As filed with the Securities and Exchange Commission on November 28, 1997
Registration No. [333- ]
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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COMMUNITY DISTRIBUTORS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 5912 22-1833660
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
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251 Industrial Parkway Branchburg Township Somerville, NJ 08876
(908) 722-8700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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Todd H. Pluymers
Chief Financial Officer
Community Distributors, Inc.
251 Industrial Parkway
Branchburg Township
Somerville, NJ 08876
(908) 722-8700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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With a Copy to:
John R. Utzschneider, Esq.
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
(617) 951-8852
Facsimile No. (617) 951-8736
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. -
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of Each Class of Securities Amount to be Maximum Offering Maximum Aggregate Amount of
to be Registered Registered Price Per Share Offering Price Registration Fee
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10-1/4% Senior Notes due 2004 of
Community Distributors, Inc. (the "New Notes") $80,000,000 100% $80,000,000 $ 8,080.80(1)
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Guarantee of the New Notes
by CDI Group, Inc. (2) (3) (3) (3) (3)
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(1) Based on one-third of the book value of the securities as of the most
recent practicable date in accordance with Rule 457(f)(2) under the
Securities Act of 1933, as amended. The registrant has an accumulated
capital deficit of $17,864,877 as of October 31, 1997.
(2) CDI Group, Inc., the owner of all of the Registrant's outstanding capital
stock (the "Holding Company") is guaranteeing the New Notes. The address
of the principal executive offices of the Holding Company is the same as
that of the Registrant, and the Holding Company's I.R.S. Employer
Identification and Standard Industrial Classification numbers are
22-3349976 and 5912, respectively.
(3) Because this security is a guarantee of other securities which are being
registered concurrently under this registration statement, no separate
registration fee for this security is payable.
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The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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SUBJECT TO COMPLETION, DATED NOVEMBER , 1997
PROSPECTUS
OFFER TO EXCHANGE 10-1/4% SENIOR NOTES DUE 2004, SERIES B OF
COMMUNITY DISTRIBUTORS, INC., WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, FOR ANY AND ALL
OF ITS OUTSTANDING 10-1/4% SENIOR NOTES DUE 2004
[DRUG FAIR LOGO] [COST CUTTERS LOGO]
Community Distributors, Inc.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED
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Community Distributors, Inc. (the "Company") hereby offers, upon the terms
and subject to the conditions set forth in this Prospectus and the accompanying
letter of transmittal (the "Letter of Transmittal," and together with this
Prospectus, the "Exchange Offer"), to exchange up to an aggregate amount of
$80,000,000 of the Company's 10-1/4% Senior Notes Due 2004, Series B (the "New
Notes"), which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to a Registration Statement of which
this Prospectus is a part, which New Notes shall be guaranteed (the "New
Guarantee") by CDI Group, Inc. (the "Holding Company"), for a like principal
amount of the Company's outstanding 10-1/4% Senior Notes due 2004 (the "Existing
Notes"), of which $80,000,000 in aggregate principal amount is outstanding as
of the date hereof, which Existing Notes have been guaranteed by the Holding
Company (the "Existing Guarantee" and, together with the New Guarantee, the
"Guarantees"). The terms of the New Notes and the New Guarantee are identical
in all material respects to the terms of the Existing Notes and the Existing
Guarantee, except for certain transfer restrictions and registration rights
relating to the Existing Notes. The New Notes will be issued pursuant to, and
entitled to the benefits of, the Indenture, dated as of October 16, 1997,
between the Company and the Holding Company and The Bank of New York, as
trustee, governing the Existing Notes. The New Notes and the Existing Notes are
hereinafter sometimes collectively referred to as the "Notes."
The Company will accept for exchange any and all Existing Notes that are
validly tendered on or prior to 5:00 p.m., New York City time, on the date the
Exchange Offer expires, which will be , [1997], unless the Exchange
Offer is extended (the "Expiration Date"). Tenders of Existing Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the business
day prior to the Expiration Date. The Exchange Offer is not conditioned upon
any minimum principal amount of Existing Notes being tendered for exchange.
However, the Exchange Offer is subject to certain conditions which may be
waived by the Company and to the terms and provisions of the Notes Registration
Rights Agreement (as defined herein). See "Exchange Offer." The Company has
agreed to pay the expenses of the Exchange Offer.
Holders of Existing Notes whose notes are not tendered and accepted in the
Exchange Offer will continue to hold such Existing Notes. Following
consummation of the Exchange Offer, the holders of Existing Notes will continue
to be subject to the existing restrictions upon transfer thereof and, except as
provided herein, the Company and the Holding Company will have no further
obligation to such holders to provide for the registration under the Securities
Act of the Existing Notes held by them or the Existing Guarantee.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY HOLDERS OF EXISTING NOTES AND PROSPECTIVE
PURCHASERS OF NEW NOTES.
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The Company will not receive any proceeds from this Exchange Offer and no
underwriter is being utilized in connection with this Exchange Offer.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE
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The date of this Prospectus is , 1997.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
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PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS PROSPECTUS
AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD CONSULT ITS OWN
COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX, BUSINESS, FINANCIAL
AND RELATED ASPECTS OF A PURCHASE OF THE NOTES. NEITHER THE COMPANY NOR THE
INITIAL PURCHASERS ARE MAKING ANY REPRESENTATION TO ANY OFFEREE OR PURCHASER OF
THE NOTES REGARDING THE LEGALITY OF AN INVESTMENT THEREIN BY SUCH OFFEREE OR
PURCHASER UNDER APPROPRIATE LEGAL INVESTMENT OR SIMILAR LAWS. IN MAKING AN
INVESTMENT DECISION REGARDING THE EXCHANGE NOTES OFFERED HEREBY, PROSPECTIVE
INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF
THE EXCHANGE OFFER, INCLUDING THE MERITS AND RISKS INVOLVED. THE EXCHANGE OFFER
IS BEING MADE ON THE BASIS OF THIS PROSPECTUS. ANY DECISION TO EXCHANGE NOTES
IN THE EXCHANGE OFFER MUST BE BASED ON THE INFORMATION CONTAINED HEREIN. EACH
PROSPECTIVE PURCHASER OF THE EXCHANGE NOTES MUST COMPLY WITH ALL APPLICABLE
LAWS AND REGULATIONS IN FORCE IN ANY JURISDICTION IN WHICH IT PURCHASES, OFFERS
OR SELLS THE EXCHANGE NOTES OR POSSESSES OR DISTRIBUTES THIS PROSPECTUS AND
MUST OBTAIN ANY CONSENT, APPROVAL OR PERMISSION REQUIRED BY IT FOR THE
PURCHASE, OFFER OR SALE BY IT OF THE EXCHANGE NOTES UNDER THE LAWS AND
REGULATIONS IN FORCE IN ANY JURISDICTION TO WHICH IT IS SUBJECT OR IN WHICH IT
MAKES SUCH PURCHASES, OFFERS OR SALES, AND NEITHER THE COMPANY NOR THE INITIAL
PURCHASERS SHALL HAVE ANY RESPONSIBILITY THEREFOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
NOTES TO ANY PERSON IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION.
UPON REQUEST OF THE INITIAL PURCHASERS OR THE COMPANY, PROSPECTIVE
INVESTORS MAY OBTAIN SUCH ADDITIONAL INFORMATION AS THEY MAY REASONABLY REQUEST
IN CONNECTION WITH THE DECISION TO PURCHASE ANY OF THE NOTES.
Market data and competitive position data used throughout this Prospectus
are approximations based on internal company research, surveys or studies
conducted by third parties, or industry or general publications. The Company
has not independently verified market data and competitive position data
provided by third parties or industry or general publications. Similarly,
internal company research, while believed by the Company to be reliable, has
not been verified by any independent sources.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE
HAS BEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT
THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE
OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY
DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER
ANY SUCH FACT NOR THE FACT THAT ANY EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF THE STATE OF NEW
HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATION OF, OR
RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS
UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER
OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS
PARAGRAPH.
THE INITIAL PURCHASERS WHO PARTICIPATED IN THE OFFERING OF THE INITIAL NOTES
MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE
PRICE OF THE NOTES. SPECIFICALLY, THE INITIAL PURCHASERS MAY BID FOR AND
PURCHASE INITIAL NOTES AND EXCHANGE NOTES IN THE OPEN MARKET.
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PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus and is qualified in its entirety by the more detailed
information and financial statements and the related notes thereto appearing
elsewhere in this Prospectus. As used in this Prospectus, the terms "fiscal
1991," "fiscal 1992," "fiscal 1993," "fiscal 1994," "fiscal 1996" and "fiscal
1997" refer to the fiscal years ended July 28, 1991, July 26, 1992, July 25,
1993, July 31, 1994, July 28, 1996 and July 26, 1997, respectively, of the
Company or the Holding Company, as applicable. All references to the twelve
months ended July 30, 1995 are to the 52 weeks ended July 30, 1995, and all
information presented for this period represents the mathematical addition of
the results of operations of the Company for the six months immediately prior
to the acquisition of the Company by the Holding Company on January 30, 1995
and the results of operations of the Company for the six months ended July 30,
1995.
THE COMPANY AND THE HOLDING COMPANY
The Company is among the largest regional drugstore chains in the United
States and the only such chain focused primarily on the densely populated
northern and central New Jersey markets. The Holding Company is the owner of
all of the outstanding capital stock of the Company. The Company operates a
chain of 43 drug and general merchandise stores under two separate formats,
Drug Fair and Cost Cutters, and ranks as the number two or three competitor in
its primary market areas based on sales of similar merchandise. Of the
Company's 43 stores, 18 have been opened since 1989 and all but one of the
remaining stores have been refurbished since 1991. The Company has been
consistently profitable and each of the Company's mature stores (those open for
more than 24 months) is profitable on an operating basis prior to the
allocation of certain corporate overhead. The Company's revenues and EBITDA (as
defined) were $231.0 million and $18.7 million, respectively, in fiscal 1997.
Drug Fair. Drug Fair is a chain of 26 large-format drugstores with an
average store size of approximately 17,000 square feet. All of the stores
contain a pharmacy in the rear of the store, which is the focal point of the
store layout. In fiscal 1997, the Company's pharmacies (including four at Cost
Cutters locations) filled over 1.5 million prescriptions, an average weekly
volume of approximately 1,000 scripts per pharmacy, and pharmacy sales
increased 16.3% over fiscal 1996. Currently, approximately 72% of the Company's
prescription sales are made to participants in managed health care plans and
other third-party payer plans ("Third-Party Plans"). Drug Fair's strategy is to
utilize large-format stores to capitalize on the increased customer traffic
associated with its growing pharmacy business to increase sales of higher
margin non-pharmacy merchandise, including health and beauty care items,
housewares, greeting cards, stationery, candy and seasonal items. General
merchandise accounted for approximately 61% of Drug Fair revenues in fiscal
1997, significantly higher than the average of other large drugstore chains.
The Company believes that its broad selection of front-end merchandise is a
significant competitive strength that has enabled it to increase its overall
gross margins from 27.5% in fiscal 1991 to 29.4% in fiscal 1997. Drug Fair
stores are primarily located in neighborhood shopping centers that are easily
accessible and generate significant customer traffic.
Cost Cutters. Cost Cutters is a 17-store general merchandise chain with an
average store size of approximately 29,000 square feet. Cost Cutters stimulates
customer traffic by offering a non-pharmacy merchandise mix similar to Drug
Fair, a high-impact merchandise presentation and an everyday low price
strategy, with prices generally 10%-15% lower than Drug Fair. Cost Cutters
offers a broader selection of products than Drug Fair while still focusing on
health and beauty care items, housewares, greeting cards, stationery, candy and
seasonal items. Currently, four locations have pharmacies, two within the store
and two as separate Drug Fair storefronts adjacent to the store, and the
Company believes there is an opportunity to open Drug Fair pharmacies at
certain additional Cost Cutters locations. Cost Cutters stores are primarily
located near major highways, drawing customers from a wider area than a typical
drugstore and emphasizing their destination-store orientation.
Since 1990, the Company has experienced significant growth led by Frank
Marfino, the Company's Chief Executive Officer. During this period, the Company
expanded its store base by 12 stores, with revenues increasing from $138.5
million in fiscal 1991 to $231.0 million in fiscal 1997 (an 8.9% compounded
annual growth rate ("CAGR")) and EBITDA increasing from $6.0 million in fiscal
1991 to $18.7 million in fiscal 1997 (a 20.9% CAGR). During this period, the
Company also increased its EBITDA margin from 4.3% to 8.1% of sales. This
improved operating performance and growth have resulted primarily from
rationalization and expansion of the store base, improved centralized controls
over
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purchasing, effective merchandising, pricing and loss-prevention strategies,
increased pharmacy business with Third-Party Plan participants, and cost
control measures that have reduced selling, general and administrative expense
as a percentage of sales from 23.8% in fiscal 1991 to 22.0% in fiscal 1997.
The Company was acquired in January 1995 (the "Acquisition") by the
Holding Company, whose shareholders include a group of investors led by
BancBoston Ventures Inc. ("BancBoston"), Harvest Technology Partners, L.P.
("Harvest") and affiliates, and management. Since the Acquisition, the Company
has placed increased emphasis on growing its pharmacy sales to Third-Party Plan
participants and, as a result, has grown its pharmacy sales at a 12.0% CAGR
from fiscal 1994 to fiscal 1997. Similarly, improved non-pharmacy merchandising
and pricing strategies, combined with increased customer traffic resulting from
higher pharmacy sales, have enabled the Company to increase its gross margin
from 27.9% in fiscal 1994 to 29.4% in fiscal 1997. This increase occurred
despite continued pharmacy margin erosion resulting from increased sales to
Third-Party Plan participants.
According to Drug Store News, the U.S. drugstore industry accounted for
$91 billion of retail sales in 1996 and has grown at a 6.1% CAGR since 1987.
During this period, sales at chain drugstores grew at a 8.4% CAGR, as
independent drugstores lost significant market share to the larger and more
efficient national and regional chains, such as the Company. Industry revenues
are expected to continue to grow at similar rates due to the aging of the U.S.
population, greater participation in Third-Party Plans and continued growth in
new pharmaceutical products. According to industry sources, households headed
by persons aged 55 to 64 and 65 to 74 spend approximately 20% more and 105%
more, respectively, on prescriptions than the average household. According to
the United States Bureau of the Census, people 55 years of age and over
represent the fastest growing segment of the U.S. population and are expected
to grow from 55.8 million in 1997 to 74.7 million in 2010, an increase of
33.9%. In addition, the percentage of prescriptions purchased through
Third-Party Plans has increased from 50% in 1993 to 67% in 1996 and is expected
to continue to increase. As pharmacy sales at national and regional chains have
grown, sales of other higher-margin non-pharmacy merchandise offered in chain
drugstores have also experienced positive growth as a result of increased
customer traffic.
COMPETIVE STRENGTHS
The Company attributes its success in the marketplace to the following
competitive strengths:
Strong Market Position in Attractive Regional Market. As the largest
drugstore chain focused primarily on the densely populated northern and central
New Jersey markets, the Company's operations serve an estimated population of
over 5.7 million. New Jersey offers a highly attractive customer base, with
among the highest income per capita in the United States. The Company has
operated in these markets for its entire 43-year history and has profitably
managed its operations through changing economic conditions and an environment
of increasing competition. Since 1990, a period of significant incremental
competition, management has successfully expanded its store base, increased
same-store sales each year, and increased its EBITDA margin from 4.3% in fiscal
1991 to 8.1% in fiscal 1997. The State of New Jersey has adopted "Freedom of
Choice" and "Any Willing Provider" legislation, which together effectively
allow any prescription provider to service Third-Party Plan participants on
terms identical to those offered to other providers. Management believes this
results in a "level playing field" in New Jersey for regional drugstore chains
such as the Company and positions it to benefit from the continued growth in
pharmacy sales.
Favorable Store Locations. The Company has generally located its stores in
convenient locations under favorable leases, many of which include attractive
long-term renewal rates. The Company's Drug Fair stores are primarily located
in neighborhood shopping centers that are easily accessible and generate
significant customer traffic. The Company's Cost Cutters stores are primarily
located near major highways, drawing customers from a wider area than a typical
drugstore and emphasizing their destination-store orientation. The Company
believes that the accessibility and manageable size of its stores appeal to
consumers at a time when other discount merchandisers continue to open larger
and more complex stores that customers may find less convenient. The close
proximity of the Company's stores to its executive offices and distribution
centers also results in distribution and inventory management efficiencies and
permits close management supervision of store operations.
Successful Merchandising and Pricing Strategy. The Company believes that
its focus on consistent execution of its purchasing, pricing and merchandising
strategies has been instrumental to its success. Excluding pharmacy, Drug Fair
and Cost Cutters offer a similar merchandise mix, with over 90% of merchandise
common to both chains. The Company believes that its broader selection of
front-end merchandise is a significant competitive strength which
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enabled it to realize an overall increase in its margins between fiscal 1991
and fiscal 1997. The Company also believes that by operating both chains it is
able to purchase most of its products at competitive prices by purchasing
products in truck-load or container quantities. The Company employs a
promotional pricing strategy at Drug Fair and a modified everyday low price
strategy at Cost Cutters, each targeted towards the customers it seeks to
attract. In addition, the Company's comprehensive and integrated inventory
management system and electronic point-of-sale system record all sales data by
scanner at the time of sale and permit the Company to maintain in-stock
positions in all key lines of merchandise, promote higher inventory turns and
provide the ability to monitor sales and profitability by store location.
Well-Maintained Store Base. Of the Company's 43 stores, 18 have been
opened since 1989 and all but one of the 25 remaining stores have been
refurbished since 1991. As a result, the Company does not expect to incur an
extraordinary level of capital expenditures for store maintenance in the near
term. Furthermore, since 1991 the Company has rationalized its store base and
closed four underperforming stores. As a result of this rationalization and the
other operating improvements implemented by management, each of the Company's
38 mature stores is profitable on an operating basis prior to the allocation of
certain corporate overhead and management believes that the Company's EBITDA
margin exceeds the industry average.
OPERATING AND GROWTH STRATEGY
The Company's operating and growth strategy consists of four principal
elements: (i) capitalize on favorable pharmacy trends, (ii) increase customer
traffic, (iii) further optimize retail execution and (iv) selectively expand
its store base.
Capitalize on Favorable Pharmacy Trends. The pharmacy business contributes
significantly to the Company's growth by increasing sales of non-pharmacy
merchandise, enhancing customer loyalty and generating customer traffic.
Primarily as a result of increasing sales to Third-Party Plan participants, the
Company's pharmacy sales have increased by 9.0%, 10.8% and 16.3% in the twelve
months ended July 30, 1995, fiscal 1996 and fiscal 1997, respectively.
Management expects favorable pharmacy sales trends to continue, and believes
that the Company is well-positioned to increase its higher margin non-pharmacy
merchandise sales by capitalizing on the increased customer traffic generated
by its pharmacies.
Increase Customer Traffic. With favorable pharmacy sales and resulting
customer traffic trends expected to continue, the Company believes that there
are opportunities to further improve customer traffic by providing various
products and services that increase consumer conveniences or otherwise attract
customers to the Company's stores, including offering on-site one-hour
photofinishing labs in a number of locations and increasing offerings of
convenience foods and seasonal merchandise. The Company is also offering new
products and services such as lottery ticket sales and automated teller
machines (ATMs) in selected stores to enhance customer traffic. The Company
also builds customer loyalty and encourages repeat customer traffic by keeping
its stores orderly and clean and maintaining in-stock positions in
substantially all of its merchandise.
Further Optimize Retail Execution. The Company's non-pharmacy
merchandising strategies are designed to improve customer satisfaction,
selection and convenience and establish its stores as a destination for a
growing number of front-end merchandise categories. The Company believes that
effective merchandise management increases customer satisfaction and has
contributed significantly to increases in its gross margin. The Company will
continue to refine its merchandising and buying practices with the goal of
increasing sales of higher-margin items and improving inventory turnover. For
example, the Company is exploring opportunities to expand sales of over-
the-counter ("OTC") drugs, health and beauty care items, and private label
merchandise.
Selectively Expand Store Base. The Company expects to selectively expand
its store base as favorable market locations become available. The Company
believes that store expansion will increase sales and cash flow, strengthen its
market position and result in economies of scale in marketing and distribution
by leveraging its existing infrastructure. In addition, the Company believes
that increased sales volume may enable it to purchase inventory at better
prices. Management plans to expand its Drug Fair store base, as these stores
generally offer shorter payback periods and higher returns on investment and
better position the Company to capitalize on favorable trends affecting the
drugstore industry. The Company expects to open four new Drug Fair locations
before the end of fiscal 1998 and, depending on the availability of favorable
locations, intends to open an average of three to four new Drug Fair stores
annually over the next several years.
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THE EXCHANGE OFFER
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Securities Offered ............... Up to $80,000,000 aggregate principal amount of 10-1/4% Senior Notes
due 2004, Series B of the Company (the "New Notes"), together with
a guarantee hereof by the Holding Company (the "New Guarantee"),
in exchange for up to $80,000,000 aggregate principal amount of
outstanding 10-1/4% Senior Notes due 2004 of the Company (together
with a guarantee thereof by the Holding Company, referred to
hereinafter as the "Existing Guaranty," and together with the New
Guaranty, the "Guarantees"). The terms of the New Notes and the
New Guarantee and those of the Existing Notes and the Existing
Guarantee are identical in all material respects, except for certain
transfer restrictions relating to the Existing Notes. See "Description
of the Notes."
Registration Rights Agreement ...... The Existing Notes were issued on October 16, 1997 to Donaldson,
Lufkin & Jenrette Securities Corporation and Bear, Stearns & Co. Inc.
(the "Initial Purchasers"). The Initial Purchasers resold the Existing
Notes to certain qualified institutional buyers in reliance on, and
subject to the restrictions imposed pursuant to, Rule 144A under the
Securities Act. In connection therewith, the Company, the Holding
Company and the Initial Purchasers entered into the Registration
Rights Agreement, dated as of October 16, 1997 (the "Registration
Rights Agreement"), providing, among other things, for the Exchange
Offer. See "The Exchange Offer."
Resale of New Notes ............... Based on interpretations by the Staff of the Commission as set forth
in no-action letters issued to third parties, the Company believes that
the New Notes issued pursuant to the Exchange Offer may be offered
for resale, resold or otherwise transferred by any holder thereof (other
than any such holder that is a broker-dealer or an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that (i) such New Notes are
acquired in the ordinary course of business, (ii) at the time of the
commencement of the Exchange Offer such holder has no
arrangement or understanding with any person to participate in a
distribution of the New Notes and (iii) such holder is not engaged in,
and does not intend to engage in, a distribution of the New Notes. By
tendering Existing Notes in exchange for New Notes, each holder will
represent to the Company that; (i) it is not such an affiliate of the
Company, (ii) at the time of the commencement of the Exchange Offer
it had no arrangement with any person to participate in a distribution
of the New Notes and, if such holder is not a broker-dealer, it is not
engaged in, and does not intend to engage in, a distribution of New
Notes and (iii) any New Notes to be received by it will be acquired
in the ordinary course of business. If a holder of Existing Notes is
unable to make the foregoing representations, such holder may not
rely on the applicable interpretations of the Staff of the Commission
as set forth in such no-action letters, and must comply with the
registration and prospectus delivery requirement of the Securities Act
in connection with any secondary resale transaction.
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Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer in exchange for Existing Notes, where
such Existing Notes were acquired by such broker-dealer as a result
of market-making activities or other activities, must acknowledge that
it will deliver a prospectus meeting the requirements of the Securities
act and that it has not entered into any arrangement or understanding
with the Company or an affiliate of the Company to distribute the New
Notes in connection with any resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New
Notes where such Existing Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The
Company has agreed that, starting on the Expiration Date, and ending
on the close of business 180 days after the Expiration Date, it will
make this Prospectus available to any participating broker dealer for
use in connection with any such resale. See "Plan of Distribution."
To comply with the securities laws of certain jurisdictions, it may
be necessary to qualify for sale or register the New Notes prior to
offering or selling such New Notes in such jurisdictions. The
Company has agreed, pursuant to the Registration Rights
Agreement and subject to certain specified limitations therein, to
register or qualify the New Notes for offer or sale under the
securities or "blue sky" laws of such jurisdictions as may be
necessary to permit the holders of New Notes to trade in New Notes
without any material restrictions or limitations under the securities
laws of the several states of the United States.
The Exchange Offer ............... The New Notes are being offered in exchange for a like principal
amount of Existing Notes. Existing Notes may be exchanged only
in existing multiples of $1,000. The issuance of the New Notes is
intended to satisfy obligations of the Company under the
Registration Rights Agreement. For a description of the procedures
for tendering, see "Exchange Offer--Procedures for Tendering
Existing Notes."
Expiration Date; Withdrawal ...... The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1997, or such later date and time to which it may be
extended in the sole discretion of the Company (the "Expiration
Date"). The tender of Existing Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to any time prior to 5:00 p.m.,
New York City time, on the business day prior to the Expiration Date.
Any Existing Notes not accepted for exchange for any reason will be
returned without expense to the tendering holders thereof as promptly
as practicable after the expiration or termination of the Exchange
Offer. See "Exchange Offer--Expiration Date; Extensions;
Termination; Amendments; and Withdrawal Rights."
Conditions to Exchange Offer ...... The Exchange Offer is subject to certain conditions. See "Exchange
Offer--Certain Conditions to the Exchange Offer."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Procedures for Tendering Each holder of Existing Notes wishing to accept the Exchange Offer
Existing Notes ............... must complete, sign and date a Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Existing Notes and any other
required documents, to the Exchange Agent (as defined) at the address
set forth herein. See "Exchange Offer--Procedures for Tendering
Existing Notes."
Use of Proceeds ............... There will be no proceeds to the Company or the Holding Company
from the exchange of Notes pursuant to the Exchange Offer.
Certain Federal Income Tax The exchange pursuant to the Exchange Offer should not be a
Consideration .................. taxable event to the holder for federal income tax purposes, and the
holder should not recognize any taxable gain or loss as a result of
such exchange. See "Certain Federal Income Tax Considerations."
Untendered Existing Notes ...... Upon consummation of the Exchange Offer, the holders of Existing
Notes, if any, will have no further rights under the Registration Rights
Agreement, except as provided herein. Holders of Existing Notes
whose Existing Notes are not tendered or are tendered but not accepted
in the Exchange Offer will continue to hold such Existing Notes and
will be entitled to all the rights and preferences and subject to the
limitations applicable thereto. Following consummation of the
Exchange Offer, the holders of Existing Notes will continue to be
subject to the existing restrictions upon transfer thereof and, except as
provided herein, the Company will have no further obligation to such
holders to provide for the registration under the Securities Act of the
Existing Notes held by them. To the extent that Existing Notes are
tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered by unaccepted Existing Notes could be
adversely affected.
Exchange Agent .................. The Bank of New York is serving as the Exchange Agent in
connection with the Exchange Offer.
</TABLE>
TERMS OF THE NOTES
Except as otherwise indicated, the following description relates both to
the Existing Notes issued pursuant to the Offering and to the New Notes to be
issued in exchange for Existing Notes in connection with the Exchange Offer.
The New Notes will be obligations of the Company evidencing the same
indebtedness as the Existing Notes, and will be entitled to the benefits of the
same Indenture. The form and terms of the New Notes are the same as the form
and terms of the Existing Notes, except that the New Notes have been registered
under the Securities Act and therefore will not bear legends restricting the
transfer thereof. For a more complete description of the Notes see "Description
of Notes." Throughout this Prospectus, references to the "Notes" refer to the
New Notes and the Existing Notes collectively.
<TABLE>
<S> <C>
Issuer .................. Community Distributors, Inc.
Securities Offered ...... $80,000,000 aggregate principal amount of 10-1/4% Senior Notes
due 2004, Series B.
Maturity Date ............ October 15, 2004.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Interest on the Notes ......... The Existing Notes accrue interest at a rate of 10-1/4% per annum
from the Issue Date. The New Notes will accrue interest at a rate
of 10-1/4% per annum from the Issue Date or from the most recent
date to which interest had been paid on the Existing Notes.
Interest Payment Dates ...... April 15 and October 15, commencing on April 15, 1998.
Optional Redemption ......... The Notes will be redeemable at the option of the Company, in
whole or in part, on or after October 15, 2001, at the redemption
prices set forth herein, plus accrued and unpaid interest, if any, to
the date of redemption. Notwithstanding the foregoing, prior to
October 15, 2000, the Company may redeem from time to time up
to 35% of the aggregate principal amount of the Notes originally
outstanding at a redemption price equal to 110.25% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the
redemption date, with the net proceeds of one or more Equity
Offerings (as defined herein); provided that at least 65% of the
aggregate principal amount of the Notes originally outstanding
remain outstanding immediately after the occurrence of such
redemption. See "Description of Notes--Optional Redemption."
Guarantees .................. The Notes will be guaranteed on a senior unsecured basis by the
Holding Company and the Company's future subsidiaries, if any
(such future subsidiaries are collectively referred to as the
"Subsidiary Guarantors" and, together with the Holding Company,
as the "Guarantors").
Ranking ..................... The Notes and the Guarantees constitute unsecured obligations of the
Company and the Guarantors, respectively, and rank pari passu with
all present and future unsecured senior indebtedness of the
Company and the Guarantors, as applicable. The Notes and the
Guarantees will be effectively subordinated to borrowings under
the Company's New Credit Facility to the extent of the value of
the assets securing such indebtedness and to any additional secured
indebtedness of the Company and the Guarantors, respectively,
permitted under the indenture governing the Notes (the
"Indenture"). As of July 26, 1997, assuming issuance of the
Existing Notes and application of the net proceeds therefrom, there
would have been approximately $0.2 million of such indebtedness
that was effectively senior to the Notes and the Guarantees. See
"Description of Notes--General" and "Description of New Credit
Facility and Certain Other Indebtedness."
Change of Control Offer ...... Upon a Change of Control, the Company will be required to offer
to repurchase all outstanding Notes at 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any,
to the date of repurchase. See "Description of Notes--Certain
Covenants--Repurchase of Notes at the Option of the Holder Upon
a Change of Control."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Certain Covenants ...... The Indenture contains certain covenants with respect to the Company
and any subsidiaries that limit the ability of the Company and any
subsidiaries to, among other things, (i) incur additional Indebtedness
(as defined herein), (ii) pay dividends or make other distributions, (iii)
make certain investments, (iv) create certain liens, (v) sell certain
assets, (vi) enter into certain transactions with affiliates and (vii) enter
into certain mergers or consolidations involving the Company or its
subsidiaries. See "Description of Notes--Certain Covenants."
</TABLE>
COMPARISON OF NEW NOTES WITH EXISTING NOTES
<TABLE>
<S> <C>
Freely Transferable ............ Generally, the New Notes will be freely transferable under the
Securities act by holders thereof other than any holder that is either
an affiliate of the Company or a broker-dealer that purchased the Notes
from the Company to resell pursuant to Rule 144A or any other
available exemption. The New Notes otherwise will be substantially
identical in all material respects (including interest rate and maturity)
to the Existing Notes. See "Exchange Offer."
Registration Rights ............ The holders of Existing Notes currently are entitled to certain
registration rights pursuant to the Registration Rights Agreement (the
"Registration Rights Agreement"), dated as of October 16, 1997,
among the Company, the Holding Company and the Initial
Purchasers. However, upon consummation of the Exchange Offer,
subject to certain exceptions, holders of Existing Notes who do not
exchange their Existing Notes for New Notes in the Exchange Offer
will no longer be entitled to registration rights and will not be able to
offer or sell their Existing Notes, unless such Existing Notes are
subsequently registered under the Securities Act (which, subject to
certain limited exceptions, the Company will have no obligation to
do), except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. See
"Risk Factors--Adverse Consequences of Failure to Adhere to
Exchange Offer Procedures."
Absence of a Public Market for the The New Notes are new securities and there is currently no
New Notes ..................... established market for the New Notes. Accordingly, there can be
no assurance as to the development or liquidity of any market for
the New Notes. The Company does not intend to apply for listing
on a securities exchange of the New Notes.
</TABLE>
For more complete information regarding the Existing Notes and the New
Notes, including the definitions of certain capitalized terms used above, see
"Description of the Notes."
Risk Factors
Holders of Existing Notes and prospective purchasers of New Notes should
consider carefully the information set forth under the caption "Risk Factors,"
and all other information set forth in this Prospectus, in connection with the
Exchange Offer.
8
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The Company
The following summary financial data and operating data for the periods
and dates indicated set forth below have been derived from the audited
financial statements of the Company. The Company was acquired by the Holding
Company on January 30, 1995, and the summary statement of operations data for
the twelve months ended July 30, 1995 represents the mathematical addition of
the audited results of operations of the Company for the six months ended
January 29, 1995 and the audited results of operations of the Company for the
six months ended July 30, 1995. The data presented below under the caption "Pro
Forma Data" and "Other Data" for all periods presented, are unaudited. The
unaudited summary pro forma financial and operating data of the Company for the
twelve months ended July 26, 1997 do not necessarily reflect the results of
operations or financial position of the Company that would have actually
resulted had the events referred to in the notes to the unaudited pro forma
financial information been consummated as of the dates indicated and are not
intended to project the Company's financial position or results of operations
for any future period.
The summary financial and operating data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's financial statements and related notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Twelve Months Ended
--------------------------------------------------
July 30, 1995 July 28, 1996 July 26, 1997
(dollars in thousands)
<S> <C> <C> <C>
Statement of Operations Data:
Net sales ....................................... $197,858 $215,731 $231,033
Cost of sales .................................... 140,155 152,645 163,157
--------- --------- ---------
Gross profit .................................... 57,703 63,086 67,876
Selling, general and administrative expense ...... 43,103 47,487 50,831
Other income, net ................................. 800 353 401
Administrative fees .............................. 125 250 250
Depreciation and amortization (1) ............... 2,864 4,341 4,399
--------- --------- ---------
Operating income ................................. 12,411 11,361 12,797
Interest expense, net ........................... 2,284 3,998 3,018
--------- --------- ---------
Income before income taxes ..................... 10,127 7,363 9,779
Provision for income taxes ........................ 1,784 3,659 5,216
--------- --------- ---------
Net income ....................................... $ 8,343 $ 3,704 $ 4,563
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended
-----------------------
July 26, 1997
(unaudited)
(dollars in thousands)
<S> <C>
Pro Forma Data (2):
EBITDA (3) ................................................... $ 18,695
Pro forma cash interest expense, net ........................ 8,169
Ratio of EBITDA to pro forma cash interest expense, net ...... 2.3x
Pro forma net debt (4) ....................................... $ 76,649
Ratio of pro forma net debt to EBITDA ........................ 4.1x
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Twelve Months Ended
--------------------------------------------------
July 30, 1995 July 28, 1996 July 26, 1997
(dollars in thousands)
<S> <C> <C> <C>
Other Data (unaudited):
EBITDA (3) ....................................... $ 17,396 $ 16,913 $ 18,695
EBITDA margin .................................... 8.8% 7.8% 8.1%
Capital expenditures ........................... $ 2,383 $ 2,887 $ 1,287
Pharmacy sales growth ........................... 9.0% 10.8% 16.3%
Pharmacy sales as a % of total .................. 21.8 22.1 24.1
Third-Party Plan sales as a % of pharmacy sales . 49.1 61.5 70.1
Store data:
Number of stores at end of period:
Drug Fair .................................... 22 25 26
Cost Cutters ................................. 16 17 17
-------- -------- --------
Total ....................................... 38 42 43
======== ======== ========
Same-store sales growth (5):
Drug Fair .................................... 5.3% 3.5% 6.7%
Cost Cutters ................................. 4.1 0.9 2.7
-------- -------- --------
Total ....................................... 4.8% 2.4% 4.8%
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of July 26, 1997
----------------------------
Actual As Adjusted (6)
(unaudited)
(dollars in thousands)
<S> <C> <C>
Balance Sheet Data:
Working capital (unaudited) ......... $ 9,875 $ 14,578
Total assets ........................ 81,256 89,745
Total debt ........................... 29,467 80,198
Stockholder's equity (deficit) ...... 27,335 (19,269)
</TABLE>
- ------------
(1) Depreciation and amortization amounts for the last six months for the
twelve month period ended July 30, 1995 and for the twelve months ended
July 28, 1996 and the twelve months ended July 26, 1997 include
amortization of goodwill, beneficial leasehold intangibles and deferred
financing costs recorded in connection with the Acquisition in January
1995.
(2) Gives pro forma effect to the sale of the Existing Notes and the
application of the net proceeds therefrom as described under the caption
"Use of Proceeds" as of 7/29/96 the first date of the stated period. For
the purposes of Pro Forma Data, cash interest expense represents total
interest expense minus amortization of deferred financing costs.
(3) EBITDA represents net income plus depreciation and amortization, income
taxes, net interest expense, changes in LIFO inventory reserves and
non-cash rental expense. Changes in LIFO inventory reserves and non-cash
rental expense aggregated $2,121, $1,211, and $1,500 for the twelve months
ended July 30, 1995, July 28, 1996 and July 26, 1997, respectively. While
EBITDA should not be construed as a substitute for income from operations,
net income or cash flows from operating activities (as defined by
generally accepted accounting principles) in analyzing the Company's
operating performance, financial position or cash flows, the Company has
included EBITDA because it is commonly used by certain investors and
analysts to analyze and compare companies on the basis of operating
performance, leverage and liquidity and to determine a company's ability
to service debt. In addition, the method of calculating EBITDA set forth
above may be different from calculations of EBITDA employed by other
companies and, accordingly, may not be directly comparable to such other
calculations.
(4) Pro forma net debt represents total pro forma debt less pro forma cash and
cash equivalents.
(5) Same-store sales growth is calculated based on net sales for stores open
for the whole of the indicated period and the previous period.
(6) As adjusted information gives pro forma effect to the sale of the Existing
Notes and the application of the net proceeds therefrom as described under
the caption "Use of Proceeds" as if they had occurred on July 26, 1997.
See "Capitalization."
10
<PAGE>
The Holding Company
The following summary financial data and operating data for the periods
and dates indicated set forth below have been derived from the audited
financial statements of the Holding Company. The Company was formed in January,
1995. The summary financial and operating data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Holding Company's audited financial statements and
related notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Six Months Twelve Months Ended
Ended --------------------------------
July 30, 1995 July 28, 1996 July 26, 1997
(dollars in thousands)
<S> <C> <C> <C>
Statement of Operations Data:
Net sales ....................................... $ 96,171 $ 215,731 $ 231,033
Cost of sales .................................... 67,686 152,645 163,157
-------- --------- ---------
Gross profit .................................... 28,485 63,086 67,876
Selling, general and administrative expense ...... 21,635 47,487 50,831
Other income, net ................................. 205 353 401
Administrative fees .............................. 125 250 250
Depreciation and amortization (1) ............... 1,980 4,341 4,399
-------- --------- ---------
Operating income ................................. 4,950 11,361 12,797
Interest expense, net ........................... 2,946 5,326 4,586
-------- --------- ---------
Income before income taxes ........................ 2,004 6,035 8,211
Provision for income taxes ........................ 1,366 3,442 4,433
-------- --------- ---------
Net income ....................................... $ 638 $ 2,593 $ 3,778
======== ========= =========
Other Data (unaudited):
EBITDA (2) ....................................... $ 7,714 $ 16,913 $ 18,695
EBITDA margin .................................... 8.0% 7.8% 8.1%
Capital expenditures .............................. $ 1,070 $ 2,887 $ 1,287
Pharmacy sales growth ........................... 9.0% 10.8% 16.3%
Pharmacy sales as a % of total .................. 22.6 22.1 24.1
Third-Party Plan sales as a % of pharmacy sales . 50.9 61.5 70.1
Store data:
Number of stores at end of period:
Drug Fair .................................... 22 25 26
Cost Cutters ................................. 16 17 17
-------- --------- ---------
Total ....................................... 38 42 43
-------- --------- ---------
Same-store sales growth (3):
Drug Fair .................................... 6.6% 3.5% 6.7%
Cost Cutters ................................. 4.3 0.9 2.7
-------- --------- ---------
Total ....................................... 5.6 2.4 4.8
======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
As of July 26, 1997
----------------------------
Actual As Adjusted (4)
(unaudited)
(dollars in thousands)
<S> <C> <C>
Balance Sheet Data:
Working capital (unaudited) ............... $10,363 $ 15,828
Total assets .............................. 81,332 88,491
Total debt ................................. 46,387 97,118
Redeemable Preferred and Common Stock ...... 854 854
Stockholder's equity (deficit) ............ 10,855 (36,817)
</TABLE>
- ------------
(1) Depreciation and amortization amounts include amortization of goodwill,
beneficial leasehold intangibles and deferred financing costs recorded in
connection with the Acquisition in January 1995.
(2) EBITDA represents net income plus depreciation and amortization, income
taxes, net interest expense, changes in LIFO inventory reserves and
non-cash rental expense. Changes in LIFO inventory reserves and non-cash
rental expense aggregated $784, $1,211, and $1,500 for the six months
ended July 30, 1995, and the twelve months ended on July 28, 1996 and July
26, 1997, respectively. While EBITDA should not be construed as a
substitute for income from operations, net income or cash flows from
operating activities (as defined by generally accepted accounting
principles) in analyzing the Holding Company's operating performance,
financial position or cash flows,
11
<PAGE>
the Holding Company has included EBITDA because it is commonly used by
certain investors and analysts to analyze and compare companies on the
basis of operating performance, leverage and liquidity and to determine a
company's ability to service debt. In addition, the method of calculating
EBITDA set forth above may be different from calculations of EBITDA
employed by other companies and, accordingly, may not be directly
comparable to such other calculations.
(3) Same-store sales growth is calculated based on net sales for stores open
for the whole of the indicated period and the previous period.
(4) As adjusted information gives pro forma effect to the sale of the Existing
Notes and the application of the net proceeds therefrom as described under
the caption "Use of Proceeds" as if they had occurred on July 26, 1997.
See "Capitalization."
12
<PAGE>
RISK FACTORS
Holders of Existing Notes and prospective purchasers of New Notes should
consider carefully the following risk factors in addition to the other
information set forth in this Prospectus before tendering their Existing Notes
for New Notes. Holders of Existing Notes should consider carefully the
following factors, which are generally applicable to the Existing Notes and the
New Notes. Certain of the statements in this Prospectus are forward-looking in
nature and, accordingly, are subject to risks and uncertainties. The actual
results that the Company and the Holding Company achieve may differ materially
from any forward-looking statements in this Prospectus. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed below and those contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and "Special Note
Regarding Forward-Looking Statements," as well as those discussed elsewhere in
this Prospectus.
Leverage; Ability to Service Indebtedness
In connection with the Offering, the Company incurred a significant amount
of indebtedness and used a significant portion of the proceeds from the sale of
such indebtedness to pay a dividend to securityholders of the Holding Company.
As a result, the Company is highly leveraged and has substantial repayment
obligations, as well as significantly increased interest expense, with the
portion of the net proceeds used to pay such dividend unavailable to service
such obligations and expenses or any other Company obligation. As of July 26,
1997, after giving pro forma effect to the sale of the Existing Notes and the
application of the net proceeds therefrom as if they had occurred on such date,
the Company's total indebtedness would have been approximately $80.2 million
and the Company would have had a stockholder's deficit of $19.3 million. In
addition, subject to the restrictions in the New Credit Facility and the
Indenture, the Company and the Holding Company may incur additional
indebtedness from time to time to finance expansion or capital expenditures or
for other purposes.
The Company's ability to make scheduled payments of principal or interest
on, or to refinance, its indebtedness will depend on future operating
performance and cash flow, which are subject to prevailing economic conditions,
prevailing interest rates and financial, competitive, business and other
factors beyond its control. The degree to which the Company is leveraged could
have important consequences to holders of the Notes, including the following:
(i) the Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of interest on the Notes and interest on its
other existing indebtedness, thereby reducing the funds available to the
Company for other purposes; (iii) the agreements governing the Company's
long-term indebtedness impose certain restrictive financial and operating
covenants on the Company; (iv) all of the indebtedness under the New Credit
Facility are at a variable rate of interest, which causes the Company to be
adversely affected by increases in interest rates; (v) all of the indebtedness
outstanding under the New Credit Facility is secured by all inventory and
accounts receivable of the Company and will become due prior to the time the
principal on the Notes will become due; (vi) the Company is substantially more
leveraged than certain of its competitors, which might place the Company at a
competitive disadvantage; (vii) the Company may be hindered in its ability to
adjust rapidly to changing market conditions; (viii) certain vendors'
willingness to give the Company favorable payment terms and certain landlords'
willingness to enter into store leases with the Company may be affected; and
(ix) the Company may be more vulnerable in the event of a downturn in general
economic conditions or in its business. See "Description of New Credit Facility
and Certain Other Indebtedness."
The Company believes that, based upon anticipated levels of operations, it
should be able to meet its debt service obligations, including interest
payments on the Notes, when due. If, however, the Company cannot generate
sufficient cash flow from operations to meet its obligations, the Company might
be required to refinance its debt or to dispose of assets to obtain funds for
such purpose. There is no assurance that refinancing or asset dispositions
could be effected on satisfactory terms, if at all, or would be permitted by
the terms of the New Credit Facility or the Indenture pursuant to which the
Notes were issued. Failure by the Company to refinance the New Credit Facility
or the Notes or raise funds through asset sales, sales of equity or otherwise,
if required, could have a material adverse effect on the Company's financial
condition and results of operations and its ability to pay principal of and
interest on the Notes.
The Company's obligations under the Notes is guaranteed on a senior,
unsecured basis by the Holding Company and any future subsidiaries of the
Company. Because the operations of the Company provide all of the cash flow of
the Holding Company, the Holding Company's ability to perform under its
Guarantee is currently entirely dependent upon the operations and financial
position of the Company.
13
<PAGE>
Effective Subordination of the Notes
The Indenture and the Holding Company's Guarantee permit the Company and
the Holding Company to incur additional senior indebtedness, provided certain
financial or other conditions are met. The Notes and the Holding Company's
Guarantee are senior unsecured obligations and rank pari passu in right of
payment with all existing and future senior unsecured indebtedness of the
Company and the Holding Company, respectively. As of July 26, 1997, after
giving pro forma effect to the sale of the Existing Notes and the application
of the proceeds therefrom as described under "Use of Proceeds" as if they had
occurred on such date, the aggregate amount of secured indebtedness of the
Company, to which the Notes is effectively subordinated, would have been
approximately $0.2 million and the aggregate amount of the Company's
outstanding indebtedness ranking pari passu with the Notes (consisting of trade
accounts payable) is approximately $14.8 million. Holders of existing or future
secured indebtedness of the Company permitted under the Indenture, including
the New Credit Facility, will have claims with respect to the assets
constituting collateral that are prior to the claims of holders of the Notes.
See "Description of Notes--Ranking."
In addition, any indebtedness that is incurred by any of the Guarantors
will be effectively senior to the claims of the holders of the Notes with
respect to the assets of such Guarantors, except to the extent that the holders
of the Notes may be creditors of a Guarantor pursuant to a Guarantee. Any such
claim by the holders of the Notes with respect to the assets of any Guarantor
will be effectively subordinated to secured indebtedness of such Guarantor with
respect to the assets securing such indebtedness. The rights of the Company and
its creditors, including holders of the Notes, to realize the assets of any
Guarantor upon such Guarantor's liquidation or reorganization (and the
consequent rights of holders of the Notes to participate in those assets) will
be subject to the prior claims of such Guarantor's creditors, except to the
extent that the Company may itself be a creditor with recognized claims against
such Guarantor or to the extent that the holders of the Notes may be creditors
with recognized claims against such Guarantor pursuant to the terms of a
Guarantee (subject, however, to the prior claims of creditors holding secured
indebtedness of any such Guarantor with respect to the assets securing such
indebtedness). As of July 26, 1997, the Holding Company had no secured
indebtedness, and the aggregate amount of the Holding Company's outstanding
indebtedness ranking pari passu with the Guarantee of the Holding Company
(consisting of the Holding Company's outstanding Subordinated Notes due 2005)
is approximately $16.9 million, including accrued interest.
Fraudulent Conveyance Risks
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or void the Notes and
the Guarantees in favor of other existing or future creditors of the Company
and the Guarantors.
Proceeds from the sale of the Existing Notes were used, in part, to make a
cash distribution to the Company's sole stockholder, the Holding Company, which
distributed these proceeds to its securityholders. If a court in a lawsuit on
behalf of any unpaid creditor of the Company or a representative of the
creditors of the Company were to find that, at the time the Company issued the
Existing Notes, the Company (x) intended to hinder, delay or defraud any
existing or future creditor or contemplated insolvency with a design to prefer
one or more creditors to the exclusion in whole or in part of others or (y) did
not receive fair consideration in good faith or reasonably equivalent value for
issuing the Existing Notes, and the Company (i) was insolvent, (ii) was
rendered insolvent by reason of such distribution, (iii) was engaged or about
to engage in business or transactions for which its remaining assets
constituted unreasonably small capital to carry on its business, or (iv)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured, such court could void the Notes and void such
transactions. Alternatively, in such event, claims of the holders of Notes
could be subordinated to claims of other creditors of the Company. The Company
may be viewed as insolvent at the time of or as a result of the sale of the
Existing Notes if the fair market value of its assets does not exceed its
probable liabilities at the time of, or following, the sale of the Existing
Notes. The Company's obligations under the Notes are guaranteed by the
Guarantors, and the Guarantees may also be subject to review under federal and
state fraudulent transfer laws. If a court were to determine that at the time a
Guarantor became liable under its Guarantee, it satisfied either of clauses (x)
or (y) above, the court could void the Guarantee and direct the repayment of
amounts paid thereunder.
Based upon financial and other information currently available to it,
management of the Company believes that the Notes and the Holding Company's
Guarantee were incurred for proper purposes and in good faith. Certain courts
have held, however, that a company's purchase of its own capital stock does not
constitute reasonably
14
<PAGE>
equivalent value or fair consideration for incurring indebtedness. By
extension, the sale of the Existing Notes and the use of the net proceeds of
the sale of the Existing Notes as described above may also be viewed as not
constituting reasonably equivalent value or fair consideration to the Company.
The Company believes that based upon forecasts and other financial
information, including the pro forma information reflecting the consummation of
the sale of the Existing Notes and the application of the net proceeds
therefrom as described under the caption "Use of Proceeds," the Company is and
will continue to be solvent, that it will have sufficient capital to carry on
its business and will be and will continue to be able to pay its debts as they
mature. In addition, in connection with the closing of the sale of the Existing
Notes, the Company received a solvency opinion from an investment bank that the
payment of the dividend described under the caption "Use of Proceeds" upon
consummation of the sale of the Existing Notes would not render the Company
insolvent, leave the Company with inadequate or unreasonably small capital or
result in the Company incurring debt beyond its ability to repay such debt as
it matures. There can be no assurance, however, that a court considering such
issues would agree with such conclusions or opinion.
Additionally, under federal bankruptcy or applicable state solvency law,
if a bankruptcy or insolvency were initiated by or against the Company within
90 days after any payment by the Company with respect to the Notes or by any
Guarantor with respect to a Guarantee, or within one year after any payment to
any insider of the Company (which will include the dividend paid by the Company
to the Holding Company), or if the Company or such Guarantor anticipated
becoming insolvent at the time of any such payment, all or a portion of the
payment could be voided as a preferential transfer and the recipient of such
payment could be required to return such payment. In rendering its opinion on
the validity of the Notes, neither counsel for the Company, nor counsel for the
Initial Purchasers, nor any other counsel, expressed any opinion as to federal
or state laws relating to fraudulent transfers, which means the holders of the
Notes have no independent legal verification that the Notes or the Guarantees
or payments on the Notes or the Guarantees will not be treated as a fraudulent
conveyance or preferential transfer, respectively, by a court if the Company
were to become insolvent. The obligations of each Guarantor under its
Guarantee, however, are limited in a manner intended to avoid it being deemed a
fraudulent conveyance under applicable law. See "Description of Notes."
Restrictions Imposed by Terms of the Company's Indebtedness
The Indenture and the New Credit Facility impose upon the Company certain
financial and operating covenants, including, among others, requirements that
the Company maintain certain financial ratios and satisfy certain financial
tests, limitations on capital expenditures, and restrictions on the ability of
the Company to incur debt, pay dividends, or take certain other corporate
actions, all of which may restrict the Company's ability to pursue its business
strategies. Changes in economic or business conditions, results of operations
or other factors could in the future cause a violation of one or more covenants
in the Company's debt instruments. See "Description of Notes--Certain
Covenants" and "Description of New Credit Facility and Certain Other
Indebtedness."
Dependence on "Freedom of Choice" and "Any Willing Provider" Legislation
In July 1994, the State of New Jersey adopted "Freedom of Choice"
legislation that requires Third-Party Plans to allow their customers to
purchase prescription drugs from the provider of their choice as long as the
provider meets uniformly established requirements, and "Any Willing Provider"
legislation that requires that any Third-Party Plan that has entered into an
agreement with a prescription provider must permit any other licensed provider
to participate in such Third-Party Plan as a preferred or contracting provider,
if such provider is willing to accept the terms of such agreement. Management
believes this results in a "level playing field" for regional drugstore chains
such as the Company. Although the Company is not aware of any pending
legislation which seeks to repeal or otherwise render ineffective the "Freedom
of Choice" or "Any Willing Provider" legislation, in the event of any repeal or
other termination of this legislation, larger national drugstore chains or
other distribution channels with which the Company competes could enter into
exclusive contracts with Third-Party Plans, similar to those in effect in other
states, pursuant to which such Third-Party Plans would require their members to
purchase their reimbursable prescriptions from such drugstore chains or other
distribution channels. Any such contracts could effectively prevent the Company
from competing for reimbursable prescription sales to participants in such
Third-Party Plans, which could impact the sales of all of the Company's
products by reducing customer traffic at the Company's stores. Furthermore,
other than Delaware, none of the states surrounding New Jersey has enacted
similar "Freedom of Choice" or "Any Willing Provider" legislation. Accordingly,
in the event that the Company determines to pursue
15
<PAGE>
expansion into surrounding states, it will have to compete with larger
drugstore chains or other distribution channels that may have aligned
themselves with certain Third-Party Plans in such states. There can be no
assurance that any repeal or other termination or amendment of the "Freedom of
Choice" or "Any Willing Provider" legislation in New Jersey would not have a
material adverse effect on the Company's financial condition and results of
operations and its ability to pay principal of and interest on the Notes and
the New Credit Facility, or that the Company would be able to compete
successfully with larger drugstore chains or other distribution channels in the
event it determines to expand into states that do not have "Freedom of Choice"
or "Any Willing Provider" legislation. See "Business--The Drugstore Industry."
Competition
The industries in which the Company operates are highly competitive. The
Company competes in most of its markets with several national, regional and
local drugstore chains, large grocery stores and supermarkets, membership
clubs, deep discount drugstores, combination food and drugstores, discount
general merchandise stores, mass merchandisers, independent drugstores and
local merchants. In addition to competition from the foregoing, the Company's
pharmacy departments also compete with hospitals, health maintenance
organizations and mail order providers. Many of the Company's competitors have
substantially greater financial resources than the Company. See
"Business--Competition."
Reliance on Trade Names, Service Marks and Trademarks
The Company uses various trade names, service marks and trademarks,
including "Drug Fair" and "Cost Cutters," in the conduct of its business.
Historically, the Company has relied on common law protection of its trade
names, service marks and trademarks. Common law provides the Company with
limited protection for its trade names, service marks and trademarks within its
product lines and in its geographic market areas. While the Company has filed a
federal service mark registration application for the service mark "Drug Fair,"
there can be no assurance that a federal service mark registration for the mark
"Drug Fair" will be issued to the Company. A third party presently owns an
issued federal service mark registration for the name "Cost Cutters," but does
not currently operate in the Company's market areas. However, there can be no
assurance that such third party will not commence operations in the Company's
geographic market areas or license the use of the name to a third party other
than the Company in such areas. In such an event, the Company may be required
to seek a license from the holder of the registration, and there can be no
assurance that such a license would be available on acceptable terms, if at
all. If the Company is unable to so license this service mark, it may be
required to cease using the "Cost Cutters" name. In addition, there can be no
assurance that the Company's use of the names "Drug Fair" and "Cost Cutters,"
or any other trade names, service marks or trademarks, will not otherwise be
challenged, invalidated, prevented or circumvented in the future, or that any
such challenge, invalidation, prevention or circumvention will not have a
material adverse effect on the Company's financial condition and results of
operations and its ability to pay principal and interest on the Notes and the
New Credit Facility. See "Business--Trade Names, Service Marks and Trademarks."
Economic Conditions And Regional Concentration
All of the Company's stores are located in northern and central New
Jersey. As a result, the Company is sensitive to economic, competitive, and
regulatory conditions in that region. The success of the Company's future
operations will be substantially affected by its ability to compete effectively
in New Jersey, and no prediction can be made as to economic conditions in that
state.
Change of Control
Upon the occurrence of a Change of Control (as defined in the Indenture),
the Company will be required to make an offer to purchase all of the
outstanding Notes at a price equal to 101% of the principal amount thereof at
the date of purchase plus accrued and unpaid interest, if any, to the date of
purchase. The occurrence of certain of the events that would constitute a
Change of Control may constitute a default under the New Credit Facility and
might constitute a default under other indebtedness of the Company. In
addition, the New Credit Facility may prohibit the purchase of the Notes by the
Company in the event of a Change of Control, unless and until such time as the
indebtedness under the New Credit Facility is repaid in full. The Company's
failure to purchase the Notes in such instance would result in a default under
the Indenture and possibly under the New Credit Facility. The inability to
repay the indebtedness under the New Credit Facility, if accelerated, could
have material adverse
16
<PAGE>
consequences to the Company and to the holders of the Notes. Future
indebtedness of the Company may also contain prohibitions of certain events or
transactions that could constitute a Change of Control or require such
indebtedness to be repurchased upon a Change of Control. See "Description of
New Credit Facility and Certain Other Indebtedness" and "Description of
Notes--Certain Covenants--Repurchase of Notes at the Option of the Holder Upon
a Change of Control." In the event of a Change of Control, there can be no
assurance that the Company would have sufficient assets to satisfy all of its
obligations under the Notes and the New Credit Facility.
Uncertainty of Lease Renewals
All of the Company's stores are leased, with the leases expiring at
various dates from December 31, 1997 to April 30, 2039 (assuming renewal
options are exercised). Four leases representing stores which generated 11.4%
of the Company's net sales in fiscal 1997 are scheduled to expire before the
end of 1999. Although the Company has historically been successful in renewing
its most important store leases when they have expired, there can be no
assurance that the Company will continue to be able to do so. The Company's
substantial leverage after the Offering may adversely impact certain landlords'
willingness to enter into store leases with the Company. If the Company is
unable to renew the leases for some of the Company's more successful store
locations, or find other favorable locations at acceptable lease rates, there
can be no assurance that such failures will not have a material adverse effect
on the Company's financial condition and results of operations or that its
ability to pay principal of and interest on the Notes and the New Credit
Facility would not be adversely affected. See "Business--Properties."
Potential Disruption of Operations
The Company intends to consolidate its two existing distribution centers
and corporate offices in a single new facility when its current distribution
center leases expire in 1998. In connection with the consolidation, the Company
plans to install a new MIS system at the new facility. While the Company
believes this consolidation effort may reduce the Company's warehousing and
distribution costs, there can be no assurance that this effort will result in
improved operating margins, or that the move to the new facility, the
commencement of operations at such facility, and the implementation of the new
MIS system to be installed at the new facility will not have a disruptive
effect on the Company's operations. A significant, unexpected disruption during
the course of this consolidation program could have a material adverse effect
on the Company's financial condition and results of operations and its ability
to pay principal of and interest on the Notes and the New Credit Facility. See
"Business--Properties."
Health Care Industry
Pharmacy sales accounted for approximately 22.1% of the Company's total
sales for fiscal 1996 and 24.1% for fiscal 1997. Pharmacy sales to Third-Party
Plan participants accounted for approximately 61.5% and 70.1% of the Company's
total prescription drug sales for fiscal 1996 and fiscal 1997, respectively.
The efforts of Third-Party Plans to contain costs have placed downward pressure
on gross profit margins from sales of prescription drugs. However, management
believes that, to date, such lower margins have been substantially offset by
the higher volume of pharmacy sales to Third-Party Plan participants and
therefore actively seeks to increase its business with these plans. The Company
expects that the rate of Third-Party Plan sales as a percentage of total
pharmacy sales will continue to increase, creating further downward pressure on
gross profit margins from prescription drug sales. There can be no assurance
that the Company will be able to offset these margin declines by continued
increased sales of pharmacy and non-pharmacy merchandise and by higher gross
profit margins from non-pharmacy merchandise. Furthermore, if the Company were
not able to generate higher volumes of pharmacy sales to Third-Party Plan
participants to offset this downward pressure on gross margins, it could have a
material adverse effect on the Company's gross profits and results of
operations. The Company's revenues from prescription drug sales may also be
affected by health care reform initiatives of federal and state governments,
including proposals designed to significantly reduce spending on Medicare,
Medicaid and other government programs, changes in programs providing for
reimbursement for the cost of prescription drugs by Third-Party Plans, and
regulatory changes relating to the approval process for prescription drugs.
Such initiatives could lead to the enactment of federal and state regulations
that may adversely impact the Company's prescription drug sales and,
accordingly, could have a material adverse effect on the Company's financial
condition and results of operations and its ability to pay principal of and
interest on the Notes and the New Credit Facility. See "Business--Government
Regulation."
17
<PAGE>
Control of the Company
The Holding Company owns all of the outstanding capital stock of the
Company. The existing stockholders of the Holding Company, which include the
Company's President and Chief Executive Officer, certain entities affiliated
with the other directors of the Company, and other officers and employees of
the Company, own 100% of the issued and outstanding common stock of the Holding
Company on a fully-diluted basis. Accordingly, such stockholders indirectly
control the Company and have the power to appoint new management and approve
any action requiring the approval of the holders of the capital stock of the
Company, including adopting amendments to the Company's certificate of
incorporation and approving mergers or sales of substantially all of the
Company's assets. There can be no assurance that the interests of the holders
of the capital stock of the Holding Company will not conflict with the
interests of the holders of the Notes. See "Management" and "Certain
Relationships and Related Transactions."
Growth and Expansion Related Risks
The Company has grown in recent years by opening new stores, remodeling
and relocating existing stores and refining the product mix in existing stores.
There can be no assurance that the Company will continue to be able to maintain
or expand its market presence in its current locations or to successfully enter
other markets. The ability of the Company to continue to grow in the future
will depend on a number of factors including existing and emerging competition,
the availability of working capital to support such growth, the Company's
ability to manage costs and maintain margins in the face of pricing pressures,
and the ability to recruit and train additional qualified personnel. Because
the Company intends to continue its practice of leasing its stores, any delays
or other difficulties in the negotiation of satisfactory store leases or the
inability on the part of prospective landlords to obtain financing for new
store buildings may delay or interfere with such new store openings. In
addition, there can be no assurance that the sites which the Company identifies
for new store locations will actually be available to the Company, and various
zoning, site acquisition, environmental, traffic, construction, and other
contingencies may also delay or prevent the opening of a new store in a
particular location. There can be no assurance that any new stores that the
Company may open will be profitable. Failure by the Company to maintain its
growth could have a material adverse effect on the Company's financial
condition and results of operations and its ability to pay principal of and
interest on the Notes and the New Credit Facility.
Government Regulation and Reimbursement
The Company is subject to numerous federal, state, and local licensing and
registration regulations with respect to, among other things, its pharmacy
operations. The Company believes that it has satisfied all such licensing and
registration requirements and continues to actively monitor its compliance with
such requirements. However, violations of any such regulations could result in
various penalties, including suspension or revocation of the Company's licenses
or registrations or monetary fines, which could have a material adverse effect
on the Company's financial condition and results of operations and its ability
to pay principal of and interest on the Notes and the New Credit Facility.
In addition, pursuant to the Omnibus Budget Reconciliation Act of 1990 and
comparable New Jersey regulations, the Company's pharmacists are required to
offer counseling, without additional charge, to their customers about
medication, dosage, delivery systems, common side effects and other information
deemed significant by the pharmacists and may have a duty to warn customers
regarding any potential adverse effects of a prescription drug if the warning
could reduce or negate such effects. In addition, the Company's pharmacists are
required to conduct a prospective drug review before any new prescriptions are
dispensed, and may conduct a similar review prior to refilling any
prescriptions if they deem it warranted. Further, New Jersey closely regulates
the dispensing by pharmacists of over-the-counter controlled dangerous
substances, imposing requirements as to: (i) filling and refilling of
prescriptions, (ii) labeling of prescriptions, and (iii) monitoring the use of
Schedule V over-the-counter controlled dangerous substances to determine, in a
pharmacist's professional judgment, whether the substance has or will be used
for unauthorized or illicit consumption or distribution. The drug review
program and other programs created by subsequent legislation could result in
increased costs to the Company that could impact adversely its gross profit
margin on prescription drug sales.
A significant portion of the Company's services are reimbursed by
government sponsored programs, principally Medicaid and to a lesser extent
Medicare, with the remainder being reimbursed by individual patients or
Third-Party Plans. The failure, even if inadvertent, of the Company to comply
with applicable reimbursement
18
<PAGE>
regulations could adversely affect the Company's business. Furthermore, changes
in such reimbursement programs or in regulations related thereto, such as
reductions in coverage or allowable reimbursement levels, modifications in the
timing or processing of payments and other changes intended to limit or
decrease the growth of Medicaid and Medicare expenditures, could adversely
affect the Company's business. The Company is also subject to federal and state
laws prohibiting the submission of false or fraudulent claims and certain
financial relationships between health care providers that are intended to
induce or encourage the referral of patients, or the recommendations of
particular items or services. Violation of these laws can result in loss of
licensure, civil and criminal penalties, and exclusion from federal health care
programs.
The Company is also subject to laws governing its relationship with
employees, including minimum wage requirements, overtime and working
conditions. An increase in the minimum wage rate, employee benefit costs, or
other costs associated with employees could adversely affect the Company. See
"Business--Government Regulation."
Dependence on Key Personnel
The success of the Company depends upon the efforts, abilities and
expertise of its executive officers and other key employees, including its
Chief Executive Officer and President. The loss of the services of such
individual or any other key employees could have a material adverse effect on
the Company's financial condition and results of operations. See "Management."
Adverse Consequences of Failure to Adhere to Exchange Offer Procedures
Issuance of the New Notes in exchange for the Existing Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Existing Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. All questions as to the validity,
form, eligibility (including time of receipt) and acceptance of the Existing
Notes tendered for exchange will be determined by the Company in its sole
discretion, which determination will be final and binding on all parties.
Holders of the Existing Notes desiring to tender such Existing Notes in
exchange for New Notes should allow sufficient time to ensure timely delivery.
The Company is under no duty to give notification of defects or irregularities
with respect to the tenders of the Existing Notes for exchange. Existing Notes
that are not tendered or are tendered but not accepted will, following the
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof and, except as provided herein, the Company
will have no further obligations to provide for the registration under the
Securities Act of such Existing Notes. To the extent that Existing Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Existing Notes could be adversely affected. See
"Exchange Offer."
Lack of Public Market for the Notes
There can be no assurance regarding the future development of a market for
any of the Notes, or the ability of holders of any of the Notes to sell their
Notes, or the price at which such holders may be able to sell such Notes. If
such a market were to develop, the Notes could trade at prices that may be
lower than the initial offering price depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. The Initial Purchasers have advised the Company that they
currently intend to make a market in the Notes. The Initial Purchasers are not
obligated to do so, however, and any market-making activity with respect to the
Notes may be discontinued at any time without notice. Therefore, there can be
no assurance as to the liquidity of any trading market for the Notes, or that
an active public market for the New Notes will develop. In addition, such
market-making activity will be subject to the limitations imposed by the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and may be limited during the Exchange Offer. The Company does
not intend to apply for listing or quotation of the New Notes on any securities
exchange or stock market; however, the Existing Notes are eligible for trading
in the PORTAL market of the National Association of Securities Dealers, Inc.
To the extent that Existing Notes are tendered and accepted in the
Exchange Offer, the trading market for the remaining untendered or tendered but
not accepted Existing Notes could be adversely affected. Because the Company
anticipates that most holders of the Existing Notes will elect to exchange such
Existing Notes for New Notes due to the absence of restrictions on the resale
of New Notes under the Securities Act, the Company anticipates that the
liquidity of the market for any Existing Notes remaining after the consummation
of the Exchange Offer may be substantially limited.
19
<PAGE>
USE OF PROCEEDS
No proceeds will be received by the Company or the Holding Company from
the Exchange Offer. The net proceeds of the sale of the Existing Notes were
approximately $77.0 million, after deducting discounts and commissions and
expenses related to the sale of the Existing Notes. The Company used $29.3
million of the net proceeds to refinance substantially all existing
indebtedness of the Company and $45.0 million of the net proceeds to pay a
dividend to the Holding Company, which distributed these proceeds to its
securityholders. The balance will be used for general corporate purposes.
The following table summarizes the sources and uses of funds for the sale
of the Existing Notes:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
Sources:
10-1/4% Senior Notes due 2004 ................................................ $80.0
======
Uses:
Repayment of Old Credit Facility (including accrued interest and premium) (1) $29.3
Dividend to the Holding Company (2) .......................................... 45.0
Transaction fees and expenses ................................................ 3.0
Excess working capital ...................................................... 2.7
------
Total uses .................................................................. $80.0
======
</TABLE>
- ------------
(1) In connection with the Acquisition, the Company and the Holding Company
entered into a Credit Agreement, dated as of January 30, 1995 (the "Old
Credit Facility"), with Banque Paribas as Agent, providing for two term
loans aggregating $45.0 million in principal amount (the "Term Loans"), a
revolving loan in the aggregate principal amount of $13.0 million (the
"Revolving Loan") and a letter of credit facility. The Term Loans bore
interest at rates ranging from 7.7% per annum to 8.6% per annum, and were
scheduled to mature on January 31, 2002, and the Revolving Loan bore
interest at a rate of 9.5% and was scheduled to mature on January 30,
2000. All of the amounts outstanding under the Old Credit Facility were
repaid upon the closing of the sale of the Existing Notes, and the Old
Credit Facility was terminated.
(2) The Holding Company paid a dividend (the "Dividend") in the same amount to
its securityholders, including BancBoston, Harvest and members of
management. See "Certain Relationships and Related Transactions."
20
<PAGE>
CAPITALIZATION
The Company
The following table sets forth the capitalization of the Company as of
July 26, 1997 and as adjusted to give effect to the sale of the Existing Notes
and the application of the proceeds therefrom as described under the caption
"Use of Proceeds" as if they had occurred on such date. This table should be
read in conjunction with "Use of Proceeds," "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and the related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As of July 26, 1997
------------------------
Actual As Adjusted
(unaudited)
(dollars in thousands)
<S> <C> <C>
Cash and cash equivalents ................................. $ 1,870 $ 3,549
======== =========
Long-term debt (including current portion) (1):
Old Credit Facility ....................................... $29,269 $ --
New Credit Facility ....................................... -- --
10-1/4% Senior Notes due 2004 .............................. -- 80,000
Capitalized lease obligations and other indebtedness ...... 198 198
-------- ---------
Total long-term debt (including current portion) ......... 29,467 80,198
Stockholder's equity (deficit) (2) ........................ 27,335 (19,269)
-------- ---------
Total capitalization ....................................... $56,802 $ 60,929
======== =========
</TABLE>
- ------------
(1) Upon the closing of the sale of the Existing Notes, the Company repaid all
borrowings under the Old Credit Facility, terminated the Old Credit
Facility and entered into the New Credit Facility. See "Use of Proceeds"
and "Description of New Credit Facility and Certain Other Indebtedness."
(2) Reflects the application of the net proceeds from the sale of the Existing
Notes as described under the caption "Use of Proceeds," including the
payment of a dividend to the Holding Company.
The Holding Company
The following table sets forth the capitalization of the Holding Company
as of July 26, 1997 and as adjusted to give effect to the distribution made by
the Holding Company to the holders of its outstanding capital stock, in the
form of a dividend as described under the caption "Use of Proceeds" and "Certain
Relationships and Related Transactions" as if it had occurred on such date. This
table should be read in conjunction with "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Holding Company's audited financial statements and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As of July 26, 1997
------------------------
Actual As Adjusted
(unaudited)
(dollars in thousands)
<S> <C> <C>
Cash and cash equivalents ................................. $ 1,870 $ 3,549
======== =========
Long-term debt (including current portion) (1):
Old Credit Facility ....................................... $29,269 $ --
New Credit Facility ....................................... -- --
10-1/4% Senior Notes due 2004 .............................. -- 80,000
Capitalized lease obligations and other indebtedness ...... 198 198
Subordinated notes due January 30, 2005 ..................... 16,920 16,920
-------- ---------
Total long-term debt (including current portion) ......... 46,387 97,118
Redeemable Preferred and Common Stock ........................ 854 854
Stockholder's equity (deficit) (2) ........................ 10,855 (36,817)
-------- ---------
Total capitalization ....................................... 58,096 61,155
======== =========
</TABLE>
- ------------
(1) Upon the closing of the sale of the Existing Notes, the Company repaid all
borrowings under the Old Credit Facility, terminated the Old Credit
Facility and entered into the New Credit Facility. See "Use of Proceeds"
and "Description of New Credit Facility and Certain Other Indebtedness."
(2) Reflects the application of the net proceeds from the sale of the Existing
Notes as described under the caption "Use of Proceeds," including the
payment of a dividend to the Holding Company.
21
<PAGE>
SELECTED FINANCIAL DATA OF THE COMPANY
The selected financial data presented below under the captions "Statement
of Operations Data" and "Balance Sheet Data" as of and for each of the periods
in the five-year period ended July 26, 1997 are derived from the audited
financial statements of the Company and the Predecessor Company (as defined
below). The financial statements for fiscal 1993, fiscal 1994 and the six
months ended January 29, 1995 have been audited by Arthur Andersen LLP, and the
financial statements for the six months ended July 30, 1995, fiscal 1996 and
fiscal 1997 have been audited by Coopers & Lybrand L.L.P. The Company was
acquired by the Holding Company on January 30, 1995, and is referred to below
with respect to periods prior to that date as the "Predecessor Company" and
with respect to periods after that date as the "Company." The selected
financial and other data presented below under the caption "Other Data" as of
and for all of the periods presented, are unaudited. The unaudited financial
data reflects all adjustments (consisting of normal, recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the Company's financial position, results of operations and cash flows for and
as of the end of the periods presented.
The selected financial data presented below should be read in conjunction
with the audited financial statements and the related notes thereto of the
Company for the six months ended January 29, 1995, the six months ended July
30, 1995, fiscal 1996 and fiscal 1997, included elsewhere in this Prospectus.
For additional information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Predecessor Company The Company
--------------------------- ----------------------------------------------------
Year Ended Six Months Ended Year Ended
--------------------------- ------------------------ ---------------------------
July 25, July 31, Jan. 29, July 30, July 28, July 26,
1993 1994 1995 1995 1996 1997
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales .............................. $ 168,416 $ 180,206 $ 101,687 $96,171 $ 215,731 $ 231,033
Cost of sales ........................... 122,433 129,856 72,469 67,686 152,645 163,157
--------- --------- --------- -------- --------- ---------
Gross profit ........................... 45,983 50,350 29,218 28,485 63,086 67,876
Selling, general and administrative
expense .............................. 36,286 38,494 21,468 21,635 47,487 50,831
Other income, net ..................... 610 803 595 205 353 401
Administrative fees ..................... 0 0 0 125 250 250
Depreciation and Amortization (1) ...... 1,703 1,674 884 1,980 4,341 4,399
--------- --------- --------- -------- --------- ---------
Operating income ..................... 8,604 10,985 7,461 4,950 11,361 12,797
Interest expense, net .................. 0 0 0 2,284 3,998 3,018
--------- --------- --------- -------- --------- ---------
Income before income taxes ............ 8,604 10,985 7,461 2,666 7,363 9,779
Provision for income taxes ............ 862 474 186 1,598 3,659 5,216
--------- --------- --------- -------- --------- ---------
Net income ........................... $ 7,742 $ 10,511 $ 7,275 $ 1,068 $ 3,704 $ 4,563
========= ========= ========= ======== ========= =========
Other Data (unaudited):
EBITDA (2) .............................. $ 10,411 $ 11,536 $ 9,682 $ 7,714 $ 16,913 $ 18,695
EBITDA margin ........................... 6.2% 6.4% 9.5% 8.0% 7.8% 8.1%
Capital expenditures .................. $ 2,379 $ 2,308 $ 1,313 $ 1,070 $ 2,887 $ 1,287
Ratio of earnings to fixed charges (3) 5.8x 6.7x 8.1x 1.7x 2.1x 2.7x
Pharmacy sales growth .................. 4.0% 8.7% 7.8% 10.1% 10.8% 16.3%
Pharmacy sales as a % of total ......... 21.6 22.0 19.6 22.6 22.1 24.1
Third-Party Plan sales as a % of
pharmacy sales ........................ 36.0 40.6 47.2 50.9 61.5 70.1
Store data:
Number of stores at end of period: ...
Drug Fair ........................... 22 21 22 22 25 26
Cost Cutters ........................ 13 14 15 16 17 17
--------- --------- --------- -------- --------- ---------
Total .............................. 35 35 37 38 42 43
========= ========= ========= ======== ========= =========
Same-store sales growth (4):
Drug Fair ........................... 3.9% 5.7% 4.0% 6.6% 3.5% 6.7%
Cost Cutters ........................ 4.6 1.1 4.0 4.3 0.9 2.7
--------- --------- --------- -------- --------- ---------
Total .............................. 4.1% 3.7% 4.0% 5.6% 2.4% 4.8%
========= ========= ========= ======== ========= =========
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Predecessor Company The Company
--------------------- ------------------------------------------
Year Ended Six Months Ended Year Ended
--------------------- --------------------- --------------------
July 25, July 31, Jan. 29, July 30, July 28, July 26,
1993 1994 1995 1995 1996 1997
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (End of Period):
Working capital (unaudited) ...... $21,059 $25,950 $29,457 $10,645 $11,196 $ 9,875
Total assets ..................... 42,775 52,163 53,176 86,079 84,931 81,256
Total debt ..................... 0 0 0 45,000 39,360 29,467
Stockholder's equity ............ 29,250 33,645 36,033 19,068 22,772 27,335
</TABLE>
- ------------
(1) Depreciation and amortization amounts for the periods set forth under the
caption "The Company" include amortization of goodwill, beneficial
leasehold intangibles and deferred financing costs incurred in connection
with the Acquisition in January 1995.
(2) EBITDA represents net income plus depreciation and amortization, income
taxes, net interest expense, non-cash LIFO reserves against inventory and
non-cash rental expense. Changes in LIFO inventory reserves and non-cash
rental expense aggregated $104, $(1,123), $1,337, $784, $1,211 and $1,500
during fiscal 1993, fiscal 1994, the six months ended on each of January
29, 1995 and July 30, 1995, fiscal 1996 and fiscal 1997, respectively.
While EBITDA should not be construed as a substitute for income from
operations, net income or cash flows from operating activities (as defined
by generally accepted accounting principles) in analyzing the Company's
operating performance, financial position or cash flows, the Company has
included EBITDA because it is commonly used by certain investors and
analysts to analyze and compare companies on the basis of operating
performance, leverage and liquidity and to determine a company's ability to
service debt. In addition, the method of calculating EBITDA set forth above
may be different from calculations of EBITDA employed by other companies
and, accordingly, may not be directly comparable to such other
calculations.
(3) The ratio of earnings to fixed charges is computed by adding fixed charges
(interest and one-third of rental expenses, which the Company believes is
representative of that portion of rental expenses attributable to
interest) to income before income taxes and dividing that sum by the sum
of the fixed charges. The ratios of earnings to fixed charges for the
Holding Company for the six months ended July 30, 1995, fiscal 1996 and
fiscal 1997 were , and , respectively.
(4) Same-store sales growth is calculated based on net sales for stores open
for the whole of the indicated and the previous period.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company was founded in 1954 and until 1990 was managed primarily by
its founders. The Holding Company is the owner of all of the outstanding
capital stock of the Company. Since 1990, the Company has experienced
significant growth led by Frank Marfino, the Company's current Chief Executive
Officer. The Company currently operates a chain of 43 drug and general
merchandise stores, with 26 drugstores operating under the "Drug Fair" name and
17 general merchandise stores operating under the "Cost Cutters" name. Each of
the Company's 38 mature stores (those open for more than 24 months) is
profitable on an operating basis.
Since 1990, the Company expanded its store base by 12 stores, with
revenues increasing from $138.5 million in fiscal 1991 to $231.0 million in
fiscal 1997 (an 8.9% CAGR) and EBITDA increasing from $6.0 million in fiscal
1991 to $18.7 million in fiscal 1997 (a 20.9% CAGR). During this period, the
Company also increased its EBITDA margin from 4.3% to 8.1% of sales. This
improved operating performance and growth have resulted primarily from
rationalization and expansion of the store base, improved centralized controls
over purchasing, effective merchandising, pricing and loss-prevention
strategies, increased pharmacy business with Third-Party Plan participants, and
cost control measures that have reduced selling, general and administrative
expense as a percentage of sales from 23.8% in fiscal 1991 to 22.0% in fiscal
1997.
The Company was acquired in January 1995 by the Holding Company, whose
shareholders include a group of investors led by BancBoston, Harvest and
management. Since the Acquisition, the Company has placed emphasis on growing
its pharmacy sales to Third-Party Plan participants and, as a result, has grown
its pharmacy sales at a 12.0% CAGR from fiscal 1994 to fiscal 1997. Similarly,
improved non-pharmacy merchandising and pricing strategies, combined with
increased customer traffic resulting from higher pharmacy sales, have enabled
the Company to increase its gross margin from 27.9% in fiscal 1994 to 29.4% in
fiscal 1997. This increase occurred despite pharmacy margin erosion resulting
from increased sales to Third-Party Plan participants.
Since fiscal 1994, the Company's pharmacy sales have increased by 40.4%,
primarily as a result of the growth in prescription sales to Third-Party Plan
participants. In fiscal 1997, the Company's pharmacies filled over 1.5 million
prescriptions (an average weekly volume of approximately 1,000 scripts per
pharmacy), and pharmacy sales increased 16.3% over fiscal 1996. Currently,
approximately 72% of prescription sales results from sales to Third-Party Plan
participants. Although pharmacy sales to Third-Party Plan participants
typically have lower margins than cash pharmacy sales, resulting in a decline
in the Company's pharmacy gross margins, the higher pharmacy sales volume has
resulted in an overall increase in gross profit. Although management expects
that Third-Party Plan sales as a percentage of total pharmacy sales will
continue to increase, management believes that as this rate of increase slows,
margins will stabilize, resulting in pharmacy gross profit growth more closely
approximating pharmacy sales growth rates. Additionally, the Company believes
that this margin pressure has had less of an impact on its overall margin than
on margins of retailers for which prescriptions represent a higher percentage
of total sales. To compensate for declining pharmacy gross margins and to
capitalize on the increased customer traffic resulting from the growth in
Third-Party Plan sales, the Company has aggressively managed its non-pharmacy
operations through effective merchandising and purchasing strategies. As a
result of these initiatives, the Company has raised its non-pharmacy gross
margins from 27.8% in 1994 to 31.4% in fiscal 1997. There can be no assurance
that the Company will be able to continue to offset declines in pharmacy gross
margins resulting from increases in Third-Party Plan sales as a percentage of
total pharmacy sales by continued increased sales of pharmacy and non-pharmacy
merchandise and by higher gross profit margins from non-pharmacy merchandise.
The Company has expanded its store base by 12 stores since 1990, with no
stores, three stores, four stores and one store having been opened in fiscal
1994, the twelve months ended July 30, 1995, fiscal 1996 and fiscal 1997,
respectively. The Company has signed four new leases for Drug Fair locations,
with all of these stores expected to open before the end of fiscal 1998. The
Company expects to close one of its Drug Fair stores, located in Ridgewood, New
Jersey, when its lease expires in the second quarter of fiscal 1998. The
Company intends to continue to opportunistically expand its store base,
primarily focused on Drug Fair stores, as favorable market locations become
available. While pharmacy is not the main focus of the Cost Cutters chain, two
Cost Cutters locations contain their own pharmacies and the Company has
recently added Drug Fair pharmacies adjacent to two of its Cost Cutters
locations. The Company believes there is an opportunity to add Drug Fair
pharmacies to certain
24
<PAGE>
additional Cost Cutters stores depending on factors such as location, store
size, layout and competition. Five of the eight stores opened between fiscal
1995 and fiscal 1997 (none of which are mature stores) do not currently
contribute to the Company's operating profit.
Results of Operations
The following discussion should be read in conjunction with the audited
financial statements and the related notes thereto of the Company for the six
months ended January 29, 1995, the six months ended July 30, 1995, fiscal 1996
and fiscal 1997, included elsewhere in this Prospectus. The amounts presented
below for the Company for the twelve month period ended July 30, 1995 represent
the mathematical addition of the historical amounts for the Predecessor Company
and the Company for purposes of the discussion below only. The following table
sets forth the Company's operating results for the periods indicated expressed
as a percentage of sales and the net number of new stores opened during the
periods indicated.
<TABLE>
<CAPTION>
Twelve Months Ended
--------------------------------------------------
July 30, 1995 July 28, 1996 July 26, 1997
<S> <C> <C> <C>
Statement of Operations Data:
Net sales ....................................... 100.0% 100.0% 100.0%
Gross profit .................................... 29.2 29.2 29.4
Selling, general and administrative expense ...... 21.8 22.0 22.0
Administrative fees .............................. 0.1 0.1 0.1
Depreciation and amortization ..................... 1.4 2.0 1.9
Other income, net ................................. 0.4 0.2 0.2
------ ------ ------
Operating income .............................. 6.3 5.3 5.6
Interest expense, net ........................... 1.2 1.9 1.3
------ ------ ------
Income before income taxes ........................ 5.1 3.4 4.3
Provision for income taxes ........................ 0.9 1.7 2.3
------ ------ ------
Net income .................................... 4.2 1.7 2.0
====== ====== ======
Other Data (unaudited):
EBITDA .......................................... 8.8% 7.8% 8.1%
Number of new stores (net) ........................ 3 4 1
</TABLE>
Comparison of fiscal 1997 to fiscal 1996
Net sales for fiscal 1997 were $231.0 million as compared to $215.7
million for fiscal 1996, an increase of $15.3 million or 7.1%. This increase
was due primarily to a 4.8% increase in same-store sales, driven by a 16.3%
increase in pharmacy sales, from $47.8 million to $55.6 million, and a 34.5%
increase in pharmacy sales to Third-Party Plans from $29.3 million to $39.4
million.
Gross profit was $67.9 million for fiscal 1997, as compared to $63.1
million for fiscal 1996, an increase of 7.6%. Gross profit as a percentage of
net sales was 29.4% for fiscal 1997 as compared to 29.2% for fiscal 1996. This
0.2% increase was due primarily to the increase in the gross margin on general
merchandise sales, particularly at Cost Cutters, and the increase in the amount
of cash advances from certain of the Company's suppliers recognized during
fiscal 1997. These cash advances ("Supplier Advances") are made by a supplier
at the beginning of a supply contract and are recognized by the Company as a
reduction of cost of goods sold over the term of the contract as the Company
attains certain purchase levels of the supplier's products. The increase in
gross margin on general merchandise sales and the recognition of Supplier
Advances was partially offset by a decrease in the overall gross margin on
pharmacy sales caused by an increase in Third-Party Plan prescription sales as
a percentage of total pharmacy sales.
Selling, general and administrative expense as a percentage of net sales
was 22.0% in each of fiscal 1996 and fiscal 1997. This percentage remained
stable as an increase in advertising expenses as a percentage of sales from
0.8% in fiscal 1996 to 1.1% in fiscal 1997, which resulted from an upgrade by
the Company of the quality of its direct mail circulars in order to increase
sales and a lower amount of co-op advertising rebates from its suppliers during
fiscal 1997, was offset by increased sales volume.
25
<PAGE>
Net income for the Company for fiscal 1997 was $4.6 million as compared to
$3.7 million for fiscal 1996, an increase of 24.3%, as a result of the factors
described above. Net income for the Holding Company for fiscal 1997 was $3.8
million as compared to $2.6 million for fiscal 1996, an increase of 46.2%, as a
result of the factors described above which were partially offset by interest
expense of $1.6 million at the Holding Company level attributable to interest
accruing on the Holding Company's Subordinated Notes due 2005 (the
"Subordinated Notes.")
Comparison of fiscal 1996 to the Twelve Months Ended July 30, 1995 (the
"1995 Period")
Net sales for fiscal 1996 were $215.7 million as compared to $197.9
million for the 1995 Period, an increase of $17.8 million or 9.0%. This
increase was primarily due to the addition of four new stores (including one
Cost Cutters store) in 1996, which generated $9.1 million in additional
revenue, and a 2.4% same-store sales increase, driven by a 10.8% increase in
overall pharmacy sales from $43.1 million to $47.8 million.
Gross profit was $63.1 million for fiscal 1996, as compared to $57.7
million for the 1995 Period, an increase of 9.4%. Gross profit as a percentage
of net sales was 29.2% for fiscal 1996 as well as the 1995 Period. For the 1995
Period, Third-Party Plan prescription sales represented 49.1% of total
prescription sales, or $21.1 million, while Third-Party Plan prescription sales
represented 60.1% of total prescription sales for fiscal 1996, or $29.3
million. The decline in the gross margin on prescription sales was partially
offset by an increase in the gross margin on general merchandise and the
recognition of $1.5 million of Supplier Advances in fiscal 1996.
Selling, general and administrative expense as a percentage of net sales
was 22.0% for fiscal 1996 as compared to 21.8% for the 1995 Period. This 0.2%
increase was due primarily to the relatively large numbers of stores opened in
the 1995 Period (3 stores opened) and fiscal 1996 (4 stores opened) and the
higher level of expenses incurred by these stores, which is typical for new
stores in their first few years of operations. In addition, in order to improve
the quality of its direct mail advertising program, the Company increased its
net advertising expenditures from approximately $0.7 million in the 1995 Period
to $1.6 million in fiscal 1996.
Depreciation and amortization expense increased to $4.3 million for fiscal
1996 compared to $2.9 million for the 1995 Period, an increase of 48.3%, as a
result of amortization of intangibles and deferred financing costs recorded in
connection with the Acquisition for all of fiscal 1996 as compared to only the
last six months of the 1995 Period. Prior to the Acquisition, the Company
incurred no amortization of goodwill, beneficial leasehold interests or
deferred financing costs. Amortization of goodwill and beneficial leasehold
interests and deferred financing costs aggregated $2.6 million for fiscal 1996.
Net income for the Company for fiscal 1996 was $3.7 million as compared to
$8.3 million for the 1995 Period, a decrease of 55.4%, as a result of the
factors described above. The Holding Company had no operations until the
Acquisition on January 30, 1995. Net income for the Holding Company for fiscal
1996 was $2.6 million as compared to $0.6 million for the 1995 Period, an
increase of 333.3%, as a result of the fact that fiscal 1996 included a full
year of operations, as well as the other factors described above which were
partially offset by interest expense of $1.328 million at the Holding Company
level attributable to interest accruing on the Subordinated Notes.
Liquidity and Capital Resources
General
The Company
During fiscal 1997, cash provided from operations was $9.4 million, as
compared to $10.5 million for fiscal 1996. This decrease of $1.1 million was
primarily the result of an increase in deferred tax liability and income taxes
payable resulting from larger estimated tax payments during fiscal 1997, which
was partially offset by higher net income. Cash used in investing activities
was $1.3 million for fiscal 1997, as compared to $2.9 million for fiscal 1996.
This $1.6 million decrease was due to decreased capital expenditures in the
subsequent period as a result of a decrease in store openings. Cash used in
financing activities was $9.9 million for fiscal 1997, as compared to $5.8
million for fiscal 1996. This $4.1 million increase was due to increased
principal payments made on the Old Credit Facility.
During fiscal 1996, cash provided from operations was $10.5 million
compared to $10.9 million for the 1995 Period. This $0.4 million decrease was
due primarily to increases in Third-Party Plan prescription receivables and
inventory acquisitions for new stores. Cash used in investing activities was
$2.9 million in fiscal 1996 as compared
26
<PAGE>
to $2.3 million in the 1995 Period, excluding the Acquisition. Cash used in
financing activities, primarily the payment of principal under the Old Credit
Facility, for fiscal 1996 was $5.8 million as compared to $4.9 million for the
1995 Period.
Historically, cash flows from operations, augmented when necessary by
borrowings under the Revolving Loan under the Old Credit Facility, have been
sufficient to fund working capital needs, investing activities (consisting
primarily of capital expenditures) and financing activities (normal debt
service consisting of interest payments and repayments of term and revolving
loans outstanding). Working capital was $9.8 million, $11.2 million and $10.6
million on July 26, 1997, July 28, 1996 and July 30, 1995, respectively.
In the last few years, the Company's capital requirements primarily
resulted from opening and stocking new stores, remodeling and refurbishing
existing stores and continuing development of new management information
systems. The Company has opened 16 new stores since 1990, and has signed four
leases for new Drug Fair locations, with all of these stores expected to open
before the end of fiscal 1998. The Company estimates that the average initial
new store investment is between $0.3 million and $0.6 million, not including
inventory costs which may range from $0.4 million to $0.5 million. Of the
Company's 43 stores, 18 have been opened since 1989 and all but one of the
remaining 25 stores have been refurbished since 1991. The total cost of this
refurbishment program was approximately $3.0 million or approximately $125,000
per store. The Company anticipates that over the next few years it will remodel
and refurbish approximately four stores per year at a cost of approximately
$0.4 million per year. The Company also spends approximately $0.5 million
annually to update its POS network and other management information systems
and, as part of this effort, the Company expects to complete the installation
of a comprehensive processing system from JDA Software, Inc. prior to October
31, 1997. Working capital is also required to support inventory for the
Company's existing stores.
The Company intends to consolidate its two existing distribution centers
and corporate offices into a single new facility when its current distribution
center leases expire in 1998. The Company intends to lease this new facility,
which it anticipates will be approximately 200,000 square feet in size. The
Company anticipates that incremental annual rent and related expenses will be
approximately $0.4 million.
The Company expects that over the next twelve months it will pay one-time
performance-related bonuses to Mr. Frank Marfino, its President and Chief
Executive Officer, and Mr. Todd Pluymers, its Chief Financial Officer. Such
bonuses are expected to aggregate approximately $1.4 million and are expected
to be paid no later than the first anniversary of the Issue Date of the
Existing Notes.
The Company believes that, based on anticipated levels of operations, it
will be able to meet its debt service obligations, including interest payments
on the Notes, when due and to fund anticipated capital expenditures and working
capital requirements, and to comply with the terms of its debt agreements. The
Company's ability to make scheduled payments of principal or interest on, or to
refinance, its indebtedness will depend on future operating performance and
cash flow, which are subject to prevailing economic conditions, prevailing
interest rates and financial, competitive, business and other factors beyond
its control. The Company expects that substantially all of its borrowings under
the New Credit Facility will bear interest at floating rates; therefore, the
Company's financial condition will be affected by any changes in prevailing
interest rates. The Company expects to meet cash requirements with cash from
operations and from borrowings under the New Credit Facility, as necessary.
The Company entered into the $20.0 million New Credit Facility
simultaneously with the consummation of the sale of the Existing Notes. See
"Description of New Credit Facility and Certain Other Indebtedness" for a
description of the terms of the New Credit Facility. The New Credit Facility
will be used primarily for working capital purposes.
The Holding Company
Although the Holding Company does not conduct operations separate from the
Company, the Holding Company has issued $13.25 million (not including accrued
interest) in Senior Subordinated Notes due 2005. Interest on these Subordinated
Notes is not currently payable, but accrues at a rate of 10% per annum. In
addition, the Holding Company has issued a Guarantee of the Notes. Because the
Holding Company does not conduct operations separate from the Company, it is
dependent entirely on cash flow generated, and borrowings made, by the Company.
The Holding Company believes that, based on anticipated levels of operations of
the Company, distributions from the Company will be sufficient to permit the
Holding Company to meet its obligations under the Subordinated Notes
27
<PAGE>
and its Guarantee of the Notes when and if they become due. The Holding
Company's ability to make scheduled payments of principal and interest on, or
to refinance the Subordinated Notes, will depend on the future operating
performance and cash flow of the Company, which are subject to prevailing
economic conditions, prevailing interest rates and financial, competitive,
business and other factors beyond the control of the Company and the Holding
Company.
Seasonality
The business of the Company is seasonal in nature. Historically, the
Company's revenues and income are highest during its second and fourth fiscal
quarters, with the second quarter being the highest due to the holiday season.
Inflation
The Company believes that inflation has not had a material impact on
results of operations for the Company during the three year period ended July
26, 1997.
28
<PAGE>
BUSINESS
General
The Company is among the largest regional drugstore chains in the United
States and the only such chain focused primarily on the densely populated
northern and central New Jersey markets. The Holding Company is the owner of
all of the outstanding capital stock of the Company. The Company operates a
chain of 43 drug and general merchandise stores under two separate formats,
Drug Fair and Cost Cutters, and ranks as the number two or three competitor in
its primary market areas based on sales of similar merchandise. Of the
Company's 43 stores, 18 have been opened since 1989 and all but one of the
remaining stores have been refurbished since 1991. The Company has been
consistently profitable and each of the Company's 38 mature stores (those open
for more than 24 months) is profitable on an operating basis prior to the
allocation of certain corporate overhead. The Company's revenues and EBITDA
were $231.0 million and $18.7 million, respectively, in fiscal 1997.
Drug Fair. Drug Fair is a chain of 26 large-format drugstores with an
average store size of approximately 17,000 square feet. All of the stores
contain a pharmacy in the rear of the store, which is the focal point of the
store layout. In fiscal 1997, the Company's pharmacies (including four at Cost
Cutters locations) filled over 1.5 million prescriptions, an average weekly
volume of approximately 1,000 scripts per pharmacy, and pharmacy sales
increased 16.3% over fiscal 1996. Currently, approximately 72% of the Company's
prescription sales are to Third-Party Plan participants. Drug Fair's strategy
is to utilize large-format stores to capitalize on the increased customer
traffic associated with its growing pharmacy business to increase sales of
higher margin non-pharmacy merchandise, including health and beauty care items,
housewares, greeting cards, stationery, candy and seasonal items. General
merchandise accounted for approximately 61% of Drug Fair revenues in fiscal
1997, significantly higher than the average of other large drugstore chains.
The Company believes that its broad selection of front-end merchandise is a
significant competitive strength that has enabled it to increase its overall
gross margins from 27.5% in fiscal 1991 to 29.4% in fiscal 1997. Drug Fair
stores are primarily located in neighborhood shopping centers that are easily
accessible and generate significant customer traffic.
Cost Cutters. Cost Cutters is a 17-store general merchandise chain with an
average store size of approximately 29,000 square feet. Cost Cutters stimulates
customer traffic by offering a non-pharmacy merchandise mix similar to Drug
Fair, a high-impact merchandise presentation and an everyday low price
strategy, with prices generally 10%-15% lower than Drug Fair. Cost Cutters
offers a broader selection of products than Drug Fair while still focusing on
health and beauty care items, housewares, greeting cards, stationery, candy and
seasonal items. Currently, four locations have pharmacies, two within the store
and two as separate Drug Fair storefronts adjacent to the store, and the
Company believes there is an opportunity to open Drug Fair pharmacies at
certain additional Cost Cutters locations. Cost Cutters stores are primarily
located near major highways, drawing customers from a wider area than a typical
drugstore and emphasizing their destination-store orientation.
Since 1990, the Company has experienced significant growth led by Frank
Marfino, the Company's Chief Executive Officer. During this period, the Company
expanded its store base by 12 stores, with revenues increasing from $138.5
million in fiscal 1991 to $231.0 million in fiscal 1997 (an 8.9% CAGR) and
EBITDA increasing from $6.0 million in fiscal 1991 to $18.7 million in fiscal
1997 (a 20.9% CAGR). During this period, the Company also increased its EBITDA
margin from 4.3% to 8.1% of sales. This improved operating performance and
growth have resulted primarily from rationalization and expansion of the store
base, improved centralized controls over purchasing, effective merchandising,
pricing and loss-prevention strategies, increased pharmacy business with
Third-Party Plan participants, and cost control measures that have reduced
selling, general and administrative expense as a percentage of sales from 23.8%
in fiscal 1991 to 22.0% in fiscal 1997.
The Company was acquired in January 1995 by the Holding Company, whose
shareholders include a group of investors led by BancBoston, Harvest and
management. Since the Acquisition, the Company has placed increased emphasis on
growing its pharmacy sales to Third-Party Plan participants and, as a result,
has grown its pharmacy sales at a 12.0% CAGR from fiscal 1994 to fiscal 1997.
Similarly, improved non-pharmacy merchandising and pricing strategies, combined
with increased customer traffic resulting from higher pharmacy sales, have
enabled the Company to increase its gross margin from 27.9% in fiscal 1994 to
29.4% in fiscal 1997. This increase occurred despite continued pharmacy margin
erosion resulting from increased sales to Third-Party Plan participants.
29
<PAGE>
Each of the Company and the Holding Company is incorporated in Delaware,
and their executive offices are located at 251 Industrial Parkway, Branchburg
Township, Somerville, NJ 08876. The telephone number for the Company and the
Holding Company at these executive offices is (908) 722-8700.
The Drugstore Industry
According to Drug Store News, the U.S. drugstore industry accounted for
$91 billion of retail sales in 1996 and has grown at a 6.1% CAGR since 1987.
During this period, sales at chain drugstores have grown at a 8.4% CAGR, as
independent drugstores lost significant market share to the larger and more
efficient national and regional chains, such as the Company. Industry revenues
are expected to continue to grow at similar rates due to the aging of the U.S.
population, greater participation in Third-Party Plans and continued growth in
new pharmaceutical products. As pharmacy sales at national and regional chains
continue to grow, sales of other higher margin non-pharmacy merchandise offered
in chain drugstores are expected to experience positive growth through
increased customer traffic.
According to industry sources, households headed by persons aged 55 to 64
and 65 to 74 spend approximately 20% more, and 105% more, respectively, on
prescriptions than the average household. According to the United States Bureau
of the Census, people 55 years of age and over represent the fastest growing
segment of the population, with expected growth from 55.8 million in 1997 to
74.7 million in 2010, an increase of 33.9%.
In addition to these positive demographic trends, the growth in
Third-Party Plan participation is increasing overall prescription drug usage.
The percentage of prescriptions purchased through Third-Party Plans has
increased from 50% in 1993 to 67% in 1996 and is expected to reach 85% to 90%
in the next two to three years. Third-Party Plans encourage participants to use
lower cost drug therapies over alternative treatment methods such as surgery or
hospital treatment. Additionally, by reducing the out-of-pocket expense to the
consumer, Third-Party Plans have caused consumers to increase the number of
prescriptions filled.
Although pharmacy sales to Third-Party Plan participants typically have
lower margins than cash pharmacy sales, resulting in a decline in pharmacy
gross margins, this decline has been partially offset by a higher volume of
pharmacy sales. Management expects that as sales to Third-Party Plan
participants as a percentage of total pharmacy sales slows, margins will
stabilize, resulting in pharmacy gross profit growth more closely approximating
pharmacy sales growth rates. The drugstore industry, including the Company, has
also capitalized on the customer traffic created by the growth in Third-Party
Plan sales to increase sales of higher margin non-pharmacy merchandise.
Another factor expected to increase industry revenues is the introduction
of new prescription drugs and drug therapies. According to industry sources,
pharmaceutical manufacturers will spend an estimated $19.0 billion in 1997 on
research and development to develop new drugs which could result in incremental
pharmacy sales. In 1996, 53 new drugs were approved by the United States Food
and Drug Administration ("FDA"), an increase of 102% over the average for the
previous five years. In addition, the FDA is approving an increasing number of
prescription products for sale over-the-counter. Such drugs that are approved
for over-the-counter distribution have historically shown significantly
increased sales.
As a result of the economies of scale available to larger drugstore chains
as well as the Third-Party Plan payment trend, during the past ten years
national and regional chain drugstores have increased their share of the total
retail drug market at the expense of independent drugstores and smaller
drugstore chains. During 1996, pharmacy sales at chain drugstores grew by an
estimated 17.4% to $30.3 billion, representing approximately 61% of the $49.4
billion drugstore pharmacy market, while pharmacy sales at independent
drugstores grew less than 4% in 1996, to an estimated $19.1 billion, a 39%
market share. The number of independent drugstores and smaller drugstore chains
has decreased from approximately 35,000 in 1985 to approximately 22,000 in
1996, as many of such retailers have been acquired by larger drugstore chains.
The Company believes that independent retail drugstores will continue to lose
market share to the larger and more efficient drugstore chains principally
because larger chains such as the Company are better positioned to handle the
increased volume of sales to Third-Party Plan participants, are able to
purchase inventory on more favorable terms, and are able to achieve other
economies of scale with respect to their marketing, advertising, distribution
and other expenditures.
In July 1994, the State of New Jersey adopted "Freedom of Choice" and "Any
Willing Provider" legislation, which the Company believes results in a "level
playing field" in New Jersey for regional drugstore chains such as the Company.
The "Freedom of Choice" legislation permits Third-Party Plan participants to
purchase prescription
30
<PAGE>
drugs from the provider of their choice if the provider meets uniformly
established requirements. In states which have not adopted similar legislation,
many Third-Party Plans align themselves by agreement with particular drugstore
chains under arrangements whereby members of a Third-Party Plan are required to
purchase their drugs at a particular drugstore chain in order for most or all
of the cost to be paid by the Third-Party Plan. As a result, other drugstore
chains and independent drugstores are in effect precluded from selling
prescription drugs to the applicable members. The "Any Willing Provider"
legislation requires that any Third-Party Plan that has entered into an
agreement with a prescription provider must also permit any other licensed
provider to participate in such Third-Party Plan as a preferred or contracting
provider, provided that such provider is willing to accept the terms of such
agreement.
Competitive Strengths
The Company attributes its success in the marketplace to the following
competitive strengths:
Strong Market Position in Attractive Regional Market. As the largest
drugstore chain focused primarily on the densely populated northern and central
New Jersey markets, the Company's operations serve an estimated population of
over 5.7 million. New Jersey offers a highly attractive customer base, with
among the highest personal income per capita in the United States. The Company
has operated in these markets for its entire 43-year history and has profitably
managed its operations through changing economic conditions and an environment
of increasing competition. Since 1990, a period of significant incremental
competition, management has successfully expanded its store base, increased
same-store sales each year and increased its EBITDA margin from 4.3% in fiscal
1991 to 8.1% in fiscal 1997. In July 1994, the State of New Jersey adopted
"Freedom of Choice" and "Any Willing Provider" legislation, which together
effectively allow any prescription provider to service Third-Party Plan
participants on terms identical to those afforded to other providers.
Management believes this results in a "level playing field" in New Jersey for
regional drugstore chains such as the Company and positions it to benefit from
the continued growth in pharmacy sales.
Favorable Store Locations. The Company has generally located its stores in
convenient locations under favorable leases, many of which include attractive
long-term renewal rates. The Company's Drug Fair stores are primarily located
in neighborhood shopping centers that are easily accessible and generate
significant customer traffic. The Company's Cost Cutters stores are primarily
located near major highways, drawing customers from a wider area than a typical
drugstore and emphasizing their destination-store orientation. The Company
believes that the accessibility and manageable size of its stores appeal to
consumers at a time when other discount merchandisers continue to open larger
and more complex stores that customers may find less convenient. The close
proximity of the Company's stores to its executive offices and distribution
centers also results in distribution and inventory management efficiencies and
permits close management supervision of store operations.
Successful Merchandising and Pricing Strategy. The Company believes that
its focus on consistent execution of its purchasing, pricing and merchandising
strategies has been instrumental to its success. Excluding pharmacy, Drug Fair
and Cost Cutters offer a similar merchandise mix, with over 90% of merchandise
common to both chains. The Company believes that its broader selection of
front-end merchandise is a significant competitive strength which enabled it to
realize an overall increase in its margins between fiscal 1991 and fiscal 1997.
The Company also believes that by operating both chains it is able to purchase
most of its products at competitive prices by purchasing products in truck-load
or container quantities. The Company employs a promotional pricing strategy at
Drug Fair and a modified everyday low price strategy at Cost Cutters, each
targeted towards the customers it seeks to attract. In addition, the Company's
comprehensive and integrated inventory management system and electronic
point-of-sale system record all sales data by scanner at the time of sale and
permit the Company to maintain in-stock positions in all key lines of
merchandise, promote higher inventory turns and provide the ability to monitor
sales and profitability by store location.
Well-Maintained Store Base. Of the Company's 43 stores, 18 have been
opened since 1989 and all but one of the remaining stores have been refurbished
since 1991. As a result, the Company does not expect to incur an extraordinary
level of capital expenditures for maintenance in the near term. Furthermore,
since 1991 the Company has rationalized its store base and closed four
underperforming stores. As a result of this rationalization and the other
operating improvements implemented by management, each of the Company's 38
mature stores is profitable on an operating basis prior to the allocation of
certain corporate overhead, and management believes that the Company's EBITDA
margin exceeds the industry average.
31
<PAGE>
Operating and Growth Strategy
The Company's operating and growth strategy consists of four principal
elements: (i) capitalize on favorable pharmacy trends, (ii) increase customer
traffic, (iii) further optimize retail execution and (iv) selectively expand
its store base.
Capitalize on Favorable Pharmacy Trends. The pharmacy business contributes
significantly to the Company's growth by increasing sales of non-pharmacy
merchandise, enhancing customer loyalty and generating customer traffic.
Primarily as a result of increasing sales to Third-Party Plan participants, the
Company's pharmacy sales have increased by 9.0%, 10.8% and 16.3% in the twelve
months ended July 30, 1995, fiscal 1996 and fiscal 1997, respectively.
Management expects favorable pharmacy sales trends to continue, and believes
that the Company is well-positioned to increase its higher margin non-pharmacy
merchandise sales by capitalizing on the increased customer traffic generated
by its pharmacies.
Increase Customer Traffic. With favorable pharmacy sales and resulting
customer traffic trends expected to continue, the Company believes that there
are opportunities to further improve customer traffic by providing various
products and services that increase consumer conveniences or otherwise attract
customers to the Company's stores, including offering on-site one-hour
photofinishing labs in a number of locations and increasing offerings of
convenience foods and seasonal merchandise. The Company is also offering new
products and services such as lottery ticket sales and ATMs in selected stores
to enhance customer traffic. The Company also builds customer loyalty and
encourages repeat customer traffic by keeping its stores orderly and clean and
maintaining in-stock positions in substantially all of its merchandise.
Further Optimize Retail Execution. The Company's non-pharmacy
merchandising strategies are designed to improve customer satisfaction,
selection and convenience and establish its stores as a destination for a
growing number of front-end merchandise categories. The Company believes that
effective merchandise management increases customer satisfaction and has
contributed significantly to increases in the Company's gross margin. The
Company will continue to refine its merchandising and buying practices with the
goal of increasing sales of higher-margin items and improving inventory
turnover. For example, the Company is exploring opportunities to expand sales
of OTC drugs, health and beauty care items, and private label merchandise.
Selectively Expand Store Base. The Company expects to selectively expand
its store base as favorable market locations become available. The Company
believes that store expansion will increase sales and cash flow, strengthen its
market position and result in economies of scale in marketing and distribution
by leveraging its existing infrastructure. In addition, the Company believes
that increased sales volume may enable it to purchase inventory at better
prices. Management plans to expand its Drug Fair store base, as these stores
generally offer shorter payback periods and higher returns on investment and
better position the Company to capitalize on favorable trends affecting the
drugstore industry. The Company expects to open four new Drug Fair locations
before the end of fiscal 1998 and, depending on the availability of favorable
locations, intends to open an average of three to four new Drug Fair stores
annually over the next several years.
Store Operations
The Company's stores are operated under two separate formats, Drug Fair
and Cost Cutters, with each of the 38 mature stores profitable on an operating
basis prior to the allocation of certain corporate overhead. The Company
employs different pricing strategies for Drug Fair and Cost Cutters, each
targeted towards the customers it seeks to attract. Drug Fair uses a more
traditional promotional pricing strategy, with a limited number of discounted
items; however, management believes that its regular pricing is somewhat lower
than that of its retail drugstore competitors. In contrast, Cost Cutters relies
on an everyday low price strategy by offering lower prices on most items on a
regular basis, which management believes is consistent with its
destination-store orientation.
32
<PAGE>
The following table sets forth the approximate percentage of revenues
attributable to each major product category at Drug Fair and Cost Cutters
stores during fiscal 1997:
<TABLE>
<CAPTION>
Percentage of Fiscal
1997 Sales by Category
-----------------------
Category: Drug Fair Cost Cutters
<S> <C> <C>
Pharmacy ........................... 38.9% 5.6%
Health and Beauty Care ............ 12.5 19.1
Other Merchandise .................. 12.3 13.1
Housewares ........................ 8.0 17.6
Stationery and Greeting Cards ...... 7.1 13.3
Candy, Food and Beverage ............ 6.2 10.0
Seasonal and Promotional ............ 6.0 10.3
OTC Pharmaceuticals ............... 4.9 5.0
Cosmetics ........................... 4.1 6.0
------ ------
100.0% 100.0%
====== ======
</TABLE>
Drug Fair
Drug Fair is a 26 store chain of larger sized traditional drugstores
primarily located in easily accessible neighborhood shopping centers. Drug Fair
has built a base of loyal customers by offering a broader range of non-pharmacy
merchandise within this larger format, including an expanded selection of
health and beauty care items, housewares, greeting cards, stationery and
seasonal items, in a convenient setting with attractive prices. Drug Fair's
strategy is to emphasize its broad selection of merchandise and offer
competitive prices relative to its competition. In particular, the Company
believes that its broader selection of front-end merchandise is a significant
competitive strength that has enabled it to increase overall gross margin from
27.5% in fiscal 1991 to 29.4% in fiscal 1997. The Company's long-standing
philosophy of customer service has made Drug Fair a leader in local pharmacy
services in its markets.
The first Drug Fair store was opened in 1954 in Scotch Plains, New Jersey
and the Company's current Drug Fair locations average approximately 17,000
square feet, ranging between 11,200 and 23,400 square feet. The Company
believes that its store size and locations are important factors to store
profitability. Most Drug Fair stores are contained in neighborhood shopping
centers that are easily accessible and generate significant customer traffic.
All stores are open seven days a week, from 9:00 a.m. to 9:30 p.m., Monday
through Friday, with slightly reduced hours on weekends, totaling approximately
83 hours per week.
Pharmacy. In fiscal 1997, the Company's pharmacies filled over 1.5 million
prescriptions, representing an average weekly volume of approximately 1,000
scripts per pharmacy, and pharmacy sales increased 16.3% over fiscal 1996.
Currently, approximately 72% of prescription volume results from sales to
Third-Party Plan participants. The Company offers discounts on prescriptions to
senior citizens, who accounted for approximately 14.2% of prescription sales
volume in fiscal 1997.
All Drug Fair stores contain a pharmacy in the rear of the store, each
staffed by two full-time registered pharmacists. The pharmacy is the focal
point of the store layout, which is also designed to promote optimal customer
flow and shopping convenience. New and remodeled stores typically have
enhancements such as pharmacy waiting and consultation areas. In addition, for
the past four years Drug Fair stores have featured free home delivery of
prescriptions. The Company believes that this delivery service represents an
attractive alternative to the drive-through pharmacy service offered by some of
its competitors while avoiding the significant capital expenditures required to
remodel stores to accommodate drive-through services.
General Merchandise. As a customer-oriented, lower-cost retail drugstore,
Drug Fair strives to compete on the bases of cost and maintaining a
high-quality image with the consumer. General merchandise is an important
component of Drug Fair's revenues, comprising approximately 61% of Drug Fair
revenues in fiscal 1997. General merchandise products are well stocked and
displayed on shelves within easy reach of consumers. With its convenient
merchandise layout and large selection, Drug Fair retains its small-store
atmosphere while offering a variety of merchandise selections typically seen in
larger retail stores. Drug Fair offers a similar selection of general
merchandise as that of its drugstore competitors but, due to its above average
size, is able to expand its selection of items and offer a wider assortment of
higher margin non-pharmacy merchandise. For example, seasonal items
33
<PAGE>
have been a key contributor to Drug Fair's success, comprising 6.0% of
divisional revenues in fiscal 1997. Seasonal items are prominently displayed
along the entrance, providing a varied product mix and generating impulse
buying. With nearly 58,000 non-pharmacy stock keeping units ("SKUs") including
seasonal items, Drug Fair also offers expanded greeting card and household item
sections to the consumer.
In addition to its general merchandise offerings, the Company seeks to
attract customers by offering ancillary conveniences and services, such as
ATMs, lottery tickets, convenience food sections and film processing in many of
its stores, including its own on-site one-hour photofinishing labs in 13 Drug
Fair locations. Management believes that it offers the lowest prices for
one-hour film developing in its markets. The Company intends to continue to
experiment with new products and services designed to increase customer traffic
and enhance convenience.
Cost Cutters
Cost Cutters is a 17-store general merchandise chain focused on the
product areas of health and beauty care, housewares, greeting cards,
stationery, candy and seasonal items. The stores are self-service oriented, and
feature a similar non-pharmacy merchandise mix to Drug Fair, with more than a
90% overlap in general merchandise, at prices generally 10%-15% lower than at
Drug Fair. Currently, two Cost Cutters locations house their own pharmacies,
and the Company has added Drug Fair pharmacies adjacent to two of its Cost
Cutters locations. The Company believes there is an opportunity to open Drug
Fair pharmacies in certain additional Cost Cutters locations. Cost Cutters is
unique in its merchandising strategy in its markets and provides a much broader
product variety and deeper discounts than other local stores, while
successfully competing with mass merchandise stores.
The Company opened its first Cost Cutters store in 1983 in Norwood, New
Jersey and the Company's Cost Cutters stores average approximately 29,000
square feet in size, ranging from 20,000 to 36,000 square feet. In expanding to
new sites, the Company has opportunistically negotiated favorable lease terms,
typically from grocery stores that are relocating, rather than paying higher
prices for new real estate. Most of the stores are located in shopping centers,
near highways in easily accessible locations for surrounding communities. By
comparison, larger discount department chains, such as WalMart, Caldor and
K-Mart, typically build new stores in excess of 100,000 square feet and focus
more on higher-priced products such as apparel, sporting goods, electronics and
appliances. The Company believes that the accessibility and manageable size of
a Cost Cutters store is attractive to consumers at a time when larger discount
merchandisers continue to open larger and more complex stores that many
customers may find less convenient. All stores are open seven days a week, from
9:00 a.m. to 9:30 p.m., Monday through Friday, with slightly reduced hours on
weekends, totaling approximately 83 hours per week.
Pharmacy. While pharmacy is not the main focus of the Cost Cutters chain,
two Cost Cutters locations house their own pharmacies and the Company has
recently added Drug Fair pharmacies as separate storefronts adjacent to two of
its Cost Cutters locations with a pass-through between the two stores. The
Company believes there is an opportunity to add Drug Fair pharmacies to certain
additional Cost Cutters stores depending on factors such as location, store
size, layout and competition. The Company estimates that it costs $75,000 to
$100,000 to install a Drug Fair pharmacy next to an existing Cost Cutters
location (assuming construction of a new storefront is required), excluding
costs of staffing and inventory.
General Merchandise. With over 59,000 non-pharmacy SKUs, including
seasonal items, and substantial overlap in merchandise with Drug Fair, Cost
Cutters distinguishes itself through its merchandise presentation, pricing
strategy, assortment of items targeted to impulse purchases and a strong
merchandising position in greeting cards, stationery, seasonal items and
household products. In addition to traditional retail drugstore merchandise
such as health and beauty care items, OTC pharmaceuticals, candy and seasonal
items, Cost Cutters also sells luggage, kitchenware and an extended selection
of houseware products and automotive-related goods. One of the Company's
merchandising strategies is a high-impact merchandise presentation based on
well-stocked shelves that are highly visible to the customer, promoting a value
superstore image. Seven Cost Cutters locations contain on-site one-hour
photofinishing labs.
Cost Cutters is less promotional than most other discount stores because
it utilizes an everyday low price strategy. Competitors such as Caldor and
Bradlees generally employ what is known as a "high-low" pricing strategy, in
which everyday prices are generally higher than at Cost Cutters but are reduced
below Cost Cutters' prices during periodic store-wide sales. The Company
believes that Cost Cutters' pricing strategy is more attractive to consumers
than alternative pricing strategies for the majority of its product offerings,
including health and beauty care products that are typically purchased when
needed as opposed to when offered on sale.
34
<PAGE>
Advertising and Promotion
The Company aggressively advertises its Drug Fair and Cost Cutters chains
through extensive use of colorful, high-quality direct mail circulars
distributed to its neighborhood markets. Approximately 22 Drug Fair circular
programs are distributed annually, with each circular typically containing a
selection of approximately 200 specially priced items chosen to build customer
traffic. Cost Cutters distributes approximately 17 circular programs annually,
each containing approximately 200 items, of which 10% to 15% have been reduced
in price. The circulars often contain coupons good for item discounts and
advertise "Special" and "Bonus" buys. "Special" buys are items that are carried
at reduced prices while supplies last. "Bonus" buys are items carried every day
that include an additional amount of the same product or another product for no
extra cost. In some cases the body of the circulars for both chains are
identical, with different outside covers or "wraps," which allows the Company
to save advertising costs. In such cases, the products advertised in the body
generally represent regular everyday low prices for Cost Cutters and discounted
prices for Drug Fair. The Company estimates the average circular program costs
$140,000 to produce and distribute to approximately 600,000 recipients,
although in some cases the cost is partially offset by co-op advertising
rebates received from featured suppliers. The Company is also experimenting
with "marriage-mailing" its circulars with circulars from other merchandisers
to further save on advertising costs.
Purchasing and Distribution
By operating both Drug Fair and Cost Cutters chains, the Company believes
that it is able to take advantage of economies of scale available to larger
chains in purchasing merchandise and maintaining up-to-date systems and
technology. Although the Company utilizes two separate retail formats, the 43
stores are operated as one company through centralized purchasing and
distribution and use complementary marketing strategies. The Company believes
that its focus on consistent execution of its purchasing, pricing and
merchandising strategies has been instrumental in its success to date.
The Company maintains centralized budgeting, pricing, purchasing,
warehousing and inventory control functions at its corporate offices. Products
are purchased for both store chains by merchandise managers, each of whom is
responsible for a distinct product category (for example, cosmetics or
housewares) and reports directly to the Company's Chief Executive Officer.
Approximately 55% of all non-prescription purchases are received at the
Company's central warehouse and distribution center in Somerville, New Jersey.
These products are delivered to the stores by the Company's eight owned trucks.
The balance of general merchandise is shipped directly to the stores by
manufacturers and distributors. All prescription drugs are shipped directly to
the individual stores by wholesale drug distributors on a daily basis. The
Company has a supply agreement with Cardinal Health, Inc. ("Cardinal") that
requires it to purchase at least 90% of its pharmacy products from Cardinal.
Neuman Distributors, Inc. serves as a secondary supplier for products that are
not routinely carried by or are out of stock at Cardinal. The initial term of
the Company's supply agreement with Cardinal expires in January 2000.
Management believes that by operating both chains it is able to purchase most
of its products at competitive prices by purchasing products in truck-load or
container quantities. Seasonal merchandise is warehoused and distributed
independently of general merchandise.
The Company buys products from more than 1,600 suppliers and manufacturers
and seeks to purchase its merchandise directly from manufacturers in order to
take advantage of promotional programs offered only to retailers, including
co-op advertising allowances, promotional displays and materials and price
promotions. The Company believes that its relationships with its vendors are
good. The Company often utilizes prompt cash payments to obtain additional
merchandise discounts. None of the Company's suppliers or manufacturers
represented more than 10% of the Company's total non-pharmacy purchases during
fiscal 1997.
Management Information Systems
The Company operates an in-house data processing system in connection with
the operation and management control functions of its business. This system
incorporates both proprietary and commercially available software, including
E-3 buying systems and Lawson Associates payroll systems, and is designed to
integrate the key retailing functions of merchandise planning, purchase order
management, sales capture, merchandise distribution, receiving, order entry,
inventory control and replenishment. Management believes its systems enable the
Company to maintain
35
<PAGE>
a virtually constant "in-stock" position in all key lines of merchandise. In
anticipation of continued growth, the Company is implementing a new
comprehensive processing system developed by JDA Software, Inc., which it
expects to integrate by February 28, 1998.
The Company monitors inventories and sales at its 43 stores through a
point-of-sale network, utilizing IBM Chain Drug software and hardware, which
links store terminals to a central computer located at the Company's
headquarters. The Company uses this system to replenish store inventories from
its central warehouses and to provide management with detailed information on
individual store operations on a daily basis.
All sales data is recorded by cashiers, utilizing scanners, in each store
at the time of sale. Sales data is transmitted to the central computer where it
is compiled to produce daily, weekly and monthly management reports. Reports
are organized by line of merchandise, class, item and store, and enable
management to monitor sales and profitability by location. Based upon this
information, management makes merchandising decisions as required, including
reorders, special promotions and changes in buying programs. As a means of
further inventory verification, physical inventories are taken twice a year at
all stores and the warehouses. The Company also employs Telxon and Symbol
Technologies radio frequency equipment in order to constantly monitor and
update inventory, shelf labels and prices.
The Company expects to install a new warehouse management system including
bar-code scanning and radio frequency technologies at its new distribution
center into which it expects to move its distribution operations in 1998.
Although the Company believes that the majority of its computer software
applications and systems will not be affected by the "year 2000" dating
problem, a small portion of such computer software applications and systems
will have to be modified, upgraded or replaced to accommodate the "year 2000"
dating changes necessary to permit correct recording of year dates for 2000 and
later years. The Company does not expect that the cost of its planned year 2000
compliance program will be material to its financial condition or results of
operations. The Company believes that it will be able to achieve compliance by
the end of 1999, and does not currently anticipate any material disruption in
its operations. In the event that any of the Company's significant suppliers
does not successfully and timely achieve year 2000 compliance, the Company's
business or operations could be adversely affected.
All of the Company's stores contain Sensormatic Electronic Article
Surveillance Systems designed to minimize theft. Since its installation four
years ago, this system has contributed to reducing overall shrinkage to
approximately 1.5% of sales, which management believes is below the industry
average.
36
<PAGE>
Properties
The Company's current stores by location, year opened, year refurbished and
size are as follows:
Drug Fair
<TABLE>
<CAPTION>
Square
Location Opened/Refurbished Footage
<S> <C> <C>
South Plainfield 1959/1994 21,250
Manville 1965/1991 20,000
Old Bridge 1969/1992 16,527
Edison 1970/1992 15,000
Freehold 1970/1994 16,000
Westfield 1972/1991 23,424
Aberdeen 1974/1993 11,620
Fairfield 1976/1991 19,600
Hazlet 1976/1991 12,000
Berkeley Heights 1977/1993 16,800
Milburn 1977/1992 21,112
Warren 1978/1991 15,000
Ridgewood 1981/-- 20,800
Wyckoff 1981/1995 15,960
Rahway 1983/1993 13,900
Isellin 1985/1993 16,265
Englewood 1988/1992 13,440
Cranford 1989/-- 13,661
Oakland 1989/-- 20,205
Middlesex 1991/-- 23,000
Stirling 1993/-- 15,777
Verona 1995/-- 17,200
Clifton 1996/-- 11,200
Ramsey 1996/-- 17,000
Somerset 1996/-- 18,050
Plainfield 1997/-- 18,000
</TABLE>
Cost Cutters
<TABLE>
<CAPTION>
Square
Location Open/Refurbished Footage
<S> <C> <C>
Norwood 1983/1992 24,630
Bricktown 1984/1993 26,878
Manalapan 1984/1992 24,450
Middletown 1984/1993 27,988
Hamilton 1985/1993 33,300
Union 1985/1994 35,217
West Long Branch 1986/1996 27,113
Wall 1987/1993 30,000
Hillsborough 1990/1994 20,600
Parsippany 1991/-- 29,575
Lacey 1992/-- 34,000
Wayne 1992/-- 29,000
Ocean 1993/-- 36,890
Toms River 1994/-- 34,000
Chatham 1995/-- 20,800
Elizabeth 1995/-- 25,000
Lincoln Park 1995/-- 30,100
</TABLE>
All the Company's stores are leased pursuant to long-term leases
containing generally favorable terms. The current leases expire between
December 31, 1997 and April 30, 2039 (assuming renewal options are exercised),
with an average of 15 years remaining on lease terms. Eight of these leases
will expire by the end of 2000, 18 leases will expire between 2001-2015 and 17
leases will expire after 2015. The Company expects to close its Ridgewood, New
Jersey Drug Fair store when its lease expires in the second quarter of fiscal
1998. Management does not expect that the Company will incur material costs in
connection with the closing of this store.
The Company is committed to keeping its stores modern through continual
upgrades and refurbishments. Over the past six years, the Company has remodeled
and refurbished all but one store opened prior to 1989, at a cost of
approximately $125,000 per store. The Company works closely with an interior
design firm to develop updated interior concepts.
The Company's leases for its corporate office and warehouse facilities
expire in 1998, and the Company intends to consolidate its corporate offices
and two warehousing operations at a single new facility close to its existing
corporate headquarters. The Company is seeking a suitable location and
anticipates that this facility will be approximately 200,000 square feet in
size. The Company intends to lease this facility and believes that the facility
will improve operating efficiencies in several areas, particularly distribution
and inventory control.
Competition
The Company competes in its markets with several national, regional and
local drugstore chains, large grocery stores and supermarkets, membership
clubs, deep discount drugstores, combination food and drugstores, discount
general merchandise stores, mass merchandisers, independent drugstores and
local merchants. Historically, consumers were faced with few alternatives for
filling their prescriptions. Today's customer has a number of options
37
<PAGE>
including independent or chain drugstores, food retailers, mass merchants
(including discounters and deep discounters) and "mail-order" pharmacies, as
well as supermarkets, combination food and drugstores, hospitals and HMOs. The
Company's on-site one-hour photofinishing labs also compete with a variety of
mini-lab photo-processors and photo-specialty shops.
The Company believes that the primary elements of competition in its
industries include pricing, store location and design, product selection,
customer service and convenience. The Company believes that it competes
successfully because of its pricing policies, reputation for reliability,
convenient store locations, superior pharmacy services, broad selection of
merchandise and effective sales techniques. However, the competitive
environment is often affected by factors beyond a particular retailer's
control, such as shifts in consumer preferences, economic conditions and
population and traffic patterns. The Company believes that in the future the
ability to compete effectively will be increasingly dependent on quality
merchandising and customer service, the effectiveness of cost containment
measures, especially with respect to pharmacy services, and advanced
information systems.
Government Regulation
Pharmacies are subject to extensive federal, state and local regulation.
These regulations cover required qualifications, day-to-day operations,
reimbursement and documentation of activities.
Licenses and Regulation. The Company's pharmacists are required to be
licensed by the New Jersey Board of Pharmacy. All stores with pharmacies and
the Company's distribution centers are also registered with the Federal Drug
Enforcement Administration, although no pharmaceuticals are stored in the
distribution centers. Various other federal and state licenses are required for
the conduct of the Company's business. The Company believes that it has
satisfied all such licensing and registration requirements and continues to
actively monitor its compliance with such requirements. By virtue of these
licenses and registration requirements, the Company will be obligated to
observe certain rules and regulations, and a violation of such rules and
regulations could result in a suspension or revocation of one or more licenses
or registrations and/or monetary penalties or fines. The sale of pharmaceutical
products at new stores requires the issuance of additional licenses, with
respect to which the licensing authorities may conduct investigations.
In 1990, the United States Congress enacted the Omnibus Budget
Reconciliation Act of 1990 (OBRA), which required states to implement
pharmaceutical drug use review programs for Medicaid beneficiaries by January
1, 1993. Under OBRA, pharmacists are required to offer counseling, without
additional charge, to customers covered by Medicaid about medication, dosage,
delivery systems, common side effects and other information deemed significant
by the pharmacists. The State of New Jersey enacted broader regulations that
require pharmacists to provide such counseling to all customers, regardless of
whether they are covered by Medicaid. As a result, the Company's pharmacists
must provide counseling to customers and have a duty to warn customers
regarding any potential adverse effects of a prescription drug if the warning
could reduce or negate such effects. In addition, the Company's pharmacists are
required to conduct a prospective drug review before any new prescriptions are
dispensed, and may conduct a similar review prior to refilling any
prescriptions if considered appropriate. Such reviews include screening for
potential drug therapy problems due to (i) therapeutic duplication, (ii)
drug-disease contraindications, (iii) drug-drug interactions, (iv) incorrect
drug dosage or duration of drug treatment, (v) drug-allergy interactions, and
(vi) clinical abuse or misuse. Further, New Jersey closely regulates the
dispensing by pharmacists of over-the-counter controlled dangerous substances,
imposing requirements as to: (i) filling and refilling of prescriptions, (ii)
labeling of prescriptions, and (iii) monitoring the use of Schedule V
over-the-counter controlled dangerous substances to determine, in a
pharmacist's professional judgment, whether the substance has or will be used
for unauthorized or illicit consumption or distribution. The Company believes
its series of training programs for pharmacy personnel and its pharmacy
computer network are designed to ensure that these requirements are satisfied,
but violations of these regulations could have an adverse impact on the
Company.
State Laws Affecting Access to Services. In July 1994, the State of New
Jersey adopted "Freedom of Choice" and "Any Willing Provider" legislation,
which the Company believes results in a "level playing field" in New Jersey for
regional drugstore chains such as the Company. The "Freedom of Choice"
legislation permits Third-Party Plan participants to purchase prescription
drugs from the provider of their choice if the provider meets uniformly
established requirements. In states which have not adopted similar legislation,
many Third-Party Plans align themselves by agreement with particular drugstore
chains under arrangements whereby members of a Third-Party Plan are required to
purchase their drugs at a particular drugstore chain in order for most or all
of the cost to be
38
<PAGE>
paid by the Third-Party Plan. As a result, other drugstore chains and
independent drugstores are in effect precluded from selling prescription drugs
to the applicable members. The "Any Willing Provider" legislation requires that
any Third-Party Plan that has entered into an agreement with a prescription
provider must permit any other licensed provider to participate in such
Third-Party Plan as a preferred or contracting provider if it is willing to
accept the terms of such agreement. Such legislation may increase competition
for the Company's pharmacies.
Medicare and Medicaid. The pharmacy business has long operated under
regulatory and cost containment pressures from state and federal legislation
primarily affecting Medicaid and, to a lesser extent, Medicare.
The Medicaid program is a cooperative federal-state program designed to
enable states to provide medical assistance to aged, blind, or disabled
individuals, or members of families with dependent children whose income and
resources are insufficient to meet the costs of necessary medical services.
Federal laws and regulations contain a variety of requirements relating to
the furnishing of prescription drugs under Medicaid. First, states are given
authority, subject to certain standards, to limit or specify conditions to the
coverage of particular drugs. Second, federal Medicaid law establishes
standards affecting pharmacy practice, such as the OBRA counseling and drug
utilization review requirements described above. Third, federal regulations
impose certain requirements relating to the reimbursement for prescription
drugs furnished to Medicaid recipients. Among other things, federal regulations
establish "upper limits" on payment levels. In addition to requirements imposed
by federal law, states have substantial discretion to determine administrative,
coverage, eligibility and payment policies under their state Medicaid programs
which may affect the Company's operations.
The Medicare program is a federally funded and administered health
insurance program for individuals age 65 and older or who are disabled.
Medicare covers a limited number of specifically designated prescription drugs.
As part of the Balanced Budget Act of 1997, reimbursement for these products is
generally limited to 95% of the published average wholesale price for such
products. An increasing number of Medicare beneficiaries are being served
through health maintenance organizations. In addition to the limited Medicare
coverage for specified products described above, some health maintenance
organizations providing health care benefits to Medicare beneficiaries may
offer expanded drug coverage.
The Medicare and Medicaid programs are subject to statutory and regulatory
changes, retroactive and prospective rate adjustments, administrative rulings
and freezes and funding restrictions, all of which may adversely affect the
Company's business. There can be no assurance that payments for pharmaceutical
supplies and services under governmental reimbursement programs will continue
to be based on the current methodology or remain comparable to present levels.
In this regard, the Company may be subject to rate reductions as a result of
federal budgetary legislation related to the Medicare and Medicaid programs. In
addition, various Medicaid programs periodically experience budgetary
shortfalls which may result in Medicaid payment delays.
Fraud and Abuse. The Company is subject to federal and state laws
prohibiting the submission of false or fraudulent claims and governing its
billing relationships and financial and other arrangements between health care
providers. These laws include the federal anti-kickback statute, which
prohibits, among other things, knowingly and willfully soliciting, receiving,
offering or paying any remuneration directly or indirectly to induce or in
return for the referral of an individual to a person for the furnishing of any
item or service for which payment may be made in whole or in part under federal
health care programs. Many states have enacted similar statutes which are not
necessarily limited to items and services for which payment is made by federal
health care programs. New Jersey, for example, enacted the "Healthcare Cost
Reduction Act" in 1991. Federal and state courts have interpreted these laws
broadly. Violations of these laws may result in fines, imprisonment, civil
money penalties and exclusion from the federal and state funded health care
programs.
The Department of Health and Human Services Office of Inspector General
has issued a "Special Fraud Alert" concerning prescription drug marketing
practices that could potentially violate the federal anti-kickback statute.
According to the Special Fraud Alert, examples of practices that may implicate
the statute include certain arrangements under which remuneration is made to
pharmacists to recommend the use of a particular pharmaceutical product.
In addition, a number of states have undertaken enforcement actions
against pharmaceutical manufacturers involving pharmaceutical marketing
programs, including programs containing incentives to pharmacists to dispense
39
<PAGE>
one particular product rather than another. These enforcement actions arose
under state consumer protection laws which generally prohibit false
advertising, deceptive trade practices, and the like.
The Company believes its contract arrangements with other health care
providers, its pharmaceutical suppliers and its pharmacy practices are in
compliance with these laws. There can be no assurance that such laws will not,
however, be interpreted in the future in a manner inconsistent with the
Company's interpretation and application.
Health Care Legislation. Prescription drug sales have represented a
significant portion of the Company's revenues. These revenues may be affected
by changes within the health care industry, including changes in programs
providing for reimbursement of the cost of prescription drugs by Third-Party
Plans, regulatory changes relating to the approval process for prescription
drugs and proposals to reduce significantly projected increases in federal
spending on Medicare, Medicaid and other governmental programs.
In recent years, a number of legislative proposals have been introduced in
Congress to reform the health care system, including proposals in the context
of federal budget legislation. In addition, a number of states have enacted and
are considering various health care reforms. For example, several state
Medicaid programs have established mandatory statewide managed care programs
for Medicaid beneficiaries to control costs through negotiated or capitated
rates, as opposed to traditional cost based reimbursement for Medicaid
services, and proposed to use savings achieved through these programs to expand
coverage to those not previously eligible for Medicaid. Also, legislation to
reform the FDA, if enacted, could expressly permit pharmacy drug compounding
under certain conditions for individual patients. This could maintain and
increase the range of services provided by the Company. The Company cannot
predict whether or in what form health care legislation may be adopted in the
future, at the federal or state level, or the impact of any such legislation on
the Company's financial position or results of operations. However, to the
extent health care legislation expands the number of persons receiving health
care benefits covering the purchase of prescription drugs (such as through
government-sponsored managed care initiatives), it could result in increased
purchases of such drugs and could thereby have a favorable impact on both the
Company and the retail drug industry in general. Nevertheless, there can be no
assurance that any such legislation will be enacted or, if enacted, that such
legislation will not have an adverse effect on the Company.
Labor Laws. The Company is subject to laws governing its relationship with
employees, including minimum wage requirements, overtime and working
conditions. An increase in the minimum wage rate, employee benefit costs or
other costs associated with employees could adversely affect the Company.
Trade Names, Service Marks and Trademarks
The Company uses various trade names, service marks and trademarks,
including "Drug Fair" and "Cost Cutters," in the conduct of its business.
Historically, the Company has relied on common law protection of its trade
names, service marks and trademarks. Common law provides the Company with
limited protection for its trade names, service marks and trademarks within its
product lines and in its geographic market areas. Although the Company recently
filed a federal service mark registration application for the service mark
"Drug Fair," a third party which does not currently operate in the Company's
geographic markets owns an issued federal service mark registration for the
name "Cost Cutters." See "Risk Factors--Reliance on Trade Names, Service Marks
and Trademarks."
Employees
As of July 26, 1997, the Company had approximately 1,550 employees of
which approximately 43% were full-time and 57% were part-time. None of such
employees are covered by collective bargaining agreements or represented by
unions. The Company has not experienced any material business interruption as a
result of labor disputes and the Company considers its employee relations to be
good.
Litigation and Environmental Matters
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. The Company believes that no current pending
litigation to which it is a party will, individually or in the aggregate, have
a material adverse effect on its financial position or results of operations or
cash flows. The Company has not been required to expend in the past, and does
not expect to be required to expend in the future, any significant amounts for
investigation of environmental conditions, remediation of environmental
conditions or other similar matters.
40
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
The following table sets forth certain information with respect to the
directors, executive officers and key employees of the Holding Company and the
Company:
<TABLE>
<CAPTION>
Years with
Name Age Title Company
- ------------------------- ----- ---------------------------------------------------- -----------
<S> <C> <C> <C>
Frank Marfino 54 President, Chief Executive Officer and Director of 15
the Holding Company and the Company
Lynn L. Shallcross 56 President--Cost Cutters Division of the Company 25
Todd H. Pluymers 33 Chief Financial Officer of the Holding Company 6
and the Company
Barrie Levine 52 Vice President--Pharmacy Operations of the 5
Company
William F. Gilligan 55 Vice President--Distribution of the Company 12
Kevin Marron 40 Director--MIS of the Company 11
Alan J. Kirschner 43 Director--Loss Prevention of the Company 6
Mark H. DeBlois 41 Director of the Holding Company and the Company 2
Harvey P. Mallement 57 Director of the Holding Company and the Company 2
</TABLE>
Mr. Marfino has been a Director and the President and Chief Executive
Officer of the Holding Company and the Company since February 1995. Prior to
February 1995, Mr. Marfino had served as the Chief Operating Officer of the
Company beginning in 1990 after having served as Vice President in charge of
Operations and Merchandising. Prior to joining the Company in 1982, Mr. Marfino
held senior positions, including Regional Manager and Director of
Administrative Operations with Two Guys Discount Stores/Vorando, Inc. over a 19
year period. Mr. Marfino has 30 years of experience in the retail industry.
Mr. Shallcross has been President of the Cost Cutters division since 1984.
Mr. Shallcross joined the Company in 1971 and has held numerous positions in
management including pharmacist, pharmacist-manager, and district manager. Mr.
Shallcross is a graduate of Rutgers College of Pharmacy and has been a licensed
pharmacist since 1964.
Mr. Pluymers joined the Company in April 1991 as Chief Financial Officer
and was appointed Chief Financial Officer of the Holding Company in January
1995. Prior to joining the Company, Mr. Pluymers was employed by Arthur
Andersen & Co. from 1986 through 1991 as an Audit Manager. Mr. Pluymers is a
graduate of Westminster College with a degree in Business
Administration/Accounting and is a Certified Public Accountant.
Mr. Levine joined the Company as Vice President--Pharmacy Operations in
1993. Prior to joining the Company, Mr. Levine was employed by Supermarkets
General (Pathmark) since 1971. At Pathmark, Mr. Levine held various positions,
including Regional Pharmacy and Regional Front-End Supervisor, Regional
Non-Food Product Manager, and Manager of Pharmacy Services. Mr. Levine is a
graduate of Brooklyn College of Pharmacy and a licensed pharmacist in several
states.
Mr. Gilligan has been Vice President--Distribution since 1985 after
serving as General Manager for 11 years with Atlantic Distribution Center in
Jersey City, New Jersey and 11 years with Wakefern Food Corporation, parent
company of Shop-Rite supermarkets. Trained in distribution management at Ohio
State University and Rutgers University, Mr. Gilligan is responsible for the
daily management of the distribution center, transportation logistics, property
management and the administrative staff. Mr. Gilligan has over 30 years of
experience in Distribution-Warehouse Management.
Mr. Marron has been Director--Management Information Systems for the
Company since 1986. Mr. Marron's work experience includes six years with
Arthur's Catalog Showroom and six years with MIS Software Corporation prior to
joining the Company. Mr. Marron has been instrumental in the creation of
several proprietary software
41
<PAGE>
applications for the Company, including inventory management, sales, marketing,
distribution, warehouse management, shelf labeling and point-of-sale in store
applications.
Mr. Kirschner joined the Company as Director--Loss Prevention in 1991.
Prior to 1991, Mr. Kirschner held a similar position with NBO Menswear and
Rickel Home Centers, Inc. Mr. Kirschner is a graduate of Jersey City State
College.
Mr. DeBlois has been a Director of the Holding Company and the Company
since 1995. Since 1990, Mr. DeBlois has been employed as an officer, most
recently as a Managing Director, of BancBoston Ventures Inc., a private equity
investment firm with committed capital in excess of $750 million that provides
private equity and mezzanine financing to middle market companies for
management-led buyouts, acquisitions and growth capital. Mr. DeBlois is a
graduate of Boston College.
Mr. Mallement has been a Director of the Holding Company and the Company
since 1995. Since 1981, Mr. Mallement has been Managing General Partner of
Harvest Partners, Inc., a private equity investment and growth financing firm
with committed capital in excess of $250 million that provides equity
investment financing that focuses on the acquisition of medium sized companies
and financing of growth businesses. Mr. Mallement is also a director of Symbol
Technologies, Inc. and is a graduate of the City College of New York with a
masters degree in Business Administration.
Pursuant to a Stockholder Agreement entered into as of January 30, 1995,
as amended, the holders of a substantial majority of the outstanding common
stock of the Holding Company (the "Common Stock") have agreed that each of the
Holding Company and the Company will have a Board of Directors comprised of up
to five members. The stockholders party to the Stockholder Agreement have
agreed to vote for the following persons as directors: (i) up to two
individuals designated by the holders of a majority of the outstanding shares
of Common Stock purchased by BancBoston in 1995 (the "BBV Stock"); (ii) up to
two individuals designated by the holders of a majority of the outstanding
shares of Common Stock purchased by Harvest and its affiliates in 1995 (the
"Harvest Stock"); and (iii) Frank Marfino, so long as he continues to be
employed by the Holding Company as President and Chief Executive Officer, and
thereafter, his successor as President and Chief Executive Officer. Mr. DeBlois
has been designated for election to the Board of Directors of the Holding
Company and the Company by the holders of a majority of the BBV Stock, and Mr.
Mallement has been designated for election to the Board of Directors of the
Holding Company and the Company by the holders of a majority of the Harvest
Stock.
Executive officers of the Holding Company and the Company are appointed by
their respective Boards of Directors on an annual basis and serve until their
successors have been duly elected and qualified. There are no family
relationships among any of the executive officers and directors of the Holding
Company and the Company.
Compensation of Directors
Directors of the Holding Company and the Company do not receive
compensation from the Holding Company or the Company for their service in such
capacities.
42
<PAGE>
Executive Compensation
The following table sets forth the aggregate compensation paid by the
Company for services rendered during fiscal 1997 to the Company's Chief
Executive Officer and four other most highly-compensated executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation for Fiscal 1997
--------------------------------------------
All Other
<S> <C> <C> <C>
Name and Principal Position Salary Bonus (1) Compensation (2)
Frank Marfino
President and Chief Executive Officer $431,692 $228,680 $3,748
Lynn L. Shallcross
President--Cost Cutters Division $167,135 $ 50,000 $2,586
Todd H. Pluymers
Chief Financial Officer $133,606 $ 26,000 $ 741
Barrie Levine
Vice President--Pharmacy Operations $124,423 $ 12,200 $1,620
William F. Gilligan
Vice President--Distribution $107,231 $ 17,500 $1,738
</TABLE>
- ------------
(1) Reflects bonuses paid during fiscal 1997 with respect to the achievement of
certain performance goals relating to fiscal 1996. The amounts of annual
bonuses that may be paid to the named executive officers for fiscal 1997
have not yet been determined. In addition, it is expected that the Company
will pay one-time performance-related bonuses to Mr. Marfino and Mr.
Pluymers aggregating approximately $1.4 million. It is expected that these
bonuses will be paid no later than the first anniversary of the Issue Date
of the Notes. See "Certain Relationships and Related Transactions."
(2) Amounts include the values of the personal use of company cars equal to
$1,300, $520, $520, $520 and $520 for each of Messrs. Marfino, Shallcross,
Pluymers, Levine and Gilligan, respectively, as well as the incremental
cost of additional life insurance premiums in the amounts of $2,448,
$2,066, $221, $1,100 and $1,218, for each of Messrs. Marfino, Shallcross,
Pluymers, Levine and Gilligan, respectively.
Employment Agreements
In connection with the acquisition of the Company by the Holding Company
in 1995, the Company entered into Employment Agreements with each of Messrs.
Marfino, Shallcross, Pluymers, Levine and Gilligan. Each of these Employment
Agreements contains customary confidential information and inventions
assignment provisions and provides for a one-year non-competition period upon
termination.
Mr. Marfino's Employment Agreement, which expires in January 2001,
provides for Mr. Marfino to receive an annual base salary of $450,000 (subject
to annual increases based on a consumer price index), a minimum bonus of
$50,000, and an incentive bonus based on the financial performance of the
Company. In the event that Mr. Marfino's employment is terminated by the
Company prior to the end of the term of the Employment Agreement or any
extension thereof, or he resigns under circumstances in which he is deemed to
have terminated his employment for Good Reason (as defined therein), Mr.
Marfino is entitled to receive his base salary through the end of the initial
term of his Employment Agreement or any extension term and a pro rated minimum
bonus and incentive bonus. In the event that Mr. Marfino's employment is
terminated as a result of death or disability, Mr. Marfino or his estate is
entitled to severance pay of one year of base salary and a pro rated minimum
bonus and incentive bonus. In the event that Mr. Marfino's employment is
terminated upon the expiration of the term of the Employment Agreement or any
extension term, Mr. Marfino shall be entitled only to receive a pro rated
minimum bonus and incentive bonus.
The Employment Agreements for Messrs. Shallcross, Pluymers, Levine and
Gilligan, each of which expires in January or February of 1998, currently
provide for base salaries of $168,000, $137,500, $125,000 and $108,000,
respectively. In the event that the employment of any of these officers is
terminated during the respective terms of their Employment Agreements for
death, disability, resignation or termination by the Company other than for
"cause," the relevant officer will receive severance pay of his base salary for
one year after termination. No severance pay is payable under any of the
Employment Agreements in the event of termination for "cause."
43
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1995, the Holding Company, which was formed for purposes of
acquiring the Company by BancBoston, Harvest and certain other investors,
including certain members of the Company's management, acquired the Company
through a merger of a wholly-owned subsidiary of the Holding Company with and
into the Company in which the old stockholders of the Company received cash for
their shares of stock of the Company.
In connection with the acquisition of the Company by the Holding Company,
the Company entered into Employment Agreements with each of Mr. Frank Marfino,
the President and Chief Executive Officer of the Company, Mr. Todd Pluymers,
the Chief Financial Officer of the Company, Mr. Lynn Shallcross, the President
of the Cost Cutters division of the Company, Mr. William Gilligan, the Vice
President--Distribution of the Company and Mr. Barrie Levine, the Vice
President--Pharmacy Operations of the Company. See "Management--Employment
Agreements."
The holders of a substantial majority of the outstanding Common Stock have
also entered into a Stockholder Agreement pursuant to which such stockholders
agreed (i) to vote their shares of Common Stock in favor of a specified size
and composition of the respective Boards of Directors of the Holding Company
and the Company, (ii) not to transfer shares of Common Stock in violation of
such Stockholder Agreement, (iii) to consent to and participate in certain
sales of the Holding Company approved by the Board of Directors of the Holding
Company and holders of a majority of the Common Stock held by each of
BancBoston and Harvest and certain transferees and (iv) not to vote in favor
of, or permit the Board of Directors of the Holding Company to vote in favor
of, certain actions not approved by BancBoston and Harvest. See
"Management--Directors, Executive Officers and Key Employees."
The Company is also bound by Management Fee Agreements each dated as of
January 30, 1995 (as amended, the "Management Fee Agreements"), pursuant to
which the Company is required to pay an annual fee of $125,000 to each of
BancBoston and Harvest Partners, Inc. in consideration for certain management
services provided by such entities in connection with the administration of the
Company's business. The Company's obligations under the respective Management
Fee Agreements shall continue so long as BancBoston or Harvest, as the case may
be, owns any shares of capital stock of the Holding Company. Payments under the
Management Agreements will constitute "Permitted Payments" under the Indenture.
See "Description of Notes."
Banque Paribas, the agent for the Old Credit Facility, holds a presently
exercisable warrant (the "Paribas Warrant") to purchase 16,667 shares of Common
Stock and Paribas Principal, Inc. ("Paribas Principal"), an affiliate of Banque
Paribas, holds 40,000 shares of Common Stock. The Company repaid all amounts
outstanding under the Old Credit Facility with a portion of the proceeds of the
Offering and terminated the Old Credit Facility simultaneously with the closing
of the Offering. After the consummation of the Offering, Paribas Principal
continues to hold 40,000 shares of Common Stock, and the Paribas Warrant
remains outstanding. In connection with the payment of the Dividend, Banque
Paribas and Paribas Principal received approximately $1.66 million and $4.0
million, respectively.
The Holding Company, BancBoston, Harvest, Banque Paribas, Paribas
Principal and certain other stockholders of the Holding Company are party to a
Registration Rights Agreement, dated as of January 30, 1995, pursuant to which
the Holding Company granted the other parties thereto piggy-back registration
rights with respect to their shares of Common Stock subject to certain
limitations in the event of an underwritten offering, and certain demand
registration rights which are exercisable during certain periods after the
initial public offering of the Common Stock. In addition, if the Holding
Company has not completed an initial public offering of its Common Stock prior
to January 30, 2003, the holders of a majority of the securities initially
issued to Banque Paribas and Paribas Principal are permitted to cause the
Holding Company to effect such an initial public offering pursuant to the terms
of the Registration Rights Agreement.
The Company paid a dividend of approximately $45.0 million to the Holding
Company out of the proceeds of the Offering. The Holding Company paid the
Dividend to its shareholders, including management and certain employees of the
Company, BancBoston and Harvest. Messrs. Marfino, Shallcross, Pluymers,
Gilligan and Levine received approximately $3.6 million, $578,000, $442,000,
$436,000 and $142,000, respectively, and BancBoston, Harvest, Harvest
Technology Partners, L.P. and European Development Capital Corporation N.V.
received approximately $15.9 million, $5.2 million, $1.8 million and $1.4
million, respectively, from the Dividend.
The Company leases the location for its Westfield, New Jersey store from
Jules and Arlene Siegel, the former majority stockholders of the Company,
pursuant to a lease which expires on September 30, 1998. Under the terms
44
<PAGE>
of this lease, the Company is required to pay a monthly rent of $16,592. The
lessors sold all of their interests in the Company to the Holding Company in
January 1995.
The Company expects to pay one-time performance-related bonuses of
approximately $1.2 million and $200,000 to Mr. Marfino and Mr. Pluymers,
respectively, no later than the first anniversary of the Issue Date of the
Notes. The payment of these bonuses will constitute "Exempted Affiliate
Transactions" under the Indenture for purposes of the "Limitation on
Transactions with Affiliates" covenant. See "Description of Notes--Certain
Definitions."
BENEFICIAL OWNERSHIP
The Holding Company is the beneficial owner, with sole voting power and
investment power, of 100% of the outstanding capital stock of the Company.
The following table sets forth certain information regarding beneficial
ownership of the Common Stock(1) and Preferred Stock(2) of the Holding Company
(i) by each person known to the Company to own beneficially more than 5% of
each class of outstanding voting capital stock of the Holding Company, (ii) by
each director of the Company and the Holding Company, (iii) by each of the
executive officers of the Company and the Holding Company named in the "Summary
Compensation Table," and (iv) by all directors and executive officers of the
Company and the Holding Company as a group.
<TABLE>
<CAPTION>
Class A Common Stock Preferred Stock
------------------------------------ -----------------------------------
Amount and Nature of Percent Amount and Nature of Percent
Name and Address Beneficial Ownership(3) of Class Beneficial Ownership(3) of Class
<S> <C> <C> <C> <C>
BancBoston Ventures Inc.
175 Federal St.
Boston, MA 02110 .................. 159,389(4) 46.2% -- --
Mark H. DeBlois
c/o BancBoston Ventures Inc.
175 Federal St.
Boston, MA 02110 .................. 159,389(5) 46.2% -- --
Harvest Partners International, L.P.
c/o Harvest Partners, Inc.
767 Third Avenue
New York, NY 10017 ............... 51,851(6) 22.5% -- --
Harvey P. Mallement
c/o Harvest Partners, L.P.
767 Third Avenue
New York, NY 10017 ............... 83,816(7) 36.4% -- --
Paribas Principal, Inc.
787 Seventh Avenue
New York, NY 10017 ............... 40,000(8) 17.4% -- --
DBG Auslands-Holding GmbH
Emil-von-Behring-Strasse 2
D-60439 Frankfurt-am-Main
Germany ........................... 73,525(9) 24.2% -- --
Harvest Technology Partners, L.P.
c/o Harvest Partners, Inc.
767 Third Avenue
New York, NY 10017 ............... 17,901(6) 7.8% -- --
Banque Paribas
787 Seventh Avenue
New York, NY 10019 ............... 16,667(8) 6.7% -- --
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Class A Common Stock Preferred Stock
------------------------------------ -----------------------------------
Amount and Nature of Percent Amount and Nature of Percent
Name and Address Beneficial Ownership(3) of Class Beneficial Ownership(3) of Class
<S> <C> <C> <C> <C>
European Development Capital Corporation N.V.
c/o Harvest Partners, Inc.
767 Third Avenue
New York, NY 10017 ........................ 14,064(6) 6.1% -- --
Frank Marfino .............................. 37,333(10) 14.8% 4,000 50.9%
Lynn L. Shallcross ........................ 8,211(11) 3.6% 1,073 13.6%
Todd H. Pluymers ........................... 6,781(11) 2.9% 715 9.1%
William F. Gilligan ........................ 6,781(11) 2.9% 715 9.1%
Barrie Levine .............................. 2,927(11) 1.3% 143 1.8%
All Directors and Executive Officers as a
Group (7 persons) ........................ 62,033(12) 24.6% 6,646 84.5%
</TABLE>
- ------------
(1) The Common Stock is comprised of Class A Voting Common Stock, $.00001 par
value per share ("Class A Common Stock"), and Class B Non-Voting Common
Stock, $.00001 par value per share ("Class B Common Stock"), each having
the same rights and privileges, other than with respect to voting rights
and powers. Holders of shares of Class A Common Stock have full voting
rights and powers as to all matters submitted to the stockholders of the
Holding Company for vote, consent or approval. Shares of Class A Common
Stock are convertible into shares of Class B Common Stock. Shares of Class
B Common Stock are convertible into shares of Class A Common Stock, except
in the event that the holder is a bank holding company or subsidiary
thereof and such holder is restricted by applicable banking laws from
holding any (or any additional) shares with voting rights.
(2) The Preferred Stock of the Holding Company, $1.00 par value per share (the
"Preferred Stock"), has a liquidation value of $100 per share and is
mandatorily redeemable by the Holding Company on January 31, 2005, or
optionally redeemable by the Holding Company at any time, in either case
at the liquidation value thereof. Holders of Preferred Stock have no
voting rights with respect to such shares.
(3) As used in this table, "beneficial ownership" means the sole or shared
power to vote or direct the voting of a security, or the sole or shared
investment power with respect to a security. A person is deemed as of any
date to have "beneficial ownership" of any security that such person has
the right to acquire within 60 days after such date. For purposes of
computing the percentage of outstanding shares held by each person named
above, any security that such person has the right to acquire within 60
days of the date of calculation is deemed to be outstanding, but is not
deemed to be outstanding for purposes of computing the percentage
ownership of any other person.
(4) Includes 114,397 shares of Class B Common Stock.
(5) The shares shown as beneficially owned by Mr. DeBlois represent 159,389
shares owned of record by BancBoston. Mr. DeBlois is a Managing Director
of BancBoston and may be deemed to control BancBoston, and accordingly may
be deemed to control the voting and disposition of the shares of Class A
Common Stock owned by BancBoston. As such, Mr. DeBlois may be deemed to
have shared voting and investment power with respect to all shares held by
BancBoston. However, Mr. DeBlois disclaims beneficial ownership of the
securities held by BancBoston.
(6) Harvest Partners International, L.P. ("Harvest Partners") is affiliated
with Harvest Technology Partners, L.P. ("Harvest") and European
Development Capital Corporation N.V. ("European Development"). In the
aggregate, Harvest Partners, Harvest and European Development hold 83,816
shares of Class A Common Stock, representing 36.4% of the shares
outstanding. Harvest Partners, Harvest and European each disclaim
beneficial ownership of all shares held by the others.
(7) The shares shown as beneficially owned by Mr. Mallement represent 51,851
shares owned of record by Harvest Partners, 17,901 shares owned of record
by Harvest and 14,064 shares owned of record by European
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Development. Mr. Mallement either directly (whether through ownership
interest or position) or through one or more intermediaries, may be deemed
to control the voting and disposition of the Class A Common Stock owned by
each of Harvest Partners, Harvest and European Development, and
accordingly may be deemed to have shared voting and investment power with
respect to all shares held by each of Harvest Partners, Harvest and
European Development. However, Mr. Mallement disclaims beneficial
ownership of the securities held by each of Harvest Partners, Harvest and
European Development except to the extent of his pecuniary interests
therein.
(8) Paribas Principal, Inc. is affiliated with Banque Paribas, which holds a
presently exercisable warrant to purchase 16,667 shares of Class A Common
Stock, representing 6.7% of the shares of Class A Common Stock outstanding
on a fully diluted basis. In the aggregate, on a fully diluted basis,
Paribas Principal and Banque Paribas would hold, upon exercise of all such
warrants, 56,667 shares of Class A Common Stock, representing 22.9% of the
shares outstanding. Paribas Principal and Banque Paribas each disclaim
beneficial ownership of all shares held by the other.
(9) Includes 73,525 shares of Class B Common Stock.
(10) Includes 1,334 shares subject to exercisable options. In addition, 35,999
shares are subject to repurchase by the Holding Company upon termination
of employment under certain circumstances.
(11) All of such shares are subject to repurchase by the Holding Company upon
termination of employment under certain circumstances.
(12) Includes 1,334 shares subject to exercisable options. In addition, 60,699
shares are subject to repurchase by the Holding Company upon termination
of employment under certain circumstances. Does not include shares
attributable to Messrs. DeBlois and Mallement as to which they disclaim
beneficial ownership. See notes 5 and 7. Except as noted above, the
Company believes that the beneficial holders listed in the table above
have sole voting power and investment power over the shares described as
being beneficially owned by them.
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DESCRIPTION OF NEW CREDIT FACILITY AND CERTAIN OTHER INDEBTEDNESS
New Credit Facility
The Company entered into a five-year revolving credit facility (the "New
Credit Facility") simultaneous with the closing of the Offering with PNC Bank,
National Association (the "Lender") providing for up to $20.0 million of
credit, including a sublimit of $5.0 million for letter of credit
accommodations. Borrowings under the New Credit Facility are limited to a
borrowing base comprised of 85% of eligible accounts receivable and 65% of
eligible inventory, and bear interest, at the option of the Company, at either
(i) the Lender's "Prime Rate," as announced from time to time or (ii) the
"Euro-Rate plus Applicable Margin" ("Eurodollar Loans"). "Euro-Rate" means the
rate (grossed up for maximum statutory reserve requirements for eurocurrency
liabilities) determined by the Lender in accordance with its usual procedures
to be the Eurodollar rate for one, two, three or six month periods (as selected
by the Company), and the Applicable Margin on Eurodollar Loans is 1.75%.
The proceeds of the New Credit Facility will be used to provide for the
working capital requirements of the Company and for other general corporate
purposes. As of October 31, 1997, the Company had not made any borrowings under
the New Credit Facility. See "Use of Proceeds."
The New Credit Facility is secured by first priority security interests in
all of the tangible and intangible assets of the Company.
The New Credit Facility contains certain financial and operating
covenants, including a minimum fixed charge coverage ratio. In addition, the
Company is limited in the amount of annual capital expenditures and its ability
to redeem, repurchase or make any payments of principal on account of the
Notes.
The operating covenants of the New Credit Facility include limitations on
the ability of the Company to (i) incur additional indebtedness, other than
certain permitted indebtedness, (ii) sell or lease assets of the Company, other
than the sale of inventory and the retirement of other assets in the ordinary
course of business; (iii) permit additional liens or encumbrances, other than
permitted liens, (iv) make any loans to or investments in other persons, other
than trade credit advanced in the ordinary course of business and certain
permitted investments, (v) become obligated with respect to contingent
obligations relating to third parties, and (vi) make any dividend or
distribution (including by way of redemption of stock) with respect to any
share of stock, other than certain permitted distributions. The operating
covenants include restrictions on certain specified fundamental changes, such
as mergers and asset sales, transactions with shareholders and affiliates, the
transfer of instruments payable to the Company and amending the Company's
governing documents.
If for any reason the Company is unable to comply with the terms of the
New Credit Facility, including the covenants included therein, such
noncompliance could result in an event of default under the New Credit Facility
and could result in the acceleration of payment of the indebtedness under the
New Credit Facility. The acceleration of the indebtedness of the Company under
the New Credit Facility as a result of a default under the New Credit Facility
will constitute an Event of Default under the Indenture. See "Description of
Notes--Events of Default and Remedies." In addition, an Event of Default under
the Indenture will constitute an event of default under the New Credit
Facility.
Senior Subordinated Notes
On October 16, 1997, the Holding Company issued Amended and Restated
Senior Subordinated Notes due 2005 (the "Subordinated Notes") in the aggregate
principal amount of $13.25 million to certain of the Holding Company's
shareholders. The Subordinated Notes constitute the amendment and restatement
of certain predecessor subordinated notes issued by the Holding Company
pursuant to several subscription agreements, each dated as of January 30, 1995,
between the Company and the purchasers of such notes.
The entire principal amount, together with interest on the unpaid amount
outstanding, of each of the Subordinated Notes becomes payable on January 31,
2005. Each of the Subordinated Notes bears interest, at a rate equal to 10% per
annum compounded annually, with interest accruing from January 30, 1995, the
date on which the original senior subordinated notes due 2005 were issued. Each
of the Subordinated Notes is subordinate and junior in right of payment to all
Obligations (as defined therein) of the Holding Company under the Indenture.
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EXCHANGE OFFER
General
The Company hereby offers, upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal
(which together constitute the Exchange Offer), to exchange up to $80.0 million
aggregate principal amount of New Notes for a like aggregate principal amount
of Existing Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to all of the Existing Notes; the total
aggregate principal amount of Existing Notes and New Notes will in no event
exceed $80.0 million.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which will be made available upon request of the Company.
Purpose of the Exchange Offer
On October 16, 1997, the Company issued $80.0 million aggregate principal
amount of Existing Notes. The issuance of the Existing Notes was not registered
under the Securities Act in reliance upon the exemption provided in Section
4(2) of the Securities Act.
The Company, the Holding Company and the Initial Purchasers entered into
the Registration Rights Agreement on the Closing Date. Pursuant to the
Registration Rights Agreement, the Company and the Holding Company agreed to
use their respective reasonable best efforts to file with the Commission the
Exchange Offer Registration Statement on the appropriate form under the
Securities Act with respect to the Exchange Notes. Upon the effectiveness of
the Exchange Offer Registration Statement, the Company and the Holding Company
will offer notes of the Company which will have terms substantially identical
in all material respects to the Notes, including the Existing Guarantee (the
"Exchange Notes") (except that the Exchange Notes will not contain terms with
respect to transfer restrictions) pursuant to the Exchange Offer in exchange
for properly tendered Transfer Restricted Securities to the Holders of Transfer
Restricted Securities who are able to make certain representations. If (i) the
Company is not required to file the Exchange Offer Registration Statement or
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) any Holder of Transfer
Restricted Securities notifies the Company prior to the 20th day following
consummation of the Exchange Offer that (A) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (B) that it may
not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or (C) that it is a broker-dealer and owns Notes acquired directly from
the Company or an affiliate of the Company, the Company and the Holding Company
will use their respective reasonable best efforts to file with the Commission a
Shelf Registration Statement covering resales of the Notes by the Holders
thereof who satisfy certain conditions relating to the provision of information
in connection with the Shelf Registration Statement. The Company and the
Holding Company will use their respective reasonable best efforts to cause the
applicable registration statement to be declared effective by the Commission
under the Securities Act on or prior to 90 days after the Company becomes
required to file the Shelf Registration Statement. For purposes of the
foregoing, "Transfer Restricted Securities" means each Note until the earliest
of (i) the date on which such Note is exchanged in the Exchange Offer and is
entitled to be resold to the public by the holder thereof without complying
with the prospectus delivery requirements of the Securities Act, (ii) the date
on which such Note has been disposed of in accordance with a Shelf Registration
Statement, (iii) the date on which such Note is disposed of by a broker-dealer
pursuant to the plan of distribution contemplated by the "Plan of Distribution"
section of this prospectus (including delivery of a copy of this prospectus),
or (iv) the date on which such Note is distributed to the public pursuant to
Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company and the
Holding Company will use their respective reasonable best efforts to file an
Exchange Offer Registration Statement with the Commission as soon as
practicable after the Closing Date, but in no event later than 45 days after
the Closing Date, (ii) the Company and the Holding Company will use their
reasonable best efforts to have the Exchange Offer Registration Statement
declared effective by the Commission at the earliest possible time, but in no
event later than 120 days after the Closing Date, (iii) unless the Exchange
Offer would not be permitted by applicable law or Commission policy, the
Company will commence the Exchange Offer and use its reasonable best efforts to
issue on or prior to 30 business days after the date on which the Exchange
Offer Registration Statement was declared effective by the Commission,
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Exchange Notes in exchange for all Notes tendered prior thereto in the Exchange
Offer and (iv) if obligated to file the Shelf Registration Statement, the
Company and the Holding Company will use their respective reasonable best
efforts to file the Shelf Registration Statement with the Commission on or
prior to 30 days after such filing obligation arises and to cause the Shelf
Registration to be declared effective by the Commission on or prior to 90 days
after such obligation arises. The Company will be entitled to suspend the use
of a prospectus under the Exchange Offer Registration Statement or any Shelf
Registration Statement for certain limited periods under certain prescribed
circumstances. If (a) the Company and the Holding Company fail to file any of
the Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing; (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"); (c) an
Exchange Offer Registration Statement becomes effective but the Company and the
Holding Company fail to consummate the Exchange Offer within 30 business days
of the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement; or (d) subject to certain exceptions, the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective immediately (each such event referred to
in clauses (a) through (d) above a "Registration Default"), then the Company
will pay Liquidated Damages to each Holder of the Notes, with respect to the
first 90-day period immediately following the occurrence of the first
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of Notes held by such Holder. The amount of Liquidated Damages will
increase by an additional $.05 per week per $1,000 principal amount of Notes
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of $.50 per week
per $1,000 principal amount of Notes. All accrued Liquidated Damages will be
paid by the Company on each Interest Payment Date to the Holders of Global
Notes by wire transfer of immediately available funds or by federal funds check
and to Holders of Certificated Securities at the office or agency of the
Company maintained for such purpose in the Borough of Manhattan, The City of
New York or by mailing checks to their registered addresses. Following the cure
of all Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to the
Company and the Holding Company (as described in the Registration Rights
Agreement) in order to participate in the Exchange Offer and will be required
to deliver information to be used in connection with the Shelf Registration
Statement within the time periods set forth in the Registration Rights
Agreement in order to have their Notes included in the Shelf Registration
Statement and benefit from the provisions regarding Liquidated Damages set
forth above.
Expiration Date; Extensions; Termination; Amendments
The Exchange Offer will expire at 5:00 P.M., New York City time, on ,
1997, unless the Company, in its sole discretion, has extended the period of
time (as described below) for which the Exchange Offer is open (such date, as
it may be extended, is referred to herein as the "Expiration Date"). The
Expiration Date will be at least 30 days after the commencement of the Exchange
Offer (or longer if required by applicable law). The Company expressly reserves
the right, at any time or from time to time, to extend the period of time
during which the Exchange Offer is open, and thereby delay acceptance for
exchange of any Existing Notes by giving oral notice (confirmed in writing) or
written notice to the Exchange Agent (as defined herein) and by giving written
notice of such extension to the holders thereof or by timely public
announcement communicated, unless otherwise required by applicable law or
regulation, by making a release through the Dow Jones News Service, in each
case, no later than 9:00 A.M. New York City time, on the next business day
after the previously scheduled Expiration Date. Such announcement may state
that the Company is extending the Exchange Offer for a specified period of
time. During any such extension, all Existing Notes previously tendered will
remain subject to the Exchange Offer.
In addition, the Company expressly reserves the right to terminate or
amend the Exchange Offer and not to accept for exchange any Existing Notes not
theretofore accepted for exchange upon the occurrence of any of the events
specified below under "--Certain Conditions to the Exchange Offer." If any such
termination or amendment occurs, the Company will notify the Exchange Agent and
will either issue a press release or give oral or written notice to the holders
of the Existing Notes as promptly as practicable.
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Procedures for Tendering Existing Notes
The tender to the Company of Existing Notes by a holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Existing Notes may tender the same by (i) properly completing
and signing the Letter of Transmittal or a facsimile thereof (all references in
this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Existing Notes being tendered, if any, and any
required signature guarantees, to the Exchange Agent at its address set forth
below on or prior to 5:00 p.m., New York City time, on the Expiration Date (or
complying with the procedure for book-entry transfer described below) or (ii)
complying with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF EXISTING NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, OR AN OVERNIGHT OR HAND DELIVERY SERVICE, BE
USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY
DELIVERY. NO EXISTING NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE
COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Existing Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Existing Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution (as defined herein). In the
event that signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantee must be by a
firm which is a member of a registered national securities exchange or a member
of the National Association of Securities Dealers, Inc. or by a commercial bank
or trust company having an office or correspondent in the United States (each
an "Eligible Institution"). If Existing Notes are registered in the name of a
person other than a signer of the Letter of Transmittal, the Existing Notes
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Existing Notes at the
book-entry transfer facility, The Depository Trust Company, for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of Existing Notes by causing
such book-entry transfer facility to transfer such Existing Notes into the
Exchange Agent's account with respect to the Existing Notes in accordance with
the book-entry transfer facility's procedures for such transfer. Although
delivery of Existing Notes may be effected through book-entry transfer in the
Exchange Agent's account at the book-entry transfer facility, an appropriate
Letter of Transmittal with any required signature guarantee and other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit
a Letter of Transmittal or Existing Notes to reach the Exchange Agent before
the Expiration Date or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if the Exchange Agent has
received at its address or facsimile number set forth below on or prior to the
Expiration Date a letter, telegram or facsimile from an Eligible Institution
setting forth the name and address of the tendering holder, the name in which
the Existing Notes are registered and, if possible, the certificate number or
numbers of the Certificate or certificates representing the Existing Notes to
be tendered, and stating that the tender is being made thereby and guaranteeing
that within three business days after the Expiration Date the Existing Notes in
proper form for transfer (or a confirmation of book-entry transfer of such
Existing Notes into the Exchange Agent's account at the book-entry transfer
facility), will be delivered by such Eligible Institution together with a
properly completed and duly executed Letter of Transmittal (and any other
required documents). Unless Existing Notes being tendered by the
above-described method are deposited with the Exchange Agent within the time
period set forth above (accompanied or preceded by a properly completed Letter
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of Transmittal and any other required documents), the Company may, at its
option, reject the tender. Copies of a Notice of Guaranteed Delivery which may
be used by an Eligible Institution for the purposes described in this paragraph
are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Existing Notes (or a confirmation of book-entry transfer of
such Existing Notes into the Exchange Agent's account at the book-entry
transfer facility) is received by the Exchange Agent, or (ii) a Notice of
Guaranteed Delivery or letter, telegram or facsimile to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of New Notes in exchange for Existing Notes tendered pursuant to a
Notice of Guaranteed Delivery or letter, telegram or facsimile to similar
effect (as provided above) by an Eligible Institution will be made only against
deposit of the Letter of Transmittal (and any other required documents) and the
tendered Existing Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination will be
final and binding on all parties. The Company reserves the right to reject any
and all tenders of any particular Existing Notes not properly tendered or
reject any particular shares of Existing Notes the acceptance of which might,
in the judgment of the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any defects or irregularities or condition
of the Exchange Offer as to any particular Existing Notes either before or
after the Expiration Date (including the right to waive the ineligibility of
any holder who seeks to tender Existing Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer (including the
Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Existing Notes for exchange must be cured within
such time as the Company shall determine. Neither the Company nor any other
person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Existing Notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
If the Letter of Transmittal or any Existing Notes or powers of attorney
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
By tendering, each holder that is not a broker-dealer or is a
broker-dealer but is not receiving New Notes for its own account will represent
to the Company that, among other things, the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of such holder's
business, that such holder has no arrangement or understanding with any person
to participate in the distribution of such New Notes and that such holder is
not an "affiliate" of the Company as defined in Rule 405 under the Securities
Act or, if it is an affiliate, such holder will comply with the registration
and prospectus delivery requirements of the Securities Act, to the extent
applicable. Each broker-dealer that is receiving New Notes for its own account
in exchange for Existing Notes that were acquired as a result of market-making
or other trading activities will represent to the Company that it will deliver
a prospectus in connection with any resale of such Existing Notes.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Existing Notes that remain outstanding
subsequent to the Expiration Date, or, as set forth under "--Certain Conditions
to the Exchange Offer," to terminate the Exchange Offer and (b) to the extent
permitted by applicable law, purchase Existing Notes in the open market, in
privately negotiated transactions or otherwise. The terms of any such purchases
or offers may differ from the terms of the Exchange Offer.
Withdrawal Rights
Tenders of Existing Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the business day prior to the Expiration Date. For a
withdrawal to be effective, a written notice of withdrawal sent by letter,
telegram or facsimile must be received by the Exchange Agent at any time prior
to 5:00 p.m., New York City time, on the business day prior to the Expiration
Date at its address or facsimile number set forth below. Any such notice of
withdrawal must (i) specify the name of the person having tendered the Existing
Notes to be withdrawn (the "Depositor"), (ii) identify the Existing Notes to be
withdrawn (including the certificate number of numbers of the certificate or
certificates representing such Existing Notes and the aggregate principal
amount of such Existing Notes), (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by
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which such Existing Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to permit the
Transfer Agent with respect to the Existing Notes to register the transfer of
such Existing Notes into the name of the person withdrawing the tender and (iv)
specify the name in which any such Existing Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company in its sole discretion, which determination will be
final and binding on all parties. Any Existing Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer and
no New Notes will be issued with respect thereto unless the Existing Notes so
withdrawn are validly retendered. Any Existing Notes which have been tendered
but which are withdrawn will be returned to the holder thereof without cost to
such holder as soon as practicable after such withdrawal. Properly withdrawn
Existing Notes may be retendered by following one of the procedures described
above under "--Procedures for Tendering Existing Notes" at any time prior to
the Expiration Date.
Acceptance of Existing Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will accept, promptly after the Expiration Date, all
Existing Notes properly tendered and will issue the New Notes promptly after
acceptance of the Exchange Offer. See "--Certain Conditions to the Exchange
Offer" below. For purposes of the Exchange Offer, the Company will be deemed to
have accepted properly tendered Existing Notes for exchange when the Company
has given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of the New Notes in exchange for Existing Notes
pursuant to the Exchange Offer will be made only after timely receipt by the
Company of such Existing Notes, a properly completed and duly executed Letter
of Transmittal and all other required documents. If any tendered Existing Notes
are not accepted for exchange for any reason set forth in the terms and
conditions of the Exchange Offer, such unaccepted Existing Notes will be
returned without expense to the tendering holder thereof as promptly as
practicable after the rejection of such tender or the expiration or termination
of the Exchange Offer.
Untendered Existing Notes
Holders of Existing Notes whose Existing Notes are not tendered or are
tendered but not accepted in the Exchange Offer will continue to hold such
Existing Notes and will be entitled to all the rights and preferences and
subject to the limitations applicable thereto. Following consummation of the
Exchange Offer, the holders of Existing Notes will continue to be subject to
the existing restrictions upon transfer thereof and, except as provided herein,
the Company will have no further obligation to such holders to provide for the
registration under the Securities Act of the Existing Notes held by them. To
the extent that Existing Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Existing Notes
could be adversely affected.
Certain Conditions to the Exchange Offer
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or issue New Notes in exchange for, any
Existing Notes, and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Existing Notes for exchange, any of the following
events shall occur:
(A) an injunction, order or decree shall have been issued by any court or
governmental agency that would prohibit, prevent or otherwise materially
impair the ability of the Company to proceed with the Exchange Offer; or
(B) there shall occur a change in the current interpretation of the staff
of the Commission which current interpretation permits the New Notes issued
pursuant to the Exchange Offer in exchange for the Existing Notes to be
offered for resale, resold and otherwise transferred by holders thereof
(other than (i) a broker-dealer who purchases such New Notes directly from
the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an affiliate of
the Company within the meaning of Rule 405 under the Securities Act),
without compliance with the registration and prospectus delivery provisions
of the Securities Act provided that such New Notes are acquired in the
ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of New
Notes.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or
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in part at any time and from time to time in its sole discretion. The failure
by the Company at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Existing Notes and return
any Existing Notes that have been tendered to the holders thereof, (ii) extend
the Exchange Offer and retain all Existing Notes tendered prior to the
Expiration Date, subject to the rights of such holders of tendered shares of
Existing Notes to withdraw their tendered Existing Notes, or (iii) waive such
termination event with respect to the Exchange Offer and accept all properly
tendered Existing Notes that have not been withdrawn. If such waiver
constitutes a material change in the Exchange Offer, the Company will disclose
such change by means of a supplement to this Prospectus that will be
distributed to each registered holder of Existing Notes, and the Company will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the waiver and the manner of disclosure to the
registered holders of the Existing Notes, if the Exchange Offer would otherwise
expire during such period.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no New Notes will be issued in exchange for any such Existing
Notes, if at any time any stop order shall be threatened by the Commission or
in effect with respect to the Registration Statement.
The Exchange Offer is not conditioned on any minimum principal amount of
Existing Notes being tendered for exchange.
Exchange Agent
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions regarding Exchange Offer procedures and requests for
additional copies of this Prospectus or the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Mail: By Hand or Overnight Delivery:
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attention: Reorganization Section Ground Level
New York, New York 10286
Attention: Reorganization Section
By Facsimile:
(212) 571-3080
Confirm by Telephone:
(212) 815-6333
</TABLE>
The Bank of New York is also the Transfer Agent for the Existing Notes and
New Notes.
Solicitation of Tenders; Fees and Expenses
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptance of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The cash expenses to be incurred by the Company in
connection with the Exchange Offer will be paid by the Company.
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations
should not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Existing Notes in any jurisdiction in
which the making of the Exchange Offer or the acceptance thereof would not be
in compliance with the laws of such jurisdiction.
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Transfer Taxes
The Company will pay all transfer taxes, if any, applicable to the
exchange of Existing Notes pursuant to the Exchange Offer. If, however,
certificates representing New Notes or Existing Notes not tendered or accepted
for exchange are to be delivered to, or are to be registered or issued in the
name of, any person other than the registered holder of the Existing Notes
tendered, or if tendered Existing Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of New Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holders.
Accounting Treatment
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. Expenses incurred in connection
with the issuance of the New Notes will be amortized by the Company over the
term of the New Notes under generally accepted accounting principles.
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PLAN OF DISTRIBUTION
Based on no action letters issued by the staff of the Commission to third
parties, the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Existing Notes may be offered for resale, resold
and otherwise transferred by holders thereof (other than (i) a broker-dealer
who purchases such New Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery requirements of the Securities Act provided that New Notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangement with any person to participate in the distribution of such New
Notes. Any holder of Existing Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the New Notes could not rely on
such interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Thus, any New Notes acquired by such
holders will not be freely transferable except in compliance with the
Securities Act.
Each broker-dealer that receives New Notes for its own account in exchange
for Existing Notes acquired as a result of market-making or other trading
activities must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. For a period of 180 days after the
Expiration Date, this Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of such
New Notes. During such 180-day period, the Company will use its reasonable best
efforts to make this Prospectus available to any broker-dealer for use in
connection with such resale, provided that such broker-dealer indicates in the
Letter of Transmittal that it is a broker-dealer.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through broker-dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any person that participates in the distribution of such
New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such broker-dealers may be deemed to
be underwriting compensation under the Securities Act. The Letter of
Transmittal states that a broker-dealer, by acknowledging that it will deliver
and by delivering a prospectus, will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company will indemnify the holders of the New Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
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DESCRIPTION OF NOTES
Except as otherwise indicated, the following description relates both to
the Existing Notes issued in the Offering and the New Notes, together with the
New Guarantees, to be issued in exchange for the Existing Notes in the Exchange
Offer. The form and terms of the New Notes are the same as the form and terms
of the Existing Notes, except that the New Notes have been registered under the
Securities Act and therefore will not bear legends restricting the transfer
thereof. The New Notes will be obligations of the Company evidencing the same
indebtedness as the Existing Notes. The Existing Notes were issued, and the New
Notes offered hereby will be issued, pursuant to an indenture (the "Indenture")
dated as of October 16, 1997 by and among Community Distributors, Inc. (the
"Company"), CDI Group, Inc. (the "Holding Company"), and The Bank of New York,
as trustee (the "Trustee"). The following summaries of certain provisions of
the Notes, the Indenture and the Registration Rights Agreement are summaries
only, do not purport to be complete and are qualified in their entirety by
reference to all of the provisions of the respective documents. The Indenture
and the Registration Rights Agreement have been filed as exhibits to the
registration statement of which this prospectus forms a part. Capitalized terms
used herein and not otherwise defined shall have the meanings assigned to them
in the Indenture or the Registration Rights Agreement, as applicable. Wherever
particular provisions of the Indenture are referred to in this summary, such
provisions are incorporated by reference as a part of the statements made and
such statements are qualified in their entirety by such reference.
General
The Notes are senior unsecured, general obligations of the Company,
limited in aggregate principal amount to $80 million. The Notes will be issued
only in fully registered form, without coupons, in denominations of $l,000 and
integral multiples thereof.
Maturity, Interest and Principal
The Notes will mature on October 15, 2004. The Notes will bear interest at
the rate per annum stated on the cover page hereof from the date of issuance or
from the most recent Interest Payment Date to which interest has been paid or
provided for, payable semi-annually on April 15 and October 15 of each year,
commencing April 15, 1998, to the persons in whose names such Notes are
registered at the close of business on the April 1 or October 1 immediately
preceding such Interest Payment Date. Interest will be calculated on the basis
of a 360-day year consisting of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be presented for registration of transfer or exchange, at the
office or agency of the Company maintained for such purpose, which office or
agency shall be maintained in the Borough of Manhattan, The City of New York.
At the option of the Company, payment of interest may be made by check mailed
to the Holders of the Notes at the addresses set forth upon the registry books
of the Company. No service charge will be made for any registration of transfer
or exchange of Notes, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Until otherwise designated by the Company, the Company's office or agency will
be the corporate trust office of the Trustee presently located at The Bank of
New York, 101 Barclay St., Floor 21W, N.Y., N.Y. 10286 Attn: Corporate Trust,
Trustee Administrator.
The Indenture will not contain provisions which would afford Holders of
the Notes protection in the event of a decline in the Company's credit quality
resulting from highly leveraged or other similar transactions involving the
Company or the Guarantors.
Ranking
The indebtedness of the Company evidenced by the Notes ranks senior in
right of payment to all existing and future subordinated indebtedness of the
Company and pari passu in right of payment with all other existing or future
unsubordinated indebtedness of the Company, including indebtedness under the
New Credit Facility. The Notes, however, are effectively subordinated to
secured Indebtedness of the Company and the Guarantors (including Indebtedness
under the New Credit Facility) with respect to the assets securing such
Indebtedness.
Guarantees
The Notes will be jointly and severally guaranteed (the "Guarantees") on a
senior unsecured basis by each of the Company's future Subsidiaries (the
"Subsidiary Guarantors") and the Holding Company (together with the
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Subsidiary Guarantors, the "Guarantors"). The obligations of each Guarantor
under its Guarantee, however, will be limited in a manner intended to avoid it
being deemed a fraudulent conveyance under applicable law. See "--Certain
Bankruptcy Limitations" below.
Any right of the Company to receive the assets of any Subsidiary Guarantor
upon such Subsidiary Guarantor's liquidation or reorganization (and the
consequent right of the Holders of the Notes to participate in the distribution
of the proceeds of those assets) will be in effect subordinated by operation of
law to the claims of such Subsidiary Guarantor's creditors (including trade
creditors) and holders of its preferred stock, except to the extent that the
Company is itself recognized as a creditor or preferred stockholder of such
subsidiary.
Certain Bankruptcy Limitations
Holders of the Notes will be direct creditors of each Guarantor by virtue
of its Guarantee. Nonetheless, in the event of the bankruptcy or financial
difficulty of a Guarantor, such Guarantor's obligations under its Guarantee may
be subject to review and avoidance under state and federal fraudulent transfer
laws. Among other things, such obligations may be avoided if a court concludes
that such obligations were incurred for less than reasonably equivalent value
or fair consideration at a time when the Guarantor was insolvent, was rendered
insolvent, or was left with inadequate capital to conduct its business. A court
would likely conclude that a Guarantor did not receive reasonably equivalent
value or fair consideration to the extent that the aggregate amount of its
liability on its Guarantee exceeds the economic benefits it receives in the
Offering. The obligations of each Guarantor under its Guarantee will be limited
in a manner intended to cause it not to be a fraudulent conveyance under
applicable law, although no assurance can be given that a court would give the
holder the benefit of such provision. See "Risk Factors--Fraudulent Conveyance
Risks."
If the obligations of a Guarantor under its Guarantee were avoided,
Holders of Notes would have to look to the assets of any remaining Guarantors
for payment. There can be no assurance in that event that such assets would
suffice to pay the outstanding principal and interest on the Notes.
Optional Redemption
The Company will not have the right to redeem any Notes prior to October
15, 2001, except as provided in the immediately following paragraph. The Notes
will be redeemable at the option of the Company, in whole or in part, at any
time on or after October 15, 2001, upon not less than 30 days nor more than 60
days notice to each Holder of Notes, at the following redemption prices
(expressed as percentages of the principal amount) if redeemed during the
12-month period commencing October 15 of the years indicated below, in each
case (subject to the right of Holders of record on a Record Date to receive
interest due on an Interest Payment Date that is on or prior to such Redemption
Date) together with accrued and unpaid interest thereon to the Redemption Date:
<TABLE>
<CAPTION>
Year Percentage
- --------------------------------- -----------
<S> <C>
2001 105.125%
2002 102.562%
2003 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, prior to October 15, 2000, the Company may
redeem up to 35% of the aggregate principal amount of the Notes originally
outstanding at a redemption price of 110.25% of the principal amount thereof
(subject to the right of Holders of record on a Record Date to receive interest
due on an Interest Payment Date that is on or prior to such Redemption Date),
plus accrued and unpaid interest thereon, if any, to the Redemption Date, with
the net cash proceeds of one or more Equity Offerings; provided, that at least
65% of the aggregate principal amount of the Notes originally outstanding
remains outstanding immediately after the occurrence of such redemption;
provided, further, that such notice of redemption shall be sent within 30 days
after the date of closing of any such Equity Offering, and such redemption
shall occur within 60 days after the date such notice is sent.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
The Notes will not have the benefit of any sinking fund.
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Notice of any redemption will be sent, by first class mail, at least 30
days and not more than 60 days prior to the date fixed for redemption to the
Holder of each Note to be redeemed to such Holder's last address as then shown
upon the registry books of the Registrar. Any notice which relates to a Note to
be redeemed in part only must state the portion of the principal amount equal
to the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a new Note or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after the
date of redemption, interest will cease to accrue on the Notes or portions
thereof called for redemption, unless the Company defaults in the payment
thereof.
Certain Covenants
Repurchase of Notes at the Option of the Holder Upon a Change of Control
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such Holder's option,
pursuant to an irrevocable and unconditional offer by the Company (the "Change
of Control Offer"), to require the Company to repurchase all or any part of
such Holder's Notes (provided, that the principal amount of such Notes must be
$1,000 or an integral multiple thereof) on a date (the "Change of Control
Purchase Date") that is no later than 45 Business Days after the occurrence of
such Change of Control, at a cash price (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof, together with accrued
interest to the Change of Control Purchase Date. The Change of Control Offer
shall be made within 15 Business Days following a Change of Control and shall
remain open for 20 Business Days following its commencement (the "Change of
Control Offer Period"). Upon expiration of the Change of Control Offer Period,
the Company promptly shall purchase all Notes properly tendered in response to
the Change of Control Offer.
As used herein, a "Change of Control" means (i) any merger or
consolidation of the Company or the Holding Company with or into any person or
any sale, transfer or other conveyance, whether direct or indirect, of all or
substantially all of the assets of either of the Company or the Holding Company
on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transactions, any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable) (other than an Excluded
Person) is or becomes the Beneficial Owner, directly or indirectly, of more
than 50% of the total voting power in the aggregate normally entitled to vote
in the election of directors, managers, or trustees, as applicable, of the
transferees or surviving entity or entities, (ii) any "person" or "group" (as
such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange
Act, whether or not applicable) (other than an Excluded Person or the Holding
Company) is or becomes the Beneficial Owner, directly or indirectly, of more
than 50% of the total voting power in the aggregate of all classes of Capital
Stock of either of the Company or the Holding Company then outstanding normally
entitled to vote in elections of directors, or (iii) during any period of 12
consecutive months after the Issue Date, individuals who at the beginning of
any such 12-month period constituted the Board of Directors of the Company or
the Holding Company (together, in each case, with any new directors whose
election by such Board or whose nomination for election by the shareholders of
the Company or the Holding Company, as applicable, was approved by a vote of a
majority of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company or the Holding Company then in office, as
applicable.
On or before the Change of Control Purchase Date, the Company will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest) of all Notes so tendered and (iii) deliver to the Trustee Notes so
accepted together with an Officers' Certificate listing the Notes or portions
thereof being purchased by the Company. The Paying Agent will promptly deliver
to the Holders of Notes so accepted payment in an amount equal to the Change of
Control Purchase Price (together with accrued and unpaid interest), and the
Trustee will promptly authenticate and mail or deliver to such Holders a new
Note equal in principal amount to any unpurchased portion of the Note
surrendered. Any Notes not so accepted will be promptly mailed or delivered by
the Company to the Holder thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Purchase Date.
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The Change of Control purchase feature of the Notes may make it more
difficult or discourage a takeover of the Company or the Holding Company, and,
thus, the removal of incumbent management. The Change of Control purchase
feature resulted from negotiations between the Company, the Holding Company and
the Initial Purchasers and is not the result of any intention on the part of
the Company or the Holding Company, or their respective management, to
discourage the acquisition of the Company or the Holding Company.
The phrase "all or substantially all" of the assets of the Company or the
Holding Company will likely be interpreted under applicable state law and will
be dependent upon particular facts and circumstances. As a result, there may be
a degree of uncertainty in ascertaining whether a sale or transfer of "all or
substantially all" of the assets of the Company or the Holding Company has
occurred.
The New Credit Facility contains provisions that would prohibit the
purchase of the Notes in response to a Change of Control, unless all
indebtedness thereunder has been paid in full. Furthermore, certain events that
would constitute a Change of Control may constitute an event of default under
the New Credit Facility. In addition, no assurances can be given that the
Company or the Holding Company will have sufficient funds to, or otherwise be
able to, acquire Notes tendered upon the occurrence of a Change of Control.
Nevertheless, the Company's failure to make a Change of Control Offer or to
purchase all Notes properly tendered pursuant to such a Change of Control Offer
will constitute an Event of Default under the Indenture.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and
state securities laws.
Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, issue, assume, guaranty, incur,
become directly or indirectly liable with respect to (including as a result of
an Acquisition), or otherwise become responsible for, contingently or otherwise
(individually and collectively, to "incur" or, as appropriate, an
"incurrence"), any Indebtedness or any Disqualified Capital Stock (including
Acquired Indebtedness), except for Permitted Indebtedness.
Notwithstanding the foregoing, if (i) no Default or Event of Default shall
have occurred and be continuing at the time of, or would occur after giving
effect to, such incurrence of Indebtedness or Disqualified Capital Stock and
(ii) on the date of such incurrence (the "Incurrence Date"), the Consolidated
Interest Coverage Ratio of the Company for the Reference Period immediately
preceding the Incurrence Date, after giving effect on a pro forma basis to such
incurrence of such Indebtedness or Disqualified Capital Stock and, to the
extent set forth in the definition of Consolidated Interest Coverage Ratio, the
use of proceeds thereof, would be at least 2.0 to 1 (the "Debt Incurrence
Ratio"), then the Company and its Subsidiaries may incur such Indebtedness or
Disqualified Capital Stock.
Indebtedness of any person which is outstanding at the time such person
becomes a Subsidiary of the Company or is merged with or into or consolidated
with the Company or a Subsidiary of the Company shall be deemed to have been
incurred at the time such person becomes such a Subsidiary of the Company or is
merged with or into or consolidated with the Company or a Subsidiary of the
Company, as applicable.
Limitation on Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, make any Restricted Payment if,
after giving effect to such Restricted Payment on a pro forma basis, (l) a
Default or an Event of Default shall have occurred and be continuing, (2) the
Company is not permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio in the second paragraph of the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock," or (3) the aggregate amount of all Restricted Payments made by the
Company and its Subsidiaries, including after giving effect to such proposed
Restricted Payment, from and after the Issue Date, would exceed the sum of (a)
50% of the aggregate Consolidated Net Income of the Company and its
consolidated Subsidiaries for the period (taken as one accounting period),
commencing on the first day after the Issue Date, to and including the last day
of the fiscal quarter ended immediately prior to the date of each such
calculation (or, in the event Consolidated Net Income for such period is a
deficit, then minus 100% of such deficit), plus (b) the aggregate Net Cash
Proceeds received by the Company from the sale of its Qualified Capital Stock
(other than (i) to a Subsidiary of the Company, and
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(ii) to the extent applied in connection with a Qualified Exchange after the
Issue Date), plus (c) the aggregate of cash capital contributions in the form
of common equity made to the Company by the Holding Company. The foregoing
clauses (2) and (3), however, will not prohibit Permitted Payments.
The foregoing paragraph shall not prevent payments to the Holding Company
to enable the Holding Company to pay federal, state or local tax liabilities,
not to exceed the aggregate amount of (1) the amount of such tax liabilities
that would be due from the Company or the Subsidiary Guarantors to the
appropriate taxing authority if they were separate taxable entities to the
extent that the Holding Company has an obligation to satisfy such federal,
state or local tax liabilities relating to the operations, assets or capital of
the Company or the Subsidiary Guarantors, plus (2) the amount of such tax
liabilities that are due from the Holding Company with respect to the Holding
Company's ownership of the Company's Capital Stock, as applicable; provided
such payment shall either be used by the Holding Company to pay such federal,
state or local tax liabilities within 90 days of its receipt of such payment or
refunded to the payee. In addition, the Indenture specifically permitted the
payment by the Company of the cash dividend on the Issue Date to the Holding
Company in an amount of $45.0 million to enable it to pay the cash distribution
to the securityholders of the Holding Company as stated under "Use of
Proceeds."
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, assume or suffer to
exist any consensual restriction on the ability of any Subsidiary of the
Company to pay dividends or make other distributions to or on behalf of, or to
pay any obligation to or on behalf of, or otherwise to transfer assets or
property to or on behalf of, or make or pay loans or advances to or on behalf
of, the Company or any Subsidiary of the Company, except (a) restrictions
imposed by the Notes or the Indenture, (b) restrictions imposed by applicable
law, (c) existing restrictions under specified Indebtedness outstanding on the
Issue Date or under any Acquired Indebtedness not incurred in violation of the
Indenture or under any agreement relating to any property, asset, or business
acquired by the Company or any of its Subsidiaries, which restrictions in each
case existed at the time of acquisition, were not put in place in connection
with or in anticipation of such acquisition and are not applicable to any
person, other than the person acquired, or to any property, asset or business,
other than the property, assets and business so acquired, (d) any such
restriction or requirement imposed by Indebtedness incurred under clause (b)
under the definition of "Permitted Indebtedness," provided such restriction or
requirement is no more restrictive than that imposed by the Credit Agreement as
of the Issue Date, (e) restrictions with respect solely to a Subsidiary of the
Company imposed pursuant to a binding agreement which has been entered into for
the sale or disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary, provided such restrictions apply solely to the
Capital Stock or assets of such Subsidiary that are being sold and only to the
extent such Subsidiary is so sold within 180 days of such event, (f)
restrictions on transfer contained in Purchase Money Indebtedness, provided
such restrictions relate only to the transfer of the property acquired with the
proceeds of such Purchase Money Indebtedness, (g) customary restrictions
imposed on the transfer of copyrighted or patented materials and customary
provisions in agreements (other than agreements relating to Indebtedness) that
restrict the assignment of such agreements or any rights thereunder, and (h) in
connection with and pursuant to permitted Refinancings, replacements of
restrictions imposed pursuant to clause (c) of this paragraph that are not more
restrictive than those being replaced and do not apply to any other person or
assets than those that would have been covered by the restrictions in the
Indebtedness so refinanced. Notwithstanding the foregoing, neither (a)
customary provisions restricting subletting or assignment of any lease entered
into in the ordinary course of business, consistent with industry practice, nor
(b) Liens permitted under the terms of the Indenture, shall in and of
themselves be considered a restriction on the ability of the applicable
Subsidiary to transfer such agreement or assets, as the case may be.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, create, incur, assume or suffer to exist, any Lien of
any kind, other than Permitted Liens, upon any of their respective assets now
owned or acquired on or after the date of the Indenture or upon any income or
profits therefrom unless the Company or such Subsidiary provides, concurrently
therewith, that the Notes are equally and ratably secured, provided that, if
such Lien is to secure Subordinated Indebtedness, the Lien securing such
Subordinated Indebtedness shall be subordinate and junior to the Lien securing
the Notes or the applicable Guarantee, as applicable, with the same relative
priority as such Subordinated Indebtedness shall have with respect to the Notes
or the Guarantee, as
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applicable; provided, further, that in the case of a Subsidiary, if such
Subsidiary shall cease to be a Subsidiary Guarantor in accordance with the
terms of the Indenture, such equal and ratable Lien shall, without any further
action, cease to exist.
Limitation on Sale of Assets and Subsidiary Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, in one transaction or a series of related transactions,
convey, sell, transfer, assign or otherwise dispose of, directly or indirectly,
any of their respective property, business or assets, including by merger or
consolidation (in the case of a Subsidiary of the Company), and including any
sale or other transfer or issuance of any Capital Stock of any Subsidiary of
the Company, whether by the Company or a Subsidiary of either or through the
issuance, sale or transfer of Capital Stock by a Subsidiary of the Company (an
"Asset Sale"), unless (l)(a) within 180 days after the date of such Asset Sale,
the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied to
the optional redemption of the Notes in accordance with the terms of the
Indenture or to the repurchase of the Notes pursuant to an irrevocable,
unconditional cash offer (the "Asset Sale Offer") to repurchase Notes at a
purchase price (the "Asset Sale Offer Price") of 100% of the principal amount
thereof, plus accrued interest to the date of payment, made within 180 days of
such Asset Sale or (b) within 180 days following such Asset Sale, the Asset
Sale Offer Amount is (i) invested in fixed assets and property (other than
notes, bonds, obligations and securities) which in the good faith reasonable
judgment of the Board will immediately constitute or be a part of a Related
Business of the Company or such Subsidiary (if it continues to be a Subsidiary)
immediately following such transaction or (ii) used to retire any Indebtedness
ranking at least pari passu with the Notes and the Guarantees and to
permanently reduce the amount of such Indebtedness (including that in the case
of a revolver or similar arrangement that makes credit available, such
commitment is so permanently reduced by such amount), (2) at least 75% of the
consideration for such Asset Sale consists of cash or Cash Equivalents, (3) no
Default or Event of Default shall have occurred and be continuing at the time
of, or would occur after giving effect to, such Asset Sale, and (4) in the case
of any Asset Sale resulting in Net Cash Proceeds in excess of $500,000, the
Board of Directors of the Company determines in good faith that the Company or
such Subsidiary, as applicable, receives fair market value for such Asset Sale.
The Indenture provides that an Asset Sale Offer may be deferred until the
accumulated Net Cash Proceeds from Asset Sales not applied to the uses set
forth in (l)(b) above (the "Excess Proceeds") exceeds $3.0 million and that
each Asset Sale Offer shall remain open for 20 Business Days following its
commencement and no longer (the "Asset Sale Offer Period"). Upon expiration of
the Asset Sale Offer Period, the Company shall apply the Asset Sale Offer
Amount plus an amount equal to accrued and unpaid interest to the purchase of
all Notes properly tendered (on a pro rata basis if the Asset Sale Offer Amount
is insufficient to purchase all Notes so tendered) at the Asset Sale Offer
Price (together with accrued interest). To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Asset Sale
Offer Amount, the Company may use any remaining Net Cash Proceeds for general
corporate purposes as otherwise permitted by the Indenture and following each
Asset Sale Offer the Excess Proceeds amount shall be reset to zero.
Notwithstanding the foregoing provisions of the prior two paragraphs:
(i) the Company and its Subsidiaries may in the ordinary course of
business, convey, sell, lease, transfer, assign or otherwise dispose of
inventory acquired and held for resale in the ordinary course of business;
(ii) the Company and its Subsidiaries may convey, sell, lease, transfer,
assign or otherwise dispose of assets pursuant to and in accordance with the
limitation on mergers, sales or consolidations provisions in the Indenture;
(iii) the Company and its Subsidiaries may convey, sell, lease, transfer,
assign or otherwise dispose of assets to the Company or any of its
Subsidiaries;
(iv) the Company and its Subsidiaries may in the ordinary course of
business sell, transfer, convey or otherwise dispose of Third Party Plan
Receivables in customary factoring arrangements; and
(v) the Company and its Subsidiaries may consummate any sale or series of
related sales of assets or properties of the Company and its Subsidiaries
having an aggregate Fair Market Value of less than $1.0 million in any fiscal
year.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the
Exchange Act and the rules and regulations thereunder and all other applicable
Federal and state securities laws.
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Limitation on Transactions with Affiliates
The Indenture provides that neither the Company nor any of its
Subsidiaries will be permitted after the Issue Date to enter into any contract,
agreement, arrangement or transaction with any Affiliate (an "Affiliate
Transaction"), or any series of related Affiliate Transactions (other than
Exempted Affiliate Transactions), unless such Affiliate Transaction is made in
good faith, the terms of such Affiliate Transaction are fair and reasonable to
the Company or such Subsidiary, as the case may be, and are no less favorable
than the terms which could be obtained by the Company or such Subsidiary, as
the case may be, in a comparable transaction made on an arm's-length basis with
persons who are not Affiliates.
Without limiting the foregoing, any Affiliate Transaction or series of
related Affiliate Transactions (other than Exempted Affiliate Transactions) (1)
involving consideration to either party in excess of $1.0 million, must be
evidenced by an Officers' Certificate addressed and delivered to the Trustee
stating that the terms of such Affiliate Transaction are fair and reasonable to
the Company or such Subsidiary, and no less favorable to the Company or such
Subsidiary, than could have been obtained in an arm's length transaction with a
non-Affiliate, and (2) involving consideration to either party in excess of
$5.0 million, unless in addition the Company, prior to the consummation
thereof, obtains a written favorable opinion as to the fairness of such
transaction to the Company or such Subsidiary from a financial point of view
from an independent investment banking firm of national reputation.
The foregoing provisions shall not apply to any Restricted Payment that is
made in compliance with or exempt from the provisions described in the first
paragraph under the heading "Limitation on Restricted Payments."
Limitation on Merger, Sale or Consolidation
The Indenture provides that the Company will not, directly or indirectly,
consolidate with or merge with or into another person or sell, lease, convey or
transfer all or substantially all of its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions, to
another person or group of affiliated persons or adopt a Plan of Liquidation,
unless (i) either (a) the Company is the continuing entity or (b) the
resulting, surviving or transferee entity or, in the case of a Plan of
Liquidation, the entity which receives the greatest value from such Plan of
Liquidation, is a corporation organized under the laws of the United States,
any state thereof or the District of Columbia and expressly assumes by
supplemental indenture all of the obligations of the Company in connection with
the Notes and the Indenture; (ii) no Default or Event of Default shall exist or
shall occur immediately after giving effect to such transaction; (iii)
immediately after giving effect to such transaction on a pro forma basis, the
Consolidated Net Worth of the consolidated surviving or transferee entity or,
in the case of a Plan of Liquidation, the entity which receives the greatest
value from such Plan of Liquidation, is at least equal to the Consolidated Net
Worth of the Company immediately prior to such transaction; and (iv)
immediately after giving effect to such transaction on a pro forma basis, the
consolidated resulting, surviving or transferee entity or, in the case of a
Plan of Liquidation, the entity which receives the greatest value from such
Plan of Liquidation, would immediately thereafter be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio
set forth in the second paragraph under the heading "Limitation on Incurrence
of Additional Indebtedness and Disqualified Capital Stock."
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company or consummation of a Plan of Liquidation in
accordance with the foregoing, the successor corporation formed by such
consolidation or into which the Company is merged or to which such transfer is
made or, in the case of a Plan of Liquidation, the entity which receives the
greatest value from such Plan of Liquidation, shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if such successor corporation had been
named therein as the Company, and the Company shall be released from the
obligations under the Notes and the Indenture.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Capital Stock of which constitutes all or substantially
all of the properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
Each Subsidiary will not, and the Company will not cause or permit any
Subsidiary to, directly or indirectly, consolidate with or merge with or into
another person or sell, lease, convey or transfer all or substantially all of
its assets (computed on a consolidated basis), whether in a single transaction
or a series of related transactions,
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to another person or group of affiliated persons or adopt a Plan of
Liquidation, unless (i) either (a) the Subsidiary is the continuing entity or
(b) the resulting, surviving or transferee entity or, in the case of a Plan of
Liquidation, the entity which receives the greatest value from such Plan of
Liquidation, is a corporation organized under the laws of the United States,
any state thereof or the District of Columbia and expressly assumes by
supplemental indenture all of the obligations of the Subsidiary in connection
with its Guarantee; (ii) no Default or Event of Default shall exist or shall
occur immediately after giving effect to such transaction; (iii) immediately
after giving effect to such transaction on a pro forma basis, the Consolidated
Net Worth of the Company is at least equal to the Consolidated Net Worth of the
Company immediately prior to such transaction; and (iv) immediately after
giving effect to such transaction on a pro forma basis, the Company would
immediately thereafter be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt Incurrence Ratio described in the second
paragraph under the heading "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock." Any such transaction with and
into the Company (with the Company being the surviving entity) or another
Subsidiary that is a Wholly owned Subsidiary of the Company need not comply
with this covenant. Notwithstanding the foregoing provisions of this paragraph,
upon the sale or disposition (whether by merger, stock purchase, asset sale or
otherwise) of a Subsidiary or all or substantially all of the assets of such
Subsidiary to an entity which is not a Subsidiary of the Company, which
transaction complies with the provisions of the covenant described under
"Limitation on Sale of Assets and Subsidiary Stock," such sale or disposition
shall be permitted under the Indenture and such Subsidiary shall be deemed
released from all of its obligations under its Guarantee of the Notes without
complying with the provisions of this paragraph.
Limitation on Lines of Business
The Indenture provides that neither the Company nor any of its
Subsidiaries shall directly or indirectly engage to any substantial extent in
any line or lines of business activity other than that which, in the reasonable
good faith judgment of the Board of Directors of the Company, is a Related
Business.
Restriction on Sale and Issuance of Subsidiary Stock
The Indenture provides that the Company will not issue or sell, and will
not permit any of its Subsidiaries to issue or sell, any shares of Capital
Stock of any Subsidiary of the Company to any person other than the Company or
a Wholly owned Subsidiary of the Company, except for shares of common stock
with no preferences or special rights or privileges and with no redemption or
prepayment provisions.
Future Subsidiary Guarantors
The Indenture provides that all present and future Subsidiaries of the
Company jointly and severally will guarantee irrevocably and unconditionally
all principal, premium, if any, and interest on the Notes on a senior basis.
Limitation on Status as Investment Company
The Indenture prohibits the Company and its Subsidiaries from being
required to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended), or from otherwise becoming subject
to regulation under the Investment Company Act.
Reports
The Indenture provides that whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall deliver to the Trustee and, to each Holder and to prospective purchasers
of Notes identified to the Company by an Initial Purchaser, within 15 days
after it is or would have been (if it were subject to such reporting
obligations) required to file such with the Commission, annual and quarterly
financial statements substantially equivalent to financial statements that
would have been included in reports filed with the Commission, if the Company
were subject to the requirements of Section 13 or 15(d) of the Exchange Act,
including, with respect to annual information only, a report thereon by the
Company's certified independent public accountants as such would be required in
such reports to the Commission, and, in each case, together with a management's
discussion and analysis of financial condition and results of operations which
would be so required. In addition, whether or not required by the
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rules and regulations of the Commission, the Company will file a copy of all
such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request.
Events of Default and Remedies
The Indenture defines an Event of Default as (i) the failure by the
Company to pay any installment of interest on the Notes as and when the same
becomes due and payable and the continuance of any such failure for 30 days,
(ii) the failure by the Company to pay all or any part of the principal, or
premium, if any, on the Notes when and as the same becomes due and payable at
maturity, redemption, by acceleration or otherwise, including, without
limitation, payment of the Change of Control Purchase Price or the Asset Sale
Offer Price, (iii) the failure by the Company or any Guarantor to observe or
perform any other covenant or agreement contained in the Notes, the Guarantees
or the Indenture and, subject to certain exceptions, the continuance of such
failure for a period of 30 days after written notice is given to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding, (iv) certain events
of bankruptcy, insolvency or reorganization in respect of the Company or any of
its Significant Subsidiaries, (v) a default in any Indebtedness of the Company
or any of its Subsidiaries with an aggregate principal amount in excess of $2.0
million (a) resulting from the failure to pay principal at maturity or (b) as a
result of which the maturity of such Indebtedness has been accelerated prior to
its stated maturity, (vi) final unsatisfied judgments not covered by insurance
aggregating in excess of $2.0 million, at any one time rendered against the
Company or any of its Subsidiaries and not stayed, bonded or discharged within
60 days and (vii) except for any release of a Guarantee in accordance with the
covenant "Limitation on Merger, Sale or Consolidation," any Guarantee ceases to
be in full force and effect or is declared null and void or any Guarantor
denies that it has any further liability under any Guarantee, or gives notice
to such effect (other than by reason of the termination of the Indenture or the
release of any such Guarantee in accordance with the terms of the Indenture).
The Indenture provides that if an Event of Default occurs and is continuing,
generally the Trustee must, within 90 days after the occurrence of such
default, give to the Holders notice of such Event of Default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv) above, relating to the Company or any
Significant Subsidiary) then in every such case, unless the principal of all of
the Notes shall have already become due and payable, either the Trustee or the
Holders of 25% in aggregate principal amount of the Notes then outstanding, by
notice in writing to the Company (and to the Trustee if given by Holders) (an
"Acceleration Notice"), may declare all principal and accrued interest thereon
to be due and payable immediately. If an Event of Default specified in clause
(iv) above, relating to the Company or any Significant Subsidiary occurs, all
principal and accrued interest thereon will be immediately due and payable on
all outstanding Notes without any declaration or other act on the part of the
Trustee or the Holders. The Holders of a majority in aggregate principal amount
of the Notes then outstanding generally are authorized to rescind such
acceleration if all existing Events of Default (other than the non-payment of
the principal of, premium, if any, and interest on the Notes which have become
due solely by such acceleration) have been cured or waived, except a default
with respect to any provision which cannot be modified or amended by majority
approval.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all of the Holders any default, except a
default with respect to any provision requiring supermajority approval to
amend, which default may only be waived by such supermajority, and except a
default in the payment of principal of, premium on, or interest on any Note not
yet cured or a default with respect to any covenant or provision which cannot
be modified or amended without the consent of the Holder of each outstanding
Note affected. Subject to the provisions of the Indenture relating to the
duties of the Trustee, the Trustee will be under no obligation to exercise any
of its rights or powers under the Indenture at the request, order or direction
of any of the Holders, unless such Holders have offered to the Trustee
reasonable security or indemnity. Subject to all provisions of the Indenture
and applicable law, the Holders of a majority in aggregate principal amount of
the Notes at the time outstanding will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee.
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Legal Defeasance and Covenant Defeasance
The Indenture provides that the Company may, at its option and at any
time, elect to have its obligations and the obligations of the Guarantors
discharged with respect to the outstanding Notes ("Legal Defeasance"). Such
Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by, and the Indenture shall
cease to be of further effect as to, all outstanding Notes and Guarantees,
except as to (i) rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments
are due from the trust funds; (ii) the Company's obligations with respect to
such Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes, and the maintenance of an office or
agency for payment and money for security payments held in trust; (iii) the
rights, powers, trust, duties, and immunities of the Trustee, and the Company's
and the Guarantors' obligations in connection therewith; and (iv) the Legal
Defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to have the obligations of the Company and the
Guarantors released with respect to certain covenants that are described in the
Indenture ("Covenant Defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with
respect to the Notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and other
insolvency events) described under "Events of Default" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, U.S. legal tender, U.S. Government
Obligations or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on such Notes on the
stated date for payment thereof or on the redemption date of such principal or
installment of principal of, premium, if any, or interest on such Notes, and
the Trustee, for the exclusive benefit of the Holders of the Notes, must have a
valid, perfected, exclusive security interest in such trust; (ii) in the case
of Legal Defeasance before the date that is one year prior to the Stated
Maturity, the Company shall have delivered to the Trustee an opinion of counsel
in the United States reasonably acceptable to the Trustee confirming that (A)
the Company has received from, or there has been published by, the Internal
Revenue Service, a ruling or (B) since the date of the Indenture, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm that, the
Holders of such Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance before the date that is one year prior
to the Stated Maturity, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to such Trustee
confirming that the Holders of such Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or, insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance shall not result in a breach or violation of,
or constitute a default under the Indenture or any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company shall
have delivered to the Trustee an Officers' Certificate stating that the deposit
was not made by the Company with the intent of preferring the Holders of such
Notes over any other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Company or others;
and (vii) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that the conditions
precedent provided for in, in the case of the Officers' Certificate, clauses
(i) through (vi) and, in the case of the opinion of counsel, clauses (i), (with
respect to the validity and perfection of the security interest), (ii), (iii)
and (v) of this paragraph have been complied with.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of premium, if any,
and interest on the Notes when due, then the obligations of the Company and the
Guarantors under the Indenture will be revived and no such defeasance will be
deemed to have occurred.
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Amendments and Supplements
The Indenture contains provisions permitting the Company, the Guarantors
and the Trustee to enter into a supplemental indenture for certain limited
purposes without the consent of the Holders. With the consent of the Holders of
not less than a majority in aggregate principal amount of the Notes at the time
outstanding, the Company, the Guarantors and the Trustee are permitted to amend
or supplement the Indenture or any supplemental indenture or modify the rights
of the Holders; except that any amendments or supplements to the provisions
relating to the provisions described under the heading "Repurchase of Notes at
the Option of the Holder Upon a Change of Control" in a manner adverse to the
Holders shall require the consent of Holders of not less than 66-2/3% of the
aggregate principal amount of Notes at the time outstanding; provided, further,
that no such modification may, without the consent of each Holder affected
thereby: (i) change the Stated Maturity on any Note, or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest thereon
or any premium payable upon the redemption thereof, or change the place of
payment where, or the coin or currency in which, any Note or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date), or reduce the Change
of Control Purchase Price or Asset Sale Offer Price or alter the redemption
provisions of the Indenture in a manner adverse to the Holders, (ii) reduce the
percentage in principal amount of the outstanding Notes, the consent of whose
Holders is required for any such amendment, supplemental indenture or waiver
provided for in the Indenture, (iii) modify any of the waiver provisions,
except to increase any required percentage or to provide that certain other
provisions of the Indenture cannot be modified or waived without the consent of
the Holder of each outstanding Note affected thereby or (iv) cause the Notes or
any Guarantee to become subordinate in right of payment to any other
Indebtedness.
No Personal Liability of Partners, Stockholders, Officers, Directors
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of the Company, the
Guarantors or any successor entity shall have any personal liability in respect
of the obligations of the Company or the Guarantors under the Indenture or the
Notes by reason of his or its status as such stockholder, employee, officer or
director, except to the extent such person is the Company or a Guarantor.
Certain Definitions
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock
of any person existing at the time such person becomes a Subsidiary of the
Company or is merged or consolidated into or with the Company or one of its
Subsidiaries.
"Acquisition" means the purchase or other acquisition of any person or
substantially all the assets of any person by any other person, whether by
purchase, stock purchase, merger, consolidation, or other transfer, and whether
or not for consideration.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
contract, or otherwise, provided, that, a Beneficial Owner of 10% or more of
the total voting power normally entitled to vote in the election of directors,
managers or trustees, as applicable, shall for such purposes be deemed to
constitute control.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of (a)
the product of the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Beneficial Owner" has the meaning attributed to it in Rules 13d-3 and
13d-5 under the Exchange Act (as in effect on the Issue Date), whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
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"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Stock" means, (i) with respect to any corporation, any and all
shares, interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise Capital Stock), warrants, options,
participations or other equivalents of or interests (however designated) in
stock issued by that corporation, (ii) in the case of an association or
business entity, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, (iii) in the case of a
partnership, partnership interests (whether general or limited), and (iv) any
other interest or participation that confers on a person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
person.
"Capitalized Lease Obligation" means rental obligations under a lease that
are required to be capitalized for financial reporting purposes in accordance
with GAAP, and the amount of Indebtedness represented by such obligations shall
be the capitalized amount of such obligations, as determined in accordance with
GAAP.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) or (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation
of any domestic commercial bank of recognized standing having capital and
surplus in excess of $500 million and commercial paper issued by any other
issuer which is rated at least A-1 or the equivalent thereof by Standard &
Poor's Corporation or at least P-1 or the equivalent thereof by Moody's
Investors Service, Inc. and in each case maturing within one year after the
date of acquisition.
"Consolidated Cash Flow" means, with respect to any person, for any
period, the Consolidated Net Income of such person for such period adjusted to
add thereto (to the extent deducted from net revenues in determining
Consolidated Net Income), without duplication, the sum of (i) consolidated
income tax expense, (ii) consolidated depreciation and amortization expense,
provided that consolidated depreciation and amortization of a Subsidiary that
is less than wholly owned shall only be added to the extent of the equity
interest of the Company in such Subsidiary, and (iii) Consolidated Interest
Expense.
"Consolidated Interest Coverage Ratio" of any person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma basis,
of (a) the aggregate amount of Consolidated Cash Flow of such person
attributable to continuing operations and businesses (exclusive of amounts
attributable to operations and businesses that would in accordance with GAAP be
deemed to be discontinued operations) for the Reference Period to (b) the
aggregate Consolidated Interest Expense of such person (exclusive of amounts
attributable to operations and businesses permanently discontinued or disposed
of, but only to the extent that the obligations giving rise to such
Consolidated Interest Expense would no longer be obligations contributing to
such person's Consolidated Interest Expense subsequent to the Transaction Date)
during the Reference Period; provided, that for purposes of such calculation,
(i) Acquisitions which occurred during the Reference Period or subsequent to
the Reference Period and on or prior to the Transaction Date shall be assumed
to have occurred on the first day of the Reference Period, (ii) transactions
giving rise to the need to calculate the Consolidated Interest Coverage Ratio
shall be assumed to have occurred on the first day of the Reference Period,
(iii) the incurrence of any Indebtedness or issuance of any Disqualified
Capital Stock during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date (and the application of the proceeds
therefrom to the extent used to refinance or retire other Indebtedness) shall
be assumed to have occurred on the first day of such Reference Period, and (iv)
the Consolidated Interest Expense of such person attributable to interest on
any Indebtedness or dividends on any Disqualified Capital Stock bearing a
floating interest (or dividend) rate shall be computed on a pro forma basis as
if the average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless
such person or any of its Subsidiaries is a party to an Interest Swap or
Hedging Obligation (which shall remain in effect for the 12-month period
immediately following the Transaction Date) that has the effect of fixing the
interest rate on the date of computation, in which case such rate (whether
higher or lower) shall be used. If any Indebtedness that is being given pro
forma effect was incurred under a revolving credit facility, the interest
expense on such Indebtedness shall be computed based upon the average daily
balance of such Indebtedness during the applicable period.
"Consolidated Interest Expense" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid,
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accrued, or scheduled to be paid or accrued (including, in accordance with the
following sentence, interest attributable to Capitalized Lease Obligations) of
such person and its Consolidated Subsidiaries during such period, including (i)
original issue discount and non-cash interest payments or accruals on any
Indebtedness, (ii) the interest portion of all deferred payment obligations,
and (iii) all commissions, discounts and other fees and charges owed with
respect to bankers' acceptances and letters of credit financings and currency
and Interest Swap and Hedging Obligations, in each case to the extent
attributable to such period, and (b) the amount of dividends accrued or payable
(or guaranteed) by such person or any of its Consolidated Subsidiaries in
respect of Preferred Stock (other than by Subsidiaries of such person to such
person or such person's wholly owned Subsidiaries). For purposes of this
definition, (x) interest on a Capitalized Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined in good faith by the Company
to be the rate of interest implicit in such Capitalized Lease Obligation in
accordance with GAAP, and (y) interest expense attributable to any Indebtedness
represented by the guarantee by such person or a Subsidiary of such person of
an obligation of another person shall be deemed to be the interest expense
attributable to the Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any person for any
period, the net income (or loss) of such person and its Consolidated
Subsidiaries (determined on a consolidated basis in accordance with GAAP) for
such period, adjusted to exclude (only to the extent included in computing such
net income (or loss) and without duplication): (a) (i) in calculating
Consolidated Net Income for the purposes of the Debt Incurrence Ratio covenant
described in the second paragraph under the heading "Limitation on Incurrence
of Additional Indebtedness and Disqualified Capital Stock, " all gains and
losses and (ii) in calculating Consolidated Net Income for the purposes of the
covenant described under the heading "Limitation on Restricted Payments," all
gains but not losses, in each case which are either extraordinary (as
determined in accordance with GAAP) or are either unusual or nonrecurring
(including any gain or loss, as applicable, from the sale or other disposition
of assets outside the ordinary course of business or from the issuance or sale
of any Capital Stock), (b) the net income, if positive, of any person, other
than a Consolidated Subsidiary, in which such person or any of its Consolidated
Subsidiaries has an interest, except to the extent of the amount of any
dividends or distributions actually paid in cash to such person or a wholly
owned Consolidated Subsidiary of such person during such period, but in any
case not in excess of such person's pro rata share of such person's net income
for such period, (c) the net income or loss of any person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition,
(d) the net income, if positive, of any of such person's Consolidated
Subsidiaries in the event and solely to the extent that the declaration or
payment of dividends or similar distributions is not at the time permitted by
operation of the terms of its charter or bylaws or any other agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to such Consolidated Subsidiary, and (e) the effects of changes in
accounting principles.
"Consolidated Net Worth" of any person at any date means the aggregate
consolidated stockholders' equity of such person (plus amounts of equity
attributable to preferred stock) and its Consolidated Subsidiaries, as would be
shown on the consolidated balance sheet of such person prepared in accordance
with GAAP, adjusted to exclude (to the extent included in calculating such
equity), (a) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock or treasury stock of such person and its
Consolidated Subsidiaries, (b) all upward revaluations and other write-ups in
the book value of any asset of such person or a Consolidated Subsidiary of such
person resulting from or in connection with the transaction or series of
related transactions giving rise to the calculation of the Consolidated Net
Worth of such person at such date, and (c) all investments in Subsidiaries that
are not Consolidated Subsidiaries and in persons that are not Subsidiaries.
"Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.
"Credit Agreement" means the Credit Agreement described under "Description
of New Credit Facility and Certain Other Indebtedness," including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such credit agreement and/or related documents may be
amended, restated, supplemented, renewed, replaced or otherwise modified from
time to time whether or not with the same agent, trustee, representative,
lenders or holders, and, subject to the proviso to the next succeeding
sentence, irrespective of any changes in the terms and conditions thereof.
Without limiting the generality of the foregoing, the term "Credit Agreement"
shall include any amendment, amendment and restatement, renewal, extension,
restructuring, supplement or modification to such credit agreement and all
refundings, refinancings and
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replacements of such credit agreement, including any agreement (i) extending
the maturity of any Indebtedness incurred thereunder or contemplated thereby,
(ii) adding or deleting borrowers or guarantors thereunder, so long as
borrowers and issuers include one or more of the Company and its Subsidiaries
and their respective successors and assigns, (iii) increasing the amount of
Indebtedness incurred thereunder or available to be borrowed thereunder,
provided that on the date such additional Indebtedness is incurred it would not
be prohibited by the covenant described under the heading "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock," or (iv)
otherwise altering the terms and conditions thereof in a manner not prohibited
by the terms hereof.
"Disqualified Capital Stock" means (a) except as set forth in clause (b)
of this paragraph, with respect to any person, Capital Stock of such person
that, by its terms or by the terms of any security into which it is then
convertible, exercisable or exchangeable, is, or upon the happening of an event
or the passage of time would be, required to be redeemed or repurchased
(including at the option of the holder thereof) by such person or any of its
Subsidiaries, in whole or in part, on or prior to the Stated Maturity of the
Notes and (b) with respect to any Subsidiary of such person (including with
respect to any Subsidiary of the Company), any Capital Stock other than any
common stock with no preference, privileges, or redemption or repayment
provisions.
"Equity Offering" means an underwritten public offering pursuant to a
registration statement filed with the SEC in accordance with the Securities Act
the consequence of which is that the common stock of either the Company or the
Holding Company is listed on a national securities exchange or quoted on the
national market system of NASDAQ and, in the case of an Equity Offering of the
Common Stock of the Holding Company, all the net proceeds (after payment of
related transaction costs) of such Equity Offering are contributed as common
equity to the Company.
"Excluded Person" means collectively or individually BancBoston Ventures
Inc. and Harvest Partners, Inc. and all Related Persons of such person.
"Exempted Affiliate Transaction" means (a) customary employee or director
compensation arrangements approved by a majority of independent (as to such
transactions) members of the Board of Directors of the Company or its
Subsidiary, as applicable, (b) dividends permitted under the terms of the
covenant discussed above under "Limitation on Restricted Payments" and payable,
in form and amount, on a pro rata basis to all holders of Common Stock of the
Company (after taking into account the exercise of one or more outstanding
options or warrants), (c) transactions solely between the Company and any of
its Wholly owned Subsidiaries or solely among Wholly owned Subsidiaries of the
Company, (d) transactions set forth in clauses (i) or (iii) of the definition
of "Permitted Payments" and (e) the payment to Mr. Frank Marfino and Mr. Todd
Pluymers of performance related bonuses in an aggregate amount not to exceed
$1.4 million to be paid no later than the first anniversary of the Issue Date.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States as in effect on the Issue Date.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of any such person, (i)
in respect of borrowed money (whether or not the recourse of the lender is to
the whole of the assets of such person or only to a portion thereof), (ii)
evidenced by bonds, notes, debentures or similar instruments, (iii)
representing the balance deferred and unpaid of the purchase price of any
property or services, except (other than accounts payable or other obligations
to trade creditors which have remained unpaid for greater than 90 days past
their original due date) those incurred in the ordinary course of its business
that would constitute ordinarily a trade payable to trade creditors, (iv)
evidenced by bankers' acceptances or similar instruments issued or accepted by
banks, (v) for the payment of money relating to a Capitalized Lease Obligation,
or (vi) evidenced by a letter of credit or a reimbursement obligation of such
person with respect to any letter of credit; (b) all net obligations of such
person under Interest Swap and Hedging Obligations; (c) all liabilities and
obligations of others of the kind described in the preceding clause (a) or (b)
that such person has guaranteed or that is otherwise its legal liability or
which are secured by any assets or property of such person and all obligations
to purchase, redeem or acquire any Capital Stock; and (d) any and all
deferrals, renewals, extensions, refinancing and refundings (whether direct or
indirect) of, or amendments, modifications or supplements to, any liability of
the kind described in any of the preceding clauses (a), (b) or (c), or this
clause (d), whether or not between or among the same parties.
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Indebtedness shall not include obligations of any person resulting from the
endorsement of negotiable instruments for collection in the ordinary course of
business and consistent with past business practices.
"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise)
by such person (whether for cash, property, services, securities or otherwise)
of Capital Stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person or any agreement to make any such acquisition; (b) the making by such
person of any deposit with, or advance, loan or other extension of credit to,
such other person (including the purchase of property from another person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such other person) or any commitment to make any such advance,
loan or extension (but excluding accounts receivable, endorsements for
collection or deposits arising in the ordinary course of business); (c) other
than guarantees of Indebtedness of the Company or any Subsidiary to the extent
permitted by the covenant described under the heading "Limitation on Incurrence
of Additional Indebtedness and Disqualified Capital Stock," the entering into
by such person of any guarantee of, or other credit support or contingent
obligation with respect to, Indebtedness or other liability of such other
person; and (d) the making of any capital contribution by such person to such
other person.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable,
now owned or hereafter acquired (including any conditional sale or other title
retention agreement and any lease deemed to constitute a security interest and
any option or other agreement to give any security interest).
"Management Fee Agreements" means the Management Fee Agreements, dated as
of January 30, 1995, as amended, between the Company and BancBoston Ventures
Inc. and Harvest Partners Inc., respectively, each substantially as in effect
on the Issue Date.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Company in the case of a sale of Qualified Capital Stock and by
the Company and its Subsidiaries in respect of an Asset Sale plus, in the case
of an issuance of Qualified Capital Stock upon any exercise, exchange or
conversion of securities (including options, warrants, rights and convertible
or exchangeable debt) of the Company that were issued for cash on or after the
Issue Date, the amount of cash originally received by the Company upon the
issuance of such securities (including options, warrants, rights and
convertible or exchangeable debt) less, in each case, the sum of all payments,
fees, commissions and (in the case of Asset Sales, reasonable and customary)
expenses (including, without limitation, the fees and expenses of legal counsel
and investment banking fees and expenses) incurred in connection with such
Asset Sale or sale of Qualified Capital Stock, and, in the case of an Asset
Sale only, less the amount (estimated reasonably and in good faith by the
Company) of income, franchise, sales and other applicable taxes required to be
paid by the Company or any of its respective Subsidiaries in connection with
such Asset Sale.
"Permitted Indebtedness" means, without duplication (a) Indebtedness
evidenced by the Notes and represented by the Indenture up to the amounts
specified therein as of the date thereof; (b) Indebtedness of the Company and
its Subsidiaries incurred under or in respect of the Credit Agreement up to an
aggregate amount outstanding (including any Indebtedness issued to refinance,
refund or replace such Indebtedness in whole or in part) at any time of $20.0
million, minus the amount of any such Indebtedness retired with Net Cash
Proceeds from any Asset Sale or assumed by a transferee in an Asset Sale; (c)
Refinancing Indebtedness incurred by the Company and its Subsidiaries, as
applicable, with respect to any Indebtedness or Disqualified Capital Stock, as
applicable, described in clauses (a) and (b) above, incurred pursuant to the
second paragraph under the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock" or which is outstanding on the
Issue Date; (d) Indebtedness incurred by the Company or its Subsidiaries in an
aggregate amount outstanding at any time
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(including any Indebtedness issued to refinance, replace, or refund such
Indebtedness in whole or in part) of up to $5.0 million, minus the amount of
any such Indebtedness retired with Net Cash Proceeds from any Asset Sale or
assumed by a transferee in an Asset Sale; and (e) Indebtedness incurred by the
Company to any of its Subsidiaries, and Indebtedness incurred by any Subsidiary
to any other Subsidiary or to the Company; provided, that, in the case of
Indebtedness of the Company, such obligations shall be unsecured and
subordinated in all respects to the Company's obligations pursuant to the
Notes.
"Permitted Lien" means any of the following:
(a) Liens existing on the Issue Date;
(b) Liens imposed by governmental authorities for taxes, assessments or
other charges not yet subject to penalty or which are being contested in good
faith and by appropriate proceedings, if adequate reserves with respect thereto
are maintained on the books of the Company in accordance with GAAP;
(c) statutory liens of carriers, warehousemen, mechanics, materialmen,
landlords, repairmen or other like Liens arising by operation of law in the
ordinary course of business provided that (i) the underlying obligations are
not overdue for a period of more than 30 days, or (ii) such Liens are being
contested in good faith and by appropriate proceedings and adequate reserves
with respect thereto are maintained on the books of the Company in accordance
with GAAP;
(d) Liens securing the performance of bids, trade contracts (other than
borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(e) easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or title defects which, singly or in the aggregate, do not
in any case materially detract from the value of the property subject thereto
(as such property is used by the Company or any of its Subsidiaries) or
interfere with the ordinary conduct of the business of the Company or any of
its Subsidiaries;
(f) Liens arising by operation of law in connection with judgments, only
to the extent, for an amount and for a period not resulting in an Event of
Default with respect thereto;
(g) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types
of social security legislation;
(h) Liens securing the Notes;
(i) Liens securing Indebtedness of a person existing at the time such
person becomes a Subsidiary or is merged with or into the Company or a
Subsidiary or Liens securing Indebtedness incurred in connection with an
Acquisition, provided in each case that such Liens were in existence prior to
the date of such acquisition, merger or consolidation, were not incurred in
anticipation thereof, and do not extend to any other assets;
(j) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner no more adverse to the
Holders of the Notes than the terms of the Liens securing such refinanced
Indebtedness provided that the Indebtedness secured is not increased and the
lien is not extended to any additional assets of property;
(k) Liens consisting of customary restrictions on assignment or transfer
in any lease or other agreement not relating to Indebtedness;
(l) Liens on the applicable accounts receivables, proceeds and contract
rights securing the Company's obligations with respect to a customary factoring
arrangement of Third Party Plan Receivables; and
(m) Liens securing Permitted Indebtedness of the type referred to in
clauses (b) and (d) of the definition of Permitted Indebtedness, and any
Refinancing Indebtedness with respect to such Indebtedness.
"Permitted Payments" means (i) (a) payments to the Holding Company in an
amount not to exceed $250,000 in the aggregate in any fiscal year sufficient to
permit the Holding Company to pay reasonable and necessary operating expenses
and other general corporate expenses (including any reasonable professional
fees and expenses) and (b) cash dividends to the Holding Company to the extent
necessary to permit the Holding Company to repurchase common stock, stock
options and stock equivalents or other equity securities of the Holding Company
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held by departing or deceased directors, officers or employees of the Holding
Company, the Company or any Subsidiary Guarantor ("Management Holders"),
provided that the aggregate amount of all such repurchases shall not exceed
$500,000 during any fiscal year or $2,000,000 during the term of the Notes
(plus the net cash proceeds received by the Company after the Issue Date as a
capital contribution in the form of common equity from the sale to Management
Holders of such equity securities of the Holding Company); (ii) a Qualified
Exchange; (iii) payments made pursuant to the Management Fee Agreements; or
(iv) the payment of any dividend on Qualified Capital Stock within 60 days
after the date of its declaration if such dividend could have been made on the
date of such declaration in compliance with the foregoing provisions. The full
amount of any Permitted Payment made pursuant to the foregoing clause (iv) (but
not pursuant to clauses (i), (ii) and (iii)) of the immediately preceding
sentence, however, will be deducted in the calculation of the aggregate amount
of Restricted Payments available to be made referred to in clause (3) of the
covenant described under the heading "Limitation on Restricted Payments."
"Purchase Money Indebtedness" means any Indebtedness of such person to any
seller or other person incurred to finance the acquisition (including in the
case of a Capitalized Lease Obligation, the lease) of any after acquired real
or personal tangible property, which, in the reasonable good faith judgment of
the Board of Directors of the Company, is directly related to a Related
Business of the Company and which is incurred concurrently with such
acquisition and is secured only by the assets so financed.
"Qualified Capital Stock" means any Capital Stock of the Company that is
not Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Company
issued on or after the Issue Date with the Net Cash Proceeds received by the
Company from the substantially concurrent sale of Qualified Capital Stock or
any exchange of Qualified Capital Stock for any Capital Stock or Indebtedness
of the Company issued on or after the Issue Date.
"Reference Period" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the Notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital
Stock (a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the
case of Disqualified Capital Stock, liquidation preference, not to exceed
(after deduction of reasonable and customary fees and expenses incurred in
connection with the Refinancing plus the amount of premium paid in connection
with such Refinancing in accordance with the terms of the documents governing
the Indebtedness Refinanced) the lesser of (i) the principal amount or, in the
case of Disqualified Capital Stock, liquidation preference, of the Indebtedness
or Disqualified Capital Stock so Refinanced and (ii) if such Indebtedness being
Refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such
Refinancing; provided, that (A) such Refinancing Indebtedness of any Subsidiary
of the Company shall only be used to Refinance outstanding Indebtedness or
Disqualified Capital Stock of such Subsidiary, (B) such Refinancing
Indebtedness shall (x) not have an Average Life shorter than the Indebtedness
or Disqualified Capital Stock to be so refinanced at the time of such
Refinancing and (y) in all respects, be no less subordinated or junior, if
applicable, to the rights of Holders of the Notes than was the Indebtedness or
Disqualified Capital Stock to be refinanced and (C) such Refinancing
Indebtedness shall have no installment of principal (or redemption payment)
scheduled to come due earlier than the scheduled maturity of any installment of
principal of the Indebtedness or Disqualified Capital Stock to be so refinanced
which was scheduled to come due prior to the Stated Maturity or a final stated
maturity or redemption date, as applicable, no earlier than the final stated
maturity or redemption date, as applicable, of the Indebtedness or Disqualified
Capital Stock to be so refinanced.
"Related Business" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the Issue Date and any and
all businesses that in the good faith judgment of the Board of Directors of the
Company are materially related businesses.
"Related Person" means any person who controls, is controlled by or is
under common control with an Excluded Person; provided that for purposes of
this definition "control" means the beneficial ownership of more
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than 50% of the total voting power of a person normally entitled to vote in the
election of directors, managers or trustees, as applicable of a person.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than investments in (a) Cash Equivalents, and (b) the
Company or a Wholly owned Subsidiary that is engaged in a Related Business;
provided, however, that a merger of another person with or into the Company or
any of its Subsidiaries shall not be deemed to be a Restricted Investment so
long as the surviving entity is the Company or a direct Wholly owned
Subsidiary.
"Restricted Payment" means, with respect to any person, (a) the
declaration or payment of any dividend or other distribution in respect of
Capital Stock of such person or any parent or Subsidiary of such person, (b)
any payment on account of the purchase, redemption or other acquisition or
retirement for value of Capital Stock of such person or any parent or
Subsidiary of such person, (c) other than with the proceeds from the
substantially concurrent sale of, or in exchange for, Refinancing Indebtedness,
any purchase, redemption, or other acquisition or retirement for value of, any
payment in respect of any amendment of the terms of or any defeasance of, any
Subordinated Indebtedness, directly or indirectly, by such person or a parent
or Subsidiary of such person prior to the scheduled maturity, any scheduled
repayment of principal, or scheduled sinking fund payment, as the case may be,
of such Indebtedness and (d) any Restricted Investment by such person;
provided, however, that the term "Restricted Payment" does not include (i) any
dividend, distribution or other payment on or with respect to Capital Stock of
an issuer to the extent payable solely in shares of Qualified Capital Stock of
such issuer; or (ii) any dividend, distribution or other payment to the
Company, or to any of its Wholly owned Subsidiaries, by the Company or any of
its Subsidiaries.
"Significant Subsidiary" means any Subsidiary of the Company that would be
a "significant subsidiary" of the Company as defined in Rule 1-02 of Regulation
S-X under the Securities Act and the Exchange Act, as such Rule is in effect on
the Issue Date.
"Stated Maturity," when used with respect to any Note, means October 15,
2004.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor that is subordinated in right of payment to the Notes or such
Guarantee, as applicable, in any respect.
"Subsidiary," with respect to any person, means (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such person, by such person and one or more Subsidiaries of such person or
by one or more Subsidiaries of such person, (ii) any other person (other than a
corporation) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly or
indirectly, at the date of determination thereof has at least majority
ownership interest, or (iii) a partnership in which such person or a Subsidiary
of such person is, at the time, a general partner and in which such person,
directly or indirectly, at the date of determination thereof has at least a
majority ownership interest.
"Third Party Plan Receivable" means a right to receive payment from a
managed health care provider or other third party payer (a "Third Party Plan")
resulting from a sale to customers associated with a Third Party Plan of
pharmacy goods or services by a person pursuant to an arrangement with such
Third Party Plan under which such Third Party Plan is obligated to pay for such
goods or services under terms that permit the purchase of such goods or
services on credit.
"U.S. Government Obligations" means direct non-callable obligations of, or
non-callable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"Wholly owned Subsidiary" means a Subsidiary all the Capital Stock of
which is owned by the Company or one or more Wholly owned Subsidiaries of the
Company.
Book-Entry; Delivery; Form and Transfer
Except as set forth below, the New Notes will initially be issued in the
form of one or more registered New Notes in global form (the "Global Notes").
Each Global Note representing New Notes will be deposited on the date of the
closing of the Exchange Offer (the "Closing Date") with, or on behalf of, The
Depository Trust Company
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(the "Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary. Interests in Global Notes will be available for purchase only by
"qualified institutional buyers," as defined in Rule 144A under the Securities
Act ("QIBs").
Notes that are (i) originally issued to or transferred to institutional
"accredited investors," as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not QIBs or to any other person who are not QIBs or
(ii) issued as described below under "Certificated Securities," will be issued
in registered form without coupons (the "Certificated Securities"). Upon the
transfer to a QIB of Certificated Securities, such Certificated Securities
will, unless the Global Note has previously been exchanged for Certificated
Securities, be exchanged for an interest in the Global Note representing the
principal amount of New Notes being transferred.
The Depository has advised the Company that it is (i) a limited-purpose
trust company organized under the laws of the State of New York, (ii) a member
of the Federal Reserve System, (iii) a "clearing corporation" within the
meaning of the Uniform Commercial Code, as amended, and (iv) a "Clearing
Agency" registered pursuant to Section 17A of the Exchange Act. The Depositary
was created to hold securities for its participating organizations
(collectively, the "Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. QIBs may elect
to hold New Notes purchased by them through the Depositary. QIBs who are not
Participants may beneficially own securities held by or on behalf of the
Depositary only through Participants or Indirect Participants. Persons that are
not QIBs may not hold New Notes through the Depositary.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with an interest
in the Global Note and (ii) ownership of the New Notes will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of Participants),
the Participants and the Indirect Participants. The laws of some states require
that certain persons take physical delivery in definitive form of securities
that they own and that security interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
Consequently, the ability to transfer New Notes or to pledge the New Notes as
collateral will be limited to such extent. The New Notes will be subject to
certain other restrictions on transferability.
So long as the Depositary or its nominee is the registered owner of a
Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the New Notes represented by the Global
Note for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have New Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Certificated Securities, and will
not be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any directions, instructions
or approvals to the Trustee thereunder. As a result, the ability of a person
having a beneficial interest in New Notes represented by a Global Note to
pledge such interest to persons or entities that do not participate in the
Depositary's system, or to otherwise take actions with respect to such
interest, may be affected by the lack of a physical certificate evidencing such
interest.
Accordingly, each QIB owning a beneficial interest in a Global Note must
rely on the procedures of the Depositary and, if such QIB is not a Participant
or an Indirect Participant, on the procedures of the Participant through which
such QIB owns its interests, to exercise any rights of a holder under the
Indenture or such Global Note. The Company understands that under existing
industry practice, in the event the Company requests any action of holders of
New Notes or a QIB that is an owner of a beneficial interest in a Global Note
desires to take any action that the Depositary, as the holder of such Global
Note, is entitled to take, the Depositary would authorize the Participants to
take such action and the Participants would authorize QIBs owning through such
Participants to take such action or would otherwise act upon the instructions
of such QIBs. Neither the Company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of New Notes by the Depositary, or for maintaining, supervising or
reviewing any records of the Depositary relating to such New Notes.
75
<PAGE>
Payments with respect to the principal of, premium, if any, and interest
on any New Notes represented by a Global Note registered in the name of the
Depositary or its nominee on the applicable record date will be payable by the
Trustee to or at the direction of the Depositary or its nominee in its capacity
as the registered holder of the Global Note representing such new Notes under
the Indenture. Under the terms of the Indenture, the Company and the Trustee
may treat the persons in whose names the New Notes, including the Global Notes,
are registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of New Notes (including
principal, premium, if any, and interest), or to immediately credit the
accounts of the relevant participants with such payment, in amounts
proportionate to their respective holdings in principal amount of beneficial
interest in the Global Note as shown on the records of the Depositary. Payments
by the Participants and the Indirect Participants to the beneficial owners of
New Notes will be governed by standing instructions and customary practice and
will be the responsibility of the Participants or the Indirect Participants.
Certificated Securities
If (i) the Company notifies the Trustee in writing that the Depositary is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of New
Notes in definitive form under the Indenture, or (iii) there shall have
occurred and be continuing a Default or Event of Default with respect to the
Notes, then, upon surrender by the Depositary of its Global Note or Global
Notes, Certificated Securities will be issued to each person that the
Depositary identifies as the beneficial owner of the New Notes represented by
the Global Note. In addition, subject to certain conditions, any person having
a beneficial interest in a Global Note may, upon request to the Trustee,
exchange such beneficial interest for Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of such person or persons (or the nominee of any thereof), and cause
the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any Participant or Indirect Participant in identifying the
beneficial owners of the related New Note and such person may conclusively rely
on, and shall be protected in relying on instructions from the Depositary for
all purposes (including with respect to the registration and delivery, and the
respective principal amounts, of the New Notes to be issued).
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable. The
Company will have no responsibility for the performance by DTC or its
Participants of their respective obligations as described hereunder or under
the rules and procedures governing their respective operations.
Same Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented
by the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
same day funds to the accounts specified by the holder of interests in such
Global Note. With respect to Certificated Notes, the Company will make all
payments of principal, premium, if any, interest and Liquidated Damages, if
any, by wire transfer of immediately available same day funds to the accounts
specified by the holders thereof or, if no such account is specified, by
mailing a check to each such holder's registered address. The Company expects
that secondary trading in the Certificated Notes will also be settled in
immediately available funds.
76
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of certain of the anticipated federal income tax
consequences of an exchange of the Existing Notes for New Notes and of the
purchase, ownership, and disposition of the New Notes is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
final, temporary, and proposed regulations promulgated thereunder, and
administrative rulings and judicial decisions now in effect, all of which are
subject to change (possibly with retroactive effect) or different
interpretations. This summary does not purport to deal with all aspects of
federal income taxation that may be relevant to a particular investor, nor any
tax consequences arising under the laws of any state, locality, or foreign
jurisdiction, and it is not intended to be applicable to all categories of
investors, some of which, such as dealers in securities, banks, insurance
companies, tax-exempt organizations, foreign persons, persons that hold New
Notes as part of a straddle or conversion transactions or holders subject to
the alternative minimum tax, may be subject to special rules. In addition, the
summary is limited to persons that will hold the New Notes as "capital assets"
(generally, property held for investment) within the meaning of Section 1221 of
the Code. ALL INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS REGARDING
THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE EXCHANGE AND THE
OWNERSHIP AND DISPOSITION OF NEW NOTES.
Taxation of Holders on Exchange
Although the matter is not free from doubt, an exchange of Existing Notes
for New Notes should not be a taxable event to holders of Existing Notes, and
holders should not recognize any taxable gain or loss as a result of such an
exchange. Accordingly, a holder would have the same adjusted basis and holding
period in the New Notes as it had in the Existing Notes immediately before the
exchange. Further, the tax consequences of ownership and disposition of any New
Notes should be the same as the tax consequences of ownership and disposition
of Existing Notes.
Market Discount
If a holder purchases a Note for an amount that is less than its principal
amount, the amount of the difference will be treated as "market discount" for
federal income tax purposes, unless such difference is less than a specified de
minimis amount. Under the market discount rules, a holder will be required to
treat any principal payment on, or any gain on the sale, exchange, retirement
or other disposition of, a Note as ordinary income to the exchange of the
market discount which has not previously been included in income and is treated
as having accrued on such a Note at the time of such payment or disposition. In
addition, the holder may be required to defer, until the maturity of the Note
or its earlier disposition in a taxable transaction, the deduction of all or a
portion of the interest expense on any indebtedness incurred or continued to
purchase or carry such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the
holder elects to accrue on a constant interest method. A holder of a Note may
elect to include market discount in income currently as it accrues (on either a
ratable or constant interest method), in which case the rule described above
regarding deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first taxable year to which the
election applies and may not be revoked without the consent of the Internal
Revenue Service (the "IRS").
Amortizable Bond Premium
A holder that purchases a Note for an amount in excess of the sum of its
principal amount will be considered to have purchased the Note at a "premium."
A holder generally may elect to amortize the premium over the remaining term of
the Note on a constant yield method. The amount amortized in any year will be
treated as a reduction of the holder's interest income from the Note. Bond
premium on a Note held by a holder that does not make such an election will
decrease the gain or increase the loss otherwise recognized on disposition of
the Note. The election to amortize premium on a constant yield method once made
applies to all debt obligations held or subsequently acquired by the electing
holder on or after the first day of the first taxable year to which the
election applies and may not be revoked without the consent of the IRS.
77
<PAGE>
Sale, Exchange and Retirement of Notes
A holder's tax basis in a Note will, in general, be the holder's cost
therefor, increased by market discount previously included in income by the
holder and reduced by any amortized premium. Upon the sale, exchange or
retirement of a Note, a holder will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange or retirement
(less any accrued interest, which will be taxable as such) and the adjusted tax
basis of the Note. Except as described above with respect to market discount,
such gain or loss will be capital gain or loss and will, as a general rule, be
long-term capital gain or loss if at the time of sale, exchange or retirement
the Note has been held for more than eighteen months. Under current law,
long-term capital gains of individuals are, under certain circumstances, taxed
at lower rates than items of ordinary income. The deductibility of capital
losses is subject to limitations.
Backup Withholding
In general, information reporting requirements will apply to certain
payments of principal, interest and premium paid on Notes and to the proceeds
of sale of a Note made to holders other than certain exempt recipients (such as
corporations). A 31% backup withholding tax will apply to such payments if the
holder fails to provide a taxpayer identification number or certification of
foreign or other exempt status or fails to report in full dividend and interest
income.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
THE UNITED STATES FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY OR MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISERS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE EXCHANGE OF EXISTING NOTES FOR
NEW NOTES AND OF THE OWNERSHIP AND DISPOSITION OF THE NEW NOTES, INCLUDING THE
TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE
POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements of the Company as of July 26, 1997, July 28, 1996
and July 30, 1995 and for the fiscal years ended July 26, 1997 and July 28,
1996 and the six month period ended July 30, 1995 included in this Prospectus
have been audited by Coopers & Lybrand L.L.P., independent accountants, as
stated in their report appearing herein. The financial statements of the
Company as of January 31, 1995, and for the six month period ended January 31,
1995, included in this Prospectus have been audited by Arthur Andersen LLP,
independent accountants, as stated in their report appearing herein. The
financial statements of the Holding Company as of July 26, 1997, July 28, 1996
and July 30, 1995 and for the fiscal years ended July 26, 1997 and July 28,
1996 and the six month period ended July 30, 1995 included in this Prospectus
have been audited by Coopers & Lybrand L.L.P., independent accountants, as
stated in their report appearing herein.
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
Bingham Dana LLP, Boston, Massachusetts.
AVAILABLE INFORMATION
The Company has agreed that whether or not the Company is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall deliver to the Trustee and to each holder of the Notes and to prospective
purchasers of the Notes identified to the Company by an Initial Purchaser,
within 15 days after it is or would have been required to file such with the
Commission, annual and quarterly financial statements substantially equivalent
to financial statements that would have been included in reports filed with the
Commission, if the Company were subject to the requirements of Section 13 or
15(d) of the Exchange Act, including, with respect to annual information only,
a report thereon by the Company's certified independent public accountants as
such would be required in such reports to the Commission, and, in each case,
together with a management's discussion and analysis of financial condition and
results of operations which would be so required. In addition, from and after
78
<PAGE>
the effectiveness of the registration statement of which this prospectus is a
part of the Shelf Registration Statement, whether or not required by the rules
and regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available
to securities analysts and prospective investors upon request.
Once the Registration Statement has been declared effective by the
Commission, the Company and the Holding Company will become subject to the
informational requirements of the Exchange Act and in accordance therewith will
be required to file reports and other information with the Commission. When
filed, the Registration Statement and the exhibits thereto, as well as such
reports and other information to be filed by the Company and the Holding
Company with the Commission, may be inspected, without charge, at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, as well as the regional offices of the
Commission at the Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such documents can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. In addition, the Company and the Holding
Company will be required to file electronic versions of these documents with
the Commission through the Commission's Electronic Data Gathering, Analysis,
and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site,
located at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements that may be considered
"forward-looking." Such forward-looking statements include, among other things,
management's expectations about industry trends including, without limitation,
industry revenue and profit growth rates, the rates of public participation in
Third-Party Plans and the impact of such participation on margins, sales and
profitability, the correlation of sales of non-pharmacy merchandise with sales
of pharmaceutical products, the correlation of sales rates with the aging of
the population and introduction of new drugs, and projections of such rates and
correlations, and the impact of various factors on market shares of independent
drugstore chains, national chains, and regional chains. Forward-looking
statements are also made concerning the Company's expectations regarding
increased customer traffic, the Company's expectations regarding future
regulatory developments and health care reform, the relationship between the
Company's margins and its purchasing practices, product mix and inventory
controls, the Company's business strategy and expectations concerning possible
expansion by the Company, including the opening of new Drug Fair stores or
pharmacies in Cost Cutters locations, the Company's ability to obtain adequate
supplies of pharmaceuticals and general merchandise, the Company's ability to
maintain its gross profit margins in the face of pressure on pharmaceutical
profit margins as a result of an increase in Third-Party Plan pharmaceutical
sales, the Company's ability to minimize store maintenance expenses, the
Company's ability to cost-effectively consolidate its administrative and
distribution functions in a single new location and integrate a new MIS system
at that facility and accommodate any "Year 2000" problems, the Company's
ability to extend leases for current store locations, or find new leases for
attractive store locations at favorable rates, and the Company's ability to
generate cash flow or make borrowings sufficient to pay interest and principal
on the Notes. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements of the Company expressed or implied by
such forward-looking statements. Prospective investors in the Notes offered
hereby are cautioned that although the Company believes that the assumptions on
which the forward-looking statements contained herein are based are reasonable,
any of those assumptions could prove to be inaccurate and, as a result, the
forward-looking statements based on those assumptions also could be materially
incorrect. The uncertainties in this regard include, but are not limited to,
those identified in the section of this Prospectus entitled "Risk Factors." In
light of these and other uncertainties, the inclusion of a forward-looking
statement herein should not be regarded as a representation by the Company that
the Company's plans and objectives will be achieved and prospective investors
in the Notes should not place undue reliance on such forward-looking
statements. The Company disclaims any obligation to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments.
79
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
The Company
Report of Independent Public Accountants ................................................ F-2
Balance Sheet--January 29, 1995 ......................................................... F-3
Statements of Income and Undistributed Earnings for the Six Months Ended January 29, 1995 F-4
Statement of Cash Flows for the Six Months Ended January 29, 1995 ..................... F-5
Notes to Financial Statements for the Six Months Ended January 29, 1995 ............... F-6
Report of Independent Accountants ...................................................... F-9
Balance Sheets as of July 28, 1996 and July 26, 1997 .................................... F-10
Statements of Income for the Six Months ended July 30, 1995 and the Years Ended
July 28, 1996 and July 26, 1997 ...................................................... F-11
Statements of Cash Flows for the Six Months ended July 30, 1995 and the Years Ended
July 28, 1996 and July 26, 1997 ...................................................... F-12
Statements of Stockholder's Equity for the Six Months ended July 30, 1995, and the
Years Ended July 28, 1996 and July 26, 1997 .......................................... F-13
Notes to Financial Statements ......................................................... F-14
The Holding Company
Report of independent accountants......................................................... F-22
Consolidated balance sheets as of July 28, 1996 and as of July 26, 1997 .................. F-23
Consolidated statements of income for the six months ended July 30, 1995
and the years ended July 28, 1996, and July 26, 1997 ................................... F-24
Consolidated statements of cash flows for the six months ended July 30, 1995
and the years ended July 28, 1996 and July 26, 1997 .................................... F-25
Consolidated statements of stockholders' equity for the six months ended
July 30, 1995, and the years ended July 28, 1996 and July 26, 1997 ..................... F-26
Notes to financial statements ...................................................... F-27 - F-41
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Community Distributors, Inc.:
We have audited the accompanying balance sheet of Community Distributors,
Inc. (a Delaware corporation) as of January 29, 1995, and the related statement
of income and undistributed earnings and cash flows for the six months ended
January 29, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Community Distributors,
Inc. as of January 29, 1995, and the results of its operations and its cash
flows for the six month period then ended in conformity with generally accepted
accounting principles.
Roseland, New Jersey ARTHUR ANDERSEN LLP
March 10, 1995
F-2
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
BALANCE SHEET--JANUARY 29, 1995
<TABLE>
<CAPTION>
January 29,
1995
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term investments (Note 1) .................................... $16,803,000
Receivables ............................................................... 2,175,000
Inventories (Note 1) ...................................................... 20,343,000
Prepaid expenses ............................................................ 1,959,000
Due from affiliates (Note 4) ................................................ 1,783,000
------------
Total current assets ................................................... 43,063,000
PROPERTY AND EQUIPMENT (Note 1):
Leasehold improvements ...................................................... 6,512,000
Fixtures and equipment ...................................................... 15,022,000
Automobiles and trucks ...................................................... 1,166,000
------------
22,700,000
Less--Accumulated depreciation and amortization ........................... 14,821,000
------------
Net property and equipment ............................................. 7,879,000
OTHER ASSETS:
Due from affiliates (Note 4) ................................................ 0
Other assets ............................................................... 2,234,000
------------
$53,176,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................ $10,006,000
Accrued liabilities ......................................................... 2,374,000
Supplier advances (Note 1) ................................................ 1,150,000
State income taxes payable ................................................ 76,000
------------
Total current liabilities ............................................. 13,606,000
SUPPLIER ADVANCES, net of current portion (Note 1) ........................... 3,487,000
OTHER LIABILITIES ............................................................ 50,000
COMMITMENTS (Notes 2 and 3)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 1,000 shares authorized, issued and outstanding 0
Additional paid-in capital ................................................ 100,000
Retained earnings ("C" Corporation prior to S Corporation election) ......... 13,995,000
Undistributed earnings ("S" Corporation) .................................... 21,938,000
------------
Total stockholders' equity ............................................. 36,033,000
------------
$53,176,000
============
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-3
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS
FOR THE SIX MONTHS ENDED JANUARY 29, 1995
<TABLE>
<CAPTION>
Six Months
Ended
January 29,
1995
----------------
<S> <C>
NET SALES ......................................................... $101,687,000
COST OF SALES ...................................................... 72,469,000
------------
Gross profit ................................................... 29,218,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE ........................ 22,352,000
------------
Operating income ................................................ 6,866,000
OTHER INCOME, net ................................................... 595,000
------------
Income before provision for state income taxes .................. 7,461,000
PROVISION FOR STATE INCOME TAXES .................................... 186,000
------------
Net income ...................................................... 7,275,000
UNDISTRIBUTED EARNINGS ("S" Corporation), beginning of period ...... 19,550,000
DISTRIBUTIONS TO STOCKHOLDERS ....................................... (4,887,000)
------------
UNDISTRIBUTED EARNINGS ("S" Corporation), end of period ............ $ 21,938,000
============
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-4
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 29, 1995
<TABLE>
<CAPTION>
Six Months
Ended
January 29,
1995
---------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................... $ 7,275,000
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization ....................................... 884,000
LIFO provision ...................................................... 1,337,000
Cash received from supplier advances ................................. 140,000
Revenue recognized from supplier advances ........................... (623,000)
Changes in operating assets and liabilities--
Receivables ......................................................... (554,000)
Inventories ......................................................... (2,280,000)
Prepaid expenses ................................................... 81,000
Due from affiliates ................................................ 33,000
Other assets ...................................................... 306,000
Accounts payable, accrued liabilities and state income taxes payable (883,000)
Other liabilities ................................................... (9,000)
------------
Net cash provided by operating activities ........................ 5,707,000
CASH FLOWS USED IN INVESTING ACTIVITIES--
Capital expenditures ................................................... (1,313,000)
CASH FLOWS USED IN FINANCING ACTIVITIES--
Distributions to stockholders .......................................... (4,887,000)
------------
Net decrease in cash and short-term investments .................. (493,000)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF FISCAL YEAR ............... 17,296,000
------------
CASH AND SHORT-TERM INVESTMENTS AT END OF FISCAL YEAR ..................... $ 16,803,000
============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the fiscal year for--
Income taxes ......................................................... $ 110,000
Interest ............................................................... 0
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-5
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Company Business-
Community Distributors, Inc. (the Company) owns and operates a chain of
specialty drug stores under the name "Drug Fair" and deep discount general
merchandise stores under the name "Cost Cutters."
Accounting Year-
The Company maintains its accounts on a 52-53 week year ending on the last
Sunday in July. The fiscal period ended January 29, 1995 included 26 weeks.
Use of Estimates-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Cash and Short-Term Investments-
Cash and short-term investments include cash on deposit with banks and
investments having a maturity of three months or less.
Inventories-
Store and warehouse inventories are stated at the lower of cost, using the
last-in, first-out method (LIFO), or market. If the first-in, first-out
method (FIFO) of inventory accounting had been used, inventories would have
been $6,893,000 higher than reported at January 29, 1995.
Depreciation and Amortization-
Property and equipment are stated at cost and depreciation is provided
using the straight-line method over the expected useful lives of the
applicable assets. Leasehold improvements are amortized over the expected
useful life of the improvement or the life of the lease, whichever is
shorter.
Supplier Advances-
Included in the accompanying balance sheet at January 29, 1995 is
$4,637,000 representing advances received related to inventory supply
agreements. Such amounts are being amortized as a reduction of cost of
sales over the term of the applicable supply agreements (periods ranging
from three to five years).
S Corporation Election-
The Company and its stockholders elected to be taxed as an S Corporation
for fiscal years beginning after July 26, 1987, under the provisions of
Subchapter S of the Internal Revenue Code. As such, the taxable income or
losses of the Company are included in the individual tax returns of the
stockholders for Federal income tax purposes. Effective with the fiscal
year beginning July 26, 1993, the Company and its stockholders elected to
be taxed as an S Corporation under the provisions of the tax regulations
for the State of New Jersey. Accordingly, the tax rate used by the Company
in determining its provision for state income taxes was 2.350% for the six
months ended January 29, 1995. Effective with this change, the taxable
income or losses of the Company are included in the individual state income
tax returns of the stockholders. Deferred income taxes are provided on
transactions recorded for financial statement purposes in periods different
from that in which such transactions are recorded for tax purposes. The
differences relate primarily to liabilities for supplier advances which are
reflected as income when the advances are received and the use of
accelerated methods of depreciation and amortization for income tax
purposes. Deferred taxes totaling approximately $146,000 as of January 29,
1995 and are included in other assets in the accompanying balance sheet.
F-6
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(2) FINANCING ARRANGEMENT:
The Company has a short-term line of credit totaling $7,500,000. This line of
credit bears interest at the bank's prime rate (8.50% at January 29, 1995).
Borrowings under the line of credit are unsecured. There were no borrowings
outstanding under the line of credit at January 29, 1995. Under the line of
credit agreement the Company may use up to $2,500,000 to secure letters of
credit. The Company was committed to $705,000 in outstanding letters of credit
at January 29, 1995.
(3) COMMITMENTS:
Litigation-
The Company is party to various legal actions arising in the normal course
of its business. The Company believes that the disposition of such actions,
individually or in the aggregate, will not have a material adverse effect
on the financial position or results of operations of the Company.
Leases-
The Company conducts all of its warehousing and retailing operations from
leased facilities. These leases, which may be renewed for periods ranging
from five to thirty years, generally provide that the Company pay
insurance, maintenance costs and property taxes. These additional charges
are subject to escalation for increases in the related costs. Minimum
rental commitments under long-term noncancellable operating leases are as
follows-
<TABLE>
<CAPTION>
Related
Party (Note 4) Third Party Total
---------------- ------------- ------------
Fiscal years ending January-
<S> <C> <C> <C>
1996 .................. $ 401,000 $ 6,224,000 $ 6,625,000
1997 .................. 401,000 6,240,000 6,641,000
1998 .................. 401,000 6,158,000 6,559,000
1999 .................. 183,000 5,915,000 6,098,000
2000 .................. 0 5,808,000 5,808,000
Thereafter ............ 0 25,704,000 25,704,000
----------- ------------ ------------
$1,386,000 $56,049,000 $57,435,000
=========== ============ ============
</TABLE>
Rental expense for all leases aggregated $3,172,000 for the six months
ended January 29, 1995.
(4) RELATED PARTY TRANSACTIONS:
The Company is a guarantor of a loan from a bank to a real estate holding
company owned by the stockholders of the Company. The loan amounted to
$607,000 at January 29, 1995. This real estate company owns the buildings in
which the Company conducts its warehousing and one of its retailing
operations. Rents paid to the real estate company were approximately $201,000
during the six months ended January 29, 1995. In connection with the sale of
the Company (Note 5) on January 30, 1995, the Company was relieved of its
obligation to guarantee the loan.
During fiscal 1991, the Company entered into a line of credit agreement with
the real estate company to finance the construction of an addition to the
facility it rents to the Company and the construction of an additional
facility at the same location. During fiscal 1992, the balance outstanding
(approximately $2 million) was converted into a 15 year mortgage agreement.
The mortgage was originally scheduled to mature in April 2007 and bore
interest at 8.5% per annum. In connection with the sale of the Company (Note
5) on January 30, 1995, the balance due under this mortgage agreement was paid
in full and, accordingly, has been included as a current asset in the
accompanying balance sheet.
F-7
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(5) SALE OF THE COMPANY:
On January 30, 1995, the Company's stockholders sold their shares in the
Company to Newrxco, Inc., a newly formed acquisition company, for
approximately $75,000,000. The accompanying balance sheet does not give effect
to this sale, which will be accounted for under the purchase method of
accounting.
As a result of the sale, the Company will no longer qualify to be taxed as an
S Corporation for either Federal or New Jersey State income tax purposes.
Without giving effect to adjustments to allocate the purchase price for this
sale, the effect of terminating the S Corporation tax treatment would be to
increase deferred tax assets and stockholders' equity by approximately $2.3
million as of January 29, 1995, and to recognize Federal and state income tax
benefits associated with temporary differences (primarily supplier advances).
This adjustment has not been reflected in the accompanying balance sheet.
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
Community Distributors, Inc.:
We have audited the accompanying balance sheets of Community Distributors,
Inc. (a Delaware corporation) as of July 26, 1997 and July 28, 1996, and the
related statements of income, cash flows and stockholder's equity for the
fiscal years then ended and for the six months ended July 30, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Community Distributors,
Inc. as of July 26, 1997 and July 28, 1996, and the results of its operations
and its cash flows for the fiscal years then ended, and for the six months
ended July 30, 1995, in conformity with generally accepted accounting
principles.
Parsippany, New Jersey COOPERS & LYBRAND L.L.P
October 9, 1997, except for Note 10 for
which the date is October 16, 1997
F-9
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
BALANCE SHEETS--(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
As of As of
July 28, 1996 July 26, 1997
--------------- --------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 3,623 $ 1,870
Accounts receivable ....................................... 3,270 2,614
Inventory ................................................ 28,196 30,233
Prepaid expenses and other current assets .................. 740 1,085
-------- --------
Total current assets ................................. 35,829 35,802
PROPERTY AND EQUIPMENT:
Leasehold improvements .................................... 5,084 5,217
Furniture, fixtures and equipment ........................ 6,220 7,195
Automobiles and trucks .................................... 410 551
-------- --------
11,714 12,963
Less: Accumulated depreciation and amortization ............ (2,381) (4,314)
-------- --------
Property and equipment, net ........................... 9,333 8,649
Beneficial leaseholds, net ................................. 2,704 2,127
Other assets ............................................. 63 91
Deferred financing costs, net .............................. 464 356
Deferred tax assets ....................................... 1,104 712
Goodwill, net ............................................. 35,434 33,519
-------- --------
Total assets .......................................... $ 84,931 $ 81,256
======== ========
LIABILITIES:
CURRENT LIABILITIES:
Current portion of long-term debt ........................ $ 4,675 $ 4,750
Accounts payable .......................................... 11,698 14,796
Accrued liabilities ....................................... 3,563 3,587
Deferred tax liabilities ................................. 1,746 391
Current portion of supplier advances ..................... 1,340 1,900
Income taxes payable ....................................... 1,611 503
-------- --------
Total current liabilities .............................. 24,633 25,927
LONG-TERM DEBT ............................................. 34,490 24,519
SUPPLIER ADVANCES, net of current portion .................. 1,965 1,353
OTHER LIABILITIES .......................................... 1,037 1,402
DUE TO PARENT ................................................ 34 720
-------- --------
Total liabilities .................................... 62,159 53,921
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $.01 par value, 1,000 shares authorized, issued
and outstanding .......................................... -- --
Additional paid-in capital ................................. 18,000 18,000
Retained earnings .......................................... 4,772 9,335
-------- --------
Total stockholder's equity ........................... 22,772 27,335
-------- --------
Total liabilities and stockholder's equity ............ $ 84,931 $ 81,256
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Six For the For the
Months Ended Year Ended Year Ended
July 30, 1995 July 28, 1996 July 26, 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Net sales .......................................... $96,171 $215,731 $231,033
Cost of sales .................................... 67,686 152,645 163,157
-------- --------- ---------
Gross profit .................................... 28,485 63,086 67,876
Selling, general and administrative expenses ...... 21,635 47,487 50,831
Administrative fees .............................. 125 250 250
Depreciation and amortization ..................... 1,980 4,341 4,399
Other income, net ................................. 205 353 401
-------- --------- ---------
Operating income .............................. 4,950 11,361 12,797
Interest expense, net .............................. 2,284 3,998 3,018
-------- --------- ---------
Income before income taxes ..................... 2,666 7,363 9,779
Provision for income taxes ........................ 1,598 3,659 5,216
-------- --------- ---------
Net income .................................... $ 1,068 $ 3,704 $ 4,563
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
For the Six For the For the
Months Ended Year Ended Year Ended
July 30, 1995 July 28, 1996 July 26, 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 1,068 $ 3,704 $ 4,563
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 1,926 4,233 4,443
Deferred financing costs ........................ 54 108 108
Non-cash rent expense ........................... 217 552 414
LIFO provision ................................. 567 659 1,086
(Gain) loss on sale of assets .................. (9) -- 7
Changes in operating assets and liabilities
Accounts receivable ........................... (250) (865) 656
Inventory .................................... (394) (1,792) (3,123)
Prepaid expenses and other current assets . 237 1,002 (345)
Other non-current assets ..................... (617) -- (28)
Deferred tax asset ........................... -- 134 392
Due to Parent ................................. -- 34 686
Deferred tax liability ........................ 376 (134) (1,355)
Accounts payable and accrued liabilities ...... 2,469 56 3,122
Income taxes payable ........................... -- 3,740 (1,108)
Supplier advances .............................. (417) (915) (52)
Other .......................................... (46) 1 (48)
---------- -------- --------
Net cash provided by operating
activities ................................. 5,181 10,517 9,418
Cash flows used in investing activities:
Acquisition of business, net of cash acquired ...... (68,143) --
Capital expenditures .............................. (1,070) (2,887) (1,287)
Proceeds from sale of assets ........................ 74 20 12
---------- -------- --------
Net cash used in investing activities ......... (69,139) (2,867) (1,275)
Cash flows provided by (used in) financing
activities:
Proceeds from issuance of common stock ............ 18,000 -- --
Proceeds from borrowings on long-term debt ......... 45,000 -- --
Debt issuance costs ................................. (590) -- --
Proceeds from revolver borrowings .................. 5,733 4,700 7,550
Payments made on revolver borrowings ............... (5,733) (4,700) (7,550)
Payments made on long-term debt ..................... -- (5,835) (9,896)
---------- -------- --------
Net cash provided by (used in)
financing activities ........................ 62,410 (5,835) (9,896)
---------- -------- --------
Net (decrease) increase in cash and cash
equivalents ................................. (1,548) 1,815 (1,753)
Cash and cash equivalents beginning of period ...... 3,356 1,808 3,623
---------- -------- --------
Cash and cash equivalents end of period ............ $ 1,808 $ 3,623 $ 1,870
========== ======== ========
Supplemental disclosures of cash information:
Cash paid during the period:
Income taxes ....................................... $ 1,001 $ 2,255 $ 6,605
========== ======== ========
Interest .......................................... $ 2,018 $ 4,088 $ 3,160
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS--EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Total
Paid-in Retained Stockholder's
Shares Amount Capital Earnings Equity
----------- -------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 29, 1995 as previously
reported by predecessor company ......... 1,000 $ -- $ 100 $ 35,933 $ 36,033
Repurchase and elimination of predecessor
company equity ........................... (1,000) -- (100) (35,933) (36,033)
Issuance of successor company shares ...... 1,000 -- 18,000 -- 18,000
------- ------- ------- --------- ---------
Balance at January 30, 1995 for successor
company ................................. 1,000 -- 18,000 -- 18,000
Net income ................................. -- -- -- 1,068 1,068
------- ------- ------- --------- ---------
Balance at July 30, 1995 .................. 1,000 -- 18,000 1,068 19,068
Net income ................................. -- -- -- 3,704 3,704
------- ------- ------- --------- ---------
Balance at July 28, 1996 .................. 1,000 -- 18,000 4,772 22,772
Net income ................................. -- -- -- 4,563 4,563
------- ------- ------- --------- ---------
Balance at July 26, 1997 .................. 1,000 $ -- $18,000 $ 9,335 $ 27,335
======= ======= ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) ORGANIZATION:
On January 30, 1995 (the "acquisition date"), all of the outstanding capital
stock of Community Distributors, Inc. (the "Company") was acquired by Newrxco,
Inc. a newly formed acquisition company, wholly owned by CDI Group, Inc. (the
"Parent"), for approximately $68 million, net of cash acquired and certain
liabilities assumed. Concurrent with the acquisition of the Company by
Newrxco, Inc., Newrxco, Inc. was merged into the Company so that Newrxco, Inc.
ceased to exist and the Company became the sole subsidiary of the Parent. This
acquisition has been accounted for by the purchase method of accounting at the
date of the acquisition, and accordingly, the purchase price has been "pushed
down" and allocated to the assets acquired and liabilities assumed based on
the estimated fair market values at the date of acquisition. The purchase
price exceeded the fair market value of the net assets acquired by
approximately $38 million. The resulting goodwill is being amortized on a
straight-line basis over 20 years.
On January 30, 1995, the Parent issued $13,250 in senior subordinated notes
which are due January 31, 2005. The ability of the Parent to pay these notes
is currently reliant upon the operations and financial position of the
Company.
The Company owns and operates in the State of New Jersey a chain of drug and
general merchandise stores under the name "Drug Fair" and general merchandise
stores under the name "Cost Cutters." Community Distributors, Inc. is a wholly
owned subsidiary of CDI Group, Inc. and under the principles of consolidation
would be considered part of the consolidated results of CDI Group, Inc. These
separate company financial statements and notes to financial statements solely
represent the financial position and results of operations of Community
Distributors, Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Accounting Year
The Company maintained its accounts on a 52-53 week fiscal year ending with
the last Sunday in July through fiscal 1996 and the last Saturday in July
for fiscal 1997. The six months ended July 30, 1995 included 26 weeks, and
the years ended July 28, 1996 and July 26, 1997 each contained 52 weeks.
Revenue Recognition
Sales are net of returns and exclude sales tax. Revenues include sales from
all stores operating during the period.
Cash and Cash Equivalents
Cash and cash equivalents are considered by the Company to be financial
instruments with original maturities of three months or less, and are
presented at cost which approximates fair value.
Inventories
Store and warehouse inventories are stated at the lower of cost or market,
using the dollar-value, double extension last-in, first-out (LIFO) method.
If the first-in, first-out (FIFO) method of inventory accounting had been
used, inventories would have been approximately $1,296 and $2,382 higher
than reported at July 28, 1996 and July 26, 1997, respectively. Management
believes inventory on a FIFO basis approximates current replacement costs
of such inventory.
Property and Equipment
Property and equipment, including computer software costs, are recorded at
cost and are depreciated on a straight-line basis over the estimated useful
lives of the assets, which range from three to seven years. Leasehold
improvements are amortized over the expected useful life of the improvement
or the life of the lease, whichever is shorter. Depreciation expense
recorded for the six months ended July 30, 1995 and the fiscal years ended
July 28, 1996 and July 26, 1997 was $674, $1,743 and $1,952, respectively.
The cost and related accumulated depreciation of assets retired or sold are
removed from the respective accounts and any gain or loss is recognized in
operations.
F-14
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(DOLLARS IN THOUSANDS)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Beneficial Leaseholds
Beneficial leasehold rights existing at the acquisition date have been
recorded for acquired leases based on differences between contractual rents
under the respective lease agreements and prevailing market rents on the
acquisition date. Beneficial leaseholds are amortized over the lease term
using the straight-line method. Accumulated amortization as of July 28,
1996 and July 26, 1997 was $865 and $1,441, respectively.
Goodwill
Goodwill, which represents the excess of purchase price of acquired assets
over the fair market value of net assets acquired is being amortized using
the straight-line method over twenty years. The Company evaluates the
recoverability of goodwill based upon estimated undiscounted future cash
flows from operations. Accumulated amortization as of July 28, 1996 and
July 26, 1997 was $2,873 and $4,793, respectively.
Deferred Financing Costs
Deferred financing costs are amortized utilizing the interest method over
the term of the respective borrowings, approximately 6 years.
Supplier Advances
Included in the accompanying balance sheets are $3,305 and $3,253 of
advances received related to various inventory supply agreements at July
28, 1996 and July 26, 1997, respectively. Such amounts are being amortized
as a reduction of cost of sales as earned over the terms of the applicable
agreements (generally ranging from three to five years). These supply
agreements commit the Company to approximately $31,000 of additional
purchases with these suppliers as of July 26, 1997.
Preopening and Advertising Costs
Costs associated with new stores prior to opening and advertising costs are
expensed as incurred. Net advertising expense was approximately $481,
$1,638 and $1,941 for the six months ended July 30, 1995 and the fiscal
years ended July 28, 1996 and July 26, 1997, respectively.
Interest Expense (Net)
Interest expense recorded for the six months ended July 30, 1995 and fiscal
years ended July 28, 1996 and July 26, 1997 has been recorded net of
interest income was:
<TABLE>
<CAPTION>
For the Six For the For the
Months Ended Year Ended Year Ended
July 30, 1995 July 28, 1996 July 26, 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Interest expense ............ $2,293 $4,061 $3,160
Interest income ............ (9) (63) (142)
------- ------ ------
Interest expense (net) ...... $2,284 $3,998 $3,018
======= ====== ======
</TABLE>
F-15
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Income Taxes
The Company provides for income taxes on a separate tax return basis and in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS" No. 109"). To the extent the separate
return current tax liability recorded by the Company differs from tax
payments made by the consolidated group, such difference is classified as
due to Parent in these financial statements. SFAS No. 109 requires
recognition of deferred tax liabilities and assets for the expected future
tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined on the basis of the differences between the financial
statement and tax bases of assets and liabilities ("temporary differences")
at enacted tax rates in effect for the years in which the temporary
differences are expected to reverse.
Deferred Lease Liabilities
The Company recognizes rental expense for leases with scheduled rent
increases on the straight-line basis. During the six month period ended
July 30, 1995 and the years ended July 28, 1996 and July 26, 1997, the
Company recognized rent expense in excess of amounts paid of approximately
$217, $552 and $411, respectively.
Concentrations of Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are cash and cash equivalents. Such amounts
are primarily held in a single commercial bank. The Company holds no
collateral for these financial instruments.
All of the Company's stores are located in northern and central New Jersey.
As a result, the Company is sensitive to economic, competitive, and
regulatory conditions in that region. The success of the Company's future
operations will be substantially affected by its ability to compete
effectively in New Jersey, and no prediction can be made as to economic
conditions in that region.
The Company is party to a supply agreement with Cardinal Health, Inc.
pursuant to which the Company is required to purchase at least 90% of its
pharmacy products from such supplier.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make significant
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Accounting for the Impairment of Long-Lived Assets
In the current fiscal year, the Company adopted Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", ("SFAS 121"). SFAS No.
121 prescribes the accounting for the impairment of long-lived assets, such
as property, plant and equipment and intangible assets, as well as the
accounting for long-lived assets that are held for disposal. The statement
requires that the carrying value of such assets be reviewed when events or
circumstances indicate that an impairment might exist. The implementation
of SFAS No. 121 in the fiscal year ended July 26, 1997 did not have a
material effect on the results of operations or financial position of the
Company.
Recently Issued Accounting Standard
During February 1997, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"). SFAS No. 128 will require the Company to replace the current
presentation of the per share data with "basic" and "diluted" per share
data. SFAS No. 128 will be
F-16
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
adopted by the Company for periods ending after July 25, 1998, and "basic"
and "diluted" per share data for all periods presented by the Company will
be provided. Based on management's current estimates, the future adoption
of SFAS 128 is not expected to have a material impact on per share data.
(3) LONG-TERM DEBT:
Long-term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
As of As of
July 28, 1996 July 26, 1997
--------------- --------------
<S> <C> <C>
Term loan A--due last business day in January, 2000, principal
and interest payable in quarterly installments ............ $16,501 $11,003
Term loan B--due last business day in January, 2002, principal
and interest payable in quarterly installments ............ 22,664 18,266
-------- --------
39,165 29,269
Less, current portion due within one year ............... 4,675 4,750
-------- --------
Long-term portion .......................................... $34,490 $24,519
</TABLE>
On January 30, 1995, the Company entered into a $58,000 Credit Agreement (the
"Credit Agreement") with a consortium of banks (the "Banks"). The Credit
Agreement provides for a Revolving Credit facility not to exceed $13,000 based
on trade accounts receivable and inventory as defined in the agreement, a
letter of credit facility for up to $3,500 of the unused portion of the
Revolving Credit facility, and a $45,000 term loan facility. The Revolving
Credit facility has a term ending January 30, 2000, which may be extended to
January 30, 2002, upon written request by the Company. The Company must pay a
commitment fee of 1/2 of 1.00% per annum on the daily average unutilized
Revolving Credit facility commitment. For the six month period ended July 30,
1995 and for the years ended July 28, 1996 and July 26, 1997, the Company
incurred approximately $25, $60 and $70, respectively, of commitment fees and
letter of credit fees.
The A Term Loan and Revolving Loan bear interest at a rate equal to 2.00% plus
the base rate, and the B Term Loan bears interest at a rate equal to 2.50%
plus the base rate. The base rate is the greater of (i) 1/2 of 1.00% in excess
of the Federal Funds Rate and (ii) the Chase Manhattan Bank, N.A. Prime
Lending Rate. The A Term Loan, Revolving Loan, and B Term Loan are
collectively termed Base Rate Loans. The Credit Agreement allows the Company
to temporarily convert all or a portion of the Base Rate Loans, with certain
restrictions, to Eurodollar Loans for periods of one, three, or six months.
Eurodollar Loans bear interest at the lead bank's Eurodollar rate, as defined
in the Credit Agreement, plus 3.00% in the case of the A Term Loan and
Revolving Loan and 3.50% in the case of the B Term Loan.
At July 28, 1996, the Company had converted Base Rate Loans to Eurodollar
loans which are summarized as follows:
<TABLE>
<CAPTION>
Conversion Period
- --------------------------------------
Begin End Amount Interest Rate
- ----------------- ------------------ --------- --------------
<S> <C> <C> <C>
Term Loan A
July 24, 1996 January 24, 1997 $10,000 8.8750%
July 26, 1996 August 26, 1996 6,501 8.4375%
Term Loan B
May 20, 1996 August 20, 1996 10,000 9.0000%
July 24, 1996 January 24, 1997 10,000 9.3750%
July 26, 1996 August 26, 1996 2,664 8.9375%
</TABLE>
F-17
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(3) LONG-TERM DEBT: (Continued)
At July 26, 1997, the Company had converted Base Rate Loans to Eurodollar
Loans which are summarized as follows:
<TABLE>
<CAPTION>
Conversion Period
- -------------------------------------
Begin End Amount Interest Rate
- ----------------- ----------------- --------- --------------
<S> <C> <C> <C>
Term Loan A
July 24, 1997 August 26, 1997 $ 8,603 7.69%
June 30, 1997 July 31, 1997 2,400 7.69%
Term Loan B
May 20, 1997 August 20, 1997 10,000 8.56%
July 24, 1997 August 26, 1997 8,266 8.56%
</TABLE>
The Parent has pledged all of the issued and outstanding shares of capital
stock of the Company and the Company has pledged substantially all of its
assets as collateral under the Credit Agreement. The Company is required to
make mandatory repayments or commitment reductions for a percentage of excess
cash flows and for certain supplier advances, as defined by the Credit
Agreement.
The Credit Agreement contains various covenants, including among other things,
limitations on capital expenditures and restrictions on: additional
indebtedness; issuance of capital stock; payment of any cash dividends; and
the purchase or sale of assets. The Company is also required to achieve
certain earnings levels and maintain various leverage and interest coverage
ratios.
On February 13, 1995, the First Amendment to the Credit Agreement was executed
requiring the Company to obtain interest rate protection acceptable to the
banks for at least 50% of the outstanding Term Loans for a period of two years
from the initial borrowing date. In conjunction with this amendment, on
February 16, 1995, the Company entered into an interest rate cap agreement
with a bank. This agreement relates to a $22,500 notional amount of debt and
provides for payments to be received by the Company based exclusively on the
three month London Interbank Offered Rate with a cap of 9%. The purchase price
of the cap has been capitalized and amortized over the term of the agreement.
The cap was purchased for approximately $50 and expired February 16, 1997.
Aggregate debt maturities as of July 26, 1997 are as follows:
<TABLE>
<CAPTION>
Amount Due
Fiscal Year Ending -----------
<S> <C>
1998 ............ $ 4,750
1999 ............ 5,750
2000 ............ 6,750
2001 ............ 9,000
2002 ............ 3,019
--------
$29,269
========
</TABLE>
The carrying amount of the Company's debt approximates fair value as of July
28, 1996 and July 26, 1997 based upon market conditions and the terms and
conditions of the Company's debt.
See footnote 10 "Subsequent Events" regarding various financing activities
occurring after July 26, 1997.
(4) COMMITMENTS:
Leases
The Company conducts all of its warehousing and retailing operations from
leased facilities. Annual store rent is composed of a fixed minimum amount,
and for certain stores, contingent rent based upon a percentage of sales
exceeding a stipulated amount. The leases, which may be renewed for periods
ranging from five to thirty
F-18
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(4) COMMITMENTS: (Continued)
years, generally provide that the Company pay insurance, maintenance costs
and property taxes. These additional charges are subject to escalation for
increases in the related costs. Minimum rental commitments under long-term
noncancelable operating leases are as follows at July 26, 1997:
<TABLE>
<CAPTION>
Amount Due
Fiscal Year -----------
<S> <C>
1998 ............ $ 8,582
1999 ............ 8,243
2000 ............ 7,327
2001 ............ 5,862
2002 ............ 5,317
Thereafter ...... 40,959
--------
$76,290
========
</TABLE>
Rental expense for all leases aggregated approximately $3,355, $7,874 and
$8,441 for the six months ended July 30, 1995 and the years ended July 28,
1996 and July 26, 1997, respectively.
Letter of Credit
Outstanding letters of credit, guaranteeing certain purchases which are not
reflected in the accompanying financial statements, aggregate approximately
$1,031 and $1,135 at July 28, 1996 and July 26, 1997.
(5) INCOME TAXES:
The provision for income taxes for the six month period ended July 30, 1995
and for the years ended July 28, 1996 and July 26, 1997 consist of the
following:
<TABLE>
<CAPTION>
July 30, July 28, July 26,
1995 1996 1997
---------- ---------- ---------
<S> <C> <C> <C>
Current ......... $1,222 $3,659 $6,179
Deferred ...... 376 -- (963)
------- ------- ------
$1,598 $3,659 $5,216
======= ======= ======
</TABLE>
The components of deferred taxes as of July 28, 1996 and July 26, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
July 28, July 26,
1996 1997
---------- ----------
<S> <C> <C>
Supplier advances, current ........................... $ 536 $ 620
Inventory .......................................... 136 169
Accruals and reserves .............................. 627 658
Inventory (LIFO reserve) ........................... (2,916) (2,094)
-------- --------
Depreciation ....................................... (129) 256
Net deferred income tax liability--current ...... (1,746) (391)
======== ========
Accruals and reserves .............................. 318 482
Supplier advances, non-current ..................... 786 230
-------- --------
Net deferred income tax asset--long-term ............ $ 1,104 $ 712
======== ========
</TABLE>
F-19
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(DOLLARS IN THOUSANDS)
(5) INCOME TAXES: (Continued)
The following table accounts for the differences between the actual provision
and the amounts obtained by applying the statutory U.S. Federal income tax rate
of 34% to the income before provision for income taxes:
<TABLE>
<CAPTION>
For the For the For the
six months twelve months twelve months
ended ended ended
July 30, 1995 July 28, 1996 July 26, 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Federal statutory tax rate ..................... 34% 34% 34%
State and local income taxes, net of federal tax
benefit .................................... 6% 6% 8%
Goodwill amortization ........................ 19% 12% 9%
Other ....................................... 1% (2%) 2%
---- ----- ----
60% 50% 53%
==== ===== ====
</TABLE>
(6) RELATED PARTY TRANSACTIONS:
Included in the Company's statements of income for the six month period ended
July 30, 1995 and for the years ended July 28, 1996 and July 26, 1997 are
administrative fees of $125, $250 and $250, respectively. The Company has
entered into administrative fee agreements with certain shareholders of CDI
Group, Inc., whereby these shareholders will provide, advisory and consulting
services to the Company. These administrative fee agreements require the
Company to pay $250 of administrative fees annually.
Under a lease dated September 30, 1983, the former majority stockholders of
the Company lease the building housing the Company's Westfield Drug Fair store
to the Company. Under this lease, which has a term of 15 years and expires on
September 30, 1998, the Company pays $17 per month in rent.
Under a letter agreement dated as of January 30, 1995 between the Company and
a corporation owned by the former majority stockholders of the Company, the
corporation pays to the Company $3 per month in rent for the use of
approximately 6,000 sq. feet of storage space at the Company's Somerville, NJ
warehouse. This letter agreement was terminated in July 1996.
(7) LITIGATION:
The Company is a defendant in various lawsuits arising in the ordinary course
of business. In the opinion of management, the disposition of these lawsuits
should not have a material impact on the Company's results of operations,
financial position, and cash flows.
(8) EMPLOYEE BENEFIT PLAN:
On July 1, 1995, the Company implemented a 401(k) salary deferral plan (the
"Plan") which is available to eligible employees, as defined. The Plan
provides for the Company to make discretionary contributions, however, the
Company elected not to make contributions for all periods through July 26,
1997.
(9) SUBSEQUENT EVENT:
On October 16, 1997 the Company issued $80,000 of 10-1/4% senior notes due
2004 which are guaranteed by the Parent. The net proceeds of such debt
issuance was approximately $77,000. The Company used $29,000 of such net
proceeds to refinance substantially all of its then existing indebtedness and
$45,000 of net proceeds was used to pay a dividend to the Parent which then
paid a dividend of the same amount to the stockholders of the Parent. Under
the relevant debt agreements, in the event of a change in control, as defined,
the Company is required to repurchase all such outstanding notes.
F-20
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(DOLLARS IN THOUSANDS)
(9) SUBSEQUENT EVENT: (Continued)
On October 16, 1997, the Company also replaced its then existing credit
facility with a $20,000 five year revolving credit facility concurrent with
the issuance of the $80,000 of senior notes. This facility bears interest at
either prime rate or LIBOR plus 1.75% and is secured by the Company's eligible
accounts receivable and inventory balances, as defined. The new facility
contains certain financial and operating covenants, including a minimum fixed
charge ratio. Additionally, the Company cannot make any dividend or other
distributions with respect to any share of stock other than in certain limited
circumstances.
The following unaudited proforma data reflects the Long Term Debt and
Securities of the Company at July 26, 1997 after giving effect to the issuance
of the notes and use of proceeds.
<TABLE>
<CAPTION>
(Unaudited)
<S> <C>
Long Term Debt, including current maturities ...... $ 80,198
Stockholders' Deficit .............................. (19,269)
</TABLE>
F-21
<PAGE>
Report of Independent Accountants
To the Stockholders of
CDI Group, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of CDI Group, Inc.
and Subsidiary (a Delaware corporation) as of July 26, 1997 and July 28, 1996,
and the related consolidated statements of income, cash flows and stockholders'
equity for the fiscal years then ended and for the six months ended July 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CDI Group, Inc.
and Subsidiary as of July 26, 1997 and July 28, 1996, and the consolidated
results of their operations and their cash flows for the fiscal years then ended
and for the six months ended July 30, 1995 in conformity with generally accepted
accounting principles.
Parsippany, New Jersey
October 9, 1997, except for Note 11
for which the date is October 16, 1997.
F-22
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS: As of As of
July 28, 1996 July 26, 1997
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,623 $ 1,870
Accounts receivable 3,289 2,644
Inventory 28,196 30,233
Prepaid expenses and other current assets 740 1,131
------- --------
Total current assets 35,848 35,878
Property and Equipment:
Leasehold improvements 5,084 5,217
Furniture, fixtures and equipment 6,220 7,195
Automobiles and trucks 410 551
------- --------
11,714 12,963
Less: Accumulated depreciation and amortization (2,381) (4,314)
------- --------
Property and equipment, net 9,333 8,649
Beneficial leaseholds, net 2,704 2,127
Other assets 63 91
Deferred financing costs, net 464 356
Deferred tax assets 1,104 712
Goodwill, net 35,434 33,519
------- --------
Total assets $84,950 $ 81,332
======= ========
LIABILITIES: As of As of
July 28, 1996 July 26, 1997
-------------- --------------
Current Liabilities:
Current portion of long-term debt $ 4,675 $ 4,836
Accounts payable 11,698 14,796
Accrued liabilities 3,574 3,592
Deferred tax liabilities 1,746 391
Current portion of supplier advances 1,340 1,900
Income taxes payable 1,159 -
------- --------
Total current liabilities 24,192 25,515
Long-term debt 34,490 24,519
Subordinated debt 15,422 16,834
Supplier advances, net of current portion 1,965 1,353
Other liabilities 1,037 1,402
------- --------
Total liabilities 77,106 69,623
Commitments and contingencies
Redeemable preferred stock, $1.00 par value, 7,862
authorized, issued and outstanding at July 28, 1996,
and July 26, 1997 redemption value $100 per share 666 726
Redeemable shares of class A voting common stock, 33,726
shares issued and outstanding at July 28, 1996 and
July 26, 1997 at net redemption value 101 128
STOCKHOLDERS' EQUITY:
Class A voting common stock, $.00001 par value, authorized
600,000 shares, 196,632 issued and outstanding at
July 28, 1996 and July 26, 1997
Class B voting common stock, $.00001 par value, authorized
600,000 shares, 187,922 issued and outstanding at
July 28, 1996 and July 30, 1995
Additional paid-in capital 3,846 3,846
Retained earnings 3,231 7,009
------- -------
Total stockholders' equity 7,077 10,855
------- -------
Total liabilities and stockholders' equity $84,950 $81,332
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Income
(dollars in thousands-except per share data)
<TABLE>
<CAPTION>
For the Six For the For the
Months Ended Year Ended Year Ended
July 30, 1995 July 28, 1996 July 26, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 96,171 $215,731 $231,033
Cost of sales 67,686 152,645 163,157
------- ------- -------
Gross profit 28,485 63,086 67,876
Selling, general and administrative expenses 21,635 47,487 50,831
Administrative fees 125 250 250
Depreciation and amortization 1,980 4,341 4,399
Other income, net 205 353 401
------- ------- -------
Operating income 4,950 11,361 12,797
Interest expense, net 2,946 5,326 4,586
------- ------- -------
Income before income taxes 2,004 6,035 8,211
Provision for income taxes 1,366 3,442 4,433
------- ------- -------
Net income $ 638 $ 2,593 $ 3,778
======= ======= =======
Per share data:
Net income per common
share $ 1.56 $ 5.28 $ 8.22
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(dollars in thousands)
<TABLE>
<CAPTION>
For the Six
Six Months For the For the
Ended Year Ended Year Ended
July 30, 1995 July 28, 1996 July 26, 1997
-------------- ---------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 638 $ 2,593 $ 3,778
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,926 4,233 4,443
Deferred financing costs 54 108 108
Non-cash rent expense 217 552 414
Non-cash interest expense 662 1,347 1,585
LIFO provision 567 659 1,086
(Gain) Loss on sale of assets (9) -- 7
Changes in operating assets and liabilities
Accounts receivable (250) (884) 645
Inventory (394) (1,792) (3,123)
Prepaid expenses and other current assets (372) 1,028 (391)
Other non-current assets (617) 2,351 (28)
Deferred tax asset -- 134 392
Deferred tax liability 376 (134) (1,355)
Accounts payable and accrued liabilities 2,885 (175) 3,116
Income taxes payable -- 1,159 (1,159)
Supplier advances (417) (915) (52)
Other (85) 227 (48)
--------- --------- ---------
Net cash provided by operating activities 5,181 10,491 9,418
--------- --------- ---------
Cash flows used in investing activities:
Acquisition of business, net of cash acquired (68,143) -- --
Capital expenditures (1,070) (2,887) (1,287)
Proceeds from sale of assets 74 20 12
--------- --------- ---------
Net cash used in investing activities (69,139) (2,867) (1,275)
--------- --------- ---------
Cash flows provided by financing activities:
Proceeds from borrowings on long-term debt 45,000 -- --
Debt issuance costs (590) -- --
Proceeds from issuance of common stock 4,000 226 --
Payments for the redemption of common stock -- (300) --
Proceeds from issuance of preferred stock 750 564 --
Payments for the redemption of preferred stock -- (714) --
Proceeds from repayment of loans to
Directors and Officers -- 87 87
Proceeds from issuance of senior subordinated notes 13,250 163 --
Proceeds from revolver borrowings 5,733 4,700 7,550
Payments made on revolver borrowings (5,733) (4,700) (7,550)
Payments made on long-term debt -- (5,835) (9,896)
Payments on subordinated debt -- -- (87)
--------- --------- ---------
Net cash provided by (used in)
financing activities 62,410 (5,809) (9,896)
--------- --------- ---------
Net (decrease) increase in cash
and cash equivalents (1,548) 1,815 (1,753)
--------- --------- ---------
Cash and cash equivalents beginning of period 3,356 1,808 3,623
--------- --------- ---------
Cash and cash equivalents end of period $ 1,808 $ 3,623 $ 1,870
========= ========= =========
Supplemental disclosures of cash information:
Cash paid during the period:
Income taxes $ 1,001 $ 2,255 $ 6,605
========= ========= =========
Interest $ 2,018 $ 4,088 $ 3,160
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Stockholder's Equity
(dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
------------------------------ Additional Total
Class A Class B Paid-in Retained Stockholders'
Shares Shares Amount Capital Earnings Equity
------- ------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Initial issuance of shares 212,078 187,922 $ - $4,000 $ - $ 4,000
Net income - - - - 638 638
------- ------- ----- ------ ------ -------
Balance, July 30, 1995 212,078 187,922 $ - $4,000 $ 638 4,638
Repurchase of Shares (30,016) (300) (300)
Sales of Shares to Management 14,570 - - 146 - 146
Net income - - - - 2,593 2,593
------- ------- ----- ------ ------ -------
Balance, July 28, 1996 196,632 187,922 $ - $3,846 $3,231 7,077
Net income - - - - 3,778 3,778
------- ------- ----- ------ ------ -------
Balance, July 26, 1997 196,632 187,922 $ - $3,846 $7,009 $10,855
======= ======= ===== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
1. Organization:
CDI Group, Inc. (the "Parent") was formed in January 1995. On January 30,
1995 (the "acquisition date"), all of the outstanding capital stock of
Community Distributors, Inc. (the "Subsidiary") was acquired by Newrxco,
Inc. a newly formed acquisition company, wholly owned by CDI Group, Inc.,
for approximately $68 million, net of cash acquired, and certain
liabilities assumed. Concurrent with the acquisition of the Company by
Newrxco, Inc., Newrxco, Inc. was merged into the Subsidiary so that
Newrxco, Inc. ceased to exist. This acquisition has been accounted for by
the purchase method of accounting at the date of the acquisition, and
accordingly, the purchase price has been allocated to the assets acquired
and liabilities assumed based on the estimated fair market values at the
date of acquisition. The purchase price exceeded the fair market value of
the net assets acquired by approximately $38 million. The resulting
goodwill is being amortized on a straight-line basis over 20 years.
CDI Group, Inc. and Subsidiary (the "Company") owns and operates in the
State of New Jersey a chain of drug and general merchandise stores under
the name "Drug Fair" and general merchandise stores under the name "Cost
Cutters".
The accompanying consolidated financial statements include the accounts
of CDI Group, Inc. and its wholly-owned subsidiary, Community
Distributors, Inc. All significant intercompany accounts and transactions
have been eliminated in consolidation.
2. Summary of Significant Accounting Policies:
Accounting Year
The Company maintains its accounts on a 52-53 week year ending with the
last Sunday in July through Fiscal 1996 and the last Saturday in July for
fiscal 1997. The six months ended July 30, 1995 included 26 weeks and the
years ended July 28, 1996 and July 26, 1997 each contained 52 weeks.
Revenue Recognition
Sales are net of returns and exclude sales tax. Revenues include sales
from all stores operating during the period.
F-27
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (Continued):
Cash and Cash Equivalents
Cash and cash equivalents are considered by the Company to be financial
instruments with original maturities of three months or less, and are
presented at cost which approximates fair value.
Inventories
Store and warehouse inventories are stated at the lower of cost or
market, using the dollar-value, double extension last-in, first-out
(LIFO) method. If the first-in, first-out (FIFO) method of inventory
accounting had been used, inventories would have been approximately
$1,296 and $2,382 higher than reported at July 28, 1996 and July 26,
1997, respectively. Management believes inventory on a FIFO basis
approximates current replacement costs of such inventory.
Property and Equipment
Property and equipment, including computer software costs, are recorded
at cost and are depreciated on a straight-line basis over the estimated
useful lives of the assets, which range from three to seven years.
Leasehold improvements are amortized over the expected useful life of the
improvement or the life of the lease, whichever is shorter. Depreciation
expense recorded for the six months ended July 30, 1995 and the fiscal
years ended July 28, 1996 and July 26, 1997 was $674, $1,743 and $1,952,
respectively. The cost and related accumulated depreciation of assets
retired or sold are removed from the respective accounts and any gain or
loss is recognized in operations.
Beneficial Leaseholds
Beneficial leasehold rights existing at the acquisition date have been
recorded for acquired leases based on differences between contractual
rents under the respective lease agreements and prevailing market rents
on the acquisition date. Beneficial leaseholds are amortized over the
lease term using the straight-line method. Accumulated amortization as of
July 28, 1996 and July 26, 1997 was $865 and $1,441, respectively.
Goodwill
Goodwill, which represents the excess of purchase price of acquired
assets over the fair market value of net assets acquired is being
amortized using the straight-line method over twenty years. The Company
evaluates the recoverability of goodwill based upon estimated
undiscounted future cash flows from operations. Accumulated amortization
as of July 28, 1996 and July 26, 1997 was $2,873 and $4,793,
respectively.
Deferred Financing Costs
Deferred financing costs are amortized utilizing the interest method over
the term of the respective borrowings, approximately 6 years.
F-28
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (Continued):
Supplier Advances
Included in the accompanying consolidated balance sheet are $3,305 and
$3,253 of advances received related to various inventory supply
agreements at July 28, 1996 and July 26, 1997, respectively. Such amounts
are being amortized as a reduction of cost of sales as earned over the
terms of the applicable agreements (generally ranging from three to five
years). These supply agreements commit the Company to approximately
$31,000 of additional purchases with these suppliers as of July 26, 1997.
Preopening and Advertising Costs
Costs associated with new stores prior to opening and advertising costs
are expensed as incurred. Net advertising expense was approximately $481,
$1,638 and $1,941 for the six-month period ending July 30, 1995 and the
fiscal years ended July 28, 1996 and July 26, 1997, respectively.
Interest Expense (Net)
Interest expense recorded for the six months ended July 30, 1995 and the
fiscal years ended July 26, 1996 and July 26, 1997, net of interest
income was:
For the Six For the Year For the Year
Months Ended Ended July 28, Ended
July 30, 1995 1996 July 26, 1997
------------- -------------- -------------
Interest expense $2,955 $5,389 $4,755
Interest income (9) (63) (169)
------ ------ ------
Interest expense (net) $2,946 $5,326 $4,586
====== ====== ======
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform to the fiscal 1997 presentation.
F-29
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (Continued):
Income Taxes
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS" No. 109"). SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under
this method, deferred tax liabilities and assets are determined on the
basis of the differences between the financial statement and tax bases of
assets and liabilities ("temporary differences") at enacted tax rates in
effect for the years in which the temporary differences are expected to
reverse.
Deferred Lease Liabilities
The Company recognizes rental expense for leases with scheduled rent
increases on the straight-line basis. During the six month period ended
July 30, 1995 and the years ended July 28, 1996 and July 26, 1997, the
Company recognized rent expense in excess of amounts paid of $217, $552
and $411, respectively.
Concentrations of Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are cash and cash equivalents. Such amounts
are primarily held in a single commercial bank. The Company holds no
collateral for these financial instruments.
All of the Company's stores are located in northern and central New
Jersey. As a result, the Company is sensitive to economic, competitive,
and regulatory conditions in that region. The success of the Company's
future operations will be substantially affected by its ability to
compete effectively in New Jersey, and no prediction can be made as to
economic conditions in that region.
The Company is party to a supply agreement with Cardinal Health, Inc.
pursuant to which the Company is required to purchase at least 90% of its
pharmacy products from such supplier.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make significant
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Earnings per Share
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. The
weighted average number of common and common equivalent shares
outstanding for the periods ended July 30, 1995, July 28, 1996 and July
26, 1997 was 409,283, 441,037, and 459,673, respectively.
F-30
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share data)
2. Summary of Significant Accounting Policies (Continued):
Stock Options
In the current fiscal year, the Company adopted Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation"
("SFAS 123"). SFAS 123 prescribes the accounting for stock options and
requires that options be valued at their fair market value, as defined in
the statement, on the date of grant. SFAS 123 allows companies to either
fully adopt its requirements or to elect to only disclose the impact that
the requirements would have. The Company has adopted SFAS 123 for
disclosure purposes only and will continue to account for its stock
options under APB Opinion No. 25, "Accounting for Stock Issued to
Employees."
Accounting for the Impairment of Long-Lived Assets
In the current fiscal year, the Company adopted Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", "SFAS No. 121".
SFAS No. 121 prescribes the accounting for the impairment of long-lived
assets, such as property, plant and equipment and intangible assets, as
well as the accounting for long-lived assets that are held for disposal.
The statement requires that the carrying value of such assets be reviewed
when events or circumstances indicate that an impairment might exist. The
implementation of SFAS No. 121 in the fiscal year ending July 26, 1997
did not have a material effect on the results of operations or financial
position of the Company.
Recently Issued Accounting Standard
During February 1997, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
No. 128"). SFAS No. 128 will require the Company to replace the
current presentation of the per share data with "basic" and "diluted"
per share data. SFAS No. 128 will be adopted by the Company for
periods ending after July 25, 1998, and "basic" and "diluted" per
share data for all periods presented by the Company will be provided.
Based on management's current estimates, the future adoption of SFAS
No. 128 is not expected to have a material impact on per share data.
F-31
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share data)
3. Long-Term Debt:
Long-term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
As of As of
July 28, 1996 July 26, 1997
------------- -------------
<S> <C> <C>
Term loan A - due last business day in January, 2000,
principal and interest payable in quarterly installments $16,501 $11,003
Term loan B - due last business day in January, 2002,
principal and interest payable in quarterly installments 22,664 18,266
Senior subordinated notes-due January 31, 2005,
principal plus interest at a rate of 10%
per annum payable upon maturity 15,249 16,834
Subordinated notes-due December 31, 1997
principal plus interest at a rate of 8% per annum
payable upon maturity 173 86
-------- --------
Total 54,587 46,189
-------- --------
Less, current portion due within one year 4,675 4,836
-------- --------
Long-term portion $49,912 $41,353
======== ========
</TABLE>
On January 30, 1995, the Subsidiary entered into a $58,000 Credit
Agreement (the "Credit Agreement") with a consortium of banks (the
"Banks"). The Credit Agreement provided for a Revolving Credit facility
not to exceed $13,000 based on trade accounts receivable and inventory
balances as defined in the agreement, a letter of credit facility for up
to $3,500 of the unused portion of the revolving credit facility, and a
$45,000 term loan facility. The Revolving Credit facility had a term
ending January 30, 2000, which may have been extended to January 30,
2002, upon written request by the Subsidiary. The Subsidiary was required
to pay a commitment fee of 1/2 of 1.00% per annum on the daily average
unutilized revolving credit facility commitment. For the six month period
ended July 30, 1995 and for the years ended July 28, 1996 and July 26,
1997, the Subsidiary incurred approximately $25, $60 and $70, of
commitment fees and letter of credit fees, respectively.
On January 30, 1995, the Parent issued $13,250 in senior subordinated
notes which are due January 31, 2005. Principal on the notes was payable
upon maturity plus interest at a rate of 10% per annum. Payment of
principal and interest on the notes was subordinated to the prior payment
in full of all of the Company's obligations under the Credit Agreement.
F-32
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share data)
3. Long-Term Debt (Continued):
On January 30, 1995, the Parent issued $260 in subordinated notes which
are due December 31, 1997. Principal on the notes was payable upon
maturity plus interest at a rate of 8% per annum.
The A Term Loan and Revolving Loan bear interest at a rate equal to 2.00%
plus the base rate, and the B Term Loan bears interest at a rate equal to
2.50% plus the base rate. The base rate was the greater of (i) 1/2 of
1.00% in excess of the Federal Funds Rate and (ii) the Chase Manhattan
Bank, N.A. Prime Lending Rate. The A Term, Revolving Loan, and B Term
loans are collectively termed Base Rate Loans. The Credit Agreement
allowed the Subsidiary to temporarily convert all or a portion of the
Base Rate Loans, with certain restrictions, to Eurodollar Loans for
periods of one, three, or six months. Eurodollar Loans bear interest at
the lead bank's Eurodollar rate, as defined in the Credit Agreement, plus
3.00% in the case of the A Term Loan and Revolving Loan and 3.50% in the
case of the B Term Loan.
At July 28, 1996, the Subsidiary had converted Base Rate Loans to
Eurodollar loans which are summarized as follows:
Conversion Period
--------------------------------------
Begin End Amount Interest Rate
----------------- ----------------- -------- -------------
Term Loan A
-----------
July 24, 1996 January 24, 1997 $10,000 8.8750%
July 26, 1996 August 26, 1996 6,501 8.4375%
Term Loan B
-----------
May 20, 1996 August 20, 1996 10,000 9.0000%
July 24, 1996 January 24, 1997 10,000 9.3750%
July 26, 1996 August 26, 1996 2,664 8.9375%
F-33
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share data)
3. Long-Term Debt (Continued):
At July 26, 1997, the Subsidiary had converted Base Rate Loans to
Eurodollar loans which are summarized as follows:
Conversion Period
-------------------------------------
Begin End Amount Interest Rate
----------------- ---------------- -------- -------------
Term Loan A
-----------
July 24, 1997 August 26, 1997 $ 8,603 7.69%
June 30, 1997 July 31, 1997 2,400 7.69%
Term Loan B
-----------
May 20, 1997 August 20, 1997 10,000 8.56%
July 24, 1997 August 26, 1997 8,266 8.56%
The Parent had pledged all of the issued and outstanding shares of its
capital stock and the Subsidiary had pledged substantially all its assets
as collateral under the Credit Agreement. The Subsidiary was required to
make mandatory repayments or commitment reductions for a percentage of
excess cash flows and for certain supplier advances, as defined by the
Credit Agreement.
The Credit Agreement contained various covenants, including among other
things, limitations on capital expenditures and restrictions on:
additional indebtedness; issuance of capital stock; payment of no cash
dividends; and the purchase or sale of assets. The Subsidiary was also
required to achieve certain earnings levels and maintain various leverage
and interest coverage ratios.
On February 13, 1995, the First Amendment to the Credit Agreement was
executed requiring the Subsidiary to obtain interest rate protection
acceptable to the banks for at least 50% of the outstanding Term Loans
for a period of two years from the initial borrowing date. In conjunction
with this amendment, on February 16, 1995, the Subsidiary entered into an
interest rate cap agreement with a bank. This agreement related to a
$22,500 notional amount of debt and provided for payments to be received
by the Subsidiary based exclusively on the three month London Interbank
Offered Rate with a cap of 9%. The purchase price of the cap had been
capitalized and amortized over the term of the agreement. The cap was
purchased for approximately $50 and expired February 16, 1997.
F-34
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share data)
3. Long-Term Debt (Continued):
Aggregate debt maturities as of July 26, 1997 are as follows:
Fiscal Year Amount Due
----------- ----------
(in 000's)
1998 $ 4,836
1999 5,750
2000 6,750
2001 9,000
2002 3,019
Thereafter 16,834
--------
$46,189
========
The carrying amount of the Company's debt approximates fair value as of
July 28, 1996 and July 26, 1997 based upon market conditions and the
terms and conditions of the Company's debt.
See footnote 11 "Subsequent Events" regarding various financing
activities occurring after July 26, 1997.
4. Commitments:
Leases
The Company conducts all of its warehousing and retailing operations from
leased facilities. Annual store rent is composed of a fixed minimum
amount, and for certain stores, contingent rent is based upon a
percentage of sales exceeding a stipulated amount. The leases, which may
be renewed for periods ranging from five to thirty years, generally
provide that the Company pay insurance, maintenance costs and property
taxes. These additional charges are subject to escalation for increases
in the related costs. Minimum rental commitments under long-term
noncancelable operating leases are as follows at July 26, 1997:
Fiscal Year (in 000"s)
----------- ----------
1998 $ 8,582
1999 8,243
2000 7,327
2001 5,862
2002 5,317
Thereafter 40,959
--------
$76,290
========
Rental expense for all leases aggregated approximately $3,355, $7,874 and
$8,441 for the six months ended July 30, 1995 and for the years ended
July 28, 1996 and July 26, 1997, respectively.
F-35
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share data)
4. Commitments (Continued):
Letter of Credit
Outstanding letters of credit, guaranteeing certain purchases, which are
not reflected in the accompanying financial statements, aggregate
approximately $1,031 and $1,135 at July 28, 1996 and July 26, 1997.
5. Income Taxes:
The provision for income taxes for the six month period ended July 30,
1995 and for the years ended July 28, 1996 and July 26, 1997 consist of
the following:
1995 1996 1997
------- ------- ------
Current $ 990 $3,442 $5,396
Deferred 376 -- (963)
------- ------- ------
$1,366 $3,442 $4,433
======= ======= ======
The components of deferred taxes as of July 28, 1996 and July 26, 1997
are summarized as follows:
1996 1997
-------- --------
Supplier advances, current $ 536 $ 620
Inventory 136 169
Other assets
Accruals and reserves 627 658
Inventory (LIFO reserve) (2,916) (2,094)
Depreciation (129) 256
-------- --------
Net deferred income tax liability - current $(1,746) $ (391)
======== ========
Accruals and reserves 318 482
Supplier advances, non-current 786 230
-------- --------
Net deferred income tax asset - long-term $ 1,104 $ 712
======== ========
F-36
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share data)
5. Income Taxes (Continued):
The following table accounts for the differences between the actual
provision and the amounts obtained by applying the statutory U.S. Federal
income tax rate of 34% to the income before income taxes:
For the For the For the
six months year ended year ended
ended July 30, July 28, July 26,
1995 1996 1997
-------------- ---------- ----------
Federal statutory tax rate 34% 34% 34%
State and local income taxes,
net of federal tax benefit 6% 6% 6%
Goodwill amortization 26% 15% 12%
Other 2% 2% 2%
--- --- ---
68% 57% 54%
=== === ===
6. Related Party Transactions:
Included in the Company's consolidated statements of income for the six
month period ended July 30, 1995 and for the years ended July 28, 1996
and July 26, 1997 are administrative fees of $125, $250 and $250,
respectively. The Company has entered into administrative fee agreements
with certain shareholders of CDI Group, Inc., whereby these shareholders
will provide advisory and consulting services to the Board of Directors.
These administrative fee agreements require the Company to pay $250 of
administrative fees annually.
Under a lease dated May 1, 1983, the former majority stockholders of the
Company Leased to the Company the building housing the company's
warehouse and office. Under this lease, which expires on December 31,
1998, the Company pays $17 per month in rent. Under a lease dated
September 30, 1983, the former majority stockholders of the Company
leased to the Company the building housing the Company's Westfield Drug
Fair store. Under this lease, which expires on September 30, 1998, the
Company pays $16 per month in rent.
Under a letter agreement dated as of January 30, 1995 (the "Letter
Agreement") between the Company and a corporation owned by the former
majority stockholders of the Company, the corporation pays to the Company
$3 per month in rent for the use of approximately 6,000 square feet of
storage space at the Company's Somerville, NJ warehouse. This letter
agreement was terminated in July 1996.
F-37
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share data)
7. Redeemable Stock:
Redeemable Preferred
On January 30, 1995, 7,500 shares of $1.00 par value Preferred Stock
were issued for $100 per share, for an aggregate consideration of
$750. On October 31, 1995, 7,143 shares of $1.00 par value Preferred
Stock were redeemed by the Company from the stockholders and were
sold to certain members of Management of the Company at the
redemption price of $100 per share. At the same time, the Management
of the Company purchased an additional 362 of the $1.00 par value
Preferred Stock shares at the same price as the initial
consideration paid on January 30, 1995. The Company's Preferred
Stock is redeemable at the option of the Company at any time, unless
prohibited by the terms of any credit or other financing agreement
with any lender to the Company, at a price equal to $100 per share,
subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization
affecting the Preferred Stock ("Liquidation Value"). On January 31,
2005, unless prohibited by the terms of any credit or other
financing agreement with any lender to the Company, the Company will
redeem all of the Preferred Stock outstanding at a price per share
equal to the Liquidation Value. Upon any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders
of Preferred Stock shall be entitled to be paid the Liquidation
Value of the Preferred Stock before any payments could be made to
holders of Common Stock.
Redeemable Common
Under certain circumstances defined in the respective stock purchase
agreements, up to 33,726 shares of Class A Common Stock can be put
back to the Company with a redemption price to be determined under
the stock purchase agreement. Such redemption price cannot exceed the
original issue price which was ten dollars per share.
Loans to Officers and Directors
On October 31, 1995, the Company issued 33,726 shares of Class A
Common Stock and 3,643 of Preferred Stock to certain directors and
officers of the Company in consideration for a note signed by each
director and officer. These notes bear interest at 8.0% and are due
on various dates through January 31, 2005. All such shares are
pledged as collateral toward these notes.
The outstanding balance of the notes due from certain directors and
officers at July 26, 1997 and July 28, 1996 of $269 and $356,
respectively, has been reflected as a reduction of the redemption
value of the related redeemable Preferred and Common Stock.
F-38
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share data)
8. Stockholders' Equity:
Common Stock
On January 30, 1995, 212,078 shares of Class A Common Stock and
187,922 shares of Class B Common Stock were issued for consideration
of $4 million. Class A Common Stock ("Class A") and Class B Common
Stock ("Class B") stockholders have the same rights and privileges
with the exception that each holder of record of Class A stock is
entitled to one vote per share so held, while Class B stockholders
have no voting rights. Class A and Class B stockholders are entitled
to convert any or all such shares into an equivalent number of Class
B and Class A shares, respectively.
On October 31, 1995, 30,016 shares of Class A Common Stock were
redeemed by the Company from the stockholders and 14,570 shares of
Class A Common Stock were sold to Management at the repurchase price
of $10 per share.
Stock Options and Warrants
On January 30, 1995, the Board of Directors approved the 1995 Stock
Option Plan (the "Plan"), which provides for the issuance of up to
65,882 shares of Class A Voting Common Stock to employees and
consultants of the Company and its affiliates. The Plan is intended
to be an incentive stock option plan within the meaning of Section
422 of the Internal Revenue Service Code of 1986. The option price
under each incentive option shall be not less than 100% of the fair
market value of the Stock on the grant date. On January 30, 1995, the
Company issued options to purchase 37,649 shares of Class A Common
Stock, at a price of $10 per share, to a senior executive the Company
pursuant to the Plan. The options expire on January 31, 2005 and
expiration may be accelerated due to termination of employment of the
senior executive as well as various other reasons as stipulated in
the Option Agreement. These options vest as follows:
Number of
Options Vested Date Vested
-------------- ----------------
10,667 January 30, 1996
10,667 January 30, 1997
10,667 January 30, 1998
2,824 January 30, 1999
2,824 January 30, 2000
F-39
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share data)
8. Stockholders' Equity:
On January 30, 1995, Non-Plan options to acquire 4,706 shares of
Class A Common Stock at $10 per share were issued to a senior
executive of the Company. These options are exercisable immediately
after any disposition event as defined by the Option Agreement.
On January 30, 1995, the Company issued a warrant to purchase 16,667
shares of Class A Common Stock, at a price of $.001 per share, to
its' principal bank. The holder of the Warrant may exercise the
rights represented by the Warrant in whole or in part at any time
through January 30, 2005.
A summary of stock option transactions follows:
<TABLE>
<CAPTION>
Fiscal 1995 Fiscal 1996 Fiscal 1997
----------- ----------- -----------
<S> <C> <C> <C>
Options outstanding at beginning of period -- 67,473 67,079
Options granted 67,473 -- --
Options exercised -- -- --
Options canceled -- (394) --
Options outstanding at end of period 67,473 67,079 67,079
Options available for grant at end of period 3,115 3,115 3,115
Options vested and outstanding at
end of period -- 15,299 30,989
Option price per share for outstanding options $10.00 $10.00 $10.00
</TABLE>
9. Litigation:
The Company is a defendant in various lawsuits arising in the ordinary
course of business. In the opinion of management, the disposition of
these lawsuits should not have a material impact on the Company's
consolidated results of operations, financial position, and cash flows.
F-40
<PAGE>
CDI GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Continued)
(dollars in thousands, except per share data)
10. Employee Benefit Plan:
On July 1, 1995, the Company implemented a 401(K) salary deferral plan
(the "Plan") which is available to eligible employees, as defined. The
Plan provides for the Company to make discretionary contributions,
however, the Company elected not to make contributions for all periods
through July 26, 1997.
11. Subsequent Event:
On October 16, 1997 the Subsidiary issued $80,000 of 10 1/4% senior notes
due 2004 which are guaranteed by the Parent. The net proceeds of such
debt issuance was approximately $77,000. The Subsidiary used $29,000 of
such net proceeds to refinance substantially all of its then existing
indebtedness and $45,000 of net proceeds was used to pay a dividend to
the Parent which then paid a dividend of the same amount to the
stockholders of the Parent. Under the relevant debt agreements, in the
event of a change in control, as defined, the Company is required to
repurchase all such outstanding notes.
On October 16, 1997, the Company also replaced its then existing credit
facility with a $20,000 five year revolving credit facility concurrent
with the issuance of the $80,000 of senior notes. This facility bears
interest at either prime rate or LIBOR plus 1.75% and is secured by the
Company's eligible accounts receivable and inventory balances, as
defined. The new facility contains certain financial and operating
covenants, including a minimum fixed charge ratio. Additionally, the
Company cannot make any dividend or other distributions with respect to
any share of stock other than in certain limited circumstances.
The following unaudited proforma data reflects the Long Term Debt and
Securities of the company at July 26, 1997 after giving effect to the
issuance of the notes and use of proceeds.
(Unaudited)
Long Term Debt, including current maturities $97,118
Redeemable Preferred and Common Stock 854
Stockholders' Deficit (36,817)
F-41
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized in connection with any
offering made hereby to give any information or to make any representation not
contained in this Prospectus, and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company or by the Initial Purchasers. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any security other than the
securities offered hereby, nor does it constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person in any jurisdiction in which it is unlawful to make such an offer or
solicitation to such person. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstance create any implication that
the information contained herein is correct as of any date subsequent to the
date hereof.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
Prospectus Summary ...........................
Risk Factors .................................
Use of Proceeds ..............................
Capitalization ..............................
Selected Financial Data of the Company ......
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ..............................
Business ....................................
Management .................................
Certain Relationships and Related
Transactions ..............................
Beneficial Ownership ........................
Description of New Credit Facility and
Certain Other Indebtedness ...............
Exchange Offer ..............................
Plan of Distribution ........................
Description of Notes ........................
Certain Federal Income Tax Considerations ...
Independent Public Accountants ...............
Legal Matters ..............................
Available Information ........................
Special Note Regarding Forward-Looking
Statements ..............................
Index to Financial Statements ........... F-1
</TABLE>
Community Distributors, Inc.
Offer to Exchange 10-1/4%
Senior Notes Due 2004
Which Have Been Registered
Under the Securities Act of 1933,
as Amended, For Any and All of its
Outstanding 10-1/4% Senior Notes
Due 2004, of which $80,000,000 in
Principal Amount is Outstanding on the Date Hereof
[LOGO] DRUG FAIR
[LOGO] COST$CUTTERS
---------------------------
PROSPECTUS
---------------------------
___________, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "DGCL") grants a
Delaware corporation the power to indemnify any director, officer, employee or
other agent if such person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. No
indemnification may be provided, however, for any person with respect to any
matter as to which he shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interest of the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
With respect to indemnification of directors, Article Seventh of the
Certificate of Incorporation, as amended, of the Holding Company and Article
Sixth of the Certificate of Incorporation, as amended, of the Company, copies
of which are filed as Exhibits 3.1 through 3.3, respectively, provide as
follows:
"No director of the corporation shall be personally liable to the
corporation or to any of its stockholders for monetary damages for breach of
fiduciary duty as a director, notwithstanding any provision of law imposing
such liability; provided, however, that to the extent required from time to
time by applicable law, this Article shall not eliminate or limit the liability
of a director, to the extent such liability is provided by applicable law, (i)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of Title 8 of the Delaware Code, or (iv) for any transaction from which the
director derived an improper personal benefit."
With respect to indemnification, Article VII of each of the By-laws of the
Holding Company and the Amended and Restated By-laws of the Company, copies of
which are filed as Exhibits 3.2 through 3.4, respectively, provide as follows:
"Section 7.1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of being or having been a director or
officer of the Corporation or serving or having served at the request of the
Corporation as a director, trustee, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (an "Indemnitee"),
whether the basis of such proceeding is alleged action or failure to act in an
official capacity as a director, trustee, officer, employee or agent or in any
other capacity while serving as a director, trustee, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto) (as used in this Article
VII, the "Delaware Law"), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such Indemnitee in
connection therewith and such indemnification shall continue as to an
Indemnitee who has ceased to be a director, trustee, officer, employee or agent
and shall inure to the benefit of the Indemnitee's heirs, executors and
administrators; provided, however, that, except as provided in Section 7.2
hereof with respect to Proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such Indemnitee in connection with a Proceeding
(or part thereof) initiated by such Indemnitee only if such Proceeding (or part
thereof) was authorized by the board of directors of the Corporation. The right
to indemnification conferred in this Article VII shall be a contract right and
shall include the right to be paid by the Corporation the expenses (including
attorneys' fees) incurred in defending any such Proceeding in advance of its
final disposition (an "Advancement of Expenses"); provided, however, that, if
the Delaware Law so requires, an Advancement of Expenses incurred by an
Indemnitee shall be made only upon delivery to the Corporation of an
undertaking (an "Undertaking"), by or on behalf of such Indemnitee, to repay
all amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further
II-1
<PAGE>
right to appeal (a "Final Adjudication") that such Indemnitee is not entitled
to be indemnified for such expenses under this Article VII or otherwise.
Section 7.2. Right of Indemnitee to Bring Suit. If a claim under Section
7.1 hereof is not paid in full by the Corporation within sixty days after a
written claim has been received by the Corporation, except in the case of a
claim for an Advancement of Expenses, in which case the applicable period shall
be twenty days, the Indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the Corporation to
recover an Advancement of Expenses pursuant to the terms of an Undertaking, the
Indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the Indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the Indemnitee
to enforce a right to an Advancement of Expenses) it shall be a defense that,
and (ii) in any suit by the Corporation to recover an Advancement of Expenses
pursuant to the terms of an Undertaking the Corporation shall be entitled to
recover such expenses upon a Final Adjudication that, the Indemnitee has not
met the applicable standard of conduct set forth in the Delaware Law. Neither
the failure of the Corporation (including its board of directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct set forth in the Delaware Law, nor an actual determination by the
Corporation (including its board of directors, independent legal counsel, or
its stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an Advancement of Expenses hereunder,
or by the Corporation to recover an Advancement of Expenses pursuant to the
terms of an Undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such Advancement of Expenses, under this
Article VII or otherwise shall be on the Corporation.
Section 7.3. Non-Exclusivity of Rights. The rights to indemnification and
to the Advancement of Expenses conferred in this Article VII shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Corporation's Certificate or Incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 7.4. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under this Article VII or under the Delaware Law.
Section 7.5. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the board of
directors, grant rights to indemnification, and to the Advancement of Expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VII with respect to the indemnification and
Advancement of Expenses of directors and officers of the Corporation."
Item 21. Exhibits and Financial Statement Schedules
(a) The following is a list of exhibits filed as a part of this
Registration Statement:
<TABLE>
<CAPTION>
Exhibit
<S> <C>
3.1 Certificate of Incorporation, as amended, of CDI Group, Inc. (the "Holding Company").
3.2 By-laws of the Holding Company.
3.3 Certificate of Incorporation, as amended, of Community Distributors, Inc. (the "Company").
3.4 Amended and Restated By-laws of the Company.
4.1 Indenture, dated as of October 16, 1997, by and among the Company, the Holding Company
and the Bank of New York, as Trustee.
4.2 Form of the Company's 10-1/4% Senior Notes due 2004.
4.3 Registration Rights Agreement, dated as of October 16, 1997, by and among the Company, the
Holding Company, Donaldson, Lufkin, and Jenrette Securities Corporation and Bear, Stearns
and Co. Inc.
5.1 Opinion of Bingham Dana LLP, as to legality of securities being registered.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
<S> <C>
10.1 Investor Securities Purchase Agreement, dated as of January 30, 1995, by and among the
Holding Company, BancBoston Ventures Inc. ("BBV"), Harvest Partners International, LP
("HPI"), Harvest Technology Partners, LP ("HTP"), European Development Capital Corporation
N.V. ("EDCC") and Deutsche Beteiligungsgesellschaft mbH ("DBMBH", and together with
BBV, HPI, HTP, EDCC and DBMBH, the "Investors"), as amended by that certain First
Amendment to Securities Purchase Agreement, dated as of October 16, 1997, by and among the
Holding Company and the Investors.
10.2 Purchase Agreement, dated as of October 10, 1997, by and among the Holding Company, DLJ
and BSC.
10.3 Form of Holding Company's Amended and Restated Senior Subordinated Note due 2005.
10.4 Registration Rights Agreement, dated as of January 30, 1995, by and among the Holding
Company, the Investors, Banque Paribas (the "Bank"), Paribas Principal, Inc. ("PPI"), TA
Holding, Inc. ("TAH"), Jon Tietbohl ("Tietbohl"), each of the Persons listed under the caption
"Managers" on the signature pages thereto and any officer, employer or director of the Holding
Company who becomes a party thereto by executing an Instrument of Accession in the form of
Schedule 1 thereto, and each other Person who becomes a party thereto by executing an
Instrument of Accession.
10.5 Stockholder Agreement, dated as of January 30, 1995, by and among the Holding Company, the
Investors, PPI, TAH, Tietbohl, Frank Marfino and any other officer, employee or director of the
Holding Company who becomes a party thereto by executing an Instrument of Accession in the
form of Schedule 1 thereto and each other Person who becomes a party thereto by executing an
Instrument of Accession (collectively, the "Stockholders"), as amended by that certain First
Amendment to Stockholder Agreement, dated as of October 16, 1997, by and among the
Holding Company and the Stockholders.
10.6 Warrant Purchase Agreement, dated as of January 30, 1995, by and between the Holding
Company and the Bank, and its successors and assigns.
10.7 Common Stock Purchase Warrant, dated as of January 30, 1995, issued by the Holding
Company to the Bank, as amended by that certain Amendment of Common Stock Purchase
Warrant, Acknowledgment and Waiver, dated as of September 30, 1997, by and between the
Company and the Bank.
10.8 Loan and Security Agreement, dated as of October 16, 1997, by and between PNC Bank,
National Association and the Company.
10.9 Form of the Company's $20,000,000 Revolving Loan Note, dated as of October 16, 1997.
10.10 Wholesale Supply Agreement, dated as of January 27, 1997, by and between Cardinal Health
and the Company.*
10.11 Lease Agreement, dated as of May , 1995, by and between 105 Sylvania Place, L.L.C. and
the Company (South Plainfield, New Jersey)
10.12 Lease Agreement, dated as of May 5, 1983, by and between JAM Realty Company and the
Company (Branchburg Township (Somerville), New Jersey).
10.13 Employment and Non-Competition Agreement, dated as of January 30, 1995, by and between
the Company and Frank Marfino.
10.14 Letter Agreement, dated as of October 16, 1997, by and between the Company and Frank
Marfino regarding bonus payment.
10.15 Employment and Non-Competition Agreement, dated as of January 30, 1995, by and between
the Company and Todd H. Pluymers.
10.16 Letter Agreement, dated as of October 16, 1997, by and between the Company and Todd H.
Pluymers regarding bonus payment.
10.17 Employment and Non-Competition Agreement, dated as of January 30, 1995, by and between
the Company and Lynn L. Shallcross.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
<S> <C>
10.18 Employment and Non-Competition Agreement, dated as of January 30, 1995, by and between
the Company and William F. Gilligan.
10.19 Employment Agreement, dated as of February 17, 1995, by and between the Company and
Barrie Levine.
11.1 Statement re: Computation of Earnings per Share.
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries.
23.1 Consent of Bingham Dana LLP, counsel to the Holding Company and the Company
(included in Exhibit 5.1).*
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Coopers & Lybrand L.L.P.
24.1 Power of Attorney (included in signature page to Registration Statement).
25.1 Statement re: Eligibility of Trustee.
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Exchange Agency Agreement among the Exchange Agent, the Holding Company and
the Company.
99.4 Letter Regarding Eligibility for use of Form S-4.
</TABLE>
- ------------
* To be filed by amendment
(b) All schedules have been omitted because either they are not required,
are not applicable, or the information is otherwise set forth in the
Consolidated Financial Statements and notes thereto.
Item 22. Undertakings
The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in the volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) ([sec]2304.424(b) of this
chapter) if, in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification
II-4
<PAGE>
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the
Registrants in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrants will, unless in the opinion of the
Registrants' counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by the Registrants is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
The undersigned Registrants hereby undertake to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act ("Act") in accordance
with the rules and regulations prescribed by the Commission under section
305(b)(2) of the Act.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Somerville, State of New
Jersey, on this 28th day of November, 1997.
CDI GROUP, INC.
By: /s/ Todd H. Pluymers
-------------------------------
Todd H. Pluymers,
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Frank Marfino,
Lynn L. Shallcross, Todd H. Pluymers, Barrie Levine and William F. Gilligan,
and each of them severally, acting alone and without the other, his true and
lawful attorney-in-fact with the authority to execute in the name of each such
person, and to file with the Securities and Exchange Commission, together with
any exhibits thereto and other documents therewith, any and all amendments
(including without limitation post-effective amendments) to this Registration
Statement necessary or advisable to enable the Registrant to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission in respect thereof, which amendments
may make such other changes in this Registration Statement as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on behalf of CDI Group, Inc. by
the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------- ------------------------------------- ------------------
<S> <C> <C>
/s/ Frank Marfino President, Chief Executive Officer November 28, 1997
- ------------------------- and Director of CDI Group, Inc.
Frank Marfino (principal executive officer)
/s/ Mark H. DeBlois Director of CDI Group, Inc. November 28, 1997
- -------------------------
Mark H. DeBlois
/s/ Harvey P. Mallement Director of CDI Group, Inc. November 28, 1997
- -------------------------
Harvey P. Mallement
/s/ Todd H. Pluymers Chief Financial Officer of CDI November 28, 1997
- ------------------------- Group, Inc. (principal financial and
Todd H. Pluymers accounting officer)
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Somerville, State of New
Jersey on this 28th day of November, 1997.
COMMUNITY DISTRIBUTORS, INC.
By: /s/ Todd H. Pluymers
-------------------------------
Todd H. Pluymers, Chief Financial
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Frank Marfino,
Lynn L. Shallcross, Todd H. Pluymers, Barrie Levine and William F. Gilligan,
and each of them severally, acting alone and without the other, his true and
lawful attorney-in-fact with the authority to execute in the name of each such
person, and to file with the Securities and Exchange Commission, together with
any exhibits thereto and other documents therewith, any and all amendments
(including without limitation post-effective amendments) to this Registration
Statement necessary or advisable to enable the Registrant to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission in respect thereof, which amendments
may make such other changes in this Registration Statement as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on behalf of Community Distributors,
Inc. below by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------- ------------------------------ ------------------
<S> <C> <C>
/s/ Frank Marfino President, Chief Executive November 28, 1997
- ------------------------- Officer and Director of
Frank Marfino Community Distributors, Inc.
(principal executive officer)
/s/ Mark H. DeBlois Director of Community November 28, 1997
- ------------------------- Distributors, Inc.
Mark H. DeBlois
/s/ Harvey P. Mallement Director of Community November 28, 1997
- ------------------------- Distributors, Inc.
Harvey P. Mallement
/s/ Todd H. Pluymers Chief Financial Officer of November 28, 1997
- ------------------------- Community Distributors, Inc.
Todd H. Pluymers (principal financial and
accounting officer)
</TABLE>
II-7
EXHIBIT 3.1
-----------
CERTIFICATE OF INCORPORATION
OF
CDI GROUP, INC.
FIRST: The name of the corporation is: CDI Group, Inc.
SECOND: The address of its registered office in the State of Delaware
is 1013 Centre Road in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is Corporation Service Company.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of capital stock which the
corporation shall have authority to issue is three thousand (3000), and the par
value of each of such shares is One Cent ($0.01), amounting in the aggregate to
Thirty Dollars ($30.00) of capital stock.
FIFTH: The name and mailing address of the sole incorporator is as
follows:
NAME MAILING ADDRESS
Connie L. Kolb c/o Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110
SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the corporation and for defining
and regulating the powers of the corporation and its directors and stockholders
and are in furtherance and not in limitation of the powers conferred upon the
corporation by statute:
(a) The election of directors need not be by written ballot.
(b) The Board of Directors shall have the power and authority:
(1) to adopt, amend or repeal by-laws of the corporation,
subject only to such limitation, if any, as may be from time
to time imposed by law or by the by-laws; and
(2) to the full extent permitted or not prohibited by law, and
without the consent of or other action by the stockholders,
to authorize or create
<PAGE>
-2-
mortgages, pledges or other liens or encumbrances upon any
or all of the assets, real, personal or mixed, and
franchises of the corporation, including after-acquired
property, and to exercise all of the powers of the
corporation in connection therewith; and
(3) subject to any provision of the by-laws, to determine
whether, to what extent, at what times and places and under
what conditions and regulations the accounts, books and
papers of the corporation (other than the stock ledger), or
any of them, shall be open to the inspection of the
stockholders, and no stockholder shall have any right to
inspect any account, book or paper of the corporation except
as conferred by statute or authorized by the by-laws or by
the Board of Directors.
SEVENTH: No director of the corporation shall be personally liable to
the corporation or to any of its stockholders for monetary damages for breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability; provided, however, that to the extent required from time to time by
applicable law, this Article Seventh shall not eliminate or limit the liability
of a director, to the extent such liability is provided by applicable law, (i)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
Title 8 of the Delaware Code, or (iv) for any transaction from which the
director derived an improper personal benefit. No amendment to or repeal of this
Article Seventh shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of such
director occurring prior to the effective date of such amendment or repeal.
THE UNDERSIGNED, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, does make this certificate, hereby declaring and
certifying that this is my act and deed and the facts stated herein are true,
and accordingly have hereunto set my hand this 20th day of January, 1995.
/s/ Connie L. Kolb
--------------------------------
Connie L. Kolb
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
CDI GROUP, INC.
CDI Group, Inc., a Delaware corporation (the "Corporation"), does hereby
certify, pursuant to Section 242 of the General Corporation Law of the State of
Delaware, that:
1. By written consent of the Board of Directors of the Corporation dated
October 30, 1995, pursuant to Section 141(f) of the General Corporation Law of
the State of Delaware, resolutions were duly adopted, proposing an Amendment to
the Certificate of Incorporation of the Corporation changing the first sentence
of Article Fourth of the Certificate of Incorporation, as follows:
RESOLVED: That it is deemed advisable and in the best interest of the
Corporation to amend the first sentence of Article Fourth of its
Certificate of Incorporation to read as follows:
"The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 1,207,862,
consisting solely of:
7,862 shares of Preferred Stock, $1.00 par value per share
(the "Preferred Stock");
600,000 shares of Class A Voting Common Stock, $0.00001 par
value per share (the "Class A Common Stock"); and
600,000 shares of Class B Nonvoting Common Stock, $0.00001
par value per share (the "Class B Common Stock")."
RESOLVED: That the Corporation be and it hereby is authorized and
directed to amend its Certificate of Incorporation
<PAGE>
-2-
as set forth in the foregoing resolution, and that the
appropriate officers of the Corporation be and they hereby are
authorized and directed to execute and deliver any and all
documents or certificates deemed necessary to effectuate the
proposed amendment outlined above, including a Certificate of
Amendment to the Certificate of Incorporation for filing with the
Delaware Secretary of State.
2. The proposed Amendment to the Certificate of Incorporation of the
Corporation changing the first sentence of Article Fourth of the Certificate of
Incorporation has been approved and adopted by the holders of a majority of the
Class A Voting Common Stock, par value $0.00001 per share, of the Corporation by
written consent dated October __, 1995.
Accordingly, the first sentence of Article Fourth of the Certificate of
Incorporation of the Corporation is hereby amended to read as follows:
"The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 1,207,862,
consisting solely of:
7,862 shares of Preferred Stock, $1.00 par value per share
(the "Preferred Stock");
600,000 shares of Class A Voting Common Stock, $0.00001 par
value per share (the "Class A Common Stock"); and
600,000 shares of Class B Nonvoting Common Stock, $0.00001
par value per share (the "Class B Common Stock")."
IN WITNESS WHEREOF, CDI Group, Inc. has caused this Certificate of
Amendment to its Certificate of Incorporation to be executed by Frank Marfino,
its President, and attested by Todd Pluymers, its Assistant Secretary, this ____
day of October, 1995.
CDI GROUP, INC.
By: /s/ Frank Marfino
--------------------------------
Frank Marfino, President
Attest:
By: /s/ Todd Pluymers
-------------------------
Todd Pluymers,
Assistant Secretary
<PAGE>
CDI GROUP, INC.
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
CDI GROUP, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware, as amended (the "Corporation"), does
hereby certify, pursuant to Section 241 of the General Corporation Law of the
State of Delaware, that:
FIRST: The Corporation has not received any payment for any of its stock.
SECOND: Pursuant to Section 141(f) of the General Corporation Law of the
State of Delaware and Section 3.17 of the Corporation's By-Laws, by written
consent of the Board of Directors of the Corporation dated January 27, 1995, the
Amendment to the Corporation's Certificate of Incorporation changing Article
Fourth of the Certificate of Incorporation and referred to in the following
resolutions was duly adopted:
RESOLVED: that it is deemed advisable and in the best interest of the
Corporation to amend Article Fourth of its Certificate of
Incorporation to read as set forth in Annex A, attached hereto.
RESOLVED: that the Corporation be and it hereby is authorized and
directed to amend its Certificate of Incorporation as set forth
in the foregoing resolution, and that the appropriate officers of
the Corporation be and they hereby are authorized and directed to
execute and deliver any and all documents or certificates deemed
necessary to effectuate the proposed amendment outlined above,
including a Certificate of Amendment to the Certificate of
Incorporation for filing with the Delaware Secretary of State.
Accordingly, Article Fourth of the Certificate of Incorporation of the
Corporation is hereby amended to read as set forth in Annex A hereto.
<PAGE>
IN WITNESS WHEREOF, CDI Group, Inc., has caused this Certificate of
Amendment to its Certificate of Incorporation to be executed by Mark H. DeBlois,
its President, and attested to by Harvey P. Mallement, its Secretary, this 27th
day of January, 1995.
CDI GROUP, INC.
By: /s/ Mark H. DeBlois
-------------------------------
Mark H. DeBlois, President
Attested By:
/s/ Harvey P. Mallement
- ------------------------------
Harvey P. Mallement, Secretary
(Attachment: Annex A)
<PAGE>
AMENDMENT TO CERTIFICATE OF INCORPORATION
OF
CDI GROUP, INC.
* * * * * * * *
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,207,500, consisting solely of:
7,500 shares of Preferred Stock, $1.00 par value per share (the "Preferred
Stock");
600,000 shares of Class A Voting Common Stock, $0.00001 par value per share
(the "Class A Common Stock"); and
600,000 shares of Class B Non-Voting Common Stock, $0.00001 par value per
share (the "Class B Common Stock").
As used in this Article Fourth:
"Common Stock" means, collectively, the Class A Common Stock and Class B
Common Stock.
"Junior Stock" means the Common Stock and any other shares of capital stock
of the Corporation ranking on liquidation junior to the Preferred Stock.
"Liquidation" has the meaning set forth in Part A, Section 1.2(a) of this
Article Fourth.
"Liquidation Value" has the meaning set forth in Part A, Section 1.2(a) of
this Article Fourth.
<PAGE>
-2-
"Redemption Date" as to any share of Preferred Stock, means the redemption
date for such share of Preferred Stock determined pursuant to Part A, Section
1.4 of this Article Fourth.
The following is a statement of the designations, powers, privileges and
rights, and the qualifications, limitations and restrictions, in respect of each
class of capital stock of the Corporation.
A. PREFERRED STOCK.
1. Terms Applicable to Preferred Stock.
1.1 Dividends. The holders of Preferred Stock shall not be entitled to any
dividends in respect of Preferred Stock.
1.2 Liquidation.
(a) Upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation (each such event being hereafter referred to as a
"Liquidation"), the holders of Preferred Stock will be entitled to be paid,
before any payment shall be made to the holders of Junior Stock, an amount in
cash equal to $100 per share of Preferred Stock, subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting the Preferred Stock (as so adjusted, the
"Liquidation Value"), and the holders of Preferred Stock will not be entitled to
any further payment. If, upon any Liquidation, the Corporation's assets to be
distributed among the holders of the Preferred Stock are insufficient to permit
payment to such holders of the full amount to which they are entitled hereunder,
then the entire assets to be distributed will be distributed ratably among such
holders based upon the then aggregate Liquidation Value of the Preferred Stock
held by each such holder.
(b) Upon and after any Liquidation, unless and until the holder of each
share of Preferred Stock receives payment in full of the Liquidation Value of
such share of Preferred Stock, the Corporation shall not redeem, repurchase or
otherwise acquire for value, or declare or pay any dividend or other
distribution on or with respect to, any class or series of Junior Stock. Upon
and after any Liquidation, after the payment of all preferential amounts
required to be paid to the holders of Preferred Stock and any other class or
series of stock of the Corporation ranking on liquidation on a parity with the
Preferred Stock, the holders of Junior Stock then outstanding shall be entitled
to receive the remaining assets of the Corporation available for distribution to
its stockholders.
<PAGE>
-3-
1.3 Voting Rights.
(a) General. Except as otherwise provided in subsection (b) of this Section
1.3, or as otherwise required by law, the holders of Preferred Stock shall have
no right to vote on any matter submitted to stockholders of the Corporation for
vote, consent or approval.
(b) No Amendment, Alteration or Repeal. The Corporation will not amend,
alter or repeal the preferences, special rights or other powers of the Preferred
Stock so as to affect adversely the Preferred Stock without the written consent
or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the increase in the
number of authorized shares of Preferred Stock or the authorization or issuance
of any series of preferred stock with either preference or priority over any
existing series of Preferred Stock or parity with such series of Preferred Stock
as to the right to receive either dividends or amounts distributable upon a
Liquidation of the Corporation shall be deemed to affect adversely the Preferred
Stock.
1.4 Redemptions.
(a) Mandatory Redemption. Subject to the provisions of subsection (f) of
this Section 1.4, on January 31, 2005, the Corporation will redeem all of the
Preferred Stock outstanding at a price per share equal to the Liquidation Value
thereof.
(b) Optional Redemption. Subject to the provisions of subsection (f) of
this Section 1.4, the Corporation shall be entitled at any time and from time to
time to redeem the shares of Preferred Stock outstanding at a price per share
equal to the Liquidation Value thereof.
(c) Notice of Redemption. The Corporation shall provide written notice of
any event giving rise to the redemption of Preferred Stock pursuant to this
Section 1.4 specifying the time and place of redemption and the redemption price
per share, by first class or registered mail, postage prepaid, to each holder of
record of Preferred Stock to be redeemed at the address for such holder last
shown on the records of the transfer agent therefor (or the records of the
Corporation, if it serves as its own transfer agent), not more than 60 nor less
than 30 days prior to the date on which such redemption is to be made. If less
than all the shares of Preferred Stock owned by such holder are then to be
redeemed, the notice will also specify the number of shares of Preferred Stock
which are to be redeemed.
<PAGE>
-4-
(d) Redemption Price and Priority of Payment. For each share of Preferred
Stock which is to be redeemed, the Corporation will be obligated on the
applicable Redemption Date to pay to the holder thereof (upon surrender by such
holder at the Corporation's principal office of the certificate representing
such share of Preferred Stock), in immediately available funds, an amount equal
to the Liquidation Value thereof. If the funds of the Corporation legally
available for redemption of shares of Preferred Stock on any Redemption Date are
insufficient to redeem the total number of shares of Preferred Stock to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of shares of Preferred Stock ratably among
the holders of such shares to be redeemed based upon the aggregate Liquidation
Value of such shares held by each such holder. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
Preferred Stock, such funds will immediately be used to redeem the balance of
the shares which the Corporation has become obligated to redeem on any
Redemption Date, but which it has not redeemed. In case fewer than the total
number of shares of Preferred Stock represented by any certificate are redeemed,
a new certificate representing the number of unredeemed shares will be issued to
the holder thereof without cost to such holder within seven business days after
surrender of the certificate representing the redeemed shares of Preferred
Stock.
(e) Payments on Junior Stock. If and so long as there are any shares of
Preferred Stock outstanding which the Corporation has become obligated to redeem
pursuant to this Section 1.4, until the Corporation has redeemed all of such
shares of Preferred Stock, the Corporation shall not redeem, repurchase or
otherwise acquire for value, or declare or pay any dividend or other
distribution on or with respect to, any class or series of Junior Stock.
(f) Contractual Prohibitions. Notwithstanding any other provision herein to
the contrary, no redemption of any Preferred Stock shall be made by the
Corporation at any time when such redemption would be prohibited by the terms of
any credit or other financing agreement with any lender to the Corporation or
any of its subsidiaries.
B. COMMON STOCK.
1. Terms Applicable to Common Stock.
1.1 Dividend and Other Rights of Common Stock.
(a) Ratable Treatment. Except as specifically otherwise provided herein,
all shares of Common Stock shall be identical and shall entitle the
<PAGE>
-5-
holders thereof to the same rights and privileges. The Corporation shall not
subdivide or combine any shares of Common Stock, or pay any dividend or retire
any share or make any other distribution on any share of Common Stock, or accord
any other payment, benefit or preference to any share of Common Stock, except by
extending such subdivision, combination, distribution, payment, benefit or
preference equally to all shares of Common Stock. If dividends are declared
which are payable in shares of Common Stock, such dividends shall be payable in
shares of Class A Common Stock to holders of Class A Common Stock and in shares
of Class B Common Stock to holders of Class B Common Stock.
(b) Dividends. Subject to the rights of the holders of Preferred Stock, the
holders of Common Stock shall be entitled to dividends out of funds legally
available therefor, when declared by the Board of Directors in respect of Common
Stock, and, upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, to share ratably in the assets of the Corporation
available for distribution to the holders of Common Stock.
1.2 Voting Rights of Common Stock.
(a) Class A Common Stock. Except as otherwise provided by law, the holders
of Class A Common Stock shall have full voting rights and powers to vote on all
matters submitted to stockholders of the Corporation for vote, consent or
approval, and each holder of Class A Common Stock shall be entitled to one vote
for each share of Class A Common Stock held of record by such holder.
(b) Class B Common Stock. Except as otherwise provided by law, the holders
of Class B Common Stock shall have no right to vote on any matter submitted to
stockholders of the Corporation for vote, consent or approval, and the Class B
Common Stock shall not be included in determining the number of shares voting or
entitled to vote on such matters.
2. Conversion.
(a) Conversion of Class B Common Stock. Subject to and upon compliance with
the provisions of this Section 2, each record holder of Class B Common Stock
shall be entitled at any time and from time to time to convert any and all of
the shares of Class B Common Stock held by it into the same number of shares of
Class A Common Stock.
(b) Conversion of Class A Common Stock. Subject to and upon compliance with
the provisions of this Section 2, each record holder of Class A Common Stock is
entitled at any time and from time to time to convert any or
<PAGE>
-6-
all of the shares of Class A Common Stock held by it into the same number of
shares of Class B Common Stock.
(c) Conversion Procedure.
(i) Each conversion of shares of Class A Common Stock or shares of
Class B Common Stock will be effected by the surrender to the Corporation
of the certificate or certificates representing the shares to be converted,
duly endorsed or assigned in blank, with signatures guaranteed if
reasonably requested by the Corporation, at the principal office of the
Corporation (or such other office or agency of the Corporation as the
Corporation may designate in writing to the holder or holders of the Common
Stock) at any time during its usual business hours, and by the giving of
written notice by the holder of such Class A Common Stock or Class B Common
Stock stating that such holder desires to convert all or a stated number of
the shares of Class B Common Stock represented by such certificate or
certificates into Class A Common Stock or to convert all or a stated number
of the shares of Class A Common Stock represented by such certificate or
certificates into Class B Common Stock, which notice will also state the
name or names (with addresses) and denominations in which the certificate
or certificates for the Class A Common Stock or Class B Common Stock, as
the case may be, will be issued and will include instructions for delivery
thereof.
(ii) Promptly after such surrender and the receipt of such written
notice and statement, the Corporation will issue and deliver in accordance
with such instructions the certificate or certificates for the Class A
Common Stock or Class B Common Stock issuable upon such conversion. In
addition, the Corporation will deliver to the converting holder a
certificate representing any portion of the shares of Class A Common Stock
or Class B Common Stock which had been represented by the certificate or
certificates delivered to the Corporation in connection with such
conversion but which were not converted. Such conversion, to the extent
permitted by law, will be deemed to have been effected as of the close of
business on the date on which such certificate or certificates have been
surrendered in accordance herewith and such notice has been received, and
at such time the rights of the holder of such Class A Common Stock or Class
B Common Stock, as the case may be (or specified portion thereof), as such
holder will cease, and the person or persons in whose name or names the
certificate or certificates for shares of Class A Common Stock or Class B
Common Stock are to be issued upon such conversion
<PAGE>
-7-
will be deemed to have become the holder or holders of record of the shares
of Class A Common Stock or Class B Common Stock represented thereby.
(iii) The Corporation will at all times (A) reserve and keep available
out of its authorized but unissued shares of Class A Common Stock or its
treasury shares of Class A Common Stock, solely for the purpose of issuance
upon the conversion of the Class B Common Stock as provided in this
Section, such number of shares of Class A Common Stock as are then issuable
upon conversion of all then outstanding shares of Class B Common Stock into
shares of Class A Common Stock, and (B) reserve and keep available out of
its authorized but unissued shares of Class B Common Stock or its treasury
shares of Class B Common Stock, solely for the purpose of issuance upon
conversion of the Class A Common Stock as provided in this Section, such
number of shares of Class B Common Stock as are then issuable upon
conversion of all then outstanding shares of Class A Common Stock into
shares of Class B Common Stock hereunder. Notwithstanding the foregoing,
if, at any time, there shall be an insufficient number of authorized or
treasury shares of Class A Common Stock available for issuance upon
conversion of Class B Common Stock, or an insufficient number of authorized
or treasury shares of Class B Common Stock available for issuance upon
conversion of Class A Common Stock, the Corporation will take all action
necessary to propose and recommend to the stockholders of the Corporation
that this Certificate of Incorporation be amended to authorize additional
shares in an amount sufficient to provide adequate reserves of shares for
issuance upon such conversion, including the diligent solicitation of votes
and proxies to vote in favor of such an amendment. All shares of Class A
Common Stock and Class B Common Stock which are issuable upon conversion
hereunder will, when issued, be duly and validly issued, fully paid and
nonassessable.
(iv) The issuance of certificates for shares of Class A Common Stock
upon conversion of shares of Class B Common Stock and for shares of Class B
Common Stock upon conversion of shares of Class A Common Stock will be made
without charge to any original holder of any shares of Common Stock for any
issuance tax in respect thereof, or other cost incurred by the Corporation
in connection with such conversion and the related issuance of Class A
Common Stock or Class B Common Stock, provided that the Corporation will
not be required to pay any such taxes or costs which may be payable in
respect of any such conversion by any other person or in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the registered holder of the shares converted.
<PAGE>
-8-
(d) Restrictions on Conversion. Any other provisions hereof to the contrary
notwithstanding, no person which is a bank holding company or a subsidiary of a
bank holding company (a "Bank Affiliate") as defined in the Bank Holding Company
Act of 1956, as amended, or other applicable banking laws of the United States
of America and the rules and regulations promulgated thereunder, shall have the
right to convert shares of Class B Common Stock into shares of Class A Common
Stock, if, and to the extent that, under any law or under any regulation, rule
or other requirement of any governmental authority at any time applicable to
such Bank Affiliate, (a) after giving effect to such conversion, such Bank
Affiliate would own, control or have power to vote a greater quantity of
securities of any kind than the Bank Affiliate shall be permitted to own,
control or have power to vote, or (b) such conversion would not be permitted.
For purposes of this Section 2(d), a written statement of the Bank Affiliate
converting shares of Class B Common Stock into Class A Common Stock, delivered
to the Corporation upon surrender of any shares of Common Stock for conversion
into any shares of Class A Common Stock, to the effect that the Bank Affiliate
is legally entitled to exercise its rights to convert such shares and that such
conversion will not violate the prohibitions set forth in the preceding
sentence, shall be conclusive and binding upon the Corporation and shall
obligate the Corporation to deliver certificates representing the shares of
Common Stock so converted in accordance with the other provisions hereof.
----------------------------------
CDI GROUP, INC.
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Title Page
- ----- ----
<S> <C>
Article I - General ...................................................................1
Section 1.1. Offices ...............................................................1
Section 1.2. Seal ..................................................................1
Section 1.3. Fiscal Year ...........................................................1
Article II - Stockholders .............................................................1
Section 2.1. Place of Meetings .....................................................1
Section 2.2. Annual Meeting ........................................................1
Section 2.3. Quorum ................................................................1
Section 2.4. Right to Vote; Proxies ................................................2
Section 2.5. Voting ................................................................2
Section 2.6. Notice of Annual Meetings .............................................2
Section 2.7. Stockholders' List ....................................................2
Section 2.8. Special Meetings ......................................................3
Section 2.9. Notice of Special Meetings ............................................3
Section 2.10. Inspectors ............................................................3
Section 2.11. Stockholders' Consent in Lieu of Meeting...............................3
Article III - Directors ...............................................................4
Section 3.1. Number of Directors ...................................................4
Section 3.2. Change in Number of Directors; Vacancies ..............................4
Section 3.3. Resignation ...........................................................4
Section 3.4. Removal ...............................................................5
Section 3.5. Place of Meetings and Books ...........................................5
Section 3.6. General Powers ........................................................5
Section 3.7. Executive Committee ...................................................5
Section 3.8. Other Committees ......................................................5
Section 3.9. Powers Denied to Committees ...........................................5
Section 3.10. Substitute Committee Member ...........................................6
Section 3.11. Compensation of Directors .............................................6
Section 3.12. Annual Meeting ........................................................6
Section 3.13. Regular Meetings ......................................................6
Section 3.14. Special Meetings ......................................................6
Section 3.15. Quorum ................................................................6
Section 3.16. Telephonic Participation in Meetings ..................................7
Section 3.17. Action by Consent .....................................................7
<PAGE>
-ii-
Article IV - Officers ................................................................7
Section 4.1. Selection; Statutory Officers .........................................7
Section 4.2. Time of Election ......................................................7
Section 4.3. Additional Officers ...................................................7
Section 4.4. Terms of Office .......................................................7
Section 4.5. Compensation of Officers ..............................................7
Section 4.6. Chairman of the Board .................................................7
Section 4.7. President .............................................................8
Section 4.8. Vice-Presidents .......................................................8
Section 4.9. Treasurer .............................................................8
Section 4.10. Secretary .............................................................8
Section 4.11. Assistant Secretary ...................................................9
Section 4.12. Assistant Treasurer ...................................................9
Section 4.13. Subordinate Officers ..................................................9
Article V - Stock .....................................................................9
Section 5.1. Stock .................................................................9
Section 5.2. Fractional Share Interests ............................................10
Section 5.3. Transfers of Stock ....................................................10
Section 5.4. Record Date ...........................................................10
Section 5.5. Transfer Agent and Registrar ..........................................11
Section 5.6. Dividends .............................................................11
1. Power to Declare ..............................................................11
2. Reserves ......................................................................11
Section 5.7. Lost, Stolen or Destroyed Certificates ................................11
Section 5.8. Inspection of Books ...................................................11
Article VI - Miscellaneous Management Provisions ......................................11
Section 6.1. Checks, Drafts and Notes ..............................................11
Section 6.2. Notices ...............................................................12
Section 6.3. Conflict of Interest ..................................................12
Section 6.4. Voting of Securities Owned by this Corporation ........................12
Article VII - Indemnification .........................................................13
Section 7.1. Right to Indemnification ..............................................13
Section 7.2. Right of Indemnitee to Bring Suit .....................................14
Section 7.3. Non-Exclusivity of Rights .............................................14
Section 7.4. Insurance .............................................................14
Section 7.5. Indemnification of Employees and Agents of the Corporation ............14
Article VIII - Amendments .............................................................15
Section 8.1. Amendments ............................................................15
<PAGE>
-iii-
Article IX - Special Provisions........................................................15
Section 9.1. Special Provisions.....................................................15
</TABLE>
<PAGE>
CDI GROUP, INC.
BY-LAWS
-------
Article I - General
-------------------
Section 1.1. Offices. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware. The Corporation may also
have offices at such other places both within and without the State of Delaware
as the Board of Directors may from time to time determine or the business of the
Corporation may require.
Section 1.2. Seal. The seal of the Corporation shall be in the form of
a circle and shall have inscribed thereon the name of the Corporation, the year
of its organization and the words "Corporate Seal, Delaware".
Section 1.3. Fiscal Year. The fiscal year of the Corporation shall be
the twelve (12) month period ending at the close of business on the last Sunday
in July of each year.
Article II - Stockholders
-------------------------
Section 2.1. Place of Meetings. All meetings of the stockholders shall
be held at the office of the Corporation in the State of New Jersey except such
meetings as the Board of Directors expressly determine shall be held elsewhere,
in which case meetings may be held upon notice as hereinafter provided at such
other place or places within or without the State of New Jersey as the Board of
Directors shall have determined and as shall be stated in such notice.
Section 2.2. Annual Meeting. The annual meeting of the stockholders
shall be held on the first day in the month of October of each year or if that
be a legal holiday, on the next succeeding day not a legal holiday, at such time
as the Board of Directors may determine. At each annual meeting the stockholders
entitled to vote shall elect a Board of Directors by plurality vote by ballot,
and they may transact such other corporate business as may properly be brought
before the meeting. At the annual meeting any business may be transacted,
irrespective of whether the notice calling such meeting shall have contained a
reference thereto, except where notice is required by law, the Certificate of
Incorporation, or these by-laws.
Section 2.3. Quorum. At all meetings of the stockholders the holders of
a majority of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum requisite
for the transaction of business except as otherwise provided by law, by the
Certificate of Incorporation or by these by-laws. If, however, such majority
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or by proxy, by a
majority vote, shall have power to adjourn the meeting from time to time without
notice other than announcement at the meeting until the requisite amount of
voting stock shall be present. If the adjournment is for more than
<PAGE>
-2-
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. At such adjourned
meeting, at which the requisite amount of voting stock shall be represented, any
business may be transacted which might have been transacted if the meeting had
been held as originally called.
Section 2.4. Right to Vote; Proxies. Each holder of a share or shares
of capital stock of the Corporation having the right to vote at any meeting
shall be entitled to one vote for each such share of stock held by him. Any
stockholder entitled to vote at any meeting of stockholders may vote either in
person or by proxy, but no proxy which is dated more than three years prior to
the meeting at which it is offered shall confer the right to vote thereat unless
the proxy provides that it shall be effective for a longer period. A proxy may
be granted by a writing executed by the stockholder or his authorized officer,
director, employee or agent or by transmission or authorization of transmission
of a telegram, cablegram, or other means of electronic transmission to the
person who will be the holder of the proxy or to a proxy solicitation firm,
proxy support service organization or like agent duly authorized by the person
who will be the holder of the proxy to receive such transmission, subject to the
conditions set forth in Section 212 of the Delaware General Corporation Law, as
it may be amended from time to time (the "Delaware GCL").
Section 2.5. Voting. At all meetings of stockholders, except as
otherwise expressly provided for by statute, the Certificate of Incorporation or
these by-laws, (a) in all matters other than the election of directors, the
affirmative vote of a majority of shares present in person or represented by
proxy at the meeting and entitled to vote on such matter shall be the act of the
stockholders and (b) directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors. Except as otherwise expressly provided by
law, the Certificate of Incorporation or these by-laws, at all meetings of
stockholders the voting shall be by voice vote, but any stockholder qualified to
vote on the matter in question may demand a stock vote, by shares of stock, upon
such question, whereupon such stock vote shall be taken by ballot, each of which
shall state the name of the stockholder voting and the number of shares voted by
him, and, if such ballot be cast by a proxy, it shall also state the name of the
proxy.
Section 2.6. Notice of Annual Meetings. Written notice of the annual
meeting of the stockholders shall be mailed to each stockholder entitled to vote
thereat at such address as appears on the stock books of the Corporation at
least ten (10) days (and not more than sixty (60) days) prior to the meeting. It
shall be the duty of every stockholder to furnish to the Secretary of the
Corporation or to the transfer agent, if any, of the class of stock owned by
him, his post-office address and to notify said Secretary or transfer agent of
any change therein.
Section 2.7. Stockholders' List. A complete list of the stockholders
entitled to vote at any meeting of stockholders, arranged in alphabetical order
and showing the address of each stockholder, and the number of shares registered
in the name of each stockholder, shall be prepared by the Secretary and filed
either at a place within the city where the meeting is to be
<PAGE>
-3-
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held, at least ten days
before such meeting, and shall at all times during the usual hours for business,
and during the whole time of said election, be open to the examination of any
stockholder for a purpose germane to the meeting.
Section 2.8. Special Meetings. Special meetings of the stockholders for
any purpose or purposes, unless otherwise provided by statute, may be called by
the Board of Directors, the Chairman of the Board, if any, the President or any
Vice President.
Section 2.9. Notice of Special Meetings. Written notice of a special
meeting of stockholders, stating the time and place and object thereof shall be
mailed, postage prepaid, not less than ten (10) nor more than sixty (60) days
before such meeting, to each stockholder entitled to vote thereat, at such
address as appears on the books of the Corporation. No business may be
transacted at such meeting except that referred to in said notice, or in a
supplemental notice given also in compliance with the provisions hereof, or such
other business as may be germane or supplementary to that stated in said notice
or notices.
Section 2.10. Inspectors.
1. One or more inspectors may be appointed by the Board of Directors
before or at any meeting of stockholders, or, if no such appointment shall have
been made, the presiding officer may make such appointment at the meeting. At
the meeting for which the inspector or inspectors are appointed, he or they
shall open and close the polls, receive and take charge of the proxies and
ballots, and decide all questions touching on the qualifications of voters, the
validity of proxies and the acceptance and rejection of votes. If any inspector
previously appointed shall fail to attend or refuse or be unable to serve, the
presiding officer shall appoint an inspector in his place.
2. At any time at which the Corporation has a class of voting stock
that is (a) listed on a national securities exchange, (b) authorized for
quotation on an inter-dealer quotation system of a registered national
securities association, or (c) held of record by more than 2,000 stockholders,
the provisions of Section 231 of the Delaware GCL with respect to inspectors of
election and voting procedures shall apply, in lieu of the provisions of
paragraph (l) of this Section 2.10.
Section 2.11. Stockholders' Consent in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required by
law to be taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of
<PAGE>
-4-
the Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder who
signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty days of the earliest
dated consent delivered in the manner required by this Section 2.11 to the
Corporation, written consents signed by a sufficient number of stockholders to
take action are delivered to the Corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
Article III - Directors
-----------------------
Section 3.1. Number of Directors. Except as otherwise provided by law,
the Certificate of Incorporation or these by-laws, the property and business of
the Corporation shall be managed by or under the direction of a board of not
less than one nor more than thirteen directors. Within the limits specified, the
number of directors shall be determined by resolution of the Board of Directors
or by the stockholders at the annual meeting. Directors need not be
stockholders, residents of Delaware or citizens of the United States. The
directors shall be elected by ballot at the annual meeting of the stockholders
and each director shall be elected to serve until his successor shall be elected
and shall qualify or until his earlier resignation or removal; provided that in
the event of failure to hold such meeting or to hold such election at such
meeting, such election may be held at any special meeting of the stockholders
called for that purpose. If the office of any director becomes vacant by reason
of death, resignation, disqualification, removal, failure to elect, or
otherwise, the remaining directors, although more or less than a quorum, by a
majority vote of such remaining directors may elect a successor or successors
who shall hold office for the unexpired term.
Section 3.2. Change in Number of Directors; Vacancies. The maximum
number of directors may be increased by an amendment to these by-laws adopted by
a majority vote of the Board of Directors or by a majority vote of the capital
stock having voting power, and if the number of directors is so increased by
action of the Board of Directors or of the stockholders or otherwise, then the
additional directors may be elected in the manner provided above for the filling
of vacancies in the Board of Directors or at the annual meeting of stockholders
or at a special meeting called for that purpose.
Section 3.3. Resignation. Any director of this Corporation may resign
at any time by giving written notice to the Chairman of the Board, if any, the
President or the Secretary of the Corporation. Such resignation shall take
effect at the time specified therein, at the time of receipt if no time is
specified therein and at the time of acceptance if the effectiveness of such
<PAGE>
-5-
resignation is conditioned upon its acceptance. Unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 3.4. Removal. Any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
Section 3.5. Place of Meetings and Books. The Board of Directors may
hold their meetings and keep the books of the Corporation outside the State of
Delaware, at such places as they may from time to time determine.
Section 3.6. General Powers. In addition to the powers and authority
expressly conferred upon them by these by-laws, the board may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these by-laws directed or
required to be exercised or done by the stockholders.
Section 3.7. Executive Committee. There may be an executive committee
of one or more directors designated by resolution passed by a majority of the
whole board. The act of a majority of the members of such committee shall be the
act of the committee. Said committee may meet at stated times or on notice to
all by any of their own number, and shall have and may exercise those powers of
the Board of Directors in the management of the business affairs of the Company
as are provided by law and may authorize the seal of the Corporation to be
affixed to all papers which may require it. Vacancies in the membership of the
committee shall be filled by the Board of Directors at a regular meeting or at a
special meeting called for that purpose.
Section 3.8. Other Committees. The Board of Directors may also
designate one or more committees in addition to the executive committee, by
resolution or resolutions passed by a majority of the whole board; such
committee or committees shall consist of one or more directors of the
Corporation, and to the extent provided in the resolution or resolutions
designating them, shall have and may exercise specific powers of the Board of
Directors in the management of the business and affairs of the Corporation to
the extent permitted by statute and shall have power to authorize the seal of
the Corporation to be affixed to all papers which may require it. Such committee
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the Board of Directors.
Section 3.9. Powers Denied to Committees. Committees of the Board of
Directors shall not, in any event, have any power or authority to amend the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
adopted by the Board of Directors as provided in Section 151(a) of the Delaware
GCL, fix the designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any
<PAGE>
-6-
series), adopt an agreement of merger or consolidation, recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommend to the stockholders a dissolution
of the Corporation or a revocation of a dissolution or to amend the by-laws of
the Corporation. Further, no committee of the Board of Directors shall have the
power or authority to declare a dividend, to authorize the issuance of stock or
to adopt a certificate of ownership and merger pursuant to Section 253 of the
Delaware GCL, unless the resolution or resolutions designating such committee
expressly so provides.
Section 3.10. Substitute Committee Member. In the absence or on the
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of such absent or disqualified
member. Any committee shall keep regular minutes of its proceedings and report
the same to the board as may be required by the board.
Section 3.11. Compensation of Directors. The Board of Directors shall
have the power to fix the compensation of directors and members of committees of
the Board. The directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 3.12. Annual Meeting. The newly elected board may meet at such
place and time as shall be fixed and announced by the presiding officer at the
annual meeting of stockholders, for the purpose of organization or otherwise,
and no further notice of such meeting shall be necessary to the newly elected
directors in order legally to constitute the meeting, provided a quorum shall be
present, or they may meet at such place and time as shall be stated in a notice
given to such directors two (2) days prior to such meeting, or as shall be fixed
by the consent in writing of all the directors.
Section 3.13. Regular Meetings. Regular meetings of the board may be
held without notice at such time and place as shall from time to time be
determined by the board.
Section 3.14. Special Meetings. Special meetings of the board may be
called by the Chairman of the Board, if any, or the President, on two (2) days'
notice to each director, or such shorter period of time before the meeting as
will nonetheless be sufficient for the convenient assembly of the directors so
notified; special meetings shall be called by the Secretary in like manner and
on like notice, on the written request of two or more directors.
Section 3.15. Quorum. At all meetings of the Board of Directors, a
majority of the total number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically
<PAGE>
-7-
permitted or provided by statute, or by the Certificate of Incorporation, or by
these by-laws. If at any meeting of the board there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to time
until a quorum is obtained, and no further notice thereof need be given other
than by announcement at said meeting which shall be so adjourned.
Section 3.16. Telephonic Participation in Meetings. Members of the
Board of Directors or any committee designated by such board may participate in
a meeting of the board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
section shall constitute presence in person at such meeting.
Section 3.17. Action by Consent. Unless otherwise restricted by the
Certificate of Incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if written consent thereto is signed by all
members of the board or of such committee as the case may be and such written
consent is filed with the minutes of proceedings of the board or committee.
Article IV - Officers
---------------------
Section 4.1. Selection; Statutory Officers. The officers of the
Corporation shall be chosen by the Board of Directors. There shall be a
President, a Secretary and a Treasurer, and there may be a Chairman of the Board
of Directors, one or more Vice Presidents, one or more Assistant Secretaries,
and one or more Assistant Treasurers, as the Board of Directors may elect. Any
number of offices may be held by the same person, except that the offices of
President and Secretary shall not be held by the same person simultaneously.
Section 4.2. Time of Election. The officers above named shall be chosen
by the Board of Directors at its first meeting after each annual meeting of
stockholders. None of said officers need be a director.
Section 4.3. Additional Officers. The board may appoint such other
officers and agents as it shall deem necessary, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4.4. Terms of Office. Each officer of the Corporation shall
hold office until his successor is chosen and qualified, or until his earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time by the Board of Directors.
Section 4.5. Compensation of Officers. The Board of Directors shall
have power to fix the compensation of all officers of the Corporation. It may
authorize any officer, upon whom the power of appointing subordinate officers
may have been conferred, to fix the compensation of such subordinate officers.
<PAGE>
-8-
Section 4.6. Chairman of the Board. The Chairman of the Board of
Directors shall preside at all meetings of the stockholders and directors, and
shall have such other duties as may be assigned to him from time to time by the
Board of Directors.
Section 4.7. President. Unless the Board of Directors otherwise
determines, the President shall be the chief executive officer and head of the
Corporation. Unless there is a Chairman of the Board, the President shall
preside at all meetings of directors and stockholders. Under the supervision of
the Board of Directors and of the executive committee, the President shall have
the general control and management of its business and affairs, subject,
however, to the right of the Board of Directors and of the executive committee
to confer any specific power, except such as may be by statute exclusively
conferred on the President, upon any other officer or officers of the
Corporation. The President shall perform and do all acts and things incident to
the position of President and such other duties as may be assigned to him from
time to time by the Board of Directors or the executive committee.
Section 4.8. Vice-Presidents. The Vice-Presidents shall perform such of
the duties of the President on behalf of the Corporation as may be respectively
assigned to them from time to time by the Board of Directors or by the executive
committee or by the President. The Board of Directors or the executive committee
may designate one of the Vice-Presidents as the Executive Vice-President, and in
the absence or inability of the President to act, such Executive Vice-President
shall have and possess all of the powers and discharge all of the duties of the
President, subject to the control of the board and of the executive committee.
Section 4.9. Treasurer. The Treasurer shall have the care and custody
of all the funds and securities of the Corporation which may come into his hands
as Treasurer, and the power and authority to endorse checks, drafts and other
instruments for the payment of money for deposit or collection when necessary or
proper and to deposit the same to the credit of the Corporation in such bank or
banks or depository as the Board of Directors or the executive committee, or the
officers or agents to whom the Board of Directors or the executive committee may
delegate such authority, may designate, and he may endorse all commercial
documents requiring endorsements for or on behalf of the Corporation. He may
sign all receipts and vouchers for the payments made to the Corporation. He
shall render an account of his transactions to the Board of Directors or to the
executive committee as often as the board or the committee shall require the
same. He shall enter regularly in the books to be kept by him for that purpose
full and adequate account of all moneys received and paid by him on account of
the Corporation. He shall perform all acts incident to the position of
Treasurer, subject to the control of the Board of Directors and of the executive
committee. He shall when requested, pursuant to vote of the Board of Directors
or the executive committee, give a bond to the Corporation conditioned for the
faithful performance of his duties, the expense of which bond shall be borne by
the Corporation.
Section 4.10. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors and of the stockholders; he shall attend to
the giving and serving of all notices of the Corporation. Except as otherwise
ordered by the Board of Directors or the executive committee, he shall attest
the seal of the Corporation upon all contracts and instruments executed
<PAGE>
-9-
under such seal and shall affix the seal of the Corporation thereto and to all
certificates of shares of capital stock of the Corporation. He shall have charge
of the stock certificate book, transfer book and stock ledger, and such other
books and papers as the Board of Directors or the executive committee may
direct. He shall, in general, perform all the duties of Secretary, subject to
the control of the Board of Directors and of the executive committee.
Section 4.11. Assistant Secretary. The Board of Directors or any two of
the officers of the Corporation acting jointly may appoint or remove one or more
Assistant Secretaries of the Corporation. Any Assistant Secretary upon his
appointment shall perform such duties of the Secretary, and also any and all
such other duties as the executive committee or the Board of Directors or the
President or the Executive Vice-President or the Treasurer or the Secretary may
designate.
Section 4.12. Assistant Treasurer. The Board of Directors or any two of
the officers of the Corporation acting jointly may appoint or remove one or more
Assistant Treasurers of the Corporation. Any Assistant Treasurer upon his
appointment shall perform such of the duties of the Treasurer, and also any and
all such other duties as the executive committee or the Board of Directors or
the President or the Executive Vice-President or the Treasurer or the Secretary
may designate.
Section 4.13. Subordinate Officers. The Board of Directors may select
such subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority, and perform such duties as the
Board of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officer to appoint and remove subordinate officers and to
prescribe the powers and duties thereof.
Article V - Stock
-----------------
Section 5.1. Stock. Each stockholder shall be entitled to a certificate
or certificates of stock of the Corporation in such form as the Board of
Directors may from time to time prescribe. The certificates of stock of the
Corporation shall be numbered and shall be entered in the books of the
Corporation as they are issued. They shall certify the holder's name and number
and class of shares and shall be signed by both of (a) either the President or a
Vice-President, and (b) any one of the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, and shall be sealed with the corporate
seal of the Corporation. If such certificate is countersigned (l) by a transfer
agent other than the Corporation or its employee, or, (2) by a registrar other
than the Corporation or its employee, the signature of the officers of the
Corporation and the corporate seal may be facsimiles. In case any officer or
officers who shall have signed, or whose facsimile signature or signatures shall
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the Corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose
<PAGE>
-10-
facsimile signature shall have been used thereon had not ceased to be such
officer or officers of the Corporation.
Section 5.2. Fractional Share Interests. The Corporation may, but shall
not be required to, issue fractions of a share. If the Corporation does not
issue fractions of a share, it shall (a) arrange for the disposition of
fractional interests by those entitled thereto, (b) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined, or (c) issue scrip or warrants in registered or bearer
form which shall entitle the holder to receive a certificate for a full share
upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to exercise voting rights, to
receive dividends thereon, and to participate in any of the assets of the
Corporation in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they shall become void
if not exchanged for certificates representing full shares before a specified
date, or subject to the conditions that the shares for which scrip or warrants
are exchangeable may be sold by the Corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
Section 5.3. Transfers of Stock. Subject to any transfer restrictions
then in force, the shares of stock of the Corporation shall be transferable only
upon its books by the holders thereof in person or by their duly authorized
attorneys or legal representatives and upon such transfer the old certificates
shall be surrendered to the Corporation by the delivery thereof to the person in
charge of the stock and transfer books and ledgers or to such other person as
the directors may designate by whom they shall be cancelled and new certificates
shall thereupon be issued. The Corporation shall be entitled to treat the holder
of record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person whether or not it shall
have express or other notice thereof save as expressly provided by the laws of
Delaware.
Section 5.4. Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or the allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. If no such record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; the record date for determining stockholders entitled to express consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which the first written
consent is expressed; and the record date for determining stockholders for any
other purpose shall be at the close of business
<PAGE>
-11-
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at any meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 5.5. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents or transfer clerks and one or more
registrars and may require all certificates of stock to bear the signature or
signatures of any of them.
Section 5.6. Dividends.
1. Power to Declare. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation and the laws of Delaware.
2. Reserves. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 5.7. Lost, Stolen or Destroyed Certificates. No certificates
for shares of stock of the Corporation shall be issued in place of any
certificate alleged to have been lost, stolen or destroyed, except upon
production of such evidence of the loss, theft or destruction and upon
indemnification of the Corporation and its agents to such extent and in such
manner as the Board of Directors may from time to time prescribe.
Section 5.8. Inspection of Books. The stockholders of the Corporation,
by a majority vote at any meeting of stockholders duly called, or in case the
stockholders shall fail to act, the Board of Directors shall have power from
time to time to determine whether and to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Corporation (other than the stock ledger) or any of them, shall be open to
inspection of stockholders; and no stockholder shall have any right to inspect
any account or book or document of the Corporation except as conferred by
statute or authorized by the Board of Directors or by a resolution of the
stockholders.
Article VI - Miscellaneous Management Provisions
------------------------------------------------
Section 6.1. Checks, Drafts and Notes. All checks, drafts or orders for
the payment of money, and all notes and acceptances of the Corporation shall be
signed by such officer or officers, agent or agents as the Board of Directors
may designate.
<PAGE>
-12-
Section 6.2. Notices.
1. Notices to directors may, and notices to stockholders shall, be in
writing and delivered personally or mailed to the directors or stockholders at
their addresses appearing on the books of the Corporation. Notice by mail shall
be deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram, telecopy or orally, by telephone or in
person.
2. Whenever any notice is required to be given under the provisions of
the statutes or of the Certificate of Incorporation of the Corporation of the
Corporation or of these by-laws, a written waiver of notice, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein or the meeting or action to which such notice relates, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
Section 6.3. Conflict of Interest. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the board of or committee thereof which
authorized the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (a) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee and the board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (b) the material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
of the Corporation entitled to vote thereon, and the contract or transaction as
specifically approved in good faith by vote of such stockholders; or (c) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 6.4. Voting of Securities owned by this Corporation. Subject
always to the specific directions of the Board of Directors, (a) any shares or
other securities issued by any other Corporation and owned or controlled by this
Corporation may be voted in person at any meeting of security holders of such
other corporation by the President of this Corporation if he is present at such
meeting, or in his absence by the Treasurer of this Corporation if he is present
at such meeting, and (b) whenever, in the judgment of the President, it is
desirable for this Corporation to execute a proxy or written consent in respect
to any shares or other securities issued by any
<PAGE>
-13-
other Corporation and owned by this Corporation, such proxy or consent shall be
executed in the name of this Corporation by the President, without the necessity
of any authorization by the Board of Directors, affixation of corporate seal or
countersignature or attestation by another officer, provided that if the
President is unable to execute such proxy or consent by reason of sickness,
absence from the United States or other similar cause, the Treasurer may execute
such proxy or consent. Any person or persons designated in the manner above
stated as the proxy or proxies of this Corporation shall have full right, power
and authority to vote the shares or other securities issued by such other
corporation and owned by this Corporation the same as such shares or other
securities might be voted by this Corporation.
Article VII - Indemnification
-----------------------------
Section 7.1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of being or having been a director or
officer of the Corporation or serving or having served at the request of the
Corporation as a director, trustee, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (an "Indemnitee"),
whether the basis of such proceeding is alleged action or failure to act in an
official capacity as a director, trustee, officer, employee or agent or in any
other capacity while serving as a director, trustee, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than permitted prior thereto) (as used in this Article VII, the "Delaware
Law"), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such Indemnitee in connection
therewith and such indemnification shall continue as to an Indemnitee who has
ceased to be a director, trustee, officer, employee or agent and shall inure to
the benefit of the Indemnitee's heirs, executors and administrators; provided,
however, that, except as provided in Section 7.2 hereof with respect to
Proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such Indemnitee in connection with a Proceeding (or part thereof)
initiated by such Indemnitee only if such Proceeding (or part thereof) was
authorized by the board of directors of the Corporation. The right to
indemnification conferred in this Article VII shall be a contract right and
shall include the right to be paid by the Corporation the expenses (including
attorneys' fees) incurred in defending any such Proceeding in advance of its
final disposition (an "Advancement of Expenses"); provided, however, that, if
the Delaware Law so requires, an Advancement of Expenses incurred by an
Indemnitee shall be made only upon delivery to the Corporation of an undertaking
(an "Undertaking"), by or on behalf of such Indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (a "Final Adjudication") that such
Indemnitee is not entitled to be indemnified for such expenses under this
Article VII or otherwise.
<PAGE>
-14-
Section 7.2. Right of Indemnitee to Bring Suit. If a claim under
Section 7.1 hereof is not paid in full by the Corporation within sixty days
after a written claim has been received by the Corporation, except in the case
of a claim for an Advancement of Expenses, in which case the applicable period
shall be twenty days, the Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the Corporation to
recover an Advancement of Expenses pursuant to the terms of an Undertaking, the
Indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the Indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the Indemnitee
to enforce a right to an Advancement of Expenses) it shall be a defense that,
and (ii) in any suit by the Corporation to recover an Advancement of Expenses
pursuant to the terms of an Undertaking the Corporation shall be entitled to
recover such expenses upon a Final Adjudication that, the Indemnitee has not met
the applicable standard of conduct set forth in the Delaware Law. Neither the
failure of the Corporation (including its board of directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct set forth in the Delaware Law, nor an actual determination by the
Corporation (including its board of directors, independent legal counsel, or its
stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an Advancement of Expenses hereunder,
or by the Corporation to recover an Advancement of Expenses pursuant to the
terms of an Undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such Advancement of Expenses, under this
Article VII or otherwise shall be on the Corporation.
Section 7.3. Non-Exclusivity of Rights. The rights to indemnification
and to the Advancement of Expenses conferred in this Article VII shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Corporation's Certificate or Incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 7.4. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under this Article VII or under the Delaware Law.
Section 7.5. Indemnification of Employees and Agents of the
Corporation. The Corporation may, to the extent authorized from time to time by
the board of directors, grant rights to indemnification, and to the Advancement
of Expenses, to any employee or agent of the Corporation to the fullest extent
of the provisions of this Article VII with respect to the indemnification and
Advancement of Expenses of directors and officers of the Corporation.
<PAGE>
-15-
Article VIII - Amendments
-------------------------
Section 8.1. Amendments. The by-laws of the Corporation may be altered,
amended or repealed at any meeting of the Board of Directors upon notice thereof
in accordance with these by-laws, or at any meeting of the stockholders by the
vote of the holders of the majority of the stock issued and outstanding and
entitled to vote at such meeting, in accordance with the provisions of the
Certificate of Incorporation of the Corporation and of the laws of Delaware.
Article IX - Special Provisions
-------------------------------
Section 9.1. Special Provisions. Notwithstanding any other provisions
herein to the contrary, (a) at any time while any BBV Stockholder or any Harvest
Stockholder (each as defined in the Stockholder Agreement referred to below) has
designated any directors on the Corporation's Board of Directors, the majority
of the total number of directors required in order to constitute a quorum for
any action set forth in Schedule 2 to the Stockholder Agreement, dated as of
January 30, 1995, as amended from time to time, among the Corporation, the BBV
Stockholders, the Harvest Stockholders and the other stockholders of the
Corporation (as amended and in effect from time to time, the "Stockholder
Agreement"), shall include all of the directors designated by the BBV
Stockholders and all of the directors designated by the Harvest Stockholders, in
each case pursuant to the Stockholder Agreement, (b) for any action set forth on
Schedule 2 to the Stockholder Agreement (including any amendment to these
By-Laws), the act of a majority of the directors present at any meeting at which
there is a quorum must include the affirmative votes of (i) all of the directors
designated by the BBV Stockholders at any time while directors designated by the
BBV Stockholders are serving on the Corporation's Board of Directors and (ii)
all of the directors designated by the Harvest Stockholders at any time while
directors designated by the Harvest Stockholders are serving on the
Corporation's Board of Directors and (c) the number of directors, the election
of directors and the filling of vacancies on the Board of Directors shall be
determined in accordance with the provisions of the Stockholder Agreement until
the Stockholder Agreement has been terminated in accordance with its terms.
CERTIFICATE OF CORRECTION
FILED TO CORRECT CERTAIN ERRORS IN
THE CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
COMMUNITY DISTRIBUTORS, INC.
FILED NOVEMBER 17, 1992
COMMUNITY DISTRIBUTORS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
1. This Certificate of Correction is being filed to correct errors
in the Certificate of Amendment to the Certificate of Incorporation filed
November 17, 1992. The errors to be corrected are in reporting the status of
the issuance of stock of the Corporation, the manner of approval and the
section number of the General Corporation Law of the State of Delaware under
which the Certificate of Amendment was filed.
2. The Certificate of Amendment to the Certificate of Incorporation
filed on November 17, 1992 should have read as follows:
FIRST: That the corporation has issued shares of its stock.
SECOND: That the Board of Directors and the Shareholders of said
corporation, at a duly called and convened joint meeting held on November 2,
1992 at which a quorum of Directors and a quorum of Shareholders were present
and acting throughout, adopted the following resolution:
<PAGE>
RESOLVED, that Article FOURTH of the Certificate of Incorporation of
Community Distributors, Inc. be amended to read as follows:
FOURTH: The total number of shares of stock which this
corporation is authorized to issue is: one thousand (1,000) shares of the par
value of One Cent ($.01) each, amounting to Ten Dollars ($10.00).
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, said corporation has caused this Certificate to
be signed and attested this 30th day of January, 1995 by its duly elected and
authorized officers, Jules Siegel, Chairman, and Martin G. Daffner, Secretary,
respectively, who affirm that the statements made herein are true and correct
under the penalties of perjury.
/s/ Jules Siegel
----------------------
Jules Siegel, Chairman
Attest:
/s/ Martin G. Daffner
- ----------------------------
Martin G. Daffner, Secretary
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 11/17/1992
923225014 - 2054182
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
COMMUNITY DISTRIBUTORS, INC.
COMMUNITY DISTRIBUTORS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the corporation has not received any payment for any
of its stock.
SECOND: That the Board of Directors of said corporation; by
unanimous written consent given in accordance with Section 141(f) of the
General Corporation Law of the State of Delaware, adopted the following
resolution:
RESOLVED that the Board of Directors hereby amends Article FOURTH
of the Certificate of Incorporation to read as follows:
FOURTH: The total number of shares of stock which this corporation
is authorized to issue is: one thousand (1,000) shares of the par value
of One Cent ($.01) each, amounting to Ten Dollars ($10.00).
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Sections 241 and 141(f) of the General
Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation will not be reduced
under or by reason of said amendment.
<PAGE>
Page 2
IN WITNESS WHEREOF, said corporation has caused this Certificate to
be signed by Jules Siegel, President, and attested by Martin G. Daffner, its
Secretary, this 13th day of November, 1992.
/s/ Jules Siegel
-----------------------------------
President
/s/ Martin G. Daffner
-----------------------------------
Secretary
Attested By:
<PAGE>
8 5 0 2 3 4 0 1 8 0
F I L E D
AUG 22, 1985
CERTIFICATE OF AMENDMENT
OF Michael Harkins
COMMUNITY DISTRIBUTORS, INC. SECRETARY OF STATE
COMMUNITY DISTRIBUTORS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the corporation has not received any payment for any
of its stock.
SECOND: That the Board of Directors of said corporation, by
unanimous written consent given in accordance with Section 141(f) of the
General Corporation Law of the State of Delaware, adopted the following
resolution:
RESOLVED that the Board of Directors hereby amends Article FOURTH
of the Certificate of Incorporation to read as follows:
FOURTH: The total number of shares of stock which this corporation
is authorized to issue is: Ten Million (10,000,000) shares of the par value of
One Cent ($.01) each, amounting to One Hundred Thousand Dollars ($100,000.00).
THIRD: That the aforesaid amendment was duly adopted in
accordance with the applicable provisions of Sections 241 and 141(f) of the
General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation will not be reduced
under or by reason of said amendment.
IN WITNESS WHEREOF, said corporation has caused this Certificate to
be signed by Jules Siegel, President, and attested by Martin G. Daffner, its
Secretary, this 20th day of August , A.D. 1985.
/s/ Jules Siegel
-------------------------------
President
/s/ Martin G. Daffner
-------------------------------
Secretary
Attested By:
<PAGE>
8 5 0 2 9 5 0 0 0 1 F I L E D
OCT 22 1985
Michael Harkins
Secretary of State
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT made and entered into as of this 19th day of October 1985,
by and between COMMUNITY DISTRIBUTORS, INC., a corporation organized under the
laws of the State of Delaware, party of the first part; COMMUNITY DISTRIBUTORS,
INC., a corporation organized under the laws of the State of New Jersey, party
of the second part; and WATAJAM, Inc., a corporation organized under the laws
of the State of New Jersey, party of the third part; and WATAJUL, INC., a
corporation organized under the laws of the State of New Jersey, party of the
fourth part.
WHEREAS, the registered office of Community Distributors, Inc., a
corporation organized under the laws of the State of Delaware, is Corporation
Service Company, 4305 Lancaster Pike, Wilmington, Delaware, and is the agent
therein and upon whom process against said corporation may be served within
said State, and the principal office is located at 251 Industrial Parkway,
Branchburg, New Jersey, and
WHEREAS, the principal and registered office of Community
Distributors, Inc., a corporation organized under the laws of the State of New
Jersey, is 251 Industrial Parkway, Branchburg, New Jersey, and Jules J. Siegel
is the agent therein and upon whom process against said corporation may be
served within said State, and
WHEREAS, the principal and registered office of Watajam, Inc., a
corporation organized under the laws of the State of New Jersey, is at 251
Industrial Parkway, Branchburg, New Jersey, and Jules J. Siegel is the agent
therein, and upon whom process against said corporation may be served within
said State, and
WHEREAS, the principal and registered office of Watajul, Inc., a
corporation organized under the laws of the State of New Jersey, is at 251
Industrial Parkway, Branchburg, New Jersey, and Jules J. Siegel is the agent
therein, and upon whom process against said corporation may be served within
said State, and
WHEREAS, Community Distributors, Inc., a corporation organized under
the laws of the State of Delaware under the Certificate of Incorporation
<PAGE>
of the Secretary of State of Delaware on 22 August 1985, has an authorized
capital stock of One Hundred Thousand ($100,000.00) Dollars, divided into Ten
Million (10,000,000) shares of the par value of $0.01, all of which are common
stock; there have been duly issued and there are now outstanding certificates
for Three Million Six Hundred Thousand (3,600,000) shares of said common stock,
and
WHEREAS, Community Distributors, Inc., a corporation organized under
the laws of the State of New Jersey under the Certificate of Incorporation of
said company filed and recorded in the office of the Secretary of State of
New Jersey on 6 October, 1966 and recorded in the office of the Clerk of
Middlesex County on 10 October 1966 and has a total authorized capital stock of
One Thousand (1,000) shares of no par value, all of which are common stock; and
there have been duly issued and are now outstanding certificates for One
Hundred (100) shares of said common stock, and
WHEREAS, Watajam, Inc., a corporation organized under the laws of the
State of New Jersey, under the Certificate of Incorporation of said company
filed and recorded in the office of the Secretary of State of New Jersey on
15 May 1981 is authorized to issue One Thousand (1000) shares of stock with no
par value, all of which are common stock and there have been duly issued and
are now outstanding certificates for One Hundred (100) shares of said common
stock, and
WHEREAS, Watajul, Inc., a corporation organized under the laws of
the State of New Jersey, under the Certificate of Incorporation of said company
filed and recorded in the office of the Secretary of State of New Jersey on
5 April 1983 has the authority to issue One Hundred (100) shares of stock
without par value, all of which are common stock, and there have been duly
issued and are now outstanding certificates for One Hundred (100) shares of said
common stock, and
WHEREAS, the abovementioned corporations are organized for the
purpose of carrying on business of the same or of a similar nature, and
<PAGE>
WHEREAS, the respective corporations deem it advisable, to the end
that greater efficiency and economy of management may be accomplished and
otherwise and generally to the advantage and welfare of said corporations and
their several and respective stockholders, to merge said corporations under the
pursuant to the provisions of Section 252 of the Delaware General Corporation
Law and New Jersey Statutes Annotated 14A:10-7.
NOW, THEREFORE, in consideration of the promises and mutual
agreements, provisions, covenants and grants herein contained, it is hereby
agreed by and between said parties hereto, in accordance with said Section 252
of the Delaware General Corporation Law and the provisions of New Jersey
Statutes Annotated 14A:10-7 that Community Distributors, Inc., a corporation
organized under the laws of the State of New Jersey, Watajam, Inc., a
corporation organized under the laws of the State of New Jersey, and Watajul,
Inc., a corporation organized under the State of New Jersey, are hereby merged
into said Community Distributors, Inc., a corporation organized under the laws
of the State of Delaware.
AND THE PARTIES HERETO BY THESE PRESENTS, agree and to prescribe the
terms and conditions of said merger and the mode of carrying same into effect,
which terms and conditions and mode of carrying the same into effect the said
parties hereto do mutually and severally agree and covenant to observe, keep
and perform, that is to say:
ARTICLE I. The name of the surviving corporation is and shall remain
Community Distributors, Inc., a corporation organized under the laws of the
State of Delaware, the same being hereinafter called "Community Distributors,
Inc."
ARTICLE II. The number, names and places of residence of the first
directors of said Community Distributors, Inc., who shall hold office until
their successors be chosen according to the by-laws of said corporation, are as
follows:
3
<PAGE>
1. Jules J. Siegel
2. Arlene L. Siegel
3. Martin G. Daffner
4. Anthony L. Marhan, Jr.
5. Dr. Edward J. Bloustein
6. Dr. Jude West
7. Willard A. Faith
The first officers of said Community Distributors, Inc. shall be a
President, Treasurer and Secretary; and their names are as follows:
President, Jules J. Siegel
Treasurer, Anthony L. Marhan, Jr.
Secretary, Martin G. Daffner
ARTICLE III. The capital stock of said Community Distributors, Inc. is
and shall be One Hundred Thousand ($100,000.00) Dollars, divided into Ten
Million (10,000,000) shares of par value of $0.01 each, all of which are and
shall be common stock. The rights, terms and conditions of the shares of said
common stock issued and to be issued shall be the same as those of the shares of
the common stock of the present Community Distributors, Inc., a Delaware
corporation, now outstanding, as set forth in the Certificate of Incorporation
filed in the office of the Secretary of State of Delaware on 5 February 1985 as
amended 22 August 1985.
ARTICLE IV. The manner of converting the capital stock of the
corporations, parties hereto, into the capital stock of Community Distributors,
Inc. shall be as follows: all the present holders of stock of Community
Distributors, Inc., a corporation organized under the laws of the State of New
Jersey; Watajam, Inc., a corporation organized under the laws of the State of
New Jersey, and Watajul, Inc., a corporation organized under the laws of the
State of New Jersey, shall surrender all the shares of stock they now hold in
the respective corporations to the surviving corporation, Community
Distributors, Inc., a corporation organized under the laws of the State of
Delaware and receive in exchange therefor One ($1.00) Dollar for each share of
stock surrendered.
4
<PAGE>
ARTICLE V. The corporate names and organization of Community
Distributors, Inc., a corporation organized under the laws of the State of New
Jersey, Watajam, Inc., a corporation organized under the laws of the State of
New Jersey, and Watajul, Inc., a corporation organized under the laws of the
State of New Jersey, except insofar as the same shall continue by statute or may
be requisite for the carrying out of the purposes of this agreement, shall cease
upon the effective date of this merger.
ARTICLE VI. The Certificate of Incorporation and By-laws of the said
Community Distributors, Inc. shall be the present Certificate of Incorporation
and by-laws of the said Community Distributors, Inc., a corporation organized
under the laws of the State of Delaware, until changed or amended as provided
therein.
ARTICLE VII. Upon the consummation of the act of merger herein provided
for, all and singular the rights, privileges, powers and franchises of each of
said corporations and all property, real, personal and mixed, and all debts due
on whatever accounts, as well as for stock subscriptions as all other things in
action or belong to each of said corporations shall be vested in Community
Distributors, Inc.; and all property, rights, privileges, powers and franchises,
and all and every other interest of the four corporations, parties hereto, shall
hereafter be as effectually the property of said Community Distributors, Inc., a
corporation organized under the laws of the State of Delaware as they were of
the several and respective corporations, parties hereto, and the title to any
and all real estate, whether by deed or otherwise vested in any of said
corporation, shall not revert nor be in any way impaired by reason of the said
merger, provided that all rights of creditors and all liens upon the property of
any and all of said corporations, parties hereto, shall be preserved,
unimpaired, and the respective corporations, parties hereto, may be deemed to
continue in existence in order to preserve the same; that all debts, liabilities
and duties of either of said corporations, parties hereto, shall forthwith
attach to said Community Distributors, Inc. and may be enforced against it to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by it,
5
<PAGE>
it being expressly provided that the merger of the corporations, parties hereto,
shall not in any manner impair the rights of any creditor or creditors of any of
said corporations. If at any time the said Community Distributors, Inc., shall
deem or be advised that any further assignments, assurances in the law, or
things are necessary or desirable to vest in said Community Distributors, Inc.,
the title to any property of the corporations merged into Community
Distributors, Inc., and its proper officers and directors shall and will execute
all proper assignment and assurances in the law, and do all things necessary or
proper to vest title to such property in the said Community Distributors, Inc. a
corporation organized under the laws of the State of Delaware, and otherwise to
carry out the purposes of this agreement.
ARTICLE VIII. It is expressly declared that said Community
Distributors, Inc., a corporation organized under the laws of the State of
Delaware, shall be and said corporation hereby covenants that, as merged, it
shall be subject to the remedies and liabilities in such case provided in the
general corporation laws of the State of Delaware.
ARTICLE IX. Community Distributors, Inc., a corporation organized
under the laws of the State of Delaware, shall pay all expenses of merger.
ARTICLE X. The registered office of said Community Distributors, Inc.,
a corporation organized under the laws of the State of Delaware, is Corporation
Service Company, 4305 Lancaster Pike, Wilmington, Delaware, upon whom process
against said corporation may be served within the State of Delaware. The
principal office of the said Community Distributors, Inc., a corporation
organized under the laws of the State of Delaware, is 251 Industrial Parkway,
Branchburg, New Jersey.
ARTICLE XI. This agreement shall be submitted to the stockholders
of each of the corporations, parties hereto, as provided by law, and shall take
effect and be deemed and taken to be the agreement and act of merger of said
corporations upon 22 October 1985, provided that prior thereto the holders of
all the shares of the capital stock of each of said corporations and upon the
6
<PAGE>
doing of such other things as shall be required by the General Corporation Law
of the State of Delaware and New Jersey Statutes Annotated 14A:1-1 et seq.
IN WITNESS WHEREOF, the said corporations, parties to this agreement,
have caused their respective corporate seals to be hereunto affixed and these
presents to be signed by their respective Presidents and attested by their
respective Secretaries, all thereunto duly authorized, have hereunto set their
hands and seals as of the date and year first abovementioned.
ATTEST: COMMUNITY DISTRIBUTORS, INC.,
a corporation organized under the laws
of the State of Delaware
/s/ Martin G. Daffner By: /s/ Jules J. Siegel
- --------------------------------- --------------------------------
Martin G. Daffner, Secretary Jules J. Siegel, President
ATTEST: COMMUNITY DISTRIBUTORS, INC.,
a corporation organized under the laws
of the State of New Jersey
/s/ Martin G. Daffner By: /s/ Jules J. Siegel
- --------------------------------- --------------------------------
Martin G. Daffner, Secretary Jules J. Siegel, President
ATTEST: WATAJAM, INC., a corporation
organized under the laws of the
State of New Jersey
/s/ Martin G. Daffner By: /s/ Jules J. Siegel
- --------------------------------- --------------------------------
Martin G. Daffner, Secretary Jules J. Siegel, President
ATTEST: WATAJUL, INC., a corporation
organized under the laws of the
State of New Jersey
/s/ Martin G. Daffner By: /s/ Jules J. Siegel
- --------------------------------- --------------------------------
Martin G. Daffner, Secretary Jules J. Siegel, President
CERTIFICATE OF SECRETARY OF COMMUNITY DISTRIBUTORS, INC.
---------------------------------------------------------
a corporation organized under the laws of the State of Delaware.
I, MARTIN G. DAFFNER, Secretary of Community Distributors, Inc., a
corporation organized under the laws of the State of Delaware, do hereby
certify in accordance with provision of:
1. That the foregoing agreement for merger of said company and
Community Distributors, Inc., a corporation existing under the laws of the
State of New Jersey was authorized and consented to by the directors of said
Community
7
<PAGE>
Distributors, Inc., a corporation organized under the laws of the State of
Delaware at a duly convened meeting called for that purpose.
2. That said agreement was duly submitted to the stockholders of
said Community Distributors, Inc., a corporation organized under the laws of
the State of Delaware, at a meeting thereof called for the purpose of taking
the same into consideration, upon the signed waiver of notice of time, place
and object thereof signed by the holders of all outstanding shares of stock
of said corporation.
3. That said agreement was considered by the stockholders at said
meeting and a vote of the stockholders was taken by ballot for the adoption
or rejection of such agreement and the stockholders unanimously voted in favor
of the adoption of said agreement.
4. That the registered office of Community Distributors, Inc., a
corporation organized under the laws of the State of Delaware is Corporation
Service Company, 4305 Lancaster Pike, Wilmington, Delaware, upon whom process
against said company may be served within the State of Delaware and that the
principal office of Community Distributors, Inc., a corporation organized under
the laws of the State of Delaware is 251 Industrial Parkway, Branchburg, New
Jersey.
IN WITNESS WHEREOF, I have hereunto signed my name as Secretary
and affixed the seal of said Community Distributors, Inc., a corporation
organized under the laws of the State of Delaware, this 19th day of October,
1985.
/s/ Martin G. Daffner
--------------------------------
Martin G. Daffner, Secretary
CERTIFICATE OF SECRETARY OF COMMUNITY DISTRIBUTORS, INC.
--------------------------------------------------------
a corporation organized under the laws of the State of New Jersey
I, MARTIN G. DAFFNER, Secretary of Community Distributors, Inc., a
corporation organized under the laws of the State of New Jersey, do hereby
certify in accordance with provision of:
1. That the foregoing agreement for merger of said company and
Community Distributors, Inc., a corporation existing under the laws of the
State
8
<PAGE>
of Delaware was authorized and consented to by the directors of said
Community Distributors, Inc., a corporation organized under the laws of the
State of New Jersey at a duly convened meeting called for that purpose.
2. That said agreement was duly submitted to the stockholders of said
Community Distributors, Inc., a corporation organized under the laws of the
State of New Jersey at a meeting thereof called for the purpose of taking the
same into consideration, upon the signed waiver of notice of time, place and
object thereof signed by the holders of all outstanding shares of stock of said
corporation.
3. That said agreement was considered by the stockholders at said
meeting and a vote of the stockholders was taken by ballot for the adoption
or rejection of such agreement and the stockholders unanimously voted in
favor of the adoption of said agreement.
4. That the registered office of Community Distributors, Inc., a
corporation organized under the laws of the State of New Jersey is 251
Industrial Parkway, Branchburg, New Jersey, and Jules J. Siegel is the agent
therein, and in charge thereof, upon whom process against said company may be
served within said state.
IN WITNESS WHEREOF, I have hereunto signed my name as Secretary and
affixed the seal of said Community Distributors, Inc., a corporation organized
under the laws of the State of New Jersey, this 19th day of October, 1985.
/s/ Martin G. Daffner
-------------------------------
Martin G. Daffner, Secretary
CERTIFICATE OF SECRETARY OF WATAJAM, INC.
-----------------------------------------
a corporation organized under the laws of the State of New Jersey
I, MARTIN G. DAFFNER, Secretary of Watajam, Inc., a corporation
organized under the laws of the State of New Jersey, do hereby certify in
accordance with provision of:
1. That the foregoing agreement for merger of said company and
Community Distributors, Inc., a corporation existing under the laws of the
State
9
<PAGE>
of Delaware was authorized and consented to by the directors of said
Watajam, Inc., a corporation organized under the laws of the State of New Jersey
at a duly convened meeting called for that purpose.
2. That said agreement was duly submitted to the stockholders of said
Watajam, Inc., a corporation organized under the laws of the State of New Jersey
at a meeting thereof called for the purpose of taking the same into
consideration, upon the signed waiver of notice of time, place and object
thereof signed by the holders of all outstanding shares of stock of said
corporation.
3. That said agreement was considered by the stockholders at said
meeting and a vote of the stockholders was taken by ballot for the adoption or
rejection of such agreement and the stockholders unanimously voted in favor of
the adoption of said agreement.
4. That the registered office of Watajam, Inc., a corporation organized
under the laws of the State of New Jersey is 251 Industrial Parkway, Branchburg,
New Jersey, and Jules J. Siegel is the agent therein, and in charge thereof,
upon whom process against said company may be served within said state.
IN WITNESS WHEREOF, I have hereunto signed my name as Secretary and
affixed the seal of said Watajam, Inc., a corporation organized under the laws
of the State of New Jersey, this 19th day of October, 1985.
/s/ Martin G. Daffner
----------------------------
Martin G. Daffner, Secretary
CERTIFICATE OF SECRETARY OF WATAJUL, INC.,
------------------------------------------
a corporation organized under the laws of the State of New Jersey
I, MARTIN G. DAFFNER, Secretary of Watajul, Inc., a corporation
organized under the laws of the State of New Jersey, do hereby certify in
accordance with provision of:
1. That the foregoing agreement for merger of said company and
Community Distributors, Inc., a corporation existing under the laws of the State
10
<PAGE>
of Delaware was authorized and consented to by the directors of said Watajul,
Inc., a corporation organized under the laws of the State of New Jersey at a
duly convened meeting called for that purpose.
2. That said agreement was duly submitted to the stockholders of
said Watajul, Inc., a corporation organized under the laws of the State of
New Jersey at a meeting thereof called for the purpose of taking the same into
consideration, upon the signed waiver of notice of time, place and object
thereof signed by the holders of all outstanding shares of stock of said
corporation.
3. That said agreement was considered by the stockholders at said
meeting and a vote of the stockholders was taken by ballot for the adoption or
rejection of such agreement and the stockholders unanimously voted in favor of
the adoption of said agreement.
4. That the registered office of Watajul, Inc., a corporation
organized under the laws of the State of New Jersey is 251 Industrial Parkway,
Branchburg, New Jersey, and Jules J. Siegel is the agent therein, and in
charge thereof, upon whom process against said company may be served within said
State.
IN WITNESS WHEREOF, I have hereunto signed my name as Secretary and
affixed the seal of said Watajul, Inc., a corporation organized under the laws
of the State of New Jersey, this 19th day of October, 1985.
/s/ Martin G. Daffner
------------------------------
Martin G. Daffner, Secretary
11
<PAGE>
FILED FEBRUARY 5 1985
Michael Harkins
Secretary of State
CERTIFICATE OF INCORPORATION
OF
COMMUNITY DISTRIBUTORS, INC.
----------------------------
FIRST. The name of this corporation shall be:
COMMUNITY DISTRIBUTORS, INC.
SECOND. Its registered office in the State of Delaware is to be located
at 4305 Lancaster Pike, in the City of Wilmington, County of New Castle 19805,
and its registered agent at such address is CORPORATION SERVICE COMPANY.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which this corporation is
authorized to issue is: Three Million Five Hundred Thousand (3,500,000) shares
of the par value of One Cent ($.01) each, amounting to Thirty-Five Thousand
Dollars ($35,000.00).
FIFTH. The name and mailing address of the incorporator is as follows:
JANE S. KRAYER
Corporation Service Company
4305 Lancaster Pike
Wilmington, Delaware 19805
SIXTH. The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
IN WITNESS WHEREOF, The undersigned, being the incorporator
hereinbefore named, has executed, signed and acknowledged this certificate of
incorporation this fifth day of February, A.D. 1985.
/s/ Jane S. Krayer
----------------------
Jane S. Krayer
Incorporator
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
NEWRXCO, INC.
INTO
COMMUNITY DISTRIBUTORS, INC.
NEWRXCO, INC., a Delaware corporation (the "Corporation"), does hereby
certify, pursuant to Section 253 of the General Corporation Law of the State of
Delaware, to the following information relating to the merger (the "Merger") of
the Corporation with and into COMMUNITY DISTRIBUTORS, INC., a Delaware
corporation:
1. The Corporation was incorporated on July 25, 1994, pursuant to and
in accordance with the General Corporation Law of the State of Delaware.
2. The Corporation owns 100% of the outstanding shares of common stock,
par value $0.01 per share (the "Common Stock"), of Community Distributors, Inc.
("CDI"), a corporation incorporated on February 5, 1985, pursuant to and in
accordance with the General Corporation Law of the State of Delaware.
3. The Board of Directors of the Corporation unanimously consented on
January 30, 1995 to the adoption of the following resolutions, which resolutions
provided that the Corporation be merged with and into CDI and set forth the
terms and conditions of the Merger:
RESOLVED: That the Corporation merge itself with and into CDI, its
wholly-owned subsidiary, which corporation shall assume all of
the obligations of the Corporation, and that said merger shall
be effective upon filing a Certificate of Ownership and Merger
with the Secretary of State of the State of Delaware (the
"Effective Time").
RESOLVED: That, at the Effective Time, the Certificate of Incorporation
of CDI, as in effect immediately prior to the Effective Time,
shall be the Certificate of Incorporation of the surviving
corporation except that such certificate shall be amended by
(i) deleting Articles SECOND, FIFTH and SIXTH thereof in their
entirety and (ii) by substituting in lieu thereof the
following Articles SECOND, FIFTH and SIXTH:
SECOND: The address of its registered office in the
State of Delaware is 1013 Centre Road in the City of
Wilmington,
<PAGE>
-2-
County of New Castle. The name of its registered
agent at such address is Corporation Service Company.
* * *
FIFTH: The following provisions are inserted for the
management of the business and for the conduct of the
affairs of the corporation and for defining and
regulating the powers of the corporation and its
directors and stockholders and are in furtherance and
not in limitation of the powers conferred upon the
corporation by statute:
(a) The election of directors need not be
by written ballot.
(b) The Board of Directors shall have the
power and authority:
(1) to adopt, amend or repeal
by-laws of the corporation, subject only to such
limitation, if any, as may be from time to time
imposed by law or by the by-laws; and
(2) to the full extent permitted or
not prohibited by law, and without the consent of or
other action by the stockholders, to authorize or
create mortgages, pledges or other liens or
encumbrances upon any or all of the assets, real,
personal or mixed, and franchises of the corporation,
including after-acquired property, and to exercise
all of the powers of the corporation in connection
therewith; and
(3) subject to any provision of the
by-laws, to determine whether, to what extent, at
what times and places and under what conditions and
regulations the accounts, books and papers of the
corporation (other than the stock ledger), or any of
them, shall be open to the inspection of the
stockholders, and no stockholder shall have any right
to inspect any account, book or paper of the
corporation except as conferred by statute or
authorized by the by-laws or by the Board of
Directors.
SIXTH: No director of the corporation shall be
personally liable to the corporation or to any of its
stockholders for monetary damages for breach of
fiduciary duty as a director, notwithstanding any
provision of law
<PAGE>
-3-
imposing such liability; provided, however, that to
the extent required from time to time by applicable
law, this Article Sixth shall not eliminate or limit
the liability of a director, to the extent such
liability is provided by applicable law, (i) for any
breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
(iii) under Section 174 of Title 8 of the Delaware
Code, or (iv) for any transaction from which the
director derived an improper personal benefit. No
amendment to or repeal of this Article Sixth shall
apply to or have any effect on the liability or
alleged liability of any director for or with respect
to any acts or omissions of such director occurring
prior to the effective date of such amendment or
repeal.
RESOLVED: That, after the Effective Time, upon the surrender by CDI
Group, Inc. ("Group") of a stock certificate representing
1,000 outstanding shares of common stock, par value $0.01 per
share, of the Corporation, Group shall be issued a new stock
certificate representing 1,000 shares of the common stock, par
value $0.01 per share, of CDI.
RESOLVED: That the foregoing certificate surrendered to CDI (as
successor by merger to the Corporation) shall thereafter be
cancelled.
RESOLVED: That the proposed merger shall be submitted to the sole
shareholder of the Corporation for approval by written
consent; and upon receiving such written consent, the merger
shall be approved.
RESOLVED: That, after the proposed merger has been approved by the sole
shareholder of the Corporation, the officers of the
Corporation be, and each of them hereby is, directed to
execute a Certificate of Ownership and Merger setting forth a
copy of the resolutions to merge the Corporation with and into
CDI, and the date of adoption thereof, and to file the same
with the Secretary of State of the State of Delaware, and to
cause a certified copy thereof to be recorded in the office of
the Recorder of Deeds of the County in the State of Delaware
in which the registered office of each of the Corporation and
CDI is located; and that the officers of the Corporation be,
and each of them hereby is, authorized and directed to take
any and all actions necessary and proper, in the judgment of
said officers, to effect said merger.
<PAGE>
-4-
4. The Merger has been approved and adopted by the sole shareholder of
the Corporation, by written consent on January 30, 1995.
5. Notwithstanding anything to the contrary contained in this
Certificate of Ownership and Merger, the Merger may be amended or terminated and
abandoned by the Board of Directors of the Corporation at any time prior to the
date of filing said Certificate of Ownership and Merger.
<PAGE>
-5-
IN WITNESS WHEREOF, NEWRXCO, INC., has caused this Certificate of
Ownership and Merger to be executed by Mark H. DeBlois, its President, and
attested to by Harvey P. Mallement, its Secretary, this 30th day of January,
1995.
NEWRXCO, INC.
By:
-------------------------
Mark H. DeBlois
President
[SEAL]
Attest:
By:
---------------------------
Harvey P. Mallement
Secretary
COMMUNITY DISTRIBUTORS, INC.
AMENDED AND RESTATED
BY-LAWS
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Title Page
- ----- ----
<S> <C>
Article I - General .........................................................................1
Section 1.1. Offices .....................................................................1
Section 1.2. Seal ........................................................................1
Section 1.3. Fiscal Year .................................................................1
Article II - Stockholders ...................................................................1
Section 2.1. Place of Meetings ...........................................................1
Section 2.2. Annual Meeting ..............................................................1
Section 2.3. Quorum ......................................................................1
Section 2.4. Right to Vote; Proxies ......................................................2
Section 2.5. Voting ......................................................................2
Section 2.6. Notice of Annual Meetings ...................................................2
Section 2.7. Stockholders' List ..........................................................2
Section 2.8. Special Meetings ............................................................3
Section 2.9. Notice of Special Meetings ..................................................3
Section 2.10. Inspectors ..................................................................3
Section 2.11. Stockholders' Consent in Lieu of Meeting.....................................3
Article III - Directors .....................................................................4
Section 3.1. Number of Directors .........................................................4
Section 3.2. Change in Number of Directors; Vacancies ....................................4
Section 3.3. Resignation .................................................................4
Section 3.4. Removal .....................................................................5
Section 3.5. Place of Meetings and Books .................................................5
Section 3.6. General Powers ..............................................................5
Section 3.7. Executive Committee .........................................................5
Section 3.8. Other Committees ............................................................5
Section 3.9. Powers Denied to Committees .................................................5
Section 3.10. Substitute Committee Member .................................................6
Section 3.11. Compensation of Directors ...................................................6
Section 3.12. Annual Meeting ..............................................................6
Section 3.13. Regular Meetings ............................................................6
Section 3.14. Special Meetings ............................................................6
Section 3.15. Quorum ......................................................................6
Section 3.16. Telephonic Participation in Meetings ........................................7
Section 3.17. Action by Consent ...........................................................7
<PAGE>
-ii-
Article IV - Officers ......................................................................7
Section 4.1. Selection; Statutory Officers ...............................................7
Section 4.2. Time of Election ............................................................7
Section 4.3. Additional Officers .........................................................7
Section 4.4. Terms of Office .............................................................7
Section 4.5. Compensation of Officers ....................................................7
Section 4.6. Chairman of the Board .......................................................7
Section 4.7. President ...................................................................8
Section 4.8. Vice-Presidents .............................................................8
Section 4.9. Treasurer ...................................................................8
Section 4.10. Secretary ...................................................................8
Section 4.11. Assistant Secretary .........................................................9
Section 4.12. Assistant Treasurer .........................................................9
Section 4.13. Subordinate Officers ........................................................9
Article V - Stock ...........................................................................9
Section 5.1. Stock .......................................................................9
Section 5.2. Fractional Share Interests ..................................................10
Section 5.3. Transfers of Stock ..........................................................10
Section 5.4. Record Date .................................................................10
Section 5.5. Transfer Agent and Registrar ................................................11
Section 5.6. Dividends ...................................................................11
1. Power to Declare ....................................................................11
2. Reserves ............................................................................11
Section 5.7. Lost, Stolen or Destroyed Certificates ......................................11
Section 5.8. Inspection of Books .........................................................11
Article VI - Miscellaneous Management Provisions ............................................11
Section 6.1. Checks, Drafts and Notes ....................................................11
Section 6.2. Notices .....................................................................12
Section 6.3. Conflict of Interest ........................................................12
Section 6.4. Voting of Securities Owned by this Corporation ..............................12
Article VII - Indemnification ...............................................................13
Section 7.1. Right to Indemnification ....................................................13
Section 7.2. Right of Indemnitee to Bring Suit ...........................................14
Section 7.3. Non-Exclusivity of Rights ...................................................14
Section 7.4. Insurance ...................................................................14
Section 7.5. Indemnification of Employees and Agents of the Corporation ..................14
Article VIII - Amendments ...................................................................15
Section 8.1. Amendments ..................................................................15
<PAGE>
-iii-
Article IX - Special Provisions..............................................................15
Section 9.1. Special Provisions...........................................................15
</TABLE>
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
AMENDED AND RESTATED
BY-LAWS
-------
Article I - General
-------------------
Section 1.1. Offices. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware. The Corporation may also
have offices at such other places both within and without the State of Delaware
as the Board of Directors may from time to time determine or the business of the
Corporation may require.
Section 1.2. Seal. The seal of the Corporation shall be in the form of
a circle and shall have inscribed thereon the name of the Corporation, the year
of its organization and the words "Corporate Seal, Delaware".
Section 1.3. Fiscal Year. The fiscal year of the Corporation shall be
the twelve (12) month period ending at the close of business on the last Sunday
in July of each year.
Article II - Stockholders
-------------------------
Section 2.1. Place of Meetings. All meetings of the stockholders shall
be held at the office of the Corporation in the State of New Jersey except such
meetings as the Board of Directors expressly determine shall be held elsewhere,
in which case meetings may be held upon notice as hereinafter provided at such
other place or places within or without the State of New Jersey as the Board of
Directors shall have determined and as shall be stated in such notice.
Section 2.2. Annual Meeting. The annual meeting of the stockholders
shall be held on the first day in the month of October of each year, or if that
be a legal holiday, on the next succeeding day not a legal holiday, at such time
as the Board of Directors may determine. At each annual meeting the stockholders
entitled to vote shall elect a Board of Directors by plurality vote by ballot,
and they may transact such other corporate business as may properly be brought
before the meeting. At the annual meeting any business may be transacted,
irrespective of whether the notice calling such meeting shall have contained a
reference thereto, except where notice is required by law, the Certificate of
Incorporation, or these by-laws.
Section 2.3. Quorum. At all meetings of the stockholders the holders of
a majority of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum requisite
for the transaction of business except as otherwise provided by law, by the
Certificate of Incorporation or by these by-laws. If, however, such majority
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or by proxy, by a
majority vote, shall have power to adjourn the meeting from time to time without
notice other than announcement at the meeting until the requisite amount of
voting stock shall be present. If the adjournment is for more than
<PAGE>
-2-
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. At such adjourned
meeting, at which the requisite amount of voting stock shall be represented, any
business may be transacted which might have been transacted if the meeting had
been held as originally called.
Section 2.4. Right to Vote; Proxies. Each holder of a share or shares
of capital stock of the Corporation having the right to vote at any meeting
shall be entitled to one vote for each such share of stock held by him. Any
stockholder entitled to vote at any meeting of stockholders may vote either in
person or by proxy, but no proxy which is dated more than three years prior to
the meeting at which it is offered shall confer the right to vote thereat unless
the proxy provides that it shall be effective for a longer period. A proxy may
be granted by a writing executed by the stockholder or his authorized officer,
director, employee or agent or by transmission or authorization of transmission
of a telegram, cablegram, or other means of electronic transmission to the
person who will be the holder of the proxy or to a proxy solicitation firm,
proxy support service organization or like agent duly authorized by the person
who will be the holder of the proxy to receive such transmission, subject to the
conditions set forth in Section 212 of the Delaware General Corporation Law, as
it may be amended from time to time (the "Delaware GCL").
Section 2.5. Voting. At all meetings of stockholders, except as
otherwise expressly provided for by statute, the Certificate of Incorporation or
these by-laws, (a) in all matters other than the election of directors, the
affirmative vote of a majority of shares present in person or represented by
proxy at the meeting and entitled to vote on such matter shall be the act of the
stockholders and (b) directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors. Except as otherwise expressly provided by
law, the Certificate of Incorporation or these by-laws, at all meetings of
stockholders the voting shall be by voice vote, but any stockholder qualified to
vote on the matter in question may demand a stock vote, by shares of stock, upon
such question, whereupon such stock vote shall be taken by ballot, each of which
shall state the name of the stockholder voting and the number of shares voted by
him, and, if such ballot be cast by a proxy, it shall also state the name of the
proxy.
Section 2.6. Notice of Annual Meetings. Written notice of the annual
meeting of the stockholders shall be mailed to each stockholder entitled to vote
thereat at such address as appears on the stock books of the Corporation at
least ten (10) days (and not more than sixty (60) days) prior to the meeting. It
shall be the duty of every stockholder to furnish to the Secretary of the
Corporation or to the transfer agent, if any, of the class of stock owned by
him, his post-office address and to notify said Secretary or transfer agent of
any change therein.
Section 2.7. Stockholders' List. A complete list of the stockholders
entitled to vote at any meeting of stockholders, arranged in alphabetical order
and showing the address of each stockholder, and the number of shares registered
in the name of each stockholder, shall be prepared by the Secretary and filed
either at a place within the city where the meeting is to be
<PAGE>
-3-
held, which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held, at least ten days
before such meeting, and shall at all times during the usual hours for business,
and during the whole time of said election, be open to the examination of any
stockholder for a purpose germane to the meeting.
Section 2.8. Special Meetings. Special meetings of the stockholders for
any purpose or purposes, unless otherwise provided by statute, may be called by
the Board of Directors, the Chairman of the Board, if any, the President or any
Vice President.
Section 2.9. Notice of Special Meetings. Written notice of a special
meeting of stockholders, stating the time and place and object thereof shall be
mailed, postage prepaid, not less than ten (10) nor more than sixty (60) days
before such meeting, to each stockholder entitled to vote thereat, at such
address as appears on the books of the Corporation. No business may be
transacted at such meeting except that referred to in said notice, or in a
supplemental notice given also in compliance with the provisions hereof, or such
other business as may be germane or supplementary to that stated in said notice
or notices.
Section 2.10. Inspectors.
1. One or more inspectors may be appointed by the Board of Directors
before or at any meeting of stockholders, or, if no such appointment shall have
been made, the presiding officer may make such appointment at the meeting. At
the meeting for which the inspector or inspectors are appointed, he or they
shall open and close the polls, receive and take charge of the proxies and
ballots, and decide all questions touching on the qualifications of voters, the
validity of proxies and the acceptance and rejection of votes. If any inspector
previously appointed shall fail to attend or refuse or be unable to serve, the
presiding officer shall appoint an inspector in his place.
2. At any time at which the Corporation has a class of voting stock
that is (a) listed on a national securities exchange, (b) authorized for
quotation on an inter-dealer quotation system of a registered national
securities association, or (c) held of record by more than 2,000 stockholders,
the provisions of Section 231 of the Delaware GCL with respect to inspectors of
election and voting procedures shall apply, in lieu of the provisions of
paragraph (l) of this Section 2.10.
Section 2.11. Stockholders' Consent in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required by
law to be taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of
<PAGE>
-4-
the Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder who
signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty days of the earliest
dated consent delivered in the manner required by this Section 2.11 to the
Corporation, written consents signed by a sufficient number of stockholders to
take action are delivered to the Corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
Article III - Directors
-----------------------
Section 3.1. Number of Directors. Except as otherwise provided by law,
the Certificate of Incorporation or these by-laws, the property and business of
the Corporation shall be managed by or under the direction of a board of not
less than one nor more than thirteen directors. Within the limits specified, the
number of directors shall be determined by resolution of the Board of Directors
or by the stockholders at the annual meeting. Directors need not be
stockholders, residents of Delaware or citizens of the United States. The
directors shall be elected by ballot at the annual meeting of the stockholders
and each director shall be elected to serve until his successor shall be elected
and shall qualify or until his earlier resignation or removal; provided that in
the event of failure to hold such meeting or to hold such election at such
meeting, such election may be held at any special meeting of the stockholders
called for that purpose. If the office of any director becomes vacant by reason
of death, resignation, disqualification, removal, failure to elect, or
otherwise, the remaining directors, although more or less than a quorum, by a
majority vote of such remaining directors may elect a successor or successors
who shall hold office for the unexpired term.
Section 3.2. Change in Number of Directors; Vacancies. The maximum
number of directors may be increased by an amendment to these by-laws adopted by
a majority vote of the Board of Directors or by a majority vote of the capital
stock having voting power, and if the number of directors is so increased by
action of the Board of Directors or of the stockholders or otherwise, then the
additional directors may be elected in the manner provided above for the filling
of vacancies in the Board of Directors or at the annual meeting of stockholders
or at a special meeting called for that purpose.
Section 3.3. Resignation. Any director of this Corporation may resign
at any time by giving written notice to the Chairman of the Board, if any, the
President or the Secretary of the Corporation. Such resignation shall take
effect at the time specified therein, at the time of receipt if no time is
specified therein and at the time of acceptance if the effectiveness of such
<PAGE>
-5-
resignation is conditioned upon its acceptance. Unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 3.4. Removal. Any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
Section 3.5. Place of Meetings and Books. The Board of Directors may
hold their meetings and keep the books of the Corporation outside the State of
Delaware, at such places as they may from time to time determine.
Section 3.6. General Powers. In addition to the powers and authority
expressly conferred upon them by these by-laws, the board may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation or by these by-laws directed or
required to be exercised or done by the stockholders.
Section 3.7. Executive Committee. There may be an executive committee
of one or more directors designated by resolution passed by a majority of the
whole board. The act of a majority of the members of such committee shall be the
act of the committee. Said committee may meet at stated times or on notice to
all by any of their own number, and shall have and may exercise those powers of
the Board of Directors in the management of the business affairs of the Company
as are provided by law and may authorize the seal of the Corporation to be
affixed to all papers which may require it. Vacancies in the membership of the
committee shall be filled by the Board of Directors at a regular meeting or at a
special meeting called for that purpose.
Section 3.8. Other Committees. The Board of Directors may also
designate one or more committees in addition to the executive committee, by
resolution or resolutions passed by a majority of the whole board; such
committee or committees shall consist of one or more directors of the
Corporation, and to the extent provided in the resolution or resolutions
designating them, shall have and may exercise specific powers of the Board of
Directors in the management of the business and affairs of the Corporation to
the extent permitted by statute and shall have power to authorize the seal of
the Corporation to be affixed to all papers which may require it. Such committee
or committees shall have such name or names as may be determined from time to
time by resolution adopted by the Board of Directors.
Section 3.9. Powers Denied to Committees. Committees of the Board of
Directors shall not, in any event, have any power or authority to amend the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
adopted by the Board of Directors as provided in Section 151(a) of the Delaware
GCL, fix the designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any
<PAGE>
-6-
series), adopt an agreement of merger or consolidation, recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommend to the stockholders a dissolution
of the Corporation or a revocation of a dissolution or to amend the by-laws of
the Corporation. Further, no committee of the Board of Directors shall have the
power or authority to declare a dividend, to authorize the issuance of stock or
to adopt a certificate of ownership and merger pursuant to Section 253 of the
Delaware GCL, unless the resolution or resolutions designating such committee
expressly so provides.
Section 3.10. Substitute Committee Member. In the absence or on the
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of such absent or disqualified
member. Any committee shall keep regular minutes of its proceedings and report
the same to the board as may be required by the board.
Section 3.11. Compensation of Directors. The Board of Directors shall
have the power to fix the compensation of directors and members of committees of
the Board. The directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
Section 3.12. Annual Meeting. The newly elected board may meet at such
place and time as shall be fixed and announced by the presiding officer at the
annual meeting of stockholders, for the purpose of organization or otherwise,
and no further notice of such meeting shall be necessary to the newly elected
directors in order legally to constitute the meeting, provided a quorum shall be
present, or they may meet at such place and time as shall be stated in a notice
given to such directors two (2) days prior to such meeting, or as shall be fixed
by the consent in writing of all the directors.
Section 3.13. Regular Meetings. Regular meetings of the board may be
held without notice at such time and place as shall from time to time be
determined by the board.
Section 3.14. Special Meetings. Special meetings of the board may be
called by the Chairman of the Board, if any, or the President, on two (2) days'
notice to each director, or such shorter period of time before the meeting as
will nonetheless be sufficient for the convenient assembly of the directors so
notified; special meetings shall be called by the Secretary in like manner and
on like notice, on the written request of two or more directors.
Section 3.15. Quorum. At all meetings of the Board of Directors, a
majority of the total number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically
<PAGE>
-7-
permitted or provided by statute, or by the Certificate of Incorporation, or by
these by-laws. If at any meeting of the board there shall be less than a quorum
present, a majority of those present may adjourn the meeting from time to time
until a quorum is obtained, and no further notice thereof need be given other
than by announcement at said meeting which shall be so adjourned.
Section 3.16. Telephonic Participation in Meetings. Members of the
Board of Directors or any committee designated by such board may participate in
a meeting of the board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
section shall constitute presence in person at such meeting.
Section 3.17. Action by Consent. Unless otherwise restricted by the
Certificate of Incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if written consent thereto is signed by all
members of the board or of such committee as the case may be and such written
consent is filed with the minutes of proceedings of the board or committee.
Article IV - Officers
---------------------
Section 4.1. Selection; Statutory Officers. The officers of the
Corporation shall be chosen by the Board of Directors. There shall be a
President, a Secretary and a Treasurer, and there may be a Chairman of the Board
of Directors, one or more Vice Presidents, one or more Assistant Secretaries,
and one or more Assistant Treasurers, as the Board of Directors may elect. Any
number of offices may be held by the same person, except that the offices of
President and Secretary shall not be held by the same person simultaneously.
Section 4.2. Time of Election. The officers above named shall be chosen
by the Board of Directors at its first meeting after each annual meeting of
stockholders. None of said officers need be a director.
Section 4.3. Additional Officers. The board may appoint such other
officers and agents as it shall deem necessary, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4.4. Terms of Office. Each officer of the Corporation shall
hold office until his successor is chosen and qualified, or until his earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time by the Board of Directors.
Section 4.5. Compensation of Officers. The Board of Directors shall
have power to fix the compensation of all officers of the Corporation. It may
authorize any officer, upon whom the power of appointing subordinate officers
may have been conferred, to fix the compensation of such subordinate officers.
<PAGE>
-8-
Section 4.6. Chairman of the Board. The Chairman of the Board of
Directors shall preside at all meetings of the stockholders and directors, and
shall have such other duties as may be assigned to him from time to time by the
Board of Directors.
Section 4.7. President. Unless the Board of Directors otherwise
determines, the President shall be the chief executive officer and head of the
Corporation. Unless there is a Chairman of the Board, the President shall
preside at all meetings of directors and stockholders. Under the supervision of
the Board of Directors and of the executive committee, the President shall have
the general control and management of its business and affairs, subject,
however, to the right of the Board of Directors and of the executive committee
to confer any specific power, except such as may be by statute exclusively
conferred on the President, upon any other officer or officers of the
Corporation. The President shall perform and do all acts and things incident to
the position of President and such other duties as may be assigned to him from
time to time by the Board of Directors or the executive committee.
Section 4.8. Vice-Presidents. The Vice-Presidents shall perform such of
the duties of the President on behalf of the Corporation as may be respectively
assigned to them from time to time by the Board of Directors or by the executive
committee or by the President. The Board of Directors or the executive committee
may designate one of the Vice-Presidents as the Executive Vice-President, and in
the absence or inability of the President to act, such Executive Vice-President
shall have and possess all of the powers and discharge all of the duties of the
President, subject to the control of the board and of the executive committee.
Section 4.9. Treasurer. The Treasurer shall have the care and custody
of all the funds and securities of the Corporation which may come into his hands
as Treasurer, and the power and authority to endorse checks, drafts and other
instruments for the payment of money for deposit or collection when necessary or
proper and to deposit the same to the credit of the Corporation in such bank or
banks or depository as the Board of Directors or the executive committee, or the
officers or agents to whom the Board of Directors or the executive committee may
delegate such authority, may designate, and he may endorse all commercial
documents requiring endorsements for or on behalf of the Corporation. He may
sign all receipts and vouchers for the payments made to the Corporation. He
shall render an account of his transactions to the Board of Directors or to the
executive committee as often as the board or the committee shall require the
same. He shall enter regularly in the books to be kept by him for that purpose
full and adequate account of all moneys received and paid by him on account of
the Corporation. He shall perform all acts incident to the position of
Treasurer, subject to the control of the Board of Directors and of the executive
committee. He shall when requested, pursuant to vote of the Board of Directors
or the executive committee, give a bond to the Corporation conditioned for the
faithful performance of his duties, the expense of which bond shall be borne by
the Corporation.
Section 4.10. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors and of the stockholders; he shall attend to
the giving and serving of all notices of the Corporation. Except as otherwise
ordered by the Board of Directors or the executive committee, he shall attest
the seal of the Corporation upon all contracts and instruments executed
<PAGE>
-9-
under such seal and shall affix the seal of the Corporation thereto and to all
certificates of shares of capital stock of the Corporation. He shall have charge
of the stock certificate book, transfer book and stock ledger, and such other
books and papers as the Board of Directors or the executive committee may
direct. He shall, in general, perform all the duties of Secretary, subject to
the control of the Board of Directors and of the executive committee.
Section 4.11. Assistant Secretary. The Board of Directors or any two of
the officers of the Corporation acting jointly may appoint or remove one or more
Assistant Secretaries of the Corporation. Any Assistant Secretary upon his
appointment shall perform such duties of the Secretary, and also any and all
such other duties as the executive committee or the Board of Directors or the
President or the Executive Vice-President or the Treasurer or the Secretary may
designate.
Section 4.12. Assistant Treasurer. The Board of Directors or any two of
the officers of the Corporation acting jointly may appoint or remove one or more
Assistant Treasurers of the Corporation. Any Assistant Treasurer upon his
appointment shall perform such of the duties of the Treasurer, and also any and
all such other duties as the executive committee or the Board of Directors or
the President or the Executive Vice-President or the Treasurer or the Secretary
may designate.
Section 4.13. Subordinate Officers. The Board of Directors may select
such subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority, and perform such duties as the
Board of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officer to appoint and remove subordinate officers and to
prescribe the powers and duties thereof.
Article V - Stock
-----------------
Section 5.1. Stock. Each stockholder shall be entitled to a certificate
or certificates of stock of the Corporation in such form as the Board of
Directors may from time to time prescribe. The certificates of stock of the
Corporation shall be numbered and shall be entered in the books of the
Corporation as they are issued. They shall certify the holder's name and number
and class of shares and shall be signed by both of (a) either the President or a
Vice-President, and (b) any one of the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, and shall be sealed with the corporate
seal of the Corporation. If such certificate is countersigned (l) by a transfer
agent other than the Corporation or its employee, or, (2) by a registrar other
than the Corporation or its employee, the signature of the officers of the
Corporation and the corporate seal may be facsimiles. In case any officer or
officers who shall have signed, or whose facsimile signature or signatures shall
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the Corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be adopted by
the Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose
<PAGE>
-10-
facsimile signature shall have been used thereon had not ceased to be such
officer or officers of the Corporation.
Section 5.2. Fractional Share Interests. The Corporation may, but shall
not be required to, issue fractions of a share. If the Corporation does not
issue fractions of a share, it shall (a) arrange for the disposition of
fractional interests by those entitled thereto, (b) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined, or (c) issue scrip or warrants in registered or bearer
form which shall entitle the holder to receive a certificate for a full share
upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share shall, but scrip or warrants shall not unless
otherwise provided therein, entitle the holder to exercise voting rights, to
receive dividends thereon, and to participate in any of the assets of the
Corporation in the event of liquidation. The Board of Directors may cause scrip
or warrants to be issued subject to the conditions that they shall become void
if not exchanged for certificates representing full shares before a specified
date, or subject to the conditions that the shares for which scrip or warrants
are exchangeable may be sold by the Corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
Section 5.3. Transfers of Stock. Subject to any transfer restrictions
then in force, the shares of stock of the Corporation shall be transferable only
upon its books by the holders thereof in person or by their duly authorized
attorneys or legal representatives and upon such transfer the old certificates
shall be surrendered to the Corporation by the delivery thereof to the person in
charge of the stock and transfer books and ledgers or to such other person as
the directors may designate by whom they shall be cancelled and new certificates
shall thereupon be issued. The Corporation shall be entitled to treat the holder
of record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share on the part of any other person whether or not it shall
have express or other notice thereof save as expressly provided by the laws of
Delaware.
Section 5.4. Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or the allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, nor more than sixty (60) days prior to any
other action. If no such record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; the record date for determining stockholders entitled to express consent
to corporate action in writing without a meeting, when no prior action by the
Board of Directors is necessary, shall be the day on which the first written
consent is expressed; and the record date for determining stockholders for any
other purpose shall be at the close of business
<PAGE>
-11-
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at any meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 5.5. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents or transfer clerks and one or more
registrars and may require all certificates of stock to bear the signature or
signatures of any of them.
Section 5.6. Dividends.
1. Power to Declare. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation and the laws of Delaware.
2. Reserves. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 5.7. Lost, Stolen or Destroyed Certificates. No certificates
for shares of stock of the Corporation shall be issued in place of any
certificate alleged to have been lost, stolen or destroyed, except upon
production of such evidence of the loss, theft or destruction and upon
indemnification of the Corporation and its agents to such extent and in such
manner as the Board of Directors may from time to time prescribe.
Section 5.8. Inspection of Books. The stockholders of the Corporation,
by a majority vote at any meeting of stockholders duly called, or in case the
stockholders shall fail to act, the Board of Directors shall have power from
time to time to determine whether and to what extent and at what times and
places and under what conditions and regulations the accounts and books of the
Corporation (other than the stock ledger) or any of them, shall be open to
inspection of stockholders; and no stockholder shall have any right to inspect
any account or book or document of the Corporation except as conferred by
statute or authorized by the Board of Directors or by a resolution of the
stockholders.
<PAGE>
-12-
Article VI - Miscellaneous Management Provisions
------------------------------------------------
Section 6.1. Checks, Drafts and Notes. All checks, drafts or orders for
the payment of money, and all notes and acceptances of the Corporation shall be
signed by such officer or officers, agent or agents as the Board of Directors
may designate.
Section 6.2. Notices.
1. Notices to directors may, and notices to stockholders shall, be in
writing and delivered personally or mailed to the directors or stockholders at
their addresses appearing on the books of the Corporation. Notice by mail shall
be deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram, telecopy or orally, by telephone or in
person.
2. Whenever any notice is required to be given under the provisions of
the statutes or of the Certificate of Incorporation of the Corporation of the
Corporation or of these by-laws, a written waiver of notice, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein or the meeting or action to which such notice relates, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
Section 6.3. Conflict of Interest. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the board of or committee thereof which
authorized the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (a) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee and the board or committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (b) the material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the stockholders
of the Corporation entitled to vote thereon, and the contract or transaction as
specifically approved in good faith by vote of such stockholders; or (c) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 6.4. Voting of Securities owned by this Corporation. Subject
always to the specific directions of the Board of Directors, (a) any shares or
other securities issued by any other
<PAGE>
-13-
Corporation and owned or controlled by this Corporation may be voted in person
at any meeting of security holders of such other corporation by the President of
this Corporation if he is present at such meeting, or in his absence by the
Treasurer of this Corporation if he is present at such meeting, and (b)
whenever, in the judgment of the President, it is desirable for this Corporation
to execute a proxy or written consent in respect to any shares or other
securities issued by any other Corporation and owned by this Corporation, such
proxy or consent shall be executed in the name of this Corporation by the
President, without the necessity of any authorization by the Board of Directors,
affixation of corporate seal or countersignature or attestation by another
officer, provided that if the President is unable to execute such proxy or
consent by reason of sickness, absence from the United States or other similar
cause, the Treasurer may execute such proxy or consent. Any person or persons
designated in the manner above stated as the proxy or proxies of this
Corporation shall have full right, power and authority to vote the shares or
other securities issued by such other corporation and owned by this Corporation
the same as such shares or other securities might be voted by this Corporation.
Article VII - Indemnification
-----------------------------
Section 7.1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of being or having been a director or
officer of the Corporation or serving or having served at the request of the
Corporation as a director, trustee, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (an "Indemnitee"),
whether the basis of such proceeding is alleged action or failure to act in an
official capacity as a director, trustee, officer, employee or agent or in any
other capacity while serving as a director, trustee, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than permitted prior thereto) (as used in this Article VII, the "Delaware
Law"), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such Indemnitee in connection
therewith and such indemnification shall continue as to an Indemnitee who has
ceased to be a director, trustee, officer, employee or agent and shall inure to
the benefit of the Indemnitee's heirs, executors and administrators; provided,
however, that, except as provided in Section 7.2 hereof with respect to
Proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such Indemnitee in connection with a Proceeding (or part thereof)
initiated by such Indemnitee only if such Proceeding (or part thereof) was
authorized by the board of directors of the Corporation. The right to
indemnification conferred in this Article VII shall be a contract right and
shall include the right to be paid by the Corporation the expenses (including
attorneys' fees) incurred in defending any such Proceeding in advance of its
final disposition (an "Advancement of Expenses"); provided, however, that, if
the Delaware Law so requires, an Advancement of Expenses incurred by an
Indemnitee shall be made only upon delivery to the Corporation of an undertaking
(an "Undertaking"), by or on behalf of such
<PAGE>
-14-
Indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (a "Final Adjudication") that such Indemnitee is not entitled to be
indemnified for such expenses under this Article VII or otherwise.
Section 7.2. Right of Indemnitee to Bring Suit. If a claim under
Section 7.1 hereof is not paid in full by the Corporation within sixty days
after a written claim has been received by the Corporation, except in the case
of a claim for an Advancement of Expenses, in which case the applicable period
shall be twenty days, the Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the Corporation to
recover an Advancement of Expenses pursuant to the terms of an Undertaking, the
Indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the Indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the Indemnitee
to enforce a right to an Advancement of Expenses) it shall be a defense that,
and (ii) in any suit by the Corporation to recover an Advancement of Expenses
pursuant to the terms of an Undertaking the Corporation shall be entitled to
recover such expenses upon a Final Adjudication that, the Indemnitee has not met
the applicable standard of conduct set forth in the Delaware Law. Neither the
failure of the Corporation (including its board of directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the Indemnitee is proper in
the circumstances because the Indemnitee has met the applicable standard of
conduct set forth in the Delaware Law, nor an actual determination by the
Corporation (including its board of directors, independent legal counsel, or its
stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an Advancement of Expenses hereunder,
or by the Corporation to recover an Advancement of Expenses pursuant to the
terms of an Undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such Advancement of Expenses, under this
Article VII or otherwise shall be on the Corporation.
Section 7.3. Non-Exclusivity of Rights. The rights to indemnification
and to the Advancement of Expenses conferred in this Article VII shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Corporation's Certificate or Incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 7.4. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under this Article VII or under the Delaware Law.
Section 7.5. Indemnification of Employees and Agents of the
Corporation. The Corporation may, to the extent authorized from time to time by
the board of directors, grant
<PAGE>
-15-
rights to indemnification, and to the Advancement of Expenses, to any employee
or agent of the Corporation to the fullest extent of the provisions of this
Article VII with respect to the indemnification and Advancement of Expenses of
directors and officers of the Corporation.
Article VIII - Amendments
-------------------------
Section 8.1. Amendments. The by-laws of the Corporation may be altered,
amended or repealed at any meeting of the Board of Directors upon notice thereof
in accordance with these by-laws, or at any meeting of the stockholders by the
vote of the holders of the majority of the stock issued and outstanding and
entitled to vote at such meeting, in accordance with the provisions of the
Certificate of Incorporation of the Corporation and of the laws of Delaware.
Article IX - Special Provisions
-------------------------------
Section 9.1. Special Provisions. Notwithstanding any other provisions
herein to the contrary, (a) at any time while any BBV Stockholder or any Harvest
Stockholder (each as defined in the Stockholder Agreement referred to below) has
designated any directors on the Corporation's Board of Directors, the majority
of the total number of directors required in order to constitute a quorum for
any action set forth in Schedule 2 to the Stockholder Agreement, dated as of
January 30, 1995, as amended from time to time, among CDI Group, Inc., a
Delaware corporation, the BBV Stockholders, the Harvest Stockholders and the
other stockholders of CDI Group, Inc. (as amended and in effect from time to
time, the "Stockholder Agreement"), shall include all of the directors
designated by the BBV Stockholders and all of the directors designated by the
Harvest Stockholders, in each case pursuant to the Stockholder Agreement, (b)
for any action set forth on Schedule 2 to the Stockholder Agreement (including
any amendment to these By-Laws), the act of a majority of the directors present
at any meeting at which there is a quorum must include the affirmative votes of
(i) all of the directors designated by the BBV Stockholders at any time while
directors designated by the BBV Stockholders are serving on the Corporation's
Board of Directors and (ii) all of the directors designated by the Harvest
Stockholders at any time while directors designated by the Harvest Stockholders
are serving on the Corporation's Board of Directors and (c) the number of
directors, the election of directors and the filling of vacancies on the Board
of Directors shall be determined in accordance with the provisions of the
Stockholder Agreement until the Stockholder Agreement has been terminated in
accordance with its terms.
COMMUNITY DISTRIBUTORS, INC.
Issuer,
and
THE GUARANTORS NAMED HEREIN
and
THE BANK OF NEW YORK
Trustee
------------------------
INDENTURE
Dated as of October 16, 1997
-------------------
$80,000,000
10-1/4% Senior Notes due 2004
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.1. Definitions...................................................................1
SECTION 1.2. Incorporation by Reference of TIA............................................19
SECTION 1.3. Rules of Construction........................................................20
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating..............................................................20
SECTION 2.2. Execution and Authentication.................................................21
SECTION 2.3. Registrar and Paying Agent...................................................22
SECTION 2.4. Paying Agent to Hold Assets in Trust.........................................22
SECTION 2.5. Securityholder Lists.........................................................23
SECTION 2.6. Transfer and Exchange........................................................23
SECTION 2.7. Replacement Securities.......................................................31
SECTION 2.8. Outstanding Securities.......................................................31
SECTION 2.9. Treasury Securities..........................................................32
SECTION 2.10. Temporary Securities.........................................................32
SECTION 2.11. Cancellation.................................................................32
SECTION 2.12. Defaulted Interest...........................................................33
SECTION 2.13. CUSIP Numbers................................................................34
ARTICLE III
REDEMPTION
SECTION 3.1. Right of Redemption..........................................................34
SECTION 3.2. Notices to Trustee...........................................................35
SECTION 3.3. Selection of Securities to Be Redeemed.......................................35
SECTION 3.4. Notice of Redemption.........................................................36
SECTION 3.5. Effect of Notice of Redemption...............................................37
SECTION 3.6. Deposit of Redemption Price..................................................37
SECTION 3.7. Securities Redeemed in Part..................................................38
i
<PAGE>
ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Securities........................................................38
SECTION 4.2. Maintenance of Office or Agency..............................................38
SECTION 4.3. Limitation on Restricted Payments............................................39
SECTION 4.4. Corporate Existence..........................................................40
SECTION 4.5. Payment of Taxes and Other Claims............................................40
SECTION 4.6. Compliance Certificate; Notice of Default....................................40
SECTION 4.7. Reports......................................................................41
SECTION 4.8. Limitation on Status as Investment Company...................................41
SECTION 4.9. Limitation on Transactions with Affiliates...................................41
SECTION 4.10. Limitation on Incurrence of Additional Indebtedness and
Disqualified
Capital Stock................................................................42
SECTION 4.11. Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries.................................................................43
SECTION 4.12. Limitation on Liens..........................................................44
SECTION 4.13. Limitation on Sale of Assets and Subsidiary Stock............................44
SECTION 4.14. Limitation on Lines of Business..............................................47
SECTION 4.15. Restriction on Sale and Issuance of Subsidiary Stock.........................47
SECTION 4.16. Waiver of Stay, Extension or Usury Laws......................................48
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation..................................48
SECTION 5.2. Successor Corporation Substituted............................................49
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default............................................................49
SECTION 6.2. Acceleration of Maturity Date; Rescission and Annulment......................51
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by Trustee..............52
SECTION 6.4. Trustee May File Proofs of Claim.............................................53
SECTION 6.5. Trustee May Enforce Claims Without Possession of Securities..................53
SECTION 6.6. Priorities...................................................................54
SECTION 6.7. Limitation on Suits..........................................................54
ii
<PAGE>
SECTION 6.8. Unconditional Right of Holders to Receive Principal, Premium and
Interest.....................................................................55
SECTION 6.9. Rights and Remedies Cumulative...............................................55
SECTION 6.10. Delay or Omission Not Waiver.................................................56
SECTION 6.11. Control by Holders...........................................................56
SECTION 6.12. Waiver of Past Default.......................................................56
SECTION 6.13. Undertaking for Costs........................................................57
SECTION 6.14. Restoration of Rights and Remedies...........................................57
ARTICLE VII
TRUSTEE
SECTION 7.1. Duties of Trustee............................................................58
SECTION 7.2. Rights of Trustee............................................................59
SECTION 7.3. Individual Rights of Trustee.................................................60
SECTION 7.4. Trustee's Disclaimer.........................................................60
SECTION 7.5. Notice of Default............................................................60
SECTION 7.6. Reports by Trustee to Holders................................................61
SECTION 7.7. Compensation and Indemnity...................................................61
SECTION 7.8. Replacement of Trustee.......................................................62
SECTION 7.9. Successor Trustee by Merger, Etc.............................................63
SECTION 7.10. Eligibility; Disqualification................................................63
SECTION 7.11. Preferential Collection of Claims Against Company............................64
ARTICLE VIII
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. Option to Effect Legal Defeasance or Covenant Defeasance.....................64
SECTION 8.2. Legal Defeasance and Discharge...............................................64
SECTION 8.3. Covenant Defeasance..........................................................65
SECTION 8.4. Conditions to Legal or Covenant Defeasance...................................65
SECTION 8.5. Deposited Cash and U.S. Government Obligations to be Held in
Trust;
Other Miscellaneous Provisions...............................................67
SECTION 8.6. Repayment to the Company.....................................................67
SECTION 8.7. Reinstatement................................................................68
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
iii
<PAGE>
SECTION 9.1. Supplemental Indentures Without Consent of Holders...........................68
SECTION 9.2. Amendments, Supplemental Indentures and Waivers with Consent
of Holders...................................................................69
SECTION 9.3. Compliance with TIA..........................................................71
SECTION 9.4. Revocation and Effect of Consents............................................71
SECTION 9.5. Notation on or Exchange of Securities........................................72
SECTION 9.6. Trustee to Sign Amendments, Etc..............................................72
ARTICLE X
RIGHT TO REQUIRE REPURCHASE
SECTION 10.1. Repurchase of Securities at Option of the Holder Upon a Change of
Control......................................................................72
ARTICLE XI
GUARANTEE
SECTION 11.1. Guarantee....................................................................75
SECTION 11.2. Execution and Delivery of Guarantee..........................................76
SECTION 11.3. Future Subsidiary Guarantors.................................................77
SECTION 11.4. Limitation on Merger, Sale or Consolidation of Subsidiaries..................77
SECTION 11.5. Certain Bankruptcy Events....................................................78
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. TIA Controls.................................................................78
SECTION 12.2. Notices......................................................................78
SECTION 12.3. Communications by Holders with Other Holders.................................79
SECTION 12.4. Certificate and Opinion as to Conditions Precedent...........................79
SECTION 12.5. Statements Required in Certificate or Opinion................................80
SECTION 12.6. Rules by Trustee, Paying Agent, Registrar....................................80
SECTION 12.7. Non-Business Days............................................................80
SECTION 12.8. Governing Law................................................................80
SECTION 12.9. No Adverse Interpretation of Other Agreements................................81
SECTION 12.10. No Recourse against Others...................................................81
SECTION 12.11. Successors...................................................................81
SECTION 12.12. Duplicate Originals..........................................................82
iv
<PAGE>
Page
SECTION 12.13. Severability.................................................................82
SECTION 12.14. Table of Contents, Headings, Etc.............................................82
SECTION 12.15. Qualification of Indenture...................................................82
SECTION 12.16. Registration Rights..........................................................82
SIGNATURES .........................................................................................83
Exhibit A ........................................................................................A-1
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
Page
CROSS-REFERENCE TABLE
TIAIndenture
Section Section
<S> <C>
310(a)(1)................................................................................. 7.10
(a)(2).................................................................................. 7.10
(a)(3).................................................................................. N.A.
(a)(4).................................................................................. N.A.
(a)(5).................................................................................. 7.10
(b) .................................................................................... 7.8;
7.10;
12.2
(c) .................................................................................... N.A.
311(a).................................................................................... 7.11
(b) .................................................................................... 7.11
(c) .................................................................................... N.A.
312(a).................................................................................... 2.5
(b) .................................................................................... 12.3
(c) .................................................................................... 12.3
313(a).................................................................................... 7.6
(b)(1).................................................................................. N.A.
(b)(2).................................................................................. 7.6
(c) .................................................................................... 7.6;
12.2
(d) .................................................................................... 7.6
314(a).................................................................................... 4.6;
4.7;
12.2
(b) .................................................................................... N.A.
(c)(1).................................................................................. 2.2;
7.2;
12.2
(c)(2).................................................................................. 7.2;
12.2
(c)(3).................................................................................. N.A.
(d) .................................................................................... N.A.
(e) .................................................................................... 12.5
(f) .................................................................................... N.A.
315(a).................................................................................... 7.1(b)
vi
<PAGE>
Page
(b) .................................................................................... 7.5;
7.6;
12.2
(c) .................................................................................... 7.1(a)
(d) .................................................................................... 6.11;
7.1(b),
(c)
(e) .................................................................................... 6.13
316(a)(last sentence)..................................................................... 2.9
(a)(1)(A)............................................................................... 6.11
(a)(1)(B)............................................................................... 6.12
(a)(2).................................................................................. N.A.
(b) .................................................................................... 6.12;
6.7
317(a)(1)................................................................................. 6.3
(a)(2).................................................................................. 6.4
(b) .................................................................................... 2.4
</TABLE>
- ----------
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of this Indenture.
vii
<PAGE>
INDENTURE, dated as of October 16, 1997, by and among
Community Distributors, Inc., a Delaware corporation (the "Company"), the
Guarantors referred to below and The Bank of New York, a New York banking
corporation, as Trustee.
Each party hereto agrees as follows for the benefit of each
other party and for the equal and ratable benefit of the Holders of the
Company's 10-1/4% Senior Notes due 2004:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.1. Definitions.
"Acceleration Notice" shall have the meaning specified in
Section 6.2.
"Acquired Indebtedness" means Indebtedness or Disqualified
Capital Stock of any Person existing at the time such Person becomes a
Subsidiary of the Company or is merged or consolidated into or with the Company
or one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any
Person or substantially all the assets of any Person by any other Person,
whether by purchase, stock purchase, merger, consolidation, or other transfer,
and whether or not for consideration.
"Affiliate" means any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company. For purposes of this definition, the term "control" means the power to
direct the management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, provided, that a Beneficial Owner of 10% or more of the total
voting power normally entitled to vote in the election of directors, managers or
trustees, as applicable, shall for such purposes be deemed to constitute
control.
"Affiliate Transaction" shall have the meaning specified in
Section 4.9.
"Agent" means any authenticating agent, Registrar, Paying
Agent or transfer agent.
"Asset Sale" shall have the meaning specified in Section 4.13.
"Asset Sale Offer" shall have the meaning specified in
Section 4.13.
1
<PAGE>
"Asset Sale Offer Amount" shall have the meaning specified in
Section 4.13.
"Asset Sale Offer Period" shall have the meaning specified in
Section 4.13.
"Asset Sale Offer Price" shall have the meaning specified in
Section 4.13.
"Average Life" means, as of the date of determination, with
respect to any security or instrument, the quotient obtained by dividing (i) the
sum of (a) the product of the number of years from the date of determination to
the date or dates of each successive scheduled principal (or redemption) payment
of such security or instrument and (b) the amount of each such respective
principal (or redemption) payment by (ii) the sum of all such principal (or
redemption) payments.
"Bankruptcy Law" means Title 11, U.S. Code, as amended, or any
similar Federal, state or foreign law for the relief of debtors.
"Beneficial Owner" has the meaning attributed to it in Rules
l3d-3 and l3d-5 under the Exchange Act (as in effect on the Issue Date), whether
or not applicable, except that a "Person" shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
"Board of Directors" or "Board" means, with respect to any
Person, the Board of Directors of such Person or any committee of the Board of
Directors of such Person authorized, with respect to any particular matter, to
exercise the power of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a duly
adopted resolution of the Board of Directors of such Person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in New York, New
York are authorized or obligated by law or executive order to close.
"Capital Stock" means, (i) with respect to any corporation,
any and all shares, interests, rights to purchase (other than convertible or
exchangeable Indebtedness that is not itself otherwise Capital Stock), warrants,
options, participations or other equivalents of or interests (however
designated) in stock issued by that corporation, (ii) in the case of an
association or business entity, any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock, (iii) in
the case of a partnership, partnership interests (whether general or limited),
and (iv) any other interest or participation
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that confers on a Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person.
"Capitalized Lease Obligation" means rental obligations under
a lease that are required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of Indebtedness represented by such
obligations shall be the capitalized amount of such obligations, as determined
in accordance with GAAP.
"Cash" or "cash" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
"Cash Equivalent" means (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) or (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation of
any domestic commercial bank of recognized standing having capital and surplus
in excess of $500 million and commercial paper issued by any other issuer which
is rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation
or at least P-1 or the equivalent thereof by Moody's Investors Service, Inc.,
and in each case maturing within one year after the date of acquisition.
"Change of Control" means (i) any merger or consolidation of
the Company or the Holding Company with or into any Person or any sale, transfer
or other conveyance, whether direct or indirect, of all or substantially all of
the assets of either the Company or the Holding Company on a consolidated basis,
in one transaction or a series of related transactions, if, immediately after
giving effect to such transaction, any "person" or "group" (as such terms are
used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or
not applicable) (other than an Excluded Person) is or becomes the Beneficial
Owner, directly or indirectly, of more than 50% of the total voting power in the
aggregate normally entitled to vote in the election of directors, managers, or
trustees, as applicable, of the transferees or surviving entity or entities,
(ii) any "person" or "group" (as such terms are used for purposes of Section
13(d) and 14(d) of the Exchange Act, whether or not applicable) (other than an
Excluded Person or the Holding Company) is or becomes the Beneficial Owner,
directly or indirectly, of more than 50% of the total voting power in the
aggregate of all classes of Capital Stock of the Company or the Holding Company
then outstanding normally entitled to vote in elections of directors, or (iii)
during any period of 12 consecutive months after the Issue Date, individuals who
at the beginning of any such 12-month period constituted the Board of Directors
of either the Company or the Holding Company (together, in each case, with any
new directors whose election by such Board or whose nomination for election by
the shareholders of the Company or the Holding Company, as applicable, was
approved by a vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease
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for any reason to constitute a majority of the Board of Directors of the Company
or the Holding Company then in office, as applicable.
"Change of Control Offer" shall have the meaning specified in
Section 10.1.
"Change of Control Offer Period" shall have the meaning
specified in Section 10.1.
"Change of Control Purchase Date" shall have the meaning
specified in Section 10.1.
"Change of Control Purchase Price" shall have the meaning
specified in Section 10.1.
"Commission" means the SEC.
"Company" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture, and thereafter means such successor.
"Consolidated Cash Flow" means, with respect to any Person,
for any period, the Consolidated Net Income of such Person for such period
adjusted to add thereto (to the extent deducted from net revenues in determining
Consolidated Net Income), without duplication, the sum of (i) consolidated
income tax expense, (ii) consolidated depreciation and amortization expense,
provided that consolidated depreciation and amortization of a Subsidiary that
is less than wholly owned shall only be added to the extent of the equity
interest of the Company in such Subsidiary and (iii) Consolidated Interest
Expense.
"Consolidated Interest Coverage Ratio" of any Person on any
date of determination (the "Transaction Date") means the ratio, on a pro forma
basis, of (a) the aggregate amount of Consolidated Cash Flow of such Person
attributable to continuing operations and businesses (exclusive of amounts
attributable to operations and businesses that would in accordance with GAAP be
deemed to be discontinued operations) for the Reference Period to (b) the
aggregate Consolidated Interest Expense of such Person (exclusive of amounts
attributable to operations and businesses permanently discontinued or disposed
of, but only to the extent that the obligations giving rise to such Consolidated
Interest Expense would no longer be obligations contributing to such Person's
Consolidated Interest Expense subsequent to the Transaction Date) during the
Reference Period; provided, that for purposes of such calculation, (i)
Acquisitions which occurred during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date shall be assumed to
have occurred on the first day of the Reference Period, (ii) transactions giving
rise to the need to calculate the Consolidated Interest Coverage Ratio shall be
assumed to have occurred on the first day of the Reference Period, (iii) the
incurrence of any Indebtedness or issuance
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of any Disqualified Capital Stock during the Reference Period or subsequent to
the Reference Period and on or prior to the Transaction Date (and the
application of the proceeds therefrom to the extent used to refinance or retire
other Indebtedness) shall be assumed to have occurred on the first day of such
Reference Period, and (iv) the Consolidated Interest Expense of such Person
attributable to interest on any Indebtedness or dividends on any Disqualified
Capital Stock bearing a floating interest (or dividend) rate shall be computed
on a pro forma basis as if the average rate in effect from the beginning of the
Reference Period to the Transaction Date had been the applicable rate for the
entire period, unless such Person or any of its Subsidiaries is a party to an
Interest Swap or Hedging Obligation (which shall remain in effect for the
12-month period immediately following the Transaction Date) that has the effect
of fixing the interest rate on the date of computation, in which case such rate
(whether higher or lower) shall be used. If any Indebtedness that is being given
pro forma effect was incurred under a revolving credit facility, the interest
expense on such Indebtedness shall be computed based upon the average daily
balance of such Indebtedness during the applicable period.
"Consolidated Interest Expense" of any Person means, for any
period, the aggregate amount (without duplication and determined in each case in
accordance with GAAP) of (a) interest expensed or capitalized, paid, accrued, or
scheduled to be paid or accrued (including, in accordance with the following
sentence, interest attributable to Capitalized Lease Obligations) of such
Person and its Consolidated Subsidiaries during such period, including (i)
original issue discount and non-cash interest payments or accruals on any
Indebtedness, (ii) the interest portion of all deferred payment obligations, and
(iii) all commissions, discounts and other fees and charges owed with respect
to bankers' acceptances and letters of credit financings and currency and
Interest Swap and Hedging Obligations, in each case to the extent attributable
to such period, and (b) the amount of dividends accrued or payable (or
guaranteed) by such Person or any of its Consolidated Subsidiaries in respect of
Preferred Stock (other than by Subsidiaries of such Person to such Person or
such Person's wholly owned Subsidiaries). For purposes of this definition, (x)
interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined in good faith by the Company to be the rate
of interest implicit in such Capitalized Lease Obligation in accordance with
GAAP, and (y) interest expense attributable to any Indebtedness represented by
the guarantee by such Person or a Subsidiary of such Person of an obligation of
another Person shall be deemed to be the interest expense attributable to the
Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any Person
for any period, the net income (or loss) of such Person and its Consolidated
Subsidiaries (determined on a consolidated basis in accordance with GAAP) for
such period, adjusted to exclude (only to the extent included in computing such
net income (or loss) and without duplication): (a) (i) in calculating
Consolidated Net Income for the purposes of the Debt Incurrence Ratio in Section
4.10, all gains and losses and (ii) in calculating Consolidated Net Income for
the purposes of Section 4.3, all gains but not losses, in each case which are
either extraordinary (as determined in accordance with GAAP) or are either
unusual or nonrecurring (including
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any gain or loss, as applicable, from the sale or other disposition of assets
outside the ordinary course of business or from the issuance or sale of any
Capital Stock), (b) the net income, if positive, of any Person, other than a
Consolidated Subsidiary in which such Person or any of its Consolidated
Subsidiaries has an interest, except to the extent of the amount of any
dividends or distributions actually paid in cash to such Person or a wholly
owned Consolidated Subsidiary of such Person during such period, but in any case
not in excess of such Person's pro rata share of such Person's net income for
such period, (c) the net income or loss of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition, (d)
the net income, if positive, of any of such Person's Consolidated Subsidiaries
in the event and solely to the extent that the declaration or payment of
dividends or similar distributions is not at the time permitted by operation of
the terms of its charter or bylaws or any other agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Consolidated Subsidiary and (e) the effects of changes in accounting principles,
"Consolidated Net Worth" of any Person at any date means the
aggregate consolidated stockholders' equity of such Person (plus amounts of
equity attributable to Preferred Stock) and its Consolidated Subsidiaries, as
would be shown on the consolidated balance sheet of such Person prepared in
accordance with GAAP, adjusted to exclude (to the extent included in calculating
such equity), (a) the amount of any such stockholders' equity attributable to
Disqualified Capital Stock or treasury stock of such Person and its Consolidated
Subsidiaries, (b) all upward revaluations and other write-ups in the book value
of any asset of such Person or a Consolidated Subsidiary of such Person
resulting from or in connection with the transaction or series of related
transactions giving rise to the calculation of the Consolidated Net Worth of
such Person at such date, and (c) all investments in Subsidiaries that are not
Consolidated Subsidiaries and in Persons that are not Subsidiaries.
"Consolidated Subsidiary" means, for any Person, each
Subsidiary of such Person (whether now existing or hereafter created or
acquired) the financial statements of which are consolidated for financial
statement reporting purposes with the financial statements of such Person in
accordance with GAAP.
"Covenant Defeasance" shall have the meaning specified in
Section 8.3.
"Credit Agreement" means the New Credit Facility, including
any related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, as such credit agreement and/or related
documents may be amended, restated, supplemented, renewed, replaced or otherwise
modified from time to time whether or not with the same agent, trustee,
representative, lenders or holders, and, subject to the proviso to the next
succeeding sentence, irrespective of any changes in the terms and conditions
thereof. Without limiting the generality of the foregoing, the term "Credit
Agreement" shall include any amendment, amendment and restatement, renewal,
extension, restructuring, supplement or modification to any such credit
agreement and all refundings, refinancings and replacements of any such credit
agreement, including any agreement (i) extending the maturity of any
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Indebtedness incurred thereunder or contemplated thereby, (ii) adding or
deleting borrowers or guarantors thereunder, so long as borrowers and issuers
include one or more of the Company and its Subsidiaries and their respective
successors and assigns, (iii) increasing the amount of Indebtedness incurred
thereunder or available to be borrowed thereunder, provided that on the date
such additional Indebtedness is incurred it would not be prohibited by Section
4.10, or (iv) otherwise altering the terms and conditions thereof in a manner
not prohibited by the terms hereof.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Debt Incurrence Ratio" shall have the meaning specified in
Section 4.10.
"Default" means any event or condition that is, or after
notice or passage of time or both would be, an Event of Default.
"Defaulted Interest" shall have the meaning specified in
Section 2.12.
"Definitive Securities" means Securities that are in the form
of the Security attached hereto as Exhibit A that do not include the information
called for by footnotes 1 and 5 thereof.
"Depositary" means, with respect to the Securities issuable or
issued in whole or in part in global form, the person specified in Section 2.3
as the Depositary with respect to the Securities, until a successor shall have
been appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depositary" shall mean or include such successor.
"Disqualified Capital Stock" means (a) except as set forth in
clause (b) of this paragraph, with respect to any Person, Capital Stock of such
Person that, by its terms or by the terms of any security into which it is then
convertible, exercisable or exchangeable, is, or upon the happening of an event
or the passage of time would be, required to be redeemed or repurchased
(including at the option of the holder thereof) by such Person or any of its
Subsidiaries, in whole or in part, on or prior to the Stated Maturity of the
Securities and (b) with respect to any Subsidiary of such Person (including with
respect to any Subsidiary of the Company), any Capital Stock other than any
common stock with no preference, privileges, or redemption or repayment
provisions.
"DTC" shall have the meaning specified in Section 2.3.
"Equity Offering" means an underwritten public offering
pursuant to a registration statement filed with the SEC in accordance with the
Securities Act, the
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consequence of which is that the common stock of either the Company or the
Holding Company is listed on a national securities exchange or quoted on the
national market system of NASDAQ and, in the case of an Equity Offering of the
Common Stock of the Holding Company, all the net proceeds (after payment of
related transaction costs) of such Equity Offering are contributed as common
equity to the Company.
"Event of Default" shall have the meaning specified in Section
6.1.
"Excess Proceeds" shall have the meaning specified in Section
4.13.
"Excess Proceeds Date" shall have the meaning specified in
Section 4.13.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"Exchange Securities" means the 10-1/4% Senior Notes due 2004
to be issued pursuant to this Indenture in connection with the offer to exchange
Securities for the Initial Securities that may be made by the Company and the
Guarantors pursuant to the Registration Rights Agreement.
"Excluded Person" means collectively or individually
BancBoston Capital and Harvest Partners, Inc. and all Related Persons of such
Person.
"Exempted Affiliate Transaction" means (a) customary employee
or director compensation arrangements approved by a majority of independent (as
to such transactions) members of the Board of Directors of the Company or its
Subsidiary, as applicable, (b) dividends permitted under the terms of Section
4.3 and payable, in form and amount, on a pro rata basis to all holders of
Common Stock of the Company (after taking into account the exercise of one or
more outstanding options or warrants), (c) transactions solely between the
Company and any of its Wholly owned Subsidiaries or solely among Wholly owned
Subsidiaries of the Company, (d) transactions set forth in clause (i) or (iii)
of the definition of "Permitted Payments, and (e) the payment to Mr. Frank
Marfino and Mr. Todd Pluymers of performance related bonuses in an aggregate
amount not to exceed $1.4 million to be paid no later than the first anniversary
of the Issue Date
"Fair Market Value" means, with respect to any asset or
property, the price that could be negotiated in an arms'-length free market
transaction, for cash, between a willing seller and a willing buyer, neither of
whom is under pressure or compulsion to complete the transaction. Unless
otherwise specified herein, Fair Market Value shall be determined by the Board
of Directors of the Company acting in good faith.
"Future Subsidiary Guarantor" shall have the meaning specified
in Section 11.3.
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"GAAP" means United States generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession in the United States, as in effect on the Issue
Date.
"Global Security" means a Security that contains the paragraph
referred to in footnote 1 and the additional schedule referred to in footnote 5
to the form of Security attached hereto as Exhibit A.
"Guarantee" shall have the meaning provided in Section 11.1.
"Guarantors" means (i) the Holding Company and (ii) the
Subsidiary Guarantors, but excluding in each case any Persons whose guarantees
have been released pursuant to the terms of this Indenture.
"Holder" or "Securityholder" means the Person in whose name a
Security is registered on the Registrar's books.
"Holding Company" means CDI Group, Inc., a Delaware
corporation or any successor thereto.
"Incurrence Date" shall have the meaning specified in Section
4.10.
"Indebtedness" of any Person means, without duplication, (a)
all liabilities and obligations, contingent or otherwise, of any such Person,
(i) in respect of borrowed money (whether or not the recourse of the lender is
to the whole of the assets of such Person or only to a portion thereof), (ii)
evidenced by bonds, notes, debentures or similar instruments, (iii) representing
the balance deferred and unpaid of the purchase price of any property or
services, except (other than accounts payable or other obligations to trade
creditors which have remained unpaid for greater than 90 days past their
original due date) those incurred in the ordinary course of its business that
would constitute a trade payable to trade creditors, (iv) evidenced by bankers'
acceptances or similar instruments issued or accepted by banks, (v) for the
payment of money relating to a Capitalized Lease Obligation, or (vi) evidenced
by a letter of credit or a reimbursement obligation of such Person with respect
to any letter of credit; (b) all net obligations of such Person under Interest
Swap and Hedging Obligations; (c) all liabilities and obligations of others of
the kind described in the preceding clause (a) or (b) that such Person has
guaranteed or that is otherwise its legal liability or which are secured by any
assets or property of such Person and all obligations to purchase, redeem or
acquire any Capital Stock; and (d) any and all deferrals, renewals, extensions,
refinancings and refundings (whether direct or indirect) of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (a), (b) or (c), or this clause (d), whether
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or not between or among the same parties. Indebtedness shall not include
obligations of any Person resulting from the endorsement of negotiable
instruments for collection in the ordinary course of business and consistent
with past business practices.
"Indenture" means this Indenture, as amended or supplemented
from time to time in accordance with the terms hereof.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette
Securities Corporation and Bear, Stearns & Co. Inc.
"Initial Securities" means the 10-1/4% Senior Notes due 2004,
as supplemented from time to time in accordance with the terms hereof, issued
under this Indenture on the Issue Date.
"Interest Payment Date" means the stated due date of an
installment of interest on the Securities.
"Interest Swap and Hedging Obligation" means any obligation of
any Person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange agreement,
currency exchange agreement or any other agreement or arrangement designed to
protect against fluctuations in interest rates or currency values, including,
without limitation, any arrangement whereby, directly or indirectly, such Person
is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such Person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any Person in any other Person means (without
duplication) (a) the acquisition (whether by purchase, merger, consolidation or
otherwise) by such Person (whether for cash, property, services, securities or
otherwise) of Capital Stock, bonds, notes, debentures, partnership or other
ownership interests or other securities, including any options or warrants, of
such other Person or any agreement to make any such acquisition; (b) the making
by such Person of any deposit with, or advance, loan or other extension of
credit to, such other Person (including the purchase of property from another
Person subject to an understanding or agreement, contingent or otherwise, to
resell such property to such other Person) or any commitment to make any such
advance, loan or extension (but excluding accounts receivable or deposits
arising in the ordinary course of business); (c) other than guarantees of
Indebtedness of the Company or any Subsidiary to the extent permitted by Section
4.10, the entering into by such Person of any guarantee of, or other credit
support or contingent obligation with respect to, Indebtedness or other
liability of such other Person; and (d) the making of any capital contribution
by such Person to such other Person.
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"Issue Date" means the date of first issuance of the
Securities under this Indenture.
"Legal Defeasance" shall have the meaning specified in Section
8.2.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation or other encumbrance
upon or with respect to property of any kind, real or personal, movable or
immovable, now owned or hereafter acquired (including any conditional sale or
other title retention agreement and any lease deemed to constitute a security
interest and any option or other agreement to give any security interest).
"Management Fee Agreements" means the Management Fee
Agreements, dated as of January 30, 1995, as amended, between the Company and
BancBoston Ventures Inc. and Harvest Partners Inc., respectively, each
substantially as in effect on the Issue Date.
"Maturity Date" means, when used with respect to any Security,
the date specified on such Security as the fixed date on which the final
installment of principal of such Security is due and payable (in the absence of
any acceleration thereof pursuant to the provisions of this Indenture regarding
acceleration of Indebtedness or any Change of Control Offer or Asset Sale
Offer).
"Net Cash Proceeds" means the aggregate amount of Cash or Cash
Equivalents received by the Company in the case of a sale of Qualified Capital
Stock and by the Company and its Subsidiaries in respect of an Asset Sale plus,
in the case of an issuance of Qualified Capital Stock upon any exercise,
exchange or conversion of securities (including options, warrants, rights and
convertible or exchangeable debt) of the Company that were issued for cash on or
after the Issue Date, the amount of cash originally received by the Company upon
the issuance of such securities (including options, warrants, rights and
convertible or exchangeable debt) less, in each case, the sum of all payments,
fees, commissions and (in the case of Asset Sales, reasonable and customary)
expenses (including, without limitation, the fees and expenses of legal counsel
and investment banking fees and expenses) incurred in connection with such Asset
Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale only,
less the amount (estimated reasonably and in good faith by the Company) of
income, franchise, sales and other applicable taxes required to be paid by the
Company or any of its respective Subsidiaries in connection with such Asset
Sale.
"New Credit Facility" means the Loan and Security Agreement
dated as of October 16, 1997 among the Company and PNC Bank, National
Association.
"Offering Memorandum" means the offering memorandum dated
October 10, 1997 relating to the Securities.
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"Officer" means, with respect to the Company or a Guarantor,
the Chief Executive Officer, the President, any Executive or Senior Vice
President, the Chief Financial Officer, the Treasurer, or the Secretary of the
Company or such Guarantor.
"Officers' Certificate" means, with respect to the Company, a
certificate signed by two Officers or by an Officer and an Assistant Secretary
of the Company and other wise complying with the requirements of Sections 12.4
and 12.5, and delivered to the Trustee or an Agent, as applicable.
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee (which may include counsel
to the Trustee or the Company including an employee of the Company) or an Agent,
as applicable, complying with the requirements of Sections 12.4 and 12.5, and
delivered to the Trustee or an Agent, as applicable.
"Paying Agent" shall have the meaning specified in Section
2.3.
"Permitted Indebtedness" means, without duplication (a)
Indebtedness evidenced by the Securities and represented by this Indenture up
to the amounts specified therein as of the date thereof; (b) Indebtedness of the
Company and its Subsidiaries incurred under or in respect of the Credit
Agreement up to an aggregate amount outstanding (including any Indebtedness
issued to refinance, refund or replace such Indebtedness in whole or in part) at
any time of $20.0 million, minus the amount of any such Indebtedness retired
with Net Cash Proceeds from any Asset Sale or assumed by a transferee in an
Asset Sale; (c) Refinancing Indebtedness incurred by the Company and its
Subsidiaries, as applicable, with respect to any Indebtedness or Disqualified
Capital Stock, as applicable, described in clauses (a) and (b) above, incurred
pursuant to the second paragraph of Section 4.10 or which is outstanding on the
Issue Date; (d) Indebtedness incurred by the Company or its Subsidiaries in an
aggregate amount outstanding at any time (including any Indebtedness issued to
refinance, replace, or refund such Indebtedness in whole or in part) of up to
$5.0 million, minus the amount of any such Indebtedness retired with Net Cash
Proceeds from any Asset Sale or assumed by a transferee in an Asset Sale; and
(e) Indebtedness incurred by the Company to any of its Subsidiaries, and
Indebtedness incurred by any Subsidiary to any other Subsidiary or to the
Company; provided, that, in the case of Indebtedness of the Company, such
obligations shall be unsecured and subordinated in all respects to the Company's
obligations pursuant to the Securities.
"Permitted Lien" means any of the following:
(a) Liens existing on the Issue Date;
(b) Liens imposed by governmental authorities for taxes,
assessments or other charges not yet subject to penalty or which are being
contested in good faith and by
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appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP;
(c) statutory liens of carriers, warehousemen, mechanics,
materialmen, landlords, repairmen or other like Liens arising by operation of
law in the ordinary course of business provided that (i) the underlying
obligations are not overdue for a period of more than 30 days, or (ii) such
Liens are being contested in good faith and by appropriate proceedings and
adequate reserves with respect thereto are maintained on the books of the
Company in accordance with GAAP;
(d) Liens securing the performance of bids, trade contracts
(other than borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(e) easements, rights-of-way, zoning, similar restrictions and
other similar encumbrances or title defects which, singly or in the aggregate,
do not in any case materially detract from the value of the property subject
thereto (as such property is used by the Company or any of its Subsidiaries) or
interfere with the ordinary conduct of the business of the Company or any of its
Subsidiaries;
(f) Liens arising by operation of law in connection with
judgments, only to the extent, for an amount and for a period not resulting in
an Event of Default with respect thereto;
(g) pledges or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security legislation;
(h) Liens securing the Securities;
(i) Liens securing Indebtedness of a Person existing at the
time such Person becomes a Subsidiary or is merged with or into the Company or a
Subsidiary or Liens securing Indebtedness incurred in connection with an
Acquisition, provided in each case that such Liens were in existence prior to
the date of such acquisition, merger or consolidation, were not incurred in
anticipation thereof, and do not extend to any other assets;
(j) Liens securing Refinancing Indebtedness incurred to
refinance any Indebtedness that was previously so secured in a manner no more
adverse to the Holders of the Securities than the terms of the Liens securing
such refinanced Indebtedness provided that the Indebtedness secured is not
increased and the lien is not extended to any additional assets of property;
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(k) Liens consisting of customary restrictions on assignment
or transfer in any lease or other agreement not relating to Indebtedness.
(l) Liens on the applicable accounts receivables, proceeds and
contract rights securing the Company's obligations with respect to a customary
factoring arrangement of Third Party Plan Receivables; and
(m) Liens securing Permitted Indebtedness of the type referred
to in clauses (b) and (d) of the definition of "Permitted Indebtedness", and any
Refinancing Indebtedness with respect to such Indebtedness.
"Permitted Payments" means (i) (a) payments to the Holding
Company in an amount not to exceed $250,000 in the aggregate in any fiscal year
sufficient to permit the Holding Company to pay reasonable and necessary
operating expenses and other general corporate expenses (including any
reasonable professional fees and expenses) and (b) cash dividends to the Holding
Company to the extent necessary to permit the Holding Company to repurchase
common stock, stock options and stock equivalents or other equity securities of
the Holding Company held by departing or deceased directors, officers or
employees of the Holding Company, the Company or any Subsidiary Guarantor
("Management Holders"), provided that the aggregate amount of all such
repurchases shall not exceed $500,000 during any fiscal year or $2,000,000
during the term of the Securities (plus the net cash proceeds received by the
Company after the Issue Date as a capital contribution in the form of common
equity from the sale to Management Holders of such equity securities of the
Holding Company), (ii) a Qualified Exchange; (iii) payments made pursuant to the
Management Fee Agreements; and (iv) the payment of any dividend on Qualified
Capital Stock within 60 days after the date of its declaration if such dividend
could have been made on the date of such declaration in compliance with the
foregoing provisions.
"Person" or "person" means any corporation, individual,
limited liability company, joint stock company, joint venture, partnership,
trust, unincorporated association, or a government or any agency or political
subdivision thereof.
"Plan of Liquidation" means a plan that provides for,
contemplates or the effectuation of which is preceded or accompanied by (whether
or not substantially contemporaneously) (i) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company otherwise
than as an entirety or substantially as an entirety and (ii) the distribution of
all or substantially all of the proceeds of such sale, lease, conveyance or
other disposition and all or substantially all of the remaining assets of the
Company to holders of Capital Stock of the Company.
"Preferred Stock" as applied to the Capital Stock of any
Person, means Capital Stock of any class or classes (however designated) which
is preferred as to the payment of dividends or distributions, or as to the
distribution of assets upon any voluntary
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or involuntary liquidation or dissolution of such Person, over Capital Stock of
any other class of such Person.
"Principal Corporate Trust Office of the Trustee" means the
office of the Trustee as set forth in Section 12.2 and such other offices as the
Trustee may designate from time to time.
"Property" or "property" means any right or interest in or to
property or assets of any kind whatsoever, whether real, personal or mixed and
whether tangible or intangible.
"Purchase Date" shall have the meaning specified in Section
4.13.
"Purchase Money Indebtedness" means any Indebtedness of such
Person to any seller or other Person Incurred to finance the acquisition or
construction (including in the case of a Capitalized Lease Obligation, the
lease) of any after acquired real or personal tangible property which, in the
reasonable good faith judgment of the Board of Directors of the Company, is
directly related to a Related Business of the Company and which is incurred
concurrently with such acquisition and is secured only by the assets so
financed.
"Qualified Capital Stock" means any Capital Stock of the
Company that is not Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption,
retirement, repurchase or other acquisition of Capital Stock or Indebtedness of
the Company issued on or after the Issue Date with the Net Cash Proceeds
received by the Company from the substantially concurrent sale of Qualified
Capital Stock, or any exchange of Qualified Capital Stock for any Capital Stock
or Indebtedness of the Company issued on or after the Issue Date.
"Record Date" means a Record Date specified in the Securities
whether or not such Record Date is a Business Day.
"Redemption Date," when used with respect to any Security to
be redeemed, means the date fixed for such redemption pursuant to Article III of
this Indenture and Paragraph 5 in the form of Security attached hereto as
Exhibit A.
"Redemption Price," when used with respect to any Security to
be redeemed, means the redemption price for such redemption pursuant to
Paragraph 5 in the form of Security attached hereto as Exhibit A, which shall
include, without duplication, in each case, accrued and unpaid interest to the
Redemption Date (subject to the provisions of Section 3.5).
"Reference Period" with regard to any Person means the four
full fiscal quarters (or such lesser period during which such Person has been in
existence) ended
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immediately preceding any date upon which any determination is to be made
pursuant to the terms of the Securities or this Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified
Capital Stock (a) issued in exchange for, or the proceeds from the issuance and
sale of which are used substantially concurrently to repay, redeem, defease,
refund, refinance, discharge or otherwise retire for value, in whole or in part,
or (b) constituting an amendment, modification or supplement to, or a deferral
or renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of reasonable and customary fees and expenses incurred in connection
with the Refinancing plus the amount of premium paid in connection with such
Refinancing in accordance with the terms of the documents governing the
Indebtedness Refinanced) the lesser of (i) the principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, of the Indebtedness or
Disqualified Capital Stock so Refinanced and (ii) if such Indebtedness being
Refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such Refinancing;
provided, that (A) such Refinancing Indebtedness of any Subsidiary of the
Company shall only be used to Refinance outstanding Indebtedness or Disqualified
Capital Stock of such Subsidiary, (B) such Refinancing Indebtedness shall (x)
not have an Average Life shorter than the Indebtedness or Disqualified Capital
Stock to be so refinanced at the time of such Refinancing and (y) in all
respects, be no less subordinated or junior, if applicable, to the rights of
Holders of the Securities than was the Indebtedness or Disqualified Capital
Stock to be refinanced and (C) such Refinancing Indebtedness shall have no
installment of principal (or redemption payment) scheduled to come due earlier
than the scheduled maturity of any installment of principal of the Indebtedness
or Disqualified Capital Stock to be so refinanced which was scheduled to come
due prior to the Stated Maturity or a final stated maturity or redemption date,
as applicable, no earlier than the final stated maturity or redemption date, as
applicable, of the Indebtedness or Disqualified Capital Stock to be so financed.
"Registrar" shall have the meaning specified in Section 2.3.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the Issue Date by and between the Company and the Holding
Company on the one hand, and the Initial Purchasers, on the other hand,
providing for certain registration rights for the Securities.
"Related Business" means the business conducted (or proposed
to be conducted) by the Company and its Subsidiaries as of the Issue Date and
any and all businesses that in the good faith judgment of the Board of Directors
of the Company are materially related businesses.
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"Related Person" means any Person who controls, is controlled
by or is under common control with an Excluded Person; provided that for
purposes of this definition "control" means the beneficial ownership of more
than 50% of the total voting power of a Person normally entitled to vote in the
election of directors, managers or trustees, as applicable of a Person.
"Restricted Investment" means, in one or a series of related
transactions, any Investment, other than investments in (a) Cash Equivalents,
and (b) the Company or a Wholly owned Subsidiary that is engaged in a Related
Business; provided, however, that a merger of another Person with or into the
Company or any of its Subsidiaries shall not be deemed to be a Restricted
Investment so long as the surviving entity is the Company or a direct Wholly
owned Subsidiary.
"Restricted Payment" means, with respect to any Person, (a)
the declaration or payment of any dividend or other distribution in respect of
Capital Stock of such Person or any parent or Subsidiary of such Person, (b) any
payment on account of the purchase, redemption or other acquisition or
retirement for value of Capital Stock of such Person or any parent or Subsidiary
of such Person, (c) other than with the proceeds from the substantially
concurrent sale of, or in exchange for, Refinancing Indebtedness, any purchase,
redemption, or other acquisition or retirement for value of, any payment in
respect of any amendment of the terms of or any defeasance of, any Subordinated
Indebtedness, directly or indirectly, by such Person or a parent or Subsidiary
of such Person prior to the scheduled maturity, any scheduled repayment of
principal, or scheduled sinking fund payment, as the case may be, of such
Indebtedness and (d) any Restricted Investment by such Person; provided,
however, that the term "Restricted Payment" does not include (i) any dividend,
distribution or other payment on or with respect to Capital Stock of an issuer
to the extent payable solely in shares of Qualified Capital Stock of such
issuer; or (ii) any dividend, distribution or other payment to the Company, or
to any of its Wholly owned Subsidiaries, by the Company or any of its
Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Securities" means, collectively, the Initial Securities and,
when and if issued as provided in the Registration Rights Agreement, the
Exchange Securities.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC promulgated thereunder.
"Securities Custodian" means the Registrar, as custodian with
respect to the Securities in global form, or any successor entity thereto.
"Securityholder" or "Holder" means the Person in whose name a
Security is registered on the Registrar's books.
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"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" of the Company as defined in Rule 1-02 of Regulation
S-X under the Securities Act and the Exchange Act, as such Rule is in effect on
the Issue Date.
"Special Record Date" for payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 2.12.
"Stated Maturity," when used with respect to any Security,
means October 15, 2004.
"Subordinated Indebtedness" means Indebtedness of the Company
or a Guarantor that is subordinated in right of payment to the Securities or
such Guarantee, as applicable, in any respect.
"Subsidiary," with respect to any Person, means (i) a
corporation a majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors, is at the time, directly or indirectly, owned
by such Person, by such Person and one or more Subsidiaries of such Person or by
one or more Subsidiaries of such Person, (ii) any other Person (other than a
corporation) in which such Person, one or more Subsidiaries of such Person, or
such Person and one or more Subsidiaries of such Person, directly or indirectly,
at the date of determination thereof has at least majority ownership interest,
or (iii) a partnership in which such Person or a Subsidiary of such Person is,
at the time, a general partner and in which such Person, directly or indirectly,
at the date of determination thereof has at least a majority ownership interest.
"Subsidiary Guarantors" means (i) the Company's Subsidiaries
and (ii) any Future Subsidiary Guarantors that become Guarantors pursuant to the
terms of this Indenture, but excluding any Persons whose guarantees have been
released in accordance with the terms of this Indenture.
"Third Party Plan Receivable" means a right to receive payment
from a managed health care provider or other third party payer (a "Third Party
Plan") resulting from a sale to customers associated with a Third Party Plan of
pharmacy goods or services by a Person pursuant to an arrangement with such
Third Party Plan under which such Third Party Plan is obligated to pay for such
goods or services under terms that permit the purchase of such goods or services
on credit.
"TIA" means the Trust Indenture Act of 1939, as amended (15
U.S. Code ss.ss. 77aaa-77bbbb), as in effect on the date of the execution of
this Indenture; except as otherwise provided in Section 9.3.
"Transfer Restricted Securities" means Securities that bear or
are required to bear the legend set forth in Section 2.6 hereof.
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"Trustee" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture, and thereafter means such successor.
"Trust Officer" means any officer within the corporate trust
administration division (or any successor group) of the Trustee including,
without limitation, any vice president, assistant vice president, assistant
treasurer, corporate trust officer or any other officer or employee (authorized
by the Trustee to act with respect to the Securities) of the Trustee customarily
performing functions similar to those performed by the Persons who at that time
shall be such officers or employees, and also means, with respect to a
particular corporate trust matter, any other officer of the Trustee to whom such
trust matter is referred because of such officer's knowledge of and familiarity
with the particular subject.
"U.S. Government Obligations" means direct non-callable
obligations of, or non-callable obligations guaranteed by, the United States of
America for the payment of which obligation or guarantee the full faith and
credit of the United States of America is pledged.
"Wholly owned Subsidiary" means a Subsidiary all the Capital
Stock of which is owned by the Company or one or more Wholly owned Subsidiaries
of the Company.
SECTION 1.2. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture securityholder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture Trustee" or "institutional Trustee" means the
Trustee.
"obligor" on the indenture securities means the Company, each
Guarantor and any other obligor on the Securities.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule and
not otherwise defined herein have the meanings assigned to them thereby.
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SECTION 1.3. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions;
(6) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(7) references to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise.
ARTICLE II
THE SECURITIES
SECTION 2.1. Form and Dating.
The Securities and the Trustee's certificate of authentication
in respect thereof shall be substantially in the form of Exhibit A hereto, which
Exhibit is part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage or the terms hereof.
The Company shall approve the form of the Securities and any notation, legend or
endorsement on them. Any such notations, legends or endorsements not contained
in the form of Security attached as Exhibit A hereto shall be delivered in
writing to the Trustee. Each Security shall be dated the date of its
authentication.
The terms and provisions contained in the form of Securities
shall constitute, and are hereby expressly made, a part of this Indenture and,
to the extent applicable, the Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby.
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SECTION 2.2. Execution and Authentication.
Two Officers shall sign, or one Officer shall sign and one
Officer shall attest to, the Security for the Company by manual or facsimile
signature. The Company's seal shall be impressed, affixed, imprinted or
reproduced on the Securities and may be in facsimile form.
If an Officer whose signature is on a Security was an Officer
at the time of such execution but no longer holds that office at the time the
Trustee authenticates the Security, the Security shall be valid nevertheless
and the Company shall nevertheless be bound by the terms of the Securities and
this Indenture.
A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security but
such signature shall be conclusive evidence that the Security has been
authenticated pursuant to the terms of this Indenture.
The Trustee shall authenticate the Initial Securities for
original issue in the aggregate principal amount of up to $80,000,000 and shall
authenticate Exchange Securities for original issue in the aggregate principal
amount of up to $80,000,000, in each case upon a written order of the Company in
the form of an Officers' Certificate, provided that such Ex change Securities
shall be issuable only upon the valid surrender for cancellation of Initial
Securities of a like aggregate principal amount in accordance with the
Registration Rights Agreement. The Officers' Certificate shall specify the
amount of Securities to be authenticated and the date on which the Securities
are to be authenticated. The aggregate principal amount of Securities
outstanding at any time may not exceed $80,000,000, except as provided in
Section 2.7. Upon the written order of the Company in the form of an Officers'
Certificate, the Trustee shall authenticate Securities in substitution of
Securities originally issued to reflect any name change of the Company.
The Trustee may appoint an authenticating agent acceptable to
the Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company, any Affiliate of the Company,
or any of their respective Subsidiaries.
Securities shall be issuable only in fully registered form,
without coupons, in denominations of $1,000 and integral multiples thereof.
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SECTION 2.3. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough
of Manhattan, The City of New York, where Securities may be presented for
registration of transfer or exchange ("Registrar") and an office or agency where
Securities may be presented for payment ("Paying Agent") and where notices and
demands to or upon the Company in respect of the Securities may be served. The
Company may act as Registrar or Paying Agent, except that for the purposes of
Articles III, VIII, X and Section 4.13 and as otherwise specified in this
Indenture, neither the Company nor any Affiliate of the Company shall act as
Paying Agent. The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company may have one or more co-registrars and one or
more additional Paying Agents. The term "Registrar" includes any co-registrar
and the term "Paying Agent" includes any additional Paying Agent. The Company
hereby initially appoints the Trustee as Registrar and Paying Agent, and by its
signature hereto, the Trustee hereby agrees so to act. The Company may at any
time change any Paying Agent or Registrar without notice to any Holder.
The Company shall enter into an appropriate written agency
agreement with any Agent (including the Paying Agent) not a party to this
Indenture, which agreement shall implement the provisions of this Indenture that
relate to such Agent, and shall furnish a copy of each such agreement to the
Trustee. The Company shall promptly notify the Trustee in writing of the name
and address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, the Trustee shall act as such.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Securities.
The Company initially appoints the Trustee to act as
Securities Custodian with respect to the Global Securities.
Upon the occurrence of an Event of Default described in
Section 6.1(d) or (f), the Trustee shall, or upon the occurrence of any other
Event of Default by notice to the Company, the Registrar and the Paying Agent,
the Trustee may, assume the duties and obligations of the Registrar and the
Paying Agent hereunder.
The Trustee is authorized to enter into a letter of
representation with DTC in the form provided to the Trustee by the Company and
to act in accordance with such letter.
SECTION 2.4. Paying Agent to Hold Assets in Trust.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that such Paying Agent shall hold in trust for the
benefit of Holders or the Trustee all assets held by the Paying Agent for the
payment of principal of, premium, if any, or
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interest on, the Securities (whether such assets have been distributed to it by
the Company or any other obligor on the Securities), and shall promptly notify
the Trustee in writing of any Default in making any such payment. If either of
the Company or an Affiliate of the Company acts as Paying Agent, it shall
segregate such assets and hold them as a separate trust fund for the benefit of
the Holders or the Trustee. The Company at any time may require a Paying Agent
to distribute all assets held by it to the Trustee and account for any assets
disbursed and the Trustee may at any time during the continuance of any payment
Default or any Event of Default, upon written request to a Paying Agent, require
such Paying Agent to distribute all assets held by it to the Trustee and to
account for any assets distributed. Upon distribution to the Trustee of all
assets that shall have been delivered by the Company to the Paying Agent, the
Paying Agent (if other than the Company) shall have no further liability for
such assets.
SECTION 2.5. Securityholder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Holders and shall otherwise comply with TIA ss. 312(a). If the
Trustee or any Paying Agent is not the Registrar, the Company shall furnish to
the Trustee on or before the third Business Day preceding each Interest Payment
Date and at such other times as the Trustee or any such Paying Agent may request
in writing a list in such form and as of such date as the Trustee or any such
Paying Agent reasonably may require of the names and addresses of Holders and
the Company shall otherwise comply with TIA ss. 312(a).
SECTION 2.6. Transfer and Exchange.
(a) Transfer and Exchange of Definitive Securities. When
Definitive Securities are presented to the Registrar with a request:
(x) to register the transfer of such Definitive
Securities; or
(y) to exchange such Definitive Securities for an equal
principal amount of Definitive Securities of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its reasonable requirements for such transaction are met; provided, however,
that the Definitive Securities surrendered for registration of transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written
instrument of transfer in form reasonably satisfactory to the Company and
the Registrar duly executed by the Holder thereof or his attorney duly
authorized in writing; and
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(ii) in the case of Transfer Restricted Securities that
are Definitive Securities, such request shall be accompanied by the
following additional information and documents, as applicable:
(A) if such Transfer Restricted Security is being
delivered to the Registrar by a Holder for registration in the name
of such Holder, without transfer, a certification from such Holder
to that effect (in substantially the form set forth on the reverse
of the Security); or
(B) if such Transfer Restricted Security is being
transferred to a "qualified institutional buyer" (within the meaning
of Rule 144A promulgated under the Securities Act), that is aware
that any sale of Securities to it will be made in reliance on Rule
144A under the Securities Act and that is acquiring such Transfer
Restricted Security for its own account or for the account of
another such "qualified institutional buyer," a certification from
such Holder to that effect (in substantially the form set forth on
the reverse of the Security); or
(C) if such Transfer Restricted Security is being
transferred pursuant to an exemption from registration in accordance
with Rule 144, or outside the United States in an offshore
transaction in compliance with Rule 904 under the Securities Act,
or pursuant to an effective registration statement under the
Securities Act, a certification from such Holder to that effect (in
substantially the form set forth on the reverse of the Security); or
(D) if such Transfer Restricted Security is being
transferred to an "institutional accredited investor" within the
meaning of Rule 501(A)(1), (2), (3) or (7) under the Securities Act
(an "IAI") that is acquiring the Security for its own account, or
for the account of such an IAI, not with a view to or for offer or
sale in connection with any distribution in violation of the
Securities Act, a certification from such Holder to that effect (in
substantially the form set forth on the reverse of the Security)
(including a letter in the form of Annex A to the Security) and, if
such transfer is in respect of an aggregate principal amount of
Securities less than $250,000, an opinion of counsel reasonably
acceptable to the Company, the Trustee and the Registrar to the
effect that such transfer is in compliance with the Securities Act;
or
(E) if such Transfer Restricted Security is being
transferred in reliance on another exemption from the registration
requirements of the Securities Act and in accordance with all
applicable securities laws of the States of the United States, a
certification from such Holder to
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that effect (in substantially the form set forth on the reverse of
the Security) and an opinion of counsel reasonably acceptable to
the Company and to the Registrar to the effect that such transfer
is in compliance with the Securities Act.
(b) Restrictions on Transfer of a Definitive Security for a
Beneficial Interest in a Global Security. A Definitive Security may not be
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee of
a Definitive Security, duly endorsed or accompanied by appropriate instruments
of transfer, in form satisfactory to the Trustee, together with:
(i) if such Definitive Security is a Transfer
Restricted Security, certification, substantially in the form set forth on
the reverse of the Security, that such Definitive Security is being
transferred to a "qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in accordance with Rule 144A under the
Securities Act; and
(ii) whether or not such Definitive Security is a
Transfer Restricted Security, written instructions directing the Trustee
to make, or to direct the Securities Custodian to make, an endorsement on
the Global Security to reflect an in crease in the aggregate principal
amount of the Securities represented by the Global Security,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased accordingly. If no Global Securities are then outstanding, the
Company shall issue and the Trustee shall authenticate a new Global Security in
the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer
and exchange of Global Securities or beneficial interests therein shall be
effected through the Depositary, in accordance with this Indenture (including
applicable restrictions on transfer set forth herein, if any) and the procedures
of the Depositary therefor.
(d) Transfer of a Beneficial Interest in a Global Security for
a Definitive Security.
(i) Any Person having a beneficial interest in a Global
Security may upon request exchange such beneficial interest for a
Definitive Security. Upon receipt by the Trustee of written instructions
or such other form of instructions as is customary for the Depositary,
from the Depositary or its nominee on behalf of any Person having a
beneficial interest in a Global Security, and upon receipt by the
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Trustee of a written instruction or such other form of instructions as
is customary for the Depositary or the Person designated by the
Depositary as having such a beneficial interest in a Transfer
Restricted Security only, the following additional information and
documents (all of which may be submitted by facsimile):
(A) if such beneficial interest is being transferred to
the Person designated by the Depositary as being the beneficial
owner, a certification from the transferor to that effect (in
substantially the form set forth on the reverse of the Security); or
(B) if such beneficial interest is being transferred to
a "qualified institutional buyer" (within the meaning of Rule 144A
promulgated under the Securities Act), that is aware that any sale
of Securities to it will be made in reliance on Rule 144A under the
Securities Act and that is acquiring such beneficial interest in the
Transfer Restricted Security for its own account or the account of
another such "qualified institutional buyer", a certification to
that effect from the transferor (in substantially the form set forth
on the reverse of the Security); or
(C) if such beneficial interest is being transferred
pursuant to an exemption from registration in accordance with Rule
144, or outside the United States in an offshore transaction in
compliance with Rule 904 under the Securities Act, or pursuant to an
effective registration statement under the Securities Act, a
certification from the transferor to that effect (in substantially
the form set forth on the reverse of the Security);
(D) if such beneficial interest is being transferred to
an IAI that is acquiring the Security for its own account, or for
the account of such an IAI, not with a view to or for offer or sale
in connection with any distribution in violation of the Securities
Act, a certification from the transferor to that effect (in
substantially the form set forth on the reverse of the Security)
(including a letter in the form of Annex A to the Security) and, if
such transfer is in respect of an aggregate principal amount of
Securities less than $250,000, an Opinion of Counsel reasonably
acceptable to the Company, the Trustee and the Registrar to the
effect that such transfer is in compliance with the Securities Act;
or
(E) if such beneficial interest is being transferred in
reliance on another exemption from the registration requirements of
the Securities Act and in accordance with all applicable securities
laws of the States of the United States, a certification to that
effect from the transferor (in substantially the form set forth on
the reverse of the Security) and an Opinion of Counsel from the
transferee or transferor reasonably acceptable to the
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Company and to the Registrar to the effect that such transfer is in
compliance with the Securities Act,
then the Trustee or the Securities Custodian, at the direction of the Trustee,
will cause, in accordance with the standing instructions and procedures existing
between the Depositary and the Securities Custodian, the aggregate principal
amount of the Global Security to be reduced and, following such reduction, the
Company will execute and, upon receipt of an authentication order in the form
of an Officers' Certificate, the Trustee or the Trustee's authenticating agent
will authenticate and make available for delivery to the transferee a Definitive
Security.
(ii) Definitive Securities issued in exchange for a
beneficial interest in a Global Security pursuant to this Section 2.6(d)
shall be registered in such names and in such authorized denominations as
the Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall
make available for delivery such Definitive Securities to the Persons in
whose names such Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global
Securities. Notwithstanding any other provisions of this Indenture (other than
the provisions set forth in subsection (f) of this Section 2.6), a Global
Security may not be transferred as a whole except by the Depositary to a nominee
of the Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Securities in Absence of
Depositary. If at any time:
(i) the Depositary for the Securities (x) notifies the
Company that the Depositary is unwilling or unable to continue as
Depositary for the Global Securities and a successor Depositary for the
Global Securities is not appointed by the Company within 90 days after
delivery of such notice or (y) has ceased to be a clearing agency
registered under the Exchange Act;
(ii) the Company, in its sole discretion, notifies the
Trustee in writing that it elects to cause the issuance of Definitive
Securities under this Indenture; or
(iii) there shall have occurred and be continuing a
Default or an Event of Default with respect to the Securities;
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Definitive Securities,
will, or its authenticating agent will, authenticate and make available for
delivery Definitive Securities, in an aggregate
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principal amount equal to the principal amount of the Global Securities, in
exchange for such Global Securities.
(g) Cancellation and/or Adjustment of Global Security. At such
time as all beneficial interests in a Global Security have either been exchanged
for Definitive Securities, redeemed, repurchased or cancelled, such Global
Security shall be returned to or retained and cancelled by the Trustee. At any
time prior to such cancellation, if any beneficial interest in a Global
Security is exchanged for Definitive Securities, redeemed, repurchased or
cancelled, the principal amount of Securities represented by such Global
Security shall be reduced and an endorsement shall be made on such Global
Security, by the Trustee or the Securities Custodian, at the direction of the
Trustee, to reflect such reduction.
(h) Legends.
(i) Except as permitted by the following paragraph
(ii), each Security certificate evidencing the Global Securities and the
Definitive Securities (and all Securities issued in exchange therefor or
substitution thereof) shall bear a legend in substantially the following
form:
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS,
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) (A "QIB"), (B) IT IS ACQUIRING THIS NOTE IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (C) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT (AN "IAI"), OR (D) IT
HAS OTHERWISE ACQUIRED THIS NOTE OR A BENEFICIAL INTEREST
HEREIN IN ACCORDANCE WITH THE TERMS OF THE INDENTURE RELATING
TO THIS NOTE AND IN COMPLIANCE WITH APPLICABLE SECURITIES
LAWS, (2) AGREES THAT IT WILL NOT,
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WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING
INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE
SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN
EFFECT ON THE DATE OF THE TRANSFER OF THIS NOTE, RESELL OR
OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR THE
HOLDING COMPANY, (B) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES ACT, (D) IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER,
FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF
THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE
TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY, THE TRUSTEE AND THE
REGISTRAR THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, THE
TRUSTEE AND THE REGISTRAR) OR (G) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH
CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH
PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED
A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION," "U.S. PERSONS" AND
"UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902
OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING.
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(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities Act or an
effective registration statement under the Securities Act:
(A) in the case of any Transfer Restricted
Security that is a Definitive Security, the Registrar shall
permit the Holder thereof to exchange such Transfer Restricted
Security for a Definitive Security that does not bear the
legend set forth above and rescind any restriction on the
transfer of such Transfer Restricted Security; and
(B) any such Transfer Restricted Security
represented by a Global Security shall not be subject to the
provisions set forth in (i) above (such sales or transfers
being subject only to the provisions of Section 2.6(c)
hereof); provided, however, that with respect to any request
for an exchange of a Transfer Restricted Security that is
represented by a Global Security for a Definitive Security
that does not bear a legend, which request is made in reliance
upon Rule 144 under the Securities Act, the Holder thereof
shall certify in writing to the Registrar that such request is
being made pursuant to Rule 144 under the Securities Act (such
certification to be substantially in the form set forth on the
reverse of the Security).
(i) Obligations with respect to Transfers and Exchanges
of Definitive Securities.
(i) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee or any authenticating agent of
the Trustee shall authenticate Definitive Securities and Global Securities
at the Registrar's request.
(ii) No service charge shall be made to a Holder for
any registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax, assessment, or
similar governmental charge payable in connection therewith (other than
any such transfer taxes, assessments, or similar governmental charge
payable upon exchanges or transfers pursuant to Section 2.2 (fourth
paragraph), 2.10, 3.7, 4.13(8), 9.5, or 10.1 (final paragraph)).
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(iii) The Registrar shall not be required to register
the transfer of or exchange (a) any Definitive Security selected for
redemption in whole or in part pursuant to Article III, except the
unredeemed portion of any Definitive Security being redeemed in part, or
(b) any Security for a period beginning 15 Business Days before the
mailing of a notice of an offer to repurchase pursuant to Article X or
Section 4.13 hereof or redeem Securities pursuant to Article III hereof
and ending at the close of business on the day of such mailing.
(iv) Prior to due presentment for registration or
transfer of any Security, the Trustee, any Agent and the Company may deem
and treat the Person in whose name the Security is registered as the
absolute owner of such Security, and none of the Trustee, Agent or the
Company shall be affected by notice to the contrary.
(j) Miscellaneous.
Each Holder of a Security agrees to indemnify the Company and
the Trustee against any liability that may result from the transfer,
exchange or assignment of such Holder's Security in violation of any
provision of this Indenture and/or applicable United States federal or
state securities law.
SECTION 2.7. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if
the Holder of a Security claims and submits an affidavit or other evidence,
satisfactory to the Trustee, to the Trustee to the effect that the Security has
been lost, destroyed or wrongfully taken, the Company shall issue and the
Trustee or any authenticating agent of the Trustee shall authenticate a
replacement Security if the Trustee's requirements are met. If required by the
Trustee or the Company, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Security is replaced. The Company may require the payment of a
sum sufficient to cover any transfer tax, assessment or similar governmental
charge that may be imposed in relation to the issuance of any new Security and
charge such Holder for its reasonable, out-of-pocket expenses in replacing a
Security.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.8. Outstanding Securities.
Securities outstanding at any time are all the Securities
that have been authenticated by the Trustee (including any Security represented
by a Global Security) except those cancelled by it, those delivered to it for
cancellation, those reductions in the interest in
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a Global Security effected by the Trustee hereunder and those described in this
Section 2.8 as not outstanding. A Security does not cease to be outstanding
because the Company or an Affiliate of the Company holds the Security, except as
provided in Section 2.9.
If a Security is replaced pursuant to Section 2.7 (other than
a mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section 2.7.
If on a Redemption Date or the Maturity Date the Paying Agent
(other than the Company or an Affiliate of the Company) holds Cash or U.S.
Government Obligations sufficient to pay all of the principal and interest and
premium, if any, due on the Securities payable on that date and payment of the
Securities called for redemption is not otherwise prohibited, then on and after
that date such Securities cease to be outstanding and interest on them ceases to
accrue.
SECTION 2.9. Treasury Securities.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, amendment, supplement,
waiver or consent, Securities owned by the Company or Affiliates of the Company
shall be disregarded, except that, for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, amendment,
supplement, waiver or consent, only Securities that a Trust Officer of the
Trustee actually knows are so owned shall be disregarded.
SECTION 2.10. Temporary Securities.
Until Definitive Securities are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of Definitive Securities
but may have variations that the Company reasonably and in good faith considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall, upon receipt of a written order of the
Company in the form of an Officers' Certificate, authenticate Definitive
Securities in exchange for temporary Securities. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as permanent Securities authenticated and delivered
hereunder.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and the Paying Agent shall forward to the
Trustee any Securities surrendered to it or them (as applicable) for
registration of transfer, exchange or payment.
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The Trustee or, at the direction of the Trustee, the Registrar or the Paying
Agent (other than the Company or an Affiliate of the Company), and no one else
shall cancel and return to the Company all Securities surrendered for transfer,
exchange, payment or cancellation. Subject to Section 2.7, the Company may not
issue new Securities to replace Securities that have been paid or delivered to
the Trustee for cancellation. No Securities shall be authenticated in lieu of or
in exchange for any Securities cancelled as provided in this Section 2.11,
except as expressly permitted in the form of Securities and as permitted by
this Indenture.
SECTION 2.12. Defaulted Interest.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name that Security (or one or more predecessor Securities) is
registered at the close of business on the Record Date for such interest.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date plus any
interest payable on the defaulted interest at the rate and in the manner
provided in Section 4.1 and in the Security (herein called "Defaulted Interest")
shall forthwith cease to be payable to the registered holder on the relevant
Record Date, or, as applicable, the Special Record Date (as defined below), and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the Securities (or their
respective predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest proposed
to be paid on each Security and the date of the proposed payment, and at
the same time the Company shall deposit with the Trustee an amount of cash
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such cash when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as provided in this clause (1). Thereupon the
Trustee shall fix a special record date (a "Special Record Date") for the
payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and
not less than 10 days after the receipt by the Trustee of the notice of
the proposed payment. The Trustee shall promptly notify the Company of
such Special Record Date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be mailed, first-class
postage prepaid, to each Holder at his address as it appears in the
Security register not less than 10 days prior to such Special Record Date.
Notice of the proposed
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payment of such Defaulted Interest and the Special Record Date therefor
having been mailed as aforesaid, such Defaulted Interest shall be paid
to the Persons in whose names the Securities (or their respective
predecessor Securities) are registered on such Special Record Date and
shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the requirements
of any securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this
clause, such manner shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 2.13. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers
(if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to Holders; provided that any such notice
may state that no representation is made as to the correctness of such number
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be affected
by any defect in or omission of such numbers. The Company will promptly notify
the Trustee of any change in the "CUSIP" numbers.
ARTICLE III
REDEMPTION
SECTION 3.1. Right of Redemption.
Redemption of Securities, as permitted by any provision of
this Indenture, shall be made in accordance with such provision and this Article
III. The Company will not have the right to redeem any Securities prior to
October 15, 2001, except as provided in the immediately following paragraph. On
or after October 15, 2001, the Company will have the right to redeem all or any
part of the Securities at the Redemption Prices specified in the form of
Security attached as Exhibit A set forth therein in Paragraph 5 thereof,
including accrued and unpaid interest to the Redemption Date (subject to the
right of Holders of record on a
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Record Date to receive interest due on an Interest Payment Date that is on or
prior to such Redemption Date, and subject to the provisions set forth in
Section 3.5).
Notwithstanding the foregoing, prior to October 15, 2000, the
Company may redeem from time to time up to 35% of the aggregate principal amount
of the Securities originally outstanding at a redemption price of 110-1/4% of
the principal amount thereof (subject to the right of Holders of record on a
Record Date to receive interest due on an Interest Payment Date that is on or
prior to such Redemption Date), plus accrued and unpaid interest thereon, if
any, to the Redemption Date, with the net proceeds of one or more Equity
Offerings; provided, that at least 65% of the aggregate principal amount of the
Securities originally outstanding remain outstanding immediately after the
occurrence of such redemption; provided, further, that such notice of
redemption shall be sent within 30 days after the date of closing of any such
Equity Offering, and such redemption shall occur within 60 days after the date
such notice is sent.
SECTION 3.2. Notices to Trustee.
If the Company elects to redeem Securities pursuant to
Paragraph 5 of the Securities, it shall notify the Trustee in writing of the
Redemption Date and the principal amount of Securities to be redeemed and
whether it wants the Trustee to give notice of redemption to the Holders.
If the Company elects to reduce the principal amount of
Securities to be redeemed pursuant to Paragraph 5 of the Securities by crediting
against any such redemption Securities it has not previously delivered to the
Trustee for cancellation, it shall so notify the Trustee of the amount of the
reduction and deliver such Securities with such notice.
The Company shall give each notice to the Trustee provided for
in this Section 3.2 at least 45 days before the Redemption Date (unless a
shorter notice shall be satisfactory to the Trustee). Any such notice may be
cancelled at any time prior to notice of such redemption being mailed to any
Holder and shall thereby be void and of no effect.
SECTION 3.3. Selection of Securities to Be Redeemed.
If less than all of the Securities are to be redeemed pursuant
to Paragraph 5 thereof, the Trustee shall select the Securities or portions
thereof for redemption on a pro rata basis, by lot or by such other method as
the Trustee shall determine to be fair and appropriate.
The Trustee shall make the selection from the Securities
outstanding and not previously called for redemption and shall promptly notify
the Company in writing of the Securities selected for redemption and, in the
case of any Security selected for partial redemption, the principal amount
thereof to be redeemed. Securities in denominations of $1,000 may be redeemed
only in whole. The Trustee may select for redemption portions
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(equal to $1,000 or any integral multiple thereof) of the principal of
Securities that have denominations larger than $1,000. Provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption.
SECTION 3.4. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail a notice of redemption by first class mail, postage
prepaid, to the Trustee and each Holder whose Securities are to be redeemed to
such Holder's last address as then shown on the registry books of the Registrar.
At the Company's request, the Trustee shall give the notice of redemption in the
Company's name and at the Company's expense. Each notice for redemption shall
identify the Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price, including the amount of
accrued and unpaid interest to be paid upon such redemption;
(3) the name, address and telephone number of the
Paying Agent;
(4) that Securities called for redemption must be
surrendered to the Paying Agent at the address specified in such notice to
collect the Redemption Price;
(5) that, unless the Company defaults in its obligation
to deposit Cash or U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof in accordance with
their terms will provide Cash in an amount to fund the Redemption Price
with the Paying Agent in accordance with Section 3.6 hereof or such
redemption payment is otherwise prohibited, interest on Securities called
for redemption ceases to accrue on and after the Redemption Date and the
only remaining right of the Holders of such Securities is to receive
payment of the Redemption Price, including accrued and unpaid interest to
the Redemption Date, upon surrender to the Paying Agent of the Securities
called for redemption and to be redeemed;
(6) if any Security is being redeemed in part, the
portion of the principal amount, equal to $1,000 or any integral multiple
thereof, of such Security to be redeemed and that, on and after the
Redemption Date, and upon surrender of such Security, a new Security or
Securities in aggregate principal amount equal to the unredeemed portion
thereof will be issued;
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(7) if less than all the Securities are to be redeemed,
the identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of such Securities to
be redeemed;
(8) the CUSIP number of the Securities to be redeemed;
and
(9) that the notice is being sent pursuant to this
Section 3.4 and pursuant to the optional redemption provisions of
Paragraph 5 of the Securities.
SECTION 3.5. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section
3.4, Securities called for redemption become due and payable on the Redemption
Date and at the Redemption Price, including accrued and unpaid interest to the
Redemption Date. Upon surrender to the Trustee or, if the Trustee is no longer
the Paying Agent, to the Paying Agent, such Securities called for redemption
shall be paid at the Redemption Price, including interest, if any, accrued and
unpaid to the Redemption Date; provided that if the Redemption Date is after a
regular Record Date and on or prior to the Interest Payment Date to which such
Record Date relates, the accrued interest shall be payable to the Holder of the
redeemed Securities registered on the relevant Record Date; and provided,
further, that if a Redemption Date is a non-Business Day, payment shall be made
on the next succeeding Business Day and no interest shall accrue for the period
from such Redemption Date to such succeeding Business Day.
SECTION 3.6. Deposit of Redemption Price.
On or prior to the Redemption Date, the Company shall deposit
with the Paying Agent (other than the Company or an Affiliate of the Company)
Cash or U.S. Government Obligations sufficient to pay the Redemption Price of,
and accrued and unpaid interest on, all Securities to be redeemed on such
Redemption Date (other than Securities or portions thereof called for redemption
on that date that have been delivered by the Company to the Trustee for
cancellation). The Paying Agent shall promptly return to the Company any Cash or
U.S. Government Obligations so deposited which is not required for that purpose
upon the written request of the Company.
If the Company complies with the preceding paragraph and the
other provisions of this Article III and payment of the Securities called for
redemption is not otherwise prohibited, interest on the Securities to be
redeemed will cease to accrue on the applicable Redemption Date, whether or not
such Securities are presented for payment. Notwithstanding anything herein to
the contrary, if any Security surrendered for redemption in the manner provided
in the Securities shall not be so paid upon surrender for redemption because of
the failure of the Company to comply with the preceding paragraph, interest
shall continue to accrue and be paid from the Redemption Date until such payment
is made on the
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unpaid principal, and, to the extent lawful, on any interest not paid on such
unpaid principal, in each case at the rate and in the manner provided in Section
4.1 hereof and the Security.
SECTION 3.7. Securities Redeemed in Part.
Upon surrender of a Security that is to be redeemed in part,
the Company shall execute, and the Trustee shall authenticate and make available
for delivery to the Holder, without service charge to the Holder, a new Security
or Securities equal in principal amount to the unredeemed portion of the
Security surrendered.
ARTICLE IV
COVENANTS
SECTION 4.1. Payment of Securities.
The Company shall pay the principal of and interest and
premium, if applicable, on the Securities on the dates and in the manner
provided herein and in the Securities. An installment of principal of or
interest and premium, if applicable, on the Securities shall be considered paid
on the date it is due if the Trustee or Paying Agent (other than the Company, a
Subsidiary of the Company or an Affiliate of the Company) holds for the benefit
of the Holders, on or before 10:00 a.m. New York City time on that date, Cash
deposited and designated for and sufficient to pay the installment.
The Company shall pay interest on overdue principal and on
overdue installments of interest at the rate specified in the Securities
compounded semi-annually, to the extent lawful.
SECTION 4.2. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The
City of New York, an office or agency where Securities may be presented or
surrendered for payment, where Securities may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company shall
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 12.2.
The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all such purposes
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and may from time to time rescind such designations; provided, however, that no
such designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, The City
of New York, for such purposes. The Company shall give prompt written notice to
the Trustee of any such designation or rescission and of any change in the
location of any such other office or agency. The Company hereby initially
designates the Trustee's agency at The Bank of New York, 101 Barclay Street,
Floor 21W, N.Y., N.Y. 10286, Attn: Corporate Trust Trustee Administration as
such office.
SECTION 4.3. Limitation on Restricted Payments.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, make any Restricted Payment if, after
giving effect to such Restricted Payment on a pro forma basis, (l) a Default or
an Event of Default shall have occurred and be continuing, (2) the Company is
not permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Debt Incurrence Ratio in Section 4.10, or (3) the aggregate amount of all
Restricted Payments made by the Company and its Subsidiaries, including after
giving effect to such proposed Restricted Payment, from and after the Issue
Date, would exceed the sum of (a) 50% of the aggregate Consolidated Net Income
of the Company and its consolidated Subsidiaries for the period (taken as one
accounting period) commencing on the first day after the Issue Date, to and
including the last day of the fiscal quarter ended immediately prior to the
date of each such calculation (or, in the event Consolidated Net Income for such
period is a deficit, then minus 100% of such deficit), plus (b) the aggregate
Net Cash Proceeds received by the Company from the sale of its Qualified Capital
Stock (other than (i) to a Subsidiary of the Company, and (ii) to the extent
applied in connection with a Qualified Exchange after the Issue Date), plus (c)
the aggregate of cash capital contributions in the form of common equity made to
the Company by the Holding Company. The foregoing clauses (2) and (3), however,
will not prohibit Permitted Payments. The full amount of any Permitted Payment
made pursuant to clause (iv) of the definition of Permitted Payments (but not
pursuant to clauses (i), (ii) and (iii) thereof), however, will be deducted in
the calculation of the aggregate amount of Restricted Payments available to be
made referred to in clause (3) of this paragraph.
The foregoing provisions will not prohibit or be violated by
(A) payments to the Holding Company to enable the Holding Company to pay
federal, state or local tax liabilities, not to exceed the aggregate amount of
(1) the amount of such tax liabilities that would be due from the Company or the
Subsidiary Guarantors to the appropriate taxing authority if they were separate
taxable entities to the extent that the Holding Company has an obligation to
satisfy such federal, state or local tax liabilities relating to the operations,
assets or capital of the Company or the Subsidiary Guarantors, plus (2) the
amount of such tax liabilities that are due from the Holding Company with
respect to the Holding Company's ownership of the Company's Capital Stock, as
applicable; provided such payment shall either be used by the Holding Company to
pay such federal, state or local tax liabilities within 90
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days of its receipt of such payment or refunded to the payee, and (B) payment by
the Company of a cash dividend on the Issue Date to the Holding Company in an
amount of $45.0 million to enable it to pay a cash distribution to the
securityholders of the Holding Company as contemplated under the caption "Use of
Proceeds" in the Offering Memorandum.
SECTION 4.4. Corporate Existence.
Subject to Article V and Section 11.4, the Company and the
Guarantors shall do or cause to be done all things necessary to preserve and
keep in full force and effect their respective corporate existence in accordance
with the respective organizational documents of each of them (as the same may be
amended from time to time) and the rights (charter and statutory) and corporate
franchises of the Company and the Guarantors; provided, however, that neither
the Company nor any Guarantor shall be required to preserve any right or
franchise if (a) its Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of such entity and
(b) the loss thereof is not adverse in any material respect to the holders.
SECTION 4.5. Payment of Taxes and Other Claims.
The Company shall pay, and shall cause each of its
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except (i) as contested in good faith by appropriate
proceedings and with respect to which appropriate reserves have been taken to
the extent required by GAAP or (ii) where the failure to effect such payment is
not adverse in any material respect to the Holders.
SECTION 4.6. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee within 120
days after the end of its fiscal year an Officers' Certificate, one of the
signers of which shall be the principal executive, principal financial or
principal accounting officer of the Company, complying with Section 314(a)(4) of
the TIA and stating that a review of its activities and the activities of its
Subsidiaries, if any, during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture (without regard to notice requirements or grace periods) and further
stating, as to each such Officer signing such certificate, to the best of his
knowledge, based on such review, whether or not the signer knows of any Event of
Default or event which with notice or the passage of time would become an Event
of Default which has occurred and is continuing. The Officers' Certificate shall
also notify the Trustee should the relevant fiscal year end on any date other
than the current fiscal year end date.
(b) The Company shall so long as any of the Securities
are outstanding, deliver to the Trustee, promptly upon becoming aware, and in
any event within
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five Business Days after the Company becomes aware, of any Default or Event of
Default, an Officers' Certificate specifying such Default or Event of Default
and what action the Company is taking or proposes to take with respect thereto.
The Trustee shall not be deemed to have knowledge of any Default or any Event of
Default unless one of its Trust Officers receives written notice thereof from
the Company or any of the Holders.
SECTION 4.7. Reports.
Whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall
deliver to the Trustee and to each Holder and to prospective purchasers of
Securities identified to the Company by an Initial Purchaser, within 15 days
after it is or would have been (if it were subject to such reporting
obligations) required to file such with the Commission, annual and quarterly
financial statements substantially equivalent to financial statements that would
have been included in reports filed with the Commission, if the Company were
subject to the requirements of Section 13 or 15(d) of the Exchange Act,
including, with respect to annual information only, a report thereon by the
Company's certified independent public accountants as such would be required in
such reports to the Commission, and, in each case, together with a management's
discussion and analysis of financial condition and results of operations which
would be so required. In addition, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request.
Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely on Officers' Certificates).
SECTION 4.8. Limitation on Status as Investment Company.
Neither the Company nor any Subsidiary shall be required to
register as an "investment company" (as that term is defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act")) or otherwise
become subject to regulation under the Investment Company Act.
SECTION 4.9. Limitation on Transactions with Affiliates.
Neither the Company nor any of its Subsidiaries shall, on or
after the Issue Date, enter into any contract, agreement, arrangement or
transaction with any Affiliate (an "Affiliate Transaction") or any series of
related Affiliate Transactions (other than Exempted Affiliate Transactions),
unless such Affiliate Transaction is made in good faith, the terms of
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such Affiliate Transaction are fair and reasonable to the Company or such
Subsidiary, as the case may be, and are no less favorable as the terms which
could be obtained by the Company or such Subsidiary, as the case may be, in a
comparable transaction made on an arm's-length basis with Persons who are not
Affiliates.
Without limiting the foregoing, in connection with any
Affiliate Transaction or series of related Affiliate Transactions (other than
Exempted Affiliate Transactions), (1) involving consideration to either party in
excess of $1 million, the Company must deliver an Officers' Certificate
addressed and delivered to the Trustee, stating that the terms of such Affiliate
Transaction are fair and reasonable to the Company or such Subsidiary and no
less favorable to the Company or such Subsidiary than could have been obtained
in an arm's length transaction with a non-Affiliate, and (2) involving
consideration to either party in excess of $5 million, the Company must also,
prior to the consummation thereof, obtain a written favorable opinion as to the
fairness of such transaction to the Company or such Subsidiary from a financial
point of view from an independent investment banking firm of national
reputation.
The foregoing provisions shall not apply to any Restricted
Payment that is made in compliance with or exempt from the provisions described
in the first paragraph of Section 4.3 hereof.
SECTION 4.10. Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock.
Except as set forth in this Section 4.10, the Company shall
not, and shall not permit any of its Subsidiaries to, directly or indirectly,
issue, assume, guaranty, incur, become directly or indirectly liable with
respect to (including as a result of an Acquisition), or otherwise become
responsible for, contingently or otherwise (individually and collectively, to
"incur" or, as appropriate, an "incurrence"), any Indebtedness or any
Disqualified Capital Stock (including Acquired Indebtedness), except for
Permitted Indebtedness.
Notwithstanding the foregoing: if (i) no Default or Event of
Default shall have occurred and be continuing at the time of, or would occur
after giving effect to, such incurrence of Indebtedness or Disqualified Capital
Stock and (ii) on the date of such Incurrence (the "Incurrence Date"), the
Consolidated Interest Coverage Ratio of the Company for the Reference Period
immediately preceding the Incurrence Date, after giving effect on a pro forma
basis to such incurrence of such Indebtedness or Disqualified Capital Stock and,
to the extent set forth in the definition of Consolidated Interest Coverage
Ratio, the use of proceeds thereof, would be at least 2.00 to l (the "Debt
Incurrence Ratio"), then the Company and its Subsidiaries may incur such
Indebtedness or Disqualified Capital Stock.
Indebtedness of any Person which is outstanding at the time
such Person becomes a Subsidiary of the Company or is merged with or into or
consolidated with the
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Company or a Subsidiary of the Company shall be deemed to have been incurred at
the time such Person becomes such a Subsidiary of the Company or is merged with
or into or consolidated with the Company or a Subsidiary of the Company, as
applicable.
SECTION 4.11. Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, assume or suffer to exist any
consensual restriction on the ability of any Subsidiary of the Company: (i) to
pay dividends or make other distributions to or on behalf of the Company or any
of its Subsidiaries, (ii) to pay any obligation to or on behalf of the Company
or any of its Subsidiaries, (iii) to make or pay loans or advances to or on
behalf of the Company or any of its Subsidiaries or (iv) otherwise to transfer
any of its properties or assets to or on behalf of the Company or any of its
Subsidiaries, except (a) restrictions imposed by the Securities or this
Indenture, (b) restrictions imposed by applicable law, (c) existing restrictions
under specified Indebtedness outstanding on the Issue Date, or under any
Acquired Indebtedness not incurred in violation of this Indenture or under any
agreement relating to any property, asset, or business acquired by the Company
or any of its Subsidiaries, which restrictions in each case existed at the time
of acquisition, were not put in place in connection with or in anticipation of
such acquisition and are not applicable to any Person, other than the Person
acquired, or to any property, asset or business, other than the property, assets
and business so acquired, (d) any such restriction or requirement imposed by
Indebtedness incurred under clause (b) of the definition of "Permitted
Indebtedness", provided such restriction or requirement is no more restrictive
than that imposed by the Credit Agreement as of the Issue Date, (e)
restrictions with respect solely to a Subsidiary of the Company imposed pursuant
to a binding agreement which has been entered into for the sale or disposition
of all or substantially all of the Capital Stock or assets of such Subsidiary,
provided such restrictions apply solely to the Capital Stock or assets of such
Subsidiary that are being sold and only to the extent such Subsidiary is so sold
within 180 days of such event, (f) restrictions on transfer contained in
Purchase Money Indebtedness, provided such restrictions relate only to the
transfer of the property acquired with the proceeds of such Purchase Money
Indebtedness, (g) customary restrictions imposed on the transfer of copyrighted
or patented materials and customary provisions in agreements (other than
agreements relating to Indebtedness) that restrict the assignment of such
agreements or any rights thereunder, and (h) in connection with and pursuant to
permitted Refinancings, replacements of restrictions imposed pursuant to clause
(c) of this Section 4.11 that are not more restrictive than those being replaced
and do not apply to any other Person or assets than those that would have been
covered by the restrictions in the Indebtedness so refinanced. Notwithstanding
the foregoing, neither (a) customary provisions restricting subletting or
assignment of any lease entered into in the ordinary course of business,
consistent with industry practice nor (b) Liens permitted under the terms of
this Indenture shall in and of themselves be considered a restriction on the
ability of the applicable Subsidiary to transfer such agreement or assets, as
the case may be.
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SECTION 4.12. Limitation on Liens.
The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien of any kind,
other than Permitted Liens, upon any of their respective assets now owned or
acquired on or after the date of this Indenture or upon any income or profits
therefrom unless the Company or such Subsidiary provides, concurrently
therewith, that the Securities are equally and ratably secured; provided that,
if such Lien is to secure Subordinated Indebtedness, the Lien securing such
Subordinated Indebtedness shall be subordinate and junior to the Lien securing
the Securities or the applicable Guarantee, as applicable, with the same
relative priority as such Subordinated Indebtedness shall have with respect to
the Securities or the Guarantee, as applicable, provided, further, that, in case
of a Subsidiary, if such Subsidiary shall cease to be a Subsidiary Guarantor in
accordance with the provisions of this Indenture, such equal and ratable Lien to
secure the Securities shall, without any further action, cease to exist.
SECTION 4.13. Limitation on Sale of Assets and Subsidiary
Stock.
The Company shall not, and shall not permit any of its
Subsidiaries to, in one transaction or a series of related transactions, convey,
sell, transfer, assign or otherwise dispose of, directly or indirectly, any of
their respective property, business or assets, including by merger or
consolidation (in the case of a Subsidiary of the Company), and including any
sale or other transfer or issuance of any Capital Stock of any Subsidiary of the
Company, whether by the Company or a Subsidiary of either or through the
issuance, sale or transfer of Capital Stock by a Subsidiary of the Company (an
"Asset Sale"), unless (1)(a) within 180 days after the date of such Asset Sale,
the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied to
the optional redemption of the Securities in accordance with the terms of this
Indenture or to the repurchase of the Securities pursuant to an irrevocable,
unconditional cash offer (the "Asset Sale Offer") to repurchase Securities at a
purchase price (the "Asset Sale Offer Price") of 100% of the principal amount
thereof, plus accrued interest to the date of payment, made within 180 days of
such Asset Sale or (b) within 180 days following such Asset Sale, the Asset Sale
Offer Amount is (i) invested in fixed assets and property (other than notes,
bonds, obligations and securities) which in the good faith reasonable judgment
of the Board will immediately constitute or be a part of a Related Business of
the Company or such Subsidiary (if it continues to be a Subsidiary) immediately
following such transaction or (ii) used to retire any Indebtedness ranking at
least pari passu with the Securities and the Guarantees and to permanently
reduce the amount of such Indebtedness (including that in the case of a revolver
or similar arrangement that makes credit available, such commitment is so
permanently reduced by such amount); (2) at least 75% of the consideration for
such Asset Sale consists of Cash or Cash Equivalents; (3) no Default or Event of
Default would occur and be continuing at the time of, or would occur after
giving effect to, such Asset Sale; and (4) with respect to any Asset Sale
resulting in Net Cash Proceeds in excess of $500,000, the Board of Directors of
the Company determines in good
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faith that the Company or such Subsidiary, as applicable, receives Fair Market
Value for such Asset Sale.
Notwithstanding the foregoing provisions of the prior
paragraph:
(i) the Company and its Subsidiaries may, in the
ordinary course of business, convey, sell, lease, transfer, assign or
otherwise dispose of inventory acquired and held for resale in the
ordinary course of business;
(ii) the Company and its Subsidiaries may convey, sell,
lease, transfer, assign or otherwise dispose of assets pursuant to and in
accordance with the provisions of Article V;
(iii) the Company and its Subsidiaries may convey,
sell, lease, transfer, assign or otherwise dispose of assets to the
Company or any of its Subsidiaries;
(iv) the Company and its Subsidiaries may in the
ordinary course of business sell, transfer, convey or otherwise dispose of
Third Party Plan Receivables in customary factoring arrangements; and
(v) the Company and its Subsidiaries may consummate any
sale or series of related sales of assets or properties of the Company and
its Subsidiaries having an aggregate Fair Market Value of less than $1
million in any fiscal year.
An Asset Sale Offer may be deferred until the accumulated Net
Cash Proceeds from Asset Sales not applied to the uses set forth in clause
(l)(b) above (the "Excess Proceeds") exceeds $3 million (the date on which the
Excess Proceeds exceed $3 million being herein referred to as the "Excess
Proceeds Date") and each Asset Sale Offer shall remain open for 20 Business Days
following its commencement and no longer (the "Asset Sale Offer Period"). Upon
expiration of the Asset Sale Offer Period, the Company shall apply the Asset
Sale Offer Amount plus an amount equal to accrued and unpaid interest to the
purchase of all Securities properly tendered (on a pro rata basis if the Asset
Sale Offer Amount is insufficient to purchase all Securities so tendered) at
the Asset Sale Offer Price (together with accrued interest). To the extent that
the aggregate amount of Securities tendered pursuant to an Asset Sale Offer is
less than the Asset Sale Offer Amount, the Company may use any remaining Net
Cash Proceeds for general corporate purposes as otherwise permitted by this
Indenture, and following each Asset Sale Offer, the Excess Proceeds amount shall
be reset to zero.
Notice of an Asset Sale Offer will be sent 20 Business Days
prior to the close of business on the third Business Day prior to the date set
by the Company to repurchase
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Securities pursuant to this Section 4.13 (the "Purchase Date"), by first-class
mail, by the Company to each Holder at its registered address, with a copy to
the Principal Corporate Trust Office of the Trustee. The notice to the Holders
will contain all information, instructions and materials required by applicable
law. The notice, which (to the extent consistent with this Indenture) shall
govern the terms of the Asset Sale Offer, shall state:
(1) that the Asset Sale Offer is being made pursuant to
such notice and this Section 4.13;
(2) the Asset Sale Offer, the Asset Sale Offer Price
(including the amount of accrued and unpaid interest), and the Purchase
Date, which Purchase Date shall be on or prior to 45 Business Days
following the Excess Proceeds Date;
(3) that any Security or portion thereof not tendered or
accepted for payment will continue to accrue interest;
(4) that, unless the Company defaults in depositing Cash
with the Paying Agent in accordance with the provisions of this Section
4.13, any Security, or portion thereof, accepted for payment pursuant to
the Asset Sale Offer shall cease to accrue interest after the Purchase
Date;
(5) that Holders electing to have a Security, or portion
there of, purchased pursuant to an Asset Sale Offer will be required to
surrender the Security, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Security completed, to the Paying Agent
(which may not for purposes of this Section 4.13, notwithstanding anything
in this Indenture to the contrary, be the Company or any Affiliate of the
Company) at the address specified in the notice prior to the close of
business on the third Business Day prior to the Purchase Date;
(6) that Holders will be entitled to withdraw their
elections, in whole or in part, if the Paying Agent receives, up to the
close of business on the third Business Day prior to the Purchase Date, a
facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Securities the Holder is withholding and a
statement that such Holder is withdrawing his election to have such
principal amount of Securities purchased;
(7) that if Securities in a principal amount in excess
of the principal amount of Securities to be acquired pursuant to the Asset
Sale Offer are tendered and not withdrawn, the Company shall purchase
Securities on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of
$1,000 or integral multiples of $1,000 shall be acquired);
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(8) that Holders whose Securities were purchased only in
part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; and
(9) a brief description of the circumstances and
relevant facts regarding such Asset Sales.
On or before the Purchase Date, the Company shall (i) accept
for payment Securities or portions thereof properly tendered pursuant to the
Asset Sale Offer on or before the third Business Day prior to the Purchase Date
(on a pro rata basis if required pursuant to paragraph (7) hereof) and (ii)
deposit with the Paying Agent Cash sufficient to pay the Asset Sale Offer Price
for all Securities or portions thereof so tendered and accepted plus accrued and
unpaid interest thereon to the Purchase Date. On the Purchase Date, the Company
shall deliver to the Trustee Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof being purchased by the
Company. The Paying Agent shall on the Purchase Date mail or deliver to Holders
of Securities so accepted payment in an amount equal to the Asset Sale Offer
Price for such Securities (together with accrued and unpaid interest), and the
Trustee shall promptly authenticate and make available for delivery to such
Holders a new Security equal in principal amount to any unpurchased portion of
the Security surrendered. Any Security not so accepted shall be promptly mailed
or delivered by the Company to the Holder thereof. The Company agrees that any
Asset Sale Offer shall be made in compliance with all applicable laws, rules,
and regulations, including, if applicable, Regulation 14E of the Exchange Act
and the rules and regulations thereunder and all other applicable Federal and
state securities laws, and any provisions of this Indenture which conflict with
such laws shall be deemed to be superseded by the provisions of such laws.
SECTION 4.14. Limitation on Lines of Business.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, engage to any substantial extent in any
line or lines of business activity other than that which, in the reasonable good
faith judgment of the Board of Directors of the Company, is a Related Business.
SECTION 4.15. Restriction on Sale and Issuance of Subsidiary
Stock.
The Company shall not issue or sell, and shall not permit any
of its Subsidiaries to issue or sell, any shares of Capital Stock of any
Subsidiary of the Company to any Person other than the Company or a Wholly owned
Subsidiary of the Company, except for shares of common stock with no preferences
or special rights and with no redemption or prepayment provisions.
Notwithstanding the foregoing, (a) the Company and the Subsidiary Guarantors may
consummate an Asset Sale of all of the Capital Stock owned by the Company and
the Subsidiary Guarantors of any Subsidiary in accordance with the provisions of
Section 4.13 and (b) the Company or any Subsidiary Guarantor may pledge,
hypothecate or otherwise
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grant a Lien on any Capital Stock of any Subsidiary to the extent not prohibited
under Section 4.12 herein.
SECTION 4.16. Waiver of Stay, Extension or Usury Laws.
Each of the Company and the Guarantors covenants (to the
extent that it may lawfully do so) that it will not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law or any usury law or other law which would prohibit or
forgive the Company or any Guarantor from paying all or any portion of the
principal of, premium of, or interest on the Securities as contemplated herein
or in the Securities or which may affect the covenants or the performance of
this Indenture, wherever enacted, now or at any time hereafter in force; and (to
the extent that it may lawfully do so) each of the Company and the Guarantors
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee relating to any such law, but will suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE V
SUCCESSOR CORPORATION
SECTION 5.1. Limitation on Merger, Sale or Consolidation.
The Company shall not, directly or indirectly, consolidate
with or merge with or into another Person or sell, lease, convey or transfer all
or substantially all of its assets (computed on a consolidated basis), whether
in a single transaction or a series of related transactions, to another Person
or group of affiliated Persons or adopt a Plan of Liquidation, unless (i) either
(a) the Company is the continuing entity or (b) the resulting, surviving or
transferee entity or, in the case of a plan of liquidation, the entity which
receives the greatest value from such Plan of Liquidation, is a corporation
organized under the laws of the United States, any state thereof or the District
of Columbia, and expressly assumes by supplemental indenture all of the
obligations of the Company in connection with the Securities and this Indenture;
(ii) no Default or Event of Default shall exist or shall occur immediately after
giving effect to such transaction; (iii) immediately after giving effect to such
transaction on a pro forma basis, the Consolidated Net Worth of the consolidated
surviving or transferee entity or, in the case of a Plan of Liquidation, the
entity which receives the greatest value from such Plan of Liquidation, is at
least equal to the Consolidated Net Worth of the Company immediately prior to
such transaction; and (iv) immediately after giving effect to such transaction
on a pro forma basis, the consolidated resulting, surviving or transferee entity
or, in the case of a Plan of Liquidation, the entity which receives the greatest
value from such Plan of Liquidation, would immediately thereafter be permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Debt
Incurrence Ratio set forth in Section 4.10. For
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purposes of this Section 5.1, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Capital Stock of which constitutes all or substantially
all of the properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
SECTION 5.2. Successor Corporation Substituted.
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company or consummation of a Plan of
Liquidation in accordance with Section 5.1, the successor corporation formed by
such consolidation or into which the Company is merged or to which such transfer
is made or, in the case of a Plan of Liquidation, the entity which receives the
greatest value from such Plan of Liquidation, shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor corporation had been
named herein as the Company, and the Company shall be released from all
obligations under the Securities and this Indenture.
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.1. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be caused voluntarily or involuntarily or effected, without limitation,
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(a) the failure by the Company to pay any installment of
interest on the Securities as and when the same becomes due and payable and the
continuance of any such failure for 30 days;
(b) the failure by the Company to pay all or any part of
the principal, or premium, if any, on the Securities when and as the same
becomes due and payable at maturity, redemption, by acceleration or otherwise,
including, without limitation, payment of the Change of Control Purchase Price
or the Asset Sale Offer Price;
(c) the failure by the Company or any Guarantor to
observe or perform any covenant or agreement on the part of the Company or any
Guarantor contained in the Securities, the Guarantees or this Indenture (other
than a default in the performance of
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any covenant or agreement which is specifically dealt with elsewhere in this
Section 6.1) and the continuance of such failure for a period of 30 days after
written notice is given to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in aggregate principal amount of the
Securities then outstanding, specifying such Default and requiring that it be
remedied;
(d) a decree, judgment, or order by a court of competent
jurisdiction shall have been entered adjudicating the Company or any of its
Significant Subsidiaries as bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization of the Company or any of its Significant
Subsidiaries under any bankruptcy or similar law, and such decree or order shall
have continued undischarged and unstayed for a period of 60 consecutive days; or
a decree, judgement, or order of a court of competent jurisdiction appointing a
receiver, liquidator, trustee, or assignee in bankruptcy or insolvency for the
Company, any of its Significant Subsidiaries, or any substantial part of the
property of any such Person, or for the winding up or liquidation of the affairs
of any such Person, shall have been entered, and such decree, judgment, or order
shall have remained in force undischarged and unstayed for a period of 60 days;
(e) a default in any Indebtedness of the Company or any
of its Subsidiaries with an aggregate principal amount in excess of $2 million
(a) resulting from the failure to pay principal at maturity or (b) as a result
of which the maturity of such Indebtedness has been accelerated prior to its
stated maturity;
(f) the Company or any of its Significant Subsidiaries
shall institute proceedings to be adjudicated a voluntary bankrupt, or shall
consent to the filing of a bankruptcy proceeding against it, or shall file a
petition or answer or consent seeking reorganization under any bankruptcy or
similar law or similar statute, or shall consent to the filing of any such
petition, or shall consent to the appointment of a Custodian, receiver,
liquidator, trustee, or assignee in bankruptcy or insolvency of it or any
substantial part of its assets or property, or shall make a general assignment
for the benefit of creditors, or shall admit in writing its inability to pay its
debts as they become due, fail generally to pay its debts as they become due, or
take any corporate action in furtherance of or to facilitate, conditionally or
otherwise, any of the foregoing;
(g) final unsatisfied judgments not covered by insurance
aggregating in excess of $2 million, at any one time rendered against the
Company or any of its Subsidiaries and not stayed, bonded or discharged within
60 days; and
(h) except for any release of a Guarantee in accordance
with Section 11.4, any Guarantee ceases to be in full force and effect or is
declared null and void or any Guarantor denies that it has any further liability
under any Guarantee, or gives notice to such effect (other than by reason of the
termination of this Indenture or the release of any such Guarantee in accordance
with the terms of this Indenture).
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If an Event of Default occurs and is continuing, the Trustee
shall, within 90 days after occurrence of such default, give to the Holders
notice of such default.
SECTION 6.2. Acceleration of Maturity Date; Rescission and
Annulment.
If an Event of Default occurs and is continuing (other than an
Event of Default specified in clauses (d) and (f) of Section 6.1, above,
relating to the Company or any Significant Subsidiary) then in every such case,
unless the principal of all of the Securities shall have already become due and
payable, either the Trustee or the Holders of 25% in aggregate principal amount
of the Securities then outstanding, by notice in writing to the Company (and to
the Trustee if given by Holders) (an "Acceleration Notice"), may declare all
principal and accrued interest thereon to be due and payable immediately. If an
Event of Default specified in clauses (d) and (f) of Section 6.1, above,
relating to the Company or any Significant Subsidiary occurs, all principal and
accrued interest thereon will be immediately due and payable on all outstanding
Securities without any declaration or other act on the part of Trustee or the
Holders.
At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter provided in this Article VI, the Holders
of not less than a majority in aggregate principal amount of then outstanding
Securities, by written notice to the Company and the Trustee, may rescind, on
behalf of all Holders, any such declaration of acceleration if:
(1) the Company has paid or deposited with the Trustee
Cash sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any,
applicable to) any Securities which would become due other than by
reason of such declaration of acceleration, and interest thereon at
the rate borne by the Securities,
(C) to the extent that payment of such interest
is lawful, interest upon overdue interest at the rate borne by the
Securities,
(D) all sums paid or advanced by the Trustee
hereunder and the compensation, expenses, disbursements and
advances of the Trustee and its agents and counsel, and any other
amounts due the Trustee under Section 7.7, and
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(2) all Events of Default, other than the non-payment of
the principal of, premium, if any, and interest on Securities which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 6.12.
Notwithstanding the previous sentence of this Section 6.2, no waiver shall be
effective against any Holder for any Event of Default or event which with notice
or lapse of time or both would be an Event of Default with respect to (i) any
covenant or provision which cannot be modified or amended without the consent of
the Holder of each outstanding Security affected thereby, unless all such
affected Holders agree, in writing, to waive such Event of Default or other
event and (ii) any provision requiring supermajority approval to amend, unless
such default has been waived by such a supermajority. No such waiver shall cure
or waive any subsequent default or impair any right consequent thereon.
SECTION 6.3. Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Company covenants that if an Event of Default in payment
of principal, premium, or interest specified in clause (a) or (b) of Section 6.1
occurs and is continuing, the Company shall, upon demand of the Trustee, pay to
it, for the benefit of the Holders of such Securities, the whole amount then due
and payable on such Securities for principal, premium (if any) and interest,
and, to the extent that payment of such interest shall be legally enforceable,
interest on any overdue principal (and premium, if any) and on any overdue
interest, at the rate borne by the Securities, and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including compensation to, and expenses, disbursements and advances
of, the Trustee and its agents and counsel and all other amounts due the Trustee
under Section 7.7.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust in favor
of the Holders, may at the expense of the Company institute a judicial
proceeding for the collection of the sums so due and unpaid, may prosecute such
proceeding to judgment or final decree and may enforce the same against the
Company or any other obligor upon the Securities and collect the moneys adjudged
or decreed to be payable in the manner provided by law out of the property of
the Company or any other obligor upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effective to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
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SECTION 6.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal and premium, if any, or
interest) shall be entitled and empowered, by intervention in such proceeding or
otherwise to take any and all actions under the TIA, including
(1) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in respect
of the Securities and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agent and counsel and
all other amounts due the Trustee under Section 7.7) and of the Holders
allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and counsel, and any
other amounts due the Trustee under Section 7.7.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment, or composition affecting
the Securities or the rights of any Holder thereof or to authorize the Trustee
to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.5. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust in favor of the
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Holders, and any recovery of judgment shall, after provision for the payment of
compensation to, and expenses, disbursements and advances of the Trustee, its
agents and counsel and all other amounts due the Trustee under Section 7.7, be
for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
SECTION 6.6. Priorities.
Any money collected by the Trustee pursuant to this Article VI
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal,
premium (if any) or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the Trustee in payment of all amounts due pursuant
to Section 7.7;
SECOND: To the Holders in payment of the amounts then due and
unpaid for principal of, premium (if any) and interest on, the Securities in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Securities for principal, premium (if any) and interest,
respectively; and
THIRD: To the Company, the Guarantors or such other Person as
may be lawfully entitled thereto, the remainder, if any.
The Trustee may, but shall not be obligated to, fix a record
date and payment date for any payment to the Holders under this Section 6.6.
SECTION 6.7. Limitation on Suits.
No Holder of any Security shall have any right to order or
direct the Trustee to institute any proceeding, judicial or otherwise, with
respect to this Indenture, or for the appointment of a receiver or trustee, or
for any other remedy hereunder, unless
(A) such Holder has previously given written notice to
the Trustee of a continuing Event of Default;
(B) the Holders of not less than 25% in aggregate
principal amount of then outstanding Securities shall have
made written request to the Trustee to institute proceedings
in respect of such Event of Default in its own name as Trustee
hereunder;
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(C) such Holder or Holders have offered to the Trustee
reasonable security or indemnity against the costs, expenses
and liabilities to be incurred or reasonably probable to be
incurred in compliance with such request;
(D) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute
any such proceeding; and
(E) no direction inconsistent with such written request
has been given to the Trustee during such 60-day period by the
Holders of a majority in aggregate principal amount of the
outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatsoever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 6.8. Unconditional Right of Holders to Receive
Principal, Premium and Interest.
Notwithstanding any other provision of this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment of the principal of, and premium (if any) and
interest on, such Security on the respective dates such payments are due as
expressed in such Security (in the case of redemption, the Redemption Price on
the applicable Redemption Date, in the case of a Change of Control Offer, the
Change of Control Purchase Price on the Change of Control Purchase Date, and in
the case of an Asset Sale Offer, the Asset Sale Offer Price, on the date of
payment thereof) and to institute suit for the enforcement of any such payment
after such respective dates, and such rights shall not be impaired without the
consent of such Holder.
SECTION 6.9. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities in Section 2.7, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
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SECTION 6.10. Delay or Omission Not Waiver.
No delay or omission by the Trustee or by any Holder of any
Security to exercise any right or remedy arising upon any Event of Default shall
impair the exercise of any such right or remedy or constitute a waiver of any
such Event of Default. Every right and remedy given by this Article VI or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 6.11. Control by Holders.
The Holder or Holders of a majority in aggregate principal
amount of then outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred upon the Trustee, provided,
that
(1) such written direction shall not be in conflict with
any rule of law or with this Indenture,
(2) the Trustee shall not determine that the action so
directed would be unjustly prejudicial to the Holders not taking part in
such written direction, and
(3) the Trustee may take any other action deemed proper
by the Trustee which is not inconsistent with such written direction.
SECTION 6.12. Waiver of Past Default.
Subject to Section 6.8, prior to the declaration of
acceleration of the maturity of the Securities, the Holder or Holders of not
less than a majority in aggregate principal amount of the Securities then
outstanding may, on behalf of all Holders, waive any past default hereunder and
its consequences, except a default
(A) in the payment of the principal of, premium, if any,
or interest on, any Security as specified in clauses (a) and (b) of
Section 6.1 and not yet cured;
(B) in respect of a covenant or provision hereof which,
under Article IX, cannot be modified or amended without the consent
of the Holder of each outstanding Security affected; or
(C) in respect of any provision hereof which, under
Article IX, cannot be modified, amended or waived without the
consent of
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the Holders of 66-2/3% of the aggregate principal amount of the
Securities at the time outstanding; provided, that any such
waiver may be effected with the consent of the Holders of
66-2/3% of the aggregate principal amount of the Securities
then outstanding.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair the exercise of any right arising
therefrom.
SECTION 6.13. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any
Security by his acceptance thereof shall be deemed to have agreed, that in any
suit for the enforcement of any right or remedy under this Indenture, or in any
suit against the Trustee for any action taken, suffered or omitted to be taken
by it as Trustee, any court may in its discretion require the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees and expenses, against any party litigant in such
suit, having due regard to the merits and good faith of the claims or defenses
made by such party litigant; but the provisions of this Section 6.13 shall not
apply to any suit instituted by the Company, to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in aggregate principal amount of the outstanding
Securities, or to any suit instituted by any Holder for enforcement of the
payment of principal of, or premium (if any) or interest on, any Security on or
after the respective Maturity Date expressed in such Security (including, in the
case of redemption, on or after the Redemption Date).
SECTION 6.14. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every case, subject to any
determination in such proceeding, the Company, the Guarantors, the Trustee and
the Holders shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.
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ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this
Indenture and covenants and agrees to perform the same, as herein expressed,
subject to the terms hereof.
SECTION 7.1. Duties of Trustee.
(a) If a Default or an Event of Default has occurred and
is continuing, the Trustee shall exercise such of the rights and powers vested
in it by this Indenture and use the same degree of care and skill in their
exercise as a prudent Person would exercise or use under the circumstances in
the conduct of such Person's own affairs.
(b) Except during the continuance of a Default or an
Event of Default:
(1) The Trustee need perform only those duties as
are specifically set forth in this Indenture and no others, and no
covenants or obligations shall be implied in or read into this Indenture
which are adverse to the Trustee, and
(2) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions (whether in their original or facsimile form) furnished to the
Trustee and conforming to the requirements of this Indenture. However, in
the case of any such certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall examine the certificates and opinions to determine whether
or not they conform to the requirements of this Indenture but not to
verify the contents thereof.
(c) The Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of
paragraph (b) of this Section 7.1,
(2) The Trustee shall not be liable for any error
of judgment made in good faith by it, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts, and
(3) The Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.11.
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(d) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or to take or omit
to take any action under this Indenture or at the request, order or direction of
the Holders or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(e) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b), (c), (d) and (f) of
this Section 7.1.
(f) The Trustee shall not be liable for interest on any
assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
SECTION 7.2. Rights of Trustee.
Subject to Section 7.1:
(a) The Trustee may conclusively rely on any document
believed by it in good faith to be genuine and to have been signed or presented
by the proper Person. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it
may consult with counsel of its selection and may require an Officers'
Certificate or an Opinion of Counsel, which shall conform to Sections 12.4 and
12.5. The Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on such certificate or advice of counsel.
(c) The Trustee may act through its attorneys and agents
and shall not be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized or
within its rights or powers conferred upon it by this Indenture.
(e) The Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, notice, request, direction, consent, order,
bond, debenture, or other paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters as it
may see fit.
(f) The Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request, order
or direction of any of the
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Holders, pursuant to the provisions of this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
(g) Unless otherwise specifically provided for in this
Indenture, any demand, request, direction or notice from the Company or any
Guarantor shall be sufficient if signed by an Officer of the Company or such
Guarantor, as applicable.
(h) The Trustee shall have no duty to inquire as to the
performance of the Company's or any Guarantor's covenants in Article IV hereof
or as to the performance by any Agent of its duties hereunder. In addition, the
Trustee shall not be deemed to have knowledge of any Default or Event of Default
except any Default or Event of Default of which the Trustee shall have received
written notification (which notice references this Indenture) or with respect to
which a Trust Officer shall have actual knowledge.
(i) Whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith on
its part, rely upon an Officers' Certificate.
SECTION 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Securities and may otherwise deal with the Company, any
Guarantor, any of their Subsidiaries, or their respective Affiliates with the
same rights it would have if it were not Trustee. Any Agent may do the same with
like rights. However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.4. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Securities and it shall not be accountable for
the Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement in the Securities, other than the Trustee's
certificate of authentication, or the use or application of any funds received
by a Paying Agent other than the Trustee.
SECTION 7.5. Notice of Default.
If a Default or an Event of Default occurs and is continuing
and if written notice thereof has been given received by the Trustee, the
Trustee shall mail to each Securityholder--notice of the uncured Default or
Event of Default within 90 days after such Default or Event of Default occurs.
Except in the case of a Default or an Event of Default in payment of principal
(or premium, if any) of, or interest on, any Security (including the
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payment of the Change of Control Purchase Price on the Change of Control
Purchase Date, the payment of the Redemption Price on the Redemption Date and
the payment of the Asset Sale Price on the date of payment thereof), the Trustee
may withhold the notice if and so long as a Trust Officer in good faith
determines that withholding the notice is in the best interests of the
Securityholders.
SECTION 7.6. Reports by Trustee to Holders.
Within 60 days after each May 15, beginning with May 15, 1998,
the Trustee shall, if required by law, mail to each Securityholder a brief
report dated as of such May 15 that complies with TIA ss. 313(a). The Trustee
also shall comply with TIA ss.ss. 313(b) and 313(c) and, if applicable, TIA ss.
313(d).
The Company shall promptly notify the Trustee in writing if
the Securities become listed on any stock exchange or automatic quotation system
or are delisted therefrom.
A copy of each report at the time of its mailing to
Securityholders shall be mailed to the Company and filed with the SEC and each
stock exchange, if any, on which the Securities are listed.
SECTION 7.7. Compensation and Indemnity.
The Company and the Guarantors jointly and severally agree to
pay to the Trustee from time to time such compensation as shall be agreed in
writing between the Company and the Trustee for its services. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company and the Guarantors shall reimburse the Trustee upon
request for all such disbursements, expenses and advances incurred or made by it
in accordance with this Indenture as shall be agreed in writing between the
Company and the Trustee. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents, accountants,
experts and counsel.
The Company and the Guarantors jointly and severally agree to
indemnify each Trustee and any predecessor Trustee (in each case in its capacity
as Trustee) and each of its officers, directors, attorneys-in-fact and agents
for, and hold it harmless against, any and all claims, demands, expenses
(including but not limited to reasonable compensation, disbursements and
expenses of the Trustee's agents and counsel), taxes (other than taxes based on
the income of the Trustee), losses, damages or liabilities incurred by it
without negligence or bad faith on the part of the Trustee, arising out of or in
connection with the acceptance or administration of this trust and its rights or
duties hereunder, including the reasonable costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The Trustee shall notify
the Company promptly of any claim asserted against the Trustee for which it may
seek indemnity.
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The Company and the Guarantors shall defend the claim and the Trustee shall
provide reasonable cooperation at the Company's and the Guarantors' expense in
the defense. The Trustee may have separate counsel of its selection and the
Company and the Guarantors shall pay the reasonable fees and expenses of such
counsel. The Company and the Guarantors need not pay for any settlement made
without their written consent. The Company and the Guarantors need not reimburse
any expense or indemnify against any loss or liability to the extent incurred by
the Trustee through its negligence, bad faith or willful misconduct.
To secure the Company's and the Guarantors' payment
obligations in this Section 7.7, the Trustee shall have a lien prior to the
Securities on all assets held or collected by the Trustee, in its capacity as
Trustee, except assets held in trust for the benefit of the Holders to pay
principal and premium, if any, of or interest on particular Securities.
When the Trustee or any predecessor Trustee incurs expenses or
renders services after an Event of Default specified in Section 6.1(d) or (f)
occurs, the expenses and the compensation for the services are intended to
constitute expenses of administration under any Bankruptcy Law.
The Company's and the Guarantors' obligations under this
Section 7.7 and any lien arising hereunder shall survive the resignation or
removal of the Trustee, the discharge of the Company's and the Guarantors'
obligations pursuant to Article VIII of this Indenture and any rejection or
termination of this Indenture under any Bankruptcy Law.
SECTION 7.8. Replacement of Trustee.
The Trustee may resign by so notifying the Company in writing,
to become effective upon the appointment of a successor trustee. The Holder or
Holders of a majority in aggregate principal amount of the outstanding
Securities may remove the Trustee by so notifying the Company and the Trustee in
writing and may appoint a successor trustee with the Company's consent. The
Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver, Custodian, or other public officer takes
charge of the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holder or Holders of a majority in aggregate
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principal amount of the Securities may appoint a successor Trustee to replace
the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that
and provided that all sums owing to the retiring Trustee provided for in Section
7.7 have been paid, the retiring Trustee shall transfer all property held by it
as trustee to the successor Trustee, subject to the lien provided in Section
7.7, the resignation or removal of the retiring Trustee shall become effective,
and the successor Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. A successor Trustee shall mail notice of its
succession to each Holder.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holder or Holders of at least 10% in aggregate principal amount
of the outstanding Securities may at the expense of the Company petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.8, the Company's and the Guarantors' obligations under Section 7.7
shall continue for the benefit of the retiring Trustee.
SECTION 7.9. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
The Trustee shall at all times satisfy the requirements of TIA
ss. 310(a)(1), (2) and (5). The Trustee shall have a combined capital and
surplus of at least $25,000,000 as set forth in its most recent published annual
report of condition. The Trustee shall comply with TIA ss. 310(b).
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SECTION 7.11. Preferential Collection of Claims Against
Company.
The Trustee shall comply with TIA ss. 311(a), excluding any
creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated.
ARTICLE VIII
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.1. Option to Effect Legal Defeasance or Covenant
Defeasance.
The Company may, at its option and at any time, elect to have
Section 8.2 or Section 8.3 applied to all outstanding Securities upon compliance
with the conditions set forth below in this Article VIII.
SECTION 8.2. Legal Defeasance and Discharge.
Upon the Company's exercise under Section 8.1 of the option
applicable to this Section 8.2, the Company and the Guarantors shall be deemed
to have been discharged from their respective obligations with respect to all
outstanding Securities on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means
that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented by, and this Indenture shall cease to be of further
effect as to, all outstanding Securities and Guarantees, which shall thereafter
be deemed to be "out standing" only for the purposes of Section 8.5 and the
other Sections of this Indenture referred to in (a) and (b) below, and the
Company and the Guarantors shall be deemed to have satisfied all their other
respective obligations under such Securities and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (a) rights of
Holders to receive payments in respect of the principal of, premium, if any, and
interest on such Securities when such payments are due from the trust funds
described below; (b) the Company's obligations with respect to such Securities
concerning issuing temporary Securities, registration of Securities, mutilated,
destroyed, lost or stolen Securities, and the maintenance of an office or agency
for payment and money for security payments held in trust; (c) the rights,
powers, trust, duties, and immunities of the Trustee, and the Company's and the
Guarantors' obligations in connection therewith; and (d) this Article VIII.
Subject to compliance with this Article VIII, the Company may exercise its
option under this Section 8.2 notwithstanding the prior exercise of its option
under Section 8.3 with respect to the Securities.
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SECTION 8.3. Covenant Defeasance.
Upon the Company's exercise under Section 8.1 of the option
applicable to this Section 8.3, the Company and the Guarantors shall be released
from their respective obligations under the covenants contained in Sections
4.3, 4.6, 4.7, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14 and 4.15, and Article V and
Article X with respect to the outstanding Securities on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"),
and the Securities shall thereafter be deemed not "outstanding" for the purposes
of any direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder. For this
purpose, such Covenant Defeasance means that, with respect to the outstanding
Securities, neither the Company nor any Guarantor need comply with and shall
have any liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document (and Section
6.1(c)) shall not apply to any such covenant), but, except as specified above,
the remainder of this Indenture and such Securities shall be unaffected thereby.
In addition, upon the Company's exercise under Section 8.1 of the option
applicable to this Section 8.3, Sections 6.1(e) and 6.1(g) shall not constitute
Events of Default.
SECTION 8.4. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of
either Section 8.2 or Section 8.3 to the outstanding Securities:
(a) The Company shall irrevocably have deposited or
caused to be deposited with the Trustee (or another trustee satisfying the
requirements of Section 7.10 who shall agree to comply with the provisions of
this Article VIII applicable to it), in trust, for the benefit of the Holders of
such Securities, (i) Cash in an amount, or (ii) U.S. Government Obligations
which through the scheduled payment of principal and interest in respect thereof
in accordance with their terms will provide, not later than one day before the
due date of any payment, Cash in an amount, or (iii) a combination thereof, in
such amounts, as in each case will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge and which
shall be applied by the Trustee (or other qualifying trustee) to pay and
discharge the principal of, premium, if any, and interest on the outstanding
Securities on the stated maturity or on the applicable redemption date, as the
case may be, of such principal or installment of principal, premium, if any, or
interest on the Securities and the Trustee, for the exclusive benefit of the
Holders of the Securities, shall have a valid, perfected, exclusive security
interest in such trust;
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(b) In the case of an election under Section 8.2 before
the date that is one year prior to the Stated Maturity, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States reasonably
acceptable to the Trustee confirming that (i) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (ii) since
the date hereof, there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such opinion shall
confirm that, the Holders of the outstanding Securities will not recognize
income, gain or loss for Federal income tax purposes as a result of such Legal
Defeasance and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(c) In the case of an election under Section 8.3 before
the date that is one year prior to the Stated Maturity, the Company shall have
delivered to the Trustee an Opinion of Counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding
Securities will not recognize income, gain or loss for Federal income tax
purposes as a result of such Covenant Defeasance and will be subject to Federal
income tax in the same amount, in the same manner and at the same times as would
have been the case if such Covenant Defeasance had not occurred;
(d) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such deposit or,
insofar as Section 6.1(d) or Section 6.1(f) is concerned, at any time in the
period ending on the 91st day after the date of such deposit;
(e) Such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a default under, this
Indenture or any other material agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound;
(f) In the case of an election under either Section 8.2
or 8.3, the Company shall have delivered to the Trustee an Officers' Certificate
stating that the deposit made by the Company pursuant to its election under
Section 8.2 or 8.3 was not made by the Company with the intent of preferring the
Holders over any other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Company or others;
and
(g) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that the
conditions precedent provided for in, in the case of the Officer's Certificate,
clauses (a) through (f), and, in the case of the Opinion of Counsel, clauses
(a) (with respect to the validity and perfection of the security interest), (b),
(c) and (e) of this Section 8.4 have been complied with.
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If the funds deposited with the Trustee to effect Legal
Defeasance or Covenant Defeasance are insufficient to pay the principal of,
premium, if any, and interest on the Securities when due, then the obligations
of the Company and the Guarantors under this Indenture, the Securities and the
Guarantees will be revived and no such defeasance will be deemed to have
occurred.
SECTION 8.5. Deposited Cash and U.S. Government Obligations to
be Held in Trust; Other Miscellaneous Provisions.
Subject to Section 8.6, all Cash and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.5, the
"Paying Agent") pursuant to Section 8.4 in respect of the outstanding Securities
shall be held in trust and applied by the Paying Agent, in accordance with the
provisions of such Securities and this Indenture, to the payment, either
directly or through any other Paying Agent as the Trustee may determine, to the
Holders of such Securities of all sums due and to become due thereon in respect
of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law. The Company
shall pay and indemnify the Trustee against any tax, fee or other charge imposed
on or assessed against the U.S. Government Obligations deposited pursuant to
Section 8.4 or the principal and interest received in respect thereof other than
any such tax, fee or other charge which by law is for the account of the Holders
of outstanding Securities.
SECTION 8.6. Repayment to the Company.
Anything in this Article VIII to the contrary notwithstanding,
the Trustee or the Paying Agent, as applicable, shall deliver or pay to the
Company from time to time upon the request of the Company any Cash or U.S.
Government Obligations held by it as provided in Section 8.4 hereof which in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee (which may
be the opinion delivered under Section 8.4(a) hereof), are in excess of the
amount thereof that would then be required to be deposited to effect an
equivalent Legal Defeasance or Covenant Defeasance.
Any Cash and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, premium, if any,
or interest on any Security and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall,
subject to the requirements of applicable law, be paid to the Company on its
request; and the Holder of such Security shall thereafter look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money shall thereupon cease; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in The
New York Times and The Wall Street Journal (national edition),
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notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such notification
or publication, any unclaimed balance of such money then remaining will be
repaid to the Company at the Company's written request.
SECTION 8.7. Reinstatement.
If the Trustee or Paying Agent is unable to apply any Cash or
U.S. Government Obligations in accordance with Section 8.2 or 8.3, as the case
may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's and the Guarantors' obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.2 or 8.3 until such time as the Trustee or Paying Agent is
permitted to apply such money in accordance with Section 8.2 and 8.3, as the
case may be; provided, however, that, if the Company makes any payment of
principal of, premium, if any, or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the Cash and U.S.
Government Obligations held by the Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.1. Supplemental Indentures Without Consent of
Holders.
Without the consent of any Holder, the Company or any
Guarantor, when authorized by Board Resolutions, and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect, or inconsistency, or
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the provisions
of this Indenture, provided such action pursuant to this clause shall not
adversely affect the interests of any Holder in any respect;
(2) to add to the covenants of the Company or the
Guarantors for the benefit of the Holders, or to surrender any right or
power herein conferred upon the Company or the Guarantors;
(3) to provide for additional Guarantors of the
Securities;
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(4) to evidence the succession of another Person to the
Company, and the assumption by any such successor of the obligations of
the Company, herein and in the Securities in accordance with Article V;
(5) to comply with the TIA;
(6) to evidence the succession of another corporation to
any Guarantor and assumption by any such successor of the Guarantee of
such Guarantor (as set forth in Section 11.4) in accordance with Article
XI;
(7) to evidence the release of any Guarantor in
accordance with Article XI;
(8) in any other case where a supplemental indenture is
required or permitted to be entered into pursuant to the provisions of
this Indenture without the consent of any Holder;
(9) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee with respect to the
Securities;
(10) to secure the Securities if required in accordance
with the provisions of Section 4.12; or
(11) to provide for the issuance and authentication of
the Exchange Securities in exchange for the Initial Securities in
compliance with this Indenture and the Registration Rights Agreement.
SECTION 9.2. Amendments, Supplemental Indentures and Waivers
with Consent of Holders.
Subject to Section 6.8, with the consent of the Holders of not
less than a majority in aggregate principal amount of then outstanding
Securities, by written act of said Holders delivered to the Company and the
Trustee, the Company or any Guarantor, when authorized by Board Resolutions, and
the Trustee may amend or supplement this Indenture or the Securities or enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to or changing in any manner or eliminating any of the provisions
of this Indenture or the Securities or of modifying in any manner the rights of
the Holders under this Indenture or the Securities. Subject to Section 6.8, the
Holder or Holders of not less than a majority in aggregate principal amount of
then outstanding Securities may waive compliance by the Company or any Guarantor
with any provision of this Indenture or the Securities. Notwithstanding any of
the above, however, no such amendment, supplemental indenture or waiver shall
without the consent of the Holders of not less than 66-2/3% of the aggregate
principal amount of Securities at the time outstanding alter the terms or
provisions
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of Section 10.1 in a manner adverse to the Holders and no such amendment,
supplemental indenture or waiver shall, without the consent of the Holder of
each outstanding Security affected thereby:
(1) change the Maturity Date on any Security, or reduce
the principal amount thereof or the rate (or extend the time for payment)
of interest thereon or any premium payable upon the redemption thereof, or
change the place of payment where, or the coin or currency in which, any
Security or any premium or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof (or in the case of redemption, on or
after the Redemption Date), or reduce the Change of Control Purchase Price
or the Asset Sale Offer Price or alter the provisions of this Indenture
(including the defined terms used herein) regarding the right of the
Company to redeem the Securities in a manner adverse the Holders; or
(2) reduce the percentage in principal amount of
outstanding Securities the consent of whose Holders is required for any
such amendment, supplemental indenture or waiver provided for in this
Indenture;
(3) modify any of the waiver provisions, except to
increase any required percentage or to provide that certain other
provision of this Indenture cannot be modified or waived without the
consent of the Holder of each outstanding Note affected thereby; or
(4) cause the Securities or any Guarantee to become
subordinate in right of payment to any extent or under any circumstances
to any other Indebtedness.
It shall not be necessary for the consent of the Holders under
this Section 9.2 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture or
waiver.
After an amendment, supplement or waiver under this Section
9.2 or Section 9.4 becomes effective, it shall bind each Holder.
In connection with any amendment, supplement or waiver under
this Article IX, the Company may, but shall not be obligated to, offer to any
Holder who consents to such
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amendment, supplement or waiver, or to all Holders, consideration for such
Holder's consent to such amendment, supplement or waiver.
SECTION 9.3. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.4. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the same
debt as the consenting Holder's Security, even if notation of the consent is not
made on any Security. However, any such Holder or subsequent Holder may revoke
the consent as to his Security or portion of his Security by written notice to
the Company or the Person designated by the Company as the Person to whom
consents should be sent if such revocation is received by the Company or such
Person before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of Securities have
consented (and not theretofore revoked such consent) to the amendment,
supplement or waiver.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver, which record date shall be the date so fixed by
the Company notwithstanding the provisions of the TIA. If a record date is
fixed, then notwithstanding the last sentence of the immediately preceding
paragraph, those Persons who were Holders at such record date, and only those
Persons (or their duly designated proxies), shall be entitled to revoke any
consent previously given, whether or not such Persons continue to be Holders
after such record date. No such consent shall be valid or effective for more
than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Securityholder, unless it makes a change described in any of
clauses (1) through (4) of Section 9.2, in which case, the amendment, supplement
or waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided, that any such
waiver shall not impair or affect the right of any other Holder to receive
payment of principal and premium of and interest on a Security, on or after the
respective dates set for such amounts to become due and payable expressed in
such Security, or to bring suit for the enforcement of any such payment on or
after such respective dates.
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SECTION 9.5. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee or require the Holder to put an appropriate notation on the
Security. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company or
the Trustee so determines, the Company in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms. Any failure to make the appropriate notation or to issue a new Security
shall not affect the validity of such amendment, supplement or waiver.
SECTION 9.6. Trustee to Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article IX; provided, that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article IX is
authorized or permitted by this Indenture.
ARTICLE X
RIGHT TO REQUIRE REPURCHASE
SECTION 10.1. Repurchase of Securities at Option of the Holder
Upon a Change of Control.
(a) In the event that a Change of Control occurs, each
Holder shall have the right, at such Holder's option, pursuant to an irrevocable
and unconditional offer by the Company (the "Change of Control Offer") subject
to the terms and conditions of this Indenture, to require the Company to
repurchase all or any part of such Holder's Securities (provided, that the
principal amount of such Securities must be $1,000 or an integral multiple
thereof) on a date (the "Change of Control Purchase Date") that is no later than
45 Business Days after the occurrence of such Change of Control, at a cash price
(the "Change of Control Purchase Price") equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the Change of Control
Purchase Date.
(b) In the event of a Change of Control, the Company
shall be required to commence an offer to purchase Securities (a "Change of
Control Offer") as follows:
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(1) the Change of Control Offer shall commence within 15
Business Days following the occurrence of the Change of Control;
(2) the Change of Control Offer shall remain open for
not less than 20 Business Days following its commencement (the "Change of
Control Offer Period");
(3) upon the expiration of the Change of Control Offer
Period, the Company shall purchase all Securities properly tendered in
response to the Change of Control Offer at the Change of Control Purchase
Price, plus accrued and unpaid interest thereon;
(4) if the Change of Control Purchase Date is on or
after a Record Date and on or before the related interest payment date,
any accrued interest will be paid to the Person in whose name a Security
is registered at the close of business on such Record Date, and no
additional interest will be payable to Securityholders who tender
Securities pursuant to the Change of Control Offer;
(5) the Company shall provide the Trustee and the Paying
Agent with written notice of the Change of Control Offer at least three
Business Days before the commencement of any Change of Control Offer; and
(6) on or before the commencement of any Change of
Control Offer, the Company or the Registrar (upon the request and at the
expense of the Company) shall send, by first-class mail, a notice to each
of the Securityholders, which (to the extent consistent with this
Indenture) shall govern the terms of the Change of Control Offer and shall
state:
(i) that the Change of Control Offer is being made
pursuant to such notice and this Section 10.1 and that all Securities, or
portions thereof, tendered will be accepted for payment;
(ii) the Change of Control Purchase Price (including the
amount of accrued and unpaid interest) and the Change of Control Purchase
Date;
(iii) that any Security, or portion thereof, not
tendered or accepted for payment will continue to accrue interest;
(iv) that, unless the Company defaults in depositing
Cash with the Paying Agent in accordance with the last paragraph of this
Article X or such payment is prevented, any Security, or portion thereof,
accepted for payment pursuant to the Change of Control Offer shall cease
to accrue interest after the Change of Control Purchase Date;
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(v) that Holders electing to have a Security, or portion
thereof, purchased pursuant to a Change of Control Offer will be required
to surrender the Security, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Security completed, to the Paying
Agent (which may not for purposes of this Section 10.1, notwithstanding
anything in this Indenture to the contrary, be the Company or any
Affiliate of the Company) at the address specified in the notice prior to
the expiration of the Change of Control Offer;
(vi) that Holders will be entitled to withdraw their
election, in whole or in part, if the Paying Agent receives, prior to the
expiration of the Change of Control Offer, a facsimile transmission or
letter setting forth the name of the Holder, the certificate number (if
applicable), the principal amount of the Securities the Holder is
withdrawing and a statement that such Holder is withdrawing his election
to have such principal amount of Securities purchased;
(vii) that Holders whose Securities are purchased only
in part will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; and
(viii) a brief description of the events resulting in
such Change of Control.
Any such Change of Control Offer shall be made in compliance
with all applicable Federal and state laws, rules and regulations, including, if
applicable, Regulation 14E under the Exchange Act and the rules thereunder and
all other applicable Federal and state securities laws.
On or before the Change of Control Purchase Date, the Company
shall (i) accept for payment Securities or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent Cash
sufficient to pay the Change of Control Purchase Price (together with accrued
and unpaid interest) for all Securities or portions thereof so tendered and
(iii) deliver to the Trustee Securities so accepted together with an Officers'
Certificate listing the Securities or portions thereof being purchased by the
Company. The Paying Agent shall promptly deliver to Holders of Securities so
accepted payment in an amount equal to the Change of Control Purchase Price
(together with accrued and unpaid interest), for such Securities, and the
Trustee shall promptly authenticate and mail or deliver (or cause to be
transferred by book entry) to such Holders a new Security equal in principal
amount to any unpurchased portion of the Security surrendered; provided,
however, that each such new Security will be in a principal amount of $1,000 or
an integral multiple thereof. Any Securities not so accepted shall be promptly
mailed or delivered by the Company to the Holder thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Purchase Date.
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ARTICLE XI
GUARANTEE
SECTION 11.1. Guarantee.
(a) In consideration of good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, each of the
Guarantors hereby irrevocably and unconditionally guarantees (the "Guarantee"),
jointly and severally, on a senior basis, to each Holder of a Security
authenticated and made available for delivery by the Trustee and to the Trustee
and its successors and assigns, irrespective of the validity and enforceability
against the Company and the other Guarantors of this Indenture, the Securities
or the obligations of the Company under this Indenture or the Securities, that:
(i) the principal and premium (if any) of and interest on the Securities will be
paid in full when due, whether at the Maturity Date or Interest Payment Date, by
acceleration or call for redemption, (ii) the purchase price for all Securities
properly and timely tendered for a acceptance in response to a Change of Control
Offer or Asset Sale Offer will be timely, or otherwise in accordance with the
provisions of this Indenture, paid in full, (iii) all other obligations of the
Company to the Holders or the Trustee under this Indenture or the Securities
will be promptly paid in full or performed, all in accordance with the terms of
this Indenture and the Securities, and (iv) in case of any extension of time of
payment or renewal of any Securities or any of such other obligations, they will
be paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at maturity, by acceleration, call for redemption,
upon a Change of Control Offer, upon an Asset Sale Offer or otherwise. Failing
payment when due of any amount so guaranteed for whatever reason, each Guarantor
shall be jointly and severally obligated to pay the same before failure so to
pay becomes an Event of Default. If the Company or a Guarantor defaults in the
payment of the principal of, premium, if any, or interest on, the Securities
when and as the same shall become due, whether upon maturity, acceleration, call
for redemption, upon a Change of Control Offer, Asset Sale Offer or other wise,
without the necessity of action by the Trustee or any Holder, each Guarantor
shall be required, jointly and severally, to promptly make such payment in full.
(b) Each Guarantor hereby agrees that its obligations
with regard to this Guarantee shall be unconditional, irrespective of the
validity, regularity or enforceability of the Securities or this Indenture, the
absence of any action to enforce the same, any delays in obtaining or realizing
upon or failures to obtain or realize upon collateral, the recovery of any
judgment against the Company, any action to enforce the same or any other
circumstances that might otherwise constitute a legal or equitable discharge or
defense of a Guarantor. Each Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company or right to require the prior disposition of the assets of the Company
to meet its obligations, protest, notice and all demands whatsoever and
covenants that this Guarantee will not be discharged except by complete
performance of the obligations contained in the Securities and this Indenture.
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(c) If any Holder or the Trustee is required by any
court or otherwise to return to either the Company or any Guarantor, or any
Custodian, trustee, or similar official acting in relation to either the
Company or such Guarantor, any amount paid by either the Company or such
Guarantor to the Trustee or such Holder, this Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Guarantor agrees that it will not be entitled to any right of subrogation in
relation to the Holders in respect of any obligations guaranteed hereby until
payment in full of all obligations guaranteed hereby. Each Guarantor further
agrees that, as between such Guarantor, on the one hand, and the Holders and the
Trustee, on the other hand, (i) the maturity of the obligations guaranteed
hereby may be accelerated as provided in Section 6.2 for the purposes of this
Guarantee, notwithstanding any stay, injunction or other prohibition preventing
such acceleration as to the Company of the obligations guaranteed hereby, and
(ii) in the event of any declaration of acceleration of those obligations as
provided in Section 6.2, those obligations (whether or not due and payable)
will forthwith become due and payable by each of the Guarantors for the purpose
of this Guarantee.
(d) It is the intention of each Guarantor and the
Company that the obligations of each Guarantor hereunder shall be joint and
several and in, but not in excess of, the maximum amount permitted by applicable
law. Accordingly, if the obligations in respect of the Guarantee would be
annulled, avoided or subordinated to the creditors of any Guarantor by a court
of competent jurisdiction in a proceeding actually pending before such court as
a result of a determination both that such Guarantee was made without fair
consideration and, immediately after giving effect thereto, such Guarantor was
insolvent or unable to pay its debts as they mature or left with unreasonably
small capital, then the obligations of such Guarantor under such Guarantee shall
be reduced by such court if and to the extent such reduction would result in the
avoidance of such annulment, avoidance or subordination; provided, however, that
any reduction pursuant to this paragraph shall be made in the smallest amount as
is strictly necessary to reach such result. For purposes of this paragraph,
"fair consideration", "insolvency", "unable to pay its debts as they mature",
"unreasonably small capital" and the effective times of reductions, if any,
required by this paragraph shall be determined in accordance with applicable
law.
SECTION 11.2. Execution and Delivery of Guarantee.
Each Guarantor shall, by virtue of such Guarantor's execution
and delivery of this Indenture or such Guarantor's execution and delivery of an
indenture supplement pursuant to Section 11.3 hereof, be deemed to have signed
on each Security issued hereunder the notation of guarantee set forth on the
form of the Securities attached hereto as Exhibit A to the same extent as if the
signature of such Guarantor appeared on such Security.
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The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of the guarantee
set forth in Section 11.1 on behalf of each Guarantor. The notation of a
guaranty set forth on any Security shall be null and void and of no further
effect with respect to the guaranty of any Guarantor which, pursuant to Section
11.4 or 11.5, is released from such guarantee.
SECTION 11.3. Future Subsidiary Guarantors.
Upon the acquisition by the Company or Guarantor of the
Capital Stock of any Person, if, as a result of such acquisition, such Person
becomes a Subsidiary (hereinafter any such Subsidiary being called a "Future
Subsidiary Guarantor"), then such Future Subsidiary Guarantor shall
unconditionally guarantee the obligations of the Company with respect to
payment and performance of the Securities and the other obligations of the
Company under this Indenture to the same extent that such obligations are
guaranteed by the other Guarantors pursuant to Section 11.1; and, within 10 days
of the date of such occurrence, such Future Subsidiary Guarantor shall execute
and deliver to the Trustee a supplemental indenture making such Future
Subsidiary Guarantor a party to this Indenture.
SECTION 11.4. Limitation on Merger, Sale or Consolidation of
Subsidiaries.
Each Subsidiary of the Company shall not, and the Company
shall not cause or permit any Subsidiary to, directly or indirectly, consolidate
with or merge with or into another Person or sell, lease, convey or transfer all
or substantially all of its assets (computed on a consolidated basis), whether
in a single transaction or a series of related transactions, to another Person
or group of affiliated Persons or adopt a Plan of Liquidation, unless (i) either
(a) the Subsidiary is the continuing entity or (b) the resulting, surviving or
transferee entity or, in the case of a Plan of Liquidation, the entity which
receives the greatest value from such Plan of Liquidation, is a corporation
organized under the laws of the United States, any state thereof or the District
of Columbia and expressly assumes by supplemental indenture all of the
obligations of the Subsidiary in connection with its Guarantee; (ii) no Default
or Event of Default shall exist or shall occur immediately after giving effect
to such transaction; (iii) immediately after giving effect to such transaction
on a pro forma basis, the Consolidated Net Worth of the Company is at least
equal to the Consolidated Net Worth of the Company immediately prior to such
transaction; and (iv) immediately after giving effect to such transaction on a
pro forma basis, the Company would immediately thereafter be permitted to incur
at least $1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio
set forth in Section 4.10. Any such transaction with and into the Company (with
the Company being the surviving entity) or another Subsidiary that is a Wholly
owned Subsidiary of the Company need not comply with this Section 11.4.
Notwithstanding the foregoing provisions of this paragraph, upon the sale or
disposition (whether by merger, stock purchase, asset sale or otherwise) of a
Subsidiary or all or substantially all of the assets of such Subsidiary to an
entity which is not a Subsidiary of the Company, which transaction complies with
the provisions of Section 4.13, such sale or disposition shall be permitted
under the Indenture and
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such Subsidiary shall be deemed released from all of its obligations under its
Guarantee of the Notes without complying with the provisions of this paragraph.
SECTION 11.5. Certain Bankruptcy Events.
Each Guarantor hereby covenants and agrees, to the fullest
extent that it may do so under applicable law, that in the event of the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Company, such Guarantor shall not file (or join in any filing of), or otherwise
seek to participate in the filing of, any motion or request seeking to stay or
to prohibit (even temporarily) execution on the Guarantee and hereby waives and
agrees not to take the benefit of any such stay of execution, whether under the
Bankruptcy Law or otherwise.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. TIA Controls.
If any provision of this Indenture limits, qualifies, or
conflicts with the duties imposed by operation of the TIA, the imposed duties,
upon qualification of this Indenture under the TIA, shall control.
SECTION 12.2. Notices.
Any notices or other communications to the Company or any
Guarantor or the Trustee required or permitted hereunder shall be in writing,
and shall be sufficiently given if made by hand delivery, by telecopier or
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
if to the Company or any Guarantor:
Community Distributors, Inc.
251 Industrial Parkway
Branchburg Township
Somerville, New Jersey 08876
Attention: President
Telephone: (908) 722-8700
Telecopy:
78
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if to the Trustee:
The Bank of New York
101 Barclay St., Floor 21W
New York, New York 10286
Attention: Corporate Trust Trustee Administration
Telephone: (212) 815-5192
Telecopy: (212) 815-5915
Any party by notice to each other party may designate
additional or different addresses as shall be furnished in writing by such
party. Any notice or communication to any party shall be deemed to have been
given or made as of the date so delivered, if personally delivered; when receipt
is acknowledged, if telecopied; and five Business Days after mailing if sent by
registered or certified mail, postage prepaid (except that a notice of change of
ad dress shall not be deemed to have been given until actually received by the
addressee).
Any notice or communication mailed to a Securityholder shall
be mailed to him or her by first-class mail or other equivalent means at his or
her address as it appears on the registration books of the Registrar and shall
be sufficiently given to him or her if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 12.3. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b)
with other Securityholders with respect to their rights under this Indenture or
the Securities. The Company, the Trustee, the Registrar and any other Person
shall have the protection of TIA ss. 312(c). The Trustee shall comply with TIA
ss. 312.
SECTION 12.4. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Company or any
Guarantor to the Trustee to take any action under this Indenture, such Person
shall furnish to the Trustee:
(1) an Officers' Certificate (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been met; and
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(2) an Opinion of Counsel (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion of
such counsel, all such conditions precedent have been met.
SECTION 12.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate
or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he
has made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been met; and
(4) a statement as to whether or not, in the opinion of
each such Person, such condition or covenant has been met; provided,
however, that with respect to matters of fact an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
SECTION 12.6. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a
meeting of Securityholders. The Paying Agent or Registrar may make reasonable
rules for its functions.
SECTION 12.7. Non-Business Days.
If a payment date is not a Business Day at such place, payment
may be made at such place on the next succeeding day that is a Business Day, and
no interest shall accrue for the intervening period.
SECTION 12.8. Governing Law.
THIS INDENTURE, THE GUARANTEES AND THE SECURITIES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
AS APPLIED TO CONTRACTS MADE AND PER FORMED WITHIN THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE COMPANY AND THE GUARANTORS
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HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT
SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT
SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE
SECURITIES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. EACH OF THE
COMPANY AND THE GUARANTORS IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY SECURITY HOLDER TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY AND THE GUARANTORS IN ANY
OTHER JURISDICTION.
SECTION 12.9. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or any Guarantor or any of their
respective Subsidiaries. Any such indenture, loan or debt agreement may not be
used to interpret this Indenture.
SECTION 12.10. No Recourse against Others.
No direct or indirect stockholder, employee, officer or
director, as such, past, present or future of the Company, the Guarantors or any
successor entity, shall have any personal liability in respect of the
obligations of the Company or the Guarantors under the Securities or this
Indenture by reason of his, her or its status as such stockholder, employee,
officer or director, except to the extent such Person is the Company or a
Guarantor. Each Security holder by accepting a Security waives and releases all
such liability. Such waiver and release are part of the consideration for the
issuance of the Securities.
SECTION 12.11. Successors.
All agreements of the Company and the Guarantors in this
Indenture and the Securities shall bind their respective successors. All
agreements of the Trustee in this Indenture shall bind its successor.
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<PAGE>
SECTION 12.12. Duplicate Originals.
All parties may sign any number of copies or counterparts of
this Indenture. Each signed copy or counterpart shall be an original, but all of
them together shall represent the same agreement.
SECTION 12.13. Severability.
In case any one or more of the provisions in this Indenture or
in the Securities shall be held invalid, illegal or unenforceable, in any
respect for any reason, the validity, legality and enforceability of any such
provision in every other respect and of the remaining provisions shall not in
any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the full extent permitted by law.
SECTION 12.14. Table of Contents, Headings, Etc.
The Table of Contents and headings of the Articles and the
Sections of this Indenture have been inserted for convenience of reference only,
are not to be considered a part hereof and shall in no way modify or restrict
any of the terms or provisions hereof.
SECTION 12.15. Qualification of Indenture.
The Company shall qualify this Indenture under the TIA in
accordance with the terms and conditions of the Registration Rights Agreement
and shall pay all costs and expenses (including attorneys' fees for the Company
and the Trustee) incurred in connection therewith, including, but not limited
to, costs and expenses of qualification of this Indenture and the Securities and
printing this Indenture and the Securities. The Trustee shall be entitled to
receive from the Company any such Officers' Certificates, Opinions of Counsel or
other documentation as it may reasonably request in connection with any such
qualification of this Indenture under the TIA.
SECTION 12.16. Registration Rights.
Certain Holders of the Securities may be entitled to certain
registration rights with respect to such Securities pursuant to, and subject to
the terms of, the Registration Rights Agreement.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the date first written above.
COMMUNITY DISTRIBUTORS, INC.
By: /s/ Frank Marfino
------------------------------
Name: Frank Marfino
Title:
CDI GROUP, INC.
By: /s/ Frank Marfino
------------------------------
Name: Frank Marfino
Title:
THE BANK OF NEW YORK, as Trustee,
Registrar, Paying Agent and
Securities Custodian
By: /s/ Paul Schmalzel
------------------------------
Name: Paul Schmalzel
Title:
<PAGE>
Exhibit A
FORM OF SECURITY
COMMUNITY DISTRIBUTORS, INC.
10-1/4% SENIOR NOTE
DUE 2004
CUSIP:
No. $
Community Distributors, Inc., a Delaware corporation
(hereinafter called the "Company," which term includes any successors under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to , or registered assigns, the principal sum of Dollars,
on October 15, 2004.
Interest Payment Dates: April 15 and October 15 commencing
April 15, 1998.
Record Dates: April 1 and October 1
Reference is made to the further provisions of this Security
on the reverse side, which will, for all purposes, have the same effect as if
set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.
Dated:
COMMUNITY DISTRIBUTORS, INC., a
Delaware corporation
[Seal]
By: _______________________________
Name:
Title:
Attest: _______________________________
Name:
Title:
<PAGE>
FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities described in the
within-mentioned Indenture.
Dated:
THE BANK OF NEW YORK
as Trustee
By: _______________________________
Authorized Signatory
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
10-1/4% Senior Note due 2004
Unless and until it is exchanged in whole or in part for
Securities in definitive form, this Security may not be transferred except as a
whole by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary or a nominee of such
successor Depositary. Unless this certificate is presented by an authorized
representative of The Depository Trust Company (55 Water Street, New York, New
York) ("DTC"), to the Company or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as requested by an authorized representative of
DTC (and any payment is made to Cede & Co. or such other entity as is requested
by an authorized representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.(1)
- -------------
(1) This paragraph should only be added if the Security is issued in global
form.
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS ACQUIRING
THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S
UNDER THE SECURITIES ACT, (C) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501 (A) (1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT (AN "IAI"), OR (D) IT HAS
OTHERWISE ACQUIRED THIS NOTE OR A BENEFICIAL INTEREST HEREIN IN
ACCORDANCE WITH THE TERMS OF THE INDENTURE RELATING TO THIS NOTE AND IN
COMPLIANCE WITH APPLICABLE SECURITIES LAWS, (2) AGREES THAT IT WILL
NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO
ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF
APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE
TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT
(A) TO THE COMPANY OR CDI GROUP,
<PAGE>
INC., (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING OF RULE 144 UNDER THE
SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN
BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY, THE TRUSTEE AND THE REGISTRAR THAT
SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY, THE TRUSTEE AND THE REGISTRAR) OR (G) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH
CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTIONS," "U.S.
PERSONS" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE
902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS NOTE IN VIOLATION OF THE FOREGOING.(2)
1. Interest.
Community Distributors, Inc., a Delaware corporation
(hereinafter called the "Company," which term includes any successors under the
Indenture hereinafter referred to), promises to pay interest on the principal
amount of this Security at the rate of 10-1/4% per annum from October 16, 1997
until maturity. To the extent it is lawful, the Company promises to pay
interest on any interest payment due but unpaid on such principal amount at a
rate of 10-1/4% per annum compounded semi-annually.
- -------------
(2) This paragraph should be included only for the Transfer Restricted
Securities.
<PAGE>
The Company will pay interest semi-annually on April 15 and
October 15 of each year (each, an "Interest Payment Date"), commencing April 15,
1998. Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid on the Securities, from
the date of issuance. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
2. Method of Payment.
The Company shall pay interest on the Securities (except
defaulted interest) to the Persons who are the registered Holders at the close
of business on the April 1 or October 1 immediately preceding the Interest
Payment Date. Holders must surrender Securities to a Paying Agent to collect
principal payments. Except as provided below, the Company shall pay principal
and interest in such coin or currency of the United States of America as at the
time of payment shall be legal tender for payment of public and private debts
("Cash"). The Securities will be payable as to principal, premium, if any, and
interest, and the Securities may be presented for registration of transfer or
exchange, at the office or agency of the Company maintained for such purpose
within the Borough of Manhattan, The City and State of New York or, at the
option of the Company, payment of interest may be made by check mailed to the
Holders at their addresses set forth in the register of Holders, and provided
that payment by wire transfer of immediately available funds will be required
with respect to principal of and interest and premium on all Global Securities,
and all other Securities the Holders of which shall have provided wire transfer
instructions to an account within the United States to the Company or the Paying
Agent at least five days before the relevant Record Date. Until otherwise
designated by the Company, the Company's office or agency will be the corporate
trust office of the Trustee presently located at The Bank of New York, 101
Barclay Street, Floor 21W, N.Y., NY. 10286, Attn: Corporate Trust Trustee
Administration.
3. Paying Agent and Registrar.
Initially, The Bank of New York (the "Trustee," which term
includes any successor Trustee under the Indenture) will act as Paying Agent
and Registrar. The Company may change any Paying Agent, Registrar or
co-Registrar without notice to the Holders. The Company or any of its
Subsidiaries may, subject to certain exceptions, act as Paying Agent, Registrar
or co-Registrar.
4. Indenture.
The Company issued the Securities under an Indenture, dated as
of October 16, 1997 (the "Indenture"), among the Company, CDI Group, Inc., a
Delaware corporation (the "Holding Company") and the Trustee. Capitalized terms
herein are used as defined in the Indenture unless otherwise defined herein. The
terms of the Securities include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act,
<PAGE>
as amended. The Securities are subject to all such terms, and Holders of
Securities are referred to the Indenture and said Act for a statement of them.
The Securities are senior unsecured general obligations of the Company limited
in aggregate principal amount to $80,000,000. The Securities are guaranteed on a
senior basis by the Holding Company and each of the Company's future
Subsidiaries (together with the Holding Company, the "Guarantors").
5. Redemption.
The Securities may be redeemed, at the option of the Company,
in whole or in part, at any time on or after October 15, 2001, at the Redemption
Price (expressed as a percentage of principal amount) set forth below with
respect to the indicated Redemption Date, together with any accrued but unpaid
interest to the Redemption Date (subject to the right of Holders of record on a
Record Date to receive interest due on the Interest Payment Date that is on or
prior to such Redemption Date). The Securities may not be so redeemed prior to
October 15, 2001, except as provided in the immediately following paragraph.
If redeemed during
the 12-month period
commencing Redemption Price
------------------- ----------------
2001........................................ 105.125%
2002 ...................................... 102.562%
2003 and thereafter......................... 100.000%
Notwithstanding the foregoing, prior to October 15, 2000, the
Company may redeem from time to time up to 35% of the aggregate principal amount
of the Securities originally outstanding at a redemption price of 110 1/4%% of
the principal amount thereof, plus accrued and unpaid interest thereon, if any,
to the redemption date, with the net proceeds of one or more Equity Offerings;
provided, that at least 65% of the aggregate principal amount of the Securities
originally outstanding remain outstanding immediately after the occurrence of
such redemption; provided, further, that such notice of redemption shall be sent
within 30 days after the date of closing of any such Equity Offering, and such
redemption shall occur within 60 days after the date such notice is sent.
Any such redemption will comply with Article III of the
Indenture.
6. Notice of Redemption.
Notice of redemption will be sent by first class mail, at
least 30 days and not more than 60 days prior to the Redemption Date to the
Holder of each Security to be redeemed at such Holder's last address as then
shown upon the registry books of the Registrar. Securities may be redeemed in
part in multiples of $1,000 only.
<PAGE>
Except as set forth in the Indenture, from and after any
Redemption Date, if monies for the redemption of the Securities called for
redemption shall have been deposited with the Paying Agent on such Redemption
Date, the Securities called for redemption will cease to bear interest and the
only right of the Holders of such Securities will be to receive payment of the
Redemption Price, plus any accrued and unpaid interest on the Redemption Date.
7. Denominations; Transfer; Exchange.
The Securities are in fully registered form, without coupons,
in denominations of $1,000 and integral multiples of $1,000. A Holder may
register the transfer of Securities in accordance with the Indenture. No
service charge will be made for any registration of transfer or exchange of the
Securities, but the Company may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes or other
governmental charge payable in connection therewith. The Registrar need not
register the transfer of or exchange any Securities (a) selected for redemption
except the unredeemed portion of any Security being redeemed in part or (b) for
a period beginning 15 Business Days before the mailing of a notice of an offer
to repurchase or redemption and ending at the close of business on the day of
such mailing.
8. Persons Deemed Owners.
The registered Holder of a Security may be treated as the
owner of it for all purposes.
9. Unclaimed Money.
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee and the Paying Agent(s) will pay the money
back to the Company at its written request. After that, all liability of the
Trustee and any such Paying Agent(s) with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
Except as set forth in the Indenture, if the Company
irrevocably deposits with the Trustee, in trust, for the benefit of the Holders,
Cash, U.S. Government Obligations or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the Securities to redemption or maturity and comply with the other
provisions of the Indenture relating thereto, the Company and the Guarantors
will be discharged from certain provisions of the Indenture and the Securities
(including the restrictive covenants described in paragraph 12 below, but
excluding their obligation to pay the principal of, premium, if any and interest
on the Securities).
<PAGE>
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities
may be amended or supplemented with the written consent of the Holders of at
least a majority in aggregate principal amount of the Securities then
outstanding, and any existing Default or Event of Default or compliance with
any provision may be waived with the consent of the Holders of a majority in
aggregate principal amount of the Securities then outstanding except that any
amendments or supplements to the provisions relating to the right of Holders to
require repurchase upon a Change of Control, described in paragraph 13 below, in
any manner adverse to the Holders shall require the consent of Holders of not
less than 66 2/3% of the aggregate principal amount of the Securities then
outstanding. Without notice to or consent of any Holder, the parties thereto may
under certain circumstances amend or supplement the Indenture or the Securities
to, among other things, cure any ambiguity, defect or inconsistency, or make any
other change that does not adversely affect the rights of any Holder of a
Security.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of
the Company and its Subsidiaries to, among other things, incur additional
Indebtedness and Disqualified Capital Stock, pay dividends or make certain other
Restricted Payments, enter into certain transactions with Affiliates, incur
Liens, sell assets and subsidiary stock, merge or consolidate with any other
Person or transfer (by lease, assignment or otherwise) substantially all of the
properties and assets of the Company. The limitations are subject to a number of
important qualifications and exceptions. The Company must periodically report to
the Trustee on compliance with such limitations.
13. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Company shall be
required to offer to purchase on the Change of Control Purchase Date all
outstanding Securities at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the Change of Control
Purchase Date. Holders of Securities will receive a Change of Control Offer from
the Company prior to any related Change of Control Purchase Date and may elect
to have such Securities purchased by completing the form entitled "Option of
Holder to Elect Purchase" appearing below.
(b) The Indenture imposes certain limitations on the ability
of the Company and its Subsidiaries to sell assets and subsidiary stock. In the
event the proceeds from a permitted Asset Sale exceed certain amounts, as
specified in the Indenture, the Company generally will be required either to
reinvest the proceeds of such Asset Sale in a Related Business, use such
proceeds to retire debt, or to make an asset sale offer to purchase a certain
amount of each Holder's Securities at 100% of the principal amount thereof,
plus accrued interest, if any, to the purchase date, as more fully set forth in
the Indenture
<PAGE>
14. Notation of Guarantee.
As set forth more fully in the Indenture, the Persons
constituting Guarantors from time to time, in accordance with the provisions of
the Indenture, unconditionally and jointly and severally guarantee, in
accordance with Section 11.1 of the Indenture, to the Holder and to the Trustee
and its successors and assigns, that (i) the principal of, premium, if any, and
interest on the Security will be paid, whether at the Maturity Date or Interest
Payment Dates, by acceleration, call for redemption or otherwise, and all other
obligations of the Company to the Holders or the Trustee under the Indenture or
this Security will be promptly paid in full or performed, all in accordance with
the terms of the Indenture and this Security, and (ii) in the case of any
extension of payment or renewal of this Security or any of such other
obligations, they will be paid in full when due or performed in accordance with
the terms of such extension or renewal, whether at the Maturity Date, as so
extended, by acceleration or otherwise. Such guarantees shall cease to apply,
and shall be null and void, with respect to any Guarantor who, pursuant to
Article XI of the Indenture, is released from its guarantees, or whose
guarantees otherwise cease to be applicable pursuant to the terms of the
Indenture.
15. Ranking.
The indebtedness of the Company evidenced by the Notes will
rank senior in right of payment to all existing and future subordinated
indebtedness of the Company and pari passu in right of payment with all other
existing or future unsubordinated indebtedness of the Company.
16. Successors.
When a successor assumes all the obligations of its
predecessor under the Securities and the Indenture, the predecessor will be
released from those obligations.
17. Defaults and Remedies.
If an Event of Default occurs and is continuing (other than an
Event of Default relating to certain events of bankruptcy, insolvency or
reorganization), then in every such case, unless the principal of all of the
Securities shall have already become due and payable, either the Trustee or the
Holders of 25% in aggregate principal amount of Securities then outstanding may
declare all the Securities to be due and payable in the manner and with the
effect provided in the Indenture. Holders of Securities may not enforce the
Indenture or the Securities except as provided in the Indenture. The Trustee
may require indemnity satisfactory to it before it enforces the Indenture or the
Securities. Subject to certain limitations, Holders of a majority in aggregate
principal amount of the Securities then outstanding may direct the Trustee in
its exercise of any trust or power. The Trustee may withhold from Holders of
Securities notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest), if it determines that withholding
notice is in their best interest.
<PAGE>
18. Trustee or Agent Dealings with Company.
The Trustee and each Agent under the Indenture, in its
individual or any other capacity, may make loans to, accept deposits from, and
perform services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates as if it were not the Trustee and such Agent.
19. No Recourse Against Others.
No direct or indirect stockholder, employee, officer or
director, as such, past, present or future, of the Company, the Guarantors or
any successor entity shall have any personal liability in respect of the
obligations of the Company or the Guarantors under the Securities or the
Indenture by reason of his or its status as such stockholder, employee, officer
or director, except to the extent such Person is the Company or a Guarantor.
Each Holder of a Security by accepting a Security waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Securities.
20. Authentication.
This Security shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on the other side
of this Security.
21. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of
a Security or an assignee, such as: TEN COM (= tenants in common), TENENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
22. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company will cause CUSIP numbers
to be printed on the Securities as a convenience to the Holders of the
Securities. No representation is made as to the accuracy of such numbers as
printed on the Securities and reliance may be placed only on the other
identification numbers printed hereon.
<PAGE>
23. Additional Rights of Holders of Securities.
Certain Holders of the Securities may be entitled to certain
registration rights with respect to such Securities pursuant to, and subject to
the terms of, the Registration Rights Agreement.(3)
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture. Requests may be made to:
Community Distributors, Inc.
251 Industrial Parkway
Branchburg Township
Somerville, New Jersey 08876
Attn: President
24. Governing Law.
The Indenture and the Securities shall be governed by and
construed in accordance with the internal laws of the State of New York without
regard to principles of conflicts of law.
- -------------
(3) This paragraph should be included only for the Initial Securities.
<PAGE>
ASSIGNMENT
I or we assign this Security to
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of assignee
- -------------------------
and irrevocably appoint __________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
In connection with any transfer of this Security occurring
prior to the date which is the earlier of (i) the date of the declaration by the
Securities and Exchange Commission of the effectiveness of a registration
statement under the Securities act of 1933, as amended (the "Securities Act")
covering resales of this Security (which effectiveness shall not have been
suspended or terminated at the date of the transfer) and (ii) October 16, 1999,
the undersigned confirms that it has not utilized any general solicitation or
general advertising in connection with the transfer and that:
[Check One]
[_] (a) this Security is being transferred in compliance with the
exemption from registration under the Securities Act provided by Rule 144A
thereunder.
[_] (b) this Security is being transferred other than in accordance
with (a) above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Security in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer or
registration set forth herein and in Section 2.6 of the Indenture shall have
been satisfied.(4)
- -------------
(4) This paragraph should be included only for the Initial Securities.
<PAGE>
Dