<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from __________
Commission file Number 0-5228
Strategic Distribution, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-1849240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12136 West Bayaud, Lakewood, Colorado 80228
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 234-1419
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 Per Share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this 10-K or
any amendment to this Form 10-K. [X]
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The aggregate market value of the Registrant's Common Stock, par
value $.10 per share (the "Common Stock"), held by non-affiliates on March 15,
1996 was approximately $60,130,000, based upon the last sale price of the
Common Stock on such date as reported on the Nasdaq National Market. For
purposes of this calculation, the Registrant has defined "affiliate" to
include persons who are directors or executive officers of the Registrant and
persons who singly, or as a group, beneficially own 10% or more of the issued
and outstanding Common Stock.
As of March 15, 1996, the Registrant had outstanding 21,762,050
shares of Common Stock, which is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934 (the "1934 Act"). The Common Stock is
sometimes referred to herein as the "Voting Stock" of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement for the 1996 Annual Meeting of
Stockholders is incorporated by reference in Part III of this Annual Report on
Form 10-K.
PART I
Item 1. Business
(a) General Development of Business.
Strategic Distribution, Inc. (the "Company") is a Delaware
corporation which was organized in 1968. The Company began its industrial
distribution business on July 9, 1990, with the acquisition of substantially
all of the assets and the assumption of certain liabilities of the Safety
Distribution Division and the Coulson Technical Services Division (together,
the "Safety Divisions") of Master Protection Corporation, an affiliate of the
Company. The Safety Divisions distribute a variety of safety products to
industrial and commercial customers in the western United States. The Company
contributed the Safety Divisions to its SafetyMaster Corporation
("SafetyMaster") subsidiary which, in turn, contributed the Coulson Technical
Services Division to its Coulson Technologies, Inc. ("Coulson Technologies")
subsidiary. SafetyMaster and Coulson Technologies were formed as Delaware
corporations in June 1990. SafetyMaster became a subsidiary of the Company on
July 2, 1990 and Coulson Technologies became a subsidiary of SafetyMaster on
the same date.
On August 28, 1992, the Company's wholly-owned subsidiary, T
Supply, Inc., a Delaware corporation ("T Supply"), acquired substantially all of
the operating assets and assumed certain specified liabilities of Lewis Supply,
Inc., a Texas corporation engaged in the distribution of a broad range of
maintenance, repair and operations ("MRO") supplies, replacement parts and
selected classes of production materials, which are described collectively as
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industrial supplies. T Supply was formed as a Delaware corporation on August
20, 1992 and became a subsidiary of the Company on August 27, 1992. On
September 4, 1992, T Supply changed its name to Lewis Supply (Delaware), Inc.
("Lewis Supply").
On January 4, 1994, the Company acquired Industrial Systems
Associates, Inc. ("ISA"). ISA is a provider of In-Plant Store(R) programs for
the distribution and sale of industrial supplies to large industrial customers
in the United States.
On June 16, 1994, Lewis Supply acquired certain assets of the
Industrial Supplies Division of Lufkin Industries, Inc. (the "Lufkin
Division").
On May 12, 1995, the Company acquired all of the outstanding common
stock of American Technical Services Group, Inc. ("ATSG"). ATSG is one of the
largest independent suppliers of instrumentation services in the United States.
(b) Financial Information About Industry Segments.
Not applicable.
(c) General Development of Business.
The Company provides proprietary industrial supply procurement
solutions to industrial sites, primarily through its In-Plant Store(R) program.
The Company sells a broad range of MRO supplies, replacement parts and selected
classes of production materials, which are described collectively as industrial
supplies. Industrial supplies are frequently low price but critical items which
historically have been characterized by high procurement costs due to inherent
inefficiencies in traditional industrial supply distribution methods. The
Company's In-Plant Store(R) program, in which large industrial sites outsource
the procurement of industrial supplies to the Company, substantially mitigates
these inefficiencies by reducing both the process and product costs associated
with industrial supply procurement. The Company's In-Plant Store(R) program also
helps customers achieve operational improvements, such as reduced plant
down-time resulting from unavailable parts and manufacturing process
improvements due to better tracking of critical parts. The Company believes that
its In-Plant Store(R) program is superior to both traditional and other
alternative methods of industrial supply distribution.
The Company believes that increased recognition of the inefficiencies
associated with the traditional industrial supply distribution process has
rapidly increased the demand for the Company's In-Plant Store(R) program in
recent years. From January 1, 1994 to March 15, 1996, the number of In-Plant
Store(R) sites operated by the Company increased from 13 to 37. Thirteen of
these sites were added from March 1, 1995 to March 1, 1996. In addition, the
Company recently announced the signing of an agreement with a single customer to
implement an additional eight In-Plant Store(R) facilities during 1996.
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The In-Plant Store(R) program is a comprehensive outsourcing service
through which the Company manages all aspects of industrial supply procurement
at a customer's industrial site. Prior to the implementation of an In-Plant
Store(R), the industrial site would typically obtain industrial supplies
from as many as 500 traditional industrial distributors. Through the In-Plant
Store(R) program, the Company becomes responsible for servicing all of its
customer's industrial supply needs by establishing a dedicated, fully integrated
store within the customer's plant. The customer, in turn, generally purchases
all of its industrial supplies from the In-Plant Store(R). The Company staffs
the In-Plant Store(R) with its own highly trained industrial procurement
professionals, installs proprietary software designed specifically for
industrial procurement and identifies appropriate inventory levels based on the
supply needs of each site. Upon implementation, the In-Plant Store(R) purchases,
receives, inventories and issues industrial supplies directly to plant
personnel, delivers ongoing technical support and provides the customer with a
comprehensive invoice twice per month, thereby reducing the administrative
burden of traditional industrial supply.
The total United States market for the categories of industrial
supplies offered by the Company is estimated to be approximately $225 billion
annually. Of this total, it is estimated that approximately $20 billion to $30
billion of industrial supplies are purchased annually by the approximately
15,000 largest industrial plants in the United States. These plants represent
potential customers for the Company's In-Plant Store(R) program. The Company
believes that very few of these 15,000 plants have outsourced their industrial
supply procurement. The Company's In-Plant Store(R) customers span a broad range
of industries, including the automotive, chemicals, construction, food
processing, power generation and natural resource extraction industries, and the
In-Plant Store(R) program is suitable for virtually any industry that uses
industrial supplies.
In addition to its In-Plant Store(R) program, the Company offers
several other proprietary industrial supply procurement solutions aimed at
specific types of customers. Through its Value Managed Supply(SM) program, the
Company is able to provide some of the features of the In-Plant Store(R) to
customers which are too small to support an In-Plant Store(R) or are not
prepared to outsource their industrial supply procurement completely. For
industrial activities such as construction projects and plant turnarounds, the
Company offers its proprietary On-Site Store(SM) program in which customers
temporarily outsource the management of industrial supply procurement to the
Company. The Company offers its Value Managed Supply(SM) and On-Site Store(SM)
programs through its network of branches which also provide traditional
industrial supply services to customers in markets that have historically been
underserved by other industrial supply distributors. The Company also offers
other selected outsourcing services for industrial customers, including the
management of industrial laundry, process control maintenance and plant
logistics. The Company delivers the Value Managed Supply(SM) program, the
On-Site Store(SM) program, other outsourcing services and traditional
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distribution to over 19,000 customers through a network of 32 branches
and 10 sales and service offices located throughout the United States and in
Mexico.
Industry Overview
The total United States market for industrial supplies is estimated to
be in excess of $225 billion annually. As a provider of targeted industrial
supply procurement solutions, the Company's market includes virtually every
industrial, manufacturing and service business that uses a large amount of
industrial supplies. Although growth in the industrial supply market is
generally limited to the expansion of Gross Domestic Product, most companies
have continuing needs for industrial supplies. The Company believes that
increasing numbers of industrial firms are looking for ways to eliminate the
inefficiencies of traditional industrial supply distribution.
The Company operates in a highly fragmented industry with the 50
largest industrial supply distributors accounting for only about 6% of the
market. The Company believes that approximately 135,000 smaller traditional
industrial distributors, substantially all of which have annual sales of less
than $10 million, supply over 65% of the market. Growing recognition of the high
costs and operational inefficiencies associated with purchasing industrial
supplies from traditional distributors has increased demand for alternative
methods of distribution, leading to the development of programs which are
generally referred to as "integrated supply." These programs vary widely, but
they include such concepts as corporate purchasing cards, industrial supply
consortiums and direct mail supply. While these integrated supply programs help
to reduce some of the costs associated with traditional industrial supply
distribution and modestly increase efficiencies, in contrast to the Company's
proprietary In-Plant Store(R) program they do not focus on the structural flaws
inherent in the industrial supply distribution process.
The traditional model for the distribution of industrial supplies is
burdened by both the duplication and the inefficient performance of multiple
functions. In the traditional model, the industrial distributor must (i) source
and absorb the freight costs for the item, (ii) receive, warehouse and account
for the item, (iii) invest in inventory and incur the associated carrying costs
and (iv) market and sell the item to the end user. Once the need for the item
arises, the plant requiring the item must repeat many of these steps, including
(i) sourcing and absorbing the freight costs for the item, (ii) receiving,
warehousing and accounting for the item, (iii) investing in inventory and
incurring the associated carrying costs and (iv) issuing the item to the user on
the plant floor. In the In-Plant Store(R), each activity is handled only once by
the Company, thereby generating system-wide savings generally ranging from 15%
to 25% of annual industrial supply purchase cost. The procurement of industrial
supplies is generally outside the core activity of most manufacturers. As a
result, industrial supply procurement is often neglected and poorly managed
within industrial
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plants. For example, industrial supplies are generally purchased by personnel
whose expertise in purchasing these items is limited. In addition, supplies
are typically stored in a number of locations within an industrial plant,
resulting in excess inventories and duplicate purchase orders. Finally,
industrial supplies are frequently purchased by multiple personnel in
uneconomic quantities, and a substantial portion of most facilities'
industrial supplies are one-time purchases which entail high prices and
time-consuming administrative efforts. The In-Plant Store(R) eliminates the
duplication and waste inherent in the traditional industrial distribution
model.
In addition to the cost savings inherent in eliminating an entire step
in the distribution process, the In-Plant Store(R) leads to operational
improvements at the customers' host plants. For stock items, each of the
In-Plant Store(R) facilities has achieved more than a 98% product request fill
rate. For one-time purchases, In-Plant Store(R) personnel are experts in
efficiently sourcing these generally low usage items. The efficient procurement
of industrial supplies reduces the down-time of equipment in need of a critical
part. In the traditional model, a significant percentage of industrial supplies
are sourced directly by the plant employee in need of the item, rather than a
purchasing professional. These plant employees, whose time is diverted from
performing their core functions, generally do not consider price as the
determining factor in their purchase decision. The In-Plant Store(R), on the
other hand, offers these critical items at prices available to a high volume
purchaser. Further, under the traditional model such plant personnel accumulate
sub-stocks of low usage but critical items. In the Company's experience, the
presence of an In-Plant Store(R) eliminates the need for such sub-stocks.
In-Plant Store(R) Program
The Company expects its future growth to be achieved primarily through
its In-Plant Store(R) program. The Company believes that the In-Plant Store(R)
offers customers the lowest achievable cost structure for their industrial
supply procurement requirements. An In-Plant Store(R) is a comprehensive
outsourcing service through which the Company manages all aspects of industrial
supply procurement at a customer's industrial site. The Company staffs the
In-Plant Store(R) with its own personnel, helps determine optimal inventory
levels, purchases and stocks all industrial supplies, issues them to the
customer's plant employees and provides ongoing technical support.
The In-Plant Store(R) program has been able to achieve substantial cost
savings and more efficient plant operations through reductions in product costs,
elimination of process costs and operational improvements. Based upon the
Company's Value Management Studies(SM), system-wide savings in customers' annual
industrial supply purchase cost have generally ranged from 15% to 25%.
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Reduction of Customer's Product Costs
- Lowers Direct Product Costs. The Company offers pricing that is
typically 3% to 5% lower than a customer's historic cost. The
Company is able to achieve such pricing because it is a high volume
purchaser and its operating model comprises a lower inherent cost
structure than traditional methods of supply. Further, unlike
traditional industrial distribution companies, the Company, not the
customer, pays all in-bound freight costs.
- Eliminates all Inventory Carrying Cost. The Company, rather than
the customer, purchases and maintains all industrial supply
inventory at the plant site. The customer is charged only as
each item is used, thereby eliminating the need for the
customer's capital to be deployed in industrial supply inventory.
The Company has historically been able to achieve plant level
inventory reductions ranging from $500,000 to $2.5 million. The
Company's information systems permit it to carry much lower
inventory positions than customers could carry using traditional
industrial supply management. Although the inventory investment
is transferred to the In-Plant Store(R), the Company's superior
information and sourcing systems enable the In-Plant Store(R)to
operate with reduced levels of inventory with turns often in
excess of 7 times per year, as opposed to an average of under 2
times per year previously incurred by existing customers which
relied on the traditional method of industrial distribution.
Elimination of Process Costs
- Reduces Paperwork. Accounting and data processing expenses are
reduced as the Company issues the customer only two comprehensive
invoices each month as compared to the thousands of requisitions,
purchase orders, packing slips and vendor invoices which were
created when the customer's own purchasing department was
responsible for industrial supply procurement. The Company believes
that the administrative costs associated with placing a single
purchase order can be in excess of $100.
- Reduces Payroll. As a result of the Company assuming the supply
function, the customer can redeploy or eliminate personnel who
were previously responsible for purchasing, receiving, taking
inventory and issuing industrial supplies.
- Eliminates Multiple Suppliers. The customer no longer needs to
maintain relationships with numerous industrial distributors. All
supplies are obtained from one source, the In-Plant Store(R), as
opposed to as many as 500 traditional industrial distributors for a
typical large industrial plant.
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Operational Improvements
- Improves Plant Productivity. The Company has developed proprietary
computer systems which maintain appropriate inventory levels of
industrial supplies and minimize the risk to the customer of
costly plant down-time due to the absence of a key part. For stock
items, each of the In-Plant Store(R) facilities has achieved more
than a 98% product request fill rate. The Company offers customers
further productivity improvements through a specialized program to
stock certain low-price hardware items in actual work areas. The
Company's procurement expertise also enables it to fill one-time
orders for obscure, seldom required items in an efficient manner,
thereby eliminating the need for plant employees to devote time to
research availability and negotiate prices.
- Improved Information Flow. The improved information flow provided
by the In-Plant Store(R) program allows customers to reduce
shrinkage and improve their manufacturing process. Using
ISACS(SM), its proprietary computer system, the Company
establishes sophisticated controls on inventory and usage of
supplies, allowing the In-Plant Store(R) customer to allocate
costs to a department, work cell or individual. Industrial supply
costs and utilization can be tracked as they occur in the plant.
Further, the Company's networking capability allows for the
consolidation of a customer's industrial supply management for any
number of facilities that utilize the In-Plant Store(R) program.
The In-Plant Store(R) Supply Agreement
Operation of the In-Plant Store(R) is governed by an In-Plant Store(R)
agreement (the "Supply Agreement"). Pursuant to the Supply Agreement, the
Company is responsible for (i) providing designated categories of supplies and
parts at the In-Plant Store(R), (ii) providing all on-site staffing necessary
to purchase, receive, inventory and issue industrial supplies to plant
personnel and (iii) maintaining certain specified levels of inventory at the
In-Plant Store(R). On the effective date of the Supply Agreement, the Company
takes control of all of the customer's existing industrial supply inventory.
During the period in which the customer's inventory is depleted, the Company is
entitled to recover its costs in operating the In-Plant Store(R). As the
In-Plant Store(R) becomes stocked with the Company's own inventory, the
Company's compensation is typically based on a fixed markup from the cost of
the items purchased. In certain situations, however, the Company also receives
a management fee. The Supply Agreement also provides that if, in any six month
period, the customer has not utilized a stock item, the customer is required to
purchase the entire inventory of such product from the In-Plant Store(R). This
provision eliminates the Company's risk of inventory obsolescence. The term of
the typical Supply Agreement is three years, with automatic renewal provisions,
although the customer
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may generally terminate the Supply Agreement for any reason upon 90 days' prior
written notice.
Sales and Marketing
The Company's recent sales effort has focused on the 15,000 domestic
plant sites which the Company believes have sufficient industrial supply
requirements to support an In-Plant Store(R). In particular, the Company has
emphasized very large industrial plants which can generate revenues of over $10
million annually for the Company, and on prospective customers which have
expressed interest in a multi-plant, company-wide implementation of the
Company's programs. The Company also seeks to penetrate more plants of existing
customers, pursue referrals from satisfied customers and contact plant managers
whose manufacturing sites are located near existing In-Plant Store(R)
facilities.
The critical element of the Company's marketing process is the Value
Management Study(SM). Through its proprietary study, the Company analyzes the
industrial supply function at the site or sites of a potential customer,
highlights the inefficiencies at the site and quantifies the cost reductions
achievable through the implementation of an In-Plant Store(R) program. For
prospects which become customers, the Company uses the Value Management
Study(SM) as a guide for tailoring the actual In-Plant Store(R) to the
customer's particular needs.
Additional Proprietary Services
In addition to the In-Plant Store(R) program, the Company markets
several other services to meet the industrial supply and other needs of its
customers. The Value Managed Supply(SM) and On-Site Store(SM) programs are
proprietary industrial supply solutions targeted at particular customers and
delivered through the Company's network of 32 branches which typically operate
in smaller, less competitive geographic markets.
Value Managed Supply(SM)
The Value Managed Supply(SM) program is targeted at smaller plant
sites and large plants which have not adopted the full In-Plant Store(R)
program. This program offers selected elements of the In-Plant Store(R) program
that serve to reduce some of the inefficiencies and costs of traditional
industrial supplies distribution. As a result of its Value Managed Supply(SM)
program, the Company believes that, through its branches, it is able to provide
its customers with a higher level of service than many of its competitors which
attempt to service customers in smaller markets on a regional basis through
warehouses in larger cities.
On-Site Store(SM) Program
The On-Site Store(SM) program is marketed to construction sites and
process plants for temporary construction or maintenance
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projects. This program provides a temporary on-site warehouse that is fully
staffed and stocked with all items that the customer believes may be necessary
for the project. The Company staffs the On-Site Store(SM) with its own trained,
technically qualified personnel, who are responsible for procurement,
inventory management, disbursement and product training. Management of On-Site
Store(SM) facilities is provided through the Company's branch network.
Branches
In addition to its proprietary industrial supply procurement services,
the Company also provides more traditional industrial distribution services
through its branch network. The Company has located most branches in smaller
cities which are less well supplied by traditional industrial distributors and
where competition is more moderate than in larger industrial cities. The Company
believes that in these smaller markets, the local availability of adequate
supplies of frequently used industrial supply items, together with locally
based, technically competent service representatives, provide the Company with a
competitive advantage. In addition, to maximize the benefits which customers
realize from the Company's branch presence, each branch manager is allowed
considerable autonomy in setting inventory levels that are responsive to the
branch customers' particular needs. Branch managers receive incentive
compensation designed to maximize branch gross profit.
Instrumentation Services
The Company is one of the largest independent suppliers of
instrumentation services in the United States. These services, as well as
process control services, are provided through a network of five sales offices
located across the United States.
Management Information Systems
The In-Plant Store(R) program utilizes ISACS(SM), the Company's
proprietary computer system, to control all In-Plant Store(R) functions. In
addition to the traditional functions of inventory control, order processing,
purchasing, accounts receivable, accounts payable and general ledger, ISACS(SM)
has the flexibility to integrate with the customer's maintenance, accounting and
management systems. ISACS(SM) allows for real-time reporting of industrial
supplies utilization by work order, department and individual, as well as
on-line stock inquiry and order-status reports. ISACS(SM) also supports advanced
functions, such as Electronic Data Interchange ("EDI"), customized billing, end
user reporting and facsimile transmission. Operations that interact within the
Company's multiple In-Plant Store(R) programs are linked together through a
dedicated data network.
For its other activities, the Company operates a mainframe system which
is supported by the industry standard open system environment. The Company has
invested significant resources within the last year to increase the capabilities
and networking opportunities of this system. The Company's system supports EDI,
as
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well as a large number of customer specific databases which tie into the
Company's primary database. This allows the Company to provide its customers
with a wide variety of reports which are customized to meet the specific needs
of the customer. The Company also utilizes a variety of third-party software
packages periodically upgraded to support additional functions.
Customers
At March 15, 1996, the Company operated 37 In-Plant Store(R) facilities
for 23 individual customers. In addition, the Company recently announced the
signing of an agreement with a single customer to implement an additional 8
In-Plant Store(R) facilities during 1996. Additionally, through its branches,
the Company services approximately 19,000 customers in a variety of industries.
For the 12 months ended December 31, 1995, Black & Decker Corporation
represented approximately 10% of the Company's revenues.
Products
The Company provides a broad range of MRO supplies, replacement parts
and selected classes of production materials, including the following:
- - Abrasives - HVAC and plumbing equipment
- - Adhesives - Janitorial supplies
- - Coatings, lubricants and - Material handling products
compounds - Measuring instruments
- - Cutting, hand, pneumatic and - Power transmission equipment
power tools - Respiratory products
- - Electrical supplies - Replacement parts
- - Fasteners - Safety products
- - Fire protection equipment and clothing - Welding materials
- - Hoses, pipe fittings and
valves
Because of the broad range of products sold by the Company, no single
product or class of products accounted for more than 10% of the Company's
revenues in 1995.
Suppliers
The Company purchases its products from numerous manufacturers and
other distributors. The Company has distribution agreements with numerous
suppliers, some of which give the Company the exclusive right to distribute the
supplier's products in a specific geographic area. All of the contracts can be
canceled by the respective suppliers upon notice of one year or less. Because no
supplier provides products that account for as much as 10% of the Company's
revenues and because the Company believes that it could quickly find alternative
sources of supply if any distribution contract were canceled, the Company does
not believe that the loss of any one
<PAGE>12
distribution contract, or any small group of distribution contracts, would
have a material adverse impact on the Company's business.
Competition
The Company's business is highly competitive. The Company competes with
a wide variety of traditional industrial supply distributors in each of the
Company's geographic markets. Most of such distributors are small enterprises
selling to customers in a limited geographic area. The Company also competes
with several integrated supply consortiums, direct mail suppliers and large
warehouse stores, some of which have significantly greater financial resources
than the Company. The primary areas of competition include price, breadth and
quality of product lines distributed, ability to fill orders promptly, technical
knowledge of sales personnel and, in certain product lines, service and repair
capability. The Company believes that its ability to compete effectively is
dependent upon its ability to deliver value-added procurement solutions to its
customers through its In-Plant Store(R), On-Site Store(SM) and Value Managed
Supply(SM) programs, to respond to the needs of its customers through quality
service and to be price-competitive. The Company believes that other companies
may develop and implement programs which offer services similar to, and which
compete with, the Company's In-Plant Store(R) program.
The Company also competes to some extent with the manufacturers of
industrial supplies. The Company believes, however, that most of such
manufacturers sell their products through traditional industrial distributors,
because the limited range of products that a manufacturer offers cannot compete
effectively with the broad product lines and additional services offered by
traditional industrial distributors and industrial supply service providers such
as the Company.
<PAGE>13
Government Regulation
In recent years, governmental and regulatory bodies such as The
Occupational Safety and Health Administration, The National Institute for
Occupational Safety and Health and The Mine Safety and Health Administration
have promulgated numerous standards and regulations designed to protect
workers' well-being and to make the work place safer. The Company reviews
regulations governing its customers in order to be able to distribute products
that meet its customers' needs, and some of the Company's past growth has been
as a result of its customers' compliance with this increasing level of
regulation. In addition, many of the Company's customers are cooperating with
their insurance companies in safety programs designed to reduce accident and
injury rates in response to rising workers' compensation costs. This trend has
also resulted in increased purchases of safety equipment from the Company. The
Company cannot predict the level or direction of future regulation or
insurance costs, but believes these trends will continue to contribute to the
Company's growth.
Employees
As of March 15, 1996, the Company had approximately 710 employees, of
whom approximately 220 were employed in selling and administrative capacities
and approximately 490 were involved in operations. ATSG regularly employs
individuals covered under collective bargaining agreements for temporary
periods. As of March 15, 1996, approximately 20 of ATSG's employees were covered
under such collective bargaining agreements. The Company considers its employee
relations to be good.
Insurance
The Company maintains liability and other insurance that it believes to
be customary and generally consistent with industry practice. The Company is
also named as an additional insured under the products liability policies of
many of its suppliers and manufacturers and, with respect to In-Plant Store(R)
facilities, many of its customers. The Company believes that such insurance is
adequate to cover potential claims relating to its existing business activities.
Item 2. Properties.
The Company's corporate headquarters is located in Lakewood, Colorado.
The Company does not own or lease the space for its In-Plant Store(R)
facilities. Each of the Company's branch facilities (other than the facility in
Lufkin, Texas) is leased by the Company. The Company has the right to renew some
of these leases. The Company believes that the properties which are currently
under lease are adequate to serve the Company's business operations for the
foreseeable future. The Company believes that if it were unable to renew the
lease on any of these facilities, it could find other suitable facilities with
no adverse effect on the Company's business.
0<PAGE>14
Item 3. Legal Proceedings.
The Company is currently involved in certain legal proceedings
incidental to the normal conduct of its business. The Company does not believe
that any liabilities relating to such proceedings are likely to be, individually
or in the aggregate, material to its consolidated financial position and results
of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
<PAGE>15
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The Common Stock is quoted on the Nasdaq National Market ("NNM") under
the symbol "STRD". Prior to October 6, 1994, the Common Stock traded on the
Nasdaq SmallCap Market. Prior to March 16, 1994, the Common Stock was not
regularly quoted on any national market quotation system. As of March 15, 1996,
there were approximately 1,500 holders of record of the Common Stock.
Quarter Ended High Sales Price Low Sales Price
------------- ---------------- ---------------
March 31, 1994............ 5 1/4 3 3/4
June 30, 1994............. 5 3 3/4
September 30, 1994........ 5 3 3/4
December 31, 1994......... 5 1/8 3
March 31, 1995............ 5 3 3/4
June 30, 1995............. 4 15/16 3 1/16
September 30, 1995........ 6 3/8 4 1/16
December 31, 1995......... 7 7/8 5 5/8
The Company has paid no cash dividends on the Common Stock for the
years ended December 31, 1994 and 1995 and does not intend to declare any cash
dividends in the foreseeable future. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
<PAGE>16
Item 6.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(in thousands, except per share and operating data)
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues............................$25,987 $31,025 $37,098 $77,613 $117,493
Gross profit........................ 6,965 8,293 10,161 18,228 25,898
Operating income (loss)............. (317) 327 639 2,202 1,959
Income from continuing operations... 404(1) 63 202 2,235 1,004
Income from discontinued operations(2) 100(3) 165 100 -- --
Net income.......................... 554(1) 228 302 2,235 1,004
Per Share Data:
Primary:
Income from continuing operations... 0.03(1) 0.01 0.02 0.13 0.05
Income from discontinued operations(2) 0.01 0.01 -- -- --
Net income.......................... 0.04(1) 0.02 0.02 0.13 0.05
Fully diluted -
Net income.......................... 0.04(1) 0.02 0.02 0.13 0.04
Average Number of Shares of Common
Stock Outstanding.................. 12,488,873 12,541,784 12,684,911 16,993,971 21,689,653
Other Data:
Number of operational In-Plant
Store(R)facilities(4)................. -- -- -- 17 31
Number of In-Plant Store(R)customers(4) -- -- -- 12 21
Number of branches(4)................. 13 20 23 26 32
Revenues from In-Plant Store(R)facilities -- -- -- $31,931 $53,895
Revenues from branches(5)............. $25,987 $31,025 $37,098 $45,682 $63,598
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital......................... $3,854(6) $4,464 $4,978 $17,902 $23,599
Total assets............................ 9,056 13,003 14,926 37,408 48,051
Long-term debt obligations.............. 3,253(6) 4,882 5,949 1,618 5,903
Stockholders' equity.................... 2,738 3,116 3,448 24,721 27,391
- ----------
<FN>
(1) Includes $1,000,000 of proceeds from a key-man life insurance policy.
(2) Relates to the Company's discontinuance of its information services
business, which constituted the Company's business prior to July 1, 1990.
(3) Net of $50,000 in income taxes.
(4) As of the end of the year.
(5) Includes all revenues other than those from the Company's In-Plant Store(R)
program.
(6) Current portion of note payable to bank in 1991 of $3,083,000 has been
excluded from working capital and included in long-term debt obligations.
This debt was subsequently refinanced.
</TABLE>
<PAGE>17
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company provides proprietary industrial supply procurement
solutions to industrial sites, primarily through its In-Plant Store(R) program.
The Company conducts its operations primarily through its four subsidiaries:
SafetyMaster, Lewis Supply, ISA and ATSG.
Results of Operations
The following table of revenues and percentages sets forth selected
items of the results of operations.
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------
1993 1994 1995
(dollars in thousands)
<S> <C> <C> <C>
Revenues......................... $37,098 $77,613 $117,493
======= ======= ========
100.0% 100.0% 100.0%
Cost of sales.................... 72.6 76.5 78.0
Gross profit..................... 27.4 23.5 22.0
Selling, general and
administrative expenses........ 25.7 20.7 20.3
Operating income................. 1.7 2.8 1.7
Interest expense, net............ 1.2 0.9 0.1
Income before taxes.............. 0.5 1.9 1.6
Income tax expense (benefit)..... -- (1.0) 0.7
Income from continuing
operations..................... 0.5 2.9 0.9
Income from discontinued
operations..................... 0.3 -- --
Net income....................... 0.8 2.9 0.9
</TABLE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues for the year ended December 31, 1995 increased 51.4% to
$117,493,338 from $77,613,379 in 1994. During 1995, $53,895,081 of revenues were
from In-Plant Store(R) facilities and $63,598,257 were from branches (including
sales and service locations). During 1994, $31,931,587 of revenues were from
In-Plant Store(R) facilities and $45,681,792 were from branches. Internal
growth, primarily from implementation of new In-Plant Store(R) facilities,
accounted for 78.4% of the increase. The balance of the increase came from the
inclusion of the results of operations of ATSG from the date of the acquisition
of ATSG through December 31, 1995. One In-Plant Store(R) customer (with which
the Company operates under four separate contracts) represented approximately
10% and 15% of the revenues for the years ended December 31, 1995 and 1994,
respectively.
Cost of sales as a percentage of revenues increased to 78.0% for the
year ended December 31, 1995 from 76.5% in 1994. The increase
<PAGE>18
resulted primarily from the higher percentage of sales from In-Plant
Store(R) facilities which have lower margins than the branches.
Selling, general and administrative expenses as a percentage of
revenues decreased to 20.3% for the year ended December 31, 1995 from 20.7% in
1994. The improvement resulted primarily from the higher percentage of sales
from In-Plant Store(R) facilities which have lower levels of selling, general
and administrative expenses than the branches. The improvement was partially
offset by expenses incurred by the Company in connection with its expansion of
the In-Plant Store(R) program.
Interest expense, net decreased by $637,029 to $98,006 for the year
ended December 31, 1995 from $735,035 in 1994. The decrease in interest expense,
net resulted primarily from the repayment of the Company's bank indebtedness in
the amount of approximately $13,300,000 with net proceeds from the sale of
5,750,000 shares of Common Stock on October 13, 1994.
Income tax expense increased by $1,625,000 to $857,000 for the year
ended December 31, 1995 from an income tax benefit of $768,000 in 1994. The tax
benefit in 1994 resulted from a reevaluation, based on expected future taxable
income resulting from 1994 acquisitions, of the realizability of future income
tax benefits arising from the utilization of a net operating loss carryforward
and other deferred tax assets. At December 31, 1995, no valuation allowance
related to the utilization of the net operating loss carryforward was provided
because the Company believes that it is more likely than not that sufficient
taxable income will be generated to allow for the realization of the future tax
benefits.
Net income for the year ended December 31, 1995 was $1,003,926,
compared to net income of $2,234,820 in 1994, primarily as a result of the items
previously discussed.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Revenues for the year ended December 31, 1994 increased 109.2% to
$77,613,379 from $37,097,753 in 1993. During 1994, $31,931,587 of revenues were
from In-Plant Store(R) facilities and $45,681,792 were from branches. During
1993, all revenues were from branches. The inclusion of the results of
operations of ISA and the Lufkin Division for the year ended December 31, 1994
accounted for 77.1% and 15.4%, respectively, of the increase; the balance was
from internal growth at the branches. One In-Plant Store(R) customer (with which
the Company operates under four separate contracts) represented approximately
15% of the revenues for the year ended December 31, 1994.
Cost of sales as a percentage of revenues increased to 76.5% for the
year ended December 31, 1994 from 72.6% in 1993. The primary reason for the
increase was the impact of the acquisition of ISA, whose In-Plant Store(R)
facilities have lower margins than the Company's branches.
<PAGE>19
Selling, general and administrative expenses as a percentage of
revenues decreased to 20.7% for the year ended December 31, 1994 from 25.7% in
1993. The improvement resulted primarily from the impact of the acquisition of
ISA, whose In-Plant Store(R) facilities have lower levels of selling, general
and administrative expenses than the branches.
