<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-5228
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STRATEGIC DISTRIBUTION, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-1849240
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
3220 Tillman Drive, Suite 200, Bensalem, PA 19020
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(Address of principal executive offices) (Zip Code)
215-396-3088
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
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Number of Common Shares outstanding at August 3, 1998: 31,269,646
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TABLE OF CONTENTS
Part I - Financial Information
<TABLE>
<CAPTION>
Item 1 Page No.
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<S> <C> <C>
Consolidated Financial Statements:
- Consolidated Balance Sheets - 1
June 30, 1998 (unaudited)
and December 31, 1997
- Consolidated Statements of Operations 2
(unaudited) - Three Months and Six
Ended June 30, 1998 and 1997
- Consolidated Statements of Cash Flows 3
(unaudited) - Six Months Ended
June 30, 1998 and 1997
- Notes to Consolidated Financial Statements 4
(unaudited)
Item 2
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Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Part II - Other Information
Item 4
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Submission of Matters to a Vote of Security 13
Holders
Item 6
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Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except for share data)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(unaudited)
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 2,988 $ 15,941
Short-term investments -- 2,997
Accounts receivable, net 33,290 28,772
Notes receivable 360 230
Inventories 27,478 23,712
Prepaid expenses and other current assets 322 301
Deferred income taxes 1,141 1,141
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Total current assets 65,579 73,094
Notes receivable 2,500 2,941
Property and equipment, net 8,142 5,290
Net assets of discontinued operations -- 915
Intangible assets, net 7,802 8,327
Other assets 830 115
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Total assets $ 84,853 $ 90,682
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Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 21,533 $ 26,499
Current portion of long-term debt (related party $500 in 1997) 20 519
-------- --------
Total current liabilities 21,553 27,018
Long-term debt 58 69
Subordinated debt to related party 1,400 1,400
Net liabilities of discontinued operations 112 --
Deferred income taxes 101 101
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Total liabilities 23,224 28,588
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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 50,000,000 shares; issued and
outstanding: 31,276,996 and 31,101,054 shares 3,128 3,110
Additional paid-in capital 94,223 93,540
Accumulated deficit (34,369) (33,506)
Notes receivable from related parties (1,303) (1,000)
Treasury stock, at cost (12,500 shares) (50) (50)
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Total stockholders' equity 61,629 62,094
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Total liabilities and stockholders' equity $ 84,853 $ 90,682
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</TABLE>
See accompanying notes to consolidated financial statements.
1
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
(in thousands, except for share data)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 52,404 $ 41,270 $ 102,862 $ 75,776
Costs and expenses:
Cost of materials 40,612 32,935 80,490 60,504
Operating wages and benefits 4,378 3,589 8,627 6,919
Other operating expenses 1,878 1,511 3,547 2,415
Selling, general and administrative expenses 5,524 4,548 11,516 8,412
Acquired in-process research and development -- -- -- 8,000
---------- ---------- ---------- ----------
Total costs and expenses 52,392 42,583 104,180 86,250
---------- ---------- ---------- ----------
Operating income (loss) 12 (1,313) (1,318) (10,474)
Interest income (expense):
Interest expense (33) (41) (66) (73)
Interest income 214 321 521 696
---------- ---------- ---------- ----------
Interest income, net 181 280 455 623
---------- ---------- ---------- ----------
Income (loss) from continuing operations 193 (1,033) (863) (9,851)
Loss from sale of discontinued operations -- (4,500) -- (4,500)
---------- ---------- ---------- ----------
Net income (loss) $ 193 $ (5,533) $ (863) $ (14,351)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per common share - basic and diluted:
Income (loss) from continuing operations $ 0.01 $ (0.03) $ (0.03) $ (0.33)
Loss from sale of discontinued operations -- (0.15) -- (0.15)
---------- ---------- ---------- ----------
Net income (loss) $ 0.01 $ (0.18) $ (0.03) $ (0.48)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of shares of common stock outstanding:
Basic 31,212,298 30,399,446 31,178,814 30,207,594
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted 31,670,300 30,399,446 31,178,814 30,207,594
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
2
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $ (863) $ (9,851)
Adjustments to reconcile loss from continuing operations
to net cash used in continuing operations:
Depreciation and amortization 1,201 937
Acquired in-process research and development -- 8,000
Changes in operating assets and liabilities, net of effects of acquisition:
Short-term investments 2,997 --
Accounts receivable (4,518) (6,323)
Inventories (3,766) (5,878)
Prepaid expenses and other current assets (21) (358)
Accounts payable and accrued expenses (4,966) 8,474
Other, net (425) (7)
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Net cash used in continuing operations (10,361) (5,006)
Discontinued operations:
Net loss -- (4,500)
Change in net assets and liabilities 327 4,440
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Net cash used in operating activities (10,034) (5,066)
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Cash flows from investing activities:
Acquisition of business, net of cash acquired -- (10,769)
Proceeds from sales of discontinued operations 700 7,458
Additions of property and equipment (3,507) (1,060)
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Net cash used in investing activities (2,807) (4,371)
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Cash flows from financing activities:
Proceeds from sale of common stock 398 900
Repayment of note payable -- (400)
Repayment of long-term obligations (510) (261)
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Net cash provided by (used in) financing activities (112) 239
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Decrease in cash and cash equivalents (12,953) (9,198)
Cash and cash equivalents, beginning of the period 15,941 35,498
-------- --------
Cash and cash equivalents, end of the period $ 2,988 $ 26,300
-------- --------
-------- --------
Supplemental cash flow information:
Taxes paid $ 18 $ 2
Interest paid 66 60
</TABLE>
See accompanying notes to consolidated financial statements.
3
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STRATEGIC DISTRIBUTION, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(unaudited)
1. The accompanying unaudited consolidated financial statements include the
accounts of Strategic Distribution, Inc. and subsidiaries (the "Company"). These
financial statements have been prepared in accordance with the instructions of
Form 10-Q. In the opinion of management, all adjustments (consisting of a normal
and recurring nature) considered necessary for a fair presentation of the
results of operations for the three months and six months ended June 30, 1998
and 1997 have been included. The statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
2. On November 11, 1996, the Company announced its intention to sell its
Strategic Supply, Inc. ("SSI") and American Technical Services Group, Inc.
("ATSG") subsidiaries in order to focus more directly on the development of
the Company's In-Plant Store-Registered Trademark- business. The Company has
reflected SSI and ATSG as discontinued operations in the accompanying
financial statements.
On June 2, 1997, the Company sold substantially all of the assets and
business of SSI to DXP Acquisition, Inc., a wholly-owned subsidiary of DXP
Enterprises, Inc. (collectively referred to as "DXP")(excluding accounts
receivable of $5,669,000, which were retained by the Company and which were
substantially collected as of December 31, 1997). DXP also assumed certain
obligations and liabilities of SSI in connection with the sale. Consideration
for the sale consisted of $4,269,000 in cash, promissory notes from DXP in the
aggregate amount of $3,189,000, as adjusted, and an earn-out (contingent
payment), which could result in additional compensation to the Company of up to
$3,500,000. Total consideration in the sale approximated the carrying value of
the net assets divested, however, due to the contingent nature of a portion of
the consideration, the Company recorded a charge of $3,500,000 to loss on sale
of discontinued operations in the second quarter of 1997.
On June 4, 1998, the Company sold substantially all of the assets and
certain liabilities of ATSG to SPEC/ATS, Inc. Consideration for the sale
approximated the carrying value of the net assets sold, and consisted of
$700,000 in cash at closing, with a purchase price adjustment based on closing
net worth and collected accounts receivable to be determined. The sale agreement
also provides for an earn-out (contingent payment), which could result in
additional compensation to the Company. Due to the contingent nature of the
earn-out, no benefit was recognized related to this portion of the
consideration. In the second quarter of 1997, the Company recorded a $1,000,000
charge to loss on sale of discontinued operations, which included estimated
losses of ATSG through the date of sale and the write-off of certain intangible
assets in connection with the sale.
4
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3. On January 28, 1997, the Company, through a newly formed subsidiary,
acquired all of the outstanding common stock of INTERMAT International
Materials Management Engineers, Inc. In November 1997, the subsidiary changed
its name to INTERMAT, Inc. ("INTERMAT-Registered Trademark-"). The purchase
price consisted of $10,800,000 in cash, a $1,400,000 subordinated note, and
625,000 newly issued shares of the Company's common stock with a fair market
value of $2,406,000. The method of accounting for the acquisition was the
purchase method. The excess of purchase cost over the fair value of the
underlying net assets acquired was allocated to intangible assets, including
in-process research and development, technology, customer list, trademarks,
and assembled workforce, based on their respective fair values as determined
by an independent appraisal. In connection with the acquisition, the Company
recorded a charge of $8,000,000 in the first quarter of 1997, as a result of
the write-off of in-process research and development. The holder of the
subordinated note is an officer and director of the Company.
The results of operations of INTERMAT are included in the Company's
statements of operations from date of acquisition. The following unaudited pro
forma consolidated results of operations of the Company assume the acquisition
occurred on January 1, 1997.
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
----------------
<S> <C>
Revenues $76,154
Net loss from continuing operations $(9,996)
Net loss per common share from
continuing operations $ (0.33)
</TABLE>
The pro forma consolidated results do not purport to be indicative of
results that would have occurred had the acquisition been in effect from January
1, 1997.
4. Effective as of May 8, 1998, the Company entered into a new revolving credit
agreement with its bank providing maximum borrowings of $50,000,000. Borrowings
bear interest at the bank's reference rate (8.25% as of June 30, 1998) and/or a
Eurodollar rate, with a commitment fee over the term of the agreement which
ranges from 0.125% to 0.25% on the unused portion of the credit available. The
credit facility expires on May 8, 2001. The amount that the Company may borrow
under the credit facility is based upon eligible accounts receivable and
inventories. 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. As of June 30,
1998, there were no borrowings outstanding under the credit facility.
5. For the three months ended June 30, 1998, the weighted average number of
shares used to calculate diluted net income per common share, includes the
assumed exercise of stock options and warrants equivalent to 458,002 shares
under the treasury stock method. Options
5
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to purchase approximately 1,900,000 shares at prices ranging from $5.64 to $8.00
per share were outstanding during the three months ended June 30, 1998, but were
not included in the computation of diluted net income per common share because
the market price of the common shares did not exceed the options' exercise
prices for substantially all of three consecutive months ending on June 30,
1998.
The weighted average number of shares used to calculate diluted net income per
common share for the three months ended June 30, 1997 and for the six months
ended June 30, 1998 and 1997, do not include the assumed exercise of stock
options or warrants because the effect is antidilutive. As of June 30, 1998 and
1997, there were stock options and warrants outstanding for approximately
3,100,000 and 2,900,000 shares of common stock.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Certain statements in this Form 10-Q constitute forward-looking
statements, which involve risks and uncertainties. The Company's actual results
in the future could differ significantly from the results discussed or implied
in such forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, those related to the Company's
ability to manage growth, termination of contracts by the Company's customers,
competition in the Company's business and the Company's dependence on key
personnel.
The Company provides proprietary maintenance, repair and operating
("MRO") supply procurement and handling solutions to industrial sites,
primarily through its In-Plant Store-Registered Trademark- program. The
Company became a provider of the In-Plant Store program in 1994 and conducts
its operations primarily through its wholly owned subsidiaries, Industrial
Systems Associates, Inc. ("ISA") and INTERMAT, Inc. ("INTERMAT-Registered
Trademark-"). At June 30, 1998, the Company had 121 In-Plant Store facilities.
Results of Operations
The following table of revenues and percentages sets forth selected
items of the results of operations.
<TABLE>
<CAPTION>
Three Months ended Six Months ended
-------------------- -------------------
June 30, June 30,
-------------------- -------------------
1998 1997 1998 1997
------- ------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $52,404 $41,270 $102,862 $75,776
100.0% 100.0% 100.0% 100.0%
Cost of materials 77.5 79.8 78.3 79.9
Operating wages and benefits 8.4 8.7 8.4 9.1
Other operating expenses 3.6 3.7 3.4 3.2
Selling, general and administrative
expenses 10.5 11.0 11.2 11.1
Acquired in-process research and
development -- -- -- 10.6
Operating income (loss) -- (3.2) (1.3) (13.9)
Interest income, net 0.3 0.7 0.5 0.8
Income (loss) from continuing
operations 0.3 (2.5) (0.8) (13.1)
Loss from sale of discontinued
operations -- (10.9) -- (5.9)
Net income (loss) 0.3 (13.4) (0.8) (19.0)
</TABLE>
7
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Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Revenues for the three months ended June 30, 1998 increased 27.0% to
$52,404,000 from $41,270,000 for the three months ended June 30, 1997. This
growth resulted primarily from the implementation of new In-Plant Store
facilities. The number of In-Plant Store facilities increased from 88 at June
30, 1997 to 121 at June 30, 1998. One In-Plant Store customer (with which the
Company operates under six separate contracts) represented approximately 11% and
15% of revenues for the three months ended June 30, 1998 and 1997.
Cost of materials as a percentage of revenues decreased to 77.5% for
the three months ended June 30, 1998 from 79.8% in 1997. This decrease is
primarily a result of lower material costs for ISA combined with higher INTERMAT
revenues in 1998 as compared to 1997. INTERMAT's direct material costs are
insignificant, so the consolidated percentage may vary depending upon the
relative revenues of ISA and INTERMAT.
Operating wages and benefits expense as a percentage of revenues
decreased to 8.4% for the three months ended June 30, 1998 from 8.7% in 1997.
This decrease is primarily a result of the percentage of revenues from more
mature In-Plant Store facilities as compared to the percentage of revenues from
new In-Plant Store facilities being greater for the three months ended June 30,
1998 than in 1997. As new In-Plant Store facilities are added, the operating
wages and benefits expenses will continue to increase, however, these expenses
as a percentage of revenues will vary depending upon the rate at which the
Company adds new In-Plant Store facilities. During the start-up phase of new
facilities, these expenses generally increase at a higher rate than revenues are
recognized.
Other operating expenses as a percentage of revenues were comparable at
3.6% for the three months ended June 30, 1998 as compared to 3.7% in 1997.
Selling, general and administrative expenses as a percentage of
revenues decreased to 10.5% for the three months ended June 30, 1998 from 11.0%
in 1997. The three months ended June 30, 1997 included higher corporate costs
related to the closing of the Company's Colorado office and consolidation of the
Company's corporate headquarters.
Interest income, net decreased by $99,000 to $181,000 for the three
months ended June 30, 1998 when compared with interest income, net of $280,000
in 1997. The decrease resulted primarily from the use of cash and cash
equivalents to finance the working capital requirements of new In-Plant Store
facilities, thereby reducing the funds available to earn interest income.
Loss on sale of discontinued operations in 1997 included a $3,500,000
charge related to the sale of the Company's Strategic Supply, Inc. ("SSI")
subsidiary and a $1,000,000 charge for estimated
8
<PAGE>
losses of the Company's American Technical Services Group, Inc. ("ATSG")
subsidiary.
Net income for the three months ended June 30, 1998 was $193,000,
compared to a net loss of $(5,533,000) in 1997, as a result of the items
previously discussed.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenues for the six months ended June 30, 1998 increased 35.7% to
$102,862,000 from $75,776,000 for the six months ended June 30, 1997. This
growth resulted primarily from the implementation of new In-Plant Store
facilities. The number of In-Plant Store facilities increased from 88 at June
30, 1997 to 121 at June 30, 1998. One In-Plant Store customer (with which the
Company operates under six separate contracts) represented approximately 11% and
18% of revenues for the six months ended June 30, 1998 and 1997.
Cost of materials as a percentage of revenues decreased to 78.3% for
the six months ended June 30, 1998 from 79.9% in 1997. This decrease is
primarily a result of lower material costs for ISA combined with higher INTERMAT
revenues in 1998 as compared to 1997. INTERMAT's direct material costs are
insignificant, so the consolidated percentage may vary depending upon the
relative revenues of ISA and INTERMAT.
Operating wages and benefits expense as a percentage of revenues
decreased to 8.4% for the six months ended June 30, 1998 from 9.1% in 1997. This
decrease is primarily a result of the percentage of revenues from more mature
In-Plant Store facilities as compared to the percentage of revenues from new
In-Plant Store facilities being greater for the six months ended June 30, 1998
than in 1997. As new In-Plant Store facilities are added, the operating wages
and benefits expenses will continue to increase, however, these expenses as a
percentage of revenues will vary depending upon the rate at which the Company
adds new In-Plant Store facilities. During the start-up phase of new facilities,
these expenses generally increase at a higher rate than revenues are recognized.
Other operating expenses as a percentage of revenues increased to 3.5%
for the six months ended June 30, 1998 from 3.2% in 1997. This increase resulted
primarily from higher INTERMAT revenues in 1998 as compared to 1997. INTERMAT's
results of operations reflect a much higher percentage of these expenses than
In-Plant Store operations.
Selling, general and administrative expenses as a percentage of
revenues was comparable at 11.2% for the six months ended June 30, 1998 as
compared to 11.1% in 1997. The six months ended June 30, 1997 included higher
corporate costs related to the closing of the Company's Colorado office and
consolidation of the Company's corporate headquarters. The decrease in these
costs in 1998 was offset by
9
<PAGE>
higher recruiting and travel costs associated with the expansion of the In-Plant
Store program.
Interest income, net decreased by $168,000 to $455,000 for the six
months ended June 30, 1998 when compared with interest income, net of $623,000
in 1997. The decrease resulted primarily from the use of cash and cash
equivalents to finance the working capital requirements of new In-Plant Store
facilities and the acquisition of INTERMAT, thereby reducing the funds available
to earn interest income.
In the six months ended June 30, 1997, the Company incurred a
non-recurring charge of $8,000,000 for acquired in-process research and
development in connection with the acquisition of INTERMAT.
Loss on sale of discontinued operations in 1997 included a $3,500,000
charge related to the sale of SSI and a $1,000,000 charge for estimated losses
of ATSG.
Net loss for the six months ended June 30, 1998 was $(863,000),
compared to a net loss of $(14,351,000) in 1997, as a result of the items
previously discussed.
Liquidity and Capital Resources
At December 31, 1997, the Company was party to a revolving bank credit
agreement which permitted maximum borrowings of $5,000,000, and under which
there were no borrowings outstanding. Effective as of May 8, 1998, the Company
entered into a new revolving credit agreement with its bank providing maximum
borrowings of $50,000,000. Borrowings bear interest at the bank's reference rate
(8.25% as of June 30, 1998) and/or a Eurodollar rate, with a commitment fee over
the term of the agreement which ranges from 0.125% to 0.25% on the unused
portion of the credit available. The credit facility expires on May 8, 2001. The
amount that the Company may borrow under the credit facility is based upon
eligible accounts receivable and inventories. 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. Borrowings under the facility are expected to be used primarily to
fund working capital requirements for the expansion of the In-Plant Store
program.
On January 28, 1997, the Company completed the acquisition of INTERMAT
for a purchase price consisting of $10,800,000 in cash, a $1,400,000
subordinated note and 625,000 newly issued shares of the Company's common stock.
The cash portion of the purchase price was funded from available cash and cash
equivalents.
On June 2, 1997, the Company sold substantially all of the assets and
business of SSI. Consideration for the sale consisted of $4,269,000 in cash,
promissory notes in the aggregate amount of $3,189,000, as adjusted, and an
earn-out (contingent payment), which could result in additional compensation to
the Company of up to $3,500,000.
10
<PAGE>
On June 4, 1998, the Company sold substantially all of the assets and
certain liabilities of ATSG. Consideration for the sale consisted of $700,000 in
cash at closing, with a purchase price adjustment based on closing net worth and
collected accounts receivable to be determined. The sale agreement also provides
for an earn-out (contingent payment), which could result in additional
compensation to the Company.
The net cash used in operating activities was $10,034,000 for the six
months ended June 30, 1998 compared to $5,066,000 in 1997. The Company had a
lower loss from continuing operations and lower increases in working capital
requirements in 1998 as compared to 1997, for the Company's In-Plant Store
program. The Company also shifted available funds from short-term investments to
cash equivalents. With its available funds, the Company reduced accounts payable
to take greater advantage of prompt pay discounts and to strengthen supplier
relations.
The net cash used in investing activities was $2,807,000 for the six
months ended June 30, 1998 compared to $4,371,000 in 1997. The decrease reflects
higher expenditures for computer systems and related equipment in 1998, offset
by the net effect of the INTERMAT acquisition and the SSI sale in 1997.
The net cash used in financing activities was $112,000 for the six
months ended June 30, 1998 compared to net cash provided of $239,000 in 1997.
The net cash used in 1998 reflected payment of a $500,000 note to an officer of
the Company. In 1997, cash was provided primarily from the sale of stock to an
officer of the Company and the exercise of stock options.
During 1998 and 1999, the Company will be implementing a
resystemization of its operating and financial data processing systems. This
initiative will utilize technology which addresses and mitigates any Year 2000
issue in the Company's current systems. The Year 2000 issue arises from the fact
that many existing computer software programs use only two digits to identify
the year in date fields and, as such, could fail or create erroneous results by
or at the Year 2000. Costs incurred in connection with this project are being
accounted for in accordance with the provisions of Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (see below).
The Company believes that cash on hand, cash generated from future
operations, and cash from the Company's new bank credit facility will generate
sufficient funds to permit the Company to support the anticipated expansion of
the In-Plant Store program.
11
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Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in financial statements. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997. For the
six months ended June 30, 1998 and 1997, the Company had no items of other
comprehensive income required to be disclosed by the statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 131 requires that public
business enterprises report certain information about operating segments,
products and services, geographic areas and major customers in financial
statements. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997. This statement addresses presentation and disclosure matters and
adoption of the statement will have no effect on the Company's financial
position or results of operations.
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued SOP 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use". SOP
98-1 provides guidance on accounting for the costs of internal use software
projects. The statement is effective for fiscal years beginning after December
15, 1998, however the Company has elected to apply the provisions of the
statement to all internal use software projects effective January 1, 1998, as
encouraged. The provisions of SOP 98-1 are not materially different from the
Company's previous method of accounting for such costs.
12
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PART II
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1998 Annual Meeting of Stockholders (the "1998
Annual Meeting") was held on May 21, 1998. At the 1998 Annual
Meeting, Jeffery O. Beauchamp, William R. Berkley, Andrew M.
Bursky, Arnold W. Donald, Catherine B. James, George E. Krauter,
Jack H. Nusbaum, Joshua A. Polan, Mitchell I. Quain and John M.
Sergey were elected to the Company's Board of Directors, to serve
until the next annual meeting of stockholders and until their
successors are elected and qualify. At the 1998 Annual Meeting,
27,962,769 shares were voted for Mr. Beauchamp and 21,295 votes
were withheld, 27,962,769 shares were voted for Mr. Berkley and
21,295 votes were withheld, 27,960,839 shares were voted for Mr.
Bursky and 23,225 votes were withheld, 27,962,769 shares were
voted for Mr. Donald and 21,295 votes were withheld, 27,930,969
shares were voted for Ms. James and 53,095 votes were withheld,
27,927,363 shares were voted for Mr. Krauter and 56,701 votes were
withheld, 27,961,869 shares were voted for Mr. Nusbaum and 22,195
votes were withheld, 27,961,739 shares were voted for Mr. Polan
and 22,325 votes were withheld, 27,932,769 shares were voted for
Mr. Quain and 51,295 votes were withheld, and 27,961,769 shares
were voted for Mr. Sergey and 22,295 votes were withheld.
At the 1998 Annual Meeting, holders of Common Stock were asked to
ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ending December 31,
1998. 27,962,286 shares were voted for the ratification of the
appointment of KPMG Peat Marwick LLP, with 14,946 shares voting
against and 6,832 shares abstaining.
13
<PAGE>
PART II
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits:
<TABLE>
<CAPTION>
<S> <C>
3.1 Second Restated Certificate of Incorporation of the Company filed
June 21, 1996 with the Secretary of State of the State of
Delaware (incorporated by reference to Exhibit 3.2 of the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1996).
3.2 Amended and Restated Bylaws of the Company, dated July 24, 1986,
as amended (incorporated by reference to Exhibits 3.2 and 3.2(a)
of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995).
4.1 The instruments defining the rights of holders of the long-term
debt securities of the Company are omitted pursuant to Section
(b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company agrees
to furnish supplementary copies of these instruments to the
Commission upon request.
10.1 Loan and Security Agreement, dated as of May 8, 1998, among the
financial institutions named therein as the lenders, BankAmerica
Business Credit, Inc. as the Agent, Industrial Systems
Associates, Inc. as a Borrower and INTERMAT, Inc. as a Borrower.
10.2 Agreement for Sale and Purchase of Assets, dated April 22, 1998,
by and among Strategic Distribution, Inc., American Technical
Services Group, Inc., ATS Phoenix, Inc. and SPEC/ATS, Inc.
(the "ATSG Sale Agreemment").
10.3 Amendment to Agreement for Sale and Purchase of Assets, dated
June 4, 1998, by and among Strategic Distribution, Inc., American
Technical Services Group, Inc., ATS Phoenix, Inc., SPEC/ATS, Inc.
and SPEC Group Holdings, Inc., amending the ATSG Sale Agreement
referenced in Item 10.2.
27 Financial Data Schedule
</TABLE>
(b). Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the second
quarter of 1998.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Strategic Distribution, Inc.
Date: August 10, 1998 By: /s/ John M. Sergey
------------------------
John M. Sergey
President and Chief
Executive Officer
Date: August 10, 1998 By: /s/ David L. Courtright
------------------------
David L. Courtright,
Controller and
Chief Accounting Officer
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
3.1 Second Restated Certificate of
Incorporation of the Company filed June
21, 1996 with the Secretary of State of
the State of Delaware (incorporated by
reference to Exhibit 3.2 of the Company's
Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1996).
3.2 Amended and Restated Bylaws of the Company,
dated July 24, 1986, as amended (incorporated
by reference to Exhibits 3.2 and 3.2(a) of the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.1 Loan and Security Agreement, dated as of
May 8, 1998, among the financial institutions
named therein as the lenders, BankAmerica
Business Credit, Inc. as the Agent, Industrial
Systems Associates, Inc. as a Borrower and
INTERMAT, Inc. as a Borrower.
10.2 Agreement for Sale and Purchase of Assets,
dated April 22, 1998, by and among Strategic
Distribution, Inc., American Technical Services
Group, Inc., ATS Phoenix, Inc. and SPEC/ATS, Inc.
(the "ATSG Sale Agreemment").
10.3 Amendment to Agreement for Sale and Purchase of
Assets, dated June 4, 1998, by and among
Strategic Distribution, Inc., American Technical
Services Group, Inc., ATS Phoenix, Inc.,
SPEC/ATS, Inc. and SPEC Group Holdings, Inc.,
amending the ATSG Sale Agreement referenced in
Item 10.2.
27 Financial Data Schedule
</TABLE>
16
<PAGE>
Exhibit 10.1
LOAN AND SECURITY AGREEMENT
Dated as of May 8, 1998
Among
THE FINANCIAL INSTITUTIONS NAMED HEREIN
as the Lenders
and
BANKAMERICA BUSINESS CREDIT, INC.
as the Agent
and
INDUSTRIAL SYSTEMS ASSOCIATES, INC.
as a Borrower
and
INTERMAT, INC.
as a Borrower
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 INTERPRETATION OF THIS AGREEMENT..........................................................1
1.1. Definitions............................................................................1
1.2. Accounting Terms......................................................................31
1.3. Interpretive Provisions...............................................................31
ARTICLE 2 LOANS AND LETTERS OF CREDIT..............................................................32
2.1. Total Facility........................................................................32
2.2. Revolving Loans.......................................................................32
2.3. Intentionally Omitted.................................................................40
2.4. Letters of Credit.....................................................................41
ARTICLE 3 INTEREST AND FEES........................................................................48
3.1. Interest..............................................................................48
3.2. Conversion and Continuation Elections.................................................49
3.3. Maximum Interest Rate.................................................................50
3.4. Certain Fees..........................................................................51
3.5. Unused Line Fee.......................................................................51
3.6. Letter of Credit Fee..................................................................51
ARTICLE 4 PAYMENTS AND PREPAYMENTS.................................................................52
4.1. Revolving Loans.......................................................................52
4.2. Termination of Facility...............................................................52
4.3. Reduction of Commitments..............................................................52
4.4. Intentionally Omitted.................................................................53
4.5. Intentionally Omitted.................................................................53
4.6. Payments by the Borrowers.............................................................53
4.7. Payments as Revolving Loans...........................................................53
4.8. Apportionment, Application and Reversal of Payments...................................54
4.9. Indemnity for Returned Payments.......................................................54
4.10. Agent's and Lenders' Books and Records; Monthly Statements...........................55
ARTICLE 5 TAXES, YIELD PROTECTION AND ILLEGALITY...................................................55
5.1. Taxes.................................................................................55
5.2. Illegality............................................................................57
5.3. Increased Costs and Reduction of Return...............................................57
5.4. Funding Losses........................................................................58
5.5. Inability to Determine Rates..........................................................58
5.6. Certificates of Lenders...............................................................59
5.7. Survival..............................................................................59
5.8. Replacement Lenders...................................................................59
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE 6 COLLATERAL...............................................................................60
6.1. Grant of Security Interest............................................................60
6.2. Perfection and Protection of Security Interest........................................61
6.3. Location of Collateral................................................................62
6.4. Title to, Liens on, and Sale and Use of Collateral....................................62
6.5. Intentionally Omitted.................................................................63
6.6. Access and Examination; Confidentiality...............................................63
6.7. Collateral Reporting..................................................................64
6.8. Accounts..............................................................................65
6.9. Collection of Accounts; Payments......................................................67
6.10. Inventory; Perpetual Inventory.......................................................68
6.11. Equipment............................................................................68
6.12. Customer Contracts...................................................................69
6.13. Documents, Instruments, and Chattel Paper............................................70
6.14. Right to Cure........................................................................70
6.15. Power of Attorney....................................................................71
6.16. The Agent's and Lenders' Rights, Duties and Liabilities..............................71
ARTICLE 7 BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES........................................72
7.1. Books and Records.....................................................................72
7.2. Financial Information.................................................................72
7.3. Notices to the Lenders................................................................74
ARTICLE 8 GENERAL WARRANTIES AND REPRESENTATIONS...................................................76
8.1. Authorization, Validity, and Enforceability of this Agreement and the Loan
Documents.............................................................................76
8.2. Validity and Priority of Security Interest............................................77
8.3. Organization and Qualification........................................................77
8.4. Corporate Name; Prior Transactions....................................................77
8.5. Subsidiaries and Affiliates...........................................................77
8.6. Financial Statements and Projections..................................................77
8.7. Capitalization........................................................................78
8.8. Solvency..............................................................................78
8.9. Debt..................................................................................78
8.10. Distributions........................................................................78
8.11. Title to Property....................................................................79
8.12. Real Estate; Leases..................................................................79
8.13. Proprietary Rights...................................................................79
8.14. Trade Names and Terms of Sale........................................................79
8.15. Litigation...........................................................................80
8.16. Restrictive Agreements...............................................................80
8.17. Labor Disputes.......................................................................80
8.18. Environmental Laws...................................................................80
8.19. No Violation of Law..................................................................82
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
8.20. No Default...........................................................................82
8.21. ERISA Compliance.....................................................................82
8.22. Taxes................................................................................83
8.23. Regulated Entities...................................................................83
8.24. Use of Proceeds; Margin Regulations..................................................83
8.25. Copyrights, Patents, Trademarks and Licenses, etc....................................83
8.26. No Material Adverse Change...........................................................84
8.27. Full Disclosure......................................................................84
8.28. Material Agreements..................................................................84
8.29. Bank Accounts........................................................................84
8.30. Governmental Authorization...........................................................85
ARTICLE 9 AFFIRMATIVE AND NEGATIVE COVENANTS.......................................................85
9.1. Taxes and Other Obligations...........................................................85
9.2. Corporate Existence and Good Standing.................................................85
9.3. Compliance with Law and Agreements; Maintenance of Licenses...........................85
9.4. Maintenance of Property...............................................................86
9.5. Insurance.............................................................................86
9.6. Condemnation..........................................................................88
9.7. Environmental Laws....................................................................89
9.8. Compliance with ERISA.................................................................90
9.9. Mergers, Consolidations or Sales......................................................90
9.10. Distributions; Capital Change; Restricted Investments................................90
9.11. Intentionally Omitted................................................................91
9.12. Guaranties...........................................................................91
9.13. Debt.................................................................................91
9.14. Intentionally Omitted................................................................91
9.15. Transactions with Affiliates.........................................................92
9.16. Investment Banking and Finder's Fees.................................................92
9.17. Intentionally Omitted................................................................92
9.18. Business Conducted...................................................................92
9.19. Liens................................................................................92
9.20. Intentionally Omitted................................................................92
9.21. New Subsidiaries.....................................................................93
9.22. Fiscal Year..........................................................................93
9.23. Capital Expenditures.................................................................93
9.24. Intentionally Omitted................................................................93
9.25. Aggregate Availability; Fixed Charge Coverage........................................93
9.26. Use of Proceeds......................................................................93
9.27. Further Assurances...................................................................93
9.28. Canadian Tax Matters.................................................................94
9.29. Payment of Subordinated Debt.........................................................94
9.30. Quebec Locations.....................................................................94
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
ARTICLE 10 CONDITIONS OF LENDING...................................................................94
10.1. Conditions Precedent to Making of Initial Loans......................................94
10.2. Conditions Precedent to Each Loan....................................................96
ARTICLE 11 DEFAULT; REMEDIES.......................................................................97
11.1. Events of Default....................................................................97
11.2. Remedies............................................................................100
ARTICLE 12 TERM AND TERMINATION...................................................................101
12.1. Term and Termination................................................................101
ARTICLE 13 AMENDMENTS; WAIVER; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS............................102
13.1. No Waivers; Cumulative Remedies.....................................................102
13.2. Amendments and Waivers..............................................................103
13.3. Assignments; Participations.........................................................103
ARTICLE 14 THE AGENT..............................................................................105
14.1. Appointment and Authorization.......................................................105
14.2. Delegation of Duties................................................................106
14.3. Liability of Agent..................................................................106
14.4. Reliance by Agent...................................................................107
14.5. Notice of Default...................................................................107
14.6. Credit Decision.....................................................................108
14.7. Indemnification.....................................................................108
14.8. Agent in Individual Capacity........................................................109
14.9. Successor Agent.....................................................................109
14.10. Withholding Tax....................................................................109
14.11. Intentionally Omitted..............................................................111
14.12. Collateral Matters.................................................................112
14.13. Restrictions on Actions by Lenders; Sharing of Payments............................113
14.14. Agency for Perfection..............................................................113
14.15. Payments by Agent to Lenders.......................................................114
14.16. Concerning the Collateral and the Related Loan Documents...........................114
14.17. Field Audit and Examination Reports; Disclaimer by Lenders.........................114
14.18. Relation Among Lenders.............................................................115
ARTICLE 15 MISCELLANEOUS..........................................................................115
15.1. Cumulative Remedies; No Prior Recourse to Collateral................................115
15.2. Severability........................................................................115
15.3. Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver...............116
15.4. WAIVER OF JURY TRIAL................................................................117
15.5. Survival of Representations and Warranties..........................................117
15.6. Other Security and Guaranties.......................................................117
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C>
15.7. Fees and Expenses...................................................................117
15.8. Notices.............................................................................118
15.9. Waiver of Notices...................................................................119
15.10. Binding Effect.....................................................................120
15.11. Indemnity of the Agent and the Lenders by the Borrowers............................120
15.12. Limitation of Liability............................................................121
15.13. Final Agreement....................................................................121
15.14. Counterparts.......................................................................121
15.15. Captions...........................................................................121
15.16. Right of Setoff....................................................................121
15.17. Joint and Several Liability........................................................122
</TABLE>
-v-
<PAGE>
EXHIBITS AND SCHEDULES
EXHIBIT A - INTENTIONALLY OMITTED
EXHIBIT B - BORROWING BASE CERTIFICATE
EXHIBIT C - FINANCIAL STATEMENTS
EXHIBIT D - LIST OF CLOSING DOCUMENTS
EXHIBIT E - NOTICE OF BORROWING
EXHIBIT F - NOTICE OF CONVERSION/CONTINUATION
EXHIBIT G - ASSIGNMENT AND ACCEPTANCE AGREEMENT
SCHEDULE 1 TO
ASSIGNMENT AND
ACCEPTANCE AGREEMENT - NOTICE OF ASSIGNMENT AND ACCEPTANCE
EXHIBIT H - FORM OF ACCOUNTS PAYABLE REPORT
SCHEDULE 1.1A ASSIGNED CONTRACTS
SCHEDULE 6.3 LOCATIONS
SCHEDULE 8.3 JURISDICTIONS OF QUALIFICATION
SCHEDULE 8.4 CORPORATE NAMES; PRIOR TRANSACTIONS
SCHEDULE 8.5 SUBSIDIARIES AND AFFILIATES
SCHEDULE 8.7 CAPITALIZATION
SCHEDULE 8.9 DEBT
SCHEDULE 8.12 REAL PROPERTY
SCHEDULE 8.13 PROPRIETARY RIGHTS
SCHEDULE 8.14 TRADE NAMES
SCHEDULE 8.15 LITIGATION
SCHEDULE 8.17 LABOR DISPUTES
SCHEDULE 8.18 ENVIRONMENTAL MATTERS
SCHEDULE 8.21 ERISA MATTERS
SCHEDULE 8.28 MATERIAL AGREEMENTS
SCHEDULE 8.29 BANK ACCOUNTS
SCHEDULE 9.15 AFFILIATE TRANSACTIONS
-vi-
<PAGE>
LOAN AND SECURITY AGREEMENT
Loan and Security Agreement, dated as of May 8, 1998, among
the financial institutions listed on the signature pages hereof (such financial
institutions, together with their respective successors and assigns, are
referred to hereinafter each individually as a "Lender" and collectively as the
"Lenders"), BankAmerica Business Credit, Inc., a Delaware corporation ("BABC")
with an office at 231 South LaSalle Street, 16th Floor, Chicago, Illinois 60697,
as agent for the Lenders (in its capacity as agent, the "Agent"), Industrial
Systems Associates, Inc., a Pennsylvania corporation, with an office at 3220
Tillman Drive, Suite 200, Bensalem, Pennsylvania 19020 ("ISA"), and INTERMAT,
Inc., a Delaware corporation, with an office at One Greenway Plaza, Suite 200,
Houston, Texas 77046 ("INTERMAT"; ISA and INTERMAT are referred to collectively
as the "Borrowers" and individually as a "Borrower").
W I T N E S S E T H :
WHEREAS, the Borrowers have requested the Lenders to make
available to the Borrowers a revolving line of credit for loans and letters of
credit in an amount not to exceed $50,000,000, which extensions of credit the
Borrowers will use for their working capital needs and general business
purposes; and
WHEREAS, the Lenders have agreed to make available to the
Borrowers a revolving credit facility upon the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Agreement, and for good and valuable consideration,
the receipt of which is hereby acknowledged, the Lenders, the Agent, and the
Borrowers hereby agree as follows.
ARTICLE 1
INTERPRETATION OF THIS AGREEMENT
1.1. Definitions.
As used herein:
"Accounts" means, with respect to a Borrower or SDI Canada,
all of such Person's now owned or hereafter acquired or arising accounts, and
any other rights to payment for the sale or lease of goods or rendition of
services, whether or not they have been earned by performance.
"Account Debtor" means each Person obligated in any way on or
in connection with an Account.
<PAGE>
"Adjusted Net Earnings from Operations" means, with respect to
any fiscal period of SDI, SDI's consolidated net income after provision for
income taxes for such fiscal period, as determined in accordance with GAAP and
reported on the Financial Statements for such period, excluding any and all of
the following included in such net income: (a) gain or loss arising from the
sale of any capital assets; (b) gain arising from any write-up in the book value
of any asset; (c) earnings or loss of any corporation, substantially all the
assets of which have been acquired by SDI or any of its Subsidiaries in any
manner, to the extent realized by such other corporation prior to the date of
acquisition; (d) earnings of any business entity (other than a consolidated
Subsidiary) in which SDI or any of its Subsidiaries has an ownership interest
unless (and only to the extent) such earnings shall actually have been received
by SDI or any of its Subsidiaries in the form of cash distributions; (e)
earnings of any Person to which assets of SDI or any of its Subsidiaries shall
have been sold, transferred or disposed of, or into which SDI or any of its
Subsidiaries shall have been merged, or which has been a party with SDI or any
of its Subsidiaries to any consolidation or other form of reorganization, prior
to the date of such transaction; (f) gain arising from the acquisition of debt
or equity securities of SDI or any of its Subsidiaries or from cancellation or
forgiveness of Debt; and (g) gain arising from extraordinary items, as
determined in accordance with GAAP, or from any other non-recurring transaction.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person or which owns, directly or indirectly, five percent
(5%) or more of the outstanding equity interest of such Person. A Person shall
be deemed to control another Person if the controlling Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of the other Person, whether through the ownership of
voting securities, by contract, or otherwise.
"Agent" means BankAmerica Business Credit, Inc., solely in its
capacity as agent for the Lenders, and any successor agent.
"Agent Advances" has the meaning specified in Section 2.2(i).
"Agent's Liens" means the Liens in the Collateral granted to
the Agent, for the ratable benefit of the Lenders, BABC, and the Agent pursuant
to this Agreement and the other Loan Documents.
"Agent-Related Persons" means the Agent and any successor
agent, together with their respective Affiliates, and the officers, directors,
employees, agents and attorneys-in-fact of such Persons and Affiliates.
"Aggregate Availability" means the sum of the Availability of
the Borrowers.
-2-
<PAGE>
"Aggregate Revolver Outstandings" means, with respect to a
Borrower, at any time: the sum of (a) the unpaid balance of Revolving Loans for
the account of such Borrower, (b) the aggregate amount of Pending Revolving
Loans for the account of such Borrower, (c) one hundred percent (100%) of the
aggregate undrawn face amount of all outstanding Letters of Credit for the
account of such Borrower, and (d) the aggregate amount of any unpaid
reimbursement obligations in respect of Letters of Credit for the account of
such Borrower.
"Agreement" means this Loan and Security Agreement.
"Anniversary Date" means each anniversary of the Closing Date.
"Applicable Margin" means:
(a) with respect to Base Rate Revolving Loans,
(i) as of any date of determination during the period
commencing on the Closing Date and ending on June 30, 1998, zero
percent (0%) per annum,
(ii) as of any date of determination during the period
commencing on July 1, 1998 and ending on the day preceding the first
day of the calendar month after the date the Agent receives the
certificate required under Section 7.2(e) for the month ending March
31, 1999, the per annum percentage set forth below in Chart I in the
column entitled "Applicable Margin for Base Rate Revolving Loans"
opposite the Average Revolver Debt for the most recently ended calendar
month (such that adjustments to such per annum percentage occur on the
first day of each calendar month during such period), and
(iii) as of any date of determination occurring on and after
the first day of the calendar month after the date the Agent receives
the certificate required under Section 7.2(e) for the month ending
March 31, 1999, the per annum percentage set forth below in Chart II in
the column entitled "Applicable Margin for Base Rate Revolving Loans"
opposite the Senior Funded Debt to EBITDA Ratio for the most recently
ended Fiscal Quarter for which the Agent has received the certificate
required under Section 7.2(e) (such that adjustments to such per annum
percentage occur on the first day of the calendar month after the date
the Agent receives a certificate required under Section 7.2(e) for each
Fiscal Quarter ending on or after March 31, 1999), and
-3-
<PAGE>
(b) with respect to LIBOR Revolving Loans,
(i) as of any date of determination during the period
commencing on the Closing Date and ending on June 30, 1998, two percent
(2%) per annum,
(ii) as of any date of determination during the period
commencing on July 1, 1998 and ending on the day preceding the first
day of the calendar month after the date the Agent receives the
certificate required under Section 7.2(e) for the month ending March
31, 1999, the per annum percentage set forth below in Chart I in the
column entitled "Applicable Margin for LIBOR Revolving Loans" opposite
the Average Revolver Debt for the most recently ended calendar month
(such that adjustments to such per annum percentage occur on the first
day of each calendar month during such period), and
(iii) as of any date of determination occurring on and after
the first day of the calendar month after the date the Agent receives
the certificate required under Section 7.2(e) for the month ending
March 31, 1999, the per annum percentage set forth below in Chart II in
the column entitled "Applicable Margin for LIBOR Revolving Loans"
opposite the Senior Funded Debt to EBITDA Ratio for the most recently
ended Fiscal Quarter for which the Agent has received the certificate
required under Section 7.2(e) (such that adjustments to such per annum
percentage occur on the first day of the calendar month after the date
the Agent receives a certificate required under Section 7.2(e) for each
Fiscal Quarter ending on or after March 31, 1999).
CHART I
<TABLE>
<CAPTION>
Average Revolver Debt During Applicable Margin for Base Applicable Margin for
the Preceding Calendar Month Rate Revolving Loans LIBOR Revolving Loans
---------------------------------- --------------------------- ---------------------
<S> <C> <C>
Less than or equal to $15,000,000 0 2.00%
---------------------------------- --------------------------- ---------------------
Greater than $15,000,000, but
less than or equal to $30,000,000 0.25% 2.25%
---------------------------------- --------------------------- ---------------------
Greater than $30,000,000, but
less than or equal to $40,000,000 0.375% 2.50%
---------------------------------- --------------------------- ---------------------
Greater than $40,000,000 0.50% 2.75%
---------------------------------- --------------------------- ---------------------
</TABLE>
-4-
<PAGE>
CHART II
<TABLE>
<CAPTION>
Applicable Margin for Base Applicable Margin for
Senior Funded Debt to EBITDA Rate Revolving Loans LIBOR Revolving Loans
---------------------------------- --------------------------- ---------------------
<S> <C> <C>
Less than 3.0:1.0 0 1.50%
---------------------------------- --------------------------- ---------------------
Greater than or equal to 3.0:1.0,
but less than 3.75:1.0 0 1.75%
---------------------------------- --------------------------- ---------------------
Greater than or equal to 3.75:1.0,
but less than 4.5:1.0 0.25% 2.00%
---------------------------------- --------------------------- ---------------------
Greater than or equal to 4.5:1.0,
but less than 5.25:1.0 0.50% 2.25%
---------------------------------- --------------------------- ---------------------
Greater than or equal to 5.25:1.0,
but less than 6.0:1.0 0.75% 2.50%
---------------------------------- --------------------------- ---------------------
Greater than or equal to 6.0:1.0 1.00% 3.00%
---------------------------------- --------------------------- ---------------------
</TABLE>
Failure to timely deliver financial statements for the last month of a Fiscal
Quarter ending on or after March 31, 1999 shall, in addition to any other remedy
provided for in this Agreement, result in an increase in the Applicable Margins
to the highest level set forth in Chart II, until the day of receipt by the
Agent of those financial statements demonstrating that such an increase is not
required. If the audited Financial Statements received by the Agent under
Section 7.2(a) indicate that the Senior Funded Debt to EBITDA Ratio set forth in
the certificate delivered to the Agent under Section 7.2(e) for the last Fiscal
Quarter of a Fiscal Year is inaccurate, the Applicable Margin shall be
retroactively adjusted to the Applicable Margin that should have been in effect
for such relevant period based on such audited Financial Statements. For
purposes of Chart II, EBITDA as used in determining Senior Funded Debt shall be
determined for the twelve (12) month period ending on the last day of the
applicable Fiscal Quarter.
"Assigned Contracts" means, collectively, with respect to a
Borrower or SDI Canada, all of such Person's rights and remedies under, and all
moneys and claims for money due or to become due to such Person under those
contracts set forth on Schedule 1.1A, and any other material contracts, and any
and all amendments, supplements, extensions, and renewals thereof including,
without limitation, all rights and claims of such Person now or hereafter
existing: (i) under any insurance, indemnities, warranties, and guarantees
provided for or arising out of or in connection with any of the foregoing
agreements; (ii) for any damages arising out of or for breach or default under
or in connection with any of the foregoing contracts; (iii) to all other amounts
from time to time paid or payable under or in connection with any of the
foregoing agreements; or (iv) to exercise or enforce any and all covenants,
remedies, powers and privileges thereunder. The Assigned Contracts of ISA and
SDI Canada shall include the Customer Contracts, but shall exclude rights under
real estate leases in which any of the Credit Parties are the lessee.
"Assignee" has the meaning specified in Section 13.3(a).
"Assignment and Acceptance" has the meaning specified in
Section 13.3(a).
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"Attorney Costs" means and includes all fees, expenses and
disbursements of any law firm or other external counsel engaged by the Agent,
the allocated cost of internal legal services of the Agent and all expenses and
disbursements of internal counsel of the Agent.
"Availability" means with respect to ISA, the ISA Availability
and with respect to INTERMAT, the INTERMAT Availability.
"Average Revolver Debt" means, for any calendar month, the
average daily outstanding principal balance of the Revolving Loans for the
accounts of the Borrowers for such calendar month.
"BABC" means BankAmerica Business Credit, Inc.
"BABC Loan" and "BABC Loans" have the meanings specified in
Section 2.2(h).
"Bank of America" means Bank of America National Trust and
Savings Association, a national banking association, or any successor entity
thereto.
"Bankruptcy Code" means Title 11 of the United States Code (11
U.S.C. Section 101 et seq.).
"Bankruptcy and Insolvency Act" means R.S.C. 1985, Chap. B-3.
"Base Rate" means, for any day, the rate of interest in effect
for such day as publicly announced from time to time by Bank of America in San
Francisco, California, as its "reference rate" (the "reference rate" being a
rate set by Bank of America based upon various factors including Bank of
America'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). Any change in the reference
rate announced by Bank of America shall take effect at the opening of business
on the day specified in the public announcement of such change. Each Interest
Rate based upon the Base Rate shall be adjusted simultaneously with any change
in the Base Rate.
"Base Rate Revolving Loan" means a Revolving Loan during any
period in which it bears interest based on the Base Rate.
"Borrowers' Adjusted Net Earnings from Operations" means, with
respect to any fiscal period of Borrowers, consolidated net income of Borrowers
and their Subsidiaries after provision for income taxes for such fiscal period,
as determined in accordance with GAAP and reported on the Financial Statements
for such period, excluding any and all of the following included in such net
income: (a) gain or loss arising from the sale of any capital assets; (b) gain
arising from any write-up in the book value of any asset; (c) earnings or loss
of any corporation, substantially all the assets of which have
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been acquired by either Borrower or any of its Subsidiaries in any manner, to
the extent realized by such other corporation prior to the date of acquisition;
(d) earnings of any business entity (other than a consolidated Subsidiary of a
Borrower) in which a Borrower or any of its Subsidiaries has an ownership
interest unless (and only to the extent) such earnings shall actually have been
received by a Borrower or any of its Subsidiaries in the form of cash
distributions; (e) earnings of any Person to which assets of a Borrower or any
of its Subsidiaries shall have been sold, transferred or disposed of, or into
which a Borrower or any of its Subsidiaries shall have been merged, or which has
been a party with a Borrower or any of its Subsidiaries to any consolidation or
other form of reorganization, prior to the date of such transaction; (f) gain
arising from the acquisition of debt or equity securities of a Borrower or any
of its Subsidiaries or from cancellation or forgiveness of Debt; and (g) gain
arising from extraordinary items, as determined in accordance with GAAP, or from
any other non-recurring transaction.
"Borrowing" means a borrowing hereunder consisting of
Revolving Loans made on the same day by the Lenders to a Borrower (or by BABC in
the case of a Borrowing funded by BABC Loans) or by the Agent in the case of a
Borrowing consisting of an Agent Advance or an Over Advance.
"Borrowing Base Certificate" means, with respect to a
Borrower, a certificate by a Responsible Officer of such Borrower, substantially
in the form of Exhibit B (or another form acceptable to the Agent) setting forth
the calculation of the Availability of such Borrower, including a calculation of
each component thereof, as of the close of business no more than five (5)
Business Days prior to the date of such certificate, all in such detail as shall
be satisfactory to the Agent. All calculations of Availability of such Borrower
in connection with the preparation of any Borrowing Base Certificate shall
originally be made by such Borrower and certified to the Agent; provided, that
the Agent shall have the right to review and adjust any such calculation to the
extent that such calculation is not in accordance with this Agreement.
"Business Day" means (a) any day that is not a Saturday,
Sunday, or a day on which banks in Chicago, Illinois, are required or permitted
to be closed, and (b) with respect to all notices, determinations, fundings and
payments in connection with the LIBOR Rate or LIBOR Revolving Loans, any day
that is a Business Day pursuant to clause (a) above and that is also a day on
which trading in Dollars is carried on by and between banks in the London
interbank market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other law,
rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a bank.
"Capital Expenditures" means all payments due (whether or not
paid) in respect of the cost of any fixed asset or improvement, or replacement,
substitution, or
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addition thereto, which has a useful life of more than one year, or in
connection with a Capital Lease, less the Net Proceeds from a sale or
sale-leaseback of Fixed Assets.
"Capital Lease" means any lease of property by a Person which,
in accordance with GAAP, is or should be reflected as a capital lease on the
balance sheet of such Person.
"Change of Control" means any event, transaction or occurrence
as a result of which (a) SDI shall cease to own and control all of the economic
and voting rights associated with ownership of one hundred percent (100%) of the
issued and outstanding capital stock of each Borrower on a fully diluted basis,
(b) ISA shall cease to own and control all of the economic and voting rights
associated with ownership of one hundred percent (100%) of the issued and
outstanding capital stock of SDI Canada Holdings, (c) SDI Canada Holdings shall
cease to own and control all of the economic and voting rights associated with
ownership of one hundred percent (100%) of the issued and outstanding capital
stock of SDI Canada, and (d) SDI shall cease to own directly or indirectly one
hundred percent (100%) of the issued and outstanding capital stock of Strategic
Distribution Services de Mexico, S.A. and Strategic Distribution Marketing de
Mexico, S.A. de C.V.
"Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute, and regulations promulgated
thereunder.
"Collateral" has the meaning specified in Section 6.1.
"Commitment" means, at any time with respect to a Lender, the
principal amount set forth beside such Lender's name under the heading
"Commitment" on the signature pages of this Agreement or on the signature page
of the Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 13.3, as such Commitment
may be adjusted from time to time in accordance with the provisions of Section
13.3 and Section 4.3, and "Commitments" means, collectively, the aggregate
amount of the commitments of all of the Lenders.
"Companies' Creditors Arrangement Act" means R.S.C. 1985,
Chap. C-36.
"Contaminant" means any pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated biphenyls
("PCBs"), or any constituent of any such substance or waste.
"Credit Parties" means SDI, each Borrower, SDI Canada Holdings
and SDI Canada.
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"Credit Support" has the meaning specified in Section 2.4(a).
"Customer Contract" means a written agreement between ISA or
SDI Canada and an Account Debtor of ISA or SDI Canada providing for the
establishment of an "in-plant store program" by ISA or SDI Canada for such
Account Debtor on terms and conditions consistent with ISA's current practices,
which terms shall include a requirement that (i) such Account Debtor shall
purchase all Inventory of ISA or SDI Canada, as applicable, (at a purchase price
greater than or equal to the cost thereof) on such Account Debtor's premises
upon termination of such Customer Contract, (ii) such Account Debtor shall
purchase all bill-and-hold Inventory (at a purchase price equal to the amount
invoiced to such Account Debtor), and (iii) such Account Debtor shall purchase
all Slow Moving Inventory of ISA or SDI Canada, as applicable (at a purchase
price greater than or equal to the cost thereof) on such Account Debtor's
premises.
"Debt" means, with respect to a Person, all liabilities,
obligations and indebtedness of such Person to any other Person, of any kind or
nature, now or hereafter owing, arising, due or payable, howsoever evidenced,
created, incurred, acquired or owing, whether primary, secondary, direct,
contingent, fixed or otherwise, and including, without in any way limiting the
generality of the foregoing: (i) such Person's liabilities and obligations to
trade creditors; (ii) all Obligations; (iii) all obligations and liabilities of
any other Person secured by any Lien on such Person's property, even though such
Person shall not have assumed or become liable for the payment thereof;
provided, however, that all such obligations and liabilities which are limited
in recourse to such property shall be included in Debt only to the extent of the
book value of such property as would be shown on a balance sheet of such Person
prepared in accordance with GAAP; (iv) all obligations or liabilities created or
arising under any Capital Lease of such Person or conditional sale or other
title retention agreement with respect to property used or acquired by such
Person, even if the rights and remedies of the lessor, seller or lender
thereunder are limited to repossession of such property; provided, however, that
all such obligations and liabilities which are limited in recourse to such
property shall be included in Debt only to the extent of the book value of such
property as would be shown on a balance sheet of such Person prepared in
accordance with GAAP; (v) all accrued pension fund and other employee benefit
plan obligations and liabilities; (vi) all obligations and liabilities under
Guaranties; and (vii) deferred taxes.
"Debt For Borrowed Money" means Debt for borrowed money or as
evidenced by notes, bonds, debentures, loan agreements, or similar evidences of
any such Debt of such Person, the deferred and unpaid purchase price of any
property or business (other than trade accounts payable incurred in the ordinary
course of business and constituting current liabilities) and all obligations
under Capital Leases.
"Default" means any event or circumstance which, with the
giving of notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
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"Defaulting Lender" has the meaning specified in Section
2.2(g)(ii).
"Default Rate" means a fluctuating per annum interest rate at
all times equal to the sum of (a) the otherwise applicable Interest Rate plus
(b) two percent (2%). Each Default Rate shall be adjusted simultaneously with
any change in the applicable Interest Rate. In addition, with respect to Letters
of Credit, the Default Rate shall mean an increase in the Letter of Credit Fee
by two (2) percentage points.
"Distribution" means, in respect of any corporation: (a) the
payment or making of any dividend or other distribution of property in respect
of capital stock (or any options or warrants for such stock) of such
corporation, other than distributions in capital stock (or any options or
warrants for such stock) that does not contain any redemption or put provisions
that are either mandatory or that may be exercised at the option of the holder
of such stock, options or warrants; or (b) the redemption or other acquisition
of any capital stock (or any options or warrants for such stock) of such
corporation.
"DOL" means the United States Department of Labor or any
successor department or agency.
"Dollar" and "$" means dollars in the lawful currency of the
United States.
"Dollar Equivalent" means, at any time, (a) as to any amount
denominated in Dollars, the amount thereof at such time, and (b) as to any
amount denominated in a currency other than Dollars, the equivalent amount in
Dollars as determined by the Agent at such time on the basis of the Spot Rate
for the purchase of Dollars with such currency.
"EBITDA" means, with respect to any fiscal period of SDI,
Adjusted Net Earnings from Operations for such period; plus the sum of the
following to the extent deducted in computing such Adjusted Net Earnings from
Operations: (i) income tax expense, (ii) interest expense (whether paid or
accrued), and (iii) amortization, depreciation and other non-cash charges
(including, without limitation, amortization of goodwill, deferred financing
fees and other intangibles); and minus non-cash credits to the extent included
in computing such Adjusted Net Earnings from Operations.
"Eligible Accounts" means, with respect to a Borrower or SDI
Canada, all Accounts of such Person which the Agent in the exercise of its
reasonable discretion determines to be Eligible Accounts of such Person. Without
limiting such discretion of the Agent, Eligible Accounts of a Borrower and SDI
Canada shall not, unless the Agent in its sole discretion elects, include any
Account of such Person:
(a) with respect to which more than ninety (90) days have
elapsed since the date of the original invoice therefor or it is more than sixty
(60) days past due with payment terms normal for the industry;
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(b) with respect to which any of the representations,
warranties, covenants, and agreements contained in Section 6.8 are not or have
ceased to be complete and correct or have been breached;
(c) with respect to which, in whole or in part, a check,
promissory note, draft, trade acceptance or other instrument for the payment of
money has been received, presented for payment and returned uncollected for any
reason;
(d) which represents a progress billing (as hereinafter
defined) or as to which such Person has extended the time for payment without
the consent of the Agent; for the purposes hereof, "progress billing" means any
invoice for goods sold or leased or services rendered under a contract or
agreement pursuant to which the Account Debtor's obligation to pay such invoice
is conditioned upon such Person's completion of any further performance under
the contract or agreement;
(e) as to which any one or more of the following events has
occurred with respect to the Account Debtor on such Account: death or judicial
declaration of incompetency of an Account Debtor who is an individual; the
filing by or against the Account Debtor of a request or petition for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as a
bankrupt, winding-up, or any proposal or other relief under the bankruptcy,
insolvency, or similar laws of the United States, Canada, any state, province or
territory thereof, or any foreign jurisdiction, now or hereafter in effect; the
making of any general assignment by the Account Debtor for the benefit of
creditors; the filing by the Account Debtor of a proposal or notice of intent to
file a proposal by the Account Debtor; the appointment of a receiver, or trustee
or monitor (in any case whether interim or final) for the Account Debtor or for
any of the assets of the Account Debtor, including, without limitation, the
appointment of or taking possession by a "custodian," as defined in the Federal
Bankruptcy Code; the institution by or against the Account Debtor of any other
type of insolvency proceeding (under the bankruptcy laws of the United States or
otherwise) or of any formal or informal proceeding for the dissolution or
liquidation of, settlement of claims against, or winding up of affairs of, the
Account Debtor; the sale, assignment, or transfer of all or any material part of
the assets of the Account Debtor; the nonpayment generally by the Account Debtor
of its debts as they become due; or the cessation of the business of the Account
Debtor as a going concern;
(f) if fifty percent (50%) or more of the aggregate Dollar
amount of outstanding Accounts owed at such time by the Account Debtor thereon
is classified as ineligible under clause (a) above;
(g) owed by an Account Debtor which: (i) does not maintain its
chief executive office in the United States or Canada; or (ii) is not organized
under the laws of the United States or any state thereof or Canada or any
province thereof; or (iii) is the government of any foreign country or sovereign
state, or of any state, province, municipality, or other political subdivision
thereof, or of any department, agency, public
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corporation, or other instrumentality thereof; except to the extent that (x)
such Account is secured or payable by a letter of credit issued by a Person and
having terms reasonably satisfactory to the Agent or (y) if such Account is
owing to INTERMAT, such Account is owing by an Account Debtor approved by the
Agent in its reasonable discretion and the aggregate amount of Accounts that are
eligible under this clause (y) does not exceed $500,000;
(h) owed by an Account Debtor which is an Affiliate or
employee of a Credit Party;
(i) except as provided in clause (k) below, as to which either
the perfection, enforceability, or validity of the Agent's Lien in such Account,
or the Agent's right or ability to obtain direct payment to the Agent of the
proceeds of such Account, is governed by any federal, state, or local statutory
requirements other than those of the UCC or as to SDI Canada, the PPSA;
(j) which is owed by an Account Debtor to which such Person is
indebted in any way, or which is subject to any right of setoff or recoupment by
the Account Debtor, unless the Account Debtor has entered into an agreement
acceptable to the Agent to waive setoff rights; or if the Account Debtor thereon
has disputed liability or made any claim with respect to any other Account due
from such Account Debtor; but in each such case only to the extent of such
indebtedness, setoff, recoupment, dispute, or claim;
(k) which is owed by the government of the United States of
America or Canada, or any department, agency, public corporation, or other
instrumentality or either thereof, unless any steps necessary to perfect the
Agent's Lien therein, have been complied with to the Agent's satisfaction with
respect to such Account, including in the case of an Account owing by the United
States of America, the Federal Assignment of Claims Act of 1940, as amended (31
U.S.C. Section 3727 et seq.);
(l) which is owed by any state, municipality, or other
political subdivision of the United States of America or Canada, or any
department, agency, public corporation, or other instrumentality of either
thereof and as to which the Agent determines that its Lien therein is not or
cannot be perfected;
(m) which represents a sale on a bill-and-hold (unless the
Customer Contract applicable thereto requires the Account Debtor thereof to
purchase the Inventory subject to such bill-and-hold), guaranteed sale, sale and
return, sale on approval, consignment, or other repurchase or return basis;
(n) which is evidenced by a promissory note or other
instrument or by chattel paper;
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(o) if the Agent believes, in the exercise of its reasonable
judgment, that the prospect of collection of such Account is impaired or that
the Account may not be paid by reason of the Account Debtor's financial
inability to pay;
(p) with respect to which the Account Debtor is located in any
state requiring the filing of a Notice of Business Activities Report or similar
report in order to permit such Person to seek judicial enforcement in such State
of payment of such Account, unless such Person has qualified to do business in
such state or has filed a Notice of Business Activities Report or equivalent
report for the then current year;
(q) which arises out of a sale not made in the ordinary course
of such Person's business;
(r) as to which the goods giving rise to such Account have not
been shipped and delivered to and accepted by the Account Debtor or the services
giving rise to such Account have not been performed by such Person, and, if
applicable, accepted by the Account Debtor, or the Account Debtor revokes its
acceptance of such goods or services;
(s) which is a C.O.D. Account;
(t) which arises out of an enforceable contract or order
which, by its terms, forbids, restricts or makes void or unenforceable the
granting of a Lien by such Borrower to the Agent with respect to such Account;
or
(u) which is not subject to a first priority and perfected
security interest in favor of the Agent for the benefit of the Lenders.
If any Account at any time ceases to be an Eligible Account,
then such Account shall promptly be excluded from the calculation of Eligible
Accounts. The Agent shall promptly notify such Borrower of the exclusion of any
Account from Eligible Accounts for any reason other than the application of the
criteria listed above.
"Eligible Inventory" means, with respect to ISA or SDI Canada,
Inventory of such Person, valued at the lower of cost (on a first-in, first-out
basis) or market, that constitutes finished goods that is subject to a Customer
Contract and that, unless the Agent in its reasonable discretion elects: (a) is
not, in the Agent's reasonable opinion, obsolete, Slow Moving, or unmerchantable
(unless such Inventory is required to be purchased at a purchase price greater
than or equal to the cost thereof pursuant to a Customer Contract); (b) is
located on premises of an Account Debtor that has executed a Customer Contract
requiring such Account Debtor to purchase all of the Inventory on such Account
Debtor's premises upon the termination of such Customer Contract (provided that
up to $100,000 of Inventory located at ISA's warehouse facility in Greenville,
North Carolina shall not be ineligible because of this clause (b)); (c) upon
which the Agent for the benefit of the Lenders has a first priority perfected
security interest; (d) is not work-in-process, spare parts, packaging and
shipping materials, supplies to be consumed in such Person's business
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(as opposed to supplies to be sold by such Person in the ordinary course of its
business), bill-and-hold Inventory, returned, damaged or defective Inventory, or
Inventory delivered to such Person on consignment or approval; (e) is not
Inventory of a customer of such Person; (f) is not Inventory in-transit; (g)
does not constitute capitalized overhead; and (h) the Agent, in the exercise of
its reasonable discretion, deems eligible as the basis for Revolving Loans based
on such collateral and credit criteria as the Agent may from time to time
establish. If any Inventory at any time ceases to be Eligible Inventory, such
Inventory shall promptly be excluded from the calculation of Eligible Inventory.
The Agent shall promptly notify such Borrower of the exclusion of any Inventory
from Eligible Inventory for any reason other than the criteria listed above.
"Environmental Claims" means all claims, however asserted, by
any Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment.
"Environmental Compliance Reserve" means, with respect to a
Borrower or SDI Canada, any reserves which the Agent, after the Closing Date,
establishes from time to time for amounts that are reasonably likely to be
expended by such Person in order for such Person and its operations and property
(a) to comply with any notice from a Governmental Authority asserting material
non-compliance with Environmental Laws, or (b) to correct any such material
non-compliance identified in a report delivered to the Agent and the Lenders
pursuant to Section 9.7.
"Environmental Laws" means all federal, state, provincial or
local laws, statutes, common law duties, rules, regulations, ordinances and
codes, together with all administrative orders, directed duties, licenses,
authorizations and permits of, and agreements with, any Governmental Authority,
in each case relating to environmental matters or treatment, storage, disposal,
handling or exposure to any Contaminant.
"Environmental Lien" means a Lien in favor of any Governmental
Authority or any other Person for (1) any liability under any Environmental
Laws, or (2) damages arising from, or costs incurred by such Governmental
Authority in response to, a Release or threatened Release of a Contaminant into
the environment.
"Environmental Property Transfer Act" means any applicable
requirement of law that conditions, restricts, prohibits or requires any
notification or disclosure triggered by the closure of any property or the
transfer, sale or lease of any property or deed or title for any property for
environmental reasons, including, but not limited to, any so-called
"Environmental Cleanup Responsibility Acts" or "Responsible Property Transfer
Acts."
"Equipment" means, with respect to a Borrower or its
Subsidiaries, all of such Person's now owned and hereafter acquired machinery,
equipment, furniture, furnishings, fixtures, and other tangible personal
property (except Inventory), including motor vehicles with respect to which a
certificate of title has been issued, aircraft, dies,
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tools, jigs, and office equipment, as well as all of such types of property
leased by such Person and all of such Person's rights and interests with respect
thereto under such leases (including, without limitation, options to purchase);
together with all present and future additions and accessions thereto,
replacements therefor, component and auxiliary parts and supplies used or to be
used in connection therewith, and all substitutes for any of the foregoing, and
all manuals, drawings, instructions, warranties and rights with respect thereto;
wherever any of the foregoing is located.
"ERISA" means the Employee Retirement Income Security Act of
1974, and regulations promulgated thereunder.
"ERISA Affiliate" means any Credit Party and any trade or
business (whether or not incorporated) under common control with a Credit Party
within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and
(o) of the Code for purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event or Termination
Event with respect to a Pension Plan; (b) a withdrawal by a Credit Party or any
ERISA Affiliate from a Pension Plan during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or employer
under the PBA or a cessation of operations which is treated as such a
withdrawal; (c) a complete or partial withdrawal by a Credit Party or any ERISA
Affiliate from a Multi-employer Plan or Plan regulated or governed by the PBA or
notification that a Multi-employer Plan or Plan regulated or governed by the PBA
is in reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination, or the commencement of
proceedings by the PBGC or other applicable Governmental Authority to terminate
a Pension Plan or Multi-employer Plan; (e) an event or condition which might
reasonably be expected to constitute grounds for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Multi-employer Plan;
(f) the imposition of any liability under Title IV of ERISA, other than PBGC
premiums due but not delinquent under Section 4007 of ERISA, or the PBA or
another applicable law of any jurisdiction, upon a Credit Party or any ERISA
Affiliate; or (g) any failure to make or remit any contribution when due in
respect of any Plan.
"Event of Default" has the meaning specified in Section 11.1.
"Exchange Act" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"FDIC" means the Federal Deposit Insurance Corporation, and
any Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any
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relevant day such rate is not so published on any such preceding Business Day,
the rate for such day will be the arithmetic mean as determined by the Agent of
the rates for the last transaction in overnight Federal funds arranged prior to
9:00 a.m. (New York City time) on that day by each of three leading brokers of
Federal funds transactions in New York City selected by the Agent.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System or any successor thereto.
"Fee Letter" means that certain Fee Letter of even date
herewith among the Borrowers, the Agent and BABC.
"Financial Statements" means, according to the context in
which it is used, the financial statements referred to in Section 8.6 or any
other financial statements required to be given to the Lenders pursuant to this
Agreement.
"Fiscal Quarter" means the quarterly periods ending on March
31, June 30, September 30 and December 31 of each year.
"Fiscal Year" means SDI's fiscal year for financial accounting
purposes. The current Fiscal Year of SDI will end on December 31, 1998.
"Fixed Assets" means, with respect to a Borrower or its
Subsidiaries, Equipment and Real Estate of such Borrower or its Subsidiaries, as
the case may be.
"Fixed Charge Coverage Ratio" means, for any fiscal period,
the ratio of (a) EBITDA for such period over (b) Fixed Charges of SDI for such
period.
"Fixed Charges" means, for any fiscal period, on a
consolidated basis, the sum of (i) interest expense (whether paid or accrued)
deducted in determining Adjusted Net Earnings from Operations for such period,
(ii) cash taxes for such period, (iii) cash dividend payments by SDI during such
period, (iv) principal payments on Debt for Borrowed Money (excluding payments
of the Revolving Loans) during such period, and (v) Capital Expenditures (if
positive) during such period to the extent not financed by Debt for Borrowed
Money (provided, that for purposes of this clause (v), Revolving Loans shall not
be Debt for Borrowed Money).
"Funding Date" means the date on which a Borrowing occurs.
"FX Trading Office" means the Foreign Exchange Trading Center,
Chicago, Illinois, of Bank of America, or such other of Bank of America's
offices as Agent may designate from time to time.
"GAAP" means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the Accounting
Principles Board and the
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American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the Closing Date.
"General Intangibles" means, with respect to a Borrower or SDI
Canada, all of such Person's now owned or hereafter acquired general
intangibles, choses in action and causes of action and all other intangible
personal property of such Person of every kind and nature (other than Accounts),
including, without limitation, all contract rights, Proprietary Rights,
corporate or other business records, inventions, designs, blueprints, plans,
specifications, patents, patent applications, trademarks, service marks, trade
names, trade secrets, goodwill, copyrights, computer software, customer lists,
registrations, licenses, franchises, tax refund claims, any funds which may
become due to such Person in connection with the termination of any Plan or
other employee benefit plan or any rights thereto and any other amounts payable
to such Person from any Plan or other employee benefit plan, rights and claims
against carriers and shippers, rights to indemnification, business interruption
insurance and proceeds thereof, property, casualty or any similar type of
insurance and any proceeds thereof, proceeds of insurance covering the lives of
key employees on which such Person is beneficiary, and any letter of credit,
guarantee, claim, security interest or other security held by or granted to such
Person.
"Governmental Authority" means any nation or government, any
state, province, municipality, region or other political subdivision thereof,
any central bank (or similar monetary or regulatory authority) thereof, any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, any corporation or other entity owned
or controlled, through stock or capital ownership or otherwise, by any of the
foregoing, and any department, agency, board, commission, tribunal, committee or
instrumentality of any of the foregoing.
"Guaranty" means, with respect to any Person, all obligations
of such Person which in any manner directly or indirectly guarantee or assure,
or in effect guarantee or assure, the payment or performance of any
indebtedness, dividend or other obligations of any other Person (the "guaranteed
obligations"), or assure or in effect assure the holder of the guaranteed
obligations against loss in respect thereof, including, without limitation, any
such obligations incurred through an agreement, contingent or otherwise: (a) to
purchase the guaranteed obligations or any property constituting security
therefor; (b) to advance or supply funds for the purchase or payment of the
guaranteed obligations or to maintain a working capital or other balance sheet
condition; or (c) to lease property or to purchase any debt or equity securities
or other property or services.
"Individual Revolver Amount" means, with respect to ISA, the
Maximum Revolver Amount, less the Aggregate Revolver Outstandings for the
account of INTERMAT, and with respect to INTERMAT, the lesser of (a) $5,000,000
or (b) the
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Maximum Revolver Amount, less the Aggregate Revolver Outstandings for the
account of ISA.
"Intercompany Accounts" means all assets and liabilities,
however arising, which are due to a Borrower from, which are due from a Borrower
to, or which otherwise arise from any transaction by a Borrower with, any
Affiliate.
"INTERMAT Availability" means, with respect to INTERMAT, at
any time, (a) the lesser of (i) the Individual Revolver Amount of INTERMAT or
(ii) eighty-five percent (85%) of the Net Amount of Eligible Accounts of
INTERMAT; minus (b) the sum of (i) the Aggregate Revolver Outstandings for the
account of INTERMAT, (ii) reserves for accrued interest on the Obligations of
INTERMAT, (iii) the Environmental Compliance Reserve pertaining to INTERMAT, and
(iv) all other reserves which the Agent deems necessary in the exercise of its
reasonable credit judgment exercised in good faith to maintain with respect to
INTERMAT's account, including, without limitation, reserves for any amounts
which the Agent or any Lender may be obligated to pay in the future for the
account of INTERMAT.
"Interest Period" means, as to any LIBOR Rate Loan, the period
commencing on the Funding Date of such Loan or on the Conversion/Continuation
Date on which the Loan is converted into or continued as a LIBOR Rate Loan, and
ending on the date one (1), two (2), three (3) or six (6) months thereafter as
selected by a Borrower in its Notice of Borrowing or Notice of
Conversion/Continuation; provided, that:
(i) if any Interest Period would otherwise end on a day that
is not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period pertaining to a LIBOR Rate Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of the calendar month at the end of such Interest Period; and
(iii) no Interest Period shall extend beyond the Stated
Termination Date.
"Interest Rate" means each or any of the interest rates,
including the Default Rate, set forth in Section 3.1.
"Inventory" means, with respect to a Borrower or SDI Canada,
all of such Person's now owned and hereafter acquired inventory, goods and
merchandise, wherever located, to be furnished under any contract of service or
held for sale or lease, all returned
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goods, raw materials, other materials and supplies of any kind, nature or
description which are or might be consumed in such Person's business or used in
connection with the packing, shipping, advertising, selling or finishing of such
goods, merchandise and such other personal property, and all documents of title
or other documents representing them.
"IRS" means the Internal Revenue Service and any Governmental
Authority succeeding to any of its principal functions under the Code.
"ISA Availability" means, with respect to ISA, at any time,
(a) the lesser of (i) the Individual Revolver Amount of ISA or (ii) the sum of
(A) eighty-five percent (85%) of the Net Amount of Eligible Accounts of ISA and
SDI Canada; plus (B) fifty-five percent (55%) of the value of Eligible Inventory
of ISA and SDI Canada; provided, that at no time shall the sum of outstanding
Revolving Loans based upon the value of Eligible Inventory of ISA and SDI Canada
exceed $30,000,000 ("Maximum Inventory Loan"); minus (b) the sum of (i) the
Aggregate Revolver Outstandings for the account of ISA, (ii) reserves for
accrued interest on the Obligations of ISA, (iii) the Environmental Compliance
Reserve pertaining to ISA and SDI Canada, and (iv) all other reserves which the
Agent deems necessary in the exercise of its reasonable credit judgment
exercised in good faith to maintain with respect to ISA's account, including,
without limitation, reserves for any amounts which the Agent or any Lender may
be obligated to pay in the future for the account of ISA or SDI Canada. The
Availability attributable to SDI Canada shall not be more than $5,000,000 and
shall be based on the Dollar Equivalent of its Accounts and Inventory.
"Latest Projections" means: (a) on the Closing Date and
thereafter until the Agent receives new projections pursuant to Section 7.2(e),
the projections of SDI's consolidated and consolidating financial condition,
results of operations, and cash flow, for the period commencing on January 1,
1998 and ending on December 31, 1998 and delivered to the Agent prior to the
Closing Date; and (b) thereafter, the projections most recently received by the
Agent pursuant to Section 7.2(e).
"Lender" and "Lenders" have the meanings specified in the
introductory paragraph hereof and shall include the Agent to the extent of any
Agent Advance and Over Advance outstanding and BABC to the extent of any BABC
Loan outstanding; provided, that no such Agent Advance, Over Advance or BABC
Loan shall be taken into account in determining any Lender's Pro Rata Share.
"Letter of Credit" means a letter of credit issued or caused
to be issued for the account of a Borrower pursuant to Section 2.4.
"Letter of Credit Fee" has the meaning specified in Section
3.6.
"LIBOR Interest Payment Date" means, with respect to a LIBOR
Rate Loan, the last day of each Interest Period applicable to such Loan (or if
such Interest Period exceeds three
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(3) months, ninety (90) days after the beginning of such Interest Period and on
the last day of such Interest Period).
"LIBOR Rate" means, for any Interest Period, with respect to
LIBOR Revolving Loans comprising part of the same Borrowing, the rate of
interest per annum (rounded upward to the next 1/1000th of 1.0%) determined by
the Agent as follows:
LIBOR Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for
any Interest Period the maximum reserve percentage (expressed
as a decimal, rounded upward to the next 1/100th of 1%) in
effect on such day (whether or not applicable to any Lender)
under regulations issued from time to time by the Federal
Reserve Board for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal
reserve requirement) with respect to Eurocurrency funding
(currently referred to as "Eurocurrency liabilities"); and
"LIBOR" means the rate of interest per annum (rounded
upward to the next 1/100th of 1%) notified to the Agent by
Bank of America as the rate of interest at which Dollar
deposits in the approximate amount of the Loan to be made or
continued as, or converted into, a LIBOR Rate Loan and having
a maturity comparable to such Interest Period would be offered
by Bank of America's applicable lending office to major banks
in the London eurodollar market at approximately 11:00 a.m.
(London time) two (2) Business Days prior to the commencement
of such Interest Period.
"LIBOR Revolving Loan" means a Revolving Loan during any
period in which it bears interest based on the LIBOR Rate.
"Lien" means: (a) any interest in property securing an
obligation owed to, or a claim by, a Person other than the owner of the
property, whether such interest is based on the common law, statute, or
contract, and including without limitation, a security interest, hypothec,
charge, claim, or lien arising from a mortgage, deed of trust, encumbrance,
pledge, hypothecation, assignment, deposit arrangement, agreement, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes; and (b) to the extent not included under clause (a), (i)
any reservation, exception, encroachment, easement, right-of-way, covenant,
condition, restriction, lease or other title
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exception or encumbrance affecting property, and (ii) any other lien, charge,
privilege, secured claim, title retention, garnishment right, deemed trust,
encumbrance or other right affecting property, choate or inchoate, whether or
not crystallized or fixed, whether or not for amounts due or accruing due,
arising by any statute, act or law of any jurisdiction, at common law, in equity
or by any agreement.
"Loan Account" means, with respect to a Borrower, the loan
account of such Borrower, which account shall be maintained by the Agent.
"Loan Documents" means this Agreement, the Trademark and
Copyright Agreements, the SDI Guaranty, the SDI Trademark Agreements, the SDI
Canada Guaranty, the SDI Canada Holdings Guaranty, the SDI Security Agreement,
the SDI Canada Security Agreement, the SDI Canada Holding Security Agreement,
the SDI Pledge Agreement, the SDI Canada Holdings Pledge Agreement and any other
agreements, instruments, and documents heretofore, now or hereafter evidencing,
securing, guaranteeing or otherwise relating to the Obligations, the Collateral,
or any other aspect of the transactions contemplated by this Agreement.
"Loans" means, collectively, all loans and advances provided
for in Article 2.
"Majority Lenders" means at any time Lenders whose Pro Rata
Shares aggregate more than sixty-six and two-thirds percent (66 2/3%) of the
Commitments or, if no Commitments shall then be in effect, Lenders who hold more
than sixty-six and two-thirds percent (66 2/3%) of the aggregate principal
amount of the Loans then outstanding.
"Margin Stock" means "margin stock" as such term is defined in
Regulation G, T, U or X of the Federal Reserve Board.
"Material Adverse Effect" means (a) a material adverse change
in, or a material adverse effect upon, the operations, business, properties or
condition (financial or otherwise) of the Borrowers taken as a whole or the
Collateral of the Borrowers taken as a whole; (b) a material impairment of the
ability of a Credit Party to perform under any Loan Document and to avoid any
Event of Default; or (c) a material adverse effect upon the legality, validity,
binding effect or enforceability against a Credit Party of any Loan Document.
"Maximum Revolver Amount" means $50,000,000.
"Mexican Subsidiaries" means, collectively, Strategic
Distribution Services de Mexico, S.A. de C.V. and Strategic Distribution
Marketing de Mexico, S.A. de C.V.
"Multi-employer Plan" means a "multi-employer plan" as defined
in Section 4001(a)(3) of ERISA which is or was at any time during the current
year or the immediately preceding six (6) years contributed to by a Borrower or
any ERISA Affiliate.
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"Net Amount of Eligible Accounts" means, with respect to a
Borrower or SDI Canada, at any time, the gross amount of Eligible Accounts of
such Person less sales, excise or similar taxes, and less returns, discounts,
claims, credits and allowances of any nature at any time issued, owing, granted,
outstanding, available or claimed.
"Net Proceeds" means the gross proceeds from a sale or
sale-leaseback of Fixed Assets, less applicable expenses, taxes and Debt
repayments made which are associated with such sale or sale-leaseback.
"Notice of Borrowing" has the meaning specified in Section
2.2(b).
"Notice of Conversion/Continuation" has the meaning specified
in Section 3.2(b).
"Obligations" means all present and future loans, advances,
liabilities, obligations, covenants, duties, and debts owing by a Borrower to
the Agent and/or any Lender, arising under or pursuant to this Agreement or any
of the other Loan Documents, whether or not evidenced by any note, or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, acceptance, loan, guaranty, indemnification or otherwise,
whether direct or indirect (including, without limitation, those acquired by
assignment from others), absolute or contingent, due or to become due, primary
or secondary, as principal or guarantor, and including, without limitation, all
principal, interest, charges, expenses, fees, attorneys' fees, filing fees and
any other sums chargeable to a Borrower hereunder or under any of the other Loan
Documents. "Obligations" includes, without limitation, all debts, liabilities,
and obligations now or hereafter owing from a Borrower to the Agent and/or any
Lender under or in connection with the Letters of Credit.
"Other Taxes" means any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other Loan
Documents.
"Over Advance" has the meaning specified in Section 2.2(j).
"Participant Lender" means any Person who shall have been
granted the right by any Lender to participate in the financing provided by such
Lender under this Agreement, and who shall have entered into a participation
agreement in form and substance satisfactory to such Lender.
"Payment Account" means, with respect to a Borrower, each
blocked bank account established pursuant to Section 6.9, to which the funds of
such Borrower (including, without limitation, proceeds of Accounts of such
Borrower and other Collateral of such Borrower) are deposited or credited, and
which is maintained in the name of the Agent or such Borrower, as the Agent may
determine, on terms acceptable to the Agent.
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"Payment Direction Notice" means a written notice by the Agent
to the bank at which a Payment Account is maintained instructing such bank to
wire transfer all funds deposited in such Payment Account to an account
designated by the Agent in such notice.
"PBA" means the Pension Benefits Act of Ontario and all
regulations thereunder as amended from time to time, and any successor
legislation.
"PBGC" means the Pension Benefit Guaranty Corporation or any
Governmental Authority succeeding to the functions thereof.
"Pending Revolving Loans" means, with respect to a Borrower,
at any time, the aggregate principal amount of all Revolving Loans requested in
any Notice(s) of Borrowing by such Borrower received by the Agent which have not
yet been advanced.
"Pension Plan" means a pension plan (as defined in Section
3(2) of ERISA or the applicable laws of any jurisdiction including the PBA)
subject to Title IV of ERISA or the applicable laws of any jurisdiction
including the PBA which a Borrower or any ERISA Affiliate sponsors, maintains,
or to which it makes, is making, or is obligated to make contributions, or in
the case of a Multiple-employer Plan has made contributions at any time during
the immediately preceding five (5) plan years.
"Permitted Acquisition" means any acquisition of all or
substantially all of the assets of or equity interests in any Person (an
"Acquisition") that meets the following conditions:
(a) no Default or Event of Default has occurred and is
continuing at the time of, or would result from, such Acquisition;
(b) the Borrowers give the Agent at least ten (10) Business
Days prior written notice of such Acquisition, together with copies of the legal
documents relating to such Acquisition and a certificate demonstrating in
reasonable detail that such Acquisition is a Permitted Acquisition (as defined
herein);
(c) the Person whose assets or equity interests are being
acquired is engaged in a line or lines of business in which the Borrowers and
their Subsidiaries are permitted to be engaged pursuant to Section 9.18;
(d) such Acquisition, together with all other Acquisitions
since the Closing Date, do not involve the payment of cash consideration in
excess of $10,000,000 in the aggregate for all such Acquisitions;
(e) if such Acquisition is an acquisition of assets, such
assets are directly acquired by a Borrower;
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(f) if such Acquisition is an acquisition of equity interests,
the acquired Person is merged into a Borrower on the day of the Acquisition and
such Borrower is the sole surviving Person after giving effect to such merger;
(g) Aggregate Availability, after giving effect to the payment
of the cash portion of the purchase price of, and all closing fees, costs and
expenses related to, such Acquisition but without including in the calculation
of Availability any assets acquired in such Acquisition, exceeds $15,000,000;
(h) any Inventory and Accounts acquired in such Acquisition
are not included in determining Availability until the Agent shall have
completed a satisfactory review of such Accounts and Inventory;
(i) goodwill acquired in such Acquisition shall not exceed
thirty percent (30%) of the total purchase price;
(j) the board of directors of the Person whose assets or
equity interests are being acquired has approved such Acquisition; and
(k) any Debt incurred or assumed in connection with such
transaction is permitted by Section 9.13.
"Permitted Liens" means:
(a) Liens for taxes not delinquent or statutory Liens for
taxes in an amount not to exceed $250,000 in the aggregate for both Borrowers,
provided, that the payment of such taxes which are due and payable is being
contested in good faith and by appropriate proceedings diligently pursued and as
to which adequate financial reserves have been established on a Borrower's books
and records and a stay of enforcement of any such Lien is in effect.
(b) the Agent's Liens;
(c) deposits under worker's compensation, unemployment
insurance, social security and other similar laws, or to secure the performance
of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure indemnity, performance or other similar bonds for the performance
of bids, tenders or contracts (other than for the repayment of borrowed money)
or to secure statutory obligations (other than liens arising under ERISA or
Environmental Liens) or surety or appeal bonds, or to secure indemnity,
performance or other similar bonds in the ordinary course of business;
(d) Liens securing the claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like Persons, provided,
that if any such Lien arises from the nonpayment of such claims or demand when
due, such claims or demands do not exceed $250,000 in the aggregate for both
Borrowers;
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<PAGE>
(e) reservations, exceptions, encroachments, easements, rights
of way, covenants running with the land, and other similar title exceptions or
encumbrances affecting any Real Estate; provided, that they do not in the
aggregate materially detract from the value of the Real Estate or materially
interfere with its use in the ordinary conduct of a Borrower's business;
(f) judgment and other similar Liens arising in connection
with court proceedings to the extent the attachment or enforcement of such Liens
would not result in an Event of Default hereunder; and
(g) purchase money liens on Fixed Assets purchased by a
Borrower and securing Debt not in excess of $1,000,000 in the aggregate for both
Borrowers on a combined basis at any time outstanding, so long as the Lien only
secures the purchase price thereof.
"Permitted Mexican Loan Amount" means $5,000,000; provided,
that such amount shall be increased to $10,000,000 upon Borrowers' request if
Borrowers show compliance with the following conditions: (a) (i) Aggregate
Availability, plus (ii) the lesser of (A) $10,000,000 and (B) Suppressed
Availability, exceeds $15,000,000 and (b) Borrowers' Adjusted Net Earnings From
Operations for the six (6) month period then ended exceeds $3,900,000.
"Permitted Rentals" has the meaning specified in Section 9.24.
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, Governmental Authority, or any other entity.
"Plan" means an employee benefit plan (as defined in Section
3(3) of ERISA or the applicable laws of any jurisdiction) which a Borrower or an
ERISA Affiliate sponsors or maintains or to which a Borrower makes, is making,
or is obligated to make contributions and includes any Pension Plan.
"PPSA" means the Personal Property Security Act of Ontario or
any other applicable jurisdiction, and all regulations thereunder, as amended
from time to time, and any successor legislation.
"Premises" means the land identified by addresses on Schedule
8.12, together with all buildings, improvements, and fixtures thereon and all
tenements, hereditaments, and appurtenances belonging or in any way appertaining
thereto, and which constitutes all of the real property in which a Borrower or
SDI Canada has any interests on the Closing Date.
"Pro Rata Share" means, with respect to a Lender, a fraction
(expressed as a percentage), the numerator of which is the amount of such
Lender's Commitment and the
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denominator of which is the sum of the amounts of all of the Lenders'
Commitments, or if no Commitments are outstanding, a fraction (expressed as a
percentage), the numerator of which is the amount of Obligations owed to such
Lender and the denominator of which is the aggregate amount of the Obligations
owed to the Lenders.
"Proprietary Rights" means, with respect to a Borrower or its
Subsidiaries, all of such Person's now owned and hereafter arising or acquired:
licenses, franchises, permits, patents, patent rights, copyrights, works which
are the subject matter of copyrights, trademarks, service marks, trade names,
trade styles, patent, trademark and service mark applications, and all licenses
and rights related to any of the foregoing, including, without limitation, those
patents, trademarks, service marks, trade names and copyrights set forth on
Schedule 8.13 hereto, and all other rights under any of the foregoing, all
extensions, renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing, and all rights to sue for past,
present and future infringement of any of the foregoing.
"Real Estate" means, with respect to a Borrower or its
Subsidiaries, all of the present and future interests of such Person, as owner,
lessee, or otherwise, in the Premises, including, without limitation, any
interest arising from an option to purchase or lease the Premises or any portion
thereof.
"Release" means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any Real
Estate or other property, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or Real Estate or other property.
"Rentals" has the meaning specified in Section 9.24.
"Reportable Event" means, any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been waived in
regulations issued by the PBGC.
"Required Lenders" means at any time Lenders whose Pro Rata
Shares aggregate more than forty percent (40%) of the Commitments or, if no
Commitments shall then be in effect, Lenders who hold more than forty percent
(40%) of the aggregate principal amount of the Loans then outstanding.
"Requirement of Law" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of an
arbitrator or of a Governmental Authority, in each case applicable to or binding
upon the Person or any of its property or to which the Person or any of its
property is subject.
"Responsible Officer" means, with respect to a Borrower, the
chief executive officer or the president of such Borrower, or any other officer
having substantially the
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same authority and responsibility; or, with respect to compliance with financial
covenants and the preparation of the Borrowing Base Certificate of such
Borrower, the chief financial officer or the treasurer of such Borrower, or any
other officer having substantially the same authority and responsibility.
"Restricted Investment" means any acquisition of property by a
Borrower, SDI Canada Holdings or SDI Canada in exchange for cash or other
property, whether in the form of an acquisition of stock, debt, or other
indebtedness or obligation, or the purchase or acquisition of any other
property, or a loan, advance, capital contribution, or subscription, except
acquisitions of the following: (a) Equipment to be used in the business of a
Borrower, SDI Canada Holdings or SDI Canada, as the case may be, so long as the
acquisition costs thereof constitute Capital Expenditures permitted hereunder;
(b) Inventory in the ordinary course of business; (c) current assets (including
Accounts) arising from the sale or lease of goods or the rendition of services
in the ordinary course of business of a Borrower, SDI Canada Holdings or SDI
Canada, as the case may be; (d) direct obligations of the United States of
America, or any agency thereof, or obligations guaranteed by the United States
of America, provided, that such obligations mature within one year from the date
of acquisition thereof; (e) certificates of deposit maturing within one year
from the date of acquisition, bankers' acceptances, Eurodollar bank deposits, or
overnight bank deposits, in each case issued by, created by, or with a bank or
trust company organized under the laws of the United States or any state thereof
having capital and surplus aggregating at least $100,000,000; (f) commercial
paper given a rating of "A2" or better by Standard & Poor's Corporation or "P2"
or better by Moody's Investors Service, Inc. and maturing not more than ninety
(90) days from the date of creation thereof; and (g) mutual funds investing
primarily in the types of investments set forth in clauses (d), (e) or (f)
above.
"Revolving Loans" has the meaning specified in Section 2.2 and
includes each Agent Advance, Over Advance and BABC Loan.
"SDI" means Strategic Distribution, Inc., a Delaware
corporation.
"SDI Canada" means Strategic Distribution (Canada) Company, a
Nova Scotia unlimited liability company, and which is also know by the French
name of Strategic (Canada) Compagnie De Distribution.
"SDI Canada Guaranty" means the Guaranty of even date herewith
executed by SDI Canada with respect to the Obligations.
"SDI Canada Security Agreement" means the General Security
Agreement of even date herewith executed by SDI Canada in favor of the Agent for
the benefit of itself and the Lenders, as the same may be amended, supplemented
or otherwise modified from time to time.
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"SDI Canada Holdings" means Strategic Distribution (Canada)
Holdings, Inc., a Delaware corporation.
"SDI Canada Holdings Guaranty" means the Guaranty of even date
herewith executed by SDI Canada Holdings with respect to the Obligations.
"SDI Canada Holdings Pledge Agreement" means the Pledge
Agreement of even date herewith executed by SDI Canada Holdings in favor of the
Agent for the benefit of itself and the Lenders, as the same may be amended,
supplemented or otherwise modified from time to time.
"SDI Canada Holdings Security Agreement" means the Security
Agreement of even date herewith executed by SDI Canada Holdings in favor of the
Agent for the benefit of itself and the Lenders, as the same may be amended,
supplemented or otherwise modified from time to time.
"SDI Guaranty" means the Guaranty of even date herewith
executed by SDI with respect to the Obligations.
"SDI Pledge Agreement" means the Pledge Agreement of even date
herewith executed by SDI in favor of the Agent for the benefit of itself and the
Lenders, as the same may be amended, supplemented or otherwise modified from
time to time.
"SDI Security Agreement" means the Security Agreement of even
date herewith executed by SDI in favor of the Agent for the benefit of itself
and the Lenders, as the same may be amended, supplemented or otherwise modified
from time to time.
"SDI Trademark Agreement" means the Trademark Security
Agreement, each dated as of the date hereof, executed and delivered by SDI to
the Agent to evidence and perfect the Agent's security interest in SDI's present
and future trademarks, and related licenses and rights, for the benefit of the
Agent and the Lenders.
"Senior Funded Debt" means, as of the last day of any Fiscal
Quarter, the sum of (i) Debt for Borrowed Money as of such date (provided, that
for purposes of this clause (i), Revolving Loans shall not be Debt for Borrowed
Money), and (ii) the average daily principal amount of the Revolving Loans
outstanding during the thirty (30) day period ending on such date.
"Senior Funded Debt to EBITDA Ratio" means, for any fiscal
period, the ratio of (a) Senior Funded Debt of SDI on a consolidated basis as of
the last day of such period over (b) EBITDA for such period.
"Settlement" and "Settlement Date" have the meanings specified
in Section 2.2(k)(l).
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"Slow Moving" means, with respect to Inventory, Inventory that
has been owned by a Borrower or SDI Canada for the length of time after which
such Inventory is required to be purchased by the customer under the Customer
Contract relating to such Inventory.
"Solvent" means when used with respect to any Person that at
the time of determination:
(i) the assets of such Person, at a fair valuation, are in
excess of the total amount of its debts (including, without limitation,
contingent liabilities); and
(ii) the present fair saleable value of its assets is greater
than its probable liability on its existing debts as such debts become
absolute and matured; and
(iii) it is then able and expects to be able to pay its debts
(including, without limitation, contingent debts and other commitments)
as they mature; and
(iv) it has capital sufficient to carry on its business as
conducted and as proposed to be conducted.
For purposes of determining whether a Person is Solvent, the amount of any
contingent liability shall be computed as the amount that, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Specified Event of Default" means (i) an Event of Default
arising under Section 11.1(a), (ii) an Event of Default arising under Section
11.1(c) as a result of a breach by a Borrower of Section 6.7 or Section 7.2, and
(iii) any other Event of Default arising for any reason to the extent Aggregate
Availability is less than $5,000,000 at such time as such other Event of Default
exists.
"Spot Rate" for a currency means the rate quoted by Bank of
America as the spot rate for the purchase by Bank of America of such currency
with another currency through its FX Trading Office at approximately 10:30 a.m.
(Chicago time) on the date two (2) Banking Days prior to the date as of which
the foreign exchange computation is made.
"Stated Termination Date" means May 8, 2001.
"Subordinated Debt" means any Debt of a Borrower or a
Subsidiary of Borrower that is subordinated to the Obligations or other debt in
a manner satisfactory to the Agent in its discretion.
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"Subsidiary" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than fifty
percent (50%) of the voting stock or other equity interests (in the case of
Persons other than corporations), is owned or controlled directly or indirectly
by the Person, or one or more of the Subsidiaries of the Person, or a
combination thereof. Unless the context otherwise clearly requires, references
herein to a "Subsidiary" refer to a Subsidiary of SDI.
"Suppressed Availability" means the amount by which ISA
Availability and INTERMAT Availability would be increased if each were not
limited by the Individual Revolver Amount.
"Taxes" means any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, excluding, in the case of each
Lender and the Agent, such taxes as are imposed on or measured by each Lender's
net income, capital, profits and gains and franchise taxes imposed on it other
than withholding taxes by the (i) United States, or (ii) Governmental Authority
of the jurisdiction in which such Lender's lending office (or administrative
office) is located or any political subdivision thereof and (iii) Governmental
Authority of the jurisdiction (or any political subdivision thereof) under the
laws of which such Lender or the Agent, as the case may be, is organized,
managed or controlled.
"Termination Date" means the earliest to occur of (i) the
Stated Termination Date, (ii) the date the Total Facility is terminated either
by the Borrowers pursuant to Section 4.2 or by the Majority Lenders pursuant to
Section 11.2, and (iii) the date this Agreement is otherwise terminated for any
reason whatsoever.
"Termination Event" means (a) the whole or partial withdrawal
of either Borrower or any Subsidiary from a Plan during a plan year; or (b) the
filing of a notice of intent to terminate in whole or in part a Plan or the
treatment of a Plan amendment as a termination or partial termination; or (c)
the institution of proceedings by any Governmental Authority to terminate in
whole or in part or have a trustee appointed to administer a Plan; or (d) any
other event or condition which might constitute grounds for the termination of,
winding up or partial termination of winding up or appointment of a trustee to
administer, any Plan.
"Total Facility" has the meaning specified in Section 2.1.
"Trademark and Copyright Agreements" means the Trademark
Security Agreement and the Copyright Security Agreement, each dated as of the
date hereof, executed and delivered by a Borrower to the Agent to evidence and
perfect the Agent's security interest in a Borrower's present and future
trademarks, and related licenses and rights, for the benefit of the Agent and
the Lenders.
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"UCC" means the Uniform Commercial Code (or any successor
statute) of the State of Illinois or of any other state the laws of which are
required by Section 9-103 thereof to be applied in connection with the issue of
perfection of security interests.
"Unfunded Pension Liability" means the excess of a Plan's
benefit liabilities over the current value of that Plan's assets, determined in
accordance with the assumptions used for funding the Pension Plan pursuant to
Section 412 of the Code or the PBA or other applicable laws of any jurisdiction
for the applicable plan year and includes in the case of any Plan regulated or
governed by the PBA or applicable laws of any jurisdiction, any unfunded
liability or solvency deficiency as determined under the PBA or other applicable
laws.
"Unused Letter of Credit Subfacility" means an amount equal to
$20,000,000 minus the sum of (a) the aggregate undrawn amount of all outstanding
Letters of Credit plus (b) the aggregate unpaid reimbursement obligations with
respect to all Letters of Credit.
"Unused Line Fee" has the meaning specified in Section 3.5.
1.2. Accounting Terms.
Any accounting term used in this Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given in
accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
as consistently applied and using the same method for inventory valuation as
used in the preparation of the Financial Statements.
1.3. Interpretive Provisions
(a) The meanings of defined terms are equally applicable to
the singular and plural forms of the defined terms.
(b) The words "hereof," "herein," "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision
of this Agreement; and Subsection, Section, Schedule and Exhibit references
are to this Agreement unless otherwise specified.
(c) (i) The term "including" is not limiting and means
"including without limitation"; and (ii) in the computation of periods of
time from a specified date to a later specified date, the word "from" means
"from and including," the words "to" and "until" each mean "to but excluding"
and the word "through" means "to and including."
(d) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
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(e) This Agreement and the other Loan Documents are the
result of negotiations among and have been reviewed by counsel to the Agent,
the Borrowers, SDI Canada and the other parties, and are the products of all
parties. Accordingly, they shall not be construed against the Lenders or the
Agent merely because of the Agent's or Lenders' involvement in their
preparation.
ARTICLE 2
LOANS AND LETTERS OF CREDIT
2.1. Total Facility.
Subject to all of the terms and conditions of this Agreement,
the Lenders severally agree to make available a total credit facility of up to
$50,000,000 (the "Total Facility") for the Borrowers' use from time to time
during the term of this Agreement. The Total Facility shall be comprised of a
revolving line of credit consisting of revolving loans and letters of credit up
to the Maximum Revolver Amount, as described in Sections 2.2 and 2.4.
2.2. Revolving Loans.
(a) Amounts. Subject to the satisfaction of the conditions
precedent set forth in Article 10, each Lender severally agrees, upon a
Borrower's request from time to time on any Business Day during the period
from the Closing Date to the Termination Date, to make revolving loans (the
"Revolving Loans") to such Borrower, in amounts not to exceed (except for
BABC with respect to BABC Loans, Agent Advances or Over Advances) such
Lender's Pro Rata Share of such Borrower's Availability. The Lenders,
however, in their discretion, may elect to make Revolving Loans or
participate (as provided for in Section 2.4(f)) in the credit support or
enhancement provided through the Agent to the issuers of Letters of Credit
for the account of a Borrower in excess of such Borrower's Availability on
one or more occasions, but if they do so, neither the Agent nor the Lenders
shall be deemed thereby to have changed the limits of the Individual Revolver
Amount or the Availability of a Borrower or to be obligated to exceed such
limits on any other occasion. If the Aggregate Revolver Outstandings for the
account of a Borrower exceeds the Availability of such Borrower (with such
Availability for this purpose calculated as if the Aggregate Revolver
Outstandings for the account of such Borrower were zero), the Lenders may
refuse to make or otherwise restrict the making of Revolving Loans for the
account of either Borrower as the Lenders determine until such excess has
been eliminated, subject to the Agent's authority, in its sole discretion, to
make Agent Advances pursuant to the terms of Section 2.2(i), and subject to
the Agent's authority, in its sole discretion, to make Over Advances pursuant
to the terms of Section 2.2(j).
(b) Procedure for Borrowing. (1) Each Borrowing for the
account of a Borrower shall be made upon such Borrower's irrevocable written
notice delivered to the Agent in the form of a notice of borrowing in the
form attached hereto as Exhibit E ("Notice of
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Borrowing") together with a Borrowing Base Certificate for such Borrower
reflecting sufficient Availability for such Borrower, (which must be received by
the Agent prior to 10:00 a.m. (Chicago time) (i) three (3) Business Days prior
to the requested Funding Date, in the case of LIBOR Revolving Loans and (ii) no
later than 10:00 a.m. on the requested Funding Date, in the case of Base Rate
Revolving Loans, specifying:
(A) the amount of the Borrowing (which in the case
of LIBOR Loans shall be in the minimum amount of
$500,000 and in integral multiples of $500,000 in
excess thereof);
(B) the requested Funding Date, which shall be a
Business Day;
(C) whether the Revolving Loans requested are to
be Base Rate Revolving Loans or LIBOR Revolving Loans;
and
(D) the duration of the Interest Period if the
requested Revolving Loans are to be LIBOR Revolving
Loans. If the Notice of Borrowing fails to specify the
duration of the Interest Period for any Borrowing
comprised of LIBOR Revolving Loans, such Interest
Period shall be one month;
provided, however, that with respect to the Borrowing to be made on the Closing
Date, such Borrowings will consist of Base Rate Revolving Loans only.
(2) With respect to any request for Base Rate Revolving Loans,
in lieu of delivering the above-described Notice of Borrowing a
Borrower may give the Agent telephonic notice of such request by the
required time, with such telephonic notice to be confirmed in writing
within 24 hours of the giving of such notice but the Agent shall be
entitled to rely on the telephonic notice in making such Revolving
Loans.
(c) Reliance upon Authority. On or prior to the Closing
Date and thereafter prior to any change with respect to any of the
information contained in the following clauses (i) and (ii), each Borrower
shall deliver to the Agent a writing setting forth (i) the account of such
Borrower to which the Agent is authorized to transfer the proceeds of the
Revolving Loans requested by such Borrower pursuant to this Section 2.2, and
(ii) the names of the persons authorized to request Revolving Loans on behalf
of such Borrower, and shall provide the Agent with a specimen signature of
each such person. The Agent shall be entitled to rely conclusively on such
person's authority to request Revolving Loans on behalf of such Borrower, the
proceeds of which are to be transferred to any of the accounts specified by
such Borrower pursuant to the immediately preceding sentence, until the Agent
receives written notice to the contrary. The Agent shall have no duty to
verify the identity of any individual representing him or herself as one of
the officers authorized by a Borrower to make such requests on its behalf.
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(d) No Liability. The Agent shall not incur any liability
to a Borrower as a result of acting upon any notice referred to in Sections
2.2(b) and (c), which notice the Agent believes in good faith to have been
given by an officer duly authorized by such Borrower to request Revolving
Loans on its behalf or for otherwise acting in good faith under this Section
2.2, and the crediting of Revolving Loans to such Borrower's deposit account,
or transmittal to such Person as such Borrower shall direct, shall
conclusively establish the obligation of such Borrower to repay such
Revolving Loans as provided herein.
(e) Notice Irrevocable. Any Notice of Borrowing of a
Borrower (or telephonic notice in lieu thereof) made pursuant to Section
2.2(b) shall be irrevocable and such Borrower shall be bound to borrow the
funds requested therein in accordance therewith.
(f) Agent's Election. Promptly after receipt of a Notice of
Borrowing (or telephonic notice in lieu thereof) pursuant to Section 2.2(b),
the Agent shall elect, in its discretion, (i) to have the terms of Section
2.2(g) apply to such requested Borrowing, or (ii) to request BABC to make a
BABC Loan pursuant to the terms of Section 2.2(h) in the amount of the
requested Borrowing; provided, however, that if BABC declines in its sole
discretion to make a BABC Loan pursuant to Section 2.2(h), the Agent shall
elect to have the terms of Section 2.2(g) apply to such requested Borrowing.
(g) Making of Revolving Loans.
(i) In the event that the Agent shall elect or be
deemed to have elected to have the terms of this Section
2.2(g) apply to a requested Borrowing as described in
Section 2.2(f), then promptly after receipt of a Notice of
Borrowing or telephonic notice pursuant to Section 2.2(b),
the Agent shall notify the Lenders by telecopy, telephone
or other similar form of transmission, of the requested
Borrowing. Each Lender shall make the amount of such
Lender's Pro Rata Share of the requested Borrowing
available to the Agent in same day funds, to such account
of the Agent as the Agent may designate, not later than
1:00 p.m. (Chicago time) on the Funding Date applicable
thereto. After the Agent's receipt of the proceeds of such
Revolving Loans, upon satisfaction of the applicable
conditions precedent set forth in Article 10, the Agent
shall make the proceeds of such Revolving Loans available
(not later than 2:00 p.m. Chicago time) to the Borrower
that requested such Revolving Loans on the applicable
Funding Date by transferring same day funds equal to the
proceeds of such Revolving Loans received by the Agent to
the account of such Borrower, designated in writing by such
Borrower and acceptable to the Agent; provided, however,
that the amount of Revolving Loans so made on any date
shall in no event exceed the Availability of such Borrower
on such date.
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(ii) Unless the Agent receives notice from a Lender
with respect to any Borrowing after the Closing Date at
least one Business Day prior to the date of such Borrowing
that such Lender will not make available as and when
required hereunder to the Agent for the account of such
Borrower the amount of that Lender's Pro Rata Share of the
Borrowing requested by such Borrower, the Agent may assume
that each Lender has made such amount available to the
Agent in immediately available funds on the Funding Date
and the Agent may (but shall not be so required), in
reliance upon such assumption, make available to such
Borrower on such date a corresponding amount. If and to the
extent any Lender shall not have made its full amount
available to the Agent in immediately available funds and
the Agent in such circumstances has made available to such
Borrower such amount, that Lender shall on the Business Day
following such Funding Date make such amount available to
the Agent, together with interest at the Federal Funds Rate
for each day during such period. A notice of the Agent
submitted to any Lender with respect to amounts owing under
this subsection shall be conclusive, absent manifest error.
If such amount is so made available, such payment to the
Agent shall constitute such Lender's Loan on the date of
Borrowing for all purposes of this Agreement. If such
amount is not made available to the Agent on the Business
Day following the Funding Date, the Agent will notify the
Borrower to whom such Revolving Loan was made of such
failure to fund and, upon demand by the Agent, such
Borrower shall pay such amount to the Agent for the Agent's
account, together with interest thereon for each day
elapsed since the date of such Borrowing, at a rate per
annum equal to the Interest Rate applicable at the time to
the Loans comprising such Borrowing. The failure of any
Lender to make any Loan on any Funding Date (any such
Lender, prior to the cure of such failure, being
hereinafter referred to as a "Defaulting Lender") shall not
relieve any other Lender of any obligation hereunder to
make a Loan on such Funding Date, but no Lender shall be
responsible for the failure of any other Lender to make the
Loan to be made by such other Lender on any Funding Date.
(iii) The Agent shall not be obligated to transfer to a
Defaulting Lender any payments made by a Borrower to the
Agent for the Defaulting Lender's benefit; nor shall a
Defaulting Lender be entitled to the sharing of any
payments hereunder. Amounts payable to a Defaulting Lender
shall instead be paid to or retained by the Agent. The
Agent may hold and, in its discretion, re-lend to a
Borrower the amount of all such payments received or
retained by it for the account of such Defaulting Lender.
Any amounts so re-lent to a Borrower shall bear interest at
the rate applicable to Base Rate Revolving Loans and for
all
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other purposes of this Agreement shall be treated as if
they were Revolving Loans, provided, however, that for
purposes of voting or consenting to matters with respect to
the Loan Documents and determining Pro Rata Shares in
connection with such voting and consenting, such Defaulting
Lender shall be deemed not to be a "Lender" and such
Lender's Commitment shall be deemed to be zero (-0-). Until
a Defaulting Lender cures its failure to fund its Pro Rata
Share of any Borrowing (1) such Defaulting Lender shall not
be entitled to any portion of the Unused Line Fee and (2)
the Unused Line Fee shall accrue in favor of the Lenders
which have funded their respective Pro Rata Shares of such
requested Borrowing, shall be allocated among such
performing Lenders ratably based upon their relative
Commitments, and shall be calculated based upon the average
amount by which the aggregate Commitments of such
performing Lenders exceeds the sum of outstanding Revolving
Loans and the undrawn face amount of all outstanding
Letters of Credit. This Section 2.2(g) shall remain
effective with respect to such Lender until such time as
the Defaulting Lender shall no longer be in default of any
of its obligations under this Agreement. The terms of this
Section 2.2(g) shall not be construed to increase or
otherwise affect the Commitment of any Lender, or relieve
or excuse the performance by a Borrower of its duties and
obligations hereunder.
(h) Making of BABC Loans.
(i) In the event the Agent shall elect, with the
consent of BABC, to have the terms of this Section 2.2(h)
apply to a requested Borrowing by a Borrower as described
in Section 2.2(f), BABC shall make a Revolving Loan in the
amount of such Borrowing (any such Revolving Loan made
solely by BABC pursuant to this Section 2.2(h) being
referred to as a "BABC Loan" and such Revolving Loans being
referred to collectively as "BABC Loans") available to such
Borrower on the Funding Date applicable thereto by
transferring same day funds to an account of such Borrower,
designated in writing by such Borrower and acceptable to
the Agent; provided, that the aggregate amount of BABC
Loans outstanding at any time shall not exceed $10,000,000.
Each BABC Loan is a Revolving Loan hereunder and shall be
subject to all the terms and conditions applicable to other
Revolving Loans except that all payments thereon shall be
payable to BABC solely for its own account (and for the
account of the holder of any participation interest with
respect to such Revolving Loan). The Agent shall not
request BABC to make any BABC Loan if (i) the Agent shall
have received written notice from any Lender, or otherwise
has actual knowledge, that one or more of the applicable
conditions precedent set forth in Article 10 will not be
satisfied on the requested Funding Date for the applicable
Borrowing, or
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(ii) the requested Borrowing by a Borrower would exceed the
Availability of such Borrower on such Funding Date. BABC
shall not otherwise be required to determine whether the
applicable conditions precedent set forth in Article 10
have been satisfied or the requested Borrowing by a
Borrower would exceed the Availability of such Borrower on
the Funding Date applicable thereto prior to making, in its
sole discretion, any BABC Loan.
(ii) The BABC Loans for the account of a Borrower shall
be repayable on demand and secured by the Collateral of
such Borrower, shall constitute Revolving Loans for the
account of such Borrower and Obligations hereunder, and
shall bear interest at the rate applicable to the Revolving
Loans from time to time.
(i) Agent Advances.
(i) Subject to the limitations set forth in the
provisos contained in this Section 2.2(i), the Agent is
hereby authorized by the Borrowers and the Lenders, from
time to time in the Agent's sole discretion, (1) after the
occurrence of a Default or an Event of Default, or (2) at
any time that any of the other applicable conditions
precedent set forth in Article 10 have not been satisfied,
to make Revolving Loans to a Borrower on behalf of the
Lenders which the Agent, in its reasonable business
judgment, deems necessary or desirable (A) to preserve or
protect the Collateral of such Borrower, or any portion
thereof, (B) to enhance the likelihood of, or maximize the
amount of, repayment of the Loans and other Obligations, or
(C) to pay any other amount chargeable to such Borrower
pursuant to the terms of this Agreement, including, without
limitation, costs, fees and expenses as described in
Section 15.7 (any of the advances described in this Section
2.2(i) being herein referred to as "Agent Advances");
provided, that the Required Lenders may at any time revoke
the Agent's authorization contained in this Section 2.2(i)
to make Agent Advances, any such revocation to be in
writing and to become effective prospectively upon the
Agent's receipt thereof.
(ii) The Agent Advances for the account of a Borrower
shall be repayable on demand and secured by the Collateral
of such Borrower, shall constitute Revolving Loans for the
account of such Borrower and Obligations hereunder, and
shall bear interest at the rate applicable to the Revolving
Loans from time to time. The Agent shall notify each Lender
in writing of each such Agent Advance.
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(j) Over Advances.
(i) Subject to the limitations set forth in the
provisions contained in this Section 2.2(j), the Agent is
hereby authorized by the Lenders in the Agent's sole
discretion upon the request of a Borrower to make Loans to
such Borrower (not exceeding $2,000,000 in the aggregate
for all Borrowers of any one time outstanding) that cause
the Aggregate Revolver Outstandings of the applicable
Borrower to exceed such Borrower's Availability (but not
such Borrower's Individual Revolver Amount nor the
Aggregate Revolver Outstandings of both Borrowers to exceed
the Maximum Revolver Amount (any of the advances described
in this Section 2.2(j) being herein referred to as "Over
Advances"); provided, that the Agent shall not make any
Over Advance at any time any Borrower's Aggregate Revolver
Outstandings have exceeded such Borrower's Individual
Revolver Amount for a period of sixty (60) days as a result
of an Over Advance.
(ii) The Over Advances for the account of a Borrower
shall be repayable on demand and secured by the Collateral
of such Borrower, shall constitute Revolving Loans for the
account of such Borrower and Obligations hereunder, and
shall bear interest at the rate applicable to the Revolving
Loans from time to time. The Agent shall notify each Lender
in writing of each Over Advance.
(k) Settlement. It is agreed that each Lender's funded portion
of the Revolving Loan is intended by the Lenders to be equal at all times to
such Lender's Pro Rata Share of the outstanding Revolving Loans. Notwithstanding
such agreement, the Agent, BABC, and the other Lenders agree (which agreement
shall not be for the benefit of or enforceable by the Borrowers) that in order
to facilitate the administration of this Agreement and the other Loan Documents,
settlement among them as to the Revolving Loans, the BABC Loans, the Agent
Advances and the Over Advances shall take place on a periodic basis in
accordance with the following provisions:
(i) The Agent shall request settlement ("Settlement")
with the Lenders on a bi-weekly basis, or on a more
frequent basis if so determined by the Agent, (1) on behalf
of BABC, with respect to each outstanding BABC Loan, (2)
for itself, with respect to each Agent Advance and Over
Advance, and (3) with respect to collections received, in
each case, by notifying the Lenders of such requested
Settlement by telecopy, telephone or other similar form of
transmission, of such requested Settlement, no later than
10:00 a.m. (Chicago time) on the date of such requested
Settlement (the "Settlement Date"). Each Lender (other than
BABC, in the case of BABC Loans) shall make the amount of
such Lender's Pro Rata Share of the outstanding principal
amount of the
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BABC Loans, Agent Advances and Over Advances with respect
to which Settlement is requested available to the Agent,
for itself or for the account of BABC, in same day funds,
to such account of the Agent as the Agent may designate,
not later than 1:00 p.m. (Chicago time), on the Settlement
Date applicable thereto, regardless of whether the
applicable conditions precedent set forth in Article 10
have then been satisfied. Such amounts made available to
the Agent shall be applied against the amounts of the
applicable BABC Loan, Agent Advance or Over Advance and,
together with the portion of such BABC Loan, Agent Advance
or Over Advance representing BABC's Pro Rata Share thereof,
shall constitute Revolving Loans of such Lenders. If any
such amount is not made available to the Agent by any
Lender on the Settlement Date applicable thereto, the Agent
shall be entitled to recover such amount on demand from
such Lender together with interest thereon at the Federal
Funds Rate for the first three (3) days from and after the
Settlement Date and thereafter at the Interest Rate then
applicable to the Revolving Loans.
(ii) Notwithstanding the foregoing, not more than one
(1) Business Day after demand is made by the Agent (whether
before or after the occurrence of a Default or an Event of
Default and regardless of whether the Agent has requested a
Settlement with respect to a BABC Loan, Agent Advance or
Over Advance), each other Lender shall irrevocably and
unconditionally purchase and receive from BABC or the
Agent, as applicable, without recourse or warranty, an
undivided interest and participation in such BABC Loan,
Agent Advance or Over Advance to the extent of such
Lender's Pro Rata Share thereof by paying to the Agent, in
same day funds, an amount equal to such Lender's Pro Rata
Share of such BABC Loan, Agent Advance or Over Advance. If
such amount is not in fact made available to the Agent by
any Lender, the Agent shall be entitled to recover such
amount on demand from such Lender together with interest
thereon at the Federal Funds Rate for the first three (3)
days from and after such demand and thereafter at the
Interest Rate then applicable to the Revolving Loans.
(iii) From and after the date, if any, on which any
Lender purchases an undivided interest and participation in
any BABC Loan, Agent Advance or Over Advance pursuant to
subsection (ii) above, the Agent shall promptly distribute
to such Lender at such address as such Lender may request
in writing, such Lender's Pro Rata Share of all payments of
principal and interest and all proceeds of Collateral
received by the Agent in respect of such BABC Loan, Agent
Advance or Over Advance.
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(iv) Between Settlement Dates, the Agent, to the extent no
Agent Advances, BABC Loans or Over Advances are outstanding, may
pay over to BABC any payments received by the Agent, which in
accordance with the terms of this Agreement would be applied to
the reduction of the Revolving Loans, for application to BABC's
other outstanding Revolving Loans. If, as of any Settlement Date,
collections received since the then immediately preceding
Settlement Date have been applied to BABC's other outstanding
Revolving Loans other than to BABC Loans, Agent Advances or Over
Advances, as provided for in the previous sentence, BABC shall
pay to the Agent for the accounts of the Lenders, to be applied
to the outstanding Revolving Loans of such Lenders, an amount
such that each Lender shall, upon receipt of such amount, have,
as of such Settlement Date, its Pro Rata Share of the Revolving
Loans and BABC's other Revolving Loans shall be deemed to be
reinstated in the amount so paid to the Agent for the account of
the other Lenders. During the period between Settlement Dates,
BABC with respect to BABC Loans, the Agent with respect to Agent
Advances and Over Advances, and each Lender with respect to the
Revolving Loans other than BABC Loans, Agent Advances and Over
Advances, shall be entitled to interest at the applicable rate or
rates payable under this Agreement on the actual average daily
amount of funds employed by BABC, the Agent and the other
Lenders.
(l) Notation. The Agent shall record on its books the
principal amount of the Revolving Loans owing to each Lender, including the BABC
Loans owing to BABC, and the Agent Advances and Over Advances owing to the
Agent, from time to time. In addition, each Lender is authorized, at such
Lender's option, to note the date and amount of each payment or prepayment of
principal of such Lender's Revolving Loans in its books and records, including
computer records, such books and records constituting rebuttably presumptive
evidence, absent manifest error, of the accuracy of the information contained
therein.
(m) Lenders' Failure to Perform. All Loans (other than BABC
Loans, Agent Advances and Over Advances) shall be made by the Lenders
simultaneously and in accordance with their Pro Rata Shares. It is understood
that (a) no Lender shall be responsible for any failure by any other Lender to
perform its obligation to make any Loans hereunder, nor shall any Commitment of
any Lender be increased or decreased as a result of any failure by any other
Lender to perform its obligation to make any Loans hereunder, (b) no failure by
any Lender to perform its obligation to make any Loans hereunder shall excuse
any other Lender from its obligation to make any Loans hereunder, and (c) the
obligations of each Lender hereunder shall be several, not joint and several.
2.3. Intentionally Omitted.
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2.4. Letters of Credit.
(a) Agreement to Cause Issuance. Subject to the terms and
conditions of this Agreement, and in reliance upon the representations and
warranties of the Borrowers herein set forth, the Agent agrees to take
reasonable steps to cause to be issued for the account of a Borrower and to
provide credit support or other enhancement to banks acceptable to Agent, which
issue Letters of Credit for the account of a Borrower (any such credit support
or enhancement being herein referred to a "Credit Support") in accordance with
this Section 2.4 from time to time during the term of this Agreement.
(b) Amounts; Outside Expiration Date. The Agent shall not have
any obligation to take steps to cause to be issued any Letter of Credit or to
provide Credit Support for any Letter of Credit at any time if: (1) the maximum
undrawn amount of the requested Letter of Credit is greater than the Unused
Letter of Credit Subfacility at such time; (2) the maximum undrawn amount of the
requested Letter of Credit for the account of a Borrower and all commissions,
fees, and charges due from such Borrower in connection with the opening thereof
exceed the Availability of such Borrower at such time; or (3) such Letter of
Credit has an expiration date later than the Stated Termination Date or more
than (i) one hundred eighty (180) days from the date of issuance in the case of
documentary Letters of Credit or (ii) three hundred sixty-five (365) days from
the date of issuance in the case of any other Letters of Credit.
(c) Other Conditions. In addition to being subject to the
satisfaction of the applicable conditions precedent contained in Article 10, the
obligation of the Agent to take reasonable steps to cause to be issued any
Letter of Credit or to provide Credit Support for any Letter of Credit is
subject to the following conditions precedent having been satisfied in a manner
satisfactory to the Agent:
(1) The Borrower requesting such Letter of Credit or
Credit Support for any Letter of Credit shall have delivered to the
proposed issuer of such Letter of Credit, at such times and in such
manner as such proposed issuer may prescribe, an application in form
and substance satisfactory to such proposed issuer and the Agent for
the issuance of the Letter of Credit and such other documents as may be
required pursuant to the terms thereof, and the form and terms of the
proposed Letter of Credit shall be satisfactory to the Agent and such
proposed issuer; and
(2) As of the date of issuance, no order of any
court, arbitrator or Governmental Authority shall purport by its terms
to enjoin or restrain money center banks generally from issuing letters
of credit of the type and in the amount of the proposed Letter of
Credit, and no law, rule or regulation applicable to money center banks
generally and no request or directive (whether or not having the force
of law) from any Governmental Authority with jurisdiction over money
center banks generally shall prohibit,
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or request that the proposed issuer of such Letter of Credit refrain
from, the issuance of letters of credit generally or the issuance of
such Letters of Credit.
(d) Issuance of Letters of Credit.
(1) Request for Issuance. The Agent shall have
received three (3) Business Days' prior written notice from a Borrower
of such Borrower's request for the issuance of a Letter of Credit. Such
notice shall be irrevocable and shall specify the original face amount
of the Letter of Credit requested, the effective date (which date shall
be a Business Day) of issuance of such requested Letter of Credit,
whether such Letter of Credit may be drawn in a single or in partial
draws, the date on which such requested Letter of Credit is to expire
(which date shall be a Business Day), the purpose for which such Letter
of Credit is to be issued, and the beneficiary of the requested Letter
of Credit. Such Borrower shall attach to such notice the proposed form
of the Letter of Credit.
(2) Responsibilities of the Agent; Issuance. The
Agent shall determine, as of the Business Day immediately preceding the
requested effective date of issuance of the Letter of Credit set forth
in the notice from a Borrower pursuant to Section 2.4(d)(1), (i) the
amount of the applicable Unused Letter of Credit Subfacility and (ii)
the Availability of such Borrower as of such date. If (i) the undrawn
amount of the requested Letter of Credit is not greater than the
applicable Unused Letter of Credit Subfacility and (ii) the issuance of
such requested Letter of Credit and all commissions, fees, and charges
due from such Borrower in connection with the opening thereof would not
exceed the Availability of such Borrower, the Agent shall take
reasonable steps to cause such issuer to issue the requested Letter of
Credit on such requested effective date of issuance.
(3) Notice of Issuance. On each Settlement Date the
Agent shall give notice to each Lender of the issuance of all Letters
of Credit issued since the last Settlement Date.
(4) No Extensions or Amendment. The Agent shall not
be obligated to cause any Letter of Credit to be extended or amended
unless the requirements of this Section 2.4(d) are met as though a new
Letter of Credit were being requested and issued. With respect to any
Letter of Credit which contains any "evergreen" or automatic renewal
provision, each Lender shall be deemed to have consented to any such
extension or renewal unless any such Lender shall have provided to the
Agent, not less than thirty (30) days prior to the last date on which
the applicable issuer can in accordance with the terms of the
applicable Letter of Credit decline to extend or renew such Letter of
Credit, written notice that it declines to consent to any such
extension or renewal,
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provided, that if all of the requirements of this Section 2.4 are met
and no Default or Event of Default exists, no Lender shall decline to
consent to any such extension or renewal.
(e) Payments Pursuant to Letters of Credit.
(1) Payment of Letter of Credit Obligations. Each
Borrower agrees to reimburse the issuer for any draw under any Letter
of Credit issued for the account of such Borrower and the Agent for the
account of the Lenders upon any payment pursuant to any Credit Support
issued for the account of such Borrower immediately upon demand, and to
pay the issuer of such Letter of Credit the amount of all other
obligations and other amounts payable to such issuer under or in
connection with such Letter of Credit immediately when due,
irrespective of any claim, setoff, defense or other right which such
Borrower may have at any time against such issuer or any other Person.
(2) Revolving Loans to Satisfy Reimbursement
Obligations. In the event that the issuer of any Letter of Credit for
the account of a Borrower honors a draw under such Letter of Credit or
the Agent shall have made any payment pursuant to any Credit Support
for the account of a Borrower and such Borrower shall not have repaid
such amount to the issuer of such Letter of Credit or the Agent, as
applicable, pursuant to Section 2.4(e)(1), the Agent shall, upon
receiving notice of such failure, notify each Lender of such failure,
and each Lender shall unconditionally pay to the Agent, for the account
of such issuer or the Agent, as applicable, as and when provided
hereinbelow, an amount equal to such Lender's Pro Rata Share of the
amount of such payment in Dollars and in same day funds. If the Agent
so notifies the Lenders prior to 11:00 a.m. (Chicago time) on any
Business Day, each Lender shall make available to the Agent the amount
of such payment, as provided in the immediately preceding sentence, on
such Business Day. Such amounts paid by the Lenders to the Agent shall
constitute Revolving Loans for the account of such Borrower which shall
be deemed to have been requested by such Borrower pursuant to Section
2.2 as set forth in Section 4.7.
(f) Participations.
(1) Purchase of Participations. Immediately upon
issuance of any Letter of Credit for the account of a Borrower in
accordance with Section 2.4(d), each Lender shall be deemed to have
irrevocably and unconditionally purchased and received without recourse
or warranty, an undivided interest and participation in the Letter of
Credit or the Credit Support provided through the Agent to such issuer
in connection with the issuance of such Letter of Credit, equal to such
Lender's Pro Rata Share of the face amount of such Letter of Credit or
the amount of such Credit Support
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(including, without limitation, all obligations of such Borrower with
respect thereto, and any security therefor or guaranty pertaining
thereto).
(2) Sharing of Reimbursement Obligation Payments.
Whenever the Agent receives a payment from a Borrower on account of
reimbursement obligations in respect of a Letter of Credit or Credit
Support for the account of such Borrower as to which the Agent has
previously received for the account of the issuer thereof payment from
a Lender pursuant to Section 2.4(e)(2), the Agent shall promptly pay to
such Lender such Lender's Pro Rata Share of such payment from such
Borrower in Dollars. Each such payment shall be made by the Agent on
the Business Day on which the Agent receives immediately available
funds paid to such Person pursuant to the immediately preceding
sentence, if received prior to 1:00 p.m. (Chicago time) on such
Business Day and otherwise on the next succeeding Business Day.
(3) Documentation. Upon the request of any Lender,
the Agent shall furnish to such Lender copies of any Letter of Credit,
reimbursement agreements executed in connection therewith, application
for any Letter of Credit and credit support or enhancement provided
through the Agent in connection with the issuance of any Letter of
Credit, and such other documentation as may reasonably be requested by
such Lender.
(4) Obligations Irrevocable. The obligations of each
Lender to make payments to the Agent with respect to any Letter of
Credit or with respect to any Credit Support provided through the Agent
with respect to a Letter of Credit, and the obligations of each
Borrower to make payments to the Agent, for the account of the Lenders,
shall be irrevocable, not subject to any qualification or exception
whatsoever, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement
or any of the other Loan Documents;
(ii) the existence of any claim, setoff, defense or other
right which such Borrower may have at any time against a
beneficiary named in a Letter of Credit or any transferee of any
Letter of Credit (or any Person for whom any such transferee may
be acting), any Lender, the Agent, the issuer of such Letter of
Credit, or any other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated
herein or any unrelated transactions (including any underlying
transactions between such Borrower or any other Person and the
beneficiary named in any Letter of Credit);
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(iii) any draft, certificate or any other document presented
under the Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Loan
Documents; or
(v) the occurrence of any Default or Event of Default.
(g) Recovery or Avoidance of Payments. In the event any
payment by or on behalf of a Borrower received by the Agent with respect to any
Letter of Credit or Credit Support provided for any Letter of Credit (or any
guaranty by a Borrower or reimbursement obligation of a Borrower relating
thereto) and distributed by the Agent to the Lenders on account of their
respective participations therein is thereafter set aside, avoided or recovered
from the Agent in connection with any receivership, liquidation or bankruptcy
proceeding, the Lenders shall, upon demand by the Agent, pay to the Agent their
respective Pro Rata Shares of such amount set aside, avoided or recovered,
together with interest at the rate required to be paid by the Agent upon the
amount required to be repaid by it.
(h) Compensation for Letters of Credit.
(1) Letter of Credit Fee. Each Borrower agrees to pay
to the Agent with respect to each Letter of Credit issued for the
account of such Borrower, for the account of the Lenders, the Letter of
Credit Fee specified in, and in accordance with the terms of, Section
3.6.
(2) Issuer Fees and Charges. Each Borrower shall pay
to the issuer of any Letter of Credit issued for the account of such
Borrower, or to the Agent, for the account of the issuer of any such
Letter of Credit, solely for such issuer's account, such fees and other
charges as are charged by such issuer for letters of credit issued by
it, including, without limitation, its standard fees for issuing,
administering, amending, renewing, paying and canceling letters of
credit and all other fees associated with issuing or servicing letters
of credit, as and when assessed.
(i) Indemnification; Exoneration; Power of Attorney
(1) Indemnification. In addition to amounts payable
as elsewhere provided in this Section 2.4, each Borrower hereby agrees
to protect, indemnify, pay and save the Lenders and the Agent harmless
from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable attorneys'
fees) which any Lender or the Agent may incur or be subject to as a
consequence, direct or indirect, of the
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issuance of any Letter of Credit for the account of such Borrower or
the provision of any credit support or enhancement in connection
therewith. The agreement in this Section 2.4(i)(1) shall survive
payments of all Obligations.
(2) Assumption of Risk by the Borrowers. As among the
Borrowers, the Lenders, and the Agent, each Borrower assumes all risks
of the acts and omissions of, or misuse of any of the Letters of Credit
by, the respective beneficiaries of such Letters of Credit issued for
the account of such Borrower. In furtherance and not in limitation of
the foregoing, the Lenders and the Agent shall not be responsible for:
(A) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any document submitted by any Person in connection with the
application for and issuance of and presentation of drafts with respect
to any of the Letters of Credit, even if it should prove to be in any
or all respects invalid, insufficient, inaccurate, fraudulent or
forged; (B) the validity or sufficiency of any instrument transferring
or assigning or purporting to transfer or assign any Letter of Credit
or the rights or benefits thereunder or proceeds thereof, in whole or
in part, which may prove to be invalid or ineffective for any reason;
(C) the failure of the beneficiary of any Letter of Credit to comply
duly with conditions required in order to draw upon such Letter of
Credit; (D) errors, omissions, interruptions, or delays in transmission
or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (E) errors in
interpretation of technical terms; (F) any loss or delay in the
transmission or otherwise of any document required in order make a
drawing under any Letter of Credit or of the proceeds thereof; (G) the
misapplication by the beneficiary of any Letter of Credit of the
proceeds of any drawing under such Letter of Credit; or (H) any
consequences arising from causes beyond the control of the Lenders or
the Agent, including, without limitation, any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto
Governmental Authority. None of the foregoing shall affect, impair or
prevent the vesting of any rights or powers of the Agent or any Lender
under this Section 2.4(i).
(3) Exoneration. Any action taken or omitted by the
Agent or any Lender under or in connection with any of the Letters of
Credit or any related certificates, if taken or omitted in the absence
of gross negligence or willful misconduct, shall not put the Agent or
any Lender under any resulting liability to a Borrower or relieve a
Borrower of any of its obligations hereunder to any such Person.
(4) Power of Attorney. In connection with all
Inventory financed by Letters of Credit issued for the account of a
Borrower, such Borrower hereby appoints the Agent, or the Agent's
designee, as its attorney, with full power and authority: (a) to sign
and/or endorse such Borrower's name upon any warehouse or other
receipts; (b) to sign such Borrower's name
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on bills of lading and other negotiable and non-negotiable documents;
(c) to clear Inventory through customs in the Agent's or such
Borrower's name, and to sign and deliver to customs officials powers
of attorney in such Borrower's name for such purpose; (d) to complete
in such Borrower's or the Agent's name, any order, sale, or
transaction, obtain the necessary documents in connection therewith,
and collect the proceeds thereof; and (e) to do such other acts and
things as are necessary in order to enable the Agent to obtain
possession of the Inventory and to obtain payment of the Obligations.
Neither the Agent nor its designee, as such Borrower's attorney, will
be liable for any acts or omissions, nor for any error of judgment or
mistakes of fact or law. This power, being coupled with an interest,
is irrevocable until all Obligations have been paid and satisfied.
(5) Account Party. Each Borrower hereby authorizes
and directs any issuer of a Letter of Credit for the account of such
Borrower to name such Borrower as the "Account Party" therein and to
deliver to the Agent all instruments, documents and other writings and
property received by the issuer pursuant to the Letter of Credit, and
to accept and rely upon the Agent's instructions and agreements with
respect to all matters arising in connection with the Letter of Credit
or the application therefor.
(6) Control of Inventory. In connection with all
Inventory financed by Letters of Credit issued for the account of a
Borrower, such Borrower will, at the Agent's request, instruct all
suppliers, carriers, forwarders, warehouses or others receiving or
holding cash, checks, Inventory, documents or instruments in which the
Agent holds a security interest to deliver them to the Agent and/or
subject to the Agent's order, and if they shall come into such
Borrower's possession, to deliver them, upon request, to the Agent in
their original form. Such Borrower shall also, at the Agent's request,
designate the Agent as the consignee on all bills of lading and other
negotiable and non-negotiable documents.
(j) Supporting Letter of Credit; Cash Collateral. If,
notwithstanding the provisions of Section 2.4(b) and Section 12.1, any Letter of
Credit issued for the account of a Borrower is outstanding upon the termination
of this Agreement, then upon such termination such Borrower shall deposit with
the Agent, for the ratable benefit of the Agent and the Lenders, with respect to
each Letter of Credit then outstanding, as the Majority Lenders, in their
discretion shall specify, either (A) a standby letter of credit (a "Supporting
Letter of Credit") in form and substance satisfactory to the Agent, issued by an
issuer satisfactory to the Agent in an amount equal to the greatest amount for
which such Letter of Credit may be drawn plus any fees and expenses associated
with such Letter of Credit, under which Supporting Letter of Credit the Agent is
entitled to draw amounts necessary to reimburse the Agent and the Lenders for
payments made by the Agent and the Lenders under such Letter of Credit or under
any credit support or enhancement provided through the Agent with respect
thereto and any fees
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and expenses associated with such Letter of Credit, or (B) cash in amounts
necessary to reimburse the Agent and the Lenders for payments made by the Agent
or the Lenders under such Letter of Credit or under any credit support or
enhancement provided through the Agent with respect thereto and any fees and
expenses associated with such Letter of Credit. Such Supporting Letter of Credit
or deposit of cash shall be held by the Agent, for the ratable benefit of the
Agent and the Lenders, as security for, and to provide for the payment of, the
aggregate undrawn amount of such Letters of Credit remaining outstanding.
ARTICLE 3
INTEREST AND FEES
3.1. Interest.
(a) Interest Rates. All outstanding Obligations shall bear
interest on the unpaid principal amount thereof (including, to the extent
permitted by law, on interest thereon not paid when due) from the date made
until paid in full in cash at a rate determined by reference to the Base Rate or
the LIBOR Rate and Sections 3.1(a)(i) or (ii), as applicable, but not to exceed
the Maximum Rate described in Section 3.3. Subject to the provisions of Section
3.2, any of the Loans may be converted into, or continued as, Base Rate
Revolving Loans or LIBOR Revolving Loans in the manner provided in Section 3.2.
If at any time Loans are outstanding with respect to which notice has not been
delivered to the Agent in accordance with the terms of this Agreement specifying
the basis for determining the interest rate applicable thereto, then those Loans
shall be Base Rate Revolving Loans until notice to the contrary has been given
to the Agent in accordance with this Agreement and such notice has become
effective. Except as otherwise provided herein, the outstanding Obligations
shall bear interest as follows:
(i) For all Base Rate Revolving Loans and other
Obligations (other than LIBOR Revolving Loans) at a
fluctuating per annum rate equal to the Base Rate plus the
Applicable Margin;
(ii) For all LIBOR Revolving Loans at a per annum rate
equal to the LIBOR Rate plus the Applicable Margin.
Each change in the Base Rate shall be reflected in the interest rate described
in clause (i) above as of the effective date of such change. All interest
charges shall be computed on the basis of a year of three hundred sixty (360)
days and actual days elapsed (which results in more interest being paid than if
computed on the basis of a 365-day year). Interest accrued on all Loans for the
account of a Borrower will be payable by such Borrower in arrears on the first
day of each month hereafter, and in the case of LIBOR Revolving Loans, on each
LIBOR Interest Payment Date.
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(b) Default Rate. If a Specified Event of Default occurs and
is continuing and the Majority Lenders in their discretion so elect, then, while
any such Specified Event of Default is outstanding, all of the Obligations shall
bear interest at the Default Rate applicable thereto.
3.2. Conversion and Continuation Elections.
(a) Each Borrower may, upon irrevocable written notice to the
Agent in accordance with Section 3.2(b):
(i) elect, as of any Business Day, in the case of Base
Rate Revolving Loans for the account of such Borrower to
convert any such Loans (or any part thereof in an amount not
less than $500,000, or that is in an integral multiple of
$500,000 in excess thereof) into LIBOR Revolving Loans; or
(ii) elect, as of the last day of the applicable Interest
Period, to continue any LIBOR Revolving Loans for the account
of such Borrower having Interest Periods expiring on such day
(or any part thereof in an amount not less than $500,000, or
that is in an integral multiple of $500,000 in excess thereof);
provided, that if at any time the aggregate amount of LIBOR Revolving Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $500,000, such LIBOR Revolving Loans shall
automatically convert into Base Rate Revolving Loans, and on and after such date
the right of such Borrower to continue such Loans as, and convert such Loans
into, LIBOR Revolving Loans, as the case may be, shall terminate.
(b) A Borrower shall deliver a notice of
conversion/continuation in the form attached hereto as Exhibit F ("Notice of
Conversion/Continuation") to be received by the Agent not later than 10:00 a.m.
(Chicago time) at least three (3) Business Days in advance of the
Conversion/Continuation Date, if the Loans for the account of such Borrower are
to be converted into or continued as LIBOR Revolving Loans and specifying:
(i) the proposed Conversion/Continuation Date;
(ii) the aggregate amount of Loans to be converted or
renewed;
(iii) the type of Loans resulting from the proposed
conversion or continuation; and
(iv) the duration of the requested Interest Period.
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(c) If upon the expiration of any Interest Period applicable
to LIBOR Revolving Loans for the account of a Borrower, such Borrower has failed
to select timely a new Interest Period to be applicable to LIBOR Revolving Loans
or if any Default or Event of Default then exists, such Borrower shall be deemed
to have elected to convert such LIBOR Revolving Loans into Base Rate Revolving
Loans effective as of the expiration date of such Interest Period.
(d) The Agent will promptly notify each Lender of its receipt
of a Notice of Conversion/Continuation. All conversions and continuations shall
be made ratably according to the respective outstanding principal amounts of the
Loans with respect to which the notice was given held by each Lender.
(e) During the existence of a Default or Event of Default,
neither Borrower may elect to have a Loan converted into or continued as a LIBOR
Rate Loan with an Interest Period of longer than thirty (30) days.
(f) After giving effect to any conversion or continuation of
Loans, there may not be more than ten (10) different Interest Periods in effect
in the aggregate for Borrowers.
3.3. Maximum Interest Rate.
In no event shall any interest rate provided for hereunder
exceed the maximum rate legally chargeable by any Lender under applicable law
for loans of the type provided for hereunder (the "Maximum Rate"). If, in any
month, any interest rate, absent such limitation, would have exceeded the
Maximum Rate, then the interest rate for that month shall be the Maximum Rate,
and, if in future months, that interest rate would otherwise be less than the
Maximum Rate, then that interest rate shall remain at the Maximum Rate until
such time as the amount of interest paid hereunder equals the amount of interest
which would have been paid if the same had not been limited by the Maximum Rate.
In the event that, upon payment in full of the Obligations, the total amount of
interest paid or accrued by a Borrower under the terms of this Agreement is less
than the total amount of interest which would, but for this Section 3.3, have
been paid or accrued by such Borrower if the interest rates otherwise set forth
in this Agreement had at all times been in effect, then such Borrower shall, to
the extent permitted by applicable law, pay the Agent, for the account of the
Lenders, an amount equal to the excess of (a) the lesser of (i) the amount of
interest which would have been charged if the Maximum Rate had, at all times,
been in effect over (ii) the amount of interest which would have accrued had the
interest rates otherwise set forth in this Agreement, at all times, been in
effect over (b) the amount of interest actually paid or accrued under this
Agreement. In the event that a court determines that the Agent and/or any Lender
has received interest and other charges hereunder from a Borrower in excess of
the Maximum Rate, such excess shall be deemed received on account of, and shall
automatically be applied to reduce, the Obligations of such Borrower other than
interest, in the inverse order of maturity, and if there are no
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Obligations of such Borrower outstanding, the Agent and/or such Lender shall
refund to such Borrower such excess.
3.4. Certain Fees.
The Borrowers agree to pay the fees to BABC and the Agent set
forth in the Fee Letter.
3.5. Unused Line Fee.
Until the Obligations have been paid in full and the Agreement
terminated, the Borrowers agree to pay, on the first day of each month and on
the Termination Date, to the Agent, for the ratable account of the Lenders, an
unused line fee equal to one-eighth of one percent (0.125%) per annum on the
average daily amount by which the Maximum Revolver Amount exceeded the sum of
the average daily outstanding amount of Revolving Loans and the undrawn face
amount of all outstanding Letters of Credit, during the immediately preceding
month or shorter period if calculated on the Termination Date; provided, that
such unused line fee shall be increased to one-quarter of one percent (0.25%)
per annum on the first Anniversary Date. The unused line fee shall be computed
on the basis of a 360-day year for the actual number of days elapsed.
3.6. Letter of Credit Fee.
Each Borrower agrees to pay to the Agent, for the ratable
account of the Lenders, for each Letter of Credit, a fee (the "Letter of Credit
Fee") equal to one and one-half percent (1.5%) per annum of the undrawn face
amount of each documentary Letter of Credit issued for such Borrower's account
at such Borrower's request and two percent (2%) per annum of the undrawn face
amount of each other Letter of Credit issued for such Borrower's account at such
Borrower's request, in each case, plus all out-of-pocket costs, fees and
expenses incurred by the Agent in connection with the application for, issuance
of, or amendment to any Letter of Credit, which costs, fees and expenses could
include a "fronting fee" required to be paid by the Agent to such issuer for the
assumption of the settlement risk in connection with the issuance of such Letter
of Credit. The Letter of Credit Fee shall be payable monthly in arrears on the
first day of each month following any month in which a Letter of Credit was
issued and/or in which a Letter of Credit remains outstanding. The Letter of
Credit Fee shall be computed on the basis of a 360-day year for the actual
number of days elapsed.
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ARTICLE 4
PAYMENTS AND PREPAYMENTS
4.1. Revolving Loans.
Each Borrower shall repay the outstanding principal balance of
the Revolving Loans for such Borrower's account, plus all accrued but unpaid
interest thereon, on the Termination Date. A Borrower may prepay Revolving Loans
at any time, and reborrow subject to the terms of this Agreement; provided,
however, that with respect to any LIBOR Revolving Loans prepaid by a Borrower
prior to the expiration date of the Interest Period applicable thereto, such
Borrower promises to pay to the Agent for account of the Lenders the amounts
described in Section 5.4. In addition, and without limiting the generality of
the foregoing, upon demand each Borrower promises to pay to the Agent, for
account of the Lenders, the amount, without duplication, by which the Aggregate
Revolver Outstanding of such Borrower exceeds the Availability of such Borrower
(with Availability for this purpose calculated as if the Aggregate Revolver
Outstandings of such Borrower were zero).
4.2. Termination of Facility.
The Borrowers may terminate this Agreement upon at least
thirty (30) Business Days' notice to the Agent and the Lenders, upon (a) the
payment in full of all outstanding Revolving Loans, together with accrued
interest thereon, and the cancellation of all outstanding Letters of Credit (b)
the payment in full in cash of all other Obligations together with accrued
interest thereon, and (c) with respect to any LIBOR Revolving Loans prepaid in
connection with such termination prior to the expiration date of the Interest
Period applicable thereto, the payment of the amounts described in Section 5.4.
4.3. Reduction of Commitments.
The Borrowers may, effective on a date specified at least ten
(10) Business Days after the delivery of a notice of the same, permanently
reduce the Maximum Revolver Amount by a minimum amount of $1,000,000 or any
multiple of $1,000,000 in excess thereof; unless (i) after giving effect thereto
Maximum Revolver Amount is less than $20,000,000 or (ii) after giving effect
thereto and to any prepayment of the Loans made on the effective date of such
reduction, the combined Aggregate Revolver Outstandings of both Borrowers exceed
the amount of the Maximum Revolver Amount then in effect. Any reduction of the
Maximum Revolver Amount shall be applied to the Commitments of each Lender
according to its Pro Rata Share. Any notice from the Borrowers to reduce the
Maximum Revolver Amount will be irrevocable. Notwithstanding the foregoing, no
reduction in the Maximum Revolver Amount shall be effective until any repayment
of Loans necessary to cause the combined Aggregate Revolver Outstandings of both
Borrowers not to exceed the Maximum Revolver Amount that would be in effect
after
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such reduction and any amounts that are payable under Section 5.4 in connection
with any such repayment. For purposes of determining the fee that is due under
Section 3.5, the Maximum Revolver Amount for any day shall be the Maximum
Revolver Amount that was in effect on such day.
4.4. Intentionally Omitted.
4.5. Intentionally Omitted.
4.6. Payments by the Borrowers.
(a) All payments to be made by a Borrower shall be made
without set-off, recoupment or counterclaim. Except as otherwise expressly
provided herein, all payments by a Borrower shall be made to the Agent for the
account of the Lenders at the Agent's address set forth in Section 15.8, and
shall be made in Dollars and in immediately available funds, no later than 1:00
p.m. (Chicago time) on the date specified herein. Any payment received by the
Agent later than 1:00 p.m. (Chicago time) shall be deemed to have been received
on the following Business Day and any applicable interest or fee shall continue
to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Agent receives notice from a Borrower prior to
the date on which any payment is due to the Lenders that such Borrower will not
make such payment in full as and when required, the Agent may assume that such
Borrower has made such payment in full to the Agent on such date in immediately
available funds and the Agent may (but shall not be so required), in reliance
upon such assumption, distribute to each Lender on such due date an amount equal
to the amount then due such Lender. If and to the extent such Borrower has not
made such payment in full to the Agent, each Lender shall repay to the Agent on
demand such amount distributed to such Lender, together with interest thereon at
the Federal Funds Rate for each day from the date such amount is distributed to
such Lender until the date repaid.
4.7. Payments as Revolving Loans.
All payments of principal, interest, reimbursement obligations
in connection with Letters of Credit, fees, premiums and other sums payable
hereunder by a Borrower, including all reimbursement for expenses pursuant to
Section 15.7, may, at the option of the Agent, in its sole discretion, subject
only to the terms of this Section 4.7, be paid from the proceeds of Revolving
Loans made hereunder for the account of such Borrower, whether made following a
request by such Borrower pursuant to Section 2.2 or a deemed request as provided
in this Section 4.7. Each Borrower hereby irrevocably authorizes the Agent to
charge the Loan Account of such Borrower for the purpose of paying principal,
interest,
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reimbursement obligations in connection with Letters of Credit, fees, premiums
and other sums payable hereunder by such Borrower, including reimbursing
expenses pursuant to Section 15.7, and agrees that all such amounts charged
shall constitute Revolving Loans (including BABC Loans, Agent Advances and Over
Advances) for the account of such Borrower and that all such Revolving Loans for
the account of such Borrower so made shall be deemed to have been requested by
such Borrower pursuant to Section 2.2.
4.8. Apportionment, Application and Reversal of Payments.
Aggregate principal and interest payments by a Borrower shall
be apportioned ratably among the Lenders (according to the unpaid principal
balance of the Loans to which such payments relate held by each Lender) and
payments of the fees by a Borrower shall, as applicable, be apportioned ratably
among the Lenders. All payments by a Borrower shall be remitted to the Agent and
all such payments not relating to principal or interest of specific Loans, or
not constituting payment of specific fees, and all proceeds of Accounts or other
Collateral of a Borrower received by the Agent, shall be applied, ratably,
subject to the provisions of this Agreement, first, to pay any fees, indemnities
or expense reimbursements then due to the Agent from such Borrower; second, to
pay any fees or expense reimbursements then due to the Lenders from such
Borrower; third, to pay interest due in respect of all Revolving Loans for the
account of such Borrower, including BABC Loans, Agent Advances and Over
Advances; fourth, to pay or prepay principal of the BABC Loans for the account
of such Borrower, Agent Advances and Over Advances for the account of such
Borrower; fifth, to pay or prepay principal of the Revolving Loans (other than
BABC Loans, Agent Advances and Over Advances) for the account of such Borrower
and unpaid reimbursement obligations in respect of Letters of Credit for the
account of such Borrower; sixth, to the payment of any other Obligation due to
the Agent or any Lender by such Borrower; and seventh, to the payment of the
Obligations due to Agent or any Lender by the other Borrower. Notwithstanding
anything to the contrary contained in this Agreement, unless so directed by a
Borrower, or unless an Event of Default is outstanding, neither the Agent nor
any Lender shall apply any payments which it receives to any LIBOR Revolving
Loan for the account of such Borrower, except (a) on the expiration date of the
Interest Period applicable to any such LIBOR Rate Loan, or (b) in the event, and
only to the extent, that there are no outstanding Base Rate Revolving Loans. The
Agent shall promptly distribute to each Lender, pursuant to the applicable wire
transfer instructions received from each Lender in writing, such funds as it may
be entitled to receive, subject to a Settlement delay as provided for in Section
2.2(k). The Agent and the Lenders shall have the continuing and exclusive right
to apply and reverse and reapply any and all such proceeds and payments to any
portion of the Obligations.
4.9. Indemnity for Returned Payments.
If, after receipt of any payment of, or proceeds applied to
the payment of, all or any part of the Obligations of a Borrower, the Agent or
any Lender is for any reason arising out of or relating to the Loans, the Loan
Documents or the relationships of the
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Agent or any Lender with any Credit Party compelled to surrender such payment or
proceeds to any Person because such payment or application of proceeds is
invalidated, declared fraudulent, set aside, determined to be void or voidable
as a preference, impermissible setoff, or a diversion of trust funds or for any
other reason, then the Obligations of such Borrower or part thereof intended to
be satisfied shall be revived and continue and this Agreement shall continue in
full force as if such payment or proceeds had not been received by the Agent or
such Lender, and such Borrower shall be liable to pay to the Agent, and hereby
does indemnify the Agent and the Lenders and hold the Agent and the Lenders
harmless for, the amount of such payment or proceeds surrendered. The provisions
of this Section 4.9 shall be and remain effective notwithstanding any contrary
action which may have been taken by the Agent or any Lender in reliance upon
such payment or application of proceeds, and any such contrary action so taken
shall be without prejudice to the Agent's and the Lenders' rights under this
Agreement and shall be deemed to have been conditioned upon such payment or
application of proceeds having become final and irrevocable. The provisions of
this Section 4.9 shall survive the termination of this Agreement.
4.10. Agent's and Lenders' Books and Records; Monthly
Statements.
Each Borrower agrees that the Agent's and each Lender's books
and records showing the Obligations and the transactions pursuant to this
Agreement and the other Loan Documents shall be admissible in any action or
proceeding arising therefrom, and shall constitute rebuttably presumptive proof
thereof, irrespective of whether any Obligation is also evidenced by a
promissory note or other instrument. The Agent will provide to each Borrower a
monthly statement of Loans, payments, and other transactions pursuant to this
Agreement. Such statement shall be deemed correct, accurate, and binding on such
Borrower and an account stated (except for reversals and reapplications of
payments made as provided in Section 4.8 and corrections of errors discovered by
the Agent), unless such Borrower notifies the Agent in writing to the contrary
within sixty (60) days after such statement is rendered. In the event a timely
written notice of objections is given by such Borrower, only the items to which
exception is expressly made will be considered to be disputed by such Borrower.
ARTICLE 5
TAXES, YIELD PROTECTION AND ILLEGALITY
5.1. Taxes.
(a) Any and all payments by a Borrower to each Lender or the
Agent under this Agreement and any other Loan Document shall be made free and
clear of, and without deduction or withholding for any Taxes. In addition, each
Borrower shall pay all Other Taxes.
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(b) Each Borrower agrees to indemnify and hold harmless each
Lender and the Agent for the full amount of Taxes or Other Taxes (including any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 5.1) paid by the Lender or the Agent and any liability (including
penalties, interest, additions to tax and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. Payment under this indemnification shall be made within thirty
(30) days after the date the Lender or the Agent makes written demand therefor.
Each Lender agrees, within a reasonable time after receiving a written request
from a Borrower, to provide the Borrowers and the Agent with such certificates
as are reasonably required, and take such other actions as are reasonably
necessary (so long as such actions do not have a negative effect on such
Lender), to claim such exemptions as such Lender or the Agent may be entitled to
claim in respect of all or a portion of any Taxes which are otherwise required
to be paid or deducted or withheld pursuant to this Section 5.1 in respect of
any payments under this Agreement.
(c) If a Borrower shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to any Lender or the Agent, then:
(i) the sum payable shall be increased as necessary so
that after making all required deductions and withholdings
(including deductions and withholdings applicable to
additional sums payable under this Section 5.1) such Lender or
the Agent, as the case may be, receives an amount equal to the
sum it would have received had no such deductions or
withholdings been made;
(ii) such Borrower shall make such deductions and
withholdings;
(iii) such Borrower shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority
in accordance with applicable law; and
(iv) such Borrower shall also pay to each Lender or the
Agent for the account of such Lender, at the time interest is
paid, all additional amounts which the respective Lender
specifies as necessary to preserve the after-tax yield the
Lender would have received if such Taxes or Other Taxes had
not been imposed.
(d) Within thirty (30) days after the date of any payment by a
Borrower of Taxes or Other Taxes, such Borrower shall furnish the Agent the
original or a certified copy of a receipt evidencing payment thereof, or other
evidence of payment reasonably satisfactory to the Agent.
(e) If such Borrower is required to pay additional amounts to
any Lender or the Agent pursuant to subsection (c) of this Section 5.1, then
such Lender shall use reasonable
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efforts (consistent with legal and regulatory restrictions) to change the
jurisdiction of its lending office so as to eliminate any such additional
payment by such Borrower which may thereafter accrue, if such change in the
judgment of such Lender is not otherwise disadvantageous to such Lender.
5.2. Illegality.
(a) If any Lender determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for any Lender or its applicable lending office to make
LIBOR Revolving Loans, then, on notice thereof by such Lender to the Borrowers
through the Agent, any obligation of such Lender to make LIBOR Revolving Loans
shall be suspended until such Lender notifies the Agent and the Borrowers that
the circumstances giving rise to such determination no longer exist which notice
shall be given promptly by such Lender.
(b) If a Lender determines that it is unlawful to maintain any
LIBOR Rate Loan, each Borrower shall, upon its receipt of notice of such fact
and demand from such Lender (with a copy to the Agent), prepay in full such
LIBOR Revolving Loans for the account of such Borrower of that Lender then
outstanding, together with interest accrued thereon and amounts required under
Section 5.4, either on the last day of the Interest Period thereof, if the
Lender may lawfully continue to maintain such LIBOR Revolving Loans to such day,
or immediately, if the Lender may not lawfully continue to maintain such LIBOR
Rate Loan. If a Borrower is required to so prepay any LIBOR Rate Loan, then
concurrently with such prepayment, such Borrower shall borrow from the affected
Lender, in the amount of such repayment, a Base Rate Loan.
5.3. Increased Costs and Reduction of Return.
(a) If any Lender determines that, due to either (i) the
introduction of or any change in the interpretation of any law or regulation or
(ii) the compliance by that Lender with any guideline or request from any
central bank or other Governmental Authority (whether or not having the force of
law), there shall be any increase in the cost to such Lender of agreeing to make
or making, funding or maintaining any LIBOR Revolving Loans for the account of a
Borrower, then such Borrower shall be liable for, and shall from time to time,
upon demand (with a copy of such demand to be sent to the Agent), pay to the
Agent for the account of such Lender, additional amounts as are sufficient to
compensate such Lender for such increased costs.
(b) If any Lender shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration of
any Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or (iv)
compliance by the Lender or any corporation or other entity controlling the
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Lender with any Capital Adequacy Regulation, affects or would affect the amount
of capital required or expected to be maintained by the Lender or any
corporation or other entity controlling the Lender and (taking into
consideration such Lender's or such corporation's or other entity's policies
with respect to capital adequacy and such Lender's desired return on capital)
determines that the amount of such capital is increased as a consequence of its
Commitment, loans, credits or obligations under this Agreement for the account
of a Borrower, then, upon demand of such Lender to such Borrower through the
Agent, such Borrower shall pay to the Lender, from time to time as specified by
the Lender, additional amounts sufficient to compensate the Lender for such
increase.
5.4. Funding Losses.
Each Borrower shall reimburse each Lender and hold each Lender
harmless from any loss or expense which the Lender may sustain or incur as a
consequence of:
(a) the failure of such Borrower to make on a timely basis any
payment of principal of any LIBOR Rate Loan;
(b) the failure of such Borrower to borrow, continue or
convert a Loan after such Borrower has given (or is deemed to have given) a
Notice of Borrowing or a Notice of Conversion/ Continuation; or
(c) the prepayment or other payment (including after
acceleration thereof) of an LIBOR Rate Loan on a day that is not the last day of
the relevant Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBOR Revolving Loans or from fees
payable to terminate the deposits from which such funds were obtained (but such
loss shall not include lost profits (e.g. loss of the economic benefit of the
Applicable Margin)).
5.5. Inability to Determine Rates.
If the Agent determines that for any reason adequate and
reasonable means do not exist for determining the LIBOR Rate for any requested
Interest Period with respect to a proposed LIBOR Rate Loan, or that the LIBOR
Rate for any requested Interest Period with respect to a proposed LIBOR Rate
Loan does not adequately and fairly reflect the cost to the Lenders of funding
such Loan, the Agent will promptly so notify the Borrowers and each Lender.
Thereafter, the obligation of the Lenders to make or maintain LIBOR Revolving
Loans hereunder shall be suspended until the Agent revokes such notice in
writing. Upon receipt of such notice, a Borrower may revoke any Notice of
Borrowing or Notice of Conversion/Continuation then submitted by it. If a
Borrower does not revoke such Notice, the Lenders shall make, convert or
continue the Loans, as proposed by such Borrower, in the amount specified in the
applicable notice submitted by such Borrower, but such Loans shall be made,
converted or continued as Base Rate Revolving Loans instead of LIBOR Revolving
Loans.
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5.6. Certificates of Lenders.
Any Lender claiming reimbursement or compensation from a
Borrower under this Article 5 shall deliver to such Borrower (with a copy to the
Agent) a certificate setting forth in reasonable detail the amount payable to
the Lender hereunder and such certificate shall be conclusive and binding on
such Borrower in the absence of manifest error; provided, that no Borrower shall
be liable for any cost for which such a certificate has not been delivered to
such Borrower within one hundred eighty (180) days of such Lender becoming aware
of such cost.
5.7. Survival.
The agreements and obligations of the Borrowers in this
Article 5 shall survive the payment of all other Obligations.
5.8. Replacement Lenders.
If (a) the Borrowers become obligated to pay additional
amounts to any Lender pursuant to Section 5.1 or 5.3 as a result of any
condition described in such Sections which is not generally applicable to all
Lenders, then, unless such Lender has theretofore taken steps to remove or cure,
and has removed or cured, the conditions creating the cause for such obligation
to pay such additional amounts, within sixty (60) days of being on notification
of such condition, or (b) a Lender invokes the provisions of Section 5.2, in
each case the Borrowers may designate another bank which is reasonably
acceptable to the Agent (such bank being herein called a "Replacement Lender")
to purchase for cash all of the Loans of such Lender and all of such Lender's
rights hereunder, without recourse to or warranty (other than title) by, or
expense to, such Lender for a purchase price equal to the outstanding principal
amount of the Loans payable to such Lender plus any accrued but unpaid interest
on such Loans and accrued but unpaid commitment and other fees, expense
reimbursements and indemnities in respect of that Lender's Commitments. If the
Replacement Lender is prepared to so purchase, such Lender shall consummate such
sale in accordance with such terms (and, if such Lender is an issuer of Letters
of Credit, such other terms as may be necessary to compensate fully such Lender)
within a reasonable time not exceeding sixty (60) days from the date the
Borrowers designate a Replacement Lender, and thereupon such Lender shall not
longer be a party hereto or have any obligations or rights hereunder (except
rights which, pursuant to the provisions of this Agreement, survive the
termination of this Agreement and the repayment of the Loans), and the
Replacement Lender shall succeed to such obligations or rights.
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ARTICLE 6
COLLATERAL
6.1. Grant of Security Interest.
(a) As security for all its present and future Obligations,
each Borrower hereby grants to the Agent, for the ratable benefit of the Agent
and the Lenders, a continuing security interest in, lien on, assignment of, and
right of set-off against, all of the following property of such Borrower,
whether now owned or existing or hereafter acquired or arising, regardless
of where located:
(i) all Accounts of such Borrower;
(ii) all Inventory of such Borrower;
(iii) all contract rights, letters of credit, contracts
(including Assigned Contracts), chattel paper, instruments,
notes, documents, and documents of title of such Borrower;
(iv) all General Intangibles of such Borrower;
(v) all Equipment of such Borrower;
(vi) all money, investment property and securities;
(vii) other property of any kind of such Borrower in the
possession or under the control of the Agent or any Lender,
any assignee of or participant in the Obligations, or a bailee
of any such party or such party's affiliates;
(viii) all of such Borrower's deposit accounts, credits
and balances with and other claims against the Agent or any
Lender or any of its affiliates or any other financial
institution with which such Borrower maintains deposits;
(ix) all of such Borrower's other real and personal
property;
(x) all books, records and other property related to or
referring to any of the foregoing, including, without
limitation, books, records, account ledgers, data processing
records, computer software and other property and General
Intangibles at any time evidencing or relating to any of the
foregoing; and
(xi) all accessions to, substitutions for and
replacements, products and proceeds of any of the foregoing,
including, but not
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limited to, proceeds of any insurance policies, claims against
third parties, and condemnation or requisition payments with
respect to all or any of the foregoing.
All of the foregoing, together with all other property of a Borrower, SDI Canada
or any other Credit Party in which the Agent or any Lender may at any time be
granted a Lien, is herein collectively referred to as the "Collateral." The
Collateral does not include any leasehold interests in real estate of any Credit
Party under leases where the Credit Party is the lessee.
(b) All of the Obligations shall be secured by all of the
Collateral.
6.2. Perfection and Protection of Security Interest.
(a) Each Borrower shall, and shall cause SDI Canada to, at its
expense, perform all steps requested by the Agent at any time to perfect,
maintain, protect, and enforce the Agent's Liens, including, without limitation:
(i) executing, delivering and/or filing and recording of the Trademark and
Copyright Agreements and executing and filing financing or continuation
statements, and amendments thereof, in form and substance satisfactory to the
Agent; (ii) delivering to the Agent the originals of all instruments, documents,
and chattel paper, and all other Collateral of which the Agent determines it
should have physical possession in order to perfect and protect the Agent's
security interest therein, duly pledged, endorsed or assigned to the Agent
without restriction; (iii) delivering to the Agent warehouse receipts covering
any portion of the Collateral located in warehouses (but not including any
in-plant store locations) and for which warehouse receipts are issued and
certificate of titles covering any portion of the Collateral for which
certificates of title have been issued; (iv) when an Event of Default exists,
transferring Inventory to warehouses designated by the Agent; (v) placing
notations on such Borrower's or SDI Canada's books of account to disclose the
Agent's security interest; (vi) delivering to the Agent all letters of credit on
which such Borrower or SDI Canada is named beneficiary; and (vii) taking such
other steps as are deemed necessary or desirable by the Agent to maintain and
protect the Agent's Liens. To the extent permitted by applicable law, the Agent
may file, without such Borrower's signature, one or more financing statements
disclosing the Agent's Liens. Each Borrower agrees that a carbon, photographic,
photostatic, or other reproduction of this Agreement or of a financing statement
is sufficient as a financing statement.
(b) If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of a Borrower's or SDI Canada's
agents or processors, then such Borrower shall notify the Agent thereof and
shall notify such Person of the Agent's security interest in such Collateral
and, upon the Agent's request, instruct such Person to hold all such Collateral
for the Agent's account subject to the Agent's instructions. If at any time any
Collateral is located on any operating facility of a Borrower or SDI Canada
which is not owned by such Borrower or SDI Canada (other than an in-plant store
location), then such Borrower shall, or shall cause SDI Canada to, at the
request of the Agent, obtain written waivers, in form
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and substance satisfactory to the Agent, of all present and future Liens to
which the owner or lessor of such premises may be entitled to assert against the
Collateral.
(c) From time to time, each Borrower shall, and shall cause
SDI Canada to, upon the Agent's request, execute and deliver confirmatory
written instruments pledging to the Agent, for the ratable benefit of the Agent
and the Lenders, the Collateral with respect to such Borrower or SDI Canada, but
such Borrower's failure to do so shall not affect or limit any security interest
or any other rights of the Agent or any Lender in and to the Collateral with
respect to such Borrower or SDI Canada. So long as this Agreement is in effect
and until all Obligations have been fully satisfied, the Agent's Liens shall
continue in full force and effect in all Collateral (whether or not deemed
eligible for the purpose of calculating the Availability of a Borrower or as the
basis for any advance, loan, extension of credit, or other financial
accommodation).
6.3. Location of Collateral.
Each Borrower represents and warrants to the Agent and the
Lenders that as of the Closing Date: (a) Schedule 6.3 is a correct and complete
list of such Borrower's and SDI Canada's chief executive office, the location of
its and SDI Canada's books and records, the locations of the Collateral, and the
locations of all of its and SDI Canada's other places of business; and (b)
except for the locations under the heading "Account Debtor Premises," Schedule
6.3 correctly identifies any of such facilities and locations that are not owned
by a Borrower or SDI Canada and sets forth the names of the owners and lessors
or sublessors of and, to the best of each Borrower's knowledge, the holders of
any mortgages on, such facilities and locations. Each Borrower covenants and
agrees that it will not, and that it will cause SDI Canada to not, (i) maintain
any Collateral at any location other than those locations listed for such Person
on Schedule 6.3, (ii) otherwise change or add to any of such locations, or (iii)
change the location of its chief executive office from the location identified
in Schedule 6.3, unless it gives the Agent at least thirty (30) days' prior
written notice thereof and executes any and all financing statements and other
documents that the Agent requests in connection therewith; provided, that
notwithstanding the foregoing, a Borrower or SDI Canada may maintain Inventory
with an Account Debtor at a location not listed on Schedule 6.3 so long as (a)
such new location is identified in the Inventory report required to be delivered
with respect to such Person to the Agent pursuant to Section 6.7(d) immediately
following the date such new location is established and (b) such Borrower or SDI
Canada, as applicable, and Account Debtor execute a Customer Contract.
6.4. Title to, Liens on, and Sale and Use of Collateral.
Each Borrower represents and warrants to the Agent and the
Lenders and agrees with the Agent and the Lenders that: (a) all of the
Collateral of such Borrower and SDI Canada is and will continue to be owned by
such Borrower or SDI Canada, as applicable, free and clear of all Liens
whatsoever, except for Permitted Liens; (b) the
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Agent's Liens in the Collateral will not be subject to any prior Lien, except
for Permitted Liens; (c) each Borrower and SDI Canada will use, store, and
maintain the Collateral with all reasonable care and will use such Collateral
for lawful purposes only; and (d) none of Borrowers and SDI Canada will, without
the Agent's prior written approval, sell, or dispose of or permit the sale or
disposition of any of the Collateral except for sales of Inventory in the
ordinary course of business and sales of Equipment as permitted by Section 6.11.
The inclusion of proceeds in the Collateral shall not be deemed to constitute
the Agent's or any Lender's consent to any sale or other disposition of the
Collateral except as expressly permitted herein.
6.5. Intentionally Omitted.
6.6. Access and Examination; Confidentiality.
(a) The Agent, accompanied by any Lender which so elects, may
at all reasonable times during regular business hours (and at any time when a
Default or Event of Default exists) have access to, examine, audit, make
extracts from or copies of and inspect any or all of each Borrower's and SDI
Canada's records, files, and books of account and the Collateral (including
those records, files and books of account and Collateral located on an Account
Debtor's premises), and discuss each Borrower's and SDI Canada's affairs with
such Borrower's or SDI Canada's officers and management; provided, that if no
Default or Event of Default exists, the Agent and the Lenders shall not conduct
more than four (4) audits in any Fiscal Year; provided, further, that if (i) no
Default or Event of Default exists, (ii) Aggregate Availability equals or
exceeds $20,000,000 at all times, and (iii) the aggregate unpaid Obligations
have not exceeded $15,000,000 at any time, the Agent and the Lenders shall not
conduct more than two (2) audits in any Fiscal Year. Each Borrower will, and
will cause SDI Canada to, deliver to the Agent any instrument necessary for the
Agent to obtain records from any service bureau maintaining records for such
Borrower or SDI Canada. The Agent may, and at the direction of the Majority
Lenders shall, at any time when a Default or Event of Default exists, and at the
Borrowers' expense, make copies of all of each Borrower's and SDI Canada's books
and records, or require such Borrower and SDI Canada to deliver such copies to
the Agent. The Agent may, without expense to the Agent, use such of a Borrower's
and SDI Canada's respective personnel, supplies, and premises as may be
reasonably necessary for maintaining or enforcing the Agent's Liens. The Agent
shall have the right, at any time, in the Agent's name or in the name of a
nominee of the Agent, to verify the validity, amount or any other matter
relating to the Accounts, Inventory, or other Collateral, by mail, telephone, or
otherwise.
(b) Each Borrower agrees that, subject to such Borrower's
prior consent for uses other than in a traditional tombstone, which consent
shall not be unreasonably withheld or delayed, the Agent and each Lender may use
such Borrower's name in advertising and promotional material and in conjunction
therewith disclose the general terms of this Agreement. The Agent and each
Lender agree to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all financial and pricing information
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(whether or not labeled "secret" or "confidential") and all other information
identified as "confidential" or "secret" by a Borrower and provided to the Agent
or such Lender by or on behalf of such Borrower or SDI Canada, under this
Agreement or any other Loan Document, and neither the Agent, nor such Lender nor
any of their respective Affiliates shall use any such information other than in
connection with or in enforcement of this Agreement and the other Loan
Documents, except to the extent that such information (i) was or becomes
generally available to the public other than as a result of disclosure by the
Agent or such Lender, or (ii) was or becomes available on a nonconfidential
basis from a source other than a Borrower or SDI Canada, provided, that such
source is not bound by a confidentiality agreement with a Borrower known to the
Agent or such Lender; provided, however, that the Agent and any Lender may
disclose such information (1) at the request or pursuant to any requirement of
any Governmental Authority to which the Agent or such Lender is subject or in
connection with an examination of the Agent or such Lender by any such
Governmental Authority; (2) pursuant to subpoena or other court process; (3)
when required to do so in accordance with the provisions of any applicable
requirement of law; (4) to the extent reasonably required in connection with any
litigation or proceeding (including, but not limited to, any bankruptcy
proceeding) to which the Agent, any Lender or their respective Affiliates may be
party; (5) to the extent reasonably required in connection with the exercise of
any remedy hereunder or under any other Loan Document; (6) to the Agent's or
such Lender's independent auditors, accountants, attorneys and other
professional advisors; (7) to any prospective Participant or assignee under any
Assignment and Acceptance, actual or potential, provided, that such prospective
Participant or assignee agrees in writing for the benefit of the Borrowers to
keep such information confidential to the same extent required of the Agent and
the Lenders hereunder; (8) as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which a Borrower or SDI
Canada is party or is deemed party with the Agent or such Lender, and (9) to its
Affiliates. Without limiting the foregoing, the Agent and the Lenders shall not
disclose such information to any of the Borrowers' competitors or any Person in
the same or similar lines of business as the Borrowers.
6.7. Collateral Reporting.
Each Borrower shall provide the Agent with the following
documents at the following times in form satisfactory to the Agent: (a) on a
monthly basis by the twentieth (20th) day following the end of each month (or
more frequently if requested by the Agent), a schedule of such Borrower's and
SDI Canada's Accounts created since the last such schedule and a Borrowing Base
Certificate; (b) on a monthly basis by the twentieth (20th) day following the
end of each month (or more frequently if requested by the Agent), an aging of
such Borrower's and SDI Canada's Accounts, together with a reconciliation to the
previous month's aging of such Borrower's and SDI Canada's Accounts and to such
Borrower's and SDI Canada's general ledger; (c) on a monthly basis by the
thirtieth (30th) day following the end of each month (or more frequently if
requested by the Agent), a report in the form attached hereto as Exhibit H of
such Borrower's and SDI Canada's accounts payable; (d) on a monthly basis by the
thirtieth (30th) day following the end of each month (or more frequently if
requested by the Agent), Inventory reports by location,
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which designate new locations and discontinued locations of such Borrower and
SDI Canada; (e) upon request, copies of invoices in connection with such
Borrower's and SDI Canada's Accounts, customer statements, credit memos,
remittance advices and reports, deposit slips, shipping and delivery documents
in connection with such Borrower's and SDI Canada's Accounts and for Inventory
and Equipment acquired by such Borrower and SDI Canada, purchase orders and
invoices; (f) upon request, a statement of the balance of each of the
Intercompany Accounts; (g) such other reports as to the Collateral of such
Borrower and SDI Canada as the Agent shall reasonably request from time to time;
and (h) with the delivery of each of the foregoing, a certificate of such
Borrower executed by an officer thereof certifying as to the accuracy and
completeness of the foregoing. If any of a Borrower's or SDI Canada's records or
reports of the Collateral are prepared by an accounting service or other agent,
the Borrowers hereby authorize such service or agent to deliver such records,
reports, and related documents to the Agent, for distribution to the Lenders.
The Lenders agree that all certificates delivered by officers of any Credit
Party pursuant to this Agreement or any other Loan Document are delivered in
such person's corporate, not individual, capacity
6.8. Accounts.
(a) Each Borrower hereby represents and warrants to the Agent
and the Lenders, with respect to such Borrower's Accounts and SDI Canada's
Accounts, that: (i) each existing Account represents, and each future Account
will represent, a bona fide sale or lease and delivery of goods by such Borrower
or SDI Canada, or rendition of services by such Borrower or SDI Canada, in the
ordinary course of such Borrower's or SDI Canada's business; (ii) each existing
Account is, and each future Account will be, for a liquidated amount payable by
the Account Debtor thereon on the terms set forth in the invoice therefor or in
the schedule thereof delivered to the Agent, without any offset, deduction,
defense, or counterclaim except those known to such Borrower or SDI Canada and
disclosed to the Agent and the Lenders pursuant to this Agreement; (iii) no
payment will be received with respect to any Account, and no credit, discount,
or extension, or agreement therefor will be granted on any Account, except as
reported to the Agent and the Lenders in accordance with this Agreement; (iv)
each copy of an invoice delivered to the Agent by such Borrower or SDI Canada
will be a genuine copy of the original invoice sent to the Account Debtor named
therein; and (v) all goods described in any invoice representing a sale of goods
will have been delivered to the Account Debtor (other than bill-and-hold
Inventory subject to a Customer Contract) and all services of such Borrower and
SDI Canada described in each invoice will have been performed.
(b) Neither Borrower shall, nor shall either Borrower permit
or cause SDI Canada to, re-date any invoice or sale or make sales on extended
dating beyond that customary in such Person's business or extend or modify any
Account. If a Borrower becomes aware of any matter adversely affecting the
collectability of any Account or Account Debtor involving an amount greater than
$250,000, including information regarding the Account Debtor's creditworthiness,
such Borrower will promptly so advise the Agent.
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(c) Neither Borrower shall, nor shall either Borrower permit
SDI Canada to, accept any note or other instrument (except a check or other
instrument for the immediate payment of money) with respect to any Account
without providing the Agent notice thereof. Such instrument shall be considered
as evidence of the Account and not payment thereof and such Borrower will, or
will cause SDI Canada to, promptly deliver such instrument to the Agent,
endorsed by such Borrower or SDI Canada, as applicable, to the Agent in a manner
satisfactory in form and substance to the Agent. Regardless of the form of
presentment, demand, notice of protest with respect thereto, such Borrower or
SDI Canada, as the case may be, shall remain liable thereon until such
instrument is paid in full.
(d) Each Borrower shall notify the Agent promptly of all
disputes and claims in excess of $250,000 with any Account Debtor of such
Borrower or SDI Canada, and agrees to settle, contest, or adjust such dispute or
claim at no expense to the Agent or any Lender. No discount, credit or allowance
shall be granted to any such Account Debtor without the Agent's prior written
consent, except for discounts, credits and allowances made or given in the
ordinary course of such Borrower's or SDI Canada's business when no Event of
Default exists hereunder. Each Borrower shall, upon the Agent's request, send
the Agent a copy of each credit memorandum in excess of $250,000 as soon as
issued by it or SDI Canada. The Agent may, and at the direction of the Majority
Lenders shall, at all times when an Event of Default of the type described in
Sections 11.1(a), (f), (g), (h), or (i)(x) exists hereunder or after
acceleration of the maturity of the Obligations, settle or adjust disputes and
claims directly with Account Debtors of a Borrower or SDI Canada for amounts and
upon terms which the Agent or the Majority Lenders, as applicable, shall
consider advisable and, in all cases, the Agent will credit such Borrower's, and
in the case of an Account Debtor of SDI Canada, ISA's, Loan Account with only
the net amounts received by the Agent in payment of any Accounts.
(e) Notwithstanding anything to the contrary herein and in
particular Section 4.8, all proceeds and collections of SDI Canada's Accounts
and other Collateral and payments received by the Agent and/or the Lenders from
SDI Canada shall be applied to fees and expense reimbursements not in the nature
of interest for the purposes of the Income Tax Act of Canada and to principal
before being applied to interest due or fees and expense reimbursements which
are or may be in the nature of interest payments for the purposes of the Income
Tax Act of Canada.
(f) If an Account Debtor returns any Inventory to a Borrower
or SDI Canada when no Event of Default exists, then such Borrower shall, or
shall cause SDI Canada to, promptly determine the reason for such return and
shall issue a credit memorandum to the Account Debtor in the appropriate amount.
Upon the Agent's request, such Borrower shall, and shall cause SDI Canada to,
report to the Agent any return involving an amount in excess of $250,000. Each
such report shall indicate the reasons for the returns and the locations and
condition of the returned Inventory. In the event any Account Debtor returns
Inventory to a Borrower or SDI Canada when an Event of Default exists, such
Borrower, upon request of the Agent, shall or shall cause SDI Canada to: (i)
hold the returned Inventory in trust for the Agent; (ii) segregate all returned
Inventory from all of its other property; (iii) dispose of the returned
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Inventory solely according to the Agent's written instructions; and (iv) not
issue any credits or allowances with respect thereto without the Agent's prior
written consent. All returned Inventory shall be subject to the Agent's Liens
thereon. Whenever any Inventory is returned, the related Account shall be deemed
ineligible to the extent of the amount owing by the Account Debtor with respect
to such returned Inventory.
6.9. Collection of Accounts; Payments.
(a) Until the Agent notifies the Borrowers to the contrary,
each Borrower shall, and shall cause SDI Canada to, (i) make collection of all
Accounts and other Collateral of such Borrower and SDI Canada for the Agent,
(ii) receive all payments (but only following notice from the Agent in the case
of SDI Canada) as the Agent's trustee, and (iii) immediately (and following
notice from the Agent in the case of SDI Canada) deliver all payments in their
original form duly endorsed in blank into a Payment Account established for the
account of such Borrower or SDI Canada, as the case may be, at a bank acceptable
to Agent and subject to documentation acceptable to Agent. If the Agent
requests, such Borrower shall, and shall cause SDI Canada to, establish a
lock-box service for collections of Accounts of such Borrower or SDI Canada, as
the case may be, at a bank acceptable to the Agent and pursuant to documentation
satisfactory to the Agent. If such lock-box service is established, such
Borrower shall, and shall cause SDI Canada to, instruct all Account Debtors to
make all payments directly to the address established for such service. If,
notwithstanding such instructions, a Borrower or SDI Canada receives any
proceeds of Accounts, it shall receive such payments as the Agent's trustee, and
shall immediately deliver such payments to the Agent in their original form duly
endorsed in blank or deposit them into a Payment Account of such Borrower or SDI
Canada, as the case may be, as the Agent may direct. All collections received in
any such lock-box or Payment Account or directly by a Borrower, SDI Canada or
the Agent, and all funds in any Payment Account or other account to which such
collections are deposited shall be subject to the Agent's sole control;
provided, that so long as the Agent has not provided a Payment Direction Notice
to the bank at which such Payment Account is maintained, all collections
received in such Payment Account shall be transferred to a disbursement account
designated by such Borrower or SDI Canada, as the case may be. The Agent may,
and at the direction of the Majority Lenders will, provide a Payment Direction
Notice at any time that an Event of Default exists or Aggregate Availability is
less than $20,000,000. The Agent or the Agent's designee may, at any time after
the occurrence of an Event of Default, notify Account Debtors that the Accounts
of a Borrower and SDI Canada have been assigned to the Agent and of the Agent's
security interest therein, and may collect them directly and charge the
collection costs and expenses to such Borrower's, and in the case of SDI
Canada's Accounts, ISA's, Loan Account as a Revolving Loan. So long as an Event
of Default has occurred and is continuing, each Borrower, at the Agent's
request, shall, and shall cause SDI Canada to, execute and deliver to the Agent
such documents as the Agent shall require to grant the Agent access to any post
office box in which collections of Accounts of such Borrower or SDI Canada are
received.
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(b) If sales of Inventory are made or services are rendered
for cash, each Borrower shall, and shall cause SDI Canada to, immediately
deliver to the Agent or deposit into a Payment Account the cash which such
Borrower or SDI Canada, as the case may be, receives.
(c) All payments received by the Agent on account of Accounts
of a Borrower or SDI Canada or as proceeds of other Collateral of a Borrower or
SDI Canada will be the Agent's sole property for its benefit and the benefit of
the Lenders and will be credited to such Borrower's, and in the case of SDI
Canada's Collateral, ISA's, Loan Account (conditional upon final collection)
upon receipt of immediately available funds.
(d) In the event the Borrowers repay all of the Obligations
upon the termination of this Agreement or upon acceleration of the Obligations,
other than through the Agent's receipt of payments on account of the Accounts or
proceeds of the other Collateral, such payment will be credited (conditional
upon final collection) to the applicable Borrower's Loan Account after the
Agent's receipt of immediately available funds.
6.10. Inventory; Perpetual Inventory.
Each Borrower represents and warrants to the Agent and the
Lenders and agrees with the Agent and the Lenders that all of the Inventory
owned by such Borrower or SDI Canada is and will be held for sale or lease, or
to be furnished in connection with the rendition of services, or to be consumed
in the business of such Borrower or SDI Canada or to be used in connection with
the packing, shipping, advertising, selling or finishing of other Inventory, all
in the ordinary course of such Borrower's or SDI Canada's business, and is and
will be fit for such purposes. Each Borrower will keep, and will cause SDI
Canada to keep, its Inventory in good and marketable condition, at its own
expense. Each Borrower agrees that all Inventory produced in the United States
will be produced in accordance with the Federal Fair Labor Standards Act of
1938, as amended, and all rules, regulations, and orders thereunder. Each
Borrower will, and will cause SDI Canada to, conduct a physical count of the
Inventory at least once per Fiscal Year, and after and during the continuation
of an Event of Default, at such other times as the Agent requests. Each Borrower
will, and will cause SDI Canada to, maintain a perpetual inventory reporting
system at all times. Neither Borrower will, and neither Borrower will permit SDI
Canada to, without the Agent's written consent, sell any Inventory on a
guaranteed sale, sale and return, sale on approval, consignment, or other
repurchase or return basis; provided, that the Borrowers may agree, consistent
with past practices, to repurchase non-consumable spare parts for the purpose of
repairing such spare parts and re-selling them to the customer.
6.11. Equipment.
(a) Each Borrower represents and warrants to the Agent and the
Lenders and agrees with the Agent and the Lenders that all of the Equipment
owned by such Borrower and SDI Canada is and will be used or held for use in
such Borrower's or SDI Canada's business, as
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the case may be, and is and will be fit for such purposes. Each Borrower shall,
and shall cause SDI Canada to, keep and maintain its Equipment in good operating
condition and repair (ordinary wear and tear excepted) and shall make all
necessary replacements thereof.
(b) Upon the Agent's request, each Borrower shall inform the
Agent of any material additions to or deletions from the Equipment. Neither
Borrower shall permit, or shall allow SDI Canada to permit, any Equipment to
become a fixture with respect to real property or to become an accession with
respect to other personal property with respect to which real or personal
property the Agent does not have a Lien. Neither Borrower will, or will allow
SDI Canada to, without the Agent's prior written consent, alter or remove any
identifying symbol or number on any of its Equipment consisting of Collateral.
(c) Neither Borrower shall, and neither Borrower shall allow
SDI Canada to, without the Agent's prior written consent, sell, lease as a
lessor, or otherwise dispose of any of its Equipment, except in the ordinary
course of its business and except for equipment that is surplus, obsolete or no
longer necessary to the conduct of the business of the Credit Parties.
6.12. Customer Contracts.
ISA shall, and shall cause SDI Canada to, fully perform all of
its obligations under each of the Customer Contracts, and shall enforce all of
its rights and remedies thereunder, in each case, as it deems appropriate in its
business judgment; provided, however, that ISA shall not, and shall not permit
SDI Canada to, take any action or fail to take any action with respect to its
Customer Contracts which would cause the termination of such Customer Contract
without providing prompt written notice thereof to the Agent. ISA shall not, and
shall not permit SDI Canada to, without the Agent's and the Majority Lenders'
prior written consent, modify, amend, supplement, compromise, satisfy, release,
or discharge any provisions in a Customer Contract (i) requiring the Account
Debtor thereof to purchase the Inventory (at a purchase price greater than or
equal to the cost thereof) on such Account Debtor's premises upon termination of
such Customer Contract, or (ii) requiring the Account Debtor thereof to purchase
all Slow Moving Inventory (at a purchase price greater than or equal to the cost
thereof) on such Account Debtor's premises. If an Event of Default of the type
described in Sections 11.1(a), (f), (g), (h), or (i)(x) has occurred, the
maturity of the Loans has been accelerated pursuant to Section 11.2 or if the
Termination Date has otherwise occurred and ISA or SDI Canada, as the case may
be, shall fail to pursue diligently any right under its Customer Contracts, the
Agent may, and at the direction of the Majority Lenders shall, directly enforce
such right in its own or ISA's or SDI Canada's name and may enter into such
settlements or other agreements with respect thereto as the Agent or the
Majority Lenders, as applicable, shall determine. In any suit, proceeding or
action brought by the Agent for the benefit of the Lenders under any Customer
Contract for any sum owing thereunder or to enforce any provision thereof, ISA
shall, and shall cause SDI Canada to, indemnify and hold the Agent and Lenders
harmless from and against all expense, loss or damage suffered by reason of any
defense, setoff, counterclaims, recoupment, or reduction of liability whatsoever
of the obligor thereunder
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arising out of a breach by ISA or SDI Canada of any obligation thereunder or
arising out of any other agreement, indebtedness or liability at any time owing
from ISA or SDI Canada to or in favor of such obligor or its successors. All
such obligations of ISA and SDI Canada shall be and remain enforceable only
against ISA and SDI Canada and shall not be enforceable against the Agent.
Notwithstanding any provision hereof to the contrary, ISA and SDI Canada shall
at all times remain liable to observe and perform all of its duties and
obligations under its Customer Contracts, and the Agent's or any Lender's
exercise of any of their respective rights with respect to the Collateral shall
not release ISA and SDI Canada from any of such duties and obligations. Neither
the Agent nor any Lender shall be obligated to perform or fulfill any of ISA's
or SDI Canada's duties or obligations under its Customer Contracts or to make
any payment thereunder, or to make any inquiry as to the nature or sufficiency
of any payment or property received by it thereunder or the sufficiency of
performance by any party thereunder, or to present or file any claim, or to take
any action to collect or enforce any performance, any payment of any amounts, or
any delivery of any property.
6.13. Documents, Instruments, and Chattel Paper.
Each Borrower represents and warrants to the Agent and the
Lenders that (a) all documents, instruments, and chattel paper describing,
evidencing, or constituting Collateral, and all signatures and endorsements
thereon, are and will be complete, valid, and genuine, and (b) all goods
evidenced by such documents, instruments, and chattel paper are and will be
owned by such Borrower or SDI Canada, free and clear of all Liens other than
Permitted Liens.
6.14. Right to Cure.
The Agent may, in its discretion, and shall, at the direction
of the Majority Lenders, pay any amount or do any act required of a Borrower or
SDI Canada hereunder or under any other Loan Document in order to preserve,
protect, maintain or enforce the Obligations, the Collateral or the Agent's
Liens therein, and which such Borrower or SDI Canada fails to pay or do,
including, without limitation, payment of any judgment against such Borrower or
SDI Canada, any insurance premium, any warehouse charge, any finishing or
processing charge, any landlord's claim, and any other Lien upon or with respect
to the Collateral. All payments that the Agent makes under this Section 6.14 and
all out-of-pocket costs and expenses that the Agent pays or incurs in connection
with any action taken by it hereunder shall be charged to such Borrower's, or in
the case any action taken with respect to SDI Canada, ISA's, Loan Account as a
Revolving Loan. Any payment made or other action taken by the Agent under this
Section 6.14 shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed thereafter as herein provided.
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6.15. Power of Attorney.
Each Borrower hereby appoints the Agent and the Agent's
designee as such Borrower's attorney, with power: (a) to endorse such Borrower's
name on any checks, notes, acceptances, money orders, or other forms of payment
or security that come into the Agent's or any Lender's possession; (b) to sign
such Borrower's name on any invoice, bill of lading, warehouse receipt or other
document of title relating to any Collateral, on drafts against customers, on
assignments of Accounts, on notices of assignment, financing statements and
other public records and to file any such financing statements by electronic
means with or without a signature as authorized or required by applicable law or
filing procedure; (c) so long as any Event of Default has occurred and is
continuing, to notify the post office authorities to change the address for
delivery of such Borrower's mail to an address designated by the Agent and to
receive, open and dispose of all mail addressed to such Borrower; (d) to send
requests for verification of Accounts to customers or Account Debtors; (e) to
clear Inventory, the purchase of which was financed with Letters of Credit,
through customs in such Borrower's name, the Agent's name or the name of the
Agent's designee, and to sign and deliver to customs officials powers of
attorney in such Borrower's name for such purpose; and (f) to do all things
necessary to carry out this Agreement. Each Borrower ratifies and approves all
acts of such attorney. None of the Lenders or the Agent nor their attorneys will
be liable for any acts or omissions or for any error of judgment or mistake of
fact or law that are not a result of such Person's gross negligence or willful
misconduct. This power, being coupled with an interest, is irrevocable until
this Agreement has been terminated and the Obligations have been fully
satisfied.
6.16. The Agent's and Lenders' Rights, Duties and Liabilities.
Each Borrower assumes all responsibility and liability arising
from or relating to the use, sale or other disposition of the Collateral. The
Obligations shall not be affected by any failure of the Agent or any Lender to
take any steps to perfect the Agent's Liens or to collect or realize upon the
Collateral, nor shall loss of or damage to the Collateral release a Borrower
from any of the Obligations. Following the occurrence and continuation of an
Event of Default, the Agent may (but shall not be required to), and at the
direction of the Majority Lenders shall, without notice to or consent from a
Borrower, sue upon or otherwise collect, extend the time for payment of, modify
or amend the terms of, compromise or settle for cash, credit, or otherwise upon
any terms, grant other indulgences, extensions, renewals, compositions, or
releases, and take or omit to take any other action with respect to the
Collateral, any security therefor, any agreement relating thereto, any insurance
applicable thereto, or any Person liable directly or indirectly in connection
with any of the foregoing, without discharging or otherwise affecting the
liability of such Borrower for the Obligations or under this Agreement or any
other agreement now or hereafter existing between the Agent and/or any Lender
and such Borrower.
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ARTICLE 7
BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
7.1. Books and Records.
Each Borrower shall, and shall cause each of its Subsidiaries
to, maintain, at all times, correct and complete books, records and accounts in
which complete, correct and timely entries are made of its transactions in
accordance with GAAP applied consistently with the audited Financial Statements
required to be delivered pursuant to Section 7.2(a). Each Borrower shall, and
shall cause each of its Subsidiaries to, by means of appropriate entries,
reflect in such accounts and in all Financial Statements proper liabilities and
reserves for all taxes and proper provision for depreciation and amortization of
property and bad debts, all in accordance with GAAP. Each Borrower shall, and
shall cause each of its Subsidiaries to, maintain at all times books and records
pertaining to the Collateral in such detail, form and scope as the Agent or any
Lender shall reasonably require, including, but not limited to, records of (a)
all payments received and all credits and extensions granted with respect to the
Accounts; (b) the return, rejections, repossession, stoppage in transit, loss,
damage, or destruction of any Inventory; and (c) all other dealings affecting
the Collateral.
7.2. Financial Information.
Each Borrower shall promptly furnish to the Agent, all such
financial information as the Agent shall reasonably request, and notify its
auditors and accountants that the Agent, on behalf of the Lenders, is authorized
to obtain such information directly from them. Without limiting the foregoing,
the Borrowers will furnish to the Agent, in such detail as the Agent shall
reasonably request, the following:
(a) As soon as available, but in any event not later than
ninety (90) days after the close of each Fiscal Year, consolidated audited
balance sheets, and statements of income and expense, cash flow and of
stockholders' equity for SDI and its Subsidiaries for such Fiscal Year with
attached unaudited consolidating balance sheets, and statements of income and
expense, cash flow and stockholders' equity for such Fiscal Year, and the
accompanying notes thereto, setting forth in each case in comparative form
figures for the previous Fiscal Year, all in reasonable detail, fairly
presenting the financial position and the results of operations of SDI and its
consolidated Subsidiaries as at the date thereof and for the Fiscal Year then
ended, and prepared in accordance with GAAP. Such statements shall be examined
in accordance with generally accepted auditing standards by and, in the case of
such statements performed on a consolidated basis, accompanied by a report
thereon unqualified as to scope of independent certified public accountants
selected by the Borrowers and reasonably satisfactory to the Agent. The
Borrowers, simultaneously with retaining such independent public accountants to
conduct such annual audit, shall send a letter to such accountants, with a copy
to the Agent and the Lenders, notifying such accountants that one of the primary
purposes for retaining such
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accountants' services and having audited financial statements prepared by them
is for use by the Agent and the Lenders. Each Borrower hereby authorizes the
Agent to communicate directly with its certified public accountants and, by this
provision, authorizes those accountants to disclose to the Agent any and all
financial statements and other supporting financial documents and schedules
relating to the Borrowers and to discuss directly with the Agent the finances
and affairs of the Borrowers. The Borrowers shall have a right to have a
representative of the Borrowers present at any meeting with the Borrowers'
accountants.
(b) As soon as available, but in any event not later than
thirty (30) days after the end of each month (but, in the case of a month that
is the last month of a calendar quarter, forty-five days after the end of such
calendar quarter), consolidated and consolidating unaudited balance sheets of
SDI and its consolidated Subsidiaries as at the end of such month, and
consolidated and consolidating unaudited statements of income and expense and
cash flow for SDI and its consolidated Subsidiaries for such month and for the
period from the beginning of the Fiscal Year to the end of such month, all in
reasonable detail, fairly presenting the financial position and results of
operations of SDI and its consolidated Subsidiaries as at the date thereof and
for such periods, and prepared in accordance with GAAP applied consistently with
the audited Financial Statements required to be delivered pursuant to Section
7.2(a). Each Borrower shall cause SDI to certify by a certificate signed by its
chief financial officer or chief accounting officer that all such statements
have been prepared in accordance with GAAP and present fairly, subject to normal
year-end adjustments, such Borrower's financial position as at the dates thereof
and its results of operations for the periods then ended.
(c) Intentionally Omitted.
(d) With each of the audited Financial Statements delivered
pursuant to Section 7.2(a), a certificate of the independent certified public
accountants that examined such statement to the effect that they have reviewed
and are familiar with this Agreement and that, in examining such Financial
Statements, they did not become aware of any fact or condition which then
constituted a Default or Event of Default, except for those, if any, described
in reasonable detail in such certificate; provided, that the Borrowers need not
cause such certificate to be delivered if such certificates are not being
provided generally by reputable accounting firms.
(e) With each of the annual audited Financial Statements
delivered pursuant to Section 7.2(a), and within thirty (30) days after the end
of each month (but, in the case of a month that is the last month of a calendar
quarter, forty-five (45) days after the end of such calendar quarter), a
certificate of the chief financial officer or chief accounting officer of SDI
(i) setting forth in reasonable detail the calculations required to establish
that the Borrowers were in compliance with the covenants set forth in Section
9.25 during the period covered in such Financial Statements and as at the end
thereof, and (ii) stating that, except as explained in reasonable detail in such
certificate, (A) all of the representations and warranties of the Borrowers
contained in this Agreement and the other Loan Documents are correct and
complete in all material respects as at the date of such certificate as if made
at such time, except
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to the extent that such representations and warranties expressly relate to an
earlier date or except as set forth in such certificate, (B) each Borrower is,
at the date of such certificate, in compliance in all material respects with all
of its respective covenants and agreements in this Agreement and the other Loan
Documents, and (C) no Default or Event of Default then exists or existed during
the period covered by such Financial Statements, together with a copy of SDI's
chief executive officer's monthly update letter to the board of directors for
such month in at least as much detail as the copies of such report provided to
the Agent prior to the Closing Date. If such certificate discloses that a
representation or warranty is not correct or complete, or that a covenant has
not been complied with, or that a Default or Event of Default existed or exists,
such certificate shall set forth what action the Borrowers have taken or propose
to take with respect thereto.
(f) Within thirty (30) days after the beginning of each Fiscal
Year, annual forecasts (to include forecasted consolidated and consolidating
balance sheets, statements of income and expenses and statements of cash flow)
for SDI and its Subsidiaries as at the end of and for each month of such Fiscal
Year.
(g) Promptly upon the filing thereof, copies of all reports to
or other documents filed by SDI or any of its Subsidiaries with the Securities
and Exchange Commission under the Exchange Act, and all reports, notices, or
statements sent or received by SDI or any of its Subsidiaries to or from the
holders of any equity interests of SDI (other than routine non-material
correspondence sent by shareholders of SDI to SDI or correspondence relating to
stock option plans) or any such Subsidiary or of any Debt for Borrowed Money of
SDI or any of its Subsidiaries registered under the Securities Act of 1933 or to
or from the trustee under any indenture under which the same is issued.
(h) As soon as available, but in any event not later than
fifteen (15) days after SDI's or any of its Subsidiaries' receipt thereof, a
copy of all management reports and management letters prepared for SDI or any of
its Subsidiaries by KPMG Peat Marwick LLP or any other independent certified
public accountants of the Borrowers.
(i) Promptly after their preparation, copies of any and all
proxy statements, financial statements, and reports which SDI or any of its
Subsidiaries makes available to its shareholders.
7.3. Notices to the Lenders.
The Borrowers shall notify the Agent, in writing of the
following matters at the following times:
(a) Immediately after becoming aware of any Default or
Event of Default.
(b) Promptly after becoming aware of the assertion by the
holder of any capital stock of any Credit Party or Subsidiary thereof or of any
Debt that a default exists with respect thereto or that a Credit Party is not in
compliance with the terms thereof, or the threat or
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commencement by such holder of any enforcement action because of such asserted
default or non-compliance.
(c) Promptly after becoming aware of any material adverse
change in any Credit Party's or any Credit Party's Subsidiary's property,
business, operations, or condition (financial or otherwise).
(d) Promptly after becoming aware of any pending or threatened
action, suit, proceeding, or counterclaim by any Person, or any pending or
threatened investigation by a Governmental Authority, and which may materially
and adversely affect the Collateral, the repayment of the Obligations, the
Agent's or any Lender's rights under the Loan Documents, or any Credit Party's
or any Credit Party's Subsidiary's property, business, operations, or condition
(financial or otherwise).
(e) Promptly after becoming aware of any pending or threatened
strike, work stoppage, unfair labor practice claim, or other labor dispute
affecting a Credit Party or any of its Subsidiaries in a manner which could
reasonably be expected to have a Material Adverse Effect.
(f) Promptly after becoming aware of any violation of any law,
statute, regulation, or ordinance of a Governmental Authority affecting a Credit
Party which could reasonably be expected to have a Material Adverse Effect.
(g) Promptly after receipt of any notice of any violation by a
Credit Party or any of its Subsidiaries of any Environmental Law which could
reasonably be expected to have a Material Adverse Affect or that any
Governmental Authority has asserted that a Credit Party or any Subsidiary
thereof is not in compliance with any Environmental Law or is investigating such
Credit Party's or such Subsidiary's compliance therewith.
(h) Promptly after receipt of any written notice that a Credit
Party or any of its Subsidiaries is or may be liable to any Person as a result
of the Release or threatened Release of any Contaminant or that a Credit Party
or any Subsidiary is subject to investigation by any Governmental Authority
evaluating whether any remedial action is needed to respond to the Release or
threatened Release of any Contaminant which, in either case, is reasonably
likely to give rise to liability in excess of $100,000.
(i) Promptly after receipt of any written notice of the
imposition of any Environmental Lien against any property of a Credit Party or
any of its Subsidiaries.
(j) Any change in a Credit Party's name, jurisdiction of
incorporation, or form of organization, trade names under which a Credit Party
will sell Inventory or create Accounts, or to which instruments in payment of
Accounts may be made payable, in each case at least thirty (30) days prior
thereto.
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(k) Promptly (and in any event within five (5) Business Days)
after becoming aware of any event involving noncompliance by the Borrowers or
any ERISA Affiliate with ERISA or the PBA which noncompliance is reasonably
likely to have a Material Adverse Effect, notice of such noncompliance.
Each notice given under this Section 7.3 shall describe the
subject matter thereof in reasonable detail, and shall set forth the action that
a Credit Party, its Subsidiary, or any ERISA Affiliate, as applicable, has taken
or proposes to take with respect thereto.
ARTICLE 8
GENERAL WARRANTIES AND REPRESENTATIONS
Each Borrower warrants and represents to the Agent and the
Lenders that except as hereafter disclosed to and accepted by the Agent and the
Majority Lenders in writing:
8.1. Authorization, Validity, and Enforceability of this
Agreement and the Loan Documents.
Each of such Borrower and each of its Subsidiaries has the
corporate power and authority to execute, deliver and perform this Agreement and
the other Loan Documents to which it is a party, as applicable. Such Borrower
has the corporate power and authority to incur the Obligations and each of such
Borrower and each of its Subsidiaries has the corporate power and authority to
grant to the Agent Liens upon and security interests in the Collateral. Each of
such Borrower and each of its Subsidiaries has taken all necessary corporate
action (including without limitation, obtaining approval of its stockholders if
necessary) to authorize its execution, delivery, and performance of this
Agreement and the other Loan Documents to which it is party, as applicable. This
Agreement and the other Loan Documents have been duly executed and delivered by
such Borrower and each of its Subsidiaries, as applicable, and constitute the
legal, valid and binding obligations of such Borrower and such Subsidiaries,
enforceable against them in accordance with their respective terms without
defense, setoff or counterclaim. Such Borrower's and such Subsidiaries'
execution, delivery, and performance of this Agreement and the other Loan
Documents do not and will not conflict with, or constitute a violation or breach
of, or constitute a default under, or result in the creation or imposition of
any Lien upon the property of such Borrower or any such Subsidiary by reason of
the terms of (a) any contract, mortgage, Lien, lease, agreement, indenture, or
instrument to which such Borrower or any such Subsidiary is a party or which is
binding upon it or any such Subsidiary if the same is reasonably be expected to
have a Material Adverse Effect, (b) any Requirement of Law applicable to such
Borrower or any such Subsidiary, or (c) the certificate or articles of
incorporation or by-laws of such Borrower or any such Subsidiary.
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8.2. Validity and Priority of Security Interest.
The provisions of this Agreement and the other Loan Documents
create legal and valid Liens on all the Collateral in favor of the Agent, for
the ratable benefit of the Agent and the Lenders, and such Liens constitute
perfected and continuing Liens on all the Collateral, having priority over all
other Liens on the Collateral other than Permitted Liens, securing all the
Obligations, and enforceable against such Borrower and each of its Subsidiaries
and all third parties.
8.3. Organization and Qualification.
Such Borrower (a) is duly incorporated and organized and
validly existing in good standing under the laws of the jurisdiction of its
incorporation, (b) is, as of the Closing Date, qualified to do business as a
foreign corporation and is in good standing in the jurisdictions set forth on
Schedule 8.3 which are the only jurisdictions in which qualification is
necessary in order for it to own or lease its property and conduct its business,
except for such jurisdictions where the failure to do so qualify is not
reasonably expected to have a Material Adverse Effect, and (c) has all requisite
power and authority to conduct its business and to own its property.
8.4. Corporate Name; Prior Transactions.
Such Borrower has not, and none of such Borrower's
Subsidiaries has, during the past five (5) years, been known by or used any
other corporate or fictitious name, or been a party to any merger or
consolidation, or acquired all or substantially all of the assets of any Person,
or acquired any of its property outside of the ordinary course of business,
except as set forth on Schedule 8.4 or as may be disclosed to the Agent from
time to time.
8.5. Subsidiaries and Affiliates.
Schedule 8.5 is as of the Closing Date a correct and complete
list of the name and relationship to such Borrower of each and all of such
Borrower's Subsidiaries and other Affiliates. Each Subsidiary is (a) duly
incorporated and organized and validly existing in good standing under the laws
of its jurisdiction of incorporation set forth on Schedule 8.5, and (b)
qualified to do business as a foreign corporation and in good standing in each
jurisdiction in which the failure to so qualify or be in good standing could
reasonably be expected to have a Material Adverse Effect on any such
Subsidiary's business, operations, prospects, property, or condition (financial
or otherwise) and (c) has all requisite power and authority to conduct its
business and own its property.
8.6. Financial Statements and Projections.
(a) Such Borrower has delivered to the Agent and the Lenders
the audited balance sheet and related statements of income, retained earnings,
cash flows, and changes in stockholders equity for SDI and its consolidated
Subsidiaries as of December 31, 1997, and for
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the Fiscal Year then ended, accompanied by the report thereon of SDI's
independent certified public accountants, KPMG Peat Marwick LLP. Such Borrower
has also delivered to the Agent and the Lenders the unaudited balance sheet and
related statements of income and cash flows for SDI and its consolidated
Subsidiaries as of February 28, 1998. Such financial statements are attached
hereto as Exhibit C. All such financial statements have been prepared in
accordance with GAAP and present accurately and fairly the financial position of
SDI and its consolidated Subsidiaries as at the dates thereof and their results
of operations for the periods then ended.
(b) The Latest Projections when submitted to the Lenders as
required herein represent such Borrower's reasonable estimate of the future
financial performance of such Borrower and its consolidated Subsidiaries for the
periods set forth therein. The Latest Projections have been prepared on the
basis of the assumptions set forth therein, which such Borrower believes are
fair and reasonable in light of current and reasonably foreseeable business
conditions at the time submitted to the Agent.
8.7. Capitalization.
Schedule 8.7 sets forth as of the Closing Date such Borrower's
and its Subsidiaries' authorized capital stock, the number of shares that are
validly issued and outstanding, and the beneficial owner thereof. All
outstanding shares of such Borrower and its Subsidiaries have been validly
issued and are fully paid and non-assessable.
8.8. Solvency.
Such Borrower, SDI Canada Holdings and SDI Canada is (after
taking into account contribution rights against the other Credit Parties)
Solvent prior to and after giving effect to the making of the Revolving Loans to
be made on the Closing Date and the issuance of the Letters of Credit to be
issued on the Closing Date, and shall (after taking into account contribution
rights against the other Credit Parties) remain Solvent during the term of this
Agreement. No portion of the Loans is being or will be utilized to purchase any
shares in the capital of SDI Canada.
8.9. Debt.
After giving effect to the making of the Revolving Loans to be
made on the Closing Date, such Borrower and its Subsidiaries have no Debt,
except (a) the Obligations, (b) Debt described on Schedule 8.9 or other Debt
reflected on the Financial Statements, and (c) trade payables and other Debt
arising in the ordinary course of business.
8.10. Distributions.
Since December 31, 1997, no Distribution has been declared,
paid, or made upon or in respect of any capital stock or other securities of
such Borrower or any of its Subsidiaries.
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8.11. Title to Property.
Such Borrower has, and each of its Subsidiaries has, good and
marketable title in fee simple to its real property listed in Schedule 8.12
hereto, and such Borrower has, and each of its Subsidiaries has, good,
indefeasible, and merchantable title to all of its other property (including,
without limitation, the assets reflected on the December 31, 1997 Financial
Statements delivered to the Agent and the Lenders, except as disposed of in the
ordinary course of business since the date thereof), free of all Liens except
Permitted Liens.
8.12. Real Estate; Leases.
Schedule 8.12 as updated from time to time sets forth a
correct and complete list as of the date thereof of all Real Estate owned by
such Borrower or any of its Subsidiaries, all leases and subleases of real or
personal property by such Borrower or its Subsidiaries as lessee or sublessee
(other than leases of personal property as to which such Borrower is lessee or
sublessee for which the value of such personal property is less than $50,000
individually or $150,000 in the aggregate), and all leases and subleases of real
or personal property by such Borrower or its Subsidiaries as lessor, lessee,
sublessor or sublessee. Each of such leases and subleases is valid and
enforceable in accordance with its terms and is in full force and effect, and no
default by any party to any such lease or sublease exists, except where such
failure to be valid and enforceable or such default, as applicable, is not
reasonably likely to have a Material Adverse Effect.
8.13. Proprietary Rights.
Schedule 8.13 as updated from time to time sets forth a
correct and complete list as of the date thereof of all of such Borrower's and
its Subsidiaries' Proprietary Rights. None of the Proprietary Rights is subject
to any licensing agreement or similar arrangement except as set forth on
Schedule 8.13. To the best of such Borrower's knowledge, none of the Proprietary
Rights infringes on or conflicts with any other Person's property, and no other
Person's property infringes on or conflicts with the Proprietary Rights. The
Proprietary Rights described on Schedule 8.13 constitute all of the property of
such type necessary to the current and anticipated future conduct of such
Borrower's business, except where the failure to own such property is not
reasonably likely to have a Material Adverse Effect.
8.14. Trade Names and Terms of Sale.
Schedule 8.14 as updated from time to time sets forth a
correct and complete list as of the date thereof of all trade names or styles
under which such Borrower or any of its Subsidiaries will sell Inventory or
create Accounts, or to which instruments in payment of Accounts may be made
payable.
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8.15. Litigation.
Except as set forth on Schedule 8.15, there is no pending or
(to the best of such Borrower's knowledge) threatened, action, suit, proceeding,
or counterclaim by any Person, or investigation by any Governmental Authority of
any Borrower or any other Credit Party, or any basis for any of the foregoing,
which could reasonably be expected to cause a Material Adverse Effect.
8.16. Restrictive Agreements.
Neither such Borrower nor any of its Subsidiaries is a party
to any contract or agreement, or subject to any charter or other corporate
restriction, which affects its ability to execute, deliver, and perform the Loan
Documents and repay the Obligations or which materially and adversely affects
or, insofar as such Borrower can reasonably foresee, could reasonably be
expected to materially and adversely affect, the property, business, operations,
or condition (financial or otherwise) of the Borrowers and such Subsidiaries
taken as a whole, or would in any respect cause a Material Adverse Effect.
8.17. Labor Disputes.
Except as set forth on Schedule 8.17, as updated from time to
time (with respect to clauses (a), (b) and (c) below), (a) there is no
collective bargaining agreement or other labor contract covering employees of
such Borrower or any of its Subsidiaries, (b) no such collective bargaining
agreement or other labor contract is scheduled to expire during the term of this
Agreement, (c) no union or other labor organization is seeking to organize, or
to be recognized as, a collective bargaining unit of employees of such Borrower
or any of its Subsidiaries or for any similar purpose, and (d) there is no
pending or (to the best of such Borrower's knowledge) threatened, strike, work
stoppage, unfair labor practice claim, or other labor dispute against or
affecting such Borrower or its Subsidiaries or their employees, in any case
which is reasonably likely to have a Material Adverse Effect.
8.18. Environmental Laws.
Except as otherwise disclosed on Schedule 8.18 and except
where the inaccuracy of any of the following is not reasonably likely to have a
Material Adverse Effect:
(a) Such Borrower and its Subsidiaries have complied in all
material respects with all Environmental Laws applicable to any Premises and
business, and neither such Borrower nor any Subsidiary nor any of its present
Premises or operations, nor its past property or operations nor any property now
or previously in its charge, management or control, is subject to any
enforcement order from or liability agreement with any Governmental Authority or
private Person respecting (i) compliance with any Environmental Law or (ii) any
potential liabilities and costs or remedial action arising from the Release or
threatened Release of a Contaminant.
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(b) Such Borrower and its Subsidiaries have obtained all
permits necessary for their current operations under Environmental Laws, and all
such permits are in good standing and such Borrower and its Subsidiaries are in
compliance with all terms and conditions of such permits.
(c) Neither such Borrower nor any of its Subsidiaries, nor, to
the best of such Borrower's knowledge, any of its predecessors in interest, has,
in violation of applicable law, stored, treated or disposed of any hazardous
waste on any Premises, as defined pursuant to 40 CFR Part 261 or any equivalent
Environmental Law or any property now or previously in its charge, management or
control.
(d) Neither such Borrower nor any of its Subsidiaries has
received any summons, complaint, order or similar written notice that it is not
currently in compliance with, or that any Governmental Authority is
investigating its compliance with, any Environmental Laws or that it is or may
be liable to any other Person as a result of a Release or threatened Release of
a Contaminant.
(e) None of the present or past operations of such Borrower
and its Subsidiaries is the subject of any investigation by any Governmental
Authority evaluating whether any remedial action is needed to respond to a
Release or threatened Release of a Contaminant.
(f) There is not now, nor to the best of such Borrower's
knowledge has there ever been on or in any Premises:
(1) any underground storage tanks or surface
impoundments,
(2) any asbestos-containing material, or
(3) any polychlorinated biphenyls (PCB's) used in
hydraulic oils, electrical transformers or other equipment.
(g) Neither such Borrower nor any of its Subsidiaries has
filed any notice under any requirement of Environmental Law reporting a spill or
accidental and unpermitted release or discharge of a Contaminant into the
environment.
(h) Neither such Borrower nor any of its Subsidiaries has
entered into any negotiations or settlement agreements with any Person
(including, without limitation, the prior owner of its property) imposing
material obligations or liabilities on such Borrower or any of its Subsidiaries
with respect to any remedial action in response to the Release of a Contaminant
or environmentally related claim.
(i) None of the products distributed or sold by such Borrower
or any of its Subsidiaries contain asbestos containing material.
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(j) No Environmental Lien has attached to any Premises or
property of such Borrower or any of its Subsidiaries.
As used in this Section 8.18, representations as to "Premises" shall be
restricted to those portions of any Premises actually owned, operated or
occupied by such Borrower or any of its Subsidiaries, and shall not extend to
any operations conducted on the Premises by any other Person.
8.19. No Violation of Law.
Neither such Borrower nor any of its Subsidiaries is in
violation of any law, statute, regulation, ordinance, judgment, order, or decree
applicable to it which violation could reasonably be expected to have a Material
Adverse Effect.
8.20. No Default.
Neither such Borrower nor any of its Subsidiaries is in
default with respect to any note, indenture, loan agreement, mortgage, lease,
deed, or other agreement to which such Borrower or such Subsidiary is a party or
by which it is bound, which default could reasonably be expected to have a
Material Adverse Effect.
8.21. ERISA Compliance.
Except as specifically disclosed in Schedule 8.21 and except
where the inaccuracy of any of the following is not reasonably likely to have a
Material Adverse Effect:
(a) Each Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code, the PBA and other federal,
provincial or state law. Each Plan which is intended to qualify under Section
401(a) of the Code has received a favorable determination letter from the IRS
and to the best knowledge of such Borrower, nothing has occurred which would
cause the loss of such qualification. Such Borrower, SDI Canada and each ERISA
Affiliate has made all required contributions to any Plan when due, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of such
Borrower, threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a Material Adverse Effect. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan which has resulted or could reasonably be expected to result in a
Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected
to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither
such Borrower nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of
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ERISA with respect to any Pension Plan (other than premiums due and not
delinquent under Section 4007 of ERISA); (iv) neither such Borrower nor any
ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and
no event has occurred which, with the giving of notice under Section 4219 of
ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with
respect to a Multi-employer Plan; (v) neither such Borrower nor any ERISA
Affiliate has engaged in a transaction that could be subject to Section 4069 or
4212(c) of ERISA; and (vi) no Lien has arisen, choate or inchoate, in respect of
such Borrower or its Subsidiaries or its or their property in connection with
any Plan (save for contribution amounts not yet due).
8.22. Taxes.
Such Borrower and its Subsidiaries have filed all Federal,
provincial, state and other tax returns and reports required to be filed, and
have paid all Federal, provincial, state and other taxes, assessments, fees and
other governmental charges levied or imposed upon them or their properties,
income or assets otherwise due and payable, except where a Borrower has notified
the Agent in writing that such Borrower or Subsidiary is contesting such taxes,
assessments, fees and changes in good faith by appropriate proceedings
diligently pursued and has established proper reserves therefor as provided by
GAAP and no Lien (other than a Permitted Lien) has resulted from such
nonpayment.
8.23. Regulated Entities.
None of such Borrower, any Person controlling such Borrower,
or any Subsidiary of such Borrower, is an "Investment Company" within the
meaning of the Investment Company Act of 1940. Such Borrower is not subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, any state public utilities code, or any
other Federal or state statute or regulation limiting its ability to incur
indebtedness.
8.24. Use of Proceeds; Margin Regulations.
The proceeds of the Loans are to be used solely for general
corporate purposes that are not otherwise prohibited by the terms of this
Agreement. Neither such Borrower nor any Subsidiary is engaged in the business
of purchasing or selling Margin Stock or extending credit for the purpose of
purchasing or carrying Margin Stock.
8.25. Copyrights, Patents, Trademarks and Licenses, etc.
Each of the Borrowers and its Subsidiaries owns or is licensed
or otherwise has the right to use all of the patents, trademarks, service marks,
trade names, copyrights, contractual franchises, authorizations and other rights
that are reasonably necessary for the operation of its businesses, without
conflict with the rights of any other Person. To the best knowledge of such
Borrower, no slogan or other advertising device, product, process, method,
substance, part or other material now employed, or now contemplated to be
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employed, by such Borrower or any Subsidiary infringes upon any rights held by
any other Person which is reasonably likely to have a Material Adverse Effect.
No claim or litigation regarding any of the foregoing is pending or threatened,
and no patent, invention, device, application, principle or any statute, law,
rule, regulation, standard or code is pending or, to the knowledge of such
Borrower, proposed, which, in either case, could reasonably be expected to have
a Material Adverse Effect.
8.26. No Material Adverse Change.
No Material Adverse Effect has occurred since the date of the
Financial Statements referred to in Section 8.6. On the basis of a comprehensive
review and assessment undertaken by such Borrower of such Borrower's and its
Subsidiaries' computer applications, such Borrower reasonably believes that the
"Year 2000 problem" (that is, the risk that computer applications used by such
Persons may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999) will not
result in a Material Adverse Effect.
8.27. Full Disclosure.
None of the representations or warranties made by such
Borrower or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of such Borrower or any Subsidiary in connection with the Loan
Documents (including the offering and disclosure materials delivered by or on
behalf of such Borrower or any Subsidiary to the Lenders prior to the Closing
Date), contains any untrue statement of a material fact or omits any material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they are made, not misleading
as of the time when made or delivered.
8.28. Material Agreements.
Schedule 8.28 hereto sets forth all material agreements and
contracts to which such Borrower or any of its Subsidiaries is a party or is
bound as of the Closing Date.
8.29. Bank Accounts.
Schedule 8.29 as updated from time to time contains a complete
and accurate list as of the date thereof of all bank accounts maintained by such
Borrower or any of its Subsidiaries with any bank or other financial
institution.
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8.30. Governmental Authorization.
No approval, consent, exemption, authorization, or other
action by, or notice to, or filing with, any Governmental Authority or other
person is necessary or required in connection with the execution, delivery or
performance by, or enforcement against, such Borrower or any of its Subsidiaries
of the Agreement or any other Loan Document.
ARTICLE 9
AFFIRMATIVE AND NEGATIVE COVENANTS
Each Borrower covenants to the Agent and each Lender that, so
long as any of the Obligations remain outstanding or this Agreement is in
effect:
9.1. Taxes and Other Obligations.
Such Borrower shall, and shall cause each of its Subsidiaries
to, (a) file when due all tax returns and other reports which it is required to
file; and (b) pay, or provide for the payment, when due, of all taxes, fees,
assessments and other governmental charges against it or upon its property,
income and franchises, make all required withholding and other tax deposits, and
establish adequate reserves for the payment of all such items, and provide to
the Agent and the Lenders, upon request, satisfactory evidence of its timely
compliance with the foregoing; provided, however, so long as such Borrower has
notified the Agent in writing, neither such Borrower nor any of its Subsidiaries
need pay any tax, fee, assessment, or governmental charge, that (i) it is
contesting in good faith by appropriate proceedings diligently pursued, (ii)
such Borrower or its Subsidiary, as the case may be, has established proper
reserves for as provided in GAAP, and (iii) no Lien (other than a Permitted
Lien) results from such non-payment.
9.2. Corporate Existence and Good Standing.
Such Borrower shall, and shall cause each of its Subsidiaries
to, maintain its corporate existence and its qualification and good standing in
all jurisdictions in which the failure to maintain such existence and
qualification or good standing could reasonably be expected to have a material
adverse effect on such Borrower's or such Subsidiary's property, business,
operations, prospects, or condition (financial or otherwise).
9.3. Compliance with Law and Agreements; Maintenance of
Licenses.
Such Borrower shall comply, and shall cause each Subsidiary to
comply, in all respects with all Requirements of Law of any Governmental
Authority having jurisdiction over it or its business (including the Federal
Fair Labor Standards Act), except where the failure to do so is not reasonably
likely to result in a material adverse effect on such Borrower's or such
Subsidiary's property, business, operations or condition (financial or
otherwise). Such Borrower shall, and shall cause each of its Subsidiaries to,
obtain and
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maintain all licenses, permits, franchises, and governmental authorizations
necessary to own its property and to conduct its business as conducted on the
Closing Date. Such Borrower shall not, and shall not permit any Subsidiary to,
modify, amend or alter its certificate or article of incorporation other than in
a manner which does not adversely affect the rights of the Lenders or the Agent.
9.4. Maintenance of Property.
Such Borrower shall, and shall cause each of its Subsidiaries
to, maintain all of its property necessary and useful in the conduct of its
business, in good operating condition and repair, ordinary wear and tear
excepted.
9.5. Insurance.
(a) Such Borrower shall maintain, and shall cause each of its
Subsidiaries to maintain, with financially sound and reputable insurers having a
rating of at least A-VII or better by Best Rating Guide, insurance against loss
or damage by fire with extended coverage; theft, burglary, employee dishonesty
and loss in transit; public liability and third party property damage; larceny,
embezzlement or other criminal liability; business interruption; public
liability and third party property damage; and such other hazards or of such
other types as is customary for Persons engaged in the same or similar business,
as the Agent, in its discretion, or acting at the direction of the Majority
Lenders, shall specify, in amounts, and under policies acceptable to the Agent
and the Majority Lenders. Without limiting the foregoing, upon Majority Lenders'
request, such Borrower shall also maintain, and shall cause each of its
Subsidiaries to maintain, flood insurance, in the event any of the Equipment and
Inventory is located on Real Estate designated as "flood prone" or a "flood risk
area," (hereinafter "SFHA") as defined by the Flood Disaster Protection Act of
1973, in an amount to be reasonably determined by the Agent, and shall comply
with the additional requirements of the National Flood Insurance Program as set
forth in said Act.
(b) Such Borrower shall cause the Agent, for the ratable
benefit of the Agent and the Lenders, to be named in each such policy as secured
party or mortgagee and sole loss payee or additional insured, in a manner
acceptable to the Agent. Each policy of insurance shall contain a clause or
endorsement requiring the insurer to give not less than thirty (30) days' prior
written notice to the Agent in the event of cancellation of the policy for any
reason whatsoever and a clause or endorsement stating that the interest of the
Agent shall not be impaired or invalidated by any act or neglect of such
Borrower or any of its Subsidiaries or the owner of any premises for purposes
more hazardous than are permitted by such policy. All premiums for such
insurance shall be paid by such Borrower when due, and certificates of insurance
and, if requested by the Agent or any Lender, photocopies of the policies, shall
be delivered to the Agent, in each case in sufficient quantity for distribution
by the Agent to each of the Lenders. If such Borrower fails to procure such
insurance or to pay the premiums therefor when due, the Agent may, and at the
direction of the Majority Lenders shall, do so from the proceeds of Revolving
Loans.
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(c) Such Borrower shall promptly notify the Agent and the
Lenders of any loss, damage, or destruction to the Collateral arising from its
use, whether or not covered by insurance. The Agent is hereby authorized to
collect all insurance proceeds directly, and to apply or remit them as follows:
(i) With respect to insurance proceeds relating to
property other than Collateral, after deducting from such
proceeds the reasonable expenses, if any, incurred by the
Agent in the collection or handling thereof, the Agent shall
promptly remit to such Borrower (for itself or its
Subsidiaries, as the same may be) such proceeds.
(ii) With respect to insurance proceeds relating to
Collateral other than Fixed Assets, after deducting from such
proceeds the reasonable expenses, if any, incurred by the
Agent in the collection or handling thereof, the Agent shall
apply such proceeds, ratably, to the reduction of the
Obligations in the order provided for in Section 4.8 and, in
the case of SDI Canada, Section 6.8(e).
(iii) With respect to insurance proceeds relating to
Collateral consisting of Fixed Assets, after deducting from
such proceeds the reasonable expenses, if any, incurred by the
Agent in the collection or handling thereof, the Agent shall
apply such proceeds, ratably, to the reduction of the
Obligations in the order provided for in Section 4.8 and, in
the case of SDI Canada, Section 6.8(e), or at the option of
the Majority Lenders, may permit or require such Borrower or
its Subsidiary to use such money, or any part thereof, to
replace, repair, restore, rebuild or acquire Fixed Assets;
provided, however, that so long as there does not then exist
any Default or Event of Default, such Borrower or its
Subsidiary shall be permitted to use insurance proceeds
relating to its Collateral consisting of Fixed Assets in an
aggregate amount not to exceed $750,000 with respect to any
occurrence, to replace, repair, restore, rebuild or acquire
the relevant Fixed Assets, in the manner set forth in this
sentence; and provided, further, that such Borrower, upon the
request of the Agent provides the Agent with plans and
specifications for any such repair or restoration that
demonstrates to the reasonable satisfaction of the Agent that
the funds available to it will be sufficient to complete such
project in the manner provided therein.
(d) Unless the Borrowers provide the Agent with evidence of
the insurance coverage required by this Section 9.5, the Agent may purchase
insurance at the Borrowers' expense to protect Agent's interests in the
Collateral. This insurance may, but need not, protect the Borrowers' or their
Subsidiaries' interests. The coverage that the Agent purchases may not pay any
claim that the Borrowers or their Subsidiaries may make or any claim that is
made
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against the Borrowers in connection with the Collateral. The Borrowers may later
cancel any insurance purchased by the Agent, but only after providing the Agent
with evidence that the Borrowers have obtained insurance as required by this
Agreement. If the Agent purchases insurance for the Collateral, the Borrowers
will be responsible for the costs of that insurance, including interest and any
other charges that may be imposed in connection with the placement of the
insurance, until the effective date of the cancellation or expiration of the
insurance. The costs of the insurance may be added to the Loans. The costs of
the insurance may be more than the costs of insurance the Borrowers may be able
to obtain on their own.
9.6. Condemnation.
(a) Such Borrower shall, immediately upon learning of the
institution of any proceeding for the condemnation or other taking of any of its
or its Subsidiaries' property, notify the Agent of the pendency of such
proceeding, and agrees that the Agent may participate in any such proceeding,
and such Borrower from time to time will deliver to the Agent all instruments
reasonably requested by the Agent to permit such participation.
(b) The Agent is hereby authorized to collect the proceeds of
any condemnation claim or award directly, and to apply or remit them as follows:
(i) With respect to condemnation proceeds relating to
property other than Collateral, after deducting from such
proceeds the reasonable expenses, if any, incurred by the
Agent in the collection or handling thereof, the Agent shall
remit to such Borrower or its Subsidiary such proceeds.
(ii) With respect to condemnation proceeds relating to
Collateral other than Fixed Assets, after deducting from such
proceeds the reasonable expenses, if any, incurred by the
Agent in the collection or handling thereof, the Agent shall
apply such proceeds, ratably, to the reduction of the
Obligations in the order provided for in Section 4.8 and, in
the case of SDI Canada, Section 6.8(e).
(iii) With respect to condemnation proceeds relating to
Collateral consisting of Fixed Assets, after deducting from
such proceeds the reasonable expenses, if any, incurred by the
Agent in the collection or handling thereof, the Agent shall
apply such proceeds, ratably, to the reduction of the
Obligations in the order provided for in Section 4.8 and, in
the case of SDI Canada, Section 6.8(e), or at the option of
the Majority Lenders, may permit or require such Borrower or
its Subsidiary to use such money, or any part thereof, to
replace, repair, restore, rebuild or acquire Fixed Assets;
provided, however, that so long as there does not then exist
any Default or Event of Default, such Borrower shall be
permitted to use proceeds relating to Collateral
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consisting of Fixed Assets in an aggregate amount not to
exceed $750,000 with respect to any occurrence, to replace,
repair, restore, rebuild or acquire Fixed Assets, in the
manner set forth in this sentence; and provided, further, that
such Borrower, upon the request of the Agent provides the
Agent with the plans and specifications for any such repair or
restoration that demonstrates to the reasonable satisfaction
of the Agent that the funds available to it will be sufficient
to compute such project in the manner provided therein.
9.7. Environmental Laws.
(a) Such Borrower shall, and shall cause each of its
Subsidiaries to, conduct its business in compliance with all Environmental Laws
applicable to it, including, without limitation, those relating to the
generation, handling, use, storage, and disposal of any Contaminant, except
where failure to do so is not reasonably likely to result in a material adverse
effect on such Borrower's or such Subsidiary's property, business, operations or
condition (financial or otherwise). Such Borrower shall, and shall cause each of
its Subsidiaries to, take prompt and appropriate action to respond to any
non-compliance with Environmental Laws, except where failure to do so is not
reasonably likely to result in a material adverse effect on such Borrower's or
such Subsidiary's property, business, operations or condition (financial or
otherwise) and shall regularly report to the Agent on such response.
(b) Without limiting the generality of the foregoing, such
Borrower shall submit to the Agent and the Lenders upon the Agent's request,
commencing on the first Anniversary Date, and on each Anniversary Date
thereafter, an update of the status of each environmental compliance or
liability issue. The Agent or any Lender may request copies of technical reports
prepared by such Borrower or its Subsidiaries and its communications with any
Governmental Authority to determine whether such Borrower or any of its
Subsidiaries is proceeding reasonably to correct, cure or contest in good faith
any alleged non-compliance or environmental liability. Such Borrower shall, at
the Agent's or the Majority Lenders' request (provided that no such request may
be made unless the Agent shall have reasonable grounds to believe that a
Borrower or any of its Subsidiaries are not in compliance in all material
respects with Environmental Laws and such noncompliance is likely to result in a
liability in excess of $1,000,000) and at such Borrower's expense, (a) retain an
independent environmental engineer acceptable to the Agent to evaluate the site,
including tests if appropriate, where the non-compliance or alleged
non-compliance with Environmental Laws has occurred and prepare and deliver to
the Agent, in sufficient quantity for distribution by the Agent to the Lenders,
a report setting forth the results of such evaluation, a proposed plan for
responding to any environmental problems described therein, and an estimate of
the costs thereof, and (b) provide to the Agent and the Lenders a supplemental
report of such engineer whenever the scope of the environmental problems, or the
response thereto or the estimated costs thereof, shall change in any material
respect.
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9.8. Compliance with ERISA.
Such Borrower shall, and shall cause each of its Subsidiaries
and ERISA Affiliates to, unless the failure to do so is not reasonably likely to
have a Material Adverse Effect: (a) maintain each Plan in compliance in all
material respects with the applicable provisions of ERISA, the Code, the PBA and
other federal, provincial or state law; (b) cause each Plan which is qualified
under Section 401(a) of the Code to maintain such qualification; (c) make all
required contributions to any Plan subject to Section 412 of the Code; (d) not
engage in a prohibited transaction or violation of the fiduciary responsibility
rules with respect to any Plan; (e) not engage in a transaction that could be
subject to Section 4069 or 4212(c) of ERISA; and (f) not permit any Lien, choate
or inchoate, to arise or exist in connection with any Plan (save for
contribution amounts not yet due).
9.9. Mergers, Consolidations or Sales.
Neither such Borrower nor any of its Subsidiaries shall enter
into any transaction of merger, amalgamation, reorganization, or consolidation,
or transfer, sell, assign, lease, or otherwise dispose of all or any part of its
property, or wind up, liquidate or dissolve, or agree to do any of the
foregoing, except (i) for sales of Inventory in the ordinary course of its
business, (ii) for sales or other dispositions of Equipment in the ordinary
course of business that are obsolete or no longer useable by such Borrower or
such Subsidiary in its business as permitted by Section 6.11, and (iii) mergers
of Persons acquired in Permitted Acquisitions with and into a Borrower so long
as such Borrower is the sole surviving Person.
9.10. Distributions; Capital Change; Restricted Investments.
Neither such Borrower nor any of its Subsidiaries shall (i)
directly or indirectly declare or make, or incur any liability to make, any
Distribution, (ii) make any change in its capital structure which could have a
Material Adverse Effect, or (iii) make any Restricted Investment, except (A)
Distributions to such Borrower by its Subsidiaries, (B) Distributions by the
Borrowers to SDI to reimburse SDI for out-of-pocket expenses incurred by SDI in
the ordinary course of its business on an arm's length basis for the benefit of
the Borrowers that are expenses that ordinarily would have been paid by such
Borrower if SDI had not paid such expenses, (C) loans by ISA to SDI Canada in an
aggregate amount outstanding not to exceed $5,000,000 (less the amount of
Restricted Investments by SDI under Section 5.6(ii)(b) of the SDI Security
Agreement), so long as Aggregate Availability after giving effect to such loan
exceeds ten percent (10%) of Aggregate Availability (assuming Aggregate
Revolver Outstandings of the Borrowers are zero), (D) loans by a Borrower to the
other Borrower, (E) loans by ISA to the Mexican Subsidiaries in an aggregate
amount outstanding not to exceed the Permitted Mexican Loan Amount (less the
amount of Restricted Investments by SDI under Section 5.6(ii)(a) of the SDI
Security Agreement), so long as Aggregate Availability after giving effect to
each such loan exceeds ten percent (10%) of Aggregate Availability (assuming
Aggregate
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Revolver Outstandings of the Borrowers are zero), (F) Permitted
Acquisitions by a Borrower, (G) advances to employees of Credit Parties for
travel, relocation or other ordinary business expenses provided that the
aggregate amount outstanding at any one time shall not exceed $20,000 per single
employee and $250,000 in the aggregate for all employees, (H) advances to
subcontractors and suppliers in the ordinary course of business not exceeding an
aggregate outstanding amount of $500,000, (I) extensions of credit in the nature
of receivables or notes arising from the sale of goods and services in the
ordinary course of business, and (J) nonrecourse loans to holders of stock
options of SDI, which loans were made solely for the purpose of enabling such
holders to purchase shares of the common stock of SDI upon the exercise of such
options and which loans are secured by some or all of such purchased shares,
provided that the aggregate outstanding amount of all such loans does not at any
time exceed $1,500,000.
9.11. Intentionally Omitted.
9.12. Guaranties.
Neither such Borrower nor any of its Subsidiaries shall make,
issue, or become liable on any Guaranty, except in respect of Debt for Borrowed
Money permitted under Section 9.13 and except Guaranties of the Obligations in
favor of the Agent.
9.13. Debt.
Neither such Borrower nor any of its Subsidiaries shall incur
or maintain any Debt, other than: (a) the Obligations, (b) Debt for Borrowed
Money outstanding on the date hereof and any refinancing thereof (provided that
any such refinancing is in a principal amount not in excess of the principal
amount of the Debt being refinanced, is at a market interest rate and is on
terms no more restrictive upon the Borrowers and Subsidiaries than the Debt
being refinanced), (c) purchase money Debt for Borrowed Money not in excess of
$1,000,000 at any time outstanding, (d) Capitalized Lease obligations not in
excess of $1,000,000 at any time outstanding, (e) unsecured Debt for Borrowed
Money not in excess of $1,000,000 at any time outstanding, which is subordinated
to the Obligations on terms acceptable to the Agent, (f) Debt for Borrowed Money
owing to a Borrower permitted under Section 9.10, (g) unsecured Debt that is
incurred in connection with Permitted Acquisitions that is subordinated on terms
and conditions acceptable to the Agent in its discretion, and (h) other
unsecured Debt for Borrowed Money not in excess of $1,000,000 at any time
outstanding.
9.14. Intentionally Omitted.
9.15. Transactions with Affiliates.
Except as set forth in Section 9.10, neither such Borrower nor
any of its Subsidiaries shall sell, transfer, distribute, or pay any money or
property, including, but not limited to, any fees or expenses of any nature
(including, but not limited to, any fees or
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expenses for management services), to any Affiliate, or lend or advance money or
property to any Affiliate, or invest in (by capital contribution or otherwise)
or purchase or repurchase any stock or indebtedness, or any property, of any
Affiliate, or become liable on any Guaranty of the indebtedness, dividends, or
other obligations of any Affiliate. Notwithstanding the foregoing, (i) such
Borrower and its Subsidiaries may engage in transactions not otherwise
prohibited hereunder with Affiliates in the ordinary course of business, in
amounts and upon terms fully disclosed to the Agent and the Lenders, and no less
favorable to such Borrower and its Subsidiaries than would be obtained in a
comparable arm's-length transaction with a third party who is not an Affiliate
and (ii) Borrowers may engage in the transaction described on Schedule 9.15.
9.16. Investment Banking and Finder's Fees.
Neither such Borrower nor any of its Subsidiaries shall pay or
agree to pay, or reimburse any other party with respect to, any investment
banking or similar or related fee, underwriter's fee, finder's fee, or broker's
fee to any Person in connection with this Agreement. Such Borrower shall defend
and indemnify the Agent and the Lenders against and hold them harmless from all
claims of any Person that such Borrower or any of its Subsidiaries is obligated
to pay for any such fees, and all costs and expenses (including without
limitation, attorneys' fees) incurred by the Agent and/or any Lender in
connection therewith.
9.17. Intentionally Omitted.
9.18. Business Conducted.
Such Borrower shall not and shall not permit any of its
Subsidiaries to, engage directly or indirectly, in any line of business other
than the businesses in which such Borrower is engaged on the Closing Date or any
business reasonably related, ancillary or incidental to such business.
9.19. Liens.
Neither such Borrower nor any of its Subsidiaries shall
create, incur, assume, or permit to exist any Lien on any property now owned or
hereafter acquired by any of them, except Permitted Liens.
9.20. Intentionally Omitted.
9.21. New Subsidiaries.
Such Borrower shall not, directly or indirectly, organize,
create, acquire or permit to exist any Subsidiary other than those listed on
Schedule 8.5.
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9.22. Fiscal Year.
Such Borrower shall not change and shall not permit its
Subsidiaries to change its Fiscal Year.
9.23. Capital Expenditures.
Neither such Borrower nor any of its Subsidiaries shall make
or incur any Capital Expenditure if, after giving effect thereto, the aggregate
amount of all Capital Expenditures by the Borrowers and their Subsidiaries on a
consolidated basis would exceed $10,000,000 during Fiscal Year 1998 or
$6,000,000 in any Fiscal Year thereafter. Any amount of such limitation (a) not
spent in Fiscal Year 1998 may be spent in Fiscal Year 1999 and (b) up to
$2,000,000 not spent in Fiscal Year 1999 may be spent in Fiscal Year 2000.
9.24. Intentionally Omitted.
9.25. Aggregate Availability; Fixed Charge Coverage.
Borrowers will not permit Aggregate Availability to be less
than $5,000,000 at any time; provided, that Aggregate Availability may be less
than $5,000,000 at any time (the first such time, the "Initial Trigger Date") so
long as the Fixed Charge Coverage Ratio is at least 1.1:1.0 for the twelve (12)
month period ending (a) on the last day of the month preceding the Initial
Trigger Date, and (b) on the last day of each month thereafter (regardless of
whether Aggregate Availability exceeds $5,000,000 after the Initial Trigger
Date).
9.26. Use of Proceeds.
Such Borrower shall not, and shall not suffer or permit any
Subsidiary to, use any portion of the Loan proceeds, directly or indirectly, (i)
to purchase or carry Margin Stock, (ii) to repay or otherwise refinance
indebtedness of such Borrower or others incurred to purchase or carry Margin
Stock, (iii) to extend credit for the purpose of purchasing or carrying any
Margin Stock, or (iv) to acquire any security in any transaction that is subject
to Section 13 or 14 of the Exchange Act.
9.27. Further Assurances.
Such Borrower shall, and shall cause each of its Subsidiaries
to, execute and deliver, or cause to be executed and delivered, to the Agent
and/or the Lenders such documents and agreements, and shall take or cause to be
taken such actions, as the Agent or any Lender may, from time to time, request
to carry out the terms and conditions of this Agreement and the other Loan
Documents.
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9.28. Canadian Tax Matters.
The Borrowers shall quarterly and more frequently when
requested by the Agent, provide to the Agent, or cause SDI Canada to provide to
the Agent, (i) a detailed accounting of all amounts paid (upon collection of SDI
Canada's accounts or otherwise) by SDI Canada to the Borrowers, whether or not
applied to the Obligations outstanding and whether by way of loans, loan
repayments, dividends or otherwise, together with a calculation of all
withholding and other taxes payable in respect thereof and (ii) evidence
satisfactory to the Agent of the remittance when due to the applicable
Governmental Authorities of all withholding and other taxes payable in respect
thereof.
9.29. Payment of Subordinated Debt.
Neither Borrower shall, and neither Borrower shall permit any
of its Subsidiaries, to pay, purchase or redeem any Subordinated Debt, except as
permitted by the applicable subordination agreement.
9.30. Quebec Locations.
Neither Borrower shall (i) establish or open any business
locations or operations, or locate any assets or permit any of its assets to be
located, in the Province of Quebec, Canada or (ii) enter into a Customer
Contract with a Person located in the Province of Quebec, Canada, unless prior
to doing so, Borrowers have entered into an amendment to this Agreement with the
Agent and the Majority Lenders that addresses, to the reasonable satisfaction of
the Agent and the Majority Lenders, issues arising under Quebec law with respect
to the ability of the Agent to act as an agent under this Agreement for the
benefit of the Lenders, and such other agreements, instruments and documents as
the Agent shall reasonably request in good faith in connection therewith.
ARTICLE 10
CONDITIONS OF LENDING
10.1. Conditions Precedent to Making of Initial Loans.
The obligation of the Lenders to make the initial Revolving
Loans and the obligation of the Agent to cause to be issued or provide the
initial Credit Support for any Letter of Credit and the obligation of the
Lenders to participate in the initial Letters of Credit or in Credit Support for
any such Letters of Credit, are subject to the following conditions precedent
having been satisfied in a manner satisfactory to the Agent and each Lender:
(a) This Agreement and the other Loan Documents (including,
without limitation, those Loan Documents listed on the List of Closing Documents
attached hereto as Exhibit D) have been executed by each party thereto and the
Borrowers shall have performed
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and complied with all covenants, agreements and conditions contained herein and
the other Loan Documents which are required to be performed or complied with by
the Borrowers before or on such Closing Date.
(b) All representations and warranties made hereunder and in
the other Loan Documents shall be true and correct as of the Closing Date as if
made on such date.
(c) No Default or Event of Default shall exist on the Closing
Date, or would exist after giving effect to the Loans to be made on such date.
(d) The Agent and the Lenders shall have received such
opinions of counsel for SDI and its Subsidiaries as the Agent or any Lender
shall request, each such opinion to be in a form, scope, and substance
satisfactory to the Agent, the Lenders, and their respective counsel.
(e) The Agent shall have received:
(i) acknowledgment copies of proper financing statements,
duly filed on or before the Closing Date under the UCC or PPSA
of all jurisdictions that the Agent may deem necessary or
desirable in order to perfect the Agent's Lien; and
(ii) duly executed UCC-3 Termination Statements, PPSA
Termination Statements and such other instruments, in form and
substance satisfactory to the Agent, as shall be necessary to
terminate and satisfy all Liens on the Property of the
Borrowers and their Subsidiaries except Permitted Liens.
(f) The Borrowers shall have paid all fees and expenses of the
Agent and the Attorney Costs incurred in connection with any of the Loan
Documents and the transactions contemplated thereby.
(g) The Agent shall have received evidence, in form, scope,
and substance, reasonably satisfactory to the Agent, of all insurance coverage
as required by this Agreement.
(h) The Agent and the Lenders shall have had an opportunity,
if they so choose, to examine the books of account and other records and files
of the Borrowers and SDI Canada and to make copies thereof, and to conduct a
pre-closing audit which shall include, without limitation, verification of
Inventory, Accounts, and Availability, and the results of such examination and
audit shall have been satisfactory to the Agent and the Lenders in all respects.
(i) No material adverse change shall have occurred, as
determined by the Lenders in their sole discretion, in the business, operations,
profits or prospects of either Borrower or SDI Canada since December 31, 1997.
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(j) The Agent shall have received landlord waivers and
consents acceptable to the Agent, as may be required by the Agent with respect
to ISA's two administrative offices in Bensalem, Pennsylvania and Feasterville,
Pennsylvania and with respect to INTERMAT's offices in Houston, Texas.
(k) There shall exist no action, suit, investigation,
litigation or proceeding pending or threatened in any court or before any
arbitrator or governmental instrumentality that (i) could have a material
adverse effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of either Borrower or SDI Canada or on the
condition of either Borrower's or SDI Canada's assets, (ii) could impair either
Borrower's or SDI Canada's ability to perform satisfactorily under the Loan
Documents, or (iii) in the Lenders' judgment, could materially and adversely
affect the transactions described in this Agreement.
(l) All proceedings taken in connection with the execution of
this Agreement, all other Loan Documents and all documents and papers relating
thereto shall be satisfactory in form, scope, and substance to the Agent and the
Lenders.
The acceptance by the Borrowers of the initial Loans made
hereunder shall be deemed to be a representation and warranty made by the
Borrowers to the effect that all of the conditions precedent to the making of
such Loans have been satisfied, with the same effect as delivery to the Agent
and the Lenders of a certificate signed by a Responsible Officer of each
Borrower, dated the date such Loans are made, to such effect.
Execution and delivery to the Agent by a Lender of a
counterpart of this Agreement shall be deemed confirmation by such Lender that
(i) all conditions precedent in this Section 10.1 have been fulfilled to the
satisfaction of such Lender, and (ii) the decision of such Lender to execute and
deliver to the Agent an executed counterpart of this Agreement was made by such
Lender independently and without reliance on the Agent or any other Lender as to
the satisfaction of any condition precedent set forth in this Section 10.1.
10.2. Conditions Precedent to Each Loan.
The obligation of the Lenders to make each Loan, including the
initial Revolving Loans and the obligation of the Agent to take reasonable steps
to cause to be issued or to provide Credit Support for any Letter of Credit and
the obligation of the Lenders to participate in Letters of Credit or Credit
Support for Letters of Credit, shall be subject to the further conditions
precedent that on and as of the date of any such extension of credit:
(a) the following statements shall be true, and the acceptance
by a Borrower of any extension of credit shall be deemed to be a statement to
the effect set forth in clauses (i) and (ii), with the same effect as the
delivery to the Agent and the Lenders of a certificate signed
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by a Responsible Officer of such Borrower, dated the date of such extension of
credit, stating that:
(i) The representations and warranties contained in this
Agreement and the other Loan Documents are correct in all
material respects on and as of the date of such extension of
credit as though made on and as of such date, other than any
such representation or warranty which relates to a specified
prior date and except to the extent the Agent and the Lenders
have been notified by such Borrower that any representation or
warranty is not correct and the Majority Lenders have
explicitly waived in writing compliance with such
representation or warranty; and
(ii) No event has occurred and is continuing, or would
result from such extension of credit, which constitutes a
Default or an Event of Default; and
(b) without limiting Section 10.1(b), the amount of the Availability of a
Borrower shall be sufficient to make such Revolving Loan for the account of
such Borrower without exceeding its Availability, provided, however, that the
foregoing conditions precedent are not conditions to each Lender
participating in or reimbursing BABC or the Agent for such Lenders' Pro Rata
Share of any BABC Loan, Agent Advance or Over Advance as provided in Sections
2.2(h), (i), (j) and (k).
ARTICLE 11
DEFAULT; REMEDIES
11.1. Events of Default.
It shall constitute an event of default ("Event of Default")
if any one or more of the following shall occur for any reason:
(a) any failure to pay the principal of or interest or premium
on any of the Obligations when due, whether upon demand or otherwise;
(b) any representation or warranty made or deemed made by a
Borrower in this Agreement or by a Credit Party or any of its Subsidiaries in
any of the other Loan Documents, any Financial Statement, or any certificate
furnished by a Credit Party or any of its Subsidiaries at any time to the Agent
or any Lender shall prove to be untrue in any material respect as of the date on
which made, deemed made, or furnished;
(c) any default shall occur in the observance or performance
of any of the covenants and agreements contained in this Agreement, except for
those specified in clause (d)
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of this Section 11.1, and such default shall continue for a period of twenty
(20) days after a Borrower is aware of such default;
(d) any default shall occur in the observance or performance
of any of the covenants and agreements contained in Article 6, Sections 7.2, 7.3
or 9.5 or Sections 9.9 through 9.30, any other Loan Documents, or any other
agreement entered into at any time to which a Credit Party or any Subsidiary and
the Agent or any Lender are party, or if any such agreement or document shall
terminate (other than in accordance with its terms or the terms hereof or with
the written consent of the Agent and the Majority Lenders) or become void or
unenforceable, without the written consent of the Agent and the Majority
Lenders;
(e) default shall occur with respect to any Debt For Borrowed
Money (other than the Obligations) in an outstanding principal amount which
exceeds $500,000, or under any agreement or instrument under or pursuant to
which any such Debt For Borrowed Money may have been issued, created, assumed,
or guaranteed by a Credit Party or any of its Subsidiaries, and such default
shall continue for more than the period of grace, if any, therein specified, if
the effect thereof (with or without the giving of notice or further lapse of
time or both) is to accelerate, or to permit the holders of any such Debt For
Borrowed Money to accelerate, the maturity of any such Debt For Borrowed Money;
or any such Debt For Borrowed Money shall be declared due and payable or be
required to be prepaid (other than by a regularly scheduled required prepayment)
prior to the stated maturity thereof;
(f) a Credit Party or any of its Subsidiaries shall (i) file a
voluntary petition in bankruptcy or file a voluntary petition or an answer or
file any proposal or notice of intent to file a proposal or otherwise commence
any action or proceeding seeking reorganization, arrangement, consolidation or
readjustment of its debts or which seeks to stay or has the effect of staying
any creditor or for any other relief under the federal Bankruptcy Code, the
Bankruptcy and Insolvency Act or the Companies' Creditors Arrangement Act, each
as amended, or under any other bankruptcy, insolvency, liquidation, winding-up,
corporate or similar act or law, state, provincial or federal, now or hereafter
existing, or consent to, approve of, or acquiesce in, any such petition,
proposal, action or proceeding; (ii) apply for or acquiesce in the appointment
of a receiver, assignee, liquidator, sequestrator, custodian, monitor,
administrator, trustee or similar officer for it or for all or any part of its
property; (iii) make an assignment for the benefit of creditors; or (iv) be
unable generally to pay its debts as they become due;
(g) an involuntary petition or proposal shall be filed or an
action or proceeding otherwise commenced seeking reorganization, arrangement,
consolidation or readjustment of the debts of a Credit Party or any of its
Subsidiaries or for any other relief under the federal Bankruptcy Code, the
Bankruptcy and Insolvency Act or the Companies' Creditors Arrangement Act, as
amended, or under any other bankruptcy, insolvency, liquidation, winding-up,
corporate or similar act or law, state, provincial or federal, now or hereafter
existing and either (i) such petition, proposal, action or proceeding shall not
have been
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dismissed within a period of sixty (60) days after its commencement or (ii) an
order for relief against such Credit Party or such Subsidiary shall have been
entered in such proceeding;
(h) a receiver, assignee, liquidator, sequestrator, custodian,
monitor, administrator, trustee or similar officer for a Credit Party or any of
its Subsidiaries or for all or any part of its property shall be appointed or a
warrant of attachment, execution, writ of seizure or seizure and sale or similar
process shall be issued against any part of the property of a Credit Party or
any of its Subsidiaries;
(i) (x) a Credit Party or any of its Subsidiaries shall file a
certificate of dissolution or like process under applicable state, provincial or
federal law or shall be liquidated, dissolved or wound-up or shall commence or
have commenced against it any action or proceeding for dissolution, winding-up
or liquidation, or shall take any corporate action in furtherance thereof or (y)
any distress, hypothecary action by a landlord or analogous process is levied
upon all or any material part of a Credit Party's or all or any material part
any of its Subsidiaries' property;
(j) all or any material part of the property of a Credit Party
or any of its Subsidiaries shall be nationalized, expropriated or condemned,
seized or otherwise appropriated, or custody or control of such property or of
such Credit Party or such Subsidiary shall be assumed by any Governmental
Authority or any court of competent jurisdiction at the instance of any
Governmental Authority or any other Person, except where contested in good faith
by proper proceedings diligently pursued where a stay of enforcement is in
effect;
(k) any guaranty of the Obligations shall be terminated,
revoked or declared void or invalid;
(l) one or more judgments or orders for the payment of money
aggregating in excess of $250,000, which amount shall not be fully covered by
insurance, satisfied, stayed or fully bonded, shall be rendered against a Credit
Party or any of its Subsidiaries;
(m) any loss, theft, damage or destruction of any item or
items of Collateral or other property of a Credit Party or any Subsidiary occurs
which has a Material Adverse Effect and which would reasonably be expected to
impair the Credit Parties' ability to pay the Obligations;
(n) intentionally omitted;
(o) there is filed against a Credit Party or any of its
Subsidiaries any civil or criminal action, suit or proceeding under any federal,
provincial or state racketeering, proceeds of crime or money laundering statute
(including, without limitation, the Racketeer Influenced and Corrupt
Organization Act of 1970), which action, suit or proceeding (1) is not dismissed
within one hundred twenty (120) days, and (2) could reasonably be expected to
result in the confiscation or forfeiture of any material portion of the
Collateral;
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(p) for any reason other than the failure of the Agent to take
any action available to it to maintain perfection of the Agent's Liens, pursuant
to the Loan Documents, any Loan Document ceases to be in full force and effect
or any Lien with respect to any material portion of the Collateral intended to
be secured thereby ceases to be, or is not, valid, perfected and prior to all
other Liens (other than Permitted Liens) or is terminated, revoked or declared
void;
(q) an ERISA Event shall occur which is reasonably likely to
result in a Material Adverse Effect occurs or arises in connection with any plan
of Borrower, its Subsidiaries or one of their ERISA Affiliates; or
(r) there occurs a Change of Control.
11.2. Remedies.
(a) If a Default or an Event of Default exists, the Agent may,
in its discretion, and shall, at the direction of the Majority Lenders, do one
or more of the following at any time or times and in any order, without notice
to or demand on the Borrowers or any other Person: (i) reduce the Individual
Revolver Amounts, the Maximum Revolver Amount or the advance rates against
Eligible Accounts and/or Eligible Inventory used in computing the Availability
of a Borrower, or reduce one or more of the other elements used in computing the
Availability of a Borrower; (ii) restrict the amount of or refuse to make
Revolving Loans; and (iii) restrict or refuse to arrange for or provide Letters
of Credit or Credit Support. If an Event of Default exists, the Agent shall, at
the direction of the Majority Lenders, do one or more of the following, in
addition to the actions described in the preceding sentence, at any time or
times and in any order, without notice to or demand on the Borrowers or any
other Person: (a) terminate the Commitments and this Agreement; (b) declare any
or all Obligations to be immediately due and payable; provided, however, that
upon the occurrence of any Event of Default described in Sections 11.1(f), (g),
(h), or (i)(x), the Commitments shall automatically and immediately expire and
all Obligations shall automatically become immediately due and payable without
notice or demand of any kind; and (c) pursue its other rights and remedies under
the Loan Documents and applicable law.
(b) If an Event of Default has occurred and is continuing: (i)
the Agent shall have for the benefit of the Lenders, in addition to all other
rights of the Agent and the Lenders, the rights and remedies of a secured party
under the UCC, PPSA and the Civil Code of Quebec; (ii) the Agent may, at any
time, take possession of the Collateral and keep it on a Borrower's or its
Subsidiaries' premises, at no cost to the Agent or any Lender, or remove any
part of it to such other place or places as the Agent may desire, or each
Borrower shall, upon the Agent's demand, at such Borrower's cost, assemble, or
cause its Subsidiaries to assemble, the Collateral and make it available to the
Agent at a place reasonably convenient to the Agent; and (iii) the Agent may
sell and deliver any Collateral at public or private sales, for cash, upon
credit or otherwise, at such prices and upon such terms as the Agent deems
advisable, in its sole discretion, and may, if the Agent deems it reasonable,
postpone or adjourn any sale of the
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Collateral by an announcement at the time and place of sale or of such postponed
or adjourned sale without giving a new notice of sale. Without in any way
requiring notice to be given in the following manner, each Borrower agrees that
any notice by the Agent of sale, disposition or other intended action hereunder
or in connection herewith, whether required by the UCC or otherwise, shall
constitute reasonable notice to the Borrowers if such notice is mailed by
registered or certified mail, return receipt requested, postage prepaid, or is
delivered personally against receipt, at least ten (10) Business Days prior to
such action to the Borrowers' address specified in or pursuant to Section 15.8.
If any Collateral is sold on terms other than payment in full at the time of
sale, no credit shall be given against the Obligations until the Agent or the
Lenders receive payment, and if the buyer defaults in payment, the Agent may
resell the Collateral without further notice to the Borrowers. In the event the
Agent seeks to take possession of all or any portion of the Collateral by
judicial process, each Borrower irrevocably waives: (a) the posting of any bond,
surety or security with respect thereto which might otherwise be required; (b)
any demand for possession prior to the commencement of any suit or action to
recover the Collateral; and (c) any requirement that the Agent retain possession
and not dispose of any Collateral until after trial or final judgment. Each
Borrower agrees that the Agent has no obligation to preserve rights to the
Collateral or marshal any Collateral for the benefit of any Person. The Agent is
hereby granted a license or other right to use, without charge, each Borrower's
labels, patents, copyrights, name, trade secrets, trade names, trademarks, and
advertising matter, or any similar property, in completing production of,
advertising or selling any Collateral, and each Borrower's rights under all
licenses and all franchise agreements shall inure to the Agent's benefit for
such purpose. The proceeds of sale shall be applied first to all expenses of
sale, including attorneys' fees, and then to the Obligations in whatever order
the Agent elects. The Agent will return any excess to such Borrower and such
Borrower shall remain liable for any deficiency.
(c) If an Event of Default occurs, each Borrower hereby waives
to the extent permitted by applicable law all rights to notice and hearing prior
to the exercise by the Agent of the Agent's rights to repossess the Collateral
without judicial process or to replevy, attach or levy upon the Collateral
without notice or hearing.
ARTICLE 12
TERM AND TERMINATION
12.1. Term and Termination.
The term of this Agreement shall end on the Stated Termination
Date unless automatically extended as provided in this Section 12. This
Agreement shall be renewed on the Stated Termination Date and at the end of any
renewal term for successive one (1) year terms, unless this Agreement is
terminated as provided below. The Agent, each Lender and the Borrowers, jointly
but not individually, shall have the right to terminate this Agreement on the
Stated Termination Date or at the end of any renewal term by giving the other
written notice not less than one hundred fifty (150) days prior to the end of
such
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term. The Agent upon direction from the Majority Lenders may terminate this
Agreement without notice upon the occurrence of an Event of Default. Upon the
effective date of termination of this Agreement for any reason whatsoever,
all Obligations (including, without limitation, all unpaid principal, accrued
interest and any early termination or prepayment fees or penalties) shall
become immediately due and payable and the Borrowers shall immediately
arrange for the cancellation of Letters of Credit then outstanding.
Notwithstanding the termination of this Agreement, until all Obligations are
paid and performed in full in cash, the Borrowers shall remain bound by the
terms of this Agreement and shall not be relieved of any of their Obligations
hereunder, and the Agent and the Lenders shall retain all their rights and
remedies hereunder (including, without limitation, the Agent's Liens in and
all rights and remedies with respect to all then existing and after-arising
Collateral). Thereafter the Agent's Liens shall be automatically be
reinstated effective as of the original date of execution of this Agreement,
if at any time payment, in whole or in part, of any of the Obligations is
reduced, rescinded or must otherwise be restored or returned by the Agent or
any of the Lenders for any reason whatsoever, including the bankruptcy,
insolvency, dissolution, liquidation or reorganization of any of the Credit
Parties or upon or as a result of the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to any of the
Credit Parties or any of their property or otherwise.
ARTICLE 13
AMENDMENTS; WAIVER; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS
13.1. No Waivers; Cumulative Remedies.
No failure by the Agent or any Lender to exercise any
right, remedy, or option under this Agreement or any present or future
supplement thereto, or in any other agreement between or among a Borrower and
the Agent and/or any Lender, or delay by the Agent or any Lender in
exercising the same, will not operate as a waiver thereof. No waiver by the
Agent or any Lender will be effective unless it is in writing, and then only
to the extent specifically stated. No waiver by the Agent or the Lenders on
any occasion shall affect or diminish the Agent's and each Lender's rights
thereafter to require strict performance by the Borrowers of any provision of
this Agreement. The Agent's and each Lender's rights under this Agreement
will be cumulative and not exclusive of any other right or remedy which the
Agent or any Lender may have.
13.2. Amendments and Waivers.
No amendment or waiver of any provision of this Agreement
or any other Loan Document, and no consent with respect to any departure by a
Borrower therefrom, shall be effective unless the same shall be in writing
and signed by the Majority Lenders (or by the Agent at the written request of
the Majority Lenders) and the Borrowers and then any such waiver or consent
shall be effective only in the specific instance and for the
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specific purpose for which given; provided, however, that no such waiver,
amendment, or consent shall, unless in writing and signed by all the Lenders
and the Borrowers and acknowledged by the Agent, do any of the following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this Agreement or
any other Loan Document for any payment of principal, interest, fees or other
amounts due to the Lenders (or any of them) hereunder or under any other Loan
Document;
(c) reduce the principal of, or the rate of interest
specified herein on any Loan, or any fees or other amounts payable hereunder
or under any other Loan Document;
(d) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which is required for the
Lenders or any of them to take any action hereunder;
(e) increase any of the percentages set forth in the
definition of Availability;
(f) amend this Section 13.2 or any provision of the
Agreement providing for consent or other action by all Lenders;
(g) release Collateral other than as permitted by Section
14.12;
(h) change the definitions of "Majority Lenders" or
"Required Lenders";
(i) increase the Individual Revolver Amounts, Maximum
Revolver Amount, the Maximum Inventory Loan, and Unused Letter of Credit
Subfacility.
and, provided, further, that no amendment, waiver or consent shall, unless in
writing and signed by the Agent, affect the rights or duties of the Agent
under this Agreement or any other Loan Document.
13.3. Assignments; Participations.
(a) Any Lender may, with the written consent of the Agent
(and, so long as no Default or Event of Default shall have occurred and be
continuing, the Borrowers, which consent shall not be reasonably withheld or
delayed), assign and delegate to one or more assignees (provided, that no
written consent of the Agent shall be required in connection with any
assignment and delegation by a Lender to an Affiliate of such Lender) (each
an "Assignee") all, or any ratable part of all, of the Loans, the Commitments
and the other rights and obligations of such Lender hereunder, in a minimum
amount of $5,000,000 or if less the entire amount of such Lender's
Commitment; provided, however, that the Borrowers and the Agent may continue
to deal solely and directly with such Lender in connection with the interest
so assigned to an Assignee until (i) written notice of such assignment,
together with payment instructions, addresses and related information with
respect to the Assignee, shall have been
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given to the Borrowers and the Agent by such Lender and the Assignee; (ii
such Lender and its Assignee shall have delivered to the Borrowers and the
Agent an Assignment and Acceptance in the form of Exhibit G ("Assignment and
Acceptance"); and (iii) the assignor Lender or Assignee has paid to the Agent
a processing fee in the amount of $3,000.
(b) From and after the date that the Agent notifies the
assignor Lender that it has received an executed Assignment and Acceptance
and payment of the above-referenced processing fee, (i) the Assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations, including, but not limited to, the obligation to participate in
Letters of Credit and Credit Support have been assigned to it pursuant to
such Assignment and Acceptance, shall have the rights and obligations of a
Lender under the Loan Documents, and (ii) the assignor Lender shall, to the
extent that rights and obligations hereunder and under the other Loan
Documents have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations under
this Agreement (and in the case of an Assignment and Acceptance covering all
or the remaining portion of an assigning Lender's rights and obligations
under this Agreement, such Lender shall cease to be a party hereto).
(c) By executing and delivering an Assignment and
Acceptance, the assigning Lender thereunder and the Assignee thereunder
confirm to and agree with each other and the other parties hereto as follows:
(1) other than as provided in such Assignment and Acceptance, such assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with this Agreement or the other Loan Documents or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other Loan Document furnished pursuant hereto; (2) such
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrowers, SDI
Canada or any other Person or the performance or observance by the Borrowers,
SDI Canada or any other Person of any of their obligations under this
Agreement or any other Loan Document furnished pursuant hereto; (3) such
Assignee confirms that it has received a copy of this Agreement, together
with such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into such Assignment and
Acceptance; (4) such Assignee will, independently and without reliance upon
the Agent, such assigning Lender or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking action under this
Agreement; (5) such Assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this
Agreement and the other Loan Documents as are delegated to the Agent by the
terms hereof, together with such powers as are reasonably incidental thereto;
and (6) such Assignee agrees that it will perform in accordance with their
terms all of the obligations which by the terms of this Agreement are
required to be performed by it as a Lender.
(d) Immediately upon each Assignee's making its processing
fee payment under the Assignment and Acceptance, this Agreement shall be
deemed to be amended to the extent, but only to the extent, necessary to
reflect the addition of the Assignee and the resulting
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adjustment of the Commitments arising therefrom. The Commitment allocated to
each Assignee shall reduce such Commitments of the assigning Lender pro tanto.
(e) Any Lender may at any time sell to one or more
commercial banks, financial institutions, or other Persons not Affiliates of
a Borrower (a "Participant") participating interests in any Loans, the
Commitment of that Lender and the other interests of that Lender (the
"originating Lender") hereunder and under the other Loan Documents; provided,
however, that (i) the originating Lender's obligations under this Agreement
shall remain unchanged, (ii) the originating Lender shall remain solely
responsible for the performance of such obligations, (iii) the Borrowers and
the Agent shall continue to deal solely and directly with the originating
Lender in connection with the originating Lender's rights and obligations
under this Agreement and the other Loan Documents, and (iv) no Lender shall
transfer or grant any participating interest under which the Participant has
rights to approve any amendment to, or any consent or waiver with respect to,
this Agreement or any other Loan Document, and all amounts payable by the
Borrowers hereunder shall be determined as if such Lender had not sold such
participation; except that, if amounts outstanding under this Agreement are
due and unpaid, or shall have been declared or shall have become due and
payable upon the occurrence of an Event of Default, each Participant shall be
deemed to have the right of set-off in respect of its participating interest
in amounts owing under this Agreement to the same extent and subject to the
same limitation as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement.
(f) Notwithstanding any other provision in this Agreement,
any Lender may at any time create a security interest in, or pledge, all or
any portion of its rights under and interest in this Agreement in favor of
any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S.
Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may
enforce such pledge or security interest in any manner permitted under
applicable law.
ARTICLE 14
THE AGENT
14.1. Appointment and Authorization.
Each Lender hereby designates and appoints BankAmerica
Business Credit, Inc. as its Agent under this Agreement and the other Loan
Documents and each Lender hereby irrevocably authorizes the Agent to take
such action on its behalf under the provisions of this Agreement and each
other Loan Document and to exercise such powers and perform such duties as
are expressly delegated to it by the terms of this Agreement or any other
Loan Document, together with such powers as are reasonably incidental
thereto. The Agent agrees to act as such on the express conditions contained
in this Article 14. The provisions of this Article 14 are solely for the
benefit of the Agent and the Lenders and the Borrowers shall have no rights
as a third party beneficiary of any of the provisions contained herein.
Notwithstanding any provision to the contrary contained elsewhere in
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this Agreement or in any other Loan Document, the Agent shall not have any
duties or responsibilities, except those expressly set forth herein, nor
shall the Agent have or be deemed to have any fiduciary relationship with any
Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other
Loan Document or otherwise exist against the Agent. Without limiting the
generality of the foregoing sentence, the use of the term "agent" in this
Agreement with reference to the Agent is not intended to connote any
fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter
of market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties. Except as expressly
otherwise provided in this Agreement, the Agent shall have and may use its
sole discretion with respect to exercising or refraining from exercising any
discretionary rights or taking or refraining from taking any actions which
the Agent is expressly entitled to take or assert under this Agreement and
the other Loan Documents, including, without limitation, (a) the
determination of the applicability of ineligibility criteria with respect to
the calculation of the Availability of a Borrower, (b) the making of Agent
Advances pursuant to Section 2.2(i) and Over Advances pursuant to Section
2.2(j), and (c) the exercise of remedies pursuant to Section 11.2, and any
action so taken or not taken shall be deemed consented to by the Lenders.
14.2. Delegation of Duties.
The Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects as
long as such selection was made without gross negligence or willful
misconduct.
14.3. Liability of Agent.
None of the Agent-Related Persons shall (i) be liable for
any action taken or omitted to be taken by any of them under or in connection
with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful
misconduct), or (ii) be responsible in any manner to any of the Lenders for
any recital, statement, representation or warranty made by a Borrower or any
Subsidiary or Affiliate of a Borrower, or any officer thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by
the Agent under or in connection with, this Agreement or any other Loan
Document, or the validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document, or for any failure
of a Borrower or any other party to any Loan Document to perform its
obligations hereunder or thereunder. No Agent-Related Person shall be under
any obligation to any Lender to ascertain or to inquire as to the observance
or performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or
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to inspect the properties, books or records of a Borrower or any of a
Borrower's Subsidiaries or Affiliates.
14.4. Reliance by Agent.
(a) The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper
Person or Persons, and upon advice and statements of legal counsel (including
counsel to the Borrowers), independent accountants and other experts selected
by the Agent. The Agent shall be fully justified in failing or refusing to
take any action under this Agreement or any other Loan Document unless it
shall first receive such advice or concurrence of the Majority Lenders as it
deems appropriate and, if it so requests, it shall first be indemnified to
its satisfaction by the Lenders against any and all liability and expense
which may be incurred by it by reason of taking or continuing to take any
such action. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this Agreement or any other Loan Document in
accordance with a request or consent of the Majority Lenders and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all of the Lenders.
(b) For purposes of determining compliance with the
conditions specified in Section 10.1, each Lender that has executed this
Agreement shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter either sent by the Agent to
such Lender for consent, approval, acceptance or satisfaction, or required
thereunder to be consented to or approved by or acceptable or satisfactory to
the Lender.
14.5. Notice of Default.
The Agent shall not be deemed to have knowledge or notice
of the occurrence of any Default or Event of Default, except with respect to
defaults in the payment of principal, interest and fees required to be paid
to the Agent for the account of the Lenders, unless the Agent shall have
received written notice from a Lender or a Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default." The Agent will notify the Lenders of its
receipt of any such notice. The Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Majority Lenders
in accordance with Section 11; provided, however, that unless and until the
Agent has received any such request, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable.
14.6. Credit Decision.
Each Lender acknowledges that none of the Agent-Related
Persons has made any representation or warranty to it, and that no act by the
Agent hereinafter taken,
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including any review of the affairs of the Borrowers and their Affiliates,
shall be deemed to constitute any representation or warranty by any
Agent-Related Person to any Lender. Each Lender represents to the Agent that
it has, independently and without reliance upon any Agent-Related Person and
based on such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of
the Borrowers and their Affiliates, and all applicable bank regulatory laws
relating to the transactions contemplated hereby, and made its own decision
to enter into this Agreement and to extend credit to the Borrowers. Each
Lender also represents that it will, independently and without reliance upon
any Agent-Related Person and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement
and the other Loan Documents, and to make such investigations as it deems
necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of the Borrowers
and their Affiliates. Except for notices, reports and other documents
expressly herein required to be furnished to the Lenders by the Agent, the
Agent shall not have any duty or responsibility to provide any Lender with
any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of
the Borrowers and their Affiliates which may come into the possession of any
of the Agent-Related Persons.
14.7. Indemnification.
Whether or not the transactions contemplated hereby are
consummated, the Lenders shall indemnify upon demand the Agent-Related
Persons (to the extent not reimbursed by or on behalf of the Borrowers and
without limiting the obligation of the Borrowers to do so), pro rata, from
and against any and all Indemnified Liabilities as such term is defined in
Section 15.11; provided, however, that no Lender shall be liable for the
payment to the Agent-Related Persons of any portion of such Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender shall reimburse
the Agent upon demand for its ratable share of any costs or out-of-pocket
expenses (including Attorney Costs) incurred by the Agent in connection with
the preparation, execution, delivery, administration, modification, amendment
or enforcement (whether through negotiations, legal proceedings or otherwise)
of, or legal advice in respect of rights or responsibilities under, this
Agreement, any other Loan Document, or any document contemplated by or
referred to herein, to the extent that the Agent is not reimbursed for such
expenses by or on behalf of the Borrowers. The undertaking in this Section
14.7 shall survive the payment of all Obligations hereunder and the
resignation or replacement of the Agent.
14.8. Agent in Individual Capacity.
BABC and its Affiliates may make loans to, issue letters of
credit for the account of, accept deposits from, acquire equity interests in
and generally engage in any
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kind of banking, trust, financial advisory, underwriting or other business
with the Borrowers and their Subsidiaries and Affiliates as though BABC were
not the Agent hereunder and without notice to or consent of the Lenders. The
Lenders acknowledge that, pursuant to such activities, BABC or its Affiliates
may receive information regarding the Borrowers or their Affiliates
(including information that may be subject to confidentiality obligations in
favor of the Borrowers or such Affiliates) and acknowledge that the Agent
shall be under no obligation to provide such information to them. With
respect to its Loans, BABC shall have the same rights and powers under this
Agreement as any other Lender and may exercise the same as though it were not
the Agent, and the terms "Lender" and "Lenders" include BABC in its
individual capacity.
14.9. Successor Agent.
The Agent may, and at the request of the Required Lenders
shall, resign as Agent upon thirty (30) days' notice to the Lenders and the
Borrowers. In the event BABC sells all of its Commitments and Revolving Loans
as part of a sale, transfer or other disposition by BABC of substantially all
of its loan portfolio, BABC shall resign as Agent and such purchaser or
transferee shall become the successor Agent hereunder. If the Agent resigns
under this Agreement, subject to the proviso in the preceding sentence, the
Majority Lenders shall appoint from among the Lenders a successor agent for
the Lenders. If no successor agent is appointed prior to the effective date
of the resignation of the Agent, the Agent may appoint, after consulting with
the Lenders and the Borrowers, a successor agent from among the Lenders (it
being understood that such resignation shall not become effective until a
successor has been duly appointed and has accepted its appointment). Upon the
acceptance of its appointment as successor agent hereunder, such successor
agent shall succeed to all the rights, powers and duties of the retiring
Agent and the term "Agent" shall mean such successor agent and the retiring
Agent's appointment, powers and duties as Agent shall be terminated. After
any retiring Agent's resignation hereunder as Agent, the provisions of this
Section 14 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement.
14.10. Withholding Tax.
(a) Each Lender that is not created or organized under the
laws of the United States or a political subdivision thereof (each a
"Non-U.S. Lender") shall deliver to the Borrowers and the Agent not later
than the date on which such Lender becomes a Lender hereunder:
(i) if such Lender claims an exemption from, or a
reduction of, withholding tax under a United States tax
treaty, properly completed IRS Forms 1001 and W-8 before
the payment of any interest in the first calendar year and
before the payment of any interest in each third succeeding
calendar year during which interest may be paid under this
Agreement;
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(ii) if such Lender claims that interest paid under
this Agreement is exempt from United States withholding tax
because it is effectively connected with a United States
trade or business of such Lender, two properly completed
and executed copies of IRS Form 4224 before the payment of
any interest is due in the first taxable year of such
Lender and in each succeeding taxable year of such Lender
during which interest may be paid under this Agreement, and
IRS Form W-9;
(iii) if such Lender claims an exemption from United
States withholding tax under Section 871(h) or 881(c) of
the Internal Revenue Code with respect to payments of
"portfolio interest" (a "Registered Holder"), (A) a
certificate that such Registered Holder is entitled to the
benefits of Section 871(h) or 881(c) of the Internal
Revenue Code and (B) two (2) duly completed copies of W-8;
and
(iv) such other form or forms as may be required
under the Code or other laws of the United States as a
condition to exemption from, or reduction of, United States
withholding tax.
Such Lender agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
Neither the Borrowers nor the Agent shall be required to pay
any additional amount to, or to indemnify, pursuant to Section 5.1, any Non-U.S.
Lender in respect of United States federal withholding tax to the extent imposed
as a result of (A) the failure by such Non-U.S. Lender to comply with the
provisions of this Section 14.10(a), (B) a representation made pursuant to the
provisions of this Section 14.10(a) having been false or incorrect when made;
provided, however, that to the extent required by law, the Borrowers shall
deduct Taxes from any such payments made to such Non-U.S. Lender and pay such
deducted Taxes to the governmental authority of the applicable Jurisdiction.
(b) Each Non-U.S. Lender agrees to deliver to the Borrowers
and the Agent further duly completed copies of the above-mentioned IRS forms on
or before the earlier of (i) the date that any such form expires or becomes
obsolete or otherwise is required to be resubmitted as a condition to obtaining
an exemption from withholding of United States federal income tax, and (ii)
thirty (30) days after the occurrence of any event requiring any change in the
most recent form previously delivered by such Non-U.S. Lender to the Borrowers
and the Agent, unless any change in treaty, law, regulation, or official
interpretation thereof which would render such form inapplicable or which would
prevent such Non-U.S. Lender from duly completing and delivering such form has
occurred prior to the date on which any such delivery would otherwise be
required and such Non-U.S. Lender promptly advises the Borrowers that it is not
capable of receiving payments hereunder without any deduction or withholding of
United States federal income tax.
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(c) If any Non-U.S. Lender claims exemption from, or reduction
of, withholding tax and such Non-U.S. Lender sells, assigns, grants a
participation in, or otherwise transfers to a third party all or part of the
Obligations of the Borrowers to such Non-U.S. Lender, such Non-U.S. Lender
agrees to notify the Borrowers and the Agent of the percentage amount in which
it is no longer the beneficial owner of Obligations of the Borrowers to such
Non-U.S. Lender. To the extent of such percentage amount, the Borrowers and the
Agent will treat such Non-U.S. Lender's forms as no longer valid.
(d) If any Lender claiming exemption from United States
withholding tax pursuant to Sections 14.10(a)(ii) or (iii) assigns, grants a
participation in, or otherwise transfers to a third party all or part of the
Obligations of the Borrowers to such Lender, such Lender agrees to undertake
sole responsibility for complying with the withholding tax requirements imposed
by Sections 1441 and 1442 of the Code.
(e) If any Lender is entitled to a reduction in the otherwise
applicable withholding tax, the Agent may withhold from any interest payment to
such Lender an amount equivalent to the applicable withholding tax after taking
into account such reduction. If the forms or other documentation required by
subsection (a) of this Section 14.10 are not delivered to the Agent, then the
Agent may withhold from any interest payment to such Lender not providing such
forms or other documentation an amount equivalent to the otherwise applicable
withholding tax.
(f) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that the Agent did not
properly withhold tax from amounts paid to or for the account of any Lender, or
any of its participants, (because the appropriate form was not delivered, was
not properly executed, or because such Lender failed to notify the Agent of a
change in circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason) such Lender and its
participants shall indemnify the Agent fully for all amounts paid, directly or
indirectly, by the Agent as tax or otherwise, including penalties and interest,
and including any taxes imposed by any jurisdiction on the amounts payable to
the Agent under this Section 14.10, together with all costs and expenses
(including Attorney Costs). The obligation of the Lenders under this Section
14.10 shall survive the payment of all Obligations and the resignation or
replacement of the Agent.
14.11. Intentionally Omitted.
14.12. Collateral Matters.
(a) The Lenders hereby irrevocably authorize the Agent, at its
option and in its sole discretion, to release any Agent's Lien upon any
Collateral (i) upon the termination of the Commitments and payment and
satisfaction in full by the Borrowers of all Loans and reimbursement obligations
in respect of Letters of Credit and Credit Support, and the termination of all
outstanding Letters of Credit (whether or not any of such obligations are due)
and all other Obligations; (ii) constituting property of a Borrower or any other
Credit Party
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being sold or disposed of if such Borrower or any other Credit Party certifies
to the Agent that the sale or disposition is made in compliance with Section 9.9
(and the Agent may rely conclusively on any such certificate, without further
inquiry); (iii) constituting property of a Borrower or any other Credit Party in
which such Borrower or any other Credit Party owned no interest at the time the
Lien was granted or at any time thereafter; or (iv) constituting property leased
to a Borrower or a Subsidiary under a lease which has expired or been terminated
in a transaction permitted under this Agreement. Except as provided above, the
Agent will not release any of the Agent's Liens without the prior written
authorization of the Lenders; provided that the Agent may, in its discretion,
release the Agent's Liens on Collateral valued in the aggregate not in excess of
$1,000,000 in any one year period without the prior written authorization of the
Lenders. Upon request by the Agent or the Borrowers at any time, the Lenders
will confirm in writing the Agent's authority to release any Agent's Liens upon
particular types or items of Collateral pursuant to this Section 14.12.
(b) Upon receipt by the Agent of any authorization required
pursuant to Section 14.12(a) from the Lenders of the Agent's authority to
release any Agent's Liens upon particular types or items of Collateral, and upon
at least five (5) Business Days' prior written request by the Borrowers, the
Agent shall (and is hereby irrevocably authorized by the Lenders to) execute
such documents as may be necessary to evidence the release of the Agent's Liens
upon such Collateral; provided, however, that (i) the Agent shall not be
required to execute any such document on terms which, in the Agent's opinion,
would expose the Agent to liability or create any obligation or entail any
consequence other than the release of such Liens without recourse or warranty,
and (ii) such release shall not in any manner discharge, affect or impair the
Obligations or any Liens (other than those expressly being released) upon (or
obligations of the Borrowers or any other Credit Party in respect of) all
interests retained by the Borrowers or any other Credit Party, including
(without limitation) the proceeds of any sale, all of which shall continue to
constitute part of the Collateral.
(c) The Agent shall have no obligation whatsoever to any of
the Lenders to assure that the Collateral exists or is owned by a Borrower or
any other Credit Party or is cared for, protected or insured or has been
encumbered, or that the Agent's Liens have been properly or sufficiently or
lawfully created, perfected, protected or enforced or are entitled to any
particular priority, or to exercise at all or in any particular manner or under
any duty of care, disclosure or fidelity, or to continue exercising, any of the
rights, authorities and powers granted or available to the Agent pursuant to any
of the Loan Documents, it being understood and agreed that in respect of the
Collateral, or any act, omission or event related thereto, the Agent may act in
any manner it may deem appropriate, in its sole discretion given the Agent's own
interest in the Collateral in its capacity as one of the Lenders and that the
Agent shall have no other duty or liability whatsoever to any Lender as to any
of the foregoing.
14.13. Restrictions on Actions by Lenders; Sharing of
Payments.
(a) Each of the Lenders agrees that it shall not, without the
express consent of all Lenders, and that it shall, to the extent it is lawfully
entitled to do so, upon the request of
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all Lenders, set off against the Obligations, any amounts owing by such Lender
to a Borrower or any other Credit Party or any accounts of a Borrower or any
other Credit Party now or hereafter maintained with such Lender. Each of the
Lenders further agrees that it shall not, unless specifically requested to do so
by the Agent, take or cause to be taken any action to enforce its rights under
this Agreement or against a Borrower or any other Credit Party, including,
without limitation, the commencement of any legal or equitable proceedings, to
foreclose any Lien on, or otherwise enforce any security interest in, any of the
Collateral.
(b) If at any time or times any Lender shall receive (i) by
payment, foreclosure, setoff or otherwise, any proceeds of Collateral or any
payments with respect to the Obligations of a Borrower to such Lender arising
under, or relating to, this Agreement or the other Loan Documents, except for
any such proceeds or payments received by such Lender from the Agent pursuant to
the terms of this Agreement, or (ii) payments from the Agent in excess of such
Lender's ratable portion of all such distributions by the Agent, such Lender
shall promptly (1) turn the same over to the Agent, in kind, and with such
endorsements as may be required to negotiate the same to the Agent, or in same
day funds, as applicable, for the account of all of the Lenders and for
application to the Obligations in accordance with the applicable provisions of
this Agreement, or (2) purchase, without recourse or warranty, an undivided
interest and participation in the Obligations owed to the other Lenders so that
such excess payment received shall be applied ratably as among the Lenders in
accordance with their Pro Rata Shares; provided, however, that if all or part of
such excess payment received by the purchasing party is thereafter recovered
from it, those purchases of participations shall be rescinded in whole or in
part, as applicable, and the applicable portion of the purchase price paid
therefor shall be returned to such purchasing party, but without interest except
to the extent that such purchasing party is required to pay interest in
connection with the recovery of the excess payment.
14.14. Agency for Perfection.
Each Lender hereby appoints each other Lender as agent for the
purpose of perfecting the Lenders' security interest in assets which, in
accordance with Article 9 of the UCC or the applicable provision of the PPSA can
be perfected only by possession. Should any Lender (other than the Agent) obtain
possession of any such Collateral, such Lender shall notify the Agent thereof,
and, promptly upon the Agent's request therefor shall deliver such Collateral to
the Agent or in accordance with the Agent's instructions.
14.15. Payments by Agent to Lenders.
All payments to be made by the Agent to the Lenders shall be
made by bank wire transfer or internal transfer of immediately available funds
to such wire transfer instructions as each party may designate for itself by
written notice to the Agent. Concurrently with each such payment, the Agent
shall identify whether such payment (or any portion thereof) represents
principal, premium or interest on the Revolving Loans or otherwise.
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14.16. Concerning the Collateral and the Related Loan
Documents.
Each Lender authorizes and directs the Agent to enter into
this Agreement and the other Loan Documents relating to the Collateral, for the
ratable benefit of the Agent and the Lenders. Each Lender agrees that any action
taken by the Agent, Majority Lenders or Required Lenders, as applicable, in
accordance with the terms of this Agreement or the other Loan Documents relating
to the Collateral, and the exercise by the Agent, the Majority Lenders, or the
Required Lenders, as applicable, of their respective powers set forth therein or
herein, together with such other powers that are reasonably incidental thereto,
shall be binding upon all of the Lenders.
14.17. Field Audit and Examination Reports; Disclaimer by
Lenders.
By signing this Agreement, each Lender:
(a) is deemed to have requested that the Agent furnish such
Lender, promptly after it becomes available, a copy of each field audit or
examination report (each a "Report" and collectively, "Reports") prepared by the
Agent;
(b) expressly agrees and acknowledges that neither BABC nor
the Agent (i) makes any representation or warranty as to the accuracy of any
Report, or (ii) shall be liable for any information contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that the Agent or other party performing
any audit or examination will inspect only specific information regarding the
Borrowers or other Credit Parties and will rely significantly upon the
Borrowers' or such Credit Parties' books and records, as well as on
representations of the Borrowers' or such Credit Parties' personnel;
(d) agrees to keep all Reports confidential and strictly for
its internal use, and not to distribute except to its participants, or use any
Report in any other manner; and
(e) without limiting the generality of any other
indemnification provision contained in this Agreement, agrees: (i) to hold the
Agent and any such other Lender preparing a Report harmless from any action the
indemnifying Lender may take or conclusion the indemnifying Lender may reach or
draw from any Report in connection with any loans or other credit accommodations
that the indemnifying Lender has made or may make to the Borrowers, or the
indemnifying Lender's participation in, or the indemnifying Lender's purchase
of, a loan or loans of the Borrowers; and (ii) to pay and protect, and
indemnify, defend and hold the Agent and any such other Lender preparing a
Report harmless from and against, the claims, actions, proceedings, damages,
costs, expenses and other amounts (including, without limitation attorney costs)
incurred by the Agent and any such other Lender preparing a Report as the direct
or indirect result of any third parties who might obtain all or part of any
Report through the indemnifying Lender.
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14.18. Relation Among Lenders.
The Lenders are not partners or co-venturers, and no Lender
shall be liable for the acts or omissions of, or (except as otherwise set forth
herein in case of the Agent) authorized to act for, any other Lender.
ARTICLE 15
MISCELLANEOUS
15.1. Cumulative Remedies; No Prior Recourse to Collateral.
The enumeration herein of the Agent's and each Lender's rights
and remedies is not intended to be exclusive, and such rights and remedies are
in addition to and not by way of limitation of any other rights or remedies that
the Agent and the Lenders may have under the UCC or other applicable law. The
Agent and the Lenders shall have the right, in their sole discretion, to
determine which rights and remedies are to be exercised and in which order. The
exercise of one right or remedy shall not preclude the exercise of any others,
all of which shall be cumulative. The Agent and the Lenders may, without
limitation, proceed directly against a Borrower to collect the Obligations
without any prior recourse to the Collateral. No failure to exercise and no
delay in exercising, on the part of the Agent or any Lender, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.
15.2. Severability.
The illegality or unenforceability of any provision of this
Agreement or any instrument or agreement required hereunder shall not in any way
affect or impair the legality or enforceability of the remaining provisions of
this Agreement or any instrument or agreement required hereunder.
15.3. Governing Law; Choice of Forum; Service of Process; Jury
Trial Waiver.
(a) THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL
LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS, PROVIDED, THAT PERFECTION
ISSUES WITH RESPECT TO ARTICLE 9 OF THE UCC MAY GIVE EFFECT TO APPLICABLE CHOICE
OR CONFLICT OF LAW RULES SET FORTH IN ARTICLE 9 OF THE UCC) OF THE STATE OF
ILLINOIS; PROVIDED, THAT THE AGENT AND THE LENDERS SHALL RETAIN ALL RIGHTS
ARISING UNDER FEDERAL LAW.
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(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF ILLINOIS OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWERS, THE AGENT
AND THE LENDERS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE BORROWERS, THE AGENT AND
THE LENDERS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO.
NOTWITHSTANDING THE FOREGOING: (1) THE AGENT AND THE LENDERS SHALL HAVE THE
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST A BORROWER OR ITS PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTION THE AGENT OR THE LENDERS DEEM NECESSARY OR
APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE
OBLIGATIONS AND (2) EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS
FROM THE COURTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE
HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS.
(c) EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO SUCH BORROWER AT ITS
ADDRESS SET FORTH IN SECTION 15.8 AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S.
MAILS. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT OR THE LENDERS
TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.
15.4. WAIVER OF JURY TRIAL.
THE BORROWERS, THE LENDERS AND THE AGENT EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWERS, THE LENDERS AND THE
AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF
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ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION 15.4 AS TO ANY ACTION, COUNTERCLAIM
OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY
OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
15.5. Survival of Representations and Warranties.
All of each Borrower's representations and warranties
contained in this Agreement shall survive the execution, delivery, and
acceptance thereof by the parties, notwithstanding any investigation by the
Agent or the Lenders or their respective agents.
15.6. Other Security and Guaranties.
The Agent, may, without notice or demand and without affecting
a Borrower's obligations hereunder, from time to time: (a) take from any Person
and hold collateral (other than the Collateral) for the payment of all or any
part of the Obligations and exchange, enforce or release such collateral or any
part thereof; and (b) accept and hold any endorsement or guaranty of payment of
all or any part of the Obligations and release or substitute any such endorser
or guarantor, or any Person who has given any Lien in any other collateral as
security for the payment of all or any part of the Obligations, or any other
Person in any way obligated to pay all or any part of the Obligations.
15.7. Fees and Expenses.
The Borrowers agree to pay to the Agent, for its benefit, on
demand, all costs and expenses that Agent pays or incurs in connection with the
negotiation, preparation, consummation, administration, enforcement, and
termination of this Agreement or any of the other Loan Documents (excluding
syndication), including, without limitation: (a) Attorney Costs; (b) costs and
expenses (including attorneys' and paralegals' fees and disbursements which
shall include the allocated costs of Agent's in-house counsel fees and
disbursements) for any amendment, supplement, waiver, consent, or subsequent
closing in connection with the Loan Documents and the transactions contemplated
thereby; (c) costs and expenses of lien and title searches and title insurance;
(d) taxes, fees and other charges for recording, filing financing statements and
continuations, and other actions to perfect, protect, and continue the Agent's
Liens (including costs and expenses paid or incurred by the Agent in connection
with the consummation of Agreement); (e) sums paid or incurred to pay any amount
or take any action required of a Borrower or its Subsidiaries under the Loan
Documents that such Borrower or its Subsidiaries fails to pay or take; (f) costs
of appraisals, inspections, and verifications of the Collateral, including,
without limitation,
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travel, lodging, and meals for inspections of the Collateral and the Borrowers'
operations by the Agent plus the Agent's then customary charge for field
examinations and audits and the preparation of reports thereof (such charge is
currently $600 per day (or portion thereof) for each agent or employee of the
Agent with respect to each field examination or audit); (g) costs and expenses
of forwarding loan proceeds, collecting checks and other items of payment, and
establishing and maintaining Payment Accounts and lock boxes; (h) costs and
expenses of preserving and protecting the Collateral; and (i) costs and expenses
(including attorneys' and paralegals' fees and disbursements which shall include
the allocated cost of Agent's in-house counsel fees and disbursements) paid or
incurred to obtain payment of the Obligations, enforce the Agent's Liens, sell
or otherwise realize upon the Collateral, and otherwise enforce the provisions
of the Loan Documents, or to defend any claims made or threatened against the
Agent or any Lender arising out of the transactions contemplated hereby
(including without limitation, preparations for and consultations concerning any
such matters). The foregoing shall not be construed to limit any other
provisions of the Loan Documents regarding costs and expenses to be paid by the
Borrowers. All of the foregoing costs and expenses shall be charged to a
Borrower's Loan Account as Revolving Loans as described in Section 4.7.
15.8. Notices.
Except as otherwise provided herein, all notices, demands and
requests that any party is required or elects to give to any other shall be in
writing, or by a telecommunications device capable of creating a written record,
and any such notice shall become effective (a) upon personal delivery thereof,
including, but not limited to, delivery by overnight mail and courier service,
(b) four (4) days after it shall have been mailed by United States mail, first
class, certified or registered, with postage prepaid, or (c) in the case of
notice by such a telecommunications device, when properly transmitted, in each
case addressed to the party to be notified as follows:
If to the Agent or to BABC:
BankAmerica Business Credit, Inc.
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Portfolio Manager
Telecopy No. (312) 974-8760
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with copies to:
Bank of America NT & SA
10124 Old Grove Road
San Diego, California 92131
Attention: Legal Department
Telecopy No. (619) 549-7518
If to ISA:
Industrial Systems Associates, Inc.
3220 Tillman Drive
Suite 200
Bensalem, Pennsylvania 19020
Attention: Chief Financial Officer
Telecopy No. (215) 633-4423
If to INTERMAT:
INTERMAT, Inc.
3220 Tillman Drive
Suite 200
Bensalem, Pennsylvania 19020
Attention: Chief Financial Officer
Telecopy No. (215) 633-4423
or to such other address as each party may designate for itself by like notice.
Failure or delay in delivering copies of any notice, demand, request, consent,
approval, declaration or other communication to the persons designated above to
receive copies shall not adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
15.9. Waiver of Notices.
Unless otherwise expressly provided herein, each Borrower
waives presentment, protest and notice of demand or dishonor and protest as to
any instrument, notice of intent to accelerate the Obligations and notice of
acceleration of the Obligations, as well as any and all other notices to which
it might otherwise be entitled, except for such notices as are expressly
required by this Agreement. No notice to or demand on a Borrower which the Agent
or any Lender may elect to give shall entitle such Borrower to any or further
notice or demand in the same, similar or other circumstances.
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15.10. Binding Effect.
The provisions of this Agreement shall be binding upon and
inure to the benefit of the respective representatives, successors, and assigns
of the parties hereto; provided, however, that no interest herein may be
assigned by a Borrower without prior written consent of the Agent and each
Lender. The rights and benefits of the Agent and the Lenders hereunder shall, if
such Persons so agree, inure to any party acquiring any interest in the
Obligations or any part thereof.
15.11. Indemnity of the Agent and the Lenders by the
Borrowers.
The Borrowers agree to defend, indemnify and hold the
Agent-Related Persons, and each Lender and each of its respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans and the termination, resignation or replacement of the
Agent or replacement of any Lender) be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of this Agreement
or any document contemplated by or referred to herein, or the transactions
contemplated hereby, or any action taken or omitted by any such Person under or
in connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any Insolvency Proceeding or
appellate proceeding) related to or arising out of this Agreement, any other
Loan Document, or the Loans or the use of the proceeds thereof, whether or not
any Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, that the Borrowers shall have no
obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities resulting from the willful misconduct or gross negligence of such
Indemnified Person. The agreements in this Section 15.11 shall survive payment
of all other Obligations. An Indemnified Party shall promptly notify the
Borrowers of a claim for which indemnification may be sought under this Section
15.11, shall consult with the Borrowers concerning the defense of such claim and
shall allow the Borrowers to participate in the defense of such claim to the
extent the Indemnified Party's rights are not adversely affected by such
participation.
15.12. Limitation of Liability.
No claim may be made by a Borrower, any Lender or other Person
against the Agent, any Lender, or the affiliates, directors, officers, officers,
employees, or agents of any of them for any special, indirect, consequential or
punitive damages in respect of any claim for breach of contract or any other
theory of liability arising out of or related to the transactions contemplated
by this Agreement or any other Loan Document, or any act, omission or event
occurring in connection therewith, and each Borrower and each Lender
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hereby waive, release and agree not to sue upon any claim for such damages,
whether or not accrued and whether or not know or suspected to exist in its
favor.
15.13. Final Agreement.
This Agreement and the other Loan Documents are intended by
the Borrowers, the Agent and the Lenders to be the final, complete, and
exclusive expression of the agreement between them. This Agreement supersedes
any and all prior oral or written agreements relating to the subject matter
hereof. No modification, rescission, waiver, release, or amendment of any
provision of this Agreement or any other Loan Document shall be made, except by
a written agreement signed by the Credit Party party thereto and a duly
authorized officer of each of the Agent and the requisite Lenders.
15.14. Counterparts.
This Agreement may be executed in any number of counterparts,
and by the Agent, each Lender and each Borrower in separate counterparts, each
of which shall be an original, but all of which shall together constitute one
and the same agreement.
15.15. Captions.
The captions contained in this Agreement are for convenience
of reference only, are without substantive meaning and should not be construed
to modify, enlarge, or restrict any provision.
15.16. Right of Setoff.
In addition to any rights and remedies of the Lenders provided
by law, if an Event of Default exists or the Loans have been accelerated, each
Lender is authorized at any time and from time to time, without prior notice to
the Borrowers, any such notice being waived by the Borrowers to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, such Lender to or for the credit or the
account of a Borrower against any and all Obligations owing to such Lender by
such Borrower, now or hereafter existing, irrespective of whether or not the
Agent or such Lender shall have made demand under this Agreement or any Loan
Document and although such Obligations may be contingent or unmatured. Each
Lender agrees promptly to notify the Borrowers and the Agent after any such
set-off and application made by such Lender; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application. NOTWITHSTANDING THE FOREGOING, NO LENDER SHALL EXERCISE ANY RIGHT
OF SET-OFF, BANKER'S LIEN, OR THE LIKE AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY
OF A BORROWER OR ANY OTHER CREDIT PARTY HELD OR MAINTAINED BY SUCH LENDER
WITHOUT THE PRIOR WRITTEN UNANIMOUS CONSENT OF THE LENDERS.
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15.17. Joint and Several Liability.
Each Borrower shall be liable for all amounts due to the Agent
and/or any Lender from either Borrower under this Agreement, regardless of which
Borrower actually receives Loans or other extensions of credit hereunder or the
amount of such Loans received or the manner in which the Agent and/or such
Lender accounts for such Loans or other extensions of credit on its books and
records (without limiting the foregoing, each Borrower shall be liable for the
Loans made to the other Borrower). Each Borrower's Obligations with respect to
Loans made to it, and each Borrower's Obligations arising as a result of the
joint and several liability of such Borrower hereunder, with respect to Loans
made to the other Borrower hereunder, shall be separate and distinct
obligations, but all such Obligations shall be primary obligations of such
Borrower.
Each Borrower's Obligations arising as a result of the joint
and several liability of such Borrower hereunder with respect to Loans or other
extensions of credit made to the other Borrower hereunder shall, to the fullest
extent permitted by law, be unconditional irrespective of (i) the validity or
enforceability, avoidance or subordination of the Obligations of the other
Borrower or of any promissory note or other document evidencing all or any part
of the Obligations of the other Borrower, (ii) the absence of any attempt to
collect the Obligations from the other Borrower, any other guarantor, or any
other security therefor, or the absence of any other action to enforce the same,
(iii) the waiver, consent, extension, forbearance or granting of any indulgence
by the Agent and/or any Lender with respect to any provision of any instrument
evidencing the Obligations of the other Borrower, or any part thereof, or any
other agreement now or hereafter executed by the other Borrower and delivered to
the Agent and/or any Lender, (iv) the failure by the Agent and/or any Lender to
take any steps to perfect and maintain its security interest in, or to preserve
its rights to, any security or collateral for the Obligations of the other
Borrower, (v) the Agent's and/or any Lender's election, in any proceeding
instituted under the Bankruptcy Code, of the application of Section 1111(b)(2)
of the Bankruptcy Code, (vi) any borrowing or grant of a security interest by
the other Borrower, as debtor-in-possession under Section 364 of the Bankruptcy
Code, (vii) the disallowance of all or any portion of the Agent's and/or any
Lender's claim(s) for the repayment of the Obligations of the other Borrower
under Section 502 of the Bankruptcy Code, or (viii) any other circumstances
which might constitute a legal or equitable discharge or defense of a guarantor
or of the other Borrower. With respect to the each Borrower's Obligations
arising as a result of the joint and several liability of such Borrower
hereunder with respect to Loans or other extensions of credit made to either of
the other Borrower hereunder, such Borrower waives, until the Obligations shall
have been paid in full and the Loan Agreement shall have been terminated, any
right to enforce any right of subrogation or any remedy which the Agent and/or
any Lender now has or may hereafter have against the other Borrower, any
endorser or any guarantor of all or any part of the Obligations, and any benefit
of, and any right to participate in, any security or collateral given to the
Agent and/or any Lender to secure payment of the Obligations or any other
liability of the other Borrower to the Agent and/or any Lender.
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Each Borrower agrees if such Borrower's joint and several
liability hereunder, or if any Liens securing such joint and several liability,
would, but for the application of this sentence, be unenforceable under
applicable law, such joint and several liability and each such Lien shall be
valid and enforceable to the maximum extent that would not cause such joint and
several liability or such Lien to be unenforceable under applicable law, and
such joint and several liability and such Lien shall be deemed to have been
automatically amended accordingly at all relevant times.
Upon any Event of Default, the Agent may proceed directly and
at once, without notice, against a Borrower to collect and recover the full
amount, or any portion of the Obligations, without first proceeding against the
other Borrower or any other Person, or against any security or collateral for
the Obligations. Each Borrower consents and agrees that the Agent shall be under
no obligation to marshal any assets in favor of such Borrower or against or in
payment of any or all of the Obligations.
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IN WITNESS WHEREOF, the parties have entered into this
Agreement on the date first above written.
"BORROWERS"
INDUSTRIAL SYSTEMS ASSOCIATES, INC.
By:/s/ Michael F. Devine
--------------------------
Title: CFO
----------------------
INTERMAT, INC.
By:/s/ Winston Gilpin
--------------------------
Title: CFO
----------------------
"AGENT"
BANKAMERICA BUSINESS CREDIT,
INC., as Agent
By:/s/ Roger P. Tauchman
--------------------------
Title: VICE PRESIDENT
----------------------
"LENDERS"
Commitment: $50,000,000 BANKAMERICA BUSINESS CREDIT,
INC., as a Lender
By:/s/ Roger P. Tauchman
--------------------------
Title: VICE PRESIDENT
----------------------
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Exhibit 10.2
AGREEMENT FOR SALE AND PURCHASE OF ASSETS
This Agreement (which term includes the Schedules referred to herein and
attached hereto, which are an integral part hereof), is made and entered into
this 22nd day of April, 1998, by and between Strategic Distribution, Inc., a
Delaware corporation ("Strategic"); Strategic's wholly owned subsidiary American
Technical Services Group, Inc., a Delaware corporation which has its principal
place of business in Norcross, Georgia ("ATSG"); ATSG's wholly owned subsidiary,
ATS Phoenix, Inc., a Delaware corporation which has its principal place of
business in Norcross, Georgia and which does business as "American Technical
Services, Inc." ("ATS"; ATSG and ATS are hereinafter referred to as "Sellers");
and SPEC/ATS, Inc. a Pennsylvania corporation which has its principal place of
business in Pittsburgh, Pennsylvania ("Purchaser") and is a wholly owned
subsidiary of SPEC Group Holdings, Inc. ("SPEC").
RECITALS
A. ATS is in the business of providing process control and instrumentation
services and technical staffing services, including third party maintenance,
repair and calibration of industrial control systems (the "Business"); and
B. Sellers desire to sell, and Purchaser desires to purchase substantially all
of the assets utilized by Sellers in the Business for the consideration, and
upon the terms, provisions and conditions of this Agreement.
Now, therefore, in consideration of the mutual representations, warranties,
covenants and agreements contained in this Agreement, and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
SECTION 1. AGREEMENT FOR PURCHASE AND SALE
Section 1.01. Subject to the terms of this Agreement, on May 19, 1998 or on such
other date as Purchaser and Sellers shall mutually agree (the "Closing" and the
"Closing Date"), Purchaser shall purchase, and Sellers shall sell to Purchaser,
the Business and the Assets described in Section 2.01 below.
SECTION 2. TRANSFERRED ASSETS
Section 2.01. The assets purchased shall be comprised of all of the business,
assets, properties and goodwill, tangible and intangible, except for those
assets described in Schedule 2.03, used by Sellers in the Business, without
regard to whether such assets are included on the Balance Sheet (as defined in
Section 7.08 below) or not, all such assets being hereinafter referred to as the
"Assets" and including without limitation all inventory, accounts receivable,
cash (in an amount equal to the amount, if any, by which "costs and recognized
profits in excess of billings" less "billings in excess
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of costs and recognized profits" is less than zero as of the Closing Date),
furniture, fixtures, equipment, goodwill, intellectual property, contracts,
customer lists, customer files, employee files, procedure manuals, training
materials, accounting files and records, software, databases, computer files,
trade names, trademarks, franchises, fictitious names, logos, slogans, patents
and including, without limitation, those assets set forth on Schedule 2.01
(which schedule sets forth the name of the particular Seller of each such Asset
and, in the case of personal property, the location thereof).
Section 2.02. Sellers shall transfer the Assets to Purchaser free and clear of
all mortgages, security interests, charges, encumbrances, liens, infringements,
assessments, covenants, claims, title defects, pledges, encroachments and
burdens of every kind or nature whatsoever ("Encumbrances") except those
Encumbrances described on Schedule 2.02 ("Permitted Encumbrances").
Section 2.03. The Assets do not include those certain assets set forth on
Schedule 2.03 (the "Excluded Assets") which shall remain the property of the
Sellers.
Section 2.04. At Closing the Sellers shall amend their articles of incorporation
to change their names to delete any use of the terms "American Technical
Services Group", "American Technical Services", "ATS" or "ATSG". The rights to
all such names shall be part of the Assets and shall be transferred to Purchaser
hereunder.
SECTION 3. PURCHASE PRICE
Section 3.01. Purchase Price. The purchase price for the Assets shall be the
Base Purchase Price, as defined in Section 3.02(1) below and adjusted as
provided in Section 3.05 below, plus the Earn-Out Payment, if any, payable
pursuant to Section 3.02(2), (the total of the Base Purchase Price, as adjusted,
and the Earn-Out Payment being the "Purchase Price").
Section 3.02. Payment: Purchaser shall pay Sellers the Purchase Price as
follows:
1. Cash at Closing. A payment of $1,150,000 shall be made in cash at
Closing (as adjusted, the "Base Purchase Price"), such amount to be subsequently
adjusted as provided in Section 3.05 below.
2. Earn-Out Payments. In addition to the Base Purchase Price, an
Earn-Out Payment ("Earn-Out Payment"), if any, shall be determined based on
Gross Profit of the Business for the twelve month period beginning June 1, 1998
and ending May 31, 1999 (the "Earn-Out Period") as follows: (i) if Gross Profit
of the Post-Closing Business during the Earn-Out Period is less than $1,300,000,
no Earn-Out Payment will be payable; (ii) if Gross Profit of the Post-Closing
Business during the Earn-Out Period is greater than $1,300,000 and less than or
equal to $1,750,000, the Earn-Out Payment will be an amount equal to 15% of the
total Gross Profit; and (iii) if Gross Profit of the Post-Closing Business
during the Earn-Out Period is greater than $1,750,000, the Earn-Out Payment will
be an amount equal to 25% of the total Gross Profit; provided that the aggregate
amount of the Earn-Out Payment shall not exceed $1,200,000. For purposes of this
Agreement, "Gross Profit" shall mean the gross profit of the Post-Closing
Business calculated in accordance with generally accepted
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accounting principles applied on a basis consistent with historic practices of
SPEC. For purposes of this Agreement, "Post-Closing Business" shall mean the
Business acquired by the Purchaser hereunder plus any business generated by
those current employees of Sellers who are employed by Purchaser. As soon as
practicable and in any event within sixty (60) days following the end of the
Earn-Out Period, Purchaser shall prepare and deliver to Sellers a statement (the
"Earn-Out Statement") setting forth the Gross Profit of the Post-Closing
Business for the Earn-Out Period, together with a calculation of the amount of
any Earn-Out Payment payable by the Purchaser. Any Earn-Out Payment shall be
payable by the Purchaser within 15 days of the day that Sellers notify Purchaser
that they agree with the Earn-Out Statement. In the event of any dispute or
failure to reach agreement with respect to the amount of the Earn-Out Payment,
if any, the applicable Earn-Out Payment shall be determined by the Arbiter (as
defined in Section 3.04).
3. Guarantee of Earn-Out Payments. SPEC hereby guarantees payment of
any Earn-Out Payment payable under Section 3.02(2) of this Agreement.
Section 3.03. Liabilities of Sellers. Purchaser shall assume only (i) those
current liabilities of Sellers set forth on Schedule 3.03 and those current
liabilities of the same character which arise in the ordinary course of the
Business between February 28, 1998 and the Closing and (ii) those liabilities of
ATS arising after the Closing Date under leases and contracts referenced on
Schedule 3.03 and under contracts entered into in the ordinary course of the
Business between the time of execution of this Agreement and the Closing
(collectively the "Assumed Liabilities"). Purchaser shall not assume or agree to
pay any liability or obligation of the Sellers of any nature whatsoever that (i)
is not expressly set forth on Schedule 3.03, (ii) is not a current liability
which is of the same character as those set forth on Schedule 3.03 and which
arises in the ordinary course of the Business between February 28, 1998 and the
Closing, or (iii) is not a lease or contact assumed pursuant to Sections 5.01 or
5.02 or a contract entered into in the ordinary course of the Business between
the time of execution of this Agreement and the Closing. Except as expressly
provided in this Agreement, the Purchaser does not hereby and shall not assume,
or in any way undertake to pay, perform, satisfy or discharge any other
liabilities, obligations, agreements or commitments of the Sellers or relating
to the operations of the Business, whether due or to become due, whether
accrued, absolute, contingent, known or unknown, disclosed or undisclosed in
this Agreement (including the Schedules hereto) or otherwise, existing on the
Closing Date or arising out of any transactions entered into, or any state of
facts existing prior to the Closing Date (collectively, the "Retained
Liabilities"). The Sellers shall pay and satisfy when due all Retained
Liabilities and shall indemnify, defend and hold the Purchaser harmless from and
against any loss, liability, damage or expense (including reasonable attorneys'
fees) arising out of any failure by the Sellers to pay, perform or discharge
when due any Retained Liabilities. The Retained Liabilities shall include the
following liabilities of Sellers:
1. All accounts payable, accrued expenses and other current liabilities
(except to the extent reflected on the Closing Date Balance Sheet);
2. All federal, state, local or other taxes, levies, duties, fines and
other governmental charges of any kind of the Sellers, including interest and
penalties;
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3. With respect to services provided to Sellers, any salary or other
compensation, expense reimbursement, benefit, severance and termination
obligations, whether imposed by contract, plan or law, owed Sellers' current or
past employees, consultants, directors, shareholders or other affiliates,
including obligations under employee benefit plans of Sellers (except to the
extent set forth on Schedule 3.03);
4. Workers' compensation claims filed by employees of the Sellers with
respect to injuries that occurred prior to the Closing Date;
5. All existing or future obligations of the Sellers to any
governmental entity or private party (i) based upon any action, omission, or
condition occurring or existing prior to the Closing Date to the extent that
such action, omission, or condition constitutes a violation or alleged violation
by or a liability or obligation of the Sellers or any subsidiary, affiliate or
predecessor of the Sellers under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended (and any applicable similar state
laws governing the clean-up and remediation of hazardous substances, together
"CERCLA"), the Resource Conservation and Recovery Act, as amended, the Toxic
Substance Control Act, the Clean Water Act, the Clean Air Act, the Occupational
Safety & Health Act or any other federal, state, or local laws or regulations
relating to public health and safety or environmental protection or liability or
pollution control and natural resource damages (including common law nuisance,
property damage and similar common law theories) ("Environmental Laws") or (ii)
arising from the release, investigation, study, clean-up or remediation of any
hazardous substance (as defined by CERCLA) in connection with the disposal,
treatment, or transport (or arrangement for disposal, treatment or transport) of
such hazardous substance by the Sellers or any subsidiary, affiliate or
predecessor of the Sellers, pursuant to CERCLA;
6. All litigation or other claims against the Sellers, the Assets or
the Business, pending or threatened, known or unknown, including without
limitation all claims, counterclaims, actions, suits, proceedings or
investigations by any private person or governmental authority, relating to or
affecting the Business or the Assets and arising out of events or circumstances
occurring or existing prior to the Closing Date;
7. Any obligation of Sellers or any affiliated employer under Section
4201 of the Employee Retirement Income Security Act of 1974 ("ERISA") which
arose at any time prior to the Closing Date or which may arise as a result of
this Agreement. Specifically, without limiting the foregoing, Purchaser does not
assume any liability under Section 4202 of ERISA; and
8. Any liabilities or obligations of Strategic or NTS (as hereinafter
defined) or of any of their affiliates other than ATS and ATSG.
Section 3.04. Closing Date Balance Sheet. Sellers shall, at Sellers' expense,
cause the firm of KPMG Peat Marwick to prepare, in accordance with generally
accepted accounting principles consistently applied, an audited statement of the
Assets and the Liabilities as of the Closing Date (the "Closing Date Balance
Sheet") which shall show the difference between the Assets and the
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Assumed Liabilities (the "Net Closing Book Value") as of the Closing Date. The
format of such Closing Date Balance Sheet is attached hereto as Schedule 3.04.
The Closing Date Balance Sheet shall be prepared using the Sellers' best
estimate of the aggregate amount of accounts receivable which will be actually
collected by Purchaser within ninety (90) days after the Closing Date (the
"Estimate of Collectable Receivables"). The Closing Date Balance Sheet, together
with the work papers of such accountants, shall be delivered to Purchaser by
Sellers within sixty (60) days of the Closing Date. Unless Purchaser shall
deliver to Sellers a written statement of objections to the Closing Date Balance
Sheet ("Statement of Objections") within forty-five (45) days after delivery
thereof to Purchaser, the Closing Date Balance Sheet shall be deemed to be final
and binding for all purposes of this Agreement. In the event that Purchaser
shall deliver a written statement of objections to the Closing Date Balance
Sheet as aforesaid, and such objections cannot be resolved by agreement between
Sellers and Purchaser, the matters in dispute shall be submitted to the firm of
Price Waterhouse (the "Arbiter"), who shall resolve the dispute on the basis of
the Closing Date Balance Sheet and the objections and whose determinations shall
be final and binding for all purposes of this Agreement. The fees and expenses
of the Arbiter shall be paid by Purchaser, if the disputes are resolved in favor
of the Sellers, or by the Sellers, if the disputes are resolved in favor of
Purchaser, or, if such disputes are resolved partly in favor of Purchaser and
partly in favor of the Sellers, in such amounts by Purchaser and Sellers as
shall be determined by the Arbiter on a basis intended to reflect the relative
success of Purchaser, on the one hand, and the Sellers, on the other, with
respect to the resolution of all such disputes.
Section 3.05. Purchase Price Adjustments.
1. To the extent that the Estimate of Collectable Receivables shall
exceed the amount of receivables actually collected by Purchaser within ninety
days following the Closing Date, Purchaser shall promptly notify Sellers of the
amount of such shortfall, Sellers shall, within fifteen days of receipt of such
notice, pay to Purchaser the amount of such shortfall, and Purchaser shall
immediately upon receipt of payment reassign absolutely to Sellers all such
uncollected receivables. To the extent that the amount of receivables actually
collected by Purchaser within ninety days following the Closing Date shall
exceed the Estimate of Collectable Receivables, Purchaser shall promptly pay to
Sellers the amount of such excess.
2. Without regard to any payment made (or to be made) pursuant to
Section 3.05(1) above, if the Net Closing Book Value, determined as provided in
Section 3.04, exceeds $604,403.00, the Purchase Price shall be increased on a
dollar-for-dollar basis by the difference, and Purchaser shall pay such amount
to Sellers within ten days of the date on which the Closing Date Balance Sheet
shall become final. Without regard to any payment made (or to be made) pursuant
to Section 3.05(1) above, if the Net Closing Book Value, determined as provided
in Section 3.04, is less than $604,403.00, the Purchase Price shall be reduced
on a dollar-for-dollar basis by the difference, and Sellers shall pay such
amount to Purchaser within ten days of the date on which the Closing Date
Balance Sheet shall become final. To the extent that any portion of the amount
which would be payable pursuant to this Section 3.05(2) is not affected by the
Statement of Objections, if any, such portion shall be paid promptly following
delivery of the Statement of Objections.
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SECTION 4. GUARANTY OF STRATEGIC
Section 4.01. Strategic hereby guarantees payment and performance of all
obligations of Sellers hereunder, including without limitation, obligations of
Sellers under Section 3 and Section 9.
SECTION 5. LEASES AND CONTRACTS
Section 5.01. Leases. At Closing Sellers shall assign and Purchaser shall assume
the liabilities arising after the Closing Date under the express terms of those
real and personal property leases described on Schedule 5.01 (the "Leases"),
which assignment shall transfer all rights of Sellers under the Leases. Sellers
warrant that the Leases are in full force and effect, that no default by any
party exists under any of the Leases and that no consent to any such assignment
is necessary (or that Sellers will deliver any such consent to Purchaser at
Closing). A true, correct and complete copy of each of the Leases has been
provided to Purchaser prior to execution of this Agreement.
Section 5.02. Contracts. At Closing Sellers shall assign and Purchaser shall
assume the liabilities arising after the Closing Date under the express terms of
those contracts described on Schedule 5.02 (the "Contracts"). Sellers warrant
that the Contracts are in full force and effect, that no default by any party
exists, that there are no setoffs thereunder and that no consents to any such
assignment are necessary except as described on Schedule 5.02A (and that,
without limiting the obligation of Sellers to deliver the consents identified on
Schedule 7.10 prior to Closing, Sellers will make their reasonable best efforts
to deliver, within a reasonable time after Closing, any such consents that are
requested by Purchaser). Such assignment shall transfer all rights of Sellers
under the Contracts. A true, correct and complete copy of each of the Contracts
has been provided to Purchaser prior to execution of this Agreement.
SECTION 6. EMPLOYMENT
Section 6.01. Employees of Sellers. Purchaser shall offer employment to the
employees of Seller listed on Schedule 6.01. Purchaser shall be responsible for
any severance pay that might be payable to any of Sellers' employees pursuant to
Purchaser's severance policies who accept such offer of employment (the
"Transferred Employees"). Notwithstanding anything to the contrary contained
herein, Purchaser shall have no liability of any nature whatsoever for severance
obligations to employees of Seller who are not Transferred Employees.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, jointly and severally, represent and warrant to and for the benefit of
the Purchaser and agree with Purchaser as follows:
Section 7.01. Organization. Sellers are corporations duly organized and
validly existing and in good standing under the laws of the State of Delaware
and are qualified to do business under the laws of
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and in such other jurisdictions as are set forth in Schedule 7.01, are
entitled to own or lease the Assets, and have all requisite corporate power
and authority to carry on their business as now conducted.
Section 7.02. Sellers' Authority. The execution and delivery of this Agreement
by Sellers and the performance of the terms hereof, and the sale contemplated
hereby:
1. have been authorized by the shareholders and directors of Sellers;
2. will not result in breach of any of the terms or conditions of, or
constitute a default under, the Certificates of Incorporation or Bylaws of any
of the Sellers; and
3. will not violate any injunction, writ, decree, ruling, assessment or
other similar command or ruling of, nor is any consent required of, any court or
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, to which any Seller is a party or by
which it is bound.
When duly executed and delivered by the officers of the Sellers, this Agreement,
and all documents contemplated hereby to be executed by Sellers, will constitute
the valid and binding agreements of Sellers, enforceable in accordance with
their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization and other laws affecting creditors'
rights generally and by general principles of equity.
Section 7.03. Litigation. There are no actions, suits or proceedings pending or,
to the knowledge of the officers and directors of Sellers, threatened against
the Sellers or their property or business, or to limit or impair any of their
powers, rights and privileges or to dissolve Sellers, except as disclosed in
Schedule 7.03. Sellers are not in default with respect to any judgment, order,
writ or injunction, decree, assessment or other similar demand of any court or
of any federal, state or municipal or other governmental department, commission,
board, bureau, agency or instrumentality affecting them or any one of them or
any of the Assets.
Section 7.04. Compliance with Laws. Except as set forth in Schedule 7.04:
1. Sellers have complied in all material respects with all laws,
regulations and orders applicable to Sellers, the Assets or the Business,
including without limitation all environmental laws and regulations;
2. Sellers do not need any governmental permits or licenses in
connection with the transaction of their business as presently conducted;
3. no notice or warning from any governmental authority with respect to
any failure or alleged failure of any Seller to comply with any law, regulation
or order has been issued or given and is currently in effect, nor is any such
notice or warning proposed or threatened; and
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4. the business of the Sellers is not currently being conducted
pursuant to an exemption to or exception from any law, governmental regulation,
permit or license that will not be available to Purchaser.
Section 7.05. Title to the Assets. Sellers have good and marketable title to all
of the Assets, free and clear of any Encumbrances, except for Permitted
Encumbrances. Sellers shall execute all documents and do all other things
reasonably necessary or appropriate prior to Closing and, at Purchaser's request
after Closing, to perfect title to the Assets in Purchaser.
Section 7.06. Payment of Taxes, Assessments, Etc. As of the Closing Date,
Sellers will have paid and discharged all taxes, assessments, excises and levies
for which they are obligated and which are then due and payable or which, if not
paid, will not interfere with Purchaser's enjoyment of the Assets. Any and all
such taxes, assessments, excises and levies that Purchaser is assuming or for
which Purchaser might be liable shall be fully and accurately reflected in the
Closing Date Balance Sheet and the Net Closing Book Value. Sellers shall pay any
and all sales, transfer, or other tax incurred by either party as a result of
the transactions contemplated under this Agreement.
Section 7.07. Insurance. Schedule 7.07 contains a true and complete list and
description (including face amount of policy, name of insured, policy number,
insurance company, broker, dates of coverage and premium) of all insurance
policies and binders held by or on behalf of Sellers for the current year. To
the best of Sellers' knowledge, Sellers have taken no action nor omitted to take
any action which would make such policies and binders invalid and unenforceable
in accordance with their terms, and all premiums on such policies and binders
due as of the date hereof have been paid in full. True and correct copies of all
such policies and binders, all of which, if Purchaser so requests, have been
delivered to Purchaser, as well as a complete listing of all claims open. Such
policies provide all such insurance as Sellers are contractually required to
provide under customer contracts or pursuant to governmental licensing and
regulatory provisions. The Assets of an insurable character are insured now and
will be insured through the Closing Date against loss or damage by fire and
other risks in accordance with such policies.
Section 7.08. Financial Statements.
1. The books of account and related records of Sellers reflect in
detail the assets, liabilities, revenues, expenses, cash flows, and other
transactions of Sellers. The Sellers have delivered to the Purchaser unaudited
financial statements of Sellers as at December 31, 1996, December 31, 1997, and
for the fiscal years then ended and as at February 28, 1998 and for the two
month period then ended. Each such financial statement presents fairly, as of
the date thereof, the financial position of Sellers on a combined basis and of
ATS individually and the results of operations and retained earnings and cash
flows for the period covered thereby in conformity with generally accepted
accounting principles consistently applied ("GAAP"). The unaudited balance sheet
of the Sellers as at December 31, 1997 (the "Balance Sheet Date"), is referred
to herein as the "Balance Sheet."
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2. The Balance Sheet accurately reflects all liabilities, required to
be disclosed in accordance with GAAP, of the Sellers at December 31, 1997. Since
the Balance Sheet Date, except as set forth on Schedule 7.08(2), there has not
been any: (a) material adverse change in the financial condition, assets,
liabilities, net worth, earning power, business or prospects of Sellers; (b)
damage or destruction to any of the properties of Sellers in excess of $1,000;
(c) strike or other labor trouble at Sellers; (d) creation of any Encumbrances
on any of the properties of Sellers; (e) increases in the salaries or bonuses of
any employee of Sellers; (f) capital expenditures or other asset acquisition or
expenditure in excess of $5,000 in the aggregate; (g) change in any of Sellers'
Employee Benefit Plans; (h) payment to or transaction with any Related Party;
(i) disposition of any asset outside the ordinary course of business; (j)
payment, prepayment or discharge of any liability other than in the ordinary
course of business; (k) adverse change or threat thereof of any relations or
contracts with, or any loss of, the suppliers of Sellers; (l) write-offs or
write-downs of any assets of Sellers in excess of $1,000 in the aggregate; (m)
change in the board of directors or management of Sellers; (n) creation or
termination of any material agreement, right or liability of Sellers not in the
ordinary course of business; or (o) agreement or commitment to do any of the
foregoing. Neither Sellers nor the Business has any debts, obligations or
liabilities, absolute, fixed, contingent or otherwise, of any nature whatsoever,
whether due or to become due (including unasserted claims), whether incurred
directly or by any predecessor thereto, except: (a) those reflected or reserved
against on the Closing Date Balance Sheet in the amounts shown thereon, or (b)
those of the same nature as those set forth in the Closing Date Balance Sheet
that have arisen in the ordinary course of business after the Balance Sheet
Date.
Section 7.09. Tax Returns. Sellers have filed all tax returns and reports
(federal, state and local) required to be filed by them and have paid, or will
by the Closing Date pay, all taxes shown to be due on such returns and reports
or on any assessments received by them, as well as all other taxes or deposits,
federal, state and local, due by them, except local property taxes which are
payable but which are not yet due, federal and state income taxes for the
current fiscal year of Sellers and such other taxes which are the subject of
timely and good faith contest by Sellers with the appropriate taxing authority.
All accrued but unpaid taxes, and all contested taxes, are accurately reflected
on the Balance Sheet and shall be accurately reflected on the Closing Date
Balance Sheet.
Section 7.10. Contracts. The Contracts listed on Schedule 5.02 include all
written contracts and written summaries of all oral contracts and any and all
amendments thereto, by which ATS or any of the Assets are bound. Except as
disclosed on Schedule 5.02, the Contracts are valid and in full force and effect
and have not been modified or amended; no default by any party to a Contract
exists; and no payment is more than 30 days past due under any Contract. The
parties have agreed that consent to assignment will be obtained for only those
Contracts specifically noted on Schedule 7.10, such consents shall be delivered
to Purchaser at Closing. The Sellers have delivered true, correct and complete
copies of the Contracts to Purchaser. Schedule 5.02 sets forth the backlog of
the Business as of March 31, 1998, and the projected gross profit associated
therewith.
Section 7.11. Prepayments By Customers. No customer of the Sellers has made any
prepayment or deposit for services for any period commencing on or after the
Closing Date except as disclosed
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on Schedule 7.11. No customer of Seller is entitled to any setoff, rebate,
discount or credit except as disclosed on Schedule 7.11.
Section 7.12. Labor Relations.
1. No Seller is party to any collective bargaining or similar
agreement.
2. Sellers are in compliance with all applicable laws respecting
employment and wages and hours, and are not engaged in any unfair labor
practice.
3. There is no unfair labor practice charge or complaint against any of
the Sellers relating to employees who worked for the business of any of the
Sellers pending or, to the knowledge of Sellers, threatened before the National
Labor Relations Board.
4. There has not occurred, nor to the knowledge of Sellers has there
been threatened, a labor strike, request for representation, slowdown, work
stoppage or lockout and there is currently no labor strike, dispute, request for
representation, slowdown, work stoppage or lockout against or affecting any of
the Sellers.
5. There is no representation claim or petition pending before the
National Labor Relations Board and no question concerning representation is
presently being raised or, to the knowledge of Sellers, is threatened respecting
the employees of any of the Sellers.
6. No grievance nor any arbitration proceeding arising out of or under
any employment agreement, collective bargaining agreement, severance agreement
or written personnel policy is pending and no such claims therefor exist or, to
the knowledge of Sellers, are threatened.
7. No charges with respect to or relating to any of the Sellers is
pending before the Equal Employment Opportunity Commission or any state, local
or foreign agency responsible for the prevention of unlawful employment
practices.
8. None of the Sellers has received notice of the intent of any
federal, state, local or foreign agency responsible for the enforcement of labor
or employment laws to conduct an investigation of or relating to any of the
Sellers and no such investigation is in progress.
9. Schedule 7.12A sets forth all of Sellers' employees, such employees'
titles, current salaries or wages, and location of workplace.
Section 7.13. Benefits and ERISA Plans.
1. Schedule 7.13 describes all payroll practices, compensation
arrangements, employee benefit plans or arrangements for employees, officers,
shareholders or directors to which any of Sellers is a party, copies of which
have been delivered to Purchaser prior to the execution of this Agreement.
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As used herein, "Employee Benefit Plans" shall mean and include any retirement,
profit sharing, money purchase pension, defined benefit, bonus, thrift savings,
stock purchase, deferred compensation, health or medical insurance, dental
insurance, incentive, group insurance, death benefit, fringe benefit,
disability, split-dollar, medical reimbursement or similar type of plan, whether
or not qualified or required to be qualified under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). Except as disclosed on
Schedule 7.13, no unfunded liabilities, including unfunded past service
liabilities, exist under any such plans and, to the extent that any plans
maintained by any of Sellers are subject to the provisions of ERISA, or other
Federal, state or local statutes, laws, ordinances, rules or regulations
relating to employee benefit plans, Sellers are in full compliance with all
applicable provisions thereof. Except as required by COBRA or as disclosed on
Schedule 7.13A, none of the Sellers has any obligation to a former employee or
employees to continue to provide medical benefits.
2. Neither Sellers nor any affiliate, as defined in ERISA, nor any
employee benefit pension plan, including a multi-employer plan, as described in
Section 4001(a)(3) of ERISA (a "Multiemployer Plan"), is in violation of any of
the provisions of ERISA or any of the qualification requirements of Section
401(a) of the Internal Revenue Code, as amended (the "Code").
3. No prohibited transaction or reportable event, both as defined or
referred to in ERISA, has occurred with respect to any employee benefit plan or
pension plan nor has any such plan been the subject of a waiver of the minimum
funding standard under Section 412 of the Code.
4. No notice of intent to terminate an employee benefit plan has been
filed under Section 4041 of ERISA, nor has any such plan been terminated under
Section 4041(f) of ERISA.
5. The Pension Benefit Guaranty Corporation ("PBGC") has not instituted
proceedings to terminate, or appoint a trustee to administer, any employee
benefit plan or pension plan of any of Sellers, and no event has occurred or
condition exists which might constitute grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any such
plan.
6. Neither Sellers nor any affiliate will be liable for any amount
pursuant to Sections 4062, 4063 or 4064 of ERISA for any terminated employee
benefit plan.
7. Neither Sellers nor any affiliate has incurred or expects to incur
any withdrawal liability to any multi-employer plan.
8. No Seller has engaged in any transaction in connection with which it
could be subjected to either a potential civil penalty assessed pursuant to
Section 502(i) of ERISA or a material tax imposed by Section 4975 of the Code.
9. No Seller or any affiliated employer has incurred any liability
under, arising out of, or by operation of Title IV of ERISA, including, without
limitation, any liability in connection with the withdrawal, partial withdrawal
or mass withdrawal from any Multiemployer Plan or the termination
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or reorganization of any Multiemployer Plan. To the knowledge of Sellers, no
fact or event exists which could give rise to any such liability under Title IV
of ERISA. Neither ATS nor ATSG, nor any affiliated employer of ATS or ATSG, has
ever contributed to, or has ever had an obligation to contribute to, any
Multiemployer Plan with respect to, or on behalf of, an employee of ATS or ATSG.
10. The accrued vacation and sick pay of employees of Sellers, in the
aggregate, is equal to $24,000 as of December 31, 1997.
Section 7.14. Customer Relations. Except as set forth on Schedule 7.14, no
customer of Sellers listed on Schedule 7.10 has ceased or materially reduced its
use of the services of the Sellers since June 30, 1997, or, to the knowledge of
the Sellers, has threatened to cease or materially reduce such use of services
after such date.
Section 7.15. Warranties. Purchaser shall have no liability after the Closing
Date relating to any services performed or products sold by Seller prior to the
Closing Date, whether or not such liability relates to breach of any express or
implied warranty.
Section 7.16. Receivables. Schedule 7.16 discloses all trade and other accounts
receivable included in the Assets ("Receivables") outstanding as of March 31,
1998, presented on an aged basis and separately identifies the name of each
account debtor and the total amount of each related Receivable. All Receivables,
including Receivables reflected on the Closing Date Balance Sheet, arose or
shall arise from bona fide sale transactions of Sellers, and no portion of any
Receivable is or shall be subject to counterclaim, defense or set-off or is
otherwise in dispute.
SECTION 8. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to and for the benefit of Sellers and agrees
with Sellers as follows:
Section 8.01. Organization. Purchaser is a corporation duly organized and
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania is entitled to acquire the Assets and has all requisite corporate
power and authority to carry on its business as now conducted.
Section 8.02. Purchaser's Authority. The execution and delivery of this
Agreement by Sellers and the performance of the terms hereof, and the sale
contemplated hereby:
1. have been authorized by the directors of Purchaser.
2. will not result in breach of any of the terms or conditions of, or
constitute a default under, the Certificate of Incorporation or Bylaws of the
Purchaser.
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3. will not violate any injunction, writ, decree, ruling, assessment or
other similar command or ruling of any court or any federal, state or
municipality or other governmental department, commission, board, bureau, agency
or instrumentality, to which Purchaser is a party or by which it is bound.
When duly executed and delivered by the officers of the Purchaser, this
Agreement and all documents contemplated hereby to be executed by Purchaser,
will constitute the valid and binding agreements of Purchaser, enforceable in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization and other laws affecting
creditors' rights generally and by general principles of equity.
Section 8.03. Litigation. There are no actions, suits or proceedings pending or
threatened against the Purchaser, or to the knowledge of the officers and
directors of Purchaser, threatened against the Purchaser or its property or
business, or to limit or impair any of its powers, rights and privileges or to
dissolve Purchaser, except as disclosed in Schedule 8.03. Purchaser is not in
default with respect to any judgment, order, writ or injunction, decree,
assessment or other similar demand of any court or of any federal, state or
municipal or other governmental department, commission, board, bureau, agency or
instrumentality affect it.
Section 8.04. Control. Until the Closing, Purchaser, its employees and agents
will not, directly or indirectly, control, supervise, direct or attempt to
supervise or direct, the operations of the business of Sellers. Such operations
shall be the sole responsibility and under the complete direction of the
officers, directors, employees and agents of Sellers.
SECTION 9. INDEMNIFICATION BY THE PARTIES
Section 9.01. Sellers' Indemnity. The Sellers and Strategic shall, jointly and
severally, indemnify, defend, save and hold harmless Purchaser and Purchaser's
officers, directors, affiliates and representatives (collectively, "Purchaser
Indemnitees") from and against all demands, claims, actions or causes of action,
assessments, losses, damages, deficiencies, liabilities, costs and expenses,
including reasonable attorneys' fees, interest, penalties and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing,
asserted against, imposed upon, resulting to or incurred by any Purchaser
Indemnitees in connection with, arising out of, or resulting from:
1. Any and all Retained Liabilities.
2. Any breach of the representations, warranties, covenants and
agreements of Sellers set forth in this Agreement or from the failure of Sellers
to perform or comply with any other provision of this Agreement.
Section 9.02. Purchaser's Indemnity. Purchaser hereby indemnifies and holds
harmless Sellers and Sellers' officers, directors, affiliates and
representatives (collectively, "Seller Indemnitees") from and against all
demands, claims, actions or causes of action, assessments, losses, damages,
deficiencies,
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liabilities, costs and expenses, including reasonable attorneys' fees, interest,
penalties and all reasonable amounts paid in investigation, defense or
settlement of any of the foregoing, asserted against, imposed upon, resulting to
or incurred by any of Seller Indemnitees in connection with, arising out of, or
resulting from:
1. Any and all Assumed Liabilities.
2. Any breach of the Purchaser's representations, warranties, covenants
and agreements set forth in this Agreement or from the failure of Purchaser to
perform or comply with any other provision of this Agreement.
Section 9.03. Indemnification Claims. Any of the parties indemnified hereunder
(the "Indemnitee") having or claiming any right to indemnification under the
foregoing Sections 9.01 or 9.02 shall immediately notify the other party (or
parties, as the case may be) (the "Indemnitor") in writing, specifying the
nature of the claim. The Indemnitor shall have the right to defend any such
claim at its own expense and with counsel of its choice; provided that such
right shall have been timely asserted and such counsel shall have been approved
by the Indemnitee, prior to engagement, which approval shall not be unreasonably
withheld or delayed; and provided further, that the Indemnitee may participate
in such defense, if it so chooses, with its own counsel and at its own expense.
Indemnitor agrees that if the claim in respect of which such notice shall have
been given is finally determined adversely to Indemnitor (or is settled with the
Indemnitee's incurring any expense or cost), then Indemnitor shall pay to
Indemnitee an amount sufficient to reimburse the Indemnitee to the full extent
of its losses and expenses sustained by reason thereof, but excluding any legal
fees and costs if the Indemnitor elected, pursuant to this Section, to defend
the claim and Indemnitee approved the counsel.
Section 9.04. Indemnification Limitations. Notwithstanding anything in this
Section 9.04 to the contrary, a party's rights to indemnification from another
party shall be limited as follows:
1. Purchaser shall not be entitled to indemnification unless and until
the total amount of damages sustained by it exceeds $50,000 in the aggregate.
Once such aggregate amount of damages exceeds $50,000, Purchaser shall be
entitled to indemnification for the entire amount of its damages, including such
$50,000, and shall be entitled to the right of set-off against any Earn-Out
Payment.
2. Purchaser's right of indemnification, and the liability of the
Sellers, is limited to an aggregate sum for all claims equal to that portion of
the Purchase Price, as finally adjusted hereunder, which is actually received by
Sellers.
Section 9.05. Exclusive Remedy. Except for claims arising out of fraud or
intentional misrepresentation, indemnification pursuant to this Section shall be
the exclusive remedy of the parties for any claim, damage, cause of action or
loss arising or resulting from any breach of representation or warranty made by
any party. The Sellers acknowledge and agree that, subject to the limitations
set
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forth in Section 9.04(1), Purchaser shall have the right to set-off any claims
for damages pursuant to this Section against any Earn-Out Payment payable under
this Agreement.
SECTION 10. NATURE AND SURVIVAL OF
REPRESENTATIONS AND WARRANTIES
Section 10.01. Truth, Accuracy and Survival. All representations and warranties
made by Sellers and Purchaser in this Agreement shall be true and correct at the
time of Closing and shall survive for a period of two (2) years from the Closing
Date except that the representations and warranties contained in Sections 7.06,
7.09 and 7.13 shall survive without time limit. Upon the expiration of such
period, such representation or warranty shall be null, void and of no further
effect.
SECTION 11. BROKER
Section 11.01. No Brokers. Except as set forth in Schedule 11.01, Sellers and
Purchaser represent to each other that no broker or finder has acted for any of
them in connection with this Agreement or the transaction contemplated hereby,
and no broker or finder is entitled to any brokerage commission, finder's fee or
similar charge in respect thereof based on any agreement made by either of them.
Sellers shall be solely responsible for any fees payable to New England Business
Exchange, Inc. Each of said parties agrees to indemnify and hold harmless the
other parties from and against any claim for brokerage commission, finder's fee
or similar charge relative to this Agreement or the transaction contemplated
thereby, which claim is based in any way on any agreement or understanding made
or alleged to have been made by said party, together with any and all expenses
of any character (including but not limited to reasonable attorney's fees)
incurred either in the investigation or defense of any such claim.
SECTION 12. CONDITIONS PRECEDENT TO CLOSING
Section 12.01. Conditions to Purchaser's Obligations. As a condition to the
Purchaser's obligation to close the transaction contemplated by this Agreement,
all of the following shall have occurred at or prior to Closing:
1. all representations and warranties of Sellers shall be true and
correct.
2. Sellers shall have fully performed all of their obligations under
this Agreement.
3. Sellers shall have delivered all of the closing items required of
them pursuant to Section 13.01 below.
4. Purchaser shall have had an opportunity to talk to customers of the
Business and shall be reasonably satisfied with the relationships between ATS
and such customers and that the contemplated transaction will not have a
material adverse effect on such relationships.
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5. Seller shall have obtained consent to assignment of the Contracts
listed on Schedule 7.10.
6. Robert Russo, Joseph Uricchio, Dennis Heinz, William Cornette and
Ron Lowe shall have executed employment agreements with Purchaser substantially
in the form attached hereto as Schedule 12.01(6). Substantially all of the other
employees of Sellers who Purchaser wishes to hire shall have accepted
Purchaser's offer of employment.
7. Purchaser shall be satisfied that there shall be no material adverse
change in the business, results of operations, property, condition or prospects
of the Business, that Sellers shall have operated the Business in the ordinary
course between the time of execution of this Agreement and the Closing, and that
any contracts entered into between the time of execution of this Agreement and
the Closing have been approved by Robert Russo.
Section 12.02. Conditions to Sellers' Obligations. As a condition to the
Sellers' obligation to close the transaction contemplated by this Agreement, all
of the following shall have occurred at or prior to Closing:
1. all representations and warranties of Purchaser shall be true and
correct.
2. Purchaser shall have fully performed all of its obligations under
this Agreement.
3. Purchaser shall have delivered all of the closing items required of
it pursuant to Section 13.02 below.
SECTION 13. CLOSING ITEMS
Section 13.01. Sellers. At the Closing, Sellers shall deliver or cause to be
delivered to Purchaser the following:
1. Certificates of Good Standing as of a recent date from the
secretaries of state of each of the states of Sellers' respective incorporation.
2. Certified copies of actions of the shareholders and directors of
Sellers approving this Agreement and all documents to be executed and delivered
in accordance therewith and authorizing the officers of the Sellers to execute
this Agreement and to execute all of said documents and take all other steps
required to carry out the terms of the same.
3. Bill of Sale from Sellers conveying to Purchaser the Assets.
4. Titles to all motor vehicles.
5. Assignment of all of Seller's right, title, and interest in and to
all telephone numbers and listings.
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6. Assignment of all of Seller's right, title, and interest in and to
the Leases, together with those consents provided for under this Agreement.
7. Assignment of all of Seller's right, title, and interest in and to
the Contracts, together with those consents provided for under this Agreement.
8. Assignment of all permits and licenses to the extent assignable.
9. Assignment of all copyrights, patents, trademarks and service marks.
10. Customer lists and records, together with all related information.
11. Duly executed articles of amendment, notice of change of name or
other appropriate document deleting from Sellers' names any use of the terms
"American Technical Services Group", "American Technical Services", "ATS" or
"ATSG".
12. A written opinion of counsel for Sellers:
a. that the Sellers are duly organized, validly existing and
in good standing in the jurisdictions of their respective incorporation.
b. that this Agreement and all documents to which the Sellers
are a party have been properly authorized and executed by Sellers.
c. that to the best knowledge of such counsel, execution of
this Agreement and performance of the transactions contemplated hereby will not
result in a breach of the terms or conditions of, or constitute a default under,
the Certificate of Incorporation or Bylaws of any of the Sellers.
d. when duly executed and delivered by the officers of the
Sellers, this Agreement, and all documents contemplated hereby to be executed by
Sellers, will constitute the valid and binding agreements of Sellers,
enforceable in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization and other laws
affecting creditors' rights generally and by general principles of equity.
e. that to the best knowledge of such counsel, execution of
this Agreement and performance of the transactions contemplated hereby will not
violate any injunction, writ, decree, ruling, assessment or other similar
command or ruling of any court or any federal, state or municipality or other
governmental department, commission, board, agency or instrumentality, to which
any Seller is a party or by which it is bound.
f. that to the best knowledge of such counsel, there are no
actions, suits or proceedings pending or threatened against the Sellers or their
property or business, or to limit or
17
<PAGE>
impair any of their powers, rights and privileges or to dissolve Sellers, except
as disclosed in Schedule 7.03.
g. that to the best knowledge of such counsel, Sellers are not
in default with respect to any judgment, order, writ or injunction, decree,
assessment or other similar demand of any court or of any federal, state or
municipal or other governmental department, commission, board, bureau, agency or
instrumentality affecting them or any one of them or any of the Assets.
h. that to the best knowledge of such counsel, except as set
forth in Schedule 7.04.
i. no notice or warning from any governmental authority with
respect to any failure or alleged failure of any Seller to comply with any law,
regulation or order has been issued or given and is currently in effect, nor is
any such notice or warning proposed or threatened; and ii. the business of the
Sellers is not currently being conducted pursuant to an exemption to or
exception from any law, governmental regulation, permit or license that will not
be available to Purchaser.
13. Any and all other instruments and documents set forth in this
Agreement required to be delivered by Sellers at Closing.
14. Any and all other instruments and documents which may be necessary
to effect the obligations of Sellers under this Agreement.
Section 13.2. Purchaser. At the Closing, Purchaser shall deliver or cause to be
delivered to Sellers the following:
1. Certificates of Good Standing as of a recent date from the secretary
of state of Purchaser's incorporation and from each state in which Purchaser is
qualified to do business.
2. Certified copies of action of the directors of Purchaser approving
this Agreement and all documents to be executed and delivered in accordance
therewith and authorizing the officers of the Purchaser to execute this
Agreement and to execute all of said documents and take all other steps required
to carry out the terms of the same.
3. The Cash that is to be paid to Sellers at Closing.
4. Assumption of the Leases.
5. Assumption of the Contracts.
6. A written opinion of counsel for Purchaser:
18
<PAGE>
a. that the Purchaser is duly organized, validly existing
and in good standing in the jurisdiction of its incorporation.
b. that this Agreement and all related documents to which the
Purchaser is a party have been properly authorized and executed by Purchaser.
c. that to the best knowledge of such counsel, execution of
this Agreement and performance of the transactions contemplated hereby will not
result in a breach of the terms or conditions of, or constitute a default under,
the Certificate of Incorporation or Bylaws of Purchaser.
d. when duly executed and delivered by the officers of the
Purchaser, this Agreement, and all documents contemplated hereby to be executed
by Purchaser, will constitute the valid and binding agreements of Purchaser,
enforceable in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization and other laws
affecting creditors' rights generally and by general principles of equity.
7. Any and all other instruments and documents set forth in this
Agreement required to be delivered by Purchaser at Closing.
8. Any and all other instruments and documents which may be necessary
to effect the obligations of Purchaser under this Agreement.
SECTION 14. MISCELLANEOUS
Section 14.01. Noncompetition. For a period of five (5) years from and after
the Closing Date, neither Sellers nor Strategic, alone or in partnership or
in conjunction with any other person, firm, corporation or other entity,
either directly or indirectly (a "Noncompete Party"), shall undertake or
carry on or be engaged or have any financial or other interest in, or in any
other manner advise or invest in any business providing process control and
instrumentation services, technical staffing services or any other services
similar to services provided by the Business on the Closing Date; provided,
however, that nothing contained herein shall restrict Strategic from
providing any such service if it is provided by Strategic ancillary to an
industrial supply service to a current or future In-Plant Store-Registered
Trademark- customer. Each of the Sellers and Strategic acknowledge that in
the event of its violation of the covenants contained in this Section 14.01,
Purchaser's damages will be difficult to ascertain and Purchaser's remedy at
law will be inadequate. Accordingly, Sellers and Strategic agree that, in
addition to such remedies as Purchaser may have at law, Purchaser shall be
entitled to specific performance of such covenants and to an injunction
(without the requirement of posting bond) to prevent any continuing violation
thereof. Notwithstanding anything to the contrary contained in this Section
14.01, if at any time during the two year period following the Closing Date,
any Noncompete Party shall have as an In-Plant Store-Registered Trademark-
customer one of the companies listed on Schedule 7.10, and if any such
company shall request the Noncompete Party to provide process control,
instrumentation or technical staffing services of the type currently provided
by the Business, then in such case the Noncompete Party shall give Purchaser
the right to make an offer to provide such services to the In-
19
<PAGE>
Plant Store-Registered Trademark- customer on behalf of the Noncompete Party,
and the Noncompete Party shall accept such offer from Purchaser so long as
(i) Purchaser's offer is competitive with any other offers received by the
Noncompete Party, and (ii) the In-Plant Store-Registered Trademark- customer
does not reject Purchaser as supplier of the services.
Section 14.02. Access to Books and Records. Following the Closing, Purchaser
will provide to Sellers, their counsel and their accountants access to
Purchaser's books and records relating to the Assets, the Excluded Assets and
the Liabilities and the right to make copies and extracts therefrom to the
extent such access is reasonably required by Sellers. Purchaser shall maintain
all such books and records which are not maintained on the computer system for
no less than six years following the Closing; provided, however, that Purchaser
may dispose of any such books and records prior to the sixth anniversary of the
Closing Date after having given Sellers sixty days advance notice of its intent
to dispose and a reasonable opportunity to copy any such books and records that
are to be disposed of. Notwithstanding the foregoing, Purchaser shall only be
required to provide Sellers with access to the computer system for 120 days
following the Closing, and Purchaser shall have no obligation to maintain the
computer system, including but not limited to any related software, computer
files or data, for more than 120 days following the Closing.
Section 14.03. Headings. The headings of the paragraphs of this Agreement are
for the convenience of reference only and do not form a part hereof and in no
way modify, interpret or construe the meanings of the parties.
Section 14.04. Agreement and Amendments. This Agreement, together with the
schedules hereto attached (which are incorporated herein as if wholly set
forth), embodies the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof, supersedes all prior or
contemporaneous agreements, whether written or oral, between the parties and may
be amended only by an instrument in writing signed by the parties hereto.
Section 14.05. Parties in Interest. All the terms and provisions of this
Agreement shall be binding on and inure to the benefit of and be enforceable by
the respective successors, heirs and assigns of the parties.
Section 14.06. Governing Law. This Agreement shall be construed and governed in
accordance with the laws of the State of Delaware.
Section 14.07. Expenses. Sellers and Purchaser shall each pay their own expenses
incident to the preparation of this Agreement and the consummation of the
transactions contemplated hereby.
Section 14.08. Notices. All notices and other communications shall be sufficient
if given in writing and delivered and mailed by certified or registered mail as
follows:
20
<PAGE>
To Sellers: American Technical Services Group, Inc.
c/o Interlaken Capital, Inc.
165 Mason Street
Greenwich, Connecticut 06830
Attn. William L. Mahone
phone: (203)629-8750; fax: (203)629-8554
with a copy to:
D. Allen Grumbine
Wyche, Burgess, Freeman & Parham, P.A.
44 East Camperdown Way
Post Office Box 728
Greenville, South Carolina 29602-0728
phone: (864)242-8203; fax: (864)242-8324
To Guarantor: Strategic Distribution, Inc.
c/o Interlaken Capital, Inc.
165 Mason Street
Greenwich, Connecticut 06830
Attn. William L. Mahone
phone: (203)629-8750; fax: (203)629-8554
with a copy to:
D. Allen Grumbine
Wyche, Burgess, Freeman & Parham, P.A.
44 East Camperdown Way
Post Office Box 728
Greenville, South Carolina 29602-0728
phone: (864)242-8203; fax: (864)242-8324
To Purchaser: SPEC/ATS, Inc.
c/o SPEC Group Holdings, Inc.
The Landings
55 Alpha West Drive
Pittsburgh, PA 15238
Attn. Jean-Pierre Sakey, President and CEO
phone: (412)517-7700; fax: (412)517-7708
21
<PAGE>
with a copy to:
Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, PA 15222
Attn: Robert B. Sommer
phone: (412) 355-6462; fax: (412) 355-6501
or at such other address as any such party shall furnish the other in writing by
such method.
Section 14.09. Closing. This transaction will be closed at 9:00 a.m. on the
Closing Date at the offices of Sellers' counsel in Greenville, South Carolina,
or at such other time and place as the Sellers and Purchaser may mutually agree
upon, and the Assets will be purchased as of 11:59 p.m. on the Closing Date. All
sales and accounts receivable generated on or after 11:59 p.m. on the Closing
Date shall belong to Purchaser, and Purchaser shall be liable for all accounts
payable, purchases and operating expenses incurred after 11:59 p.m. on the
Closing Date.
Section 14.10. Survival. All covenants given by the parties hereunder shall
survive the Closing and shall not be merged into the Closing.
Section 14.11. Severability. Each portion of this Agreement is severable, and if
one portion shall prove to be invalid, unenforceable or violative of any
statute, regulation, ordinance or other law, the remainder of the Agreement
shall remain in full force and effect.
Section 14.12. Attorney's Fees. If any party should bring an action under, or to
enforce, this Agreement or any provision thereof, the prevailing party shall be
entitled to reimbursement for all costs and reasonable attorneys' fees incurred
in the course of such action.
Section 14.13. Allocation of Purchase Price. The Purchase Price shall be
allocated, in accordance with this Agreement, for federal income tax and state
income tax purposes among the Assets as set forth on Schedule 14.13. Sellers and
Purchaser shall cooperate in filing with the Internal Revenue Service their
respective Forms 8594, as provided for in Section 1060 of the Internal Revenue
Code, on a basis consistent with such allocation, and such allocation shall be
reflected on any returns required to be filed with the Internal Revenue Service
or any other state or foreign taxing authority as a result of the transactions
contemplated hereby.
Section 14.14. Costs and Expenses of the Parties. The Sellers and Purchaser
shall each bear their own costs and expenses (including legal fees and expenses)
in connection with the sale and purchase of the Assets. Any legal costs and
expenses of the Sellers incurred in connection with the negotiation of this
Agreement and the other agreements incident hereto shall be deemed to be costs
and expenses of Sellers and shall not be paid, directly or indirectly, out of
the assets of the Purchaser.
22
<PAGE>
Section 14.15. Further Agreements. Each of the parties hereto shall use its best
efforts to execute and deliver to the other all such agreements or instruments,
and to take all other action (whether required prior or subsequent to the
Closing), necessary or appropriate to consummate the transactions contemplated
hereby.
[signatures on the following page]
23
<PAGE>
Executed the day and year first above written.
SELLERS:
American Technical Services Group, Inc.
By: /s/ Andrew M. Bursky
--------------------------------
Its: Chairman
--------------------------------
ATS Phoenix, Inc.
By: /s/ Andrew M. Bursky
--------------------------------
Its: Chairman
--------------------------------
GUARANTOR:
Strategic Distribution, Inc.
By: /s/ Andrew M. Bursky
--------------------------------
Its: Chairman
--------------------------------
PURCHASER:
SPEC/ATS, INC.
By:
--------------------------------
Its: Chairman
--------------------------------
GUARANTOR:
SPEC GROUP HOLDINGS, INC.
By:
--------------------------------
Its: President
--------------------------------
<PAGE>
Executed the day and year first above written.
SELLERS:
American Technical Services Group, Inc.
By:
--------------------------------
Its: Chairman
--------------------------------
ATS Phoenix, Inc.
By:
--------------------------------
Its: Chairman
--------------------------------
GUARANTOR:
Strategic Distribution, Inc.
By:
--------------------------------
Its: Chairman
--------------------------------
PURCHASER:
SPEC/ATS, INC.
By: /s/ Jean-Pierre Sakey
--------------------------------
Its: Chairman
--------------------------------
GUARANTOR:
SPEC GROUP HOLDINGS, INC.
By: /s/ Jean-Pierre Sakey
--------------------------------
Its: President
--------------------------------
<PAGE>
Exhibit 10.3
AMENDMENT
TO
AGREEMENT FOR SALE AND PURCHASE OF ASSETS
This Amendment is made and entered into this 4th day of June, 1998, by and among
Strategic Distribution, Inc., a Delaware corporation ("Strategic"); American
Technical Services Group, Inc., a Delaware corporation ("ATSG"); ATS Phoenix,
Inc., a Delaware corporation ("ATS"; ATSG and ATS are hereinafter referred to as
"Sellers"); SPEC/ATS, Inc. a Pennsylvania corporation ("Purchaser"); and SPEC
Group Holdings, Inc. ("SPEC").
RECITALS
A. On April 22, 1998, Strategic, ATSG, ATS, Purchaser and SPEC (the "Parties")
entered into Agreement for Sale and Purchase of Assets (the "Agreement");
B. Certain conditions to the Closing of the transactions contemplated by the
Agreement have not occurred.
C. The Parties wish to amend the Agreement upon the terms set forth herein.
Now, therefore, in consideration of the mutual representations, warranties,
covenants and agreements contained in this Amendment, and for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Section 1.01 is hereby amended to change the Closing Date from May 19,
1998, to the date of execution of this Amendment.
2. The second sentence of Section 14.09 is hereby amended and restated as
follows: "The parties agree that the Closing shall be deemed to be
effective for all purposes as of 12:01 a.m. on June 1, 1998.
3. Section 3.02(1) is hereby amended and restated in its entirety as follows:
"1. Cash at Closing. A payment of $700,000 shall be made in cash at
Closing (as adjusted, the "Base Purchase Price"), such amount to be
subsequently adjusted as provided in Section 3.05 below."
4. Section 3.02(2) is hereby amended and restated in its entirety.
"2. Earn-Out Payment. In addition to the Base Purchase Price, an
Earn-Out Payment ("Earn-Out Payment"), if any, shall be determined
based on Gross Profit of the Business for the twelve month period
beginning June 1, 1998 and ending May 31, 1999 (the "Earn-Out
Period") as follows: (i) if Gross Profit of the Post-Closing
Business during the Earn-Out
<PAGE>
Period is less than $1,300,000, no Earn-Out Payment will be payable; (ii)
if Gross Profit of the Post-Closing Business during the Earn-Out Period is
greater than $1,300,000 and less than or equal to $1,750,000, the Earn-Out
Payment will be an amount equal to 25% of the total Gross Profit; and
(iii) if Gross Profit of the Post-Closing Business during the Earn-Out
Period is greater than $1,750,000, the Earn-Out Payment will be an amount
equal to 40% of the total Gross Profit; provided that the aggregate amount
of the Earn-Out Payment shall not exceed $1,500,000. For purposes of this
Agreement, "Gross Profit" shall mean the gross profit of the Post-Closing
Business calculated in accordance with generally accepted accounting
principles applied on a basis consistent with historic practices of SPEC.
For purposes of this Agreement, "Post-Closing Business" shall mean the
Business acquired by the Purchaser hereunder plus any business generated
by those current employees of Sellers who are employed by Purchaser. As
soon as practicable and in any event within sixty (60) days following the
end of the Earn-Out Period, Purchaser shall prepare and deliver to Sellers
a statement (the "Earn-Out Statement") setting forth the Gross Profit of
the Post-Closing Business for the Earn-Out Period, together with a
calculation of the amount of any Earn-Out Payment payable by the
Purchaser. Any Earn-Out Payment shall be payable by the Purchaser within
15 days of the day that Sellers notify Purchaser that they agree with the
Earn-Out Statement. In the event of any dispute or failure to reach
agreement with respect to the amount of the Earn-Out Payment, if any, the
applicable Earn-Out Payment shall be determined by the Arbiter (as
defined in Section 3.04). Notwithstanding anything to the contrary
contained herein, Purchaser shall have no liability or obligation to
Sellers or Strategic of any nature whatsoever related to or arising from
its operation of the Post-Closing Business, including with respect to the
effect of the operation of the Post-Closing Business on the Gross Profit
or the amount of any Earn-Out Payment, provided, however, that the
foregoing shall in no way prevent Sellers from contesting the preparation
of the Earn-Out Statement and the calculation of the Earn-Out Payment
pursuant to the foregoing provisions of this Section 3.02(2)."
5. Section 12.01(6) is amended to delete the name "Joseph Uricchio."
6. Sellers and Strategic acknowledge and agree that it is a condition to
Purchaser's obligation to close the transaction that Raymond J. Lonergan
("Lonergan"), Chetan G. Bhatt ("Bhatt"), William P. Rogers ("Rogers"),
Thomas Gentilellia ("Gentilellia") (Lonergan, Bhatt, Rogers and Gentilellia
are collectively referred to herein as the "Designated Philadelphia
Employees"), Anne C. Zinger, Joseph R. Gouker, Joseph S. Zdun and Paul J.
Simko, Jr. shall have executed employment agreements in form and substance
satisfactory to Purchaser and by executing this Amendment Purchaser
acknowledges that this condition has been satisfied or waived. Purchaser
acknowledges that the written consents of Amoco and Ashland contemplated by
Section 12.01(5) have not been obtained and by executing this Agreement
acknowledges that obtaining such written consents has been waived as a
condition to Closing.
7. The parties acknowledge that the Services Agreement has been amended by
Letter Amendment of even date herewith.
-2-
<PAGE>
8. Section 14.16 Merck Jobs:
"If the total of Purchaser's direct costs incurred in
connection with the completion of Merck Job #2F530 exceeds the
sum of (i) 60% of the liability attributable to Merck Job
#2F530 as reflected on the Closing Date Balance Sheet, and
(ii) 60% of that portion of the $32,171 to be billed to Merck
after the closing date in connection with Merck Job #2F530
which is collected from Merck by Purchaser (such sum being
referred to herein as the "Estimated 2F530 Cost"), then
Sellers shall, subject to Section 9.04, promptly pay to
Purchaser an amount equal to the amount by which such direct
costs exceed the Estimated 2F350 Cost. If the total of
Purchaser's direct costs incurred in connection with the
completion of Merck Job #2F531 exceeds 70% of the liability
attributable to Merck Job #2F531 as reflected on the Closing
Date Balance Sheet (the "Estimate 2F531 Cost"), then Sellers
shall, subject to Section 9.04, promptly pay to Purchaser an
amount equal to the amount by which such direct costs exceed
the Estimated 2F531 Cost. In the event of any dispute
concerning Seller's obligation under this Section 14.16 such
dispute shall be submitted to the Arbiter in accordance with
Section 3.04. The Arbiter shall resolve the dispute and such
resolution shall be final and binding for all purposes of this
Agreement."
9. Schedule 7.08(2) is hereby amended and restated as set forth in the
attachment to this Amendment.
10. Strategic has agreed to pay to the employees of the Philadelphia branch a
$2,000 ($4,000 for the Designated Philadelphia Employees) (in each case
less applicable withholding), bonus upon Closing and to fund a bonus in the
amount of $2,000 ($4,000 for the Designated Philadelphia Employees) (in
each case less applicable withholding) payable to such employees who
continue in the employment of Purchaser through December 31, 1998.
Strategic shall fund the payment of the bonuses described in the preceding
sentence, including, to the extent such bonuses are funded by Strategic and
paid by Purchaser, any taxes payable and other out-of-pocket compensation
related expenses incurred by Purchaser as a result of the Purchaser's
payment of such bonuses.
11. Except as expressly amended herein, the Agreement shall remain unchanged
and in full force and effect. Without limiting the foregoing, Strategic
acknowledges that nothing contained in the third party consents or any
other transaction documents shall limit the indemnification obligations of
Sellers and Strategic under Section 9 of the Agreement. All of the
undersigned ratify the within changes and agree to be bound by the
Agreement as amended herein.
12. The Agreement, as amended by this Amendment, contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersedes any prior or contemporaneous contracts, agreements,
understandings and/or negotiations, whether oral or written with respect to
the subject matter hereof.
-3-
<PAGE>
13. This Amendment may be executed in two or more counterparts, all of which
together shall constitute one and the same instrument.
[signatures on the following page]
-4-
<PAGE>
Executed the day and year first above written.
SELLERS:
AMERICAN TECHNICAL SERVICES GROUP, INC.
By: /s/ Andrew M. Bursky
---------------------------------
Its: Chairman
---------------------------------
ATS PHOENIX, INC.
By: /s/ Andrew M. Bursky
---------------------------------
Its: Chairman
---------------------------------
GUARANTOR:
STRATEGIC DISTRIBUTION, INC.
By: /s/ Andrew M. Bursky
---------------------------------
Its: Chairman
---------------------------------
PURCHASER:
SPEC/ATS, INC.
By:
---------------------------------
Its: Chairman
---------------------------------
GUARANTOR:
SPEC GROUP HOLDINGS, INC.
By:
---------------------------------
Its: President
---------------------------------
<PAGE>
Executed the day and year first above written
SELLERS:
AMERICAN TECHNICAL SERIVCE GROUP, INC.
By:
----------------------------------
Its: Chairman
----------------------------------
ATS PHOENIX, INC.
By:
----------------------------------
Its: Chairman
----------------------------------
GUARANTOR:
STRATEGIC DISTRIBUTION, INC.
By:
----------------------------------
Its: Chairman
----------------------------------
PURCHASER:
SPEC/ATS, INC.
By: /s/ Jean-Pierre Sakey
---------------------------------
Its: Chairman
---------------------------------
GUARANTOR:
SPEC GROUP HOLDINGS, INC.
By: /s/ Jean-Pierre Sakey
---------------------------------
Its: President
---------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,988
<SECURITIES> 0
<RECEIVABLES> 33,290
<ALLOWANCES> 0
<INVENTORY> 27,478
<CURRENT-ASSETS> 65,579
<PP&E> 8,142
<DEPRECIATION> 0
<TOTAL-ASSETS> 84,853
<CURRENT-LIABILITIES> 21,553
<BONDS> 1,458
0
0
<COMMON> 3,128
<OTHER-SE> 94,223
<TOTAL-LIABILITY-AND-EQUITY> 84,853
<SALES> 102,862
<TOTAL-REVENUES> 102,862
<CGS> 80,490
<TOTAL-COSTS> 92,664
<OTHER-EXPENSES> 11,516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (455)
<INCOME-PRETAX> (863)
<INCOME-TAX> 0
<INCOME-CONTINUING> (863)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (863)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
