INC.
HORAN IMAGING SOLUTIONS, INC.
By:
-------------------------------
Name:
Title:
March 28, 2000 (10:21 AM)
107
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
SCHAWK, INC.
1. Schawk Canada, Inc.
a. Stanmount, Inc.
b. Herzig Sommerville Limited
c. Design Partners
d. Cactus Imaging Services, Inc.
2. Schawk de Mexico, S.A. de C.V.
a. Schawk Servicios Administrativos, S.A. de C.V.
3. Schawk GmbH
4. Schawk USA, Inc. (wholly-owned subsidiary of Schawk, Inc.)
a. Chromart Corporation
b. Horan Imaging Solutions, Inc.
c. Interprocess Service, Inc.
d. Intergraphx, Inc.
e. Color One, Inc.
f. LSI/Kala, Inc.
g. Schawk (BVI) Holdings, Inc.
i. Schawk (BVI) Services, Inc.
ii. Schawk Labaun
(1) Laserscan (Sdn Berhad) (Company No.
138179-A)
(x) Laserscan (KL) Sdn Bhd
(y) Laserscan (Singapore) Pte Ltd.
(z) Laserscan Flexographic Sdn Bhd
(aa) Laserscan Technology (M) Sdn Bhd
(bb) Tayo Laserscan Flexographic
(Shanghai) Co. Ltd.
5. Schawk Asia, Inc.
<PAGE> 1
EXHIBIT 23a
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33-61375) pertaining to the Stockholders' Investment Program and
Form S-8 Nos. 33-37884, 33-44528, 33-44930 and 333-68521 pertaining to the
Equity Option Plan, the Outside Directors' Formula Stock Option Plan, and the
Employee Stock Purchase Plan of Schawk, Inc. of our report dated February 15,
2000, with respect to the consolidated financial statements and schedule of
Schawk, Inc. included in the Annual Report (Form 10-K) for the year ended
December 31, 1999.
Chicago, Illinois ERNST & YOUNG LLP
February 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,893
<SECURITIES> 3,604
<RECEIVABLES> 42,077
<ALLOWANCES> 636
<INVENTORY> 7,813
<CURRENT-ASSETS> 60,829
<PP&E> 104,492
<DEPRECIATION> 55,715
<TOTAL-ASSETS> 177,261
<CURRENT-LIABILITIES> 38,465
<BONDS> 63,370
0
0
<COMMON> 182
<OTHER-SE> 66,476
<TOTAL-LIABILITY-AND-EQUITY> 177,261
<SALES> 184,804
<TOTAL-REVENUES> 184,804
<CGS> 108,186
<TOTAL-COSTS> 108,186
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,424
<INCOME-PRETAX> 20,038
<INCOME-TAX> 8,240
<INCOME-CONTINUING> 11,798
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,798
<EPS-BASIC> 0.55
<EPS-DILUTED> 0.55
</TABLE>