Interest expense, net increased by $297,713 to $735,035 for the year
ended December 31, 1994 from $437,322 in 1993. The increase resulted primarily
from additional borrowings incurred to finance the acquisitions of ISA and the
Lufkin Division, as well as higher interest rates. Included in interest expense,
net was interest income earned from the net proceeds of the sale of 5,750,000
shares of Common Stock on October 13, 1994. The Company used net proceeds from
such sale to repay approximately $13,300,000 of bank debt, thereby reducing
interest expense for the remainder of the year.
The tax benefit in 1994 resulted from a reevaluation, based on
expected future taxable income resulting from 1994 acquisitions, of the
realizability of future income tax benefits arising from the utilization of a
net operating loss carryforward and other deferred tax assets. At December
31, 1994, no valuation allowance related to the utilization of the net
operating loss carryfoward was provided because the Company believes that it
is more likely than not that sufficient taxable income will be generated to
allow for the realization of the future tax benefits.
Income from discontinued operations, which was 0.3% of revenues for the
year ended December 31, 1993, related to the Company's previous decision to
dispose of its information services business and represented current valuations
of certain lease obligations.
Net income for the year ended December 31, 1994 was $2,234,820,
compared to net income of $301,599 in 1993, primarily as a result of the items
previously discussed.
Liquidity and Capital Resources
Effective as of December 31, 1995, the Company entered into a new
revolving bank credit agreement providing maximum outstanding borrowings of
$20,000,000. These borrowings bear interest at the prime rate (8.50% as of
December 31, 1995) and/or a Eurodollar rate, with a 1/4% commitment fee on the
unused portion of the credit available. The credit facility expires on January
31, 2000. At December 31, 1995, $4,445,000 was borrowed, at an interest rate of
8.50%, under the credit facility. The amount which the Company may borrow under
the credit facility is based upon eligible accounts receivable which were
approximately $20,000,000 at December 31, 1995. The credit facility contains
customary financial and other covenants and is collateralized by substantially
all of the assets, as well as the pledge of the capital stock, of the Company's
subsidiaries.
On October 13, 1994, the Company sold 5,750,000 shares of Common
Stock in an underwritten public offering. The net proceeds to the
<PAGE>20
Company were $15,405,500, of which approximately $13,300,000 was used
to repay the Company's bank indebtedness.
The net cash used in operating activities was $5,319,122 for the year
ended December 31, 1995, compared to $3,932,668 for the year ended December 31,
1994. The increase resulted primarily from an increase in accounts receivable
and inventories and a decrease in net income, which were partially offset by
increases in deferred taxes, accounts payable and accrued expenses.
The Company believes that cash on hand, cash generated from operations
and cash from the Company's bank credit facility will generate sufficient funds
to permit the Company to meet its liquidity needs for the foreseeable future,
including the costs to be incurred by the Company in connection with the
anticipated expansion of the In-Plant Store(R) program.
The Company has stated its intention to seek further acquisition
opportunities. If the Company is able to identify satisfactory acquisitions, the
source of funds for such acquisitions is anticipated to be internally generated
cash and cash from future borrowings or sales of equity securities, although
there is no guarantee that the Company would be successful in raising funds from
such sources.
Restructuring Charge
On March 18, 1996, the Company announced the merger of SafetyMaster and
Lewis Supply. Accordingly, the Company will be recording a restructuring charge
in the first quarter of 1996 aggregating approximately $920,000 for employee
termination benefits, asset write-offs and lease payments.
Recently Issued Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This statement, effective commencing in 1996, establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used, and for long-lived assets
and certain identifiable intangibles to be disposed of. The initial adoption of
this standard will not have a material impact on the Company's financial
position and results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". As allowable by SFAS No. 123, the Company will not
recognize compensation cost for stock-based compensation arrangements, but
rather will disclose in the notes to the financial statements the impact on net
income and earnings per share as if the fair value based compensation cost had
been recognized commencing in 1996.
<PAGE>21
Inflation
The Company believes that any impact of general inflation has not had a
material effect on its results of operations. The Company's current policy is to
attempt to reduce any impact of inflation through price increases and cost
reductions.
Seasonality
The Company does not believe that its business is seasonal in nature.
Item 8. Financial Statements and Supplementary Data.
Financial statements of the Company are listed on the accompanying
Index to Financial Statements.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
<PAGE>F-1
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
No.
Independent Auditors' Report.................................. F-2
Consolidated Balance Sheets as of December 31,
1994 and 1995................................................ F-3
Consolidated Statements of Income for the years
ended December 31, 1993, 1994 and 1995....................... F-4
Consolidated Statement of Stockholders' Equity
for the years ended December 31, 1993, 1994 and
1995......................................................... F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 1993, 1994 and 1995................. F-6
Notes to Consolidated Financial Statements.................... F-7
Schedules which are not included have been omitted because either
they are not required or are not applicable because the required information
has been included elsewhere in the consolidated financial statements or notes
thereto.
<PAGE>F-2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Strategic Distribution, Inc.:
We have audited the accompanying consolidated balance sheets of Strategic
Distribution, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Strategic
Distribution, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Stamford, Connecticut
March 18, 1996
<PAGE>F-3
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1994 1995
---- ----
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents...................... $ 3,022,428 $ 640,360
Accounts receivable, net....................... 10,078,210 20,104,270
Inventories.................................... 13,469,229 15,422,066
Prepaid expenses and other current assets...... 418,926 588,188
Deferred tax asset............................. 1,793,000 1,320,000
----------- -----------
Total current assets................. 28,781,793 38,074,884
Property and equipment, net...................... 2,571,796 3,352,948
Excess of cost over fair value of net assets
acquired, net.................................. 5,158,911 5,865,691
Other assets..................................... 895,541 757,121
----------- -----------
Total assets........................... $37,408,041 $48,050,644
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses.......... $10,670,635 $14,317,750
Current portion of long-term debt.............. 209,643 158,553
---------- ------------
Total current liabilities.............. 10,880,278 14,476,303
Long-term debt................................... 1,617,517 1,458,401
Note payable..................................... -- 4,445,000
Deferred tax liability........................... 189,000 280,000
------------ ------------
Total liabilities...................... 12,686,795 20,659,704
----------- -----------
Stockholders' equity:
Preferred stock, par value $.10 per share.
Authorized: 500,000 shares; issued and
outstanding: none........................... -- --
Common stock, par value $.10 per share.
Authorized: 25,000,000 shares; issued and
outstanding: 21,020,535 and 21,716,662
shares...................................... 2,102,054 2,171,666
Additional paid-in capital....................... 28,154,039 33,861,694
Accumulated deficit.............................. (5,484,847) (8,592,420)
Note receivable from sale of stock............... (50,000) (50,000)
------------ --------------
Total stockholders' equity............. 24,721,246 27,390,940
------------ --------------
Total liabilities and stockholders' equity $37,408,041 $48,050,644
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>F-4
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Revenues...................................... $37,097,753 $77,613,379 $117,493,338
Cost of sales................................. 26,936,870 59,385,787 91,595,757
---------- ---------- ----------
Gross profit................................ 10,160,883 18,227,592 25,897,581
Selling, general and administrative expenses.. 9,521,962 16,025,737 23,938,649
---------- ---------- ----------
Operating income............................ 638,921 2,201,855 1,958,932
Interest expense (income):
Interest expense............................ 468,371 801,053 178,377
Interest (income)........................... (31,049) (66,018) (80,371)
---------- ---------- ----------
Interest expense, net.................... 437,322 735,035 98,006
---------- ---------- ----------
Income before income taxes.................... 201,599 1,466,820 1,860,926
Income tax expense (benefit)................ -- (768,000) 857,000
---------- ---------- ----------
Income from continuing operations........... 201,599 2,234,820 1,003,926
Income from discontinued operations......... 100,000 -- --
---------- ---------- ----------
Net income............................. $ 301,599 $ 2,234,820 $1,003,926
========== ========== ==========
Net income per common share:
Primary:
Income from continuing operations........... $0.02 $0.13 $0.05
Income from discontinued operations......... -- -- --
------- -------- -------
Net income............................. $0.02 $0.13 $0.05
======= ======== =======
Fully diluted -
Net income............................. $0.02 $0.13 $0.04
======= ======== =======
Average number of shares of common stock
outstanding................................... 12,684,911 16,993,971 21,689,653
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>F-5
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common paid-in Accumulated Note
stock capital deficit receivable
------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Balance December 31, 1992......... $1,227,512 $9,959,780 $(8,021,266) $(50,000)
Net income...................... -- -- 301,599 --
Issuance of 85,000 shares....... 8,500 21,750 -- --
----------- ------------- ----------- ---------
Balance December 31, 1993......... 1,236,012 9,981,530 (7,719,667) (50,000)
Net income...................... -- -- 2,234,820 --
Issuance of 505,250 shares...... 50,525 595,475 -- --
Exercise of stock options....... 517 4,649 -- --
Sale of 8,150,000 shares, net... 815,000 17,572,385 -- --
----------- ---------- ----------- ---------
Balance December 31, 1994......... 2,102,054 28,154,039 (5,484,847) (50,000)
Net income...................... -- -- 1,003,926 --
Exercise of stock options....... 6,407 59,442 -- --
Tax benefit of stock options
exercised.................... -- 43,000 -- --
Value of options issued in
connection with acquisition -- 1,560,100 -- --
Stock dividend (including cash
paid for fractional shares) 63,205 4,045,113 (4,111,499) --
---------- --------- ---------- ---------
Balance December 31, 1995......... $2,171,666 $33,861,694 $(8,592,420) $(50,000)
========== ========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>F-6
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 301,599 $2,234,820 $1,003,926
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization...................... 362,196 802,905 1,211,171
Deferred taxes..................................... -- (886,000) 644,000
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable.............................. (370,811) (3,113,997) (8,239,648)
Inventories...................................... 43,314 (2,942,819) (1,952,837)
Prepaid expenses and other current assets........ 5,746 (135,115) (344,814)
Accounts payable and accrued expenses............ (407,962) 163,787 2,348,843
Other, net......................................... (55,959) (56,249) 10,237
Net cash used in discontinued operations........... (100,000) -- --
-------- ---------- ----------
Net cash used in operating activities............ (221,877) (3,932,668) (5,319,122)
--------- ---------- ----------
Cash flows used in investing activities:
Acquisitions of businesses, net of cash acquired..... (569,669) (5,020,777) 73,576
Additions of property and equipment.................. (245,098) (671,806) (1,183,984)
--------- ---------- -----------
Net cash used in investing activities............ (814,767) (5,692,583) (1,110,408)
-------- ---------- -----------
Cash flows from financing activities:
Proceeds from sale of stock, net................... -- 18,392,551 65,849
Cash paid in lieu of fractional shares of stock
dividend........................................ -- -- (3,181)
Proceeds from (repayment of) note payable.......... 1,251,635 (6,528,256) 4,445,000
Repayment of subordinated debt..................... (56,250) -- --
Repayment of long-term obligations................. (118,286) (488,601) (460,206)
------------ ----------- ----------
Net cash provided by financing activities........ 1,077,099 11,375,694 4,047,462
------------ ----------- ----------
Increase (decrease) in cash and cash equivalents. 40,455 1,750,443 (2,382,068)
Cash and cash equivalents, at beginning of the year.... 1,231,530 1,271,985 3,022,428
----------- --------- ---------
Cash and cash equivalents, at end of the year.......... $1,271,985 $3,022,428 $ 640,360
=========== ========= =======
Supplemental cash flow information:
Taxes paid......................................... $ 6,562 $ 227,423 $ 167,653
Interest paid...................................... 448,656 813,006 158,655
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>F-7
STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Description of Business
The Company provides proprietary industrial supply procurement
solutions to industrial sites, primarily through its In-Plant Store(R)
program. The Company conducts its operations primarily through its four
subsidiaries, SafetyMaster Corporation ("SafetyMaster"), Lewis Supply
(Delaware), Inc. ("Lewis Supply"), Industrial Systems Associates, Inc. ("ISA")
and American Technical Services Group, Inc. ("ATSG").
(2) Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Strategic
Distribution, Inc. and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated. The preparation of the consolidated
financial statements requires estimates and assumptions that affect amounts
reported and disclosed in the financial statements and related notes. Actual
results could differ from those estimates.
Cash Equivalents
All highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents. At December 31, 1994 and
December 31, 1995, the Company had invested in cash equivalents of approximately
$2,710,000 and $203,000, respectively.
Disclosure About Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments approximate
fair value due to their short maturity and variable interest rate feature.
Inventories
Inventories of finished goods are stated at the lower of cost
(first-in, first-out basis) or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the remaining useful life of the asset or the lease term. Maintenance and
repairs are charged to
<PAGE>F-8
expense. Major renewals and improvements are capitalized and depreciated over
the remaining useful life of the asset. Estimated useful lives are as
follows:
Building 20 years
Warehouse and office equipment 5-12 years
Leasehold improvements 5-14 years
Transportation equipment 4-8 years
Intangible Assets
Excess of cost over fair value of net assets acquired is amortized on
the straight-line method over periods up to 40 years. The Company assesses the
recoverability of this intangible asset on a systematic basis by determining
whether the amortization over its remaining life can be recovered through
projected undiscounted future results. The amount of impairment, if any, is
measured based on projected discounted future operating earnings before
amortization.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of assets and liabilities and their respective tax bases and
operating loss carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Net Income Per Common Share
Net income per share of common stock is computed using the weighted
average number of shares and common stock equivalents outstanding during the
respective years. The fully diluted net income per share for the year ended
December 31, 1995 is based on 22,621,384 shares of Common Stock and common stock
equivalents.
Assuming that the 5,750,000 shares of Common Stock issued by the
Company on October 13, 1994 were outstanding for the entire year ended December
31, 1994, net income per common share would have been $0.12.
(3) Accounts Receivable
Accounts receivable is net of an allowance for doubtful accounts of
$80,000 and $140,000 at December 31, 1994 and 1995, respectively.
<PAGE>F-9
(4) Property and Equipment
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1994 1995
---- ----
<S> <C> <C>
Land $240,000 $240,000
Building 567,994 719,548
Warehouse and office equipment 2,157,140 3,413,553
Leasehold improvements 282,913 417,909
Transportation equipment 678,363 602,654
------- -------
3,926,410 5,393,664
Less: accumulated depreciation and amortization 1,354,614 2,040,716
--------- ---------
$2,571,796 $3,352,948
========= =========
</TABLE>
(5) Excess of Cost Over Fair Value of Net Assets Acquired
Excess of cost over fair value of net assets acquired is net of
accumulated amortization of $360,000 and $607,000 at December 31, 1994 and 1995,
respectively.
(6) Note Payable to Bank
Effective as of December 31, 1995, the Company entered into a new
revolving bank credit agreement providing maximum outstanding borrowings of
$20,000,000. These borrowings bear interest at the prime rate (8.50% as of
December 31, 1995) and/or a Eurodollar rate, with a 1/4% commitment fee on the
unused portion of the credit available. The credit facility expires on January
31, 2000. At December 31, 1995, $4,445,000 was borrowed, at an interest rate
of 8.50%, under the credit facility. The amount which the Company may borrow
under the credit facility is based upon eligible accounts receivable which were
approximately $20,000,000 at December 31, 1995. The credit facility is
collateralized by substantially all of the assets of the Company's subsidiaries
(net book value, as defined, of approximately $39,500,000 at December 31, 1995)
and by a pledge of all the capital stock of SafetyMaster, Lewis Supply, ISA,
ATSG, SafetyMaster's wholly-owned subsidiary Coulson Technologies, Inc. and
ATSG's wholly-owned subsidiaries ATS Phoenix Inc. and National Technical
Services Group, Inc.
(7) Accounts Payable and Accrued Expenses
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1994 1995
---- ----
<S> <C> <C>
Accounts payable $7,945,378 $11,318,450
Accrued expenses 2,225,825 1,604,796
Payroll and related expenses 499,432 1,394,504
---------- -----------
$10,670,635 $14,317,750
========== ===========
</TABLE>
<PAGE>F-10
(8) Long-Term Debt
Long-term debt consists of several loans with a weighted average
interest rate of 7.1% at December 31, 1994 and 1995.
Principal payments due on long-term obligations during each of the
next five years are: 1996: $158,553; 1997: $361,012; 1998: $548,754;
1999: $38,826; 2000: $483,848; and thereafter: $25,961.
(9) Acquisitions
In July 1993 the Company issued 75,000 shares of Common Stock in
connection with the acquisition of Dakota Fire and Safety Equipment Co., Inc.
and in October 1993 issued 10,000 shares of Common Stock in connection with the
acquisition of Corpus Fire & Safety, Inc.
On January 4, 1994, the Company acquired all of the outstanding common
stock of ISA. The purchase price consisted of: (i) $3,000,000 in cash; (ii) a
promissory note in the amount of $500,000; and (iii) 500,000 shares of Common
Stock. The source of the cash portion of the purchase price was borrowings under
a revolving bank facility.
On June 16, 1994, Lewis Supply acquired certain assets of the
Industrial Supplies Division of Lufkin Industries, Inc. (the "Lufkin
Division"). The purchase price consisted of: (i) $2,040,000 in cash; and (ii)
a mortgage note in the amount of $600,000. The source of the cash portion of
the purchase price was borrowings under a revolving bank facility.
On May 12, 1995, the Company acquired all of the outstanding common
stock of ATSG. The purchase price consisted of options to purchase 1,036,708
shares of Common Stock at a price of $5.82 per share. The fair market value of
these options, as determined by an independent investment bank, was $1,560,100.
(10) Discontinued Operations
During 1990, the Company disposed of its information services business.
The results of these operations are included under the caption "Income From
Discontinued Operations."
In connection with the discontinuance of this business, the Company
remained liable for certain lease obligations. At December 31, 1993, there was
no remaining liability.
(11) Retirement Plan
The Company has a qualified defined contribution plan (the "Retirement
Savings Plan") for employees who meet certain eligibility requirements.
Contributions to the Retirement Savings Plan are at the discretion of the Board
of Directors and are limited to the amount deductible for Federal income tax
purposes. The expense for
<PAGE>F-11
the Retirement Savings Plan was $17,525, $38,452 and $57,936 for the years
ended December 31, 1993, 1994 and 1995, respectively. ATSG regularly employs
individuals covered under collective bargaining agreements. Accordingly, ATSG
makes contributions to several multi-employer defined contribution and defined
benefit pension plans ("Plans") for these employees. The expense for these
Plans was $268,931 for the period from May 12, 1995 to December 31, 1995.
(12) Income Taxes
The income tax expense (benefit) in the Consolidated Statements of
Income is as follows:
Year ended December 31,
-----------------------------------------------------
1993 1994 1995
---- ---- ----
Current:
Federal $ -- $ 20,000 $ 35,000
State -- 98,000 178,000
Deferred:
Federal -- (828,000) 632,000
State -- (58,000) 12,000
------------ ------- -------
$ -- $(768,000) $857,000
============ ========= ========
A reconciliation of the expected Federal income tax expense at the statutory
rate to the Company's income tax expense follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Expected tax expense $ 103,000 $ 499,000 $632,000
Increase (reduction) in tax expense resulting from:
State taxes -- 26,000 125,000
Reversal of valuation allowance -- (1,076,000) --
Utilization of net operating loss (119,000) (386,000) --
State net operating loss not utilized -- 80,000 --
Goodwill 15,000 69,000 77,000
Other 1,000 20,000 23,000
----- ------ ------
$ -- $(768,000) $857,000
============== ========= ========
</TABLE>
<PAGE>F-12
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1994 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward (expires during period
ending 2008) $ 1,181,000 $632,000
Accounts receivable 32,000 55,000
Inventories 192,000 249,000
Accrued expenses 318,000 243,000
Vacation accrual 50,000 80,000
Other 90,000 130,000
--------- ---------
Total deferred tax asset 1,863,000 1,389,000
--------- ---------
Deferred tax liabilities:
Property and equipment 129,000 155,000
Other assets 122,000 181,000
Goodwill 8,000 13,000
--------- ---------
Total deferred tax liability 259,000 349,000
========= =========
Net deferred tax asset $1,604,000 $1,040,000
========== ==========
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1994
was $1,794,000, of which $332,000 was to be allocated to reduce goodwill. During
the fourth quarter of 1994, the valuation allowance was eliminated resulting
from the Company's reevaluation of the realizability of future income tax
benefits due to the 1994 acquisitions of ISA and the Lufkin Division. The
reversal of the valuation allowance for deferred tax assets in 1994 which was
allocated to reduce goodwill was $718,000. At December 31, 1995, no valuation
allowance was provided because management believes that it is more likely than
not that sufficient taxable income will be generated to allow for realization of
the tax benefits.
(13) Stockholders' Equity
The Company has authorized 500,000 shares of Preferred Stock, par value
$0.10 per share. No shares of Preferred Stock are currently issued or
outstanding. The Board of Directors may at any time fix by resolution any of the
powers, preferences and rights, and the qualifications, limitations and
restrictions of the Preferred Stock, which may be issued in series.
On January 4, 1994, the Company sold an aggregate of 2,400,000 shares
of Common Stock for $3,000,000.
On October 13, 1994, the Company sold 5,750,000 shares of Common Stock
in an underwritten public offering. The net proceeds to the Company were
$15,405,500. The Company's bank indebtedness was repaid and the balance of the
proceeds was available for working capital and for general corporate
acquisitions.
On December 6, 1995, the Company declared a three percent stock
dividend paid on December 29, 1995 to stockholders of record as of December 18,
1995. The Company had accumulated net income of
<PAGE>F-13
$4,148,000 since July 1, 1990, when it became a supplier of industrial
supply services.
(14) Stock Compensation Plan
The Company has an Incentive Stock Option Plan (the "1990 Stock Option
Plan") under which the Board of Directors is authorized to grant certain
directors, executives and key employees of the Company options for the purchase
of up to 2,060,000 shares of Common Stock. The 1990 Stock Option Plan provides
for the granting of both incentive stock options and options that do not qualify
as incentive stock options. In the case of each incentive stock option granted
under the 1990 Stock Option Plan, the option price must not be less than the
fair market value of the Common Stock at the date of grant. To date, all options
granted under the 1990 Stock Option Plan are exercisable at not less than the
fair market value of the Common Stock at the date of grant. Options which have
been granted under the 1990 Stock Option Plan are exercisable at various rates
from 20% to 33.3% per year beginning on the first anniversary date, except for
103,000 options which were exercisable at the date of grant.
The following table summarizes the option information (as adjusted for
the stock dividend):
Number of Shares Option Prices
---------------- -------------
[S] [C] [C]
Options outstanding December 31, 1993 721,773 $0.97
Options granted during 1994 369,616 $1.21-$3.45
Options canceled or expired (83,812) $0.97-$3.45
Options exercised (5,321) $0.97
------
Options outstanding December 31, 1994 1,002,256 $0.97-$3.45
---------
Options granted during 1995 352,399 $3.45-$5.94
Options canceled or expired (99,815) $0.97-$3.45
Options exercised (45,087) $0.97-$3.45
-------
Options outstanding December 31, 1995 1,209,753 $0.97-$5.94
=========
Options exercisable 603,310 $0.97-$5.94
=========
Warrants to purchase 38,625 shares of Common Stock for $1.46 per share
were outstanding at December 31, 1995 and expire in 1999.
<PAGE>F-14
(15) Lease Commitments
The Company leases equipment and real estate for initial terms of five
to eight years. The minimum future rental payments for operating leases with
initial noncancelable lease terms in excess of one year as of December 31, 1995
are as follows:
1996 $1,048,592
1997 815,903
1998 599,496
1999 318,705
2000 237,556
Thereafter 144,327
Rental expense for the years ended December 31, 1993, 1994 and 1995 was
$576,509, $628,449 and $908,841, respectively.
(16) Supplemental Cash Flow Information
In conjunction with the acquisitions, liabilities assumed and
refinanced were:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Fair value of assets acquired $1,621,579 $13,496,558 $3,045,065
Net cash 569,669 5,020,777 (73,576)
Common Stock or options issued 30,250 625,000 1,560,100
------------- ------------ ----------
Liabilities assumed $1,021,660 $7,850,781 $1,558,541
------------- ---------- ----------
</TABLE>
(17) Customer Business Data
One In-Plant Store(R) customer (with which the Company operates under
four separate contracts) represented approximately 15% and 10% of revenues for
the years ended December 31, 1994 and 1995, respectively.
(18) Pro Forma
Presented below is an unaudited pro forma condensed statement of income
which gives effect to adjustments in 1994 for the acquisition of the Lufkin
Division on June 16, 1994 as if such acquisition occurred on January 1, 1994 and
adjustments in 1994 and 1995 for the acquisition of ATSG on May 12, 1995 as if
such acquisition occurred on January 1 of each such year.
Year ended December 31,
----------------------------------------
1994 1995
---- ----
Revenues $91,630,660 $120,264,734
Operating income $1,847,893 $1,385,880
Net income $1,797,743 $428,840
Net income per common share $0.11 $0.02
<PAGE>F-15
One In-Plant Store(R) customer (with which the Company operates under
four separate contracts) represented approximately 12% and 10% of pro forma
revenues for the years ended December 31, 1994 and 1995, respectively.
(19) Subsequent Event
On March 18, 1996, the Company announced the merger of two of its
subsidiaries. Accordingly, the Company will be recording a restructuring charge
in the first quarter of 1996 aggregating approximately $920,000 for employee
termination benefits, asset write-offs and lease payments.
(20) Quarterly Data (dollars in thousands, except for per share data) -
Unaudited
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
1994
Revenues $17,307 $18,433 $20,568 $21,305 $77,613
Gross profit 3,979 4,282 4,837 5,130 18,228
Net income 227 283 249 1,476(a) 2,235
Net income
per share (b) 0.01 0.02 0.02 0.07 0.13
1995
Revenues $25,396 $27,235 $31,926 $32,936 $117,493
Gross profit 5,853 6,180 6,525 7,340 25,898
Net income
(loss) 540 381 317 (234) 1,004
Net income
(loss) per share (b) 0.02 0.02 0.01 (0.01) 0.05
<FN>
(a) See footnote 12.
(b) Each period is computed separately.
</TABLE>
<PAGE>22
PART III
Item 10. Directors and Executive Officers of the Company.
The information contained in the Company's Proxy Statement for the 1996
Annual Meeting of Stockholders, which will be filed not later than 120 days
after December 31, 1995 (the "Proxy Statement") under the captions "Election of
Directors" and "Identification of Executive Officers."
Item 11. Executive Compensation.
The information contained in the Proxy Statement under the caption
"Executive Compensation" is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information contained in the Proxy Statement under the caption
"Security Ownership of Certain Beneficial Owners and Management" is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information contained in the Proxy Statement under the captions
"Executive Compensation" and "Transactions with Affiliates" is incorporated
herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.
(a) 1. CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY.
Consolidated Financial Statements of Company filed with this Report are listed
on the accompanying Index to Financial Statements.
(a) 2. FINANCIAL STATEMENT SCHEDULES. Financial Statement
Schedules of the Company filed with this Report are listed on the accompanying
Index to Financial Statements.
(a) 3. EXHIBITS (References below to an exhibit being filed with a
previous filing made by the Company are included for the purpose of
incorporating such previously filed exhibit by reference to such filing.
Previously unfiled exhibits are those marked with an asterisk.)
<PAGE>23
Page No.
in Manually
Signed Copy
-----------
3.1 Restated Certificate of Incorporation of *
the Company, as amended through August 21,
1987
3.1(a) Amendment to Certificate of Incorporation *
of the Company filed August 21, 1987 with
the Secretary of State of Delaware
3.1(b) Amendment to Certificate of Incorporation *
of the Company filed December 16, 1987
with the Secretary of State of Delaware
3.1(c) Amendment to Certificate of Incorporation *
of the Company filed December 15, 1988
with the Secretary of State of Delaware
3.1(d) Certificate of Stock Designations of the *
Company filed September 15, 1989 with
the Secretary of State of Delaware
3.1(e) Amendment to Certificate of Incorporation of *
the Company Filed November 9, 1990 with the
Secretary of State of Delaware
3.2 Amended and Restated Bylaws of the Company *
dated July 24, 1986
3.2(a) Amendment to Amended and Restated Bylaws *
of the Company dated April 25, 1988
10.1 Form of Strategic Distribution, Inc. *
Amended and Restated 1990 Incentive
Stock Option Plan
<PAGE>24
10.2 Securities Purchase Agreement, dated as of --
January 4, 1994, among the Company and the
Purchasers listed therein (filed with
January 4, 1994 Report on Form 8-K)
10.3 Stock Purchase Agreement, dated as of January --
4, 1994, between the Company and George E.
Krauter (filed with the January 4, 1994 Report
on Form 8-K)
10.4 Asset Purchase Agreement, dated as of June 14, --
1994, between Lewis Supply (Delaware), Inc.
and Lufkin Industries, Inc. (filed with June
29, 1994 Report on Form 8-K)
10.5 Stock Purchase Agreement, dated as of May 12, --
1995, between the Company and the selling
shareholders parties thereto (filed with May
12, 1995 Current Report on Form 8-K)
10.6 Credit Agreement, dated as of December 31, 1995, *
between Bank of America Illinois and the
Company
21. List of Subsidiaries of the Company *
23. Consent of KPMG Peat Marwick LLP *
27. Financial Data Schedule *
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the last
quarter of 1995.
<PAGE>25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized, this
25th day of March, 1996.
Strategic Distribution, Inc.
By:/s/ Andrew M. Bursky
Andrew M. Bursky
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K has been signed below by the following persons in the
capacities and on the date(s) indicated.
Chairman of the Board and
/s/ Andrew M. Bursky Director
Andrew M. Bursky March 25, 1996
/s/ Theodore R. Rieple President and Director
Theodore R. Rieple March 25, 1996
Executive Vice President
and Chief Financial Officer
/s/ Catherine B. James Director
Catherine B. James March 25, 1996
Vice President, Controller and
/s/ Charles J. Martin Chief Accounting Officer
Charles J. Martin March 25, 1996
/s/ William R. Berkley Director
William R. Berkley March 25, 1996
/s/ Arnold W. Donald Director
Arnold W. Donald March 25, 1996
/s/ George E. Krauter Director
George E. Krauter March 25, 1996
/s/ Joshua A. Polan Director
Joshua A. Polan March 25, 1996
/s/ Mitchell I. Quain Director
Mitchell I. Quain March 25, 1996
<PAGE>1
RESTATED
CERTIFICATE OF INCORPORATION
OF
OCTO LIMITED
Adopted in accordance with Section 242 and 245 of
the General Corporation Law of the State of
Delaware
JULY 24, 1986
We the undersigned, being, respectively, the President and
Secretary of OCTO Limited, a corporation organized on June 14, 1968 under the
name Princeton Time Sharing Services, Inc., under the laws of the State of
Delaware hereby certify as follows:
FIRST: The Certificate of Incorporation of the corporation, as
previously amended ("Existing Certificate of Incorporation"), is hereby restated
("Restated Certificate of Incorporation") to read as follows in its entirety,
thereby superceding in all respects the Existing Certificate of Incorporation:
---------------------------
FIRST: The name of the corporation (hereinafter called the
"corporation") is
OCTO Limited
SECOND: The address, including street, number, city and
county, of the registered office of the corporation in the State of
Delaware is 229 South State Street, City of Dover, County of Kent, and
the name of the registered agent of the corporation in the State of
Delaware at such address is The Prentice-Hall Corporation System, Inc.
THIRD: The nature of the business and of the purposes to be
conducted and promoted by the corporation, which shall be in addition
to the authority of the corporation to conduct any lawful business, to
promote any lawful purpose, and to engage in any lawful act or activity
for which corporations may be organized under the General Corporation
Law of the State of Delaware, is as follows:
To engage in the business of data processing,
indexing and systematizing, and ancillary to such business to
establish, operate, service, supervise and maintain data
processing systems and service bureaus, for all purposes,
including but not limited to,
<PAGE>2
records, management, auditing, personnel and inventory
control, pricing, labeling, identifying and sorting, rating,
product and property sales, manufacturing processes,
distribution, marketing and market research and market and
sales analysis;
To engage in the business of creating, buying,
selling, licensing and in all other respects dealing with,
computer software, programming, instructions, algorithms and
the like and all types of media on which the same are
recorded, embodied or used;
To purchase, sell, lease and otherwise acquire and
dispose of computers and any and all other data processing
hardware of every description, and to operate such equipment
for the sale, lease and other disposition of computer and data
processing time to any persons, firms, corporations and
associations;
To purchase, receive, take by grant, gift, devise,
bequeath, or otherwise, lease, or otherwise acquire, own,
hold, improve, employ, use and otherwise deal in and with real
or personal property, or any interest therein, wherever
situated, and to sell, convey, lease, exchange, transfer or
otherwise dispose of, or mortgage or pledge, all or any of its
property and assets, or any interest therein, wherever
situated.
To engage generally in the real estate business as
principal, agent, broker, and in any lawful capacity, and
generally to take, lease, purchase, or otherwise acquire, and
to own, use, hold, sell, convey, exchange, lease, mortgage,
work, clear, improve, develop, divide, and otherwise handle,
manage, operate, deal in and dispose of real estate, real
property, lands, multiple-dwelling structures, houses,
buildings and other works and any interest or right therein;
to take, lease, purchase or otherwise acquire, and to own,
use, hold, sell, convey, exchange, hire, lease, pledge,
mortgage, and otherwise handle, and deal in and dispose of, as
principal, agent, broker, and in any lawful capacity, such
personal property, chattels, chattels real, rights, easements,
privileges, choses in action, notes, bonds, mortgages, and
securities as may lawfully be acquired, held, or disposed of;
and to acquire, purchase, sell, assign, transfer, dispose of,
and generally deal in and with as principal, agent, broker,
and in any lawful capacity, mortgages and other interests in
real, personal, and mixed properties; to carry on a general
construction, contracting, building, and realty management
business as principal, agent, representative, contractor,
subcontractor, and in any other lawful capacity.
<PAGE>3
To carry on a general mercantile, industrial,
investing, and trading business in all its branches; to
devise, invest, manufacture, fabricate, assemble, install,
service, maintain, alter, buy, sell, import, export, license
as licensor or licensee, lease as lessor or lessee,
distribute, job, enter into, negotiate, execute, acquire, and
assign contracts in respect of, acquire, receive, grant, and
assign licensing arrangements, options, franchises, and other
rights in respect of, and generally deal in and with, at
wholesale and retail, as principal, and as sales, business,
special, or general agent, representative, broker, factor,
merchant, distributor, jobber, advisor, and in any other
lawful capacity, goods, wares, merchandise, commodities, and
unimproved, improved, finished, processes, and other real,
personal, mixed property of any and all kinds, together with
the components, resultants, and by-products thereof.
To apply for, register, obtain, purchase, lease, take
licenses in respect of or otherwise acquire, and to hold, own,
use, operate, develop, enjoy, turn to account, grant licenses
and immunities in respect of, manufacture under and to
introduce, sell, assign, mortgage, pledge or otherwise dispose
of, and, in any manner deal with and contract with reference
to:
(a) inventions, devices, formulae,
processes and any improvements and
modifications thereof;
(b) letters patent, patent rights, patented
processes, copyrights, designs, and similar rights,
trade-marks, trade names, trade symbols and other
indications of origin and ownership granted by or
recognized under the laws of the United States of
America, the District of Columbia, any state or
subdivision thereof, and any commonwealth, territory,
possession, dependency, colony, possession, agency or
instrumentality of the United States of America and
of any foreign country, and all rights connected
there with or appertaining thereunto;
(c) franchises, licenses, grants and
concessions.
To guarantee, purchase, take, receive, subscribe for,
and otherwise acquire, own, hold, use, and otherwise employ,
sell, lease, exchange, transfer, and otherwise dispose of,
mortgage, lend, pledge, and otherwise deal in and with,
securities (which term, for the purpose of this Article THIRD,
includes, without limitation of the generality thereof; any
shares of stock, bonds, debentures, notes, mortgages, other
<PAGE>4
obligations and any certificates, receipts or other
instruments representing rights to receive, purchase or
subscribe for the same, or representing any other rights or
interests therein or in any property or assets) of any
persons, domestic and foreign firms, associations, and
corporations, and by any government or agency or
instrumentality thereof; to make payment therefor in any
lawful manner; and, while owner of any such securities, to
exercise any and all rights, powers and privileges in respect
thereof, including the right to vote.
To make, enter into, perform and carry out contracts
of every kind and description with any person, firm,
association, corporation or government or agency or
instrumentality thereof.
To acquire by purchase, exchange or otherwise, all,
or any part of, or any interest in, the properties, assets,
business and good will of any one or more persons, firms,
associations or corporations heretofore or hereafter engaged
in any business for which a corporation may now or hereafter
be organized under the laws of the State of Delaware; to pay
for the same in cash, property or its own or other securities;
to hold, operate, reorganize, liquidate, sell or in any manner
dispose of the whole or any part thereof; and in connection
therewith, to assume or guarantee performance of any
liabilities, obligations or contracts of such persons, firms,
associations or corporations, and to conduct the whole or any
part of any business thus acquired.
To lend money in furtherance of its corporate
purposes and to invest and reinvest its funds from time to
time to such extent, to such persons, firms, associations,
corporations, governments or agencies or instrumentalities
thereof, and on such terms and on such security, if any, as
the Board of Directors of the corporation may determine.
To make contracts of guaranty and suretyship of all
kinds and endorse or guarantee the payment of principal,
interest or dividends upon, and to guarantee the performance
of sinking fund or other obligations of, any securities, and
to guarantee in any way permitted by the law the performance
of any of the contracts or other undertakings in which the
corporation may otherwise be or become interested, of any
persons, firm, association, corporation, government or agency
or instrumentality thereof, or of any other combination,
organization or entity whatsoever.
<PAGE>5
To borrow money without limit as to amount and at
such rates of interest as it may determine; from time to time
to issue and sell its own securities, including its shares of
stock, notes, bonds, debentures, and other obligations, in
such amounts, on such terms and conditions, for such purposes
and for such prices, now or hereafter permitted by the laws of
the State of Delaware and by this certificate of
incorporation, as the Board of Directors of the corporation
may determine; and to secure any of its obligations by
mortgage, pledge or other encumbrance of all or any of its
property, franchises and income.
To be a promoter or manager of other corporations of
any type or kind; and to participate with others in any
corporation, partnership, limited partnership, joint venture,
or other association of any kind, or in any transaction,
undertaking or arrangement which the corporation would have
power to conduct by itself, whether or not such participation
involves sharing or delegation of control with or to others.
To draw, make, accept, endorse, discount, execute and
issue promissory notes, drafts, bills of exchange, warrants,
bonds, debentures, and other negotiable or transferable
instruments and evidences of indebtedness whether secured by
mortgage or otherwise, as well as to secure the same by
mortgage or otherwise, so far as may be permitted by the laws
of the State of Delaware.
To purchase, receive, take, reacquire or otherwise
acquire, own and hold, sell, lend, exchange, reissue, transfer
or otherwise dispose of, pledge, use, cancel, and otherwise
deal in and with its own shares and its other securities from
time to time to such an extent and in such manner and upon
such terms as the Board of Directors of the corporation shall
determine; provided that the corporation shall not use its
funds or property for the purchase of its own shares of
capital stock when its capital is impaired or when such use
would cause any impairment of its capital, except to the
extent permitted by law.
To organize, as an incorporator, or cause to be
organized under the laws of the State of Delaware, or of any
other State of the United States of America, or of the
District of Columbia, or of any commonwealth, territory,
dependency, colony, possession, agency, or instrumentality of
the United States of America, or of any foreign country, a
corporation or corporations for the purpose of conducting and
promoting any business or purpose for which corporations may
be organized, and to dissolve, wind up, liquidate, merge or
consolidate any such corporation or corporations or to cause
the same
<PAGE>6
to be dissolved, wound up, liquidated, merged or
consolidated.
To conduct its business, promote its purposes, and
carry on its operations in any and all of its branches and
maintain offices both within and without the State of
Delaware, in any and all States of the United States of
America, in the District of Columbia, and in any or all
commonwealths, territories, dependencies, colonies,
possessions, agencies, or instrumentalities of the United
States of America and of foreign governments.
To promote and exercise all or any part of the
foregoing purposes and powers in any and all parts of the
world, and to conduct its business in all or any of its
branches as principal, agent, broker, factor, contractor, and
in any other lawful capacity, either alone or through or in
conjunction with any corporations, associations, partnerships,
firms, trustees, syndicates, individuals, organizations, and
other entities in any part of the world, and, in conducting
its business and promoting any of its purposes, to maintain
offices, branches and agencies in any part of the world, to
make and perform any contracts and to do any acts and things,
and to carry on any business, and to exercise any powers and
privileges suitable, convenient, or proper for the conduct,
promotion, and attainment of any of the business and purposes
herein specified or which at any time may be incidental
thereto or may appear conducive to or expedient for the
accomplishment of any of such business and purposes and which
might be engaged in or carried on by a corporation
incorporated or organized under the General Corporation Law of
the State of Delaware, and to have and exercise all of the
powers conferred by the laws of the State of Delaware upon
corporations incorporated or organized under the General
Corporation Law of the State of Delaware.
The foregoing provisions of this Article THIRD shall be
construed both as purposes and powers and each as an independent
purpose and power. The foregoing enumeration of specific purposes and
powers shall not be held to limit or restrict in any manner the
purposes and powers of the corporation, and the purposes and powers
herein specified shall, except when otherwise provided in this Article
THIRD, be in no wise limited or restricted by reference to, or
inference from, the terms of any provision of this or any other Article
of this certificate of incorporation; provided, that the corporation
shall not conduct any business, promote any purpose, or exercise any
power or privilege within or without the State of Delaware which, under
the laws thereof, the corporation may not lawfully conduct, promote or
exercise.
<PAGE>7
FOURTH:
A. The total number of shares of all classes of
stock which the corporation shall have authority to issue is Five
Million Five Hundred Thousand Shares, consisting of Five Million
shares of a par value of Ten Cents ($.10) each, designated as Common
Stock, and Five Hundred Thousand shares of a par value of Ten Cents
($.10) each, designated as Preferred Stock.
B. The Common Stock, par value Ten Cents ($.10) per
share shall be divided into two classes. One class, consisting of
1,283,772 shares is denominated as Class A Common Stock, and the
other class, consisting of 3,716,228 shares, is denominated as Class
B Common Stock. Authorized Class A Common Stock shall become
authorized Class B Common Stock as follows: (i) All shares of Class A
Common Stock not issued and outstanding on the effective date hereof
or expressly reserved for issuance on the effective date hereof shall
be automatically converted into authorized Class B Common Stock and
(ii) All shares of Class A Common Stock converted into shares of
Class B Common Stock, or no longer expressly reserved for issuance
(unless actually issued pursuant to such reservation) shall likewise
become authorized Class B Common Stock, so that the number of issued
and outstanding shares of Class A Common Stock plus the number of
shares of Class A Common Stock expressly reserved for issuance plus
the number of authorized shares of Class B Common Stock (whether or
not issued) shall always equal 5,000,000 shares.
C. (1) Each share of Common Stock of the
corporation issued and outstanding immediately prior to the
effectiveness of this Restated Certificate of Incorporation shall be
converted, without further action, into a share of Class A Common
Stock, except that, notwithstanding the foregoing, each share of
Common Stock of the corporation issued and outstanding immediately
prior to the effectiveness of this Restated Certificate of
Incorporation which, after June 25, 1986, was transferred on the
corporation's records (or which was transferred beneficially if held
in the name of a nominee) by the record (or beneficial) holder
thereof to any person other than a Permitted Transferee (as defined
below) shall be converted, without further action, into a share of
Class B Common Stock.
(2) Each share of Class A Common Stock
shall automatically, and with no further action on the part of any
person, be converted into a share of Class B Common Stock upon the
first of the following to occur:
<PAGE>8
(a) The transfer of such share of
Class A Common Stock on the corporation's records (or the transfer
of beneficial interest of a share held in the name of a nominee) by
the record (or beneficial) holder thereof to any person, other than
any of the following persons ("Permitted Transferee"): (x) a donee of
such share, if the donee is a member of the lineal family of the
holder or is a trustee or custodian for such person; (y) the legatee
or beneficiary of the estate of such holder, whether by testamentary
bequest or by the laws of descent and distribution; or (z) the
pledgee of such share who receives the same as collateral for
performance of a bona fide obligation of the holder;
(b) The transfer of a share of Class A
Common Stock by a Permitted Transferee other than to a person who
is then a Permitted Transferee of the transferor; or
(c) The expiration of the Redemption
Period, as defined below.
D. Each share of Class A Common Stock and Class B
Common Stock shall have equal and identical rights and privileges,
except only as expressly set forth in Paragraphs E and F of this
Article FOURTH; and shall vote as one class.
E. (1) During the Redemption Period (as defined
below), holders of Class A Common Stock are entitled to deliver the
same to the corporation for redemption, and to receive therefor the
Initial Redemption Price or Adjusted Redemption Price, as the case may
be (as defined below). The procedures for such delivery, redemption and
payment shall be provided by the corporation prior to the commencement
of the Redemption Period.
(2) The Redemption Period is a period of
ninety (90) days commencing on April 24, 1989 (the "Scheduled
Date"), except that upon the occurrence of an Event of Acceleration,
as defined in a Redemption Agreement dated July 24, 1986 between the
corporation, The Hamilton Group Limited, Inc. and Southeast Bank,
N.A., and upon a notice ("Acceleration Notice") to the holders of
Class A Common Stock of an accelerated Redemption Period, the
Redemption Period shall begin on the thirty-first (31st) day
following the giving of the Acceleration Notice and terminate ninety
(90) days thereafter. The Acceleration Notice shall be deemed given
five (5) business days after the same is mailed by first class mail
to the record holders of Class A Common Stock as of a date not more
than three (3) business days prior to the date of the mailing of the
Acceleration Notice.
<PAGE>9
(3) The initial redemption price
("Initial Redemption Price") for each share of Class A Common Stock
shall be as follows:
(a) If the Redemption Period begins
on the Scheduled Date, the Initial Redemption Price shall be
$1.35; and
(b) If the Redemption Period
begins prior to the Scheduled Date, the Initial Redemption Price
shall be $1.35 discounted for the period from the commencement of the
Redemption Period to the Scheduled Date at a rate of ten (10%)
percent per annum.
(4) The Initial Redemption Price shall be
subject to adjustment as follows:
(a) In case the corporation
shall (i) subdivide its outstanding shares of Common Stock, or
(ii) combine its outstanding shares of Common Stock into a smaller
number of shares, the Initial Redemption Price, or if the Initial
Redemption Price was theretofore adjusted in accordance herewith,
such Adjusted Redemption Price, shall be adjusted proportionately so
that the Redemption Price immediately thereafter will bear the same
relation to the Redemption Price in effect immediately prior to any
such event as the total number of shares of Common Stock outstanding
immediately prior to any such event shall bear to the total number of
shares of Common Stock outstanding immediately after such event. An
adjustment made pursuant to this Subparagraph E.(4)(a) of Article
FOURTH shall become effective immediately after the effective date of
such subdivision of combination.
(b) In case of any capital reorganization
of the corporation, or of any reclassification of the Common Stock,
or in case of the consolidation of the Corporation with, or the
merger of the corporation into, any other corporation or entity
(other than a consolidation or merger in which the Corporation is the
continuing entity) or of the sale of the properties and assets of the
Corporation as, or substantially as, an entirety to any other entity,
the Class A Common Stock redemption right specified herein shall,
after such capital reorganization, reclassification, consolidation,
merger or sale be applicable, upon the terms and conditions specified
herein, to the number of shares of stock or other securities or
property of the entity resulting from such consolidation or surviving
such merger or to which such sale shall be made, or any other entity,
as the case may be, which the holders of Class A Common Stock were
entitled to receive upon such capital reorganization,
reclassification, consolidation, merger or sale.
<PAGE>10
(5) The right of redemption set forth
herein shall be enforceable by holders of Class A Common Stock in
the manner provided under the General Corporation Law provided that
the holders of at least 20% of the then outstanding Class A Common
Stock have consented in writing to any such enforcement proceeding.
F. No dividends shall be declared or paid in any
year on the Class A Common Stock until dividends of $.025 per share
have been declared and paid on the Class B Common Stock during such
year. Thereafter, any dividends declared and paid on the Class A
Common Stock shall be declared and paid, at the same time, on the
Class B Common Stock, and at the same rate per share as the dividend
declared and paid on the Class A Common Stock.
G. Except as herein otherwise provided, express
authority is hereby granted to the Board of Directors of the
corporation to fix by resolution or resolutions any of the powers,
preferences and rights, and the qualifications, limitations and
restrictions of the Preferred Stock, which may be issued in series,
the designation of each such series to be fixed by the Board of
Directors of the corporation.
H. No holder of any of the shares of the stock of
the corporation, whether now or hereafter authorized and issued,
shall be entitled as of right to purchase or subscribe for (1) any
unissued stock of any class, or (2) any additional shares of any
class to be issued by reason of any increase of the authorized
capital stock of the corporation of any class, or (3) bonds,
certificates of indebtedness, debentures or other securities
convertible into stock of the corporation, or carrying any right to
purchase stock of any class, but any such unissued stock or such
additional authorized issue of any stock or of other securities
convertible into stock, or carrying any right to purchase stock, may
be issued and disposed of pursuant to resolution of the Board of
Directors to such persons, firms, corporations or associations and
upon such terms as may be deemed advisable by the Board of Directors
in the exercise of its discretion.
FIFTH: The name and the mailing address of the
incorporators are as follows:
NAME MAILING ADDRESS
Anne Lichterman 800 Grand Concourse
Bronx, New York 10451
Mildred Adena 205 East 78th Street
New York, New York 10021
<PAGE>11
Rosita Kruythoff 131-05 224th Street
Laurelton, New York 11413
SIXTH: The corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed
between this corporation and its creditors or any class of them and/or
between this corporation and its stockholders or any class of them, any
court of equitable jurisdiction within the State of Delaware may, on
the application in a summary way of this corporation or of any creditor
or stockholder thereof or on the application of any receiver or
receivers appointed for this corporation under the provisions of
section 291 of Title 8 of the Delaware Code or on the application of
trustees in dissolution or of any receiver or receivers appointed for
this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the
said court directs. If a majority in number representing three-fourths
in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case
may be, agree to any compromise or arrangement and to any
reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of
this corporation, as the case may be, and also on this corporation.
EIGHTH: For the management of the business and for the conduct
of the affairs of the corporation, and in further definition,
limitation and regulation of the powers of the corporation and of its
directors and of its stockholders or any class thereof, as the case may
be, it is further provided:
1. The management of the business and the conduct of
the affairs of the corporation shall be vested in its Board of
Directors. The number of directors which shall constitute the
whole Board of Directors shall be fixed by, or in the manner
provided in, the By-Laws. The phrase "whole Board" and the
phrase "total number of directors" shall be deemed to have the
same meaning, to wit, the total number of directors which the
corporation would have if there were no vacancies. No election
of directors need be by written ballot.
<PAGE>12
2. After the original or other By-Laws of the
corporation have been adopted, in accordance with the
provisions of Section 109 of the General Corporation Law of
the State of Delaware, and, after the corporation has received
any payment for any of its stock, the power to adopt, amend,
or repeal the By-Laws of the corporation may be exercised by
the Board of Directors of the corporation; provided, however,
that any provision for the classification of directors of the
corporation for staggered terms pursuant to the provisions of
subsection (d) of Section 141 of the General Corporation Law
of the State of Delaware shall be set forth in an initial
By-Law or in a By-Law adopted by the stockholders entitled to
vote of the corporation unless provisions for such
classification shall be set forth in this certificate of
incorporation.
3. Whenever the corporation shall be authorized to
issue only one class of stock, each outstanding share shall
entitle the holder thereof to notice of, and the right to vote
at, any meeting of stockholders. Whenever the corporation
shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting
power under the provisions of the certificate of incorporation
shall entitle the holder thereof to the right to vote at any
meeting of stockholders except as the provisions of paragraph
(c)(2) of section 242 of the General Corporation Law of the
State of Delaware shall otherwise require; provided, that no
share of any such class which is otherwise denied voting power
shall entitle the holder thereof to vote upon the increase or
decrease in the number of authorized shares of said class.
NINTH: The corporation shall, to the fullest extent permitted
by Section 145 of the General Corporation Law of the State of Delaware,
as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters
referred to in or covered by said section, and the indemnification
provided for herein shall not be deemed exclusive of any other rights
to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a
person.
TENTH: From time to time any of the provisions of this
<PAGE>13
certificate of incorporation may be amended, altered or repealed, and
other provisions authorized by the laws of the State of Delaware at
the time in force may be added or inserted in the manner and at the
time prescribed by said laws, and all rights conferred upon the stock
holders of the corporation by this certificate of incorporation are
granted subject to the provisions of this Article TENTH.
ELEVENTH: Except as otherwise provided in this Certificate of
Incorporation, the stockholder vote required to approve Business
Combinations (as hereinafter defined) shall be as set forth in this
Article ELEVENTH:
A. (1) Except as otherwise expressly provided in Section B
of this Article ELEVENTH:
(i) any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with (a) any Interested
Stockholder (as hereinafter defined) or (b) any other corporation
(whether or not itself an Interested Stockholder) which is, or after
such merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder or any Affiliate of
any Interested Stockholder of any assets of the Corporation or any
Subsidiary; or
(iii) the issuance or transfer by the Corporation or
any Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate of any Interested Stockholder in exchange
for cash, securities or other property (or a combination thereof); or
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf
of any Interested Stockholder or any Affiliate of any Interested
Stockholder; or
(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its Subsidiaries
or any other transaction (whether or not with or into or otherwise
involving any Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any Interested
Stockholder;
<PAGE>14
shall require the affirmative vote of the holders of at least 80
percent of the voting power of all of the then outstanding shares of
the capital stock of the Corporation entitled to vote generally in the
election of directors (hereinafter in this Article ELEVENTH referred to
as the "Voting Stock"), voting together as a single class. Such
affirmative vote shall be required notwithstanding any other provisions
of this Certificate of Incorporation or any provision of law or of any
agreement with any national securities exchange which might otherwise
permit a lesser vote or no vote, but such affirmative vote shall be
required in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law or this
Certificate of Incorporation.
(2) The term "Business Combination" as used in this
Article ELEVENTH shall mean any transaction which is referred to in any
one or more of subparagraphs (i) through (v) of paragraph (1) of this
section A.
B. The provisions of section A of this Article ELEVENTH shall
not be applicable to any particular Business Combination, and such
Business Combination shall require only such affirmative vote as is
required by law, any other provision of this Certificate of
Incorporation or any agreement with any national securities exchange,
if the Business Combination shall have been approved by a majority of
the Continuing Directors (as hereinafter defined), it being understood
that this condition shall not be capable of satisfaction unless there
is at least one Continuing Director, or if the Business Combination
shall have been approved by resolution unanimously adopted by all of
the then members of the Board of Directors of the Corporation at any
time prior to the consummation thereof.
C. For the purposes of this Article ELEVENTH:
(1) A "person" shall mean any individual, firm,
corporation or other entity.
(2) "Interested Stockholder" shall mean any person
(other than the Corporation or any Subsidiary) who or which is the
beneficial owner, directly or indirectly, of more than ten percent of
the voting power of the outstanding Voting Stock.
(3) A person shall be a "beneficial owner" of any
Voting Stock:
(i) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns, directly or
indirectly; or
<PAGE>15
(ii) which such person or any of its Affiliates has
(a) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (b) the right to vote pursuant to
any agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or
indirectly, by any other person with which such person or any
of its Affiliates or Associates has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting
or disposing of any shares of Voting Stock.
(4) For the purposes of determining whether a person
is an Interested Stockholder pursuant to paragraph (2) of this section
C, the number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through application of paragraph (3) of
this section C but shall not include any other shares of Voting Stock
which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
(5) "Affiliate" or "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as in
effect on May 5, 1983.
(6) "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the Corporation, provided, however, that for the
purposes of the definition or Interested Stockholder set forth in
paragraph (2) of this section C, the term "Subsidiary" shall mean only
a corporation of which a majority of each class of equity security is
owned, directly or indirectly, by the Corporation.
(7) "Continuing Director" means any member of the
Board of Directors of the Corporation (the "Board") who is unaffiliated
with the Interested Stockholder and was a member of the Board prior to
the time that the Interested Stockholder became an Interested
Stockholder, and any successor of a Continuing Director who is
unaffiliated with the Interested Stockholder and is recommended to
succeed a Continuing Director by a majority of Continuing Directors
then on the Board.
D. A majority of the total number of authorized
directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such
<PAGE>16
determination as is hereinafter in this section D specified is to be
made by the Board) shall have the power and duty to determine, on the
basis of information known to them after reasonable inquiry, all
facts necessary to determine compliance with this Article ELEVENTH,
including, without limitation, (1) whether a person is an Interested
Stockholder, (2) the number of shares of Voting Stock beneficially
owned by any person, and (3) whether a person is an Affiliate or
Associate of another.
E. Nothing contained in this Article ELEVENTH shall be
construed to relieve any Interested Stockholder from any fiduciary
obligation imposed by law.
F. Notwithstanding any other provision of this Certificate of
Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the Voting Stock required
by law or this Certificate of Incorporation, the affirmative vote of
the holders of at least 80 percent of the voting power of all of the
then outstanding shares of the Voting Stock, voting together as a
single class, shall be required to alter, amend or repeat this Article
ELEVENTH.
------------------------------
SECOND: The Restated Certificate of Incorporation has been duly adopted
in accordance with the provisions of the General Corporation by the affirmative
vote of the holders of a majority of the stock entitled to vote at a meeting of
stockholders.
IN WITNESS WHEREOF, we have signed this certificate as of this
24th day of July, 1986.
/s/ James N. Ottobre
President
ATTEST:
/s/ Michael E. Feld
Assistant Secretary
<PAGE>1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
OCTO LIMITED
OCTO Limited, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
FIRST: That the Board of Directors of OCTO Limited, at a meeting duly
convened and held adopted a resolution proposing and declaring advisable the
following amendment to the Restated Certificate of Incorporation of said
corporation:
"NOW, THEREFORE, BE IT RESOLVED, that the First Article of
the Restated Certificate of Incorporation be amended in its
entirety to read as follows:
"FIRST: The name of the corporation (hereinafter
called the "corporation") is InforMedia
Corporation."
SECOND: That in lieu of a meeting and vote of shareholders, the
shareholder have given written consent to said amendment in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware and written notice of the adoption of the amendment has been given as
provided in Section 228(c) of the General Corporation Law of the State of
Delaware to every shareholder entitled to such notice.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 and 228 of the General Corporation Law
of the State of Delaware.
<PAGE>2
IN WITNESS WHEREOF, OCTO Limited has caused this Certificate to be
signed by its President and attested by its Assistant Secretary this 23rd day
of June, 1987.
OCTO LIMITED
By:/s/ Stephen E. Strickman
Stephen E. Strickman, President
By:/s/ Anthony Marinatos
Anthony Marinatos, Assistant Secretary
<PAGE>1
CERTIFICATE OF AMENDMENT OF THE RESTATED
CERTIFICATE OF INCORPORATION
OF INFORMEDIA CORPORATION
------------------------------------------------------
Adopted in accordance with Section 242 of the General
Corporation Law of the State of Delaware.
------------------------------------------------------
We the undersigned, being, respectively, the President and
Secretary of InforMedia Corporation, formerly OCTO Limited, formerly Princeton
Time Sharing Services, Inc., a corporation organized on June 14, 1968, under the
laws of the State of Delaware, hereby certify as follows:
FIRST: The Restated Certificate of Incorporation of InforMedia
Corporation, is hereby amended as follows:
Paragraphs A and B of Article Four are amended to read as follows:
FOURTH:
A. The total number of shares of all classes of stock which
the corporation shall have authority to issue is Ten Million Five
Hundred Thousand Shares, consisting of Ten Million shares of a par
value of Ten Cents ($.10) each, designated as Common Stock, and Five
Hundred Thousand shares of a par value of Ten Cents ($.10) each,
designated as Preferred Stock.
B. The Common Stock, par value Ten Cents ($.10) per share
shall be divided into two classes. One class, consisting of 1,283,772
shares is denominated as Class A Common Stock, and the other class,
consisting of 8,716,228 shares, is denominated as Class B Common Stock.
Authorized Class A Common Stock shall become authorized Class B Common
Stock as follows: (i) All shares of Class A Common Stock not issued and
outstanding on the effective date hereof or expressly reserved for
issuance on the effective date hereof shall be automatically converted
into authorized Class B Common Stock and (ii) All shares of Class A
Common Stock converted into shares of Class B Common Stock, or no
longer expressly reserved for issuance (unless actually issued pursuant
to such reservation) shall likewise become authorized Class B Common
Stock, so that the number of issued and outstanding shares of Class A
Common Stock plus
<PAGE>2
the number of shares of Class A Common Stock expressly reserved for
issuance plus the number of authorized shares of Class B Common Stock
(whether or not issued) shall always equal 10,000,000 shares.
Article Eleven is deleted in its entirety and replaced with
the following language:
ELEVENTH: No Director shall be personally liable to the
corporation or any stockholder for monetary damages for breach of
fiduciary duty as director, except for any matter in respect of which
such director (A) shall be liable under Section 174 of Title 8 of the
Delaware Code (relating to the Delaware General Corporation Law) or any
amendment thereto or successor provision thereto or (B) shall be liable
by reason that, in addition to any and all other requirements for such
liability, he (i) shall have breached his duty of loyalty to the
corporation or its stockholders; (ii) shall not have acted in good
faith; (iii) shall have acted in a manner involving intentional
misconduct or a knowing violation of law or, in failing to act, shall
have acted in a manner involving intentional misconduct or a knowing
violation of law; or (iv) shall have derived an improper personal
benefit. Neither the amendment nor repeal of this Article, nor the
adoption of any provision of this certificate of incorporation
inconsistent with this Article, shall eliminate or reduce the effect of
this Article in respect of any matter occurring, or any cause of
action, suit or claim that, but for this Article, would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
------------------------------------------------
SECOND: The foregoing Amendments of the Restated Certificate
of Incorporation have been duly adopted in accordance with the provisions of the
General Corporation Law of the State of Delaware by the requisite vote of the
holders of the stock entitled to vote at a meeting of stockholders held on
November 20, 1987.
IN WITNESS WHEREOF, we have signed this certificate as of this
9th day of December, 1987.
/s/ Stephen E. Strickman
President
ATTEST:
/s/ Edward Seidenberg
Secretary
<PAGE>1
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
INFORMEDIA CORPORATION
InforMedia Corporation, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:
FIRST: Article I of the Restated Certificate of Incorporation
is hereby amended so as to read in its entirety as follows:
"FIRST: The name of the corporation (hereinafter called
the "corporation") is Strategic Information, Inc."
SECOND: The Board of Directors of InforMedia Corporation, by the
unanimous written consent of its members, adopted a resolution which set forth
the foregoing amendment to the Restated Certificate of Incorporation, in
accordance with Section 242 of the General Corporation Law of the State of
Delaware, declaring that the amendment to the Restated Certificate of
Incorporation as proposed was advisable and directing that it be submitted for
action thereon by the shareholders of the corporation.
THIRD: The aforesaid amendment has been consented to and
authorized and approved by the holders of a majority of the issued and
outstanding stock of the corporation entitled to vote at the Annual Meeting of
Shareholders held on December 15, 1988, in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
<PAGE>2
IN WITNESS WHEREOF, InforMedia Corporation has caused this
Certificate to be signed by its President and attested by its Secretary this
15th day of December, 1988, pursuant to Section 103(a) of the General
Corporation Law of the State of Delaware.
INFORMEDIA CORPORATION
By:/s/ Stephen E. Strickman
Stephen E. Strickman, President
ATTEST:
By:/s/ Edward Seidenberg
Edward Seidenberg, Secretary
<PAGE>1
STRATEGIC INFORMATION, INC.
CERTIFICATE OF DESIGNATIONS
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
PAR VALUE $0.10 PER SHARE
Pursuant to Section 151(g) of the
General Corporation Law of Delaware
The undersigned, Chairman of the Board and Secretary,
respectively, of Strategic Information, Inc., a Delaware corporation (the
"Corporation"), certify that pursuant to authority granted to and vested in
the Board of Directors of the Corporation by the provisions of the Restated
Certificate of Incorporation of the Corporation, as amended, the Board of
Directors has adopted the following resolution creating a series of Preferred
Stock of the Corporation (the "Preferred Stock") designated as the Series A
Convertible Preferred Stock:
RESOLVED, by the Board of Directors of the Corporation, that
pursuant to authority expressly granted to and vested in the Board of
Directors by the provisions of the Restated Certificate of Incorporation of
the Corporation, as amended, the Board of Directors hereby creates a series of
the class of authorized Preferred Stock, par value $0.10 per share, of the
Corporation, and authorizes the issuance thereof, and hereby fixes the
designations and amount thereof and the voting powers, preferences and
relative, participating, optional and other special rights of the shares of
such series, and the qualifications, limitations or restrictions thereof (in
addition to the designations, preferences and relative, participating and
other special rights, and the qualifications, limitations or restrictions
thereof, set forth in the Restated Certificate of Incorporation of the
Corporation, as amended, which are applicable to the Preferred Stock of all
series) as follows:
1. Designation and Number. The series will be designated
"Series A Convertible Preferred Stock" (the "Series A Preferred Stock"), and
the number of authorized shares constituting such series shall be 132,200.
2. Dividends. Each holder of Series A Preferred Stock
shall be entitled to receive when, as and if declared in the discretion of the
Board of Directors, from funds legally available therefor, dividends per share
as set forth below.
(a) The amount of any dividend per share declared on the
Series A Preferred Stock shall be an amount equal to the product of (i) the
same amount as is declared as a dividend from time to time by the Board of
Directors on each share of Class B Common Stock and (ii) the number of fully
paid and nonassessable
<PAGE>2
shares of Class B Common Stock into which such share of Series A Preferred
Stock is convertible pursuant to Section 4(a) hereof.
(b) The preference of each share of Series A Preferred Stock
with respect to dividend payments shall be in every respect on a parity with the
preferences of every other share of Series A Preferred Stock as to dividend
payments and of every other share of capital stock of the Corporation which is
not specifically made senior to or junior to the Series A Preferred Stock as to
dividend payments. The rights of the Class B Common Stock of the Corporation
shall be junior to the rights of the Series A Preferred Stock with respect to
dividend payments.
3. Liquidation Rights. (a) In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation (a "Liquidation"),
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation, the holders of the then
outstanding shares of Series A Preferred Stock shall be entitled to receive, out
of the net assets of the Corporation, an amount per share of Series A Preferred
Stock equal to the product of (i) the same amount as is available for
distribution in Liquidation for each share of Class B Common Stock and (ii) the
number of fully paid and nonassessable shares of Class B Common Stock into which
such share of Series A Preferred Stock is convertible pursuant to Section 4(a)
hereof.
(b) The preference of each share of Series A Preferred Stock
with respect to distributions in Liquidation shall be in every respect on a
parity with the preferences of every other share of Series A Preferred Stock as
to distributions in Liquidation and of every other share of capital stock of the
Corporation which is not specifically made senior to or junior to the Series A
Preferred Stock as to distributions in Liquidation. The rights of the Class B
Common Stock of the Corporation shall be junior to the rights of the Series A
Preferred Stock with respect to distributions in Liquidation, provided that the
maximum priority distribution in Liquidation distributed to holders of Series A
Preferred Stock pursuant to this Section 3(b) shall not exceed an amount equal
to five (5%) percent of the aggregate value of the Series A Preferred Stock,
which aggregate value shall be calculated by multiplying (i) $1.35 by (ii) the
number of fully paid and nonassessable shares of Class B Common Stock into which
all shares of the Series A Preferred Stock may be converted pursuant to Section
4(a) hereof.
4. Conversion Rights. (a) Each share of Series A Preferred
Stock shall be convertible at any time or from time to time at the option of
the holder thereof into five (5) fully paid and nonassessable shares of Class
B Common Stock.
(b) The number of shares of Class B Common Stock into which
each share of Series A Preferred Stock is convertible
<PAGE>3
pursuant to Section 4(a) hereof shall be subject to adjustment from time to
time as follows:
(i) If the Corporation shall at any time or from time to
time declare a dividend or make a distribution on any outstanding
shares of Class B Common Stock in shares of Class B Common Stock, or
subdivide or reclassify any outstanding shares of Class B Common
Stock or combine or reclassify any outstanding shares of Class B
Common Stock into a smaller number of shares of Class B Common Stock,
then, and in each such case, the number of shares of Class B Common
Stock into which each share of Series A Preferred Stock is
convertible shall be adjusted to be equal to the number of shares of
Class B Common Stock that the holder of a share of Series A Preferred
Stock would have been entitled to receive after the happening of any
of the events described above had such share been converted
immediately prior to the happening of such event or the record date
therefor, whichever is earlier. An adjustment made pursuant to this
clause (i) shall become effective (A) in the case of any such
dividend or distribution, immediately after the close of business on
the record date for the determination of holders of shares of Class
B Common Stock entitled to receive such dividend or distribution, or
(B) in the case of any such subdivision, reclassification or
combination, at the close of business on the day upon which such
corporate action becomes effective.
All calculations under this paragraph (b) shall be made to the nearest one
one-thousandth of a share.
(c) If at any time the Corporation shall be a party to any
transaction or series of related transactions (including, without limitation, a
merger, consolidation, reorganization, sale of all or substantially all of the
Corporation's assets, liquidation or recapitalization of the Class B Common
Stock and excluding any transaction to which paragraph (b) of this Section 4
applies) in which the previously outstanding Class B Common Stock shall be
changed into or exchanged for different securities of the Corporation or common
stock or other securities of another corporation or interests in a noncorporate
entity or other property (including cash) or any combination of any of the
foregoing (each such transaction being herein called the "Transaction", and the
date of consummation of any Transaction being herein called the "Consummation
Date" thereof), then each share of Series A Preferred Stock shall thereafter be
convertible into, in lieu of the Class B Common Stock issuable upon such
conversion prior to the Consummation Date, the amount of securities or other
property to which such holder would actually be entitled as a holder of shares
of Class B Common Stock upon the consummation of the Transaction if such holder
had converted such share of Series A Preferred Stock immediately prior to such
transaction (subject to adjustments from and after the Consummation Date of such
transaction as nearly
<PAGE>4
equivalent as possible to the adjustments provided for in paragraph (b) of
this Section 4).
(d) The holder of any shares of Series A Preferred Stock may
convert such shares into shares of Class B Common Stock by surrendering for such
purpose to the Corporation, at its principal office or at any other office or
agency maintained by the Corporation for that purpose, a certificate or
certificates representing the shares of Series A Preferred Stock to be converted
accompanied by a written notice stating that such holder elects to convert all
or a specified whole number of such shares in accordance with the provisions of
this Section 4 and specifying the name or names in which such holder wishes the
certificate or certificates for shares of Class B Common Stock to be issued. In
case such notice shall specify a name or names other than that of such holder,
such notice shall be accompanied by payment of all transfer taxes payable upon
the issuance of shares of Class B Common Stock in such name or names. Other than
such taxes, the Corporation will pay any and all issue and other taxes (other
than taxes based on income) that may be payable in respect of any issuance or
delivery of shares of Class B Common Stock on conversion of Series A Preferred
Stock pursuant hereto. As promptly as practicable, and in any event within five
Business Days after the surrender of such certificate or certificates and the
receipt of such notice relating thereto and, if applicable, payment of all
transfer taxes (or the demonstration to the satisfaction of the Corporation that
such taxes have been paid), the Corporation shall deliver or cause to be
delivered (i) certificates representing the number of validly issued, fully paid
and nonassessable full shares of Class B Common Stock to which the holder of
shares of Series A Preferred Stock so converted shall be entitled and (ii) if
less than the full number of shares of Series A Preferred Stock evidenced by the
surrendered certificate or certificates are being converted, a new certificate
or certificates, of like tenor, for the number of shares evidenced by such
surrendered certificate or certificates less the number of shares converted.
Such conversion shall be deemed to have been made at the close of business on
the date of giving of such notice and of such surrender of the certificate or
certificates representing the shares of Series A Preferred Stock to be converted
so that the rights of the holder thereof as to the shares being converted shall
cease except for the right to receive shares of Class B Common Stock in
accordance herewith, and the person entitled to receive the shares of Class B
Common Stock shall be treated for all purposes as having become the record
holder of such shares of Class B Common Stock at such time.
(e) Upon conversion of any shares of Series A Preferred Stock,
the holder thereof shall not be entitled to receive any accumulated, accrued or
unpaid dividends in respect of the shares so converted; provided, however, that
such holder shall be entitled to receive any dividends on such shares of Series
A Preferred Stock declared prior to such conversion if such holder held such
shares on the record date fixed for the determination of holders of shares
<PAGE>5
of Series A Preferred Stock entitled to receive payment of such dividend.
(f) In connection with the conversion of any shares of Series
A Preferred Stock, no fractions of shares of Class B Common Stock shall be
issued, but in lieu thereof the Corporation shall pay a cash adjustment in
respect of such fractional interest in an amount equal to such fractional
interest multiplied by the Closing Price per share of Class B Common Stock on
the day on which such shares of Series A Preferred Stock are deemed to have been
converted.
(g) The Corporation shall at all times reserve and keep
available out of its authorized and unissued Class B Common Stock, solely for
the purpose of effecting the conversion of the Series A Preferred Stock, such
number of shares of Class B Common Stock as shall from time to time be
sufficient to effect the conversion of all then outstanding shares of Series A
Preferred Stock. The Corporation shall from time to time, in accordance with the
laws of Delaware, increase the authorized amount of Class B Common Stock if at
any time the number of authorized shares of Class B Common Stock remaining
unissued shall not be sufficient to permit the conversion at such time of all
then outstanding shares of Series A Preferred Stock.
(h) Whenever the number of shares of Class B Common Stock into
which each share of Series A Preferred Stock is convertible is adjusted as
provided in paragraph (b) or (c) of this Section 4, the Corporation shall
promptly mail to the holders of record of the outstanding shares of Series A
Preferred Stock at their respective addresses as the same shall appear in the
Corporation's stock records a notice stating that the number of shares of Class
B Common Stock into which the shares of Series A Preferred Stock are convertible
has been adjusted and setting forth the new number of shares of Class B Common
Stock (or describing the new stock, securities, cash or other property) into
which each share of Series A Preferred Stock is convertible as a result of such
adjustment, a brief statement of the facts requiring such adjustment and the
computation thereof, and when such adjustment became effective.
5. Voting Rights. (a) The holders of Series A Preferred Stock
shall be entitled to vote upon all matters upon which the holders of Class B
Common Stock are entitled to vote, and the shares of Series A Preferred Stock,
except as otherwise required by law, shall vote together with the shares of
Class B Common Stock (and of any other class or series which may similarly be
entitled to vote with the shares of Class B Common Stock) as a single class; and
each holder of a share of Series A Preferred Stock shall be entitled to cast
such number of votes as shall equal the number of votes that he would be
entitled to cast if his shares of Series A Preferred Stock were converted into
the number of shares of Class B Common Stock (and other Voting Stock, if any)
into which the shares of Series A Preferred Stock are then
<PAGE>6
convertible, for each share of Series A Preferred Stock standing in his name
on the books of transfer of the Corporation as of the record date fixed or
determined for such purpose.
(b) So long as any of the shares of Series A Preferred Stock
remain outstanding, the Corporation shall not, either directly or indirectly,
without the affirmative vote at a meeting of the holders of at least a majority
of the shares of Series A Preferred Stock then outstanding, voting separately as
a class, issue any capital stock that ranks on a parity with or senior to the
Series A Preferred Stock as to dividends or upon liquidation.
For the purpose of this resolution, any capital stock of the
Corporation shall be deemed to rank (i) on a parity with shares of the Series A
Preferred Stock, either as to dividends or upon liquidation, whether or not the
dividend rates, dividend payment dates or redemption or liquidation prices per
share or optional or mandatory redemption provisions, if any, differ from those
of the Series A Preferred Stock, if the holders of such stock would be entitled
to receive dividends or amounts distributable upon liquidation, as the case may
be, in proportion to their respective dividend rates or liquidation prices,
without preference or priority, one over the other, as between the holders of
such stock and the holders of shares of Series A Preferred Stock; (ii) junior to
shares of the Series A Preferred Stock, either as to dividends or upon
liquidation, if such class shall be Class B Common Stock or if the holders of
shares of the Series A Preferred Stock will be entitled to receipt of dividends
or of amounts distributable upon liquidation, as the case may be, in preference
or priority to the holders of shares of such stock; and (iii) senior to shares
of Series A Preferred Stock, either as to dividends or upon liquidation, if such
capital stock neither ranks on a parity with nor is junior to shares of Series A
Preferred Stock as aforesaid.
(c) The rights set forth in this Section 5 are in addition to
any voting rights which are created by applicable law.
6. Definitions.
"Business Day" means any day other than a Saturday, Sunday, or
a day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Class B Common Stock" means the Class B Common Stock of the
Corporation, par value $0.10 per share.
"Closing Price" per share of Class B Common Stock means the
last sale price per share of such class, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in each case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on the
New York
<PAGE>7
Stock Exchange or, if the shares of such class of Common Stock are not listed
or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the shares of
such class of Class B Common Stock are listed or admitted to trading or, if
the shares of such class of Class B Common Stock are not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not
so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or such other system then in use, or,
if on any such date the shares of such class of Class B Common Stock are not
quoted by any such organization, the average of the closing bid and asked
prices as furnished by a professional market maker making a market in such
class of Class B Common Stock selected by a majority (but not less than two)
of the directors of the Corporation. If such class of Class B Common Stock is
not publicly held or so listed or publicly traded, "Closing Price" shall mean
the Fair Market Value per share as determined in good faith by the Board of
Directors of the Corporation.
"Fair Market Value" means the amount that a willing buyer
would pay a willing seller in an arm's length transaction.
IN WITNESS WHEREOF, the undersigned Corporation has caused
this Certificate to be signed by a duly authorized officer and its corporate
seal, duly attested by another such officer, to be hereunto affixed this 13th
day of September, 1989.
STRATEGIC INFORMATION, INC.
By:/s/ Andrew M. Bursky
Andrew M. Bursky
Chairman of the Board
Attest:
/s/ Edward Seidenberg
Secretary
<PAGE>1
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
STRATEGIC INFORMATION, INC.
Strategic Information, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: Article One of the Restated Certificate of
Incorporation is hereby amended so as to read in its entirety as follows:
"First: The name of the corporation (hereinafter called the
"corporation") is Strategic Distribution, Inc."
SECOND: Article Four of the Restated Certificate of
Incorporation is hereby amended so as to read in its entirety as follows:
"FOURTH:
A. The total number of shares of all classes of stock
which the corporation shall have authority to issue
is Twenty Five Million Five Hundred Thousand Shares,
consisting of Twenty Five Million shares of a par
value of Ten Cents ($.10) each, designated as Common
Stock, and Five Hundred Thousand shares of a par
value of Ten Cents ($.10) each, designated as
Preferred Stock.
B. Except as herein otherwise provided, express
authority is hereby granted to the Board of Directors
of the corporation of fix by resolution or
resolutions any of the powers, preferences and
rights, and the qualifications, limitations and
restrictions of the Preferred Stock, which may be
issued in series, the designation of each such series
to be fixed by the Board of Directors of the
corporation.
C. No holder of any of the shares of the stock of the
corporation, whether now or hereafter authorized and
<PAGE>2
issued, shall be entitled as of right to purchase or
subscribe for (1) any unissued stock of any class, or
(2) any additional shares of any class to be issued
by reason of any increase of the authorized capital
stock of the corporation of any class, or (3) bonds,
certificates of indebtedness, debentures or other
securities convertible into stock of the corporation,
or carrying any right to purchase stock of any class,
but any such unissued stock or such additional
authorized issue of any stock or of other securities
convertible into stock, or carrying any right to
purchase stock, may be issued and disposed of
pursuant to resolution of the Board of Directors of
such persons, firms, corporations or associations and
upon such terms as may be deemed advisable by the
Board of Directors in the exercise of its
discretion."
THIRD: The foregoing amendments to the Restated Certificate of
Incorporation have been duly adopted, in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware, by the
requisite vote of the holders of a majority of the issued and outstanding stock
of the Corporation entitled to vote at the annual meeting of stockholders held
on November 8, 1990.
IN WITNESS WHEREOF, Strategic Information, Inc. has caused
this Certificate to be signed by its President and attested by its Secretary
this 8th day of November, 1990, pursuant to Section 103(a) of the General
Corporation Law of the State of Delaware.
STRATEGIC INFORMATION, INC.
By:/s/ Andrew M. Bursky
Andrew M. Bursky, President
ATTEST:
By:/s/ Catherine B. James
Catherine B. James, Secretary
<PAGE>1
AMENDED AND RESTATED
BY-LAWS
OF
OCTO LIMITED
(A Delaware Corporation)
JULY 24, 1986
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Every holder of stock in
the corporation shall be entitled to have a certificate signed by, or in the
name of, the corporation by the Chairman or Vice-Chairman of the Board of
Directors, if any, or by the President or a Vice-President and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant certifying the number
of shares owned by him in the corporation. Any and all signatures on any such
certificate may be facsimiles. In case any officer, transfer agent, or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent, or registrar at the date of issue.
Whenever the corporation shall be authorized to issue more
than one class of stock or more than one series of any class of stock, and
whenever the corporation shall issue any shares of its stock as partly paid
stock, the certificates representing shares of any such class or series or of
any such partly paid stock shall set forth thereon the statements prescribed by
the General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock in place
of any certificate theretofore issued by it, alleged to have been lost, stolen,
or destroyed, and the Board of Directors may require the owner of any lost,
stolen or destroyed certificate, or his legal representative, to give the
corporation a bond sufficient to indemnify the corporation against any claim
that may be made against it on account of the alleged loss, theft, or
destruction or any such certificate or the issuance of any such new certificate.
2. FRACTIONAL SHARE INTERESTS. The corporation may, but
shall not be required to, issue fractions of a share. If
<PAGE>2
the corporation does not issue fractions of a share, it shall (1) arrange
for the disposition of fractional interests by those entitled thereto,
(2) pay in cash the fair value of fractions of a share as of the time
when those entitled to receive such fractions are determined, or (3)
issue scrip or warrants in registered or bearer form which shall entitle
the holder to receive a certificate for a full share upon the surrender
of such scrip or warrants aggregating a full share. A certificate for a
fractional share shall, but scrip or warrants shall not unless otherwise
provided therein, entitle the holder to exercise voting rights, to
receive dividends thereon, and to participate in any of the assets of the
corporation in the event of liquidation. The Board of Directors may cause
scrip or warrants to be issued subject to the conditions that they shall
become void if not exchanged for certificates representing full shares
before a specified date, or subject to the conditions that the shares for
which scrip or warrants are exchangeable may be sold by the corporation
and the proceeds thereof distributed to the holders of scrip or warrants,
or subject to any other conditions which the Board of Directors may
impose.
3. STOCK TRANSFERS. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if
any, transfers or registration of transfers of shares of stock of the
corporation shall be made only on the stock ledger of the corporation by
the registered holder thereof, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary of the
corporation or with a transfer agent or a registrar, if any, and on
surrender of the certificate or certificates for such shares of stock
properly endorsed and the payment of all taxes due thereon.
4. RECORD DATE FOR STOCKHOLDERS. For the purpose of
determining the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or to express consent
to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or the allotment of any
rights, or entitled to exercise any rights in respect of any change,
conversion, or exchange of stock or for the purpose of any other lawful
action, the directors may fix, in advance, a record date, which shall not
be more than sixty days nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. If no record
date is fixed, the record date for determining stock holders entitled to
notice of or to vote at a meeting of stock holders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. The record date for determining
stockholders entitled to express consent to corporate action in writing
without a meeting, when no prior action by the Board of
<PAGE>3
Directors is necessary, shall be the day on which the first written
consent is expressed; and the record date for determining stockholders
for any other purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote
at any meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
5. MEANING OF CERTAIN TERMS. As used herein in respect of the
right to notice of a meeting of stockholders or a waiver thereof or to
participate or vote thereat or to consent or dissent in writing in lieu of
a meeting, as the case may be, the term "share" or "shares" or "share of
stock" or "shares of stock" or "stockholder" or "stockholders" refers to an
outstanding share or shares of stock and to a holder or holders of record
of outstanding shares of stock when the corporation is authorized to issue
only one class of shares of stock, and said reference is also intended to
include any outstanding share or shares of stock and any holder or holders
of record of outstanding share or shares of stock and any holder or holders
of record of outstanding shares of stock of any class upon which or upon
whom the certificate of incorporation confers such rights where there are
two or more classes or series of shares of stock or upon which or upon whom
the General Corporation Law confers such rights notwithstanding that the
Certificate of Incorporation may provide for more than one class or series
of shares of stock, one or more of which are limited or denied such rights
thereunder; provided, however, that no such right shall vest in the event
of an increase or a decrease in the authorized number of shares of stock of
any class or series which is otherwise denied voting rights under the
provisions of the Certificate of Incorporation, except as any provision of
law may otherwise require.
6. STOCKHOLDER MEETINGS.
(a) TIME. The annual meeting shall be held on the date
and at the time fixed, from time to time, by the directors, provided, that the
first annual meeting shall be held on a date within thirteen months after the
organization of the corporation, and each successive annual meeting shall be
held on a date within thirteen months after the date of the preceding annual
meeting. A special meeting shall be held on the date and at the time fixed by
the directors.
(b) PLACE. Annual meetings and special meetings shall be
held at such place, within or without the State of Delaware, as the directors
may, from time to time, fix. Whenever the directors shall fail to fix such
place, the meeting shall be
<PAGE>4
held at the registered office of the corporation in the State of Delaware.
(c) CALL. Annual meetings and special meetings may
be called by the directors or by any officer instructed by the directors to
call the meeting, and as set forth in the Certificate of Incorporation.
(d) NOTICE OR WAIVER OF NOTICE. Written notice of
all meetings shall be given, stating the place, date, and hour of the meeting.
The notice of an annual meeting shall state that the meeting is called for the
election of directors and for the transaction of other business which may
properly come before the meeting, and shall, (if any other action which could
be taken at a special meeting is to be taken at such annual meeting) state the
purpose or purposes. The notice of a special meeting shall in all instances
state the purpose or purposes for which the meeting is called. The notice of
any meeting shall also include, or be accompanied by, any additional
statements, information, or documents prescribed by the General Corporation
Law. Except as otherwise provided by the General Corporation Law, a copy of
the notice of any meeting shall be given, personally or by mail, not less than
ten days nor more than sixty days before the date of the meeting, unless the
lapse of the prescribed period of time shall have been waived, and directed to
each stockholder at his record address or at such other address which he may
have furnished by request in writing to the Secretary of the corporation.
Notice by mail shall be deemed to be given when deposited, with postage
thereon prepaid, in a depository under the custody of the United States Postal
Service. If a meeting is adjourned to another time and/or to another place,
and if an announcement of the adjourned time and/or place is made at the
meeting, it shall not be necessary to give notice of the adjourned meeting
unless the directors, after adjournment, fix a new record date for the
adjourned meeting. Notice need not be given to any stockholder who submits a
written waiver of notice signed by him before or after the meeting. Attendance
of a stockholder at a meeting of stockholders shall constitute a waiver of
notice of such meeting, except when the stock holder attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any
written waiver of notice.
(e) STOCKHOLDER LIST. The officer who has charge
of the stock ledger of the corporation shall prepare and make, at least ten
days before every meeting of stockholders, a complete list of the
stockholders, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
<PAGE>5
period of at least ten days prior to the meeting, either at a place within the
city or other municipality or community where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present. The
stock ledger shall be the only evidence as to who are the stockholders
entitled to examine the stock ledger, the list required by this section or the
books of the corporation, or to vote at any meeting of stockholders.
(f) CONDUCT OF MEETING. Meetings of the
stockholders shall be presided over by one of the following officers in the
order of seniority and if present and acting - the Chairman of the Board, if
any, the Vice-Chairman of the Board, if any, the President, a Vice-President,
or, if none of the foregoing is in office and present and acting, by a
chairman to be chosen by the stockholders. The Secretary of the corporation,
or in his absence, an Assistant Secretary, shall act as secretary of every
meeting, but if neither the Secretary nor an Assistant Secretary is present
the Chairman of the meeting shall appoint a secretary of the meeting.
(g) PROXY REPRESENTATION. Every stockholder may
authorize another person or persons to act for him by proxy in all matters in
which a stockholder is entitled to participate, whether by waiving notice of
any meeting, voting or participating at a meeting, or expressing consent or
dissent without a meeting. Every proxy must be signed by the stockholder or by
his attorney-in-fact. No proxy shall be voted or acted upon after three years
from its date unless such proxy provides for a longer period. A duly executed
proxy shall be irrevocable if it states that it is irrevocable and, if, and
only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A proxy may be made irrevocable regardless of whether
the interest with which it is coupled is an interest in the stock itself or an
interest in the corporation generally.
(h) INSPECTORS. The directors, in advance of any
meeting, may, but need not, appoint on or more inspectors of election to act
at the meeting or any adjournment thereof. If an inspector or inspectors are
not appointed, the person presiding at the meeting may, but need not, appoint
one or more inspectors. In case any person who may be appointed as an
inspector fails to appear or act, the vacancy may be filled by appointment
made by the directors in advance of the meeting or at the meeting by the
person presiding thereat. Each inspector, if any, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector at such meeting with strict impartiality and according to
the best of his ability. The inspectors, if any, shall determine the number of
shares of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a
<PAGE>6
quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. On request of the person
presiding at the meeting, the inspector or inspectors, if any, shall make a
report in writing of any challenge, question or matter determined by him or
them and execute a certificate of any fact found by him or them.
(i) QUORUM. The holders of shares of stock
representing a majority of voting power of all outstanding stock shall
constitute a quorum at a meeting of stockholders for the transaction of any
business. The stockholders present may adjourn the meeting despite the absence
of a quorum.
(j) VOTING. Each share of stock shall entitle the
holder thereof to one vote unless otherwise provided in accordance with the
Certificate of Incorporation of the Corporation. In the election of directors,
a plurality of the votes cast shall elect. Any other action shall be
authorized by a majority of the votes cast except where the General
Corporation Law prescribes a different percentage of votes and/or a different
exercise of voting power, and except as may be otherwise prescribed by the
provisions of the Certificate of Incorporation and these By-Laws. In the
election of directors, and for any other action, voting need not be by ballot.
7. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by
the General Corporation Law to be taken at any annual or special meeting of
stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take
such action at a meeting of stockholders, except that any matter which
could be approved by the affirmative vote of less than a majority of the
voting power of any class of stock, or all of the stock, as the case may
be, shall only be approved by consent of the holders of a majority of such
voting power. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
DIRECTORS
8. FUNCTIONS AND DEFINITION. The business and affairs of
the corporation shall be managed by or under the direction of the Board
of Directors of the corporation. The Board of Directors shall have the
authority to fix the compensation of
<PAGE>7
the members thereof. The use of the phrase "whole board" herein refers to
the total number of directors which the corporation would have if there
were no vacancies.
9. QUALIFICATIONS AND NUMBER. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The initial Board of Directors shall consist of three persons.
Thereafter the number of directors constituting the whole board may be
fixed from time to time by action of the stockholders or of the directors,
or, if the number is not fixed, the number shall be three. The number of
directors may be increased or decreased by action of the stockholders or of
the directors.
10. ELECTION AND TERM. The first board of Directors, unless
the members thereof shall have been named in the Certificate of
Incorporation, shall be elected by the incorporator or incorporators and
shall hold office until the first annual meeting of stockholders and
until their successors are elected and qualified or until their earlier
resignation or removal. Any director may resign at any time upon written
notice to the corporation. Thereafter, directors who are elected at any
annual meeting of stockholders, and directors who are elected in the
interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their
successors are elected and qualified or until their earlier resignation
or removal. In the interim between annual meetings of stockholders or of
special meetings of stockholders called for the election of directors
and/or for the removal of one or more directors and for the filling of
any vacancy in that connection, newly created directorships and any
vacancies in the Board of Directors, including unfilled vacancies
resulting from the removal of directors for cause or without cause, may
be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
11. MEETINGS.
(a) TIME. Meetings shall be held at such time as
the directors shall fix, except that the first meeting of a newly elected
Board shall be held as soon as after its election as the directors may
conveniently assemble.
(b) PLACE. Meetings shall be held at such place
within or without the State of Delaware as shall be fixed by the directors.
(c) CALL. No call shall be required for regular
meetings for which the time and place have been fixed. Special meetings may
be called by or at the direction of the Chairman of
<PAGE>8
the Board, or the President, or two or more of the directors in the office.
(d) NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice
shall be required for regular meetings for which the time and place have been
fixed. Written, oral, or any other mode of notice of the time and place shall
be given for special meetings in sufficient time for the convenient assembly
of the directors thereat. Notice need not be given to any director or to any
member of a committee of directors who submits a written waiver of notice
signed by him before or after the meeting. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the directors need be specified
in any written waiver of notice.
(e) QUORUM AND ACTION. A majority of the whole
Board shall constitute a quorum except when a vacancy or vacancies prevents
such majority, whereupon a majority of the directors in office shall
constitute a quorum, provided, that such majority shall constitute at least
one-third of the whole Board. A majority of the directors present, whether or
not a quorum is present, may adjourn a meeting to another time and place.
Except as herein otherwise provided, and except as otherwise provided by the
General Corporation Law, the vote of the majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board. The
quorum and voting provisions herein stated shall not be construed as
conflicting with any provisions of the General Corporation Law and these
By-Laws which govern a meeting of directors held to fill vacancies and newly
created directorships in the Board or action of disinterested directors. Any
member or members of the Board of Directors or of any committee designated by
the directors, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can speak to, and hear, each other.
(f) CHAIRMAN OF THE MEETING. The Chairman of the
Board, if any and if present and acting, shall preside at all meetings.
Otherwise, the President, if present and acting, or any other director chosen
by the Board, shall preside.
12. REMOVAL OF DIRECTORS. Except as may otherwise be
provided by the General Corporation Law, any director or the entire Board
of Directors may be removed, with or without cause, by the holders of
shares which constitute a majority of the voting power of all shares then
entitled to vote on the election of directors.
<PAGE>9
13. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees,
each committee to consist of two or more of the directors of the
corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member
at any meeting of the committee. In the absence or disqualification of any
member of any such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he
or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
authorizing resolution of the directors, shall have and may exercise the
powers and authority of the Board of Directors in the management of the
business and affairs of the corporation with the exception of any authority
the delegation of which is prohibited by Section 141 of the General
Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
14. WRITTEN ACTION. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee thereof may
be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of proceedings of the Board or committee.
Article III
OFFICERS
15. OFFICERS. The officers of the corporation shall consist
of a Chairman of the Board, a President, a Secretary, a Treasurer, and,
if deemed necessary, expedient, or desirable by the Board of Directors,
an Executive Vice-President, one or more other Vice-Presidents, one or
more Assistant Secretaries, one or more Assistant Treasurers, and such
other officers with such titles as the resolution of the Board of
Directors choosing them shall designate. Except as may otherwise be
provided in the resolution of the Board of Directors choosing him, no
officer other than the Chairman need be a director. Any number of
officers may be held by the same person, as the directors may determine.
16. TERM. Unless otherwise provided in the resolution
choosing him, each officer shall be chosen for a term which shall
continue until the meeting of the Board of Directors following the next
annual meeting of stockholders and until his successor shall have been
chosen and qualified.
17. AUTHORITY. All officers of the corporation shall have
such authority and perform such duties in the management
<PAGE>10
and operation of the corporation as are customarily attributable to their
offices, except as otherwise prescribed in the resolutions of the Board
of Directors designating and choosing such officers and prescribing their
authority and duties and except that the Chairman of the Board shall be
the chief executive officer of the corporation. The Secretary or an
Assistant Secretary of the corporation shall record all of the
proceedings of all meetings and actions in writing of stockholders,
directors, and committees of directors, and shall exercise such
additional authority and perform such additional duties as the Board
shall assign to him. Any officer may be removed, with or without cause,
by the Board of Directors. Any vacancy in any office may be filled by the
Board of Directors.
Article IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of
Directors shall prescribe.
Article V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall
be subject to change, by the directors.
Article VI
CONTROL OVER BY-LAWS
Subject to the provisions of the certificate of incorporation
and the provisions of the General Corporation Law, the power to amend, alter or
repeal these By-Laws and to adopt new By-Laws may be exercised by the directors
or by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true and
correct copy of the Amended and Restated By-Laws of OCTO Limited, a Delaware
corporation, as in effect on the date hereof.
WITNESS my hand and the seal of the corporation.
Dated: July 24, 1986
/s/ Warren L. Du Four
Secretary of OCTO Limited
(SEAL)
<PAGE>
Amendment to Bylaws of InforMedia Corporation
(Adopted by Board of Directors on April 25, 1988)
ARTICLE I
STOCKHOLDERS
8. BUSINESS COMBINATIONS. The Corporation elects out
of Section 203 of the General Corporation Law which generally restricts
business combinations with interested stockholders.
<PAGE>1
STRATEGIC DISTRIBUTION, INC.
AMENDED AND RESTATED
1990 INCENTIVE STOCK OPTION PLAN
* * *
ARTICLE I
Purpose
The Strategic Distribution, Inc. 1990 Incentive Stock Option
Plan (the "Plan") is intended as an incentive to improve the performance,
encourage the continued employment, and increase the proprietary interest of
certain directors, officers and key employees of Strategic Distribution, Inc.
(the "Company") participating in the Plan. The Plan is designed to grant such
directors, officers and key employees the opportunity to share in the Company's
long-term success through stock ownership and to afford them the opportunity for
additional compensation related to the value of the Company's stock.
The word "Company", when used in the Plan with reference to
employment, shall include subsidiaries of the Company. The word "subsidiary",
when used in the Plan, shall mean any subsidiary corporation of the Company
within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as
amended (the "Code").
It is intended that certain options granted under the Plan and
designated as incentive stock options in the option agreements qualify as
"incentive stock options" under Section 422A of the Code.
For purposes of the Plan, the term "Effective Date" shall mean
September 7, 1990.
<PAGE>2
ARTICLE II
Administration
The Plan shall be administered by a committee (the
"Committee") appointed by the Board of Directors of the Company (the "Board")
from among its members and shall consist of not less than two members thereof,
who at all times have been with respect to the Plan and who are (and shall
remain Committee members only so long as they continue to be) "disinterested
persons" within the meaning of Rule 16b-3 (or any successor rule or regulation)
under the Securities and Exchange Act of 1934.
Subject to the provisions of the Plan, the Committee shall
have sole authority, in its absolute discretion: (a) to determine, subject to
approval of the Board as provided in ARTICLE IV and ARTICLE VI, which of the
eligible Participants (as hereinafter defined) shall be granted options; (b) to
authorize the granting of both incentive stock options and non-qualified stock
options; (c) to determine the times when options shall be granted and the number
of shares to be subject to options; (d) to determine the option price of the
shares subject to each option, which price shall be not less than the minimum
specified in ARTICLE V; (e) to determine the time or times when each option
becomes exercisable, the duration of the exercise period and any other
restrictions on the exercise of options issued hereunder; (f) to prescribe the
form or forms of the option agreements under the Plan (which forms shall be
consistent with the terms of the Plan but need not be identical and may contain
such terms as the Committee may deem appropriate to carry out the purposes of
the
<PAGE>3
Plan); (g) to determine the nature of any rights and restrictions to be
imposed on shares subject to options issued hereunder; (h) to adopt, amend and
rescind such rules and regulations as, in its opinion, may be advisable in the
administration of the Plan; (i) to construe and interpret the Plan, the option
agreements under the Plan and the rules and regulations adopted from time to
time, if any; and (j) to make all other determinations deemed necessary or
advisable for the administration of the Plan. All decisions, determinations
and interpretations of the Committee shall be final and binding on all
optionees.
ARTICLE III
Stock
The stock to be subject to options granted under the Plan
shall be shares of authorized but unissued common stock, par value $0.10 (the
"Stock"), of the Company, or previously issued shares of such Stock reacquired
by the Company and held in its treasury, as determined by the Board. Under the
Plan, the total number of shares of Stock which may be purchased pursuant to
options hereunder shall not exceed, in the aggregate, 2,000,000 shares, except
as such number of shares shall be adjusted in accordance with the provisions
of ARTICLE X hereof. Options for no more than 100,000 shares of Stock may be
granted to any individual optionee during any calendar year that the Plan is
in effect, except as such number shall be adjusted in accordance with the
provisions of ARTICLE X hereof.
Each option granted under the Plan shall be evidenced by an
option agreement between the Company and the optionee
<PAGE>4
containing such provisions as may be determined by the Committee, but shall be
subject to the following terms and conditions:
(a) Each share of Stock purchased through the exercise
of an option shall be paid for in full at the time of the exercise; and
(b) Each option shall become exercisable by the optionee in
accordance with any vesting schedule established by the Committee pursuant to
ARTICLE VI of the Plan.
The number of shares of Stock available for grant of options
under the Plan shall be decreased by the sum of the number of shares with
respect to which options have been issued and are then outstanding and the
number of shares issued upon exercise of options. In the event that any
outstanding option for any reason expires, lapses, or is cancelled prior to the
end of the period during which options may be granted, the shares of Stock
called for by the unexercised portion of such option may again be subject to an
option under the Plan.
ARTICLE IV
Eligibility of Participants
Subject to ARTICLE VII, directors, officers and employees of
the Company, together with consultants and advisers to the Company, who have
been selected by the Committee as participants (collectively referred to as
"Participants" and individually as a "Participant") shall be eligible to receive
grants of options under the Plan; provided, however, that notwithstanding any
other provision of the Plan to the contrary, no director of the Company, and no
person who is not an officer
<PAGE>5
or employee of the Company, shall be eligible to receive incentive stock
options. Participation in the Plan shall be limited to eligible Participants
who have entered into option have a right to be selected for participation in
the Plan. agreements with the Company. No Participant, however, shall at any
time have a right to be selected for participation in the Plan.
ARTICLE V
Option Price
The option price of each option granted under the Plan shall
be determined by the Committee; provided, however, that in the case of each
incentive stock option granted under the Plan, the option price shall not be
less than the fair market value at the time the option is granted. In no event
shall the option price of any option be less than the par value per share of
Stock on the date an option is granted.
At any time when the Stock is quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), the
fair market value shall be deemed to be the mean between the last quoted bid and
asked prices on NASDAQ on the date immediately preceding the date on which the
option is granted, or, if not quoted on that day, then on the last preceding
date on which such stock is quoted. If the Stock is listed on one or more
national securities exchanges, the fair market value shall be deemed to be the
mean between the highest and lowest sale prices reported on the principal
national securities exchange on which such stock is listed and traded on
<PAGE>6
the date immediately preceding the date on which the option is granted, or, if
there is no such sale on that date, then on the last preceding date on which
such a sale was reported. If the Stock is not quoted on NASDAQ or listed on an
exchange, or representative quotes are not otherwise available, the fair
market value of the Stock shall mean the amount determined by the Committee to
be the fair market value based upon a good faith attempt to value the Stock
accurately and computed in accordance with applicable regulations of the
Internal Revenue Service.
ARTICLE VI
Terms and Conditions of Options
The Committee shall determine the dates after which options
may be exercised, in whole or in part. If an option is exercisable in
installments, installments or portions thereof which are exercisable and not
exercised shall remain exercisable.
Any other provision of the Plan notwithstanding and subject to
ARTICLE VII, no option shall be granted after the date which is ten years from
the Effective Date (the "Termination Date") nor shall any option, if granted, be
exercised after the date which is ten years after the option is granted.
Options granted hereunder may provide that if prior to the
Termination Date an optionee shall cease to be employed by the Company for any
reason other than death, disability or for cause, the option will remain
exercisable by the optionee for a period not extending beyond three months after
the date of cessation of employment, but in no event later than the Termination
Date, to the extent it was exercisable at the time of
<PAGE>7
cessation of employment. Options granted hereunder may provide that if prior
to the Termination Date an optionee shall cease to be employed by the Company
for reasons of death or disability, the option will remain exercisable by the
optionee or, in the event of his death, by the person or persons to whom the
optionee's rights under the option would pass by will or the applicable laws
of descent and distribution for a period not extending beyond one year after
the date of death or disability, but in no event later than the Termination
Date, to the extent it was exercisable at the time of death or disability.
Options granted hereunder may provide that if prior to the Termination Date an
optionee shall cease to be employed by the Company by reason of termination of
employment by the Company for cause, or by voluntary termination at a time
when the Company is entitled to terminate such optionee's employment for
cause, the option shall terminate immediately. For purposes of the Plan, the
Company shall have "cause" to terminate an optionee's employment hereunder
upon (i) the commission by the optionee of a proven act of fraud or
embezzlement against the Company, (ii) the engaging by the optionee in willful
misconduct or gross negligence which is demonstrably and materially injurious
to the Company, monetarily or otherwise, (iii) failure of the optionee to
render services to the Company in accordance with such optionee's duties as an
employee of the Company or (iv) the optionee being convicted of a misdemeanor
involving an act of moral turpitude or a felony.
<PAGE>8
For purposes of the Plan, in the case of a Participant who is
a director, references to employment herein shall be deemed to refer to such
director's service to the Company in such capacity.
Notwithstanding the foregoing, stock options granted hereunder
shall provide that no option shall be exercisable after the optionee's cessation
of employment with the Company if at the time of exercise the By-Laws of the
Company limit the ownership of common stock of the Company to selected persons,
including employees of the Company.
ARTICLE VII
Special Provisions Applicable
Only to Incentive Stock Options
To the extent the aggregate fair market value (determined at
the time the option is granted) of the Stock with respect to which incentive
stock options may be exercisable for the first time by an optionee during any
calendar year (under this Plan and any other stock option plan of the Company
and any parent or subsidiary thereof) exceeds $100,000, such incentive stock
options shall be treated as options which are non-qualified stock options.
No incentive stock option may be granted to an individual who,
at the time the option is granted, owns directly, or indirectly within the
meaning of Section 424(d) of the Code, stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or of any
parent or subsidiary thereof, unless such option (i) has an option price of at
least 110% of the fair market value of the Stock on the date
<PAGE>9
of the grant of such option; and (ii) such option by its terms cannot be
exercised more than five years after the date it is granted.
Each optionee who receives an incentive stock option must
agree to notify the Company in writing immediately after the optionee makes a
disqualifying disposition of any Stock acquired pursuant to the exercise of an
incentive stock option. A disqualifying disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the optionee was granted the incentive stock option or (b) one year after
the date the optionee acquired Stock by exercising the incentive stock option.
ARTICLE VIII
Payment for Shares
Payment for shares of Stock acquired pursuant to an option
granted hereunder shall be made in full, upon exercise of the options (i) in
immediately available funds in United States dollars, by certified or bank
cashier's check, (ii) by surrender to the Company of shares of Stock, or (iii)
by a combination of cash and shares of Stock. For purposes of this ARTICLE VIII,
the shares of Stock surrendered in payment of the option price shall be valued
as of the exercise date of the option. The Company in its discretion, and
subject to any reasonable procedures required by its registrars and transfer
agents, may credit or apply shares of Stock held by the optionee and identified
to the Company toward payment of the applicable option exercise price without
actual surrender of the certificate representing such shares and
<PAGE>10
may cause to be issued to the optionee certificates for shares representing
the balance of the shares to be issued upon exercise of the option. Payment
in full shall include payment of any amounts required under paragraph (b) of
ARTICLE XIX.
ARTICLE IX
Non-Transferability of Option Rights and Stock
During the lifetime of the optionee, the option shall be
exercisable only by the optionee. No option shall be transferable, except by
will or the laws of descent and distribution.
ARTICLE X
Adjustment for Recapitalization, Merger, Etc.
The aggregate number of shares of Stock which may be purchased
or acquired pursuant to options granted hereunder, the maximum number of shares
of Stock for which Options may be granted to any individual optionee during any
calendar year, the number of shares of Stock covered by each outstanding option
and the price per share thereof in each such option shall be appropriately
adjusted for any increase or decrease in the number of outstanding shares of
Stock resulting from a stock split or other subdivision or consolidation of
shares of Stock or for other capital adjustments or payments of stock dividends
or distributions or other increases or decreases in the outstanding shares of
Stock effected without receipt of consideration by the Company. Any adjustment
shall be conclusively determined by the Committee.
<PAGE>11
If the Company shall be the surviving corporation in any
merger or reorganization or other business combination, any option granted
hereunder shall cover the securities or other property to which a holder of the
number of shares of Stock covered by the unexercised portion of the option would
have been entitled pursuant to the terms of the merger. Upon any merger or
reorganization or other business combination in which the Company shall not be
the surviving corporation, or a dissolution or liquidation of the Company, or a
sale of all or substantially all of the Company's assets, all outstanding
options shall terminate, subject to the right of the surviving or resulting
corporation to grant the Company substitute options to purchase its shares on
such terms and conditions, both as to the number of shares and otherwise, which
the Committee shall deem appropriate.
Stock option agreements under the Plan may, at the discretion
of the Committee, provide that upon stockholder approval of a merger,
reorganization or other business combination, whether or not the Company is the
surviving corporation, or a sale of all or substantially all of the Company's
assets, all unmatured installments of the stock option shall vest and become
immediately exercisable in full.
The foregoing adjustments and the manner of application of the
foregoing provisions, including the issuance of any substitute options, shall be
determined by the Committee in its sole discretion. Any such adjustment may
provide for the elimination of any fractional share which might otherwise become
subject to an option.
<PAGE>12
ARTICLE XI
No Obligation to Exercise Option
Granting of an option shall impose no obligation on the
recipient to exercise such option.
ARTICLE XII
Use of Proceeds
The proceeds received from the sale of Stock pursuant to the
Plan shall be used for general corporate purposes.
ARTICLE XIII
Rights as a Stockholder
An optionee shall have no rights as a stockholder with respect
to any share covered by his option until such person shall have become the
holder of record of such share, and such person shall not be entitled to any
dividends or distributions or other rights in respect of such share for which
the record date is prior to the date on which such person shall have become the
holder of record thereof, except as otherwise provided in ARTICLE X.
ARTICLE XIV
Employment Rights
No provision in the Plan or in any option granted hereunder
shall confer on any optionee any right to continue in the employ of the Company,
or to interfere in any way with the right of the Company to terminate the
optionee's employment at any time.
<PAGE>13
ARTICLE XV
Compliance with Law
The Company is relieved from any liability for the
non-issuance or non-transfer or any delay in the issuance or transfer of any
shares of Stock subject to options under the Plan which results from the
inability of the Company to obtain, or from any delay in obtaining, from any
regulatory body having jurisdiction or authority, any requisite approval to
issue or transfer any such shares if counsel for the Company deems such approval
necessary for lawful issuance or transfer thereof.
Each option granted under the Plan is subject to the
requirement that if at any time the Board determines, in its discretion, that
the listing, registration or qualification of shares of Stock issuable upon
exercise of options is required by any securities exchange or under any state or
Federal law, or that the consent or approval of any governmental regulatory body
is necessary or desirable as a condition of, or in connection with, the grant of
options or the issuance of shares of Stock, no shares of Stock shall be issued,
in whole or in part, unless such listing, registration, qualification, consent
or approval has been effected or obtained free of any conditions or with such
conditions as are acceptable to the Board.
In the event the disposition of shares of Stock acquired
pursuant to the Plan is not covered by a then-current registration statement
under the Securities Act of 1933, as amended, the shares of Stock shall be
restricted against transfer to the extent required by the Securities Act of
1933, as amended,
<PAGE>14
or regulations thereunder, and the Board may require the optionee (or
transferee pursuant to ARTICLE IX), as a condition precedent to receipt of
such shares of Stock, to represent in writing that the shares of Stock
acquired by such person are acquired for investment only and not with a view
to distribution. Appropriate legends may be placed on the stock certificates
evidencing shares issued upon exercise of options to reflect any transfer
restrictions.
ARTICLE XVI
Cancellation of Options
The Committee, in its discretion, may, with the consent of any
optionee, cancel any outstanding option hereunder.
ARTICLE XVII
Effective Date; Expiration Date of Plan
The Plan shall become effective upon adoption by the Board.
The expiration date of the Plan, after which no option may be granted hereunder,
shall be the tenth (10th) anniversary of the adoption of the Plan by the Board.
ARTICLE XVIII
Amendment or Discontinuance of Plan
The Board may terminate, amend or modify the Plan in its sole
discretion at any time or from time to time after the Effective Date.
Notwithstanding the preceding provisions of this ARTICLE XVIII, no such action
shall, without shareholder approval, increase the number of shares as to which
options may be granted or change the class of employees eligible to receive
options under the new Plan.
<PAGE>15
ARTICLE XIX
Miscellaneous
(a) Options shall be evidenced by option agreements (which
need not be identical) in such forms as the Committee may from time to time
approve. Such agreements shall conform to the terms and conditions of the Plan
and may provide that the grant of any option under the Plan and Stock acquired
pursuant to the Plan shall also be subject to such other conditions (whether or
not applicable to the option or Stock received by any other optionee) as the
Committee determines appropriate, including, without limitation, provisions to
assist the optionee in financing the purchase of Stock through the exercise of
options, provisions for the forfeiture of, or restrictions on, resale or other
disposition of shares under the Plan, provisions giving the Company the right to
repurchase shares acquired under the Plan in the event the participant elects to
dispose of such shares, and provisions to comply with Federal and state
securities laws and Federal and state income tax withholding requirements.
(b) The Company may, in its discretion, require that an
optionee pay to the Company, at the time of exercise, such amount as the Company
deems necessary to satisfy its obligations to withhold Federal, state, or local
income or other taxes incurred by reason of the exercise or the transfer of
shares thereupon.
(c) Each optionee shall file with the Committee a written
designation of one or more persons as beneficiary, who shall be entitled to
exercise options which are exercisable, if
<PAGE>16
any, or to receive shares of Stock distributable, if any, under the Plan upon
the optionee's death. An optionee may, from time to time, revoke or change his
beneficiary designation without the consent of any prior beneficiary by filing
a new designation with the Committee. The last such designation received by
the Committee shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Committee prior to the optionee's death, and in no event shall it be effective
as of a date prior to such receipt.
(d) If the Committee shall find that any person to whom any
amount is payable under the Plan is unable to care for his affairs because of
illness or accident, or is a minor, or has died, then any payment due to such
person or his estate (unless a prior claim therefor has been made by a duly
appointed legal representative), may, if the Committee so directs the Company,
be paid to his spouse, child, relative, an institution maintaining or having
custody of such person, or any other person deemed by the Committee to be a
proper recipient on behalf of such person otherwise entitled to payment. Any
such payment shall be a complete discharge of the liability of the Committee and
the Company therefor.
(e) No member of the Committee shall be personally liable by
reason of any contract or other instrument executed by such member or on his
behalf in his capacity as a member of the Committee nor for any mistake of
judgment made in good faith, and the Company shall indemnify and hold harmless
each member of the
<PAGE>17
Committee and each other employee, officer or director of the Company to whom
any duty or power relating to the administration or interpretation of the Plan
may be allocated or delegated, against any cost or expense (including counsel
fees) or liability (including any sum paid in settlement of a claim) arising
out of any act or omission to act in connection with the Plan unless arising
out of such person's own fraud or bad faith; provided, however, that approval
of the Board shall be required for the payment of any amount in settlement of
a claim against any such person. The foregoing right of indemnification shall
not be exclusive of any other rights of indemnification to which such persons
may be entitled under the Company's Certificate of Incorporation or By-Laws,
as a matter of law, or otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
(f) The Plan shall be governed by and construed in accordance
with the internal laws of the State of Delaware without reference to the
principles of conflicts of law thereof.
(g) No provision of the Plan shall require the Company, for
the purpose of satisfying any obligations under the Plan, to purchase assets or
place any assets in a trust or other entity to which contributions are made or
otherwise to segregate any assets, nor shall the Company maintain separate bank
accounts, books, records or other evidence of the existence of a segregated or
separately maintained or administered fund for such purposes. Optionees shall
have no rights under the Plan other than as unsecured general creditors of the
Company, except that
<PAGE>18
insofar as they may have become entitled to payment of additional compensation
by performance of services, they shall have the same rights as other employees
under general law.
(h) Each member of the Committee and each member of the Board
shall be fully justified in relying, acting or failing to act, and shall not be
liable for having so relied, acted or failed to act in good faith, upon any
report made by the independent public accountant of the Company and upon any
other information furnished in connection with the Plan by any person or persons
other than such member.
(i) Except as otherwise specifically provided in the relevant
plan document, no payment under the Plan shall be taken into account in
determining any benefits under any pension, retirement, profit-sharing, group
insurance or other benefit plan of the Company.
(j) The expenses of administering the Plan shall be borne by
the Company.
(k) Masculine pronouns and other words of masculine gender
shall refer to both men and women.
<PAGE>
EXHIBIT 10.6
CREDIT AGREEMENT
dated as of December 31, 1995
between
STRATEGIC DISTRIBUTION, INC.
and
BANK OF AMERICA ILLINOIS
=================================================================
<PAGE>
SECTION 1 CERTAIN DEFINITIONS........................................1
SECTION 2 COMMITMENT OF THE BANK; TYPES OF LOANS;
BORROWING AND CONVERSION PROCEDURES........................8
SECTION 2.1 Commitment of the Bank ...........................8
SECTION 2.2 Various Types of Loans ...........................11
SECTION 2.3 Borrowing Procedures ............................ 11
SECTION 2.4 Conversion Procedures ........................... 11
SECTION 2.5 Letter of Credit Procedures .................... 12
SECTION 2.6 Reimbursement Obligations ....................... 12
SECTION 2.7 Limitation on the Bank's Obligations ............ 12
SECTION 2.8 Warranty......................................... 13
SECTION 2.9 Conditions ...................................... 13
SECTION 3 NOTE EVIDENCING LOANS.....................................13
SECTION 3.1 Note..............................................13
SECTION 3.2 Recordkeeping ................................... 13
SECTION 4 INTEREST..................................................14
SECTION 4.1 Interest Rates....................................14
SECTION 4.2 Interest Payment Dates ......................... 14
SECTION 4.3 Interest Periods ................................ 14
SECTION 4.4 Setting and Notice of Eurodollar Rates .......... 15
SECTION 4.5 Computation of Interest ......................... 15
SECTION 5 FEES......................................................15
SECTION 5.1 Commitment Fee....................................15
SECTION 5.2 Letter of Credit Fees ........................... 16
SECTION 5.3 Closing Fee...................................... 16
SECTION 6 REDUCTION OR TERMINATION OF THE COMMITMENT;
REPAYMENTS AND VOLUNTARY PREPAYMENTS......................16
SECTION 6.1 Reduction or Termination of the Commitment....... 16
SECTION 6.2 Voluntary Prepayments ........................... 16
SECTION 7 MAKING AND APPLICATION OF PAYMENTS; SETOFF................17
SECTION 7.1 Making of Payments................................17
SECTION 7.2 Application of Certain Payments ................. 17
SECTION 7.3 Due Date Extension .............................. 17
SECTION 7.4 Setoff........................................... 17
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR
EURODOLLAR LOANS..........................................17
SECTION 8.1 Increased Costs...................................17
SECTION 8.2 Basis for Determining Interest Rate
<PAGE>
Inadequate or Unfair .....................................19
SECTION 8.3 Changes in Law Rendering Certain
Loans Unlawful .................................. 19
SECTION 8.4 Funding Losses .................................. 20
SECTION 8.5 Right of Bank to Fund through Other
Offices...........................................20
SECTION 8.6 Discretion of Bank as to Manner of Funding .......20
SECTION 8.7 Conclusiveness of Statements;
Survival of Provisions........................... 20
SECTION 9 WARRANTIES................................................21
SECTION 9.1 Organization, etc.................................21
SECTION 9.2 Authorization; No Conflict....................... 21
SECTION 9.3 Validity and Binding Nature ..................... 21
SECTION 9.4 Financial Statements ............................ 22
SECTION 9.5 Litigation and Contingent Liabilities.............22
SECTION 9.6 Taxes ........................................... 22
SECTION 9.7 Investment Company Act........................... 22
SECTION 9.8 Public Utility Holding Company Act................22
SECTION 9.9 Regulation U..................................... 23
SECTION 9.10 Pension and Welfare Plans ...................... 23
SECTION 9.11 Ownership of Properties; Liens.................. 23
SECTION 9.12 Environmental, Safety and Health Matters....... 24
SECTION 9.13 Lease of Property .............................. 25
SECTION 9.14 Solvency, etc................................... 25
SECTION 9.15 Subsidiaries ................................. 25
SECTION 9.16 Compliance..................................... 25
SECTION 9.17 Insurance....................................... 25
SECTION 9.18 Information .................................... 25
SECTION 10 COVENANTS................................................26
SECTION 10.1 Reports, Certificates and Other
Information ............................................. 26
10.1.1 Annual Audit Report ..............................26
10.1.2 Quarterly Financial Statement ................... 26
10.1.3 Monthly Financial Statement...................... 27
10.1.4 Officer's Certificate............................ 27
10.1.5 Other Reports ....................................27
10.1.6 Certificate Regarding Environmental Matters.......28
10.1.7 Notices ..........................................28
SECTION 10.2 Existence .......................................29
SECTION 10.3 Nature of Business ..............................30
SECTION 10.4 Books, Records and Access ...................... 30
SECTION 10.5 Taxes .......................................... 30
SECTION 10.6 Compliance ......................................30
SECTION 10.7 Financial Covenants .............................30
<PAGE>
10.7.1 Company's Net Worth ............................. 30
10.7.2 Consolidated Net Worth ...........................31
10.7.3 Liabilities to Net Worth Ratio .................. 31
10.7.4 Capital Expenditures ........................... 31
10.7.5 Fixed Charge Coverage ........................... 31
10.7.6 Interest Coverage................................ 32
SECTION 10.8 Insurance ..................................... 32
SECTION 10.9 Insurance Survey ............................... 32
SECTION 10.10 Repair..........................................33
SECTION 10.11 Use of Proceeds ............................... 33
SECTION 10.12 Pension Plans ................................. 33
SECTION 10.13 Merger, Purchase, Acquisitions and Sale ....... 34
SECTION 10.14 Restricted Payments............................ 34
SECTION 10.15 Company's and Subsidiaries' Stock ............ 35
SECTION 10.16 Indebtedness .................................. 35
SECTION 10.17 Liens ..........................................36
SECTION 10.18 Guaranties.................................... 36
SECTION 10.19 Investments ................................... 36
SECTION 10.20 Subsidiaries ...................................37
SECTION 10.21 Leases..........................................37
SECTION 10.22 Future Environmental Assessments................37
SECTION 10.23 Related Agreements ............................ 38
SECTION 10.24 Unconditional Purchase Options .................38
SECTION 10.25 Transactions with Related Parties ............. 38
SECTION 11 CONDITIONS OF LENDING....................................40
SECTION 11.1 Initial Loan.....................................40
11.1.1 Note............................................. 40
11.1.2 Resolutions ......................................40
11.1.3 Consents, etc.................................... 40
11.1.4 Incumbency and Signatures.........................40
11.1.5 Opinion of Counsel for the Company................41
11.1.6 Guaranty .........................................41
11.1.7 Security Agreement................................41
11.1.8 Pledge Agreements ............................... 41
11.1.9 Other............................................ 41
SECTION 11.2 All Loans and Letters of Credit ................ 41
11.2.1 No Default .......................................41
11.2.2 Confirmatory Certificate......................... 41
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT.......................42
SECTION 12.1 Events of Default................................42
12.1.1 Non-Payment of the Note, etc .....................42
12.1.2 Non-Payment of Other Indebtedness
for Borrowed Money ..............................42
12.1.3 Other Material Obligations .......................42
12.1.4 Bankruptcy, Insolvency, etc.......................42
<PAGE>
12.1.5 Non-Compliance with Certain Provisions
of This Agreement.................................. 43
12.1.6 Non-Compliance with Other Provisions
of This Agreement ..................................43
12.1.7 Warranties ........................................ 43
12.1.8 Invalidity of Guaranties, etc...................... 43
12.1.9 Pension Plans ......................................43
12.1.10 Litigation ........................................44
12.1.11 Conduct of Business............................... 44
12.1.12 Ownership .........................................44
12.1.13 Invalidity of Collateral Documents, etc........... 44
12.1.14 Coors Guaranty ................................... 44
SECTION 12.2 Effect of Event of Default ...................44
SECTION 13 GENERAL....................................................45
SECTION 13.1 Waiver; Amendments.................................45
SECTION 13.2 Notices............................................45
SECTION 13.3 Computations...................................... 46
SECTION 13.4 Costs, Expenses and Taxes ........................ 46
SECTION 13.5 Captions.......................................... 46
SECTION 13.6 Governing Law .................................... 46
SECTION 13.7 Counterparts; Effectiveness....................... 47
SECTION 13.8 Successors and Assigns ........................... 47
SECTION 13.9 Indemnification by the Company.....................47
SECTION 13.10 Waiver of Jury Trial............................. 48
SECTION 13.11 Consent to Jurisdiction ..........................48
<PAGE>
SCHEDULE I
EXHIBIT A Form of Note (Section 3.1)
EXHIBIT B Litigation (Section 9.5)
EXHIBIT C Pension and Welfare Plans (Section 9.8)
EXHIBIT D Environmental, Safety and Health Matters (Section 9.12)
EXHIBIT E Leases (Section 9.13)
EXHIBIT F Subsidiaries (Section 9.15)
EXHIBIT G Indebtedness (Section 10.16)
EXHIBIT H Investments (Section 10.19)
EXHIBIT I Liens (Section 10.17)
EXHIBIT J Form of Opinion (Section 11.1.5)
EXHIBIT K Form of Guaranty (Section 11.1.6)
EXHIBIT L Insurance (Section 9.17)
EXHIBIT M Form of Security Agreement (Section 11.1.7)
EXHIBIT N-1 Form of Company Pledge Agreement (Section 11.1.8(a))
EXHIBIT N-2 Form of SafetyMaster Pledge Agreement (Section 11.1.8(b))
EXHIBIT N-3 Form of ATSG Pledge Agreement (Section 11.1.8(c))
EXHIBIT O Premises Requiring Landlord Consents
<PAGE>1
CREDIT AGREEMENT
This CREDIT AGREEMENT, dated as of December 31, 1995 (this
"Agreement"), is entered into between STRATEGIC DISTRIBUTION, INC., a Delaware
corporation (the "Company"), and BANK OF AMERICA ILLINOIS (the "Bank"). Certain
terms are used in this Agreement as hereinafter defined.
In consideration of the premises and the mutual agreements herein
contained, the parties hereto agree as follows:
CERTAIN DEFINITIONS. When used herein the following terms shall have
the following meanings
Advance means a loan by the Company to a Borrowing Subsidiary with the
proceeds of a Loan.
Agreement - see Preamble.
ATSG means American Technical Services Group, Inc., a Delaware
corporation.
ATSG Pledge Agreement - see Section 11.1.8(c).
Attorneys' Fees means the reasonable fees, charges and expenses of the
attorneys (and all paralegals, accountants and other staff employed by such
attorneys) employed by the Bank from time to time.
Bank - see Preamble.
Borrowing Subsidiary means (a) as of the Effective Date, each of
SafetyMaster, Lewis Supply, ATSG and ISA and (b) thereafter, the entities
referred to in clause (a) and each other Subsidiary of the Company designated by
the Company as a Borrowing Subsidiary which is a Guarantor.
<PAGE>2
Business Day means any day of the year on which the Bank is open for
commercial banking business in Chicago, Illinois and, in the case of a Business
Day which relates to a Eurodollar Loan, on which dealings are carried on in the
interbank eurodollar market.
Capitalized Lease means any lease which is or should be capitalized on
the balance sheet of the lessee in accordance with GAAP.
Code means the Internal Revenue Code of 1986, as amended, and any
successor statute of similar import, together with the final and temporary
regulations thereunder, in each case as in effect from time to time. References
to sections of the Code shall be construed to also refer to any successor
sections.
Collateral Documents means the Company Pledge Agreement, the
SafetyMaster Pledge Agreement, the ATSG Pledge Agreement and the Security
Agreement.
Commitment means the commitment of the Bank to make Loans and to issue
Letters of Credit hereunder.
Company - see Preamble.
Company Pledge Agreement - see Section 11.1.8(a).
Computation Period means any period of four consecutive Fiscal Quarters
of the Company ending on the last day of a Fiscal Quarter; provided, however,
that for purposes of Section 10.7.5, Computation Period means (i) for the period
ending on September 30, 1996, the three-month period beginning on July 1, 1996
and ending on September 30, 1996, (ii) for the period ending on December 31,
1996, the six-month period beginning on July 1, 1996 and ending on December 31,
1996, and (iii) for the period ending on March 31, 1997, the nine-month period
beginning on July 1, 1996 and ending on March 31, 1997.
Convert, Conversion and Converted shall refer to a conversion of Loans
pursuant to Sections 2.4, 4.3(b), 8.2 or 8.3.
Coors Guaranty means the agreement to be entered into subsequent to the
Effective Date, pursuant to which the Company shall guarantee the obligations of
ISA under the services agreement (to be entered into subsequent to the Effective
Date) between ISA and Coors Brewing Company ("Coors"), pursuant to which
services agreement ISA will provide in-plant store services to Coors as well as
handling and receiving services, among others.
Dollar and the sign "$" mean lawful money of the United States of
America.
Effective Date - see Section 11.1.
<PAGE>3
Environmental Laws means the Resource Conservation and Recovery Act,
the Comprehensive Environmental Response, Compensation and Liability Act, any
so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act, and
any other federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree or other requirement regulating, relating to, or
imposing liability or standards of conduct (including, but not limited to,
permit requirements, and emission or effluent restrictions) concerning any
Hazardous Materials or any hazardous, toxic or dangerous waste, substance or
constituent, or any pollutant or contaminant or other substance, whether solid,
liquid or gas, as now or at any time hereafter in effect.
Environmental Lien means a Lien in favor of any governmental entity for
(1) any liability under any Environmental Law or (2) damages arising from or
costs incurred by such governmental entity relating to a spillage, disposal,
release or threatened release into the environment of any Hazardous Material or
other hazardous, toxic or dangerous waste, substance or constituent, or any
pollutant or contaminant or other substance, whether solid, liquid or gas.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the final
and temporary regulations thereunder, in each case as in effect from time to
time. References to sections of ERISA shall be construed to also refer to any
successor sections.
ERISA Affiliate means any corporation, partnership, or other trade or
business (whether or not incorporated) that is, along with the Company, a member
of a controlled group of corporations or a controlled group of trades or
businesses, as described in sections 414(b), 414(c), 414(m) and 414(o),
respectively, of the Code or section 4001 of ERISA, or a member of the same
affiliated service group within the meaning of section 414(m) of the Code.
Eurocurrency Reserve Percentage means, with respect to any Eurodollar
Loan for any Interest Period, a percentage equal to the daily average during
such Interest Period of the percentages in effect on each day of such Interest
Period, as prescribed by the Federal Reserve Board, for determining the
aggregate maximum reserve requirements (including all basic, supplemental,
marginal and other reserves) applicable to "Eurocurrency liabilities" pursuant
to Regulation D or any other then applicable regulation of the Federal Reserve
Board which prescribes reserve requirements applicable to "Eurocurrency
liabilities," as presently defined in Regulation D. Without limiting the effect
of the foregoing, the Eurocurrency Reserve Percentage shall reflect any other
reserves required to be maintained by the Bank against (i) any category of
liabilities that includes deposits by reference to which the Eurodollar Rate
(Adjusted) is to be determined, or (ii) any category of extensions of credit or
other assets that includes Eurodollar Loans. For purposes of this Agreement, any
Eurodollar Loans hereunder shall be deemed to be "Eurocurrency liabilities," as
defined in Regulation D, and, as such, shall be deemed to be subject to such
reserve requirements without the benefit of, or credit for, proration,
exceptions or offsets which may be available to the Bank from time to time under
Regulation D.
Eurodollar Loan means any Loan which bears interest at a rate
determined by reference to the Eurodollar Rate (Adjusted).
Eurodollar Office means the office or offices of the Bank which shall
be making or maintaining the Eurodollar Loans hereunder or the other office or
offices through which the Bank determines its Eurodollar Rate. A Eurodollar
Office of the Bank may be, at the option of the Bank, either a domestic or
foreign office.
Eurodollar Rate means, with respect to any Eurodollar Loan for any
Interest Period, the rate per annum equal to the rate at which Dollar deposits
in immediately available funds are offered to the Bank two Business Days prior
to the beginning of such Interest Period by major banks in the interbank
eurodollar market as at or about the relevant local time, for delivery on the
first day of such Interest Period, for the number of days comprised therein and
in an amount equal or comparable to the amount of the Eurodollar Loan of the
Bank for such Interest Period. As used herein, "relevant local time" as to any
Eurodollar Office means 11:00 A.M., London time, when such Eurodollar Office is
located in Europe or the Middle East, or 10:00 A.M., Chicago time, when such
Eurodollar Office is located in North America or the Caribbean.
<PAGE>4
Eurodollar Rate (Adjusted) means, with respect to any Eurodollar Loan
for any Interest Period, a rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) determined pursuant to the following formula:
Eurodollar Rate = Eurodollar Rate
--------------------
(Adjusted) 1 - Eurocurrency Reserve
Percentage
Event of Default means any of the events described in Section 12.1.
FastenMaster means FastenMaster Corporation, a Delaware corporation.
Federal Funds Rate means, for any day, the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor publication, the
"Composite 3:30 p.m. Quotations") for such day under the caption "Federal Funds
Effective Rate". If such rate is not published in the Composite 3:30 p.m.
Quotations for any Business Day, the rate for such day will be the arithmetic
mean of the rates for the last transaction in overnight Federal funds arranged
prior to 9:00 a.m., New York City time, on such day by each of three leading
brokers of Federal funds transactions in New York City, selected by the Bank.
The rate for any day which is not a Business Day shall be the rate for the
immediately preceding Business Day.
Fiscal Quarter means any quarter of a Fiscal Year.
Fiscal Year means any period of 12 consecutive calendar months ending
on the thirty-first day of December. References to a Fiscal Year with a number
corresponding to any calendar year (e.g. "Fiscal Year 1995") refer to the Fiscal
Year ending on the thirty-first day of December occurring during such calendar
year.
Floating Rate Loan means any Loan which bears interest at or by
reference to the Reference Rate.
GAAP means generally accepted accounting principles as applied in the
preparation of the audited financial statements of the Company referred to in
Section 9.4.
Guarantor means (a) as of the Effective Date, SafetyMaster, Lewis
Supply, ATSG, ISA, and FastenMaster and (b) thereafter, the entities referred to
in clause (a) and each other Person which from time to time executes and
delivers a counterpart of the Guaranty.
Guaranty - see Section 11.1.6.
<PAGE>5
Hazardous Materials means any toxic substance, hazardous substance,
hazardous material, hazardous chemical or hazardous waste defined or qualifying
as such in (or for the purposes of) any Environmental Law, or any pollutant or
contaminant, and shall include, but not be limited to, petroleum, including
crude oil or any fraction thereof which is liquid at standard conditions of
temperature or pressure (60 degrees fahrenheit and 14.7 pounds per square inch
absolute), any radioactive material, including, but not limited to, any source,
special nuclear or by-product material as defined at 42 U.S.C. section 2011 et
seq., as amended or hereafter amended, polychlorinated biphenyls, and friable
asbestos.
Indebtedness of any Person means, without duplication, (i) the
principal portion of any obligation of such Person for borrowed money,
including, without limitation, (a) any obligation of such Person evidenced by
bonds, debentures, notes or other similar debt instruments and (b) any
obligation for borrowed money which is non-recourse to the credit of such Person
but which is secured by a Lien on any asset of such Person, (ii) the principal
portion of any obligation of such Person on account of deposits or advances,
(iii) any obligation of such Person for the deferred purchase price of any
property or services, except trade accounts payable, (iv) any obligation of such
Person as lessee under a Capitalized Lease and (v) any Indebtedness of another
Person secured by a Lien on any asset of such first Person, whether or not such
Indebtedness is assumed by such first Person. For all purposes of this
Agreement, the Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture in which such Person is a general partner or joint
venturer unless recourse is expressly limited to the assets of the applicable
partnership or joint venture.
Interest Period - see Section 4.3.
Interlaken Shareholders means William R. Berkley, Andrew M. Bursky,
Joshua A. Polan and Catherine B. James.
Investment of any Person means any investment, made in cash or by
delivery of any kind of property or asset, in any other Person, whether by
acquisition of shares of stock or similar interest, Indebtedness or other
obligation or security, or by loan, advance or capital contribution, or
otherwise.
ISA means Industrial Systems Associates, Inc., a Pennsylvania
corporation.
Letter of Credit - see Section 2.1.
Letter of Credit Application means a letter of credit application in
the form then used by the Bank for the type of Letter of Credit requested (with
appropriate adjustments to indicate that any Letter of Credit issued thereunder
is to be issued pursuant to, and subject to the terms and conditions of, this
Agreement).
Lewis Supply means Lewis Supply (Delaware), Inc., a Delaware
corporation.
Lien means any mortgage, pledge, hypothecation, judgment lien or
similar legal process, title retention lien, or other lien, encumbrance or
security interest, including, without limitation, the interest of a vendor under
any conditional sale or other title retention agreement and the interest of a
lessor under any Capitalized Lease.
Loan - see Section 2.1.
Loan Documents means this Agreement, the Note, the Letter of Credit
Applications, the Guaranty and the Collateral Documents.
<PAGE>6
Margin means (a) if the ratio of (x) the consolidated total liabilities
of the Company and its Subsidiaries to (y) the consolidated Net Worth of the
Company and its Subsidiaries is less than or equal to 1.50 to 1, 2.50% per annum
in the case of Eurodollar Loans and 0% per annum in the case of Floating Rate
Loans, (b) if the ratio of (x) the consolidated total liabilities of the Company
and its Subsidiaries to (y) the consolidated Net Worth of the Company and its
Subsidiaries is less than or equal to 2.00 to 1 but greater than 1.50 to 1,
2.75% per annum in the case of Eurodollar Loans and 0% per annum in the case of
Floating Rate Loans, (c) if the ratio of (x) the consolidated total liabilities
of the Company and its Subsidiaries to (y) the consolidated Net Worth of the
Company and its Subsidiaries is less than or equal to 2.50 to 1 but greater than
2.00 to 1, 3.00% per annum in the case of Eurodollar Loans and 0.25% per annum
in the case of Floating Rate Loans, and (d) if the ratio of (x) the consolidated
total liabilities of the Company and its Subsidiaries to (y) the consolidated
Net Worth of the Company and its Subsidiaries is greater than 2.50 to 1, 3.50%
per annum in the case of Eurodollar Loans and 0.50% per annum in the case of
Floating Rate Loans. If any compliance certificate required to be delivered by
the Company pursuant to Section 10.1.4 shall give rise to any adjustment in the
Margin pursuant to the foregoing sentence, such adjustment shall be effective
for all Loans (including any then-outstanding Loans) the date which is 45 days
(90 days in the case of any certificate delivered in connection with the annual
audit report of the Company) after the date as of which such certificate is
prepared; provided, that if any such certificate is not delivered on or before
the date due pursuant to Section 10.1.4, then clause (d) of the preceding
sentence shall be deemed to be applicable from such due date until such
certificate is delivered.
Margin Stock means any "margin stock" as defined in Regulation U of the
Board of Governors of the Federal Reserve System.
Material Subsidiary means any Subsidiary other than a Subsidiary which
(i) owns less than 5% of the consolidated assets of the Company and its
Subsidiaries and (ii) had less than 5% of the consolidated revenues of the
Company and its Subsidiaries during the most recently ended Fiscal Quarter.
Mortgage means a mortgage, deed of trust or similar document granting
to the Agent a Lien on real property of the Company or any Guarantor.
Multiemployer Plan means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which contributions are required to be made on behalf of
employees of the Company or any ERISA Affiliate.
Net Worth means, at any time with respect to any Person, the net worth,
calculated in accordance with GAAP, of such Person and its consolidated
Subsidiaries.
Note - see Section 3.1.
Occupational Safety and Health Law means the Occupational Safety and
Health Act of 1970, as amended, and any other federal, state or local statute,
law, ordinance, code, rule, regulation, order or decree regulating, relating to
or imposing liability or standards of conduct concerning employee health and/or
safety.
PBGC means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
<PAGE>7
Pension Plan means a "pension plan," as such term is defined in Section
3(2) of ERISA, which is subject to the provisions of Title IV of ERISA (other
than a Multiemployer Plan) and to which the Company or any ERISA Affiliate may
have any liability, including any liability by reason of having been a
substantial employer within the meaning of Section 4063 of ERISA for any time
within the preceding five years or by reason of being deemed to be a
contributing sponsor under Section 4069 of ERISA.
Person means any natural person, corporation, partnership, trust,
association, governmental authority or unit, or any other entity, whether acting
in an individual, fiduciary or other capacity.
Plan means any Welfare Plan, Pension Plan or any employee benefit plan,
as such term is defined in Section 3(3) of ERISA, to which the Company or any
Subsidiary may have any liability.
Receivables means, with respect to any Person, any right of such Person
to payment for goods sold or leased or services rendered.
Reference Rate means at any time the rate of interest per annum then
most recently announced by the Bank as its reference rate at Chicago, Illinois.
(The "reference rate" is a rate set by the Bank based upon various factors,
including the Bank's costs and desired return, general economic conditions and
other factors, and is used as a reference point for pricing some loans, which
may be priced at, above, or below such announced rate.)
Related Party means (i) any director (or Person holding the
equivalent position) or officer (or Person holding the equivalent position) of
the Company or any Subsidiary and (ii) any other Person (other than a
Subsidiary) which, directly or indirectly, controls or is controlled by or
under common control with the Company, any Subsidiary or any other Related
Party (excluding any trustee under, or any committee with responsibility for
administering, a Plan). The Company, a Subsidiary or a Related Party shall
be deemed to be
(a) "controlled by" any Person if (i) such Person beneficially owns or
holds, or directly or indirectly has the power to vote ten percent
(10%) or more of the equity interest of the Company, such Subsidiary or
such Related Party, as applicable, or (ii) ten percent (10%) or more of
the equity interest of such Person is beneficially owned or held by the
Company, such Subsidiary or Related Party, as applicable, or (iii) if
such Person has the power to direct or cause the direction of the
management and policies of the Company, such Subsidiary or such Related
Party, as applicable; or
(b) "controlled by" or "under common control with" a Person if such
Person is a member of the immediate family of a Person which is a
Related Party or is the executor, administrator or other personal
representative of such Person.
Reportable Event has the meaning given to such term in Section 4043 of
ERISA, except for those events for which the thirty (30) day notice is waived,
other than plan disqualifications.
Revolving Termination Date means January 31, 2000 or such other date on
which the Commitment shall terminate pursuant to Section 6.1 or Section 12.
<PAGE>8
SafetyMaster means SafetyMaster Corporation, a Delaware corporation.
SafetyMaster Pledge Agreement - see Section 11.1.8(b).
Security Agreement - see Section 11.1.7.
Significant Borrowing Subsidiary means any Borrowing Subsidiary which
has loans outstanding from the Company in an aggregate principal amount equal to
or greater than $500,000.
Stated Amount means, with respect to any Letter of Credit at any date
of determination thereof, the maximum aggregate amount available for drawing
thereunder at any time during the then ensuing term of such Letter of Credit
under any and all circumstances, plus the aggregate amount of all unreimbursed
payments and disbursements under such Letter of Credit.
Subsidiary means, with respect to any Person, (i) a corporation of
which such Person and/or its other Subsidiaries own, directly or indirectly,
such number of outstanding shares as have more than 50% of the ordinary voting
power for the election of directors and (ii) a partnership or other entity in
which such Person and/or its other Subsidiaries own, directly or indirectly,
more than 50% of the equity interests and controls the management of such
entity. Unless the context otherwise requires, each reference to Subsidiaries
herein shall be a reference to Subsidiaries of the Company.
Subordinated Debt means that portion of any other liabilities,
obligations or Indebtedness which contains terms satisfactory to the Bank and is
subordinated, in a manner satisfactory to the Bank, as to right and time of
payment of principal and interest thereon, to all of the Liabilities.
Tangible Net Worth means, with respect to any Person, the Net Worth of
such Person after subtracting therefrom the aggregate amount of any intangible
assets of such Person and its Subsidiaries, including, without limitation,
goodwill, franchises, licenses, patents, trademarks, trade names, copyrights,
service marks and brand names.
Taxes means, for any Person, taxes, assessments, or other governmental
charges or levies imposed upon such Person, its income, or any of its
properties, franchises, or assets.
Type of Loan or Borrowing - see Section 2.2.
Unmatured Event of Default means any event which if it continues
uncured will, with lapse of time or notice or lapse of time and notice,
constitute an Event of Default.
Welfare Plan means an "employee welfare benefit plan" as such term is
defined in Section 3(i) of ERISA.
<PAGE>9
COMMITMENT OF THE BANK; TYPES OF LOANS;
BORROWING AND CONVERSION PROCEDURES.
Commitment of the Bank. On and subject to the terms and conditions of
this Agreement, the Bank agrees (a) to make loans (the "Loans") to the Company
on a revolving basis from time to time before the Revolving Termination Date in
such amounts as the Company may from time to time request and (b) to issue
letters of credit (the "Letters of Credit") containing such terms and conditions
as shall be permitted pursuant to this Agreement and satisfactory to the Bank
for the account of the Company from time to time before the Revolving
Termination Date in such amounts as the Company may from time to time request;
provided, however, that the sum of (i) the aggregate outstanding principal
amount of all Loans plus (ii) the aggregate Stated Amount of all Letters of
Credit shall not at any one time exceed the lesser of (a) $20,000,000 (less any
reductions to the amount of the Commitment made pursuant to Section 6.1) and (b)
100% of the aggregate outstanding Receivables of the Company and its
Subsidiaries (other than, so long as ISA is not qualified to do business and in
good standing in the State of Texas, Receivables owed to ISA by account debtors
located in the State of Texas).
Various Types of Loans. Each Loan shall be either a Floating Rate Loan
or a Eurodollar Loan, as the Company shall specify in the related notice of
borrowing or Conversion pursuant to Section 2.3 or 2.4 (each being herein called
a "type" of Loan). Loans of different types may be outstanding at the same time,
it being understood, however, that (i) in the case of Eurodollar Loans, not more
than five different Interest Periods shall be outstanding at any one time for
all such Loans and (ii) the aggregate principal amount of each Eurodollar Loan
shall be at least $500,000 or an integral multiple of $100,000.
Borrowing Procedures. (a) The Company shall give notice to the Bank of
each proposed borrowing by 1:00 P.M., Chicago time, on a day which, in the case
of a Floating Rate borrowing, is the proposed date of such borrowing and, in the
case of a Eurodollar borrowing, is at least two Business Days prior to the
proposed date of such borrowing. Each such notice shall be effective upon
receipt by the Bank, shall be in writing (or by telephone to be promptly
confirmed in writing by the Company), and shall specify the date, amount and
type of borrowing and, in the case of a Eurodollar borrowing, the initial
Interest Period for such borrowing. Subject to the satisfaction of the
conditions precedent set forth in Section 11 with respect to such borrowing, the
Bank shall advance the requested amount to the Company on the requested
borrowing date. Each borrowing shall be on a Business Day and, in the case of a
Eurodollar borrowing, shall be in an aggregate amount of at least $500,000 or an
integral multiple of $100,000 and, in the case of Floating Rate borrowing, shall
be in an aggregate amount of at least $100,000.
<PAGE>10
Conversion Procedures. Subject to the provisions of Section 2.2, the
Company may convert all or any part of any outstanding Eurodollar Loan into a
Floating Rate Loan (or vice versa), by giving notice to the Bank of such
Conversion by 1:00 P.M., Chicago time, on a day which, in the case of a
Conversion into a Floating Rate Loan, is the proposed date of such Conversion
and, in the case of a Conversion into a Eurodollar Loan, is at least two
Business Days prior to such date. Each such notice shall be effective upon
receipt by the Bank and shall specify the date and amount of such Conversion,
the Loan to be so Converted, the type of Loan to be Converted into and, in the
case of a Conversion into a Eurodollar Loan, the initial Interest Period.
Subject to Sections 2.8 and 2.9, such Loan shall be so Converted on the
requested date of Conversion. Each Conversion shall be on a Business Day and, in
the case of a Conversion into a Eurodollar Loan, shall be in an aggregate
principal amount of at least $500,000 and an integral multiple of $100,000 and,
in the case of a Conversion into a Floating Rate Loan, shall be in an aggregate
principal amount of at least $100,000. Except as provided in Section 8.3, no
Eurodollar Loan shall be Converted on any day other than the last day of the
current Interest Period relating to such Loan.
Letter of Credit Procedures. The Company shall give notice to the Bank
of the proposed issuance of each Letter of Credit on a Business Day which is at
least two Business Days prior to the proposed date of issuance of such Letter of
Credit. Each such notice shall be accompanied by a Letter of Credit Application,
duly executed by the Company and in all respects satisfactory to the Bank,
together with such other documentation as the Bank may request in support
thereof, it being understood that each Letter of Credit Application shall
specify, among other things, the date on which the proposed Letter of Credit is
to be issued, the term of such Letter of Credit (which shall not extend beyond
the Revolving Termination Date) and whether such Letter of Credit is to be
transferable in whole or in part. Subject to the satisfaction of the conditions
precedent set forth in Section 11 with respect to the issuance of such Letter of
Credit, the Bank shall issue such Letter of Credit on the requested issuance
date.
<PAGE>11
Reimbursement Obligations. The Company hereby unconditionally and
irrevocably agrees to reimburse the Bank for each payment or disbursement made
by the Bank under any Letter of Credit honoring any demand for payment made by
the beneficiary thereunder, on the date that such payment or disbursement is
made. Any amount not reimbursed on the date of such payment or distribution
shall bear interest from and including the date of such payment or disbursement
to but not including the date that the Bank is reimbursed by the Company
therefor, payable on demand, at a rate per annum equal to the Reference Rate
from time to time in effect (but not less than the Reference Rate in effect at
the date of such payment or disbursement by the Bank) plus 3.00%. The Bank shall
notify the Company whenever any demand for payment is made under any Letter of
Credit by the beneficiary thereunder; provided, however, that the failure of the
Bank to so notify the Company shall not affect the rights of the Bank in any
manner whatsoever.
Limitation on the Bank's Obligations. In determining whether to pay
under any Letter of Credit, the Bank shall have no obligation to the Company
other than to confirm that any documents required to be delivered under such
Letter of Credit appear to have been delivered and that they appear to comply on
their face with the requirements of such Letter of Credit. Any action taken or
omitted to be taken by the Bank under or in connection with any Letter of
Credit, if taken or omitted in the absence of gross negligence or willful
misconduct, shall not impose upon the Bank any liability to the Company and
shall not reduce or impair the Company's reimbursement obligations set forth in
Section 2.4.
Warranty. Each notice of borrowing and/or of Conversion pursuant to
Section 2.3 or 2.4 and the delivery of each Letter of Credit Application
pursuant to Section 2.5 shall automatically constitute a warranty by the Company
to the Bank to the effect that on the date of such requested borrowing or
Conversion (other than any Conversion from a Eurodollar Loan to a Floating Rate
Loan required by Sections 2.9 or 8.3) or the issuance of the requested Letter of
Credit, as the case may be, (a) the warranties of the Company contained in
Section 9 of this Agreement shall be true and correct as of such requested date
as though made on the date thereof and (b) no Event of Default or Unmatured
Event of Default shall have then occurred and be continuing or will result
therefrom.
<PAGE>12
Conditions. Notwithstanding any other provision of this Agreement, the
Bank shall not be obligated to make any Loan, to Convert into or permit the
continuation of any Eurodollar Loan, or to issue any Letter of Credit if an
Event of Default or Unmatured Event of Default exists or would result therefrom;
and if the Bank pursuant to this Section 2.9 determines not to permit the
continuation of any Eurodollar Loan, such Loan shall, unless then repaid in
full, automatically become a Floating Rate Loan at the end of such Loan's
then-current Interest Period.
NOTE EVIDENCING LOANS.
Note. The Loans of the Bank shall be evidenced by a promissory note
(the "Note") substantially in the form set forth in Exhibit A, with appropriate
insertions, dated the Effective Date (or such earlier date as shall be
satisfactory to the Bank), payable to the order of the Bank in the principal
amount of the Commitment (or, if less, in the aggregate unpaid principal amount
of all Loans hereunder).
Recordkeeping. The Bank shall record in its records, or at its option
on the schedule attached to the Note, the date and amount of each Loan made by
the Bank, each repayment or Conversion thereof and, in the case of each
Eurodollar Loan, the dates on which each Interest Period for such Loan shall
begin and end. The aggregate unpaid principal amount so recorded shall (in the
absence of demonstrable error) be conclusive evidence of the principal amount
owing and unpaid on the Note. The failure to so record any such amount or any
error in so recording any such amount shall not, however, limit or otherwise
affect the obligations of the Company hereunder or under the Note to repay the
principal amount of the Loans together with all interest accruing thereon.
INTEREST.
Interest Rates. The Company hereby promises to pay interest on the
unpaid principal amount of each Loan for the period commencing on the date of
such Loan until such Loan is paid in full, as follows
<PAGE>13
(a) at all times while such Loan is a Floating Rate Loan, at a rate
per annum equal to the sum of the Reference Rate from time to time in
effect plus the Margin;
(b) at all times while such Loan is a Eurodollar Loan, at a rate per
annum equal to the Eurodollar Rate (Adjusted) applicable to each
Interest Period for such Loan plus the Margin; and
(c) notwithstanding the provisions of the preceding clauses (a) and
(b), in the event that any principal of any Loan is not paid when due
(whether by acceleration or otherwise), after the due date of such
principal until such principal is paid, at a rate per annum equal to
the Reference Rate from time to time in effect (but not less than the
applicable interest rate in effect for such Loan as at such due date),
plus 3.00% per annum.
Interest Payment Dates. Accrued interest on each Floating Rate Loan
shall be payable on the last day of each calendar month and at maturity,
commencing with the first of such dates to occur after the date hereof. Accrued
interest on each Eurodollar Loan shall be payable on the last day of each
Interest Period relating to such Loan (and, in the case of each Eurodollar Loan
with an Interest Period in excess of three months, on each three-month
anniversary of such Loan) and at maturity. After maturity, accrued interest on
all Loans shall be payable on demand.
Interest Periods. Each Interest Period for a Eurodollar Loan shall
commence on the date such Eurodollar Loan is made or Converted from a Floating
Rate Loan, or on the expiration of the immediately preceding Interest Period for
such Eurodollar Loan, and shall end on the date which is 1, 2, 3 or 6 months
thereafter, as the Company may specify:
(a) in the case of an Interest Period which commences on the date a
Eurodollar Loan is made or Converted from a Floating Rate Loan, in the
related notice of borrowing or Conversion pursuant to Section 2.3 or
2.4, or
(b) in the case of a succeeding Interest Period with respect to any
Eurodollar Loan, by written or telephonic notice to the Bank by 1:00
P.M., Chicago time, at least two Business Days prior to the first day
of such succeeding Interest Period, it being understood that (i) each
such notice shall be effective upon receipt by the Bank and (ii) if the
Company fails to give such notice, such Loan shall automatically become
a Floating Rate Loan at the end of its then-current Interest Period.
Each Interest Period for a Eurodollar Loan which would otherwise end on a day
which is not a Business Day shall end on the next succeeding Business Day
(unless such next succeeding Business Day is the first Business Day of a
calendar month, in which case such Interest Period shall end on the next
preceding Business Day). The Company may not select any Interest Period which
would end after the scheduled Revolving Termination Date.
<PAGE>14
Setting and Notice of Eurodollar Rates. The applicable Eurodollar Rate
for each Interest Period shall be determined by the Bank, and notice thereof
shall be given by the Bank promptly to the Company. Each determination of the
applicable Eurodollar Rate by the Bank shall be conclusive and binding upon the
Company, in the absence of demonstrable error. The Bank shall, upon written
request of the Company, deliver to the Company a statement showing the
computations used by the Bank in determining any applicable Eurodollar Rate
hereunder.
Computation of Interest. Interest shall be computed for the actual
number of days elapsed on the basis of a year of 360 days; provided that at all
times that the Reference Rate is determined by reference to the Bank's reference
rate, interest on Floating Rate Loans shall be computed for the actual number of
days elapsed on the basis of a year of 365 or, if applicable, 366 days. The
applicable interest rate under clause (a) and (c) of Section 4.1 shall (to the
extent applicable in the case of clause (c)) change simultaneously with each
change in the Reference Rate.
FEES.
Commitment Fee. The Company agrees to pay to the Bank a commitment fee
for the period from and including the Effective Date to the Revolving
Termination Date of 1/4 of 1% per annum on the daily average of the unused
amount of the Commitment (as reduced from time to time pursuant to Section 6.1).
Such commitment fee shall be payable in arrears on the last day of each calendar
quarter and on the Revolving Termination Date for any period then ending for
which such commitment fee shall not have been theretofore paid. The commitment
fee shall be computed for the actual number of days elapsed on the basis of a
365/366-day year.
Letter of Credit Fees. (a) The Company agrees to pay to the Bank a
letter of credit fee for each Letter of Credit in an amount equal to 1.50%
(computed for the actual number of days elapsed on the basis of a year of
365/366 days) multiplied by the undrawn amount of such Letter of Credit, payable
in arrears on the last day of each calendar quarter and on the Revolving
Termination Date for the period from and including the date of the issuance of
such Letter of Credit to but excluding the date such payment is due or, if
earlier, the date on which such Letter of Credit expired or was terminated.
<PAGE>15
(b) In addition, with respect to each Letter of Credit, the Company
agrees to pay to the Bank such fees and expenses as the Bank customarily
requires in connection with the issuance, negotiation, processing and/or
administration of letters of credit in similar situations.
Closing Fee. The Company agrees to pay the Bank a closing fee of
$52,500 on the Effective Date.
REDUCTION OR TERMINATION OF THE COMMITMENT;
REPAYMENTS AND VOLUNTARY PREPAYMENTS.
Reduction or Termination of the Commitment. The Company may from time
to time on at least five Business Days' prior written notice received by the
Bank permanently reduce the amount of the Commitment to an amount not less than
the sum of (i) the aggregate unpaid principal amount of the Loans then
outstanding plus (ii) the aggregate Stated Amount of all Letters of Credit then
outstanding. Any such reduction shall be in an aggregate amount of $1,000,000 or
an integral multiple thereof. The Company may at any time on like notice
terminate the Commitment upon payment in full of the Note and all other
obligations of the Company hereunder and upon cancellation of all outstanding
Letters of Credit.
Voluntary Prepayments. The Company may from time to time prepay the
Loans in whole or in part, provided that (i) the Company shall give the Bank
notice thereof by 1:00 P.M., Chicago time, on a day which, in the case of a
prepayment of a Floating Rate Loan, is the proposed date of such prepayment and,
in the case of a prepayment of a Eurodollar Loan, is at least one Business Day
prior to such date, specifying the Loans to be prepaid and the date and amount
of prepayment, (ii) any such prepayment of a Eurodollar Loan prior to the end of
the Interest Period relating thereto shall be subject to Section 8.4, (iii) each
partial prepayment shall be in a principal amount of $100,000 or an integral
multiple thereof, and (iv) any prepayment of Eurodollar Loans shall include
accrued interest on the principal amounts prepaid to the date of prepayment.
<PAGE>16
MAKING AND APPLICATION OF PAYMENTS; SETOFF.
Making of Payments. All payments of principal of, or interest on, the
Note, and any fees, shall be made by the Company to the Bank in immediately
available funds at its office in Chicago not later than 1:00 P.M., Chicago time,
on the date due; and funds received after that hour shall be deemed to have been
received by the Bank on the next following Business Day.
Application of Certain Payments. Each payment of principal shall be
applied to such Loans as the Company shall direct by notice to be received by
the Bank on or before the date of such payment, or in the absence of such
notice, to Floating Rate Loans then outstanding and thereafter as the Bank shall
determine in its discretion.
Due Date Extension. If any payment of principal or interest with
respect to any of the Loans or the Note falls due on a Saturday, Sunday or other
day which is not a Business Day, then such due date shall be extended to the
next following Business Day (unless, in the case of a Eurodollar Loan, such next
following Business Day is the first Business Day of a calendar month, in which
case such due date shall be the immediately preceding Business Day), and
additional interest shall accrue and be payable for the period of such
extension.
Setoff. The Company agrees that the Bank and any other holder of the
Note have all rights of set-off and bankers' lien provided by applicable law,
and in addition thereto, the Company agrees that at any time any Unmatured Event
of Default under Section 12.1.4 or any Event of Default exists, the Bank and any
such holder may apply to any obligations of the Company hereunder, whether or
not then due any and all balances, credits, deposits, accounts or moneys of the
Company then or thereafter with the Bank or such holder. The Bank shall promptly
advise the Company of any such setoff and application, but the failure to do so
shall not affect the validity of such setoff and application.
<PAGE>17
INCREASED COSTS; SPECIAL PROVISIONS FOR
EURODOLLAR LOANS.
Increased Costs. (a) If (i) Regulation D of the Board of Governors of
the Federal Reserve System, or (ii) after the date hereof, the adoption of any
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank (or any Eurodollar Office of the Bank) with
any request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency
(A) shall subject the Bank (or any Eurodollar Office of the Bank) to
any tax, duty or other charge with respect to its Eurodollar Loans, the
Note or its obligation to make Eurodollar Loans, or shall change the
basis of taxation of payments to the Bank of the principal of or
interest on its Eurodollar Loans or any other amounts due under this
Agreement in respect of its Eurodollar Loans or its obligation to make
Eurodollar Loans (except for changes in the rate of tax on the overall
net income of the Bank or its Eurodollar Office imposed by the
jurisdiction in which the Bank's principal executive office or
Eurodollar Office is located); or
(B) shall impose, modify or deem applicable any reserve (including,
without limitation, any reserve imposed by the Board of Governors of
the Federal Reserve System, but excluding any reserve included in the
determination of interest rates pursuant to Section 4), special deposit
or similar requirement against assets of, deposits with or for the
account of, or credit extended by, the Bank (or any Eurodollar Office
of the Bank); or
(C) shall impose on the Bank (or its Eurodollar Office) any other
condition affecting, or increasing the cost to the Bank of making or
maintaining, the Eurodollar Loans, the Note or its obligation to make
Eurodollar Loans;
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D referred to above, to impose a cost on) the Bank (or any
Eurodollar Office of the Bank) of making or maintaining any Eurodollar Loan, or
to reduce the amount of any sum received or receivable by the Bank (or its
Eurodollar Office) under this Agreement or under the Note with respect thereto,
then within 10 days after demand by the Bank (which demand shall be accompanied
by a statement setting forth the basis of such demand), the Company shall pay
directly to the Bank such additional amount or amounts as will compensate the
Bank for such increased cost or such reduction.
(b) If the Bank shall reasonably determine that the adoption or
phase-in of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by the Bank (or
its Eurodollar Office) or any Person controlling the Bank with any request or
<PAGE>18
directive regarding capital adequacy (whether or not having the force of law)
or any such authority, central bank or comparable agency, has or would have
the effect of reducing the rate of return on the Bank's or such controlling
Person's capital as a consequence of the Bank's obligations hereunder
(including, without limitation, the Commitment) to a level below that which
the Bank or such controlling Person could have achieved but for such adoption,
change or compliance (taking into consideration the Bank's or such controlling
Person's policies with respect to capital adequacy) by an amount deemed by the
Bank or such controlling Person to be material, then from time to time, within
ten days after demand by the Bank, the Company shall pay to the Bank such
additional amount or amounts as will compensate the Bank or such controlling
Person for such reduction. A certificate of the Bank as to any such additional
amount (including calculations thereof in reasonable detail) shall, in the
absence of manifest error, be conclusive and binding on the Company. In
determining such amount, the Bank may use any method of averaging and
attribution it deems appropriate.
Basis for Determining Interest Rate Inadequate or Unfair. If with
respect to any Interest Period deposits in Dollars (in the applicable amounts)
are not being offered to the Bank in the relevant market for such Interest
Period, or the Bank otherwise reasonably determines (which determination shall
be binding and conclusive on the Company) that by reason of circumstances
affecting the interbank eurodollar market adequate and reasonable means do not
exist for ascertaining the applicable Eurodollar Rate; then the Bank shall
promptly notify the Company thereof and so long as such circumstances shall
continue, (i) the Bank shall be under no obligation to make or Convert into
Eurodollar Loans and (ii) on the last day of the current Interest Period for
each Eurodollar Loan, such Loan shall, unless then repaid in full, automatically
Convert to a Floating Rate Loan.
Changes in Law Rendering Certain Loans Unlawful. In the event that any
change in (including the adoption of any new) applicable laws or regulations, or
any change in the interpretation of applicable laws or regulations by any
governmental or other regulatory body charged with the administration thereof,
should make it (or in the good faith judgment of the Bank cause a substantial
question as to whether it is) unlawful for the Bank to make, maintain or fund
Eurodollar Loans, then the Bank shall promptly notify the Company and, so long
as such circumstances shall continue, (i) the Bank shall have no obligation to
make or Convert into Eurodollar Loans and (ii) on the last day of the current
Interest Period for each Eurodollar Loan (or, in any event, if the Bank so
requests, on such earlier date as may be required by the relevant law,
regulation or interpretation), such Eurodollar Loan shall, unless then repaid in
full, automatically Convert to a Floating Rate Loan.
<PAGE>19
Funding Losses. The Company hereby agrees that upon demand by the Bank
(which demand shall be accompanied by a statement setting forth the basis for
the calculations of the amount being claimed) the Company will indemnify the
Bank against any net loss or expense which the Bank may sustain or incur
(including, without limitation, any net loss or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by the Bank
to fund or maintain Eurodollar Loans), as reasonably determined by the Bank, as
a result of (i) any payment or prepayment or Conversion of any Eurodollar Loan
on a date other than the last day of an Interest Period for such Loan
(including, without limitation, any Conversion pursuant to Section 8.3) or (ii)
any failure of the Company to borrow or Convert any Loans on a date specified
therefor in a notice of borrowing or Conversion pursuant to this Agreement. For
this purpose, all notices to the Bank pursuant to this Agreement shall be deemed
to be irrevocable.
Right of Bank to Fund through Other Offices. The Bank may, if it so
elects, fulfill its commitment as to any Eurodollar Loan by causing a foreign
branch or affiliate of the Bank to make such Loan, provided that in such event
for the purposes of this Agreement such Loan shall be deemed to have been made
by the Bank and the obligation of the Company to repay such Loan shall
nevertheless be to the Bank and shall be deemed held by it, to the extent of
such Loan, for the account of such branch or affiliate.
Discretion of Bank as to Manner of Funding. Notwithstanding any
provision of this Agreement to the contrary, the Bank shall be entitled to fund
and maintain its funding of all or any part of its Loans in any manner it sees
fit, it being understood, however, that for the purposes of this Agreement all
determinations hereunder shall be made as if the Bank had actually funded and
maintained each Eurodollar Loan during each Interest Period for such Loan
through the purchase of deposits having a maturity corresponding to such
Interest Period and bearing an interest rate equal to the Eurodollar Rate for
such Interest Period.
Conclusiveness of Statements; Survival of Provisions. Determinations
and statements of the Bank pursuant to Section 8.1, 8.2, 8.3 or 8.4 shall be
conclusive absent demonstrable error. The Bank may use reasonable averaging and
attribution methods in determining compensation under Sections 8.1 and 8.4, and
the provisions of such Sections shall survive termination of this Agreement.
<PAGE>20
WARRANTIES.
To induce the Bank to enter into this Agreement and to make Loans and
issue Letters of Credit hereunder, the Company warrants to the Bank that:
Organization, etc. The Company is a corporation duly organized and
validly existing in good standing under the laws of the State of Delaware, each
Guarantor is duly organized and validly existing in good standing under the laws
of the jurisdiction of its incorporation; the Company and each Guarantor is duly
qualified to do business in each jurisdiction where the nature of its business
makes such qualification necessary, except where the failure to be so qualified
would not have a material adverse affect on the financial condition, operations,
assets, business, properties or prospects of the Company and its Subsidiaries
taken as a whole; and, and each of the Company and each Guarantor has the
corporate power to own its properties and to carry on its business as now being
conducted.
Authorization; No Conflict. The execution and delivery of this
Agreement, the Letter of Credit Applications and the Note, the borrowings
hereunder, the execution and delivery by each Guarantor of each Loan Document to
which it is a party, and the performance by each of the Company and each
Guarantor of its obligations under each Loan Document to which it is a party are
within the corporate powers of the Company and each Guarantor, have been duly
authorized by all necessary corporate action, have received all necessary
governmental approval (if any shall be required) and do not and will not (a)
violate any provision of law or any order, degree or judgment of any court or
other government agency which is binding on the Company or any Guarantor, (b)
contravene or conflict with, or result in a breach of, any provision of the
Certificate of Incorporation, By-Laws or other organizational documents of the
Company or any Guarantor or of any material agreement, indenture, instrument or
other document, or any material judgment, order or decree, which is binding on
the Company or any Guarantor or (c) result in, or require, the creation or
imposition of any Lien on any property of the Company or any Guarantor except
pursuant to the Collateral Documents.
<PAGE>21
Validity and Binding Nature. This Agreement is, and the Note, the
Letter of Credit Applications and the other Loan Documents to which the Company
is party when duly executed and delivered will be, legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms and each Loan Document to which any Guarantor is a party
will be, upon the execution and delivery thereof by such Guarantor, the legal,
valid and binding obligation of such Guarantor, enforceable against such
Guarantor in accordance with its terms.
Financial Statements. The Company has furnished or caused to be
furnished to the Bank, the audited consolidated financial statements of the
Company and its Subsidiaries as at December 31, 1994, which have been prepared
in conformity with generally accepted accounting principles applied on a basis
consistent with that of the preceding Fiscal Year and present fairly the
consolidated financial condition of the Company and its Subsidiaries as at such
date and the consolidated results of their operations for the period then ended.
Since December 31, 1994 there has been no material adverse change in the
financial condition of the Company and its Subsidiaries taken as a whole.
Litigation and Contingent Liabilities. No litigation (including,
without limitation, derivative actions), arbitration proceeding or governmental
proceedings is pending or, to the Company's knowledge, threatened against the
Company or any Subsidiary which would materially and adversely affect the
financial condition, operations, assets, business, properties or prospects of
the Company and its Subsidiaries taken as a whole, except as set forth in
Exhibit B. Other than any liability incident to such litigation or proceedings,
neither the Company nor any Subsidiary has any material contingent liabilities
not provided for or disclosed in the financial statements referred to in Section
9.4 or listed in Exhibit B.
Taxes. Each of the Company and its Subsidiaries has filed all tax
returns which are required to have been filed and has been paid, or made
adequate provisions for the payment of, all of its Taxes which are due and
payable, except such Taxes, if any, as are being contested in good faith and by
appropriate proceedings and as to which such reserves or other appropriate
provisions as may be required by GAAP have been maintained. The Company is not
aware of any proposed assessment against the Company or any of its Subsidiaries
for additional Taxes (or any basis for any such assessment) which might be
material to the Company and its Subsidiaries taken as a whole.
<PAGE>22
Investment Company Act. Neither the Company nor any Subsidiary is an
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
Public Utility Holding Company Act. Neither the Company nor any
Subsidiary is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
Regulation U. The Company is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
Pension and Welfare Plans. Each Pension Plan complies in all material
respects with all applicable statutes and governmental rules and regulations; no
Reportable Event has occurred and is continuing with respect to any Pension
Plan; within the three (3) years immediately preceding the date of the initial
Loans and the date of each Loan thereafter, neither the Company nor any ERISA
Affiliate has withdrawn from any Multiemployer Plan in a "complete withdrawal"
or a "partial withdrawal" as defined in Sections 4203 or 4205 of ERISA,
respectively; except in the case of a standard termination proceeding under
Section 4041 of ERISA, no steps have been instituted, within the three (3) years
immediately preceding the date of the initial Loans and the date of each Loan
thereafter, or are being taken to terminate any Pension Plan; no contribution
failure has occurred with respect to any Pension Plan sufficient to give rise to
a Lien under Section 302(f) of ERISA; no condition exists or event or
transaction has occurred, within the three (3) years immediately preceding the
date of the initial Loans and the date of each Loan thereafter, in connection
with any Pension Plan or, to the best knowledge of the Company, any
Multiemployer Plan which could result in the incurrence by the Company or any
ERISA Affiliate of any material liability, fine or penalty; and neither the
Company nor any ERISA Affiliate is a "contributing sponsor" as defined in
Section 4001(a)(13) of ERISA of a "single-employer plan" as defined in Section
4001(a)(15) of ERISA which has two or more contributing sponsors at least two of
whom are not under common control. Except as listed in Exhibit C, and except as
required by Section 601 of ERISA and Section 4975 of the Code, neither the
Company nor any Subsidiary has any material contingent liability with respect to
any Welfare Plans which covers retired or terminated employees and their
beneficiaries.
Ownership of Properties; Liens. Each of the Company and each Subsidiary
owns good and marketable title to all of its properties and assets, real and
personal, tangible and intangible, of any nature whatsoever (including patents,
trademarks, trade names, service marks and copyrights), free and clear of all
Liens, charges and claims (including infringement claims with respect to
patents, trademarks, copyrights and the like) except as permitted pursuant to
Section 10.17.
<PAGE>23
Environmental, Safety and Health Matters. Except as disclosed on
Exhibit D and where such would not reasonably be expected to materially and
adversely affect (1) the business, financial condition, operations or prospects
of the Company and its Subsidiaries taken as a whole or (2) the Bank's interest
in or Lien on any material collateral, the Company and each of its Subsidiaries
and each property, operation and facility that the Company or any Subsidiary may
own, operate or control (i) complies in all respects with (A) all applicable
Environmental Laws and (B) all applicable Occupational Safety and Health Laws;
(ii) is not subject to any judicial or administrative proceeding alleging the
violation of any Environmental Law or Occupational Safety and Health Law; (iii)
has not received any notice (A) that it may be in violation of any Environmental
Law or Occupational Safety and Health Law, (B) threatening the commencement of
any proceeding relating to allegedly unlawful, unsafe or unhealthy conditions or
(C) alleging that it is or may be responsible for any response, cleanup, or
corrective action, including but not limited to any remedial
investigation/feasibility studies, under any Environmental Law or Occupational
Safety and Health Law; (iv) is not the subject of federal or state investigation
evaluating whether any investigation, remedial action or other response is
needed to respond to (A) a spillage, disposal or release or threatened release
into the environment of any Hazardous Material or other hazardous, toxic or
dangerous waste, substance or constituent, or other substance or (B) any
allegedly unsafe or unhealthful condition; (v) has not filed any notice under or
relating to any Environmental Law or Occupational Safety and Health Law
indicating or reporting (A) any past or present spillage, disposal or release
into the environment of, or treatment, storage or disposal of, any Hazardous
Material or other hazardous, toxic or dangerous waste, substance or constituent,
or other substance or (B) any potentially unsafe or unhealthful condition, and
there exists no basis for any such notice irrespective of whether or not such
notice was actually filed; and (vi) has no contingent liability in connection
with (A) any actual, threatened, or potential spillage, disposal or release into
the environment of, or otherwise with respect to, any Hazardous Material or
other hazardous, toxic or dangerous waste, substance or constituent, or other
substance, whether on any premises owned or occupied by the Company or any
Subsidiary or on any other premises, or (B) any unsafe or unhealthful condition.
Except as disclosed on Exhibit D, and where such would not reasonably be
expected to materially and adversely affect (1) the business, financial
condition, operations or prospects of the Company and its Subsidiaries taken as
a whole or (2) the Bank's interest in or Lien on any material collateral, there
are no Hazardous Materials on, in or under any property or facilities owned,
operated or controlled by the Company or any Subsidiary, including but not
limited to such Hazardous Materials that may be contained in underground storage
tanks, but excepting such Hazardous Materials used in accordance with all
applicable laws and in the ordinary course of the Company's business.
<PAGE>24
Lease of Property. Except for Capitalized Leases included on Exhibit G,
Exhibit E contains a complete and accurate list of (a) all leases under which
the Company or any Subsidiary is the lessee covering any machinery, equipment or
real property used by the Company or such Subsidiary and (b) the name and
mailing address of each lessor or owner of such machinery, equipment or real
property.
Solvency, etc. On the Effective Date (or, in the case of any Person
which becomes a Guarantor after the Effective Date, on the date such Person
becomes a Guarantor), and immediately prior to and after giving effect to the
issuance of each Letter of Credit and each borrowing hereunder and the use of
the proceeds thereof, (a) each of the Company's and each Guarantor's assets will
exceed its liabilities and (b) each of the Company and each Guarantor will be
solvent, will be able to pay its debts as they mature, will own property with
fair saleable value greater than the amount required to pay its debts and will
have capital sufficient to carry on its business as then constituted.
Subsidiaries. The Company has no Subsidiaries other than those
listed on Exhibit F.
Compliance. The Company and its Subsidiaries are in material compliance
with all statutes, judicial or administrative orders, licenses, permits, and
governmental rules and regulations in each case which are applicable to them and
material to their business.
Insurance. Exhibit L hereto is a complete and accurate summary of the
property and casualty insurance program carried by the Company and its
Subsidiaries on the date hereof. Exhibit L includes the insurer's(s') name(s),
policy number(s), expiration date(s), amount(s) of coverage, type(s) of
coverage, the annual premium(s), Best's policyholder's and financial size
ratings of the insurer(s), exclusions, deductibles and self-insured retention
and describes in detail any retrospective rating plan, fronting arrangement or
any other self-insurance of risk assumption agreed to by the Company or any
Subsidiary or imposed upon the Company or any Subsidiary by any such insurer.
This summary also includes any self-insurance program that is in effect.
<PAGE>25
Information. All information, taken as a whole, heretofore or
contemporaneously herewith furnished by the Company or any Subsidiary to the
Bank for purposes of or in connection with this Agreement and the transactions
contemplated hereby is, and all information, taken as a whole, hereafter
furnished by or on behalf of the Company or any Subsidiary to the Bank pursuant
hereto or in connection herewith will be, true and accurate in every material
respect on the date as of which such information is dated or certified, and none
of such information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
COVENANTS.
Until the expiration or termination of the Commitment and thereafter
until all obligations of the Company hereunder and under the Note and in
connection with the Letters of Credit are paid in full and all Letters of Credit
shall have terminated, the Company agrees that, unless at any time the Bank
shall otherwise expressly consent in writing, it will:
Reports, Certificates and Other Information. Furnish to the Bank:
Annual Audit Report. Within ninety (90) days after each Fiscal Year, a
copy of the annual audit report of the Company and its Subsidiaries prepared on
a consolidated basis, and within one hundred and five (105) days after each
Fiscal Year a copy of the unaudited annual report of each Guarantor and its
Subsidiaries prepared on a consolidated and (with respect to the balance sheet
and income statement) consolidating basis, in each case in conformity with GAAP
(except that the consolidating statements need not include footnotes) and, in
the case of the consolidated audit report of the Company, certified by an
independent certified public accountant who shall be satisfactory to the Bank,
together with an unqualified opinion thereon and a certificate from such
accountant (i) containing a computation of, and showing compliance with, each of
the financial covenants applicable to the Company contained in this Section 10,
and (ii) to the effect that, in making the examination necessary for the signing
of such annual audit report, such accountant has not become aware of any Event
of Default or Unmatured Event of Default that has occurred and is continuing,
or, if such accountant has become aware of any such event, describing it and the
steps, if any, being taken to cure it.
<PAGE>26
Quarterly Financial Statement. Within fifty (50) days (or, in the case
of the financial statements for the Guarantors, 60 days) after each Fiscal
Quarter (other than the last Fiscal Quarter of any Fiscal Year), a copy of the
unaudited consolidated financial statement of the Company and a copy of the
unaudited consolidated and (with respect to the balance sheet and income
statement) consolidating financial statements of each Guarantor and its
Subsidiaries prepared in the same manner as the reports referred to in Section
10.1.1 (except that no footnotes will be included), signed on behalf of the
Company or such Guarantor, as the case may be, by the Company's chief financial
officer and consisting of at least a balance sheet as at the close of such
Fiscal Quarter and statements of earnings and cash flows for such Fiscal Quarter
and for the period from the beginning of the applicable Fiscal Year to the close
of the applicable Fiscal Quarter.
Monthly Financial Statement. Within thirty (30) days after the end of
each month of each Fiscal Year (which, in the case of the last month of any
Fiscal Quarter or any Fiscal Year, shall be in addition to the financial
statements or audit reports required to be provided pursuant to Sections 10.1.1
and 10.1.2), a copy of the unaudited financial statement of the Company and its
Subsidiaries prepared in the same manner as the audit report referred to in
preceding clause (a) (except that no footnotes will be included), signed on
behalf of the Company by the Company's chief financial officer and consisting of
at least a balance sheet as at the close of such month and statements of
earnings and cash flows for such month and for the period from the beginning of
the applicable Fiscal Year to the close of such month.
Officer's Certificate. On the date on which the financial statements
with respect to the Company under Sections 10.1.1 and 10.1.2 are due to be
delivered, a certificate of the Company's chief financial officer, dated as of
the date of such annual audit report or such quarterly financial statement, as
the case may be, containing a statement on behalf of the Company that no Event
of Default or Unmatured Event of Default has occurred and is continuing, or, if
there is any such event, describing it and the steps, if any, being taken to
cure it, and containing a computation of, and showing compliance with, each of
the financial ratios and restrictions contained in this Section 10.
<PAGE>27
Other Reports
(a) SEC and Other Reports. Copies of each filing and report made by
the Company or any Subsidiary with or to any securities exchange or the
Securities and Exchange Commission and of each communication from the
Company or any Subsidiary to shareholders generally, promptly after the
filing or making thereof;
(b) Subsidiaries. Promptly from time to time after any change, a
written report of any change in the list of its Subsidiaries; and
(c) Other Reports. Any information required to be provided pursuant to
other provisions of this Agreement, and promptly from time to time,
such other reports or information as the Bank may reasonably request.
Certificate Regarding Environmental Matters. Within thirty (30) days
after the end of each Fiscal Year, a certificate executed on behalf of the
Company by the Company's chief executive officer containing a statement that
based on such officer's due inquiry of persons charged with the responsibility
for having such information, the representations and warranties set forth in
Section 9.12 relating to Environmental and Safety and Health Matters (including
the information set forth in Exhibit D) remain true and correct, or, if not,
each and every respect in which they have changed, provided that notwithstanding
the preceding language of this Section 10.1.6, such statement shall in no way
affect the survival of any of the representations and warranties contained in
Section 9.12.
Notices. Notify the Bank in writing of any of the following immediately
upon learning of the occurrence thereof (or, in the case of clauses (e) and (f)
of this Section 10.1.7, at least 30 days prior to the occurrence thereof),
describing the same and, if applicable, the steps being taken with respect
thereto:
(a) Default. The occurrence of an Event of Default or Unmatured
Event of Default;
(b) Litigation. The institution of any litigation, arbitration
proceeding or governmental proceeding affecting the Company or any
Subsidiary (x) which, if adversely determined, would have a material
adverse effect on the business, financial condition, operations or
prospects of the Company and its Subsidiaries taken as a whole, or (y)
in any event, where the amount of damages sought is in excess of
$100,000 (whether or not considered to be covered by insurance);
<PAGE>28
(c) Judgment. The entry of any judgment or decree against the
Company or any Subsidiary if the amount of such judgment exceeds
$100,000;
(d) Pension Plans and Welfare Plans. The occurrence of a Reportable
Event with respect to any Pension Plan; the filing of a notice of
intent to terminate a Pension Plan by the Company or any ERISA
Affiliate; the institution of proceedings to terminate a Pension Plan
by the PBGC or any other Person; the receipt of a notice of the
imposition of withdrawal liability in excess of $100,000 due to a
"complete withdrawal" or a "partial withdrawal" as defined in Sections
4203 and 4205, respectively, of ERISA by the Company or any ERISA
Affiliate from any Multiemployer Plan; the failure of the Company or
any ERISA Affiliate to make a required contribution to any Pension
Plan, including but not limited to any failure to pay an amount
sufficient to give rise to a Lien under Section 302(f) of ERISA; the
taking of any action with respect to a Pension Plan which could
reasonably result in the requirement that the Company or any ERISA
Affiliate furnish a bond or other security to the PBGC or such Pension
Plan; the occurrence of any other event with respect to any Pension
Plan which could reasonably result in the incurrence by the Company or
any ERISA Affiliate of any material liability, fine or penalty; or the
incurrence of any material increase in the contingent liability of the
Company or any Subsidiary with respect to any Welfare Plan which covers
retired or terminated employees and their beneficiaries;
(e) Environmental and Safety and Health Matters. The occurrence of any
event or the acquisition of any information which, if it had occurred
or been acquired on or before the Effective Date, would have been
required to have been disclosed and included on Exhibit D, including
but not limited to the existence of any Environmental Lien and the
receipt of any notice from any federal, state or local government or
agency of any actual or alleged violation of, or potential liability
under, any Environmental Law or any Occupational Safety and Health Law;
(f) Material Adverse Change. The occurrence of a material adverse
change in the business, operations, financial condition or prospects
of the Company and its Subsidiaries taken as whole;
(g) Change in Management or Line(s) of Business. Any substantial
change in the senior management of the Company or any Subsidiary, or
any change in the Company's or any Subsidiary's line(s) of business;
and
(h) Other Notices. From time to time notice of the occurrence of
such other events as the Bank may reasonably specify.
<PAGE>29
Existence. Maintain and preserve, and cause each of its Subsidiaries to
maintain and preserve, its respective existence as a corporation or other form
of business organization, as the case may be, and all rights, privileges,
licenses, patents, patent rights, copyrights, trademarks, trade names, trade
styles, franchises and other authority to the extent material and necessary for
the conduct of its respective business in the ordinary course as conducted from
time to time.
Nature of Business. Engage, and cause each of its Subsidiaries to
engage, in substantially the same fields of business as it is engaged in on the
date hereof, and no other.
Books, Records and Access. Maintain, and cause each of its Subsidiaries
to maintain, complete and accurate books and records, in which full and correct
entries in conformity with GAAP shall be made of all dealings and transactions
in relation to its respective business and activities. Permit, and cause each of
its Subsidiaries to permit, reasonable access during normal business hours by
the Bank and its agents or employees to the books and records of the Company and
each Subsidiary at the Company's or such Subsidiary's place or places of
business at intervals to be determined by the Bank and without hindrance or
delay, and permit and cause each of its Subsidiaries to permit the Bank or its
agents and employees to inspect during normal business hours the Company's
inventory and equipment and such Subsidiary's inventory and equipment, to
perform appraisals of the Company's equipment and each Subsidiary's equipment,
and to inspect, audit, check and make copies and/or extracts from the books,
records, computer data and records, computer programs, journals, orders,
receipts, correspondence and other data relating to collateral. Any and all such
inspections and/or audits shall be at the Company's expense. Notwithstanding the
foregoing, as long as no Event of Default or Unmatured Event of Default has
occurred or is continuing, the Company shall not be required to reimburse the
Bank for appraisals of its equipment or the equipment of its Subsidiaries in an
amount exceeding $5,000 in any Fiscal Year.
Taxes. Pay, and cause each of its Subsidiaries to pay, when due, all of
its Taxes, unless and only to the extent that the Company or any Subsidiary is
contesting such Taxes in good faith and by appropriate proceedings and the
Company or such Subsidiary has set aside on its books such reserves or other
appropriate provisions therefor as may be required by GAAP.
<PAGE>30
Compliance. Comply, and cause each Subsidiary to comply, with all
statutes, judicial or administrative orders, licenses, permits, and governmental
rules and regulations applicable to it the non-compliance with which would be
reasonably likely to result in any material fine, penalty or liability or would
otherwise have a material adverse effect on the business, financial condition,
operations or prospects of the Company and its Subsidiaries taken as a whole.
Financial Covenants
Company's Net Worth. Not permit the Net Worth of the Company, on a
consolidated basis, to at any time be less than (a) on or before December 31,
1996, $25,000,000 plus 80% of the net proceeds of any public offering made by
the Company, (b) after December 31, 1996 but on or before December 31, 1997,
$26,500,000 plus 80% of the net proceeds of any public offering made by the
Company, and (c) after December 31, 1997, the sum of (x) $26,500,000 plus (y)
80% of the consolidated net earnings of the Company and its Subsidiaries for
each Fiscal Quarter ending after December 31, 1997 (excluding any Fiscal Quarter
in which consolidated net earnings is not positive) plus (z) 80% of the net
proceeds of any public offering made by the Company.
Consolidated Net Worth. (a) Not permit at any time the Tangible Net
Worth of the Company and its Subsidiaries on a consolidated basis to
be less than $1.
(b) Not permit the Net Worth of any Significant Borrowing
Subsidiary to at any time be less than $1.
Liabilities to Net Worth Ratio. Not permit the ratio of (a) the
consolidated total liabilities of the Company and its Subsidiaries to (b) the
consolidated Net Worth of the Company and its Subsidiaries to at any time exceed
2.50 to 1.00.
Capital Expenditures. Not permit the Company and its consolidated
Subsidiaries to purchase or otherwise acquire (including, without limitation,
acquisition by way of Capitalized Lease), or commit to purchase or otherwise
acquire, any fixed asset if, after giving effect to such purchase or other
acquisition, the aggregate cost of all fixed assets purchased or otherwise
acquired by the Company and its consolidated Subsidiaries on a consolidated
basis in any one Fiscal Year would exceed the greater of (i) $2,500,000 and (ii)
150% of the amount of depreciation taken by the Company and its Subsidiaries in
such Fiscal Year.
<PAGE>31
Fixed Charge Coverage. Not permit the ratio of (a) (x) the consolidated
net earnings of the Company and its consolidated Subsidiaries before the sum of
(i) consolidated interest expense, plus (ii) consolidated provision for Taxes,
plus (iii) consolidated depreciation expense, amortization expense and other
noncash charges, plus (iv) rental and lease expense for any Computation Period
minus (y) costs for such Computation Period in respect of the purchase or other
acquisition of fixed assets to (b) (x) the consolidated interest expense of the
Company and its consolidated Subsidiaries for such Computation Period, plus (y)
rental and lease expense of the Company and its consolidated Subsidiaries for
such Computation Period, plus (z) all scheduled payments of principal made with
respect to Indebtedness during such Computation Period to be less than (a) 1.25
to 1.00 for the Computation Period ending September 30, 1996 and (b) 1.50 to
1.00 for any Computation Period ending on or after December 31, 1996.
For purposes of this Section 10.7.5, (i) net earnings shall not include
any gains on the sale or other disposition of Investments or fixed assets and
any extraordinary items of income to the extent that the aggregate of all such
gains and extraordinary items of income exceeds the aggregate of losses on such
sale or other disposition and extraordinary charges, and (ii) interest expense
shall include, without limitation, implicit interest expense on Capitalized
Leases.
Interest Coverage. Not permit the ratio of (a) (x) the consolidated net
earnings of the Company and its consolidated Subsidiaries before the sum of (i)
consolidated interest expense plus (ii) consolidated provision for Taxes to (b)
(x) the consolidated interest expense of the Company and its consolidated
Subsidiaries for such Computation Period to be less than (a) 3.25 to 1.00 for
the Computation Period ending March 31, 1996 and (b) 0.30 to 1.00 for the
Computation Period ending June 30, 1996.
For purposes of this Section 10.7.6, (i) net earnings shall not include
any gains on the sale or other disposition of Investments or fixed assets and
any extraordinary items of income to the extent that the aggregate of all such
gains and extraordinary items of income exceeds the aggregate of losses on such
sale or other disposition and extraordinary charges, and (ii) interest expense
shall include, without limitation, implicit interest expense on Capitalized
Leases.
<PAGE>32
Insurance. Maintain, and cause each of its Subsidiaries to maintain,
insurance to such extent and against such hazards and liabilities as is commonly
maintained by companies similarly situated and which is adequate to insure it
and its Subsidiaries against risks which could reasonably be expected to be
encountered by it in the conduct of its business. Cause, and cause each
Subsidiary to cause, each issuer of an insurance policy to provide the Bank,
prior to March 15, 1996, with an endorsement or an independent instrument (i) in
form and substance acceptable to the Bank and (ii) showing loss payable to the
Bank and, if required by the Bank, naming the Bank as an additional insured.
Insurance Survey. Provide to the Bank, within 90 days of the end of
each Fiscal Year, a certificate signed on behalf of the Company by its chief
financial officer that attests to and summarizes the property and casualty
insurance program carried by the Company and its Subsidiaries. This summary
shall include the insurer's(s') name(s), policy number(s), expiration date(s),
amount(s) of coverage, type(s) of coverage, the annual premium(s), Best's
policyholder's and financial size ratings of the insurer(s), exclusions,
deductibles and self-insured retention and shall describe in detail any
retrospective rating plan, fronting arrangement or any other self-insurance or
risk assumption agreed to by the Company or any Subsidiary or imposed upon the
Company or any Subsidiary by any such insurer, as well as any self-insurance
program that is in effect. The Company shall notify the Bank in writing (1) at
least 20 days prior to any cancellation or material change of any such insurance
by the Company or any Subsidiary and (2) within five Business Days after receipt
of any notice (whether formal or informal) of any cancellation or change in any
of its insurance by any of its insurers or any material change in the cost
thereof or which reduces the policyholder's or financial size ratings of the
insurance carriers of the Company or any of its Subsidiaries, as established by
Best's Insurance Reports. Annually, the Bank shall have the right to request the
Company to have a risk management survey completed by a recognized independent
risk management consultant acceptable to it and the Bank which will identify,
quantify and assess any catastrophic uninsured, underinsured or self-insured
exposures faced by the Company and its Subsidiaries. The cost of such survey
shall be borne solely by the Company. A copy of the results of each such survey
shall be promptly delivered by the Company to the Bank.
<PAGE>33
Repair. Maintain, preserve and keep, and cause each of its Subsidiaries
to maintain, preserve and keep, its properties in operating condition and
repair, ordinary wear and tear excepted, and from time to time make, and cause
each of its Subsidiaries to make, all necessary and proper repairs, renewals,
replacements, additions, betterments and improvements thereto so that at all
times the efficiency thereof shall be fully preserved and maintained.
Use of Proceeds. Use the proceeds of the Loans to (i) finance the
working capital and capital expenditure requirements of the Company and its
Subsidiaries; (ii) make Advances to the Borrowing Subsidiaries; and (iii) to
acquire all or substantially all of the assets of a Person in accordance with
Section 10.13; and not use or permit any proceeds of the Loans to be used,
either directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of "purchasing or carrying" any Margin Stock, and furnish to the Bank
upon request, a statement in conformity with the requirements of Federal Reserve
Form U-l referred to in Regulation U of the Federal Reserve Board.
Pension Plans. Not, and not permit any ERISA Affiliate to, permit any
condition to exist in connection with any Pension Plan which might reasonably
constitute grounds for the PBGC to institute proceedings to have such Pension
Plan terminated or a trustee appointed to administer such Pension Plan; not
fail, and not permit any ERISA Affiliate to fail, to make a required
contribution to any Pension Plan if such failure is sufficient to give rise to a
Lien under Section 302(f) of ERISA; and not engage in, or permit to exist or
occur, or permit any of its ERISA Affiliates to engage in, or permit to exist or
occur, any other condition, event or transaction with respect to any Pension
Plan which could result in the incurrence by the Company or any ERISA Affiliate
of any material liability, fine or penalty.
Merger, Purchase, Acquisitions and Sale. (a) Not, and not permit any
Subsidiary to, be a party to any merger, liquidation or consolidation, except in
the normal course of its business, sell, transfer, convey, lease or otherwise
dispose of any of its assets, sell or assign, with or without recourse, any
receivables, purchase or otherwise acquire all or substantially all the assets
<PAGE>34
of any Person without the prior written consent of the Bank, except for any such
merger, consolidation, purchase or other acquisition so long as (i) no Event of
Default or Unmatured Event of Default exists or would result therefrom, (ii) no
more than $5,000,000 of the proceeds of the Loans and Letters of Credit shall be
utilized by the Company in connection with such merger, consolidation, purchase
or acquisition, (iii) after giving effect to such merger, consolidation,
purchase or other acquisition the percentage of the Commitment which is unused
is greater than 20%, (iv) the Person whose assets or stock is so acquired (x) is
in the same line of business as the Company and (y) shall have had consolidated
net earnings before consolidated interest expense and provision for Taxes
greater than $1 for the previous fiscal year of such Person and (v) immediately
prior to such acquisition, the accounts payable aging of both the Company and
its Subsidiaries and the business being acquired is substantially the same as
(or more current than) the historical accounts payable aging of the Company and
its Subsidiaries or of such business, as the case may be, during the preceding
12 months.
(b) Not, and not permit any Subsidiary to, engage in any transaction
having as its purpose the acquisition of stock of or other ownership interests
in any Person if such Person (or its Board of Directors or equivalent governing
body) has (a) announced that it will oppose such acquisition or (b) commenced
any litigation which alleges that such acquisition violates, or will violate,
any requirement of law.
Restricted Payments. Except as otherwise permitted by this Section
10.14, not purchase or redeem, and not permit any Subsidiary to purchase, any
shares of its stock, declare or pay any dividends thereon (other than stock
dividends), make any distribution to stockholders as such or set aside any funds
for any such purpose, and not prepay, purchase or redeem, and not permit any
Subsidiary to purchase, any Subordinated Debt. Notwithstanding the foregoing,
(i) any Subsidiary may declare and pay dividends to the Company or to another
wholly-owned Subsidiary and (ii) the Company may (A) declare or make payments of
cash dividends on any shares of its stock or make any distribution of cash to
stockholders as such, or set aside any funds for any such purpose in respect of
any shares of its stock, or (B) purchase or redeem any shares of its stock, as
long as all of the following conditions are satisfied:
<PAGE>35
(1) No Event of Default or Unmatured Event of Default then exists
or would result therefrom;
(2) For the thirty (30) days prior to the making of any such payment,
the average unused Commitment shall have been at least $400,000, and on
the date of the making of such payment, immediately after giving effect
thereto, the unused Commitment shall be at least $300,000;
(3) Such payments are made no more frequently than quarterly during
any Fiscal Year;
(4) As of the date of any such payment, the amount of all such
payments after the date hereof (including such payment) will not exceed
fifty percent (50%) of the after tax income (calculated on the basis of
taxes actually paid) of the Company for the period commencing on the
date hereof and ending on the last day of the most recently ended
Fiscal Quarter; and
(5) the Company shall have given the Bank at least five (5) Business
Days' prior written notice of any such payment intended to be made,
together with a certificate from the Company's chief financial officer
or chief executive officer to the effect that each of the requirements
of this Section 10.14 have been and will be satisfied.
Company's and Subsidiaries' Stock. Not, and not permit any of its
Subsidiaries to, purchase or otherwise acquire any shares of the stock of the
Company, and not take any action, or permit any of its Subsidiaries to take any
action, which will result in a decrease in the Company's or any Subsidiary's
ownership interest in any Subsidiary.
Indebtedness. Not, and not permit any of its Subsidiaries to, incur or
permit to exist any Indebtedness (including but not limited to Indebtedness as
lessee under Capitalized Leases), except: (a) Indebtedness under the terms of
this Agreement; (b) Subordinated Debt; (c) other Indebtedness outstanding on the
date hereof and listed on Exhibit G; (d) Indebtedness resulting from loans and
advances permitted by Section 10.19(f) and (g); (e) Indebtedness hereafter
incurred in connection with Liens permitted under Section 10.17(d); and (f)
other Indebtedness not at any time exceeding $5,000,000.
<PAGE>36
Liens. Not, and not permit any of its Subsidiaries to, create or permit
to exist any Lien with respect to any of its property, revenue or assets,
whether now owned or hereafter acquired, except: (a) Liens for current Taxes not
delinquent or Taxes being contested in good faith and by appropriate proceedings
and as to which such reserves or other appropriate provisions as may be required
by GAAP are being maintained; (b) carriers', warehousemen's, mechanics',
materialmen's, repairmen's, and other like statutory Liens arising in the
ordinary course of business securing obligations which are not overdue or which
are being contested in good faith and by appropriate proceedings and as to which
such reserves or other appropriate provisions as may be required by GAAP are
being maintained; (c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security legislation; (d)
Liens in connection with the acquisition of property after the date hereof by
way of purchase money mortgage, conditional sale or other title retention
agreement, Capitalized Lease or other deferred payment contract, and attaching
only to the property being acquired, if (i) the Indebtedness secured thereby
does not exceed 80% (100% in the case of Capitalized Leases) of the fair market
value of such property at the time of the acquisition thereof and (ii) the
aggregate outstanding amount of such Indebtedness of the Company and its
Subsidiaries does not exceed $1,000,000; (e) Liens in favor of the Bank; and (f)
Liens listed on Exhibit I.
Guaranties. Not, and not permit any of its Subsidiaries to, become or
be a guarantor or surety of, or otherwise become or be responsible in any manner
(whether by agreement to purchase any obligations, stock, assets, goods or
services, or to supply or advance any funds, assets, goods or services, or
otherwise) with respect to, any undertaking of any other Person, except for (a)
the Guaranty and the endorsement, in the ordinary course of collection, of
instruments payable to it or its order and (b) the Coors Guaranty.
Investments. Not, and not permit any of its Subsidiaries to, make or
permit to exist any Investment in any Person, except for: (a) advances to
employees of the Company or any of its Subsidiaries for travel or other ordinary
business expenses provided that the aggregate amount outstanding at any one time
shall not exceed $20,000 for any single employee and $100,000 in the aggregate
for all employees; (b) advances to subcontractors and suppliers in the ordinary
<PAGE>37
course of business not exceeding an aggregate outstanding amount of $500,000;
(c) extensions of credit in the nature of receivables or notes receivable
arising from the sale of goods and services in the ordinary course of business;
(d) shares of stock, obligations or other securities received in settlement of
claims arising in the ordinary course of business; (e) Investments (other than
Investments in the nature of loans or advances) outstanding on the date hereof
in its Subsidiaries; (f) Investments in the nature of loans and advances not
evidenced by notes constituting Indebtedness of Subsidiaries (other than
Borrowing Subsidiaries) of the Company to the Company so long as the aggregate
principal amount of such Indebtedness outstanding shall not at any time exceed
$500,000 for any Subsidiary and $750,000 in the aggregate for all such
Subsidiaries; (g) the Advances; (h) Investments by the Company in joint
ventures, provided that the net book value of all property contributed to such
joint venture shall not exceed 5% of the Net Worth of the Company; and (i) other
Investments outstanding on the date hereof and listed on Exhibit H.
Subsidiaries. Not, and not permit any of its Subsidiaries to, acquire
any stock or similar interest in any Person, and not create, establish or
acquire any Subsidiaries other than those existing on the date of this
Agreement.
Leases. Not enter into or permit to exist, or permit any of its
Subsidiaries to enter into or permit to exist, any arrangements for the leasing
by the Company or such Subsidiary, as lessee under a lease which is not a
Capitalized Lease, of any real or personal property (or any interest therein)
other than leases which provide for rental payments by the Company and its
Subsidiaries of less than $5,000,000 in the aggregate per Fiscal Year.
Future Environmental Assessments. Provide such information and
certifications as the Bank may reasonably request from time to time but in no
event more than once each year unless triggered under clause (a) or (b) of this
Section 10.22, pertaining to the environmental aspects of the Company and its
Subsidiaries and any property owned, operated or controlled by the Company or
any Subsidiary. To investigate environmental aspects of the Company and its
Subsidiaries and their properties, facilities and operations, the Bank or its
agents shall have the right, but no obligation, upon reasonable notice and in a
manner which will not unreasonably interfere with the normal business activities
of the Company and its Subsidiaries, to enter upon the property of the Company
<PAGE>38
or any Subsidiary during normal business hours, take samples, review the books,
records or other documents of the Company and its Subsidiaries, interview
officers and employees and independent contractors of the Company or its
Subsidiaries, and conduct such other activities as the Bank, in its sole
discretion, deems appropriate (provided that the Bank shall conduct all of the
foregoing activities in a manner which will not materially interfere with the
business of the Company or any Subsidiary). The Company shall, and shall cause
its Subsidiaries to, cooperate fully in the conduct of any such assessment.
While at the property, the Bank shall comply with all of the Company's
environmental, health and safety practices and procedures of which the Bank is
informed and shall ensure that its actions taken pursuant to this Section 10.22
cause no injury or damage or threat of injury or damage to any property or to
any Person. If the Bank decides to cause such an assessment to be conducted
because of (a) the Bank's considering taking possession of or title to the
property after the occurrence of an Event of Default or (b) a material change in
the use of the property which, in the Bank's opinion, increases the risk of
non-compliance with Environmental Laws or increases the risk of costs or
liabilities thereunder, then the Company shall pay upon demand all reasonable
costs and expenses (including Attorneys' Fees) connected with such assessment.
The Bank may, in its discretion, provide for the payment of any amount due from
the Company under this Section 10.22 by making the Company a Loan upon three
Business Days' notice to the Company. Nothing in this Section 10.22, and no
actions taken by the Bank pursuant hereto, shall be construed as affecting,
directing, influencing, or controlling, or giving to the Bank the right,
capacity or obligation to direct or control, the conduct or action or inaction
of the Company or any Subsidiary with respect to any environmental matters,
including but not limited to those pertaining to compliance with any
Environmental Law and Hazardous Material disposal.
Related Agreements. Not, and not permit any of its Subsidiaries to,
enter any agreement containing any provision which would be violated or breached
by the performance by the Company or such Subsidiary of its obligations
hereunder or under any Loan Document or any instrument or document delivered or
to be delivered by the Company or such Subsidiary in connection herewith.
Unconditional Purchase Options. Not, and not permit any of its
Subsidiaries to, enter into or be a party to any contract for the purchase of
materials, supplies or other property or services, if such contract requires
that payment be made by it regardless of whether or not delivery is ever made of
such materials, supplies or other property or services.
Transactions with Related Parties. Not, and not permit any of its
Subsidiaries to, enter into or be a party to any transaction or arrangement,
including, without limitation, the purchase, sale, lease or exchange of property
or the rendering of any service, with any Related Party, except in the ordinary
course of and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than would obtain in a comparable arm's-length
transaction with a Person not a Related Party. Notwithstanding the foregoing:
<PAGE>39
(a) if the Company purchases or otherwise acquires all or
substantially all of the assets or capital stock of any Person, then so
long as no Event of Default or Unmatured Event of Default exists or
would result therefrom, the Company may pay Interlaken Capital, Inc.
investment banker's or similar fees in connection therewith in an
amount calculated in accordance with the Lehman Formula (as defined
below); and
(b) the Company may make payments and distributions expressly
permitted by Section 10.14.
For purposes of clause (a) above "Lehman Formula" means, with respect
to the payment of investment banker's or similar fees, fees based upon the
aggregate consideration paid (regardless of the form of the consideration) in
the acquisition of assets or stock of any Person on the following basis: 5% of
the first $1,000,000 of aggregate consideration; 4% of the next $1,000,000 of
aggregate consideration; 3% of the next $1,000,000 of aggregate consideration;
2% of the next $1,000,000 of aggregate consideration; and 1% of all additional
amounts of aggregate consideration.
Landlord's Consents. Provide the Bank with landlord's consents with
respect to (i) the location listed on Exhibit O on or before March 15, 1996 and
(ii) any other location of the Company or any Guarantor at which is maintained
collateral with a book value equal to or greater than $500,000 (other than
in-plant stores) within 60 days of the date on which the Company or such
Guarantor first maintains collateral at such location with a book value equal to
or greater than $500,000.
Further Assurances. Take, and cause each Material Subsidiary to take,
such actions as the Bank may reasonably request from time to time (including,
without limitation, the execution and delivery of guaranties, security
agreements, pledge agreements, financing statements and other documents, the
filing or recording of any of the foregoing, and the delivery of stock
certificates and other collateral with respect to which perfection is obtained
by possession) to ensure that (i) the obligations of the Company hereunder and
under the other Loan Documents are secured by substantially all of the personal
property of the Company and guarantied by all Material Subsidiaries of the
Company (including, promptly upon the acquisition or creation thereof, any
Material Subsidiary acquired or created after the date hereof) and (ii) the
obligations of each Material Subsidiary under the Guaranty are secured by
substantially all of the personal property of such Material Subsidiary, subject,
in the case of both clause (i) and clause (ii) above, to such exceptions as the
Bank may permit from time to time.
CONDITIONS OF LENDING.
The obligation of the Bank to make Loans and issue Letters of Credit is
subject to the following conditions precedent:
Initial Loan. The obligation of the Bank to make its initial Loan and
to issue any Letter of Credit is, in addition to the conditions precedent
specified in Sections 11.2, subject to the conditions precedent that the Bank
shall have received (a) the fee required to be paid pursuant to Section 5.3 and
(b) all of the following, each duly executed and dated the Effective Date (or
such earlier date as shall be satisfactory to the Bank), in form and substance
satisfactory to the Bank (and the date on which all such conditions precedent
have been satisfied or waived in writing by the Bank is herein called the
"Effective Date"):
<PAGE>40
Note. The Note of the Company payable to the order of the Bank.
Resolutions. Certified copies of resolutions of the Board of Directors
of the Company authorizing or ratifying the execution, delivery and performance,
respectively, of this Agreement, the Note, the Letter of Credit Applications and
the other Loan Documents to which the Company is a party; and certified copies
of resolutions of the Board of Directors of each Guarantor authorizing or
ratifying the extension, delivery and performance by such Guarantor of each Loan
Document to which such Guarantor is a party.
Consents, etc. Certified copies of all documents evidencing any
necessary corporate action, consents and governmental approvals (if any) with
respect to this Agreement, the Note, the Letter of Credit Applications, and the
other documents provided for in this Agreement.
Incumbency and Signatures. A certificate of the Secretary or an
Assistant Secretary of the Company and each Guarantor and certifying the names
of the officer or officers of such entity authorized to sign the Loan Documents
to which such entity is a party, together with a sample of the true signature of
each such officer.
Opinion of Counsel for the Company. The opinion of Willkie Farr &
Gallagher, counsel to the Company and the Guarantors, substantially in the form
of Exhibit J.
Guaranty. A Guaranty issued by the Guarantors, substantially in the
form of Exhibit K (as amended, supplemented or otherwise modified from time to
time, the "Guaranty").
Security Agreement. A security agreement, substantially in the form
of Exhibit M, issued by the Company and each Guarantor (as amended,
supplemented or otherwise modified from time to time, the "Security
Agreement").
Pledge Agreements. (a) A pledge agreement, substantially in the form
of Exhibit N-1, issued by the Company (as amended or otherwise modified from
time to time, the "Company Pledge Agreement").
(b) A pledge agreement, substantially in the form of Exhibit N-2,
issued by SafetyMaster (as amended or otherwise modified from time to time, the
"SafetyMaster Pledge Agreement").
<PAGE>41
(c) A pledge agreement, substantially in the form of Exhibit N-3,
issued by ATSG (as amended or otherwise modified from time to time, the "ATSG
Pledge Agreement").
Other. Such other documents as the Bank may reasonably request.
All Loans and Letters of Credit. The obligation of the Bank to make its
initial Loan and each subsequent Loan and to issue each Letter of Credit is
subject to the following further conditions precedent that:
No Default. (a) No Event of Default, or Unmatured Event of Default, has
occurred and is continuing or will result from the making of such Loan or the
issuance of such Letter of Credit and (b) the warranties of the Company
contained in Section 9 are true and correct as of the date of such requested
Loan or the issuance of such Letter of Credit, with the same effect as though
made on such date.
Confirmatory Certificate. The Bank shall have received a certificate
dated the date of such requested Loan or Letter of Credit and signed by the
Company's chief financial officer as to the matters set out in Section 11.2.1
(it being understood with respect to each Loan and Letter of Credit that the
request by the Company for the making of a Loan or the issuance of a Letter of
Credit shall be deemed to constitute a certificate as to the matters set out in
Section 11.2.1), together with such other documents as the Bank may reasonably
request in support thereof, including, without limitation, in the case of each
Loan and Letter of Credit, duly executed and updated copies or other
confirmations of the continuing effectiveness of any or all of the documents
(except the Note) provided for in Section 11.1.
EVENTS OF DEFAULT AND THEIR EFFECT.
Events of Default. Each of the following shall constitute an Event
of Default under this Agreement:
Non-Payment of the Note, etc. Default in the payment when due of any
principal of the Note, or default, and continuance thereof for five days, in the
payment when due of any interest on the Note, or any reimbursement obligation
with respect to any Letter of Credit or any fees or other amounts payable by the
Company hereunder.
<PAGE>42
Non-Payment of Other Indebtedness for Borrowed Money. Default in the
payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any other indebtedness for borrowed money in
excess of $250,000 of, or guaranteed by, the Company or any Subsidiary or
default in the performance or observance of any obligation or condition with
respect to any such other indebtedness if the effect of such default is to
accelerate the maturity of any such indebtedness or to permit the holder or
holders thereof, or any trustee or agent for such holders, to cause such
indebtedness to become due and payable prior to its express maturity.
Other Material Obligations. Default in the payment when due, or in the
performance or observance of, any material obligation of, or condition agreed to
by, the Company or any Subsidiary with respect to (i) any agreement between the
Company or any Subsidiary and the Bank or any afiliate of the Bank (subject to
any applicable grace period) or (ii) any material purchase or lease of goods or
services (except, in the case of this clause (ii), to the extent that the
existence of any such default is being contested by the Company or such
Subsidiary in good faith and by appropriate proceedings and appropriate reserves
have been made in respect of such default).
Bankruptcy, Insolvency, etc. The Company or any Subsidiary becomes
insolvent; the Company or any Subsidiary generally fails to pay, or admits in
writing its inability or refusal to pay, debts as they become due; or the
Company or any Subsidiary applies for, consents to, or acquiesces in the
appointment of a trustee, receiver or other custodian for the Company or such
Subsidiary or any property thereof, or makes a general assignment for the
benefit of creditors; or, in the absence of such application, consent or
acquiescence, a trustee, receiver or other custodian is appointed for the
Company or any Subsidiary or for a substantial part of the property of any
thereof and is not discharged within 60 days; or any bankruptcy, reorganization,
debt arrangement, or other case or proceeding under any bankruptcy or insolvency
law, or any dissolution or liquidation proceeding (except the voluntary
dissolution, not under any bankruptcy or insolvency law, of a Subsidiary), is
commenced in respect of the Company or any Subsidiary, and if such case or
proceeding is not commenced by the Company or such Subsidiary, it is consented
to or acquiesced in by the Company or such Subsidiary, or remains for 60 days
undismissed; or the Company or any Subsidiary takes any corporate action to
authorize, or in furtherance of, any of the foregoing.
<PAGE>43
Non-Compliance with Certain Provisions of This Agreement. Failure of
the Company to comply with the provisions of Sections 10.2, 10.4, 10.8, 10.13
through 10.21 and 10.23 through 10.26 of this Agreement.
Non-Compliance with Other Provisions of This Agreement. Failure by the
Company to comply with or to perform any provision of this Agreement (and not
constituting an Event of Default under any of the other provisions of this
Section 12) and continuance of such failure for 30 days after notice thereof to
the Company from the Bank or any other holder of the Note.
Warranties. Any warranty made by the Company herein or in any Letter of
Credit Application is breached or is false or misleading in any material
respect, or any schedule, certificate, financial statement, report, notice, or
other writing furnished by the Company to the Bank is false or misleading in any
material respect on the date as of which the facts therein set forth are stated
or certified.
Invalidity of Guaranties, etc. Any Guaranty shall cease to be in full
force and effect with respect to any Guarantor, any Guarantor shall fail
(subject to any applicable grace period) to comply with or to perform any
applicable provision of its Guaranty, or any Guarantor (or any Person by,
through or on behalf of such Guarantor) shall contest in any manner the
validity, binding nature or enforceability of its Guaranty.
Pension Plans. The institution by the Company or any ERISA Affiliate of
steps to terminate any Pension Plan if, in order to effectuate such termination,
the Company or any ERISA Affiliate would be required to make a contribution to
such Pension Plan, or would incur a liability or obligation to such Pension
Plan, in excess of $500,000; the institution by the PBGC of steps to terminate
any Pension Plan; or a contribution failure occurs with respect to any Pension
Plan sufficient to give rise to a Lien under Section 302(f) of ERISA.
<PAGE>44
Litigation. There shall be entered against the Company or any
Subsidiary one or more judgments or decrees (including, without limitation, any
judgement or decree with respect to the Coors Guaranty) in excess of $250,000 in
the aggregate at any one time outstanding, excluding those judgments or decrees
(i) that shall have been outstanding less than 30 calendar days from the entry
thereof or (ii) for and to the extent which, in the Bank's reasonable judgment,
the Company or such Subsidiary is insured by a responsible insurance company or
for and to the extent which the Company or such Subsidiary, as applicable, is
otherwise indemnified if the terms of such indemnification are reasonably
satisfactory to the Bank.
Conduct of Business. The Company or any Subsidiary is enjoined,
restrained or in any way prevented by court order, which has not been dissolved
or stayed within five Business Days, from conducting all or any material part of
its business affairs.
Ownership. (i) Any Person and its Related Parties (other than the
Interlaken Shareholders) among them have record and beneficial ownership of more
than 30% of the outstanding voting power of the Company on a fully diluted
basis, in any case at any time that the Interlaken Shareholders among them have
record and beneficial ownership of less voting power of the Company, on a fully
diluted basis, or (ii) the Company shall cease to directly or indirectly own or
control 100% of the issued and outstanding capital stock of each of
SafetyMaster, Lewis Supply, ATSG and ISA.
Invalidity of Collateral Documents, etc. Any Collateral Document shall
cease to be in full force and effect with respect to the Company or any
Guarantor, the Company or any Guarantor shall fail (subject to any applicable
grace period) to comply with or to perform any applicable provision of any
Collateral Document to which such entity is a party, or the Company or any
Guarantor (or any Person by, through or on behalf of the Company or such
Guarantor) shall contest in any manner the validity, binding nature or
enforceability of any Collateral Document.
Coors Guaranty. The Company shall make payments under the Coors
Guaranty exceeding, in the aggregate for all such payments during the term of
this Agreement, $250,000.
<PAGE>45
Effect of Event of Default. If any Event of Default described in
Section 12.1.4 shall occur, the Commitment (if it has not theretofore
terminated) shall immediately terminate and the Note and all other obligations
hereunder shall become immediately due and payable and the Company shall
immediately become obligated to deliver to the Bank cash collateral in an amount
equal to the outstanding face amount of all Letters of Credit, all without
presentment, demand, protest or notice of any kind; and, in the case of any
other Event of Default, the Bank may declare the Commitment (if it has not
theretofore terminated) to be terminated and/or declare the Note and all other
obligations hereunder to be due and payable and/or demand that the Company
immediately deliver to the Bank cash collateral in an amount equal to the
outstanding face amount of all Letters of Credit, whereupon the Commitment (if
it has not theretofore terminated) shall immediately terminate and/or the Note
and all other obligations hereunder shall become immediately due and payable
and/or the Company shall immediately become obligated to deliver to the Bank
cash collateral in an amount equal to the outstanding face amount of all Letters
of Credit, all without presentment, demand, protest or notice of any kind. The
Bank shall promptly advise the Company of any such declaration, but failure to
do so shall not impair the effect of such declaration. Any cash collateral
delivered hereunder shall be held by the Bank (without liability for interest
thereon) and applied to obligations arising in connections with any drawing
under a Letter of Credit. After the expiration or termination of all Letters of
Credit, such cash collateral shall be applied by the Bank to any remaining
obligations hereunder and any excess shall be delivered to the Company or as a
court of competent jurisdiction may direct.
<PAGE>46
GENERAL.
Waiver; Amendments. No delay on the part of the Bank or any holder of
the Note in the exercise of any right, power or remedy shall operate as a waiver
thereof, nor shall any single or partial exercise by any of them of any right,
power or remedy preclude other or further exercise thereof, or the exercise of
any other right, power or remedy. No amendment, modification or waiver of, or
consent with respect to, any provision of this Agreement or the Note shall in
any event be effective unless the same shall be in writing and signed and
delivered by the Bank and, in the case of any such amendment or modification,
the Company.
Notices. Except as otherwise provided in Sections 2.3, 2.4 and 4.3, all
notices hereunder shall be in writing (including, without limitation, facsimile
transmission) and shall be sent to the applicable party at its address shown
below its signature hereto or at such other address as such party may, by
written notice received by the other party, have designated as its address for
such purpose. Notices sent by telegram or facsimile transmission shall be deemed
to have been given when sent; notices sent by mail shall be deemed to have been
given three Business Days after the date when sent by registered or certified
mail, postage prepaid; and notices sent by hand delivery shall be deemed to have
been given when received.
Computations. Where the character or amount of any asset or liability
or item of income or expense is required to be determined, or any consolidation
or other accounting computation is required to be made, for the purpose of this
Agreement, such determination or calculation shall, to the extent applicable and
except as otherwise specified in this Agreement, be made in accordance with
GAAP.
Costs, Expenses and Taxes. The Company agrees to pay on demand all
out-of-pocket costs and expenses of the Bank (including Attorneys' Costs) in
connection with the preparation, execution, delivery and administration of this
Agreement, the Note, and all other instruments or documents provided for herein
or delivered or to be delivered hereunder or in connection herewith (including,
without limitation, any amendments to or other modifications of any of the
foregoing documents) and all out-of-pocket costs and expenses (including
Attorneys' Costs) incurred by the Bank in connection with the enforcement of
<PAGE>47
this Agreement, the Note, or any such other instruments or documents or in
connection with any "work-out" or restructuring of the Company's obligations
hereunder. In addition, the Company agrees to pay, and to save the Bank harmless
from all liability for, any stamp or other taxes or filing fees or recording
charges which may be payable in connection with the execution or delivery of
this Agreement, the borrowings hereunder, the issuance of the Note or the
issuance of other instruments or documents provided for herein or delivered or
to be delivered hereunder or in connection herewith. All obligations provided
for in this Section 13.4 shall survive any termination of this Agreement.
Captions. Section captions used in this Agreement are for
convenience only and shall not affect the construction of this Agreement.
Governing Law. This Agreement and the Note shall be a contract made
under and governed by the internal laws of the State of Illinois. Whenever
possible each provision of this Agreement shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement. All obligations of the Company and rights of the Bank and any other
holder of the Note expressed herein or in the Note shall be in addition to and
not in limitation of those provided by applicable law.
Counterparts; Effectiveness. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same Agreement.
Successors and Assigns. This Agreement shall be binding upon the
Company, the Bank and their respective successors and assigns, and shall inure
to the benefit of the Company and the Bank and the successors and assigns of the
Bank.
<PAGE>48
Indemnification by the Company. (a) In consideration of the execution
and delivery of this Agreement by the Bank and the agreement to extend the
Commitment provided hereunder, the Company hereby agrees to indemnify, exonerate
and hold the Bank and each of the officers, directors, employees and agents of
the Bank (collectively herein called the "Bank Parties" and individually each
called a "Bank Party") free and harmless from and against any and all actions,
causes of action, suits, losses, liabilities, damages and expenses, including,
without limitation, reasonable attorneys' fees and disbursements (collectively,
the "Indemnified Liabilities"), incurred by the Bank Parties or any of them as a
result of, or arising out of, or relating to any transaction financed or
proposed to be financed in whole or in part, directly or indirectly, with the
proceeds of any of the Loans, except for any such Indemnified Liabilities
arising on account of any such Bank Party's gross negligence or willful
misconduct. If and to the extent that the foregoing undertaking may be
unenforceable for any reason, the Company hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
(b) The Company agrees to reimburse the Bank and each of the
directors, officers, employees and agents of the Bank (each an "Indemnified
Party") against any and all losses, claims, damages, penalties, judgments,
liabilities and expenses (including all reasonable attorneys' and consultant's
fees) which any Indemnified Party may pay, incur or become subject to arising
out of or relating to the use, handling, emission, discharge, transportation,
storage, treatment or disposal of any Hazardous Substance at any real property
owned, operated or leased by the Company, except to the extent caused by the
acts or omissions of any Indemnified Party.
(c) All obligations provided for in this Section 13.9 shall survive
any termination of this Agreement.
Waiver of Jury Trial. EACH OF THE COMPANY AND THE BANK HEREBY WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, AND ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
Consent to Jurisdiction. THE COMPANY IRREVOCABLY AGREES THAT ALL ACTIONS OR
PROCEEDINGS IN ANY WAY, MANNER OR RESPECT ARISING OUT OF OR FROM OR RELATED TO
THIS AGREEMENT OR ANY LOAN DOCUMENT SHALL BE LITIGATED IN COURTS HAVING SITUS
WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. THE COMPANY HEREBY CONSENTS AND
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN
SAID CITY AND STATE AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON THE
COMPANY, AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED
MAIL DIRECTED TO THE COMPANY AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF
AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
<PAGE>49
Delivered at Chicago, Illinois, as of the day and year first above written.
STRATEGIC DISTRIBUTION, INC.
By: /s/ Theodore R. Rieple
Title: President
165 Mason Street
Greenwich, Connecticut 06830
Telephone: 203-629-8750
Facsimile: 203-629-8554
Attention: Catherine B. James
BANK OF AMERICA ILLINOIS
By: /s/ Randolph T. Kohler
Title: Senior Vice President
231 South LaSalle Street
Chicago, Illinois 60697
Telephone: 312-828-2638
Facsimile: 312-828-6647
Attention: Randolph T. Kohler
<PAGE>A-1
EXHIBIT A
FORM OF
NOTE
$20,000,000 December 31, 1995
Chicago, Illinois
The undersigned, for value received, promises to pay to the order of
Bank of America Illinois, an Illinois banking corporation having its principal
office at 231 South LaSalle Street, Chicago, Illinois (the "Bank") at the
principal office of the Bank in Chicago, Illinois, TWENTY MILLION DOLLARS or, if
less, the aggregate unpaid amount of all Loans made by the undersigned pursuant
to the Credit Agreement referred to below (as shown on the schedule attached
hereto (and any continuation thereof) or in the records of the Bank), such
principal amount to be payable in installments as set forth in the Credit
Agreement.
The undersigned further promises to pay interest on the unpaid
principal amount of each Loan from the date of such Loan until such Loan is paid
in full, payable at the rate(s) and at the time(s) set forth in the Credit
Agreement. Payments of both principal and interest are to be made in lawful
money of the United States of America.
This Note evidences indebtedness incurred under, and is subject to the
terms and provisions of, the Credit Agreement, dated as of December 31, 1995
(herein, as amended or otherwise modified from time to time, called the "Credit
Agreement"), between the undersigned and the Bank, to which Credit Agreement
reference is hereby made for a statement of the terms and provisions under which
this Note may or must be paid prior to its due date or its due date accelerated.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further agrees, subject only
to any limitation imposed by applicable law, to pay all expenses, including
reasonable attorneys' fees and legal expenses, incurred by the holder of this
Note in endeavoring to collect any amounts payable hereunder which are not paid
when due, whether by acceleration or otherwise.
<PAGE>A-2
This Note is made under and governed by the internal laws of the State
of Illinois.
STRATEGIC DISTRIBUTION, INC.
By:__________________________
Title:_______________________
<PAGE>A-3
Schedule Attached to Note dated December 31, 1995 of STRATEGIC DISTRIBUTION,
INC. payable to the order of BANK OF AMERICA ILLINOIS.
Date and Date and
Amount of Amount of
Loan or of Repayment or of Interest
Conversion from Conversion into Period/ Unpaid
another type of another type of Maturity Principal Notation
Loan Loan Date Balance Made by
1. FLOATING RATE LOANS
________________________________
________________________________
________________________________
________________________________
2. EURODOLLAR LOANS
________________________________
________________________________
________________________________
________________________________
<PAGE>
EXHIBIT 21
----------
Wholly-Owned United States
Subsidiaries of the Company State of Incorporation
- --------------------------- ----------------------
SafetyMaster Corporation Delaware
Coulson Technologies, Inc.
(wholly-owned subsidiary
of SafetyMaster Corporation) Delaware
FastenMaster Corporation, Inc.
(wholly-owned subsidiary
of SafetyMaster Corporation) Delaware
Lewis Supply (Delaware), Inc. Delaware
Industrial Systems Associates, Inc. Pennsylvania
American Technical Services Group, Inc. Delaware
ATS Phoenix Inc.
(wholly-owned subsidiary of
American Technical Services Group, Inc.) Delaware
National Technical Services Group, Inc.
(wholly-owned subsidiary of
American Technical Services Group, Inc.) Delaware
Wholly-Owned Foreign
Subsidiaries of the Company Country
- --------------------------- -------
Strategic Distribution Services
De Mexico, S.A. De C.V. Mexico
Strategic Distribution Marketing
De Mexico, S.A. De C.V. Mexico
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Strategic Distribution, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-57578 and No. 333-01715) on Forms S-8 of Strategic Distribution, Inc. of our
report dated March 18, 1996 relating to the consolidated balance sheets of
Strategic Distribution, Inc. and subsidiaries as of December 31, 1995 and 1994
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1995, which report appears in the December 31, 1995 Annual Report on Form 10-K
of Strategic Distribution, Inc.
KPMG PEAT MARWICK LLP
Stamford, Connecticut
March 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000073822
<NAME> Strategic Distribution, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-1-1995
<PERIOD-END> Dec-31-1995
<CASH> 640,360
<SECURITIES> 0
<RECEIVABLES> 20,104,270
<ALLOWANCES> 0
<INVENTORY> 15,422,066
<CURRENT-ASSETS> 38,074,884
<PP&E> 3,352,948
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,050,644
<CURRENT-LIABILITIES> 14,476,303
<BONDS> 5,903,401
<COMMON> 217,666
0
0
<OTHER-SE> 25,219,274
<TOTAL-LIABILITY-AND-EQUITY> 48,050,644
<SALES> 117,493,338
<TOTAL-REVENUES> 117,493,338
<CGS> 91,595,757
<TOTAL-COSTS> 91,595,757
<OTHER-EXPENSES> 23,938,649
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98,006
<INCOME-PRETAX> 1,860,926
<INCOME-TAX> 857,000
<INCOME-CONTINUING> 1,003,926
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<EXTRAORDINARY> 0
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<NET-INCOME> 1,003,926
<EPS-PRIMARY> .05
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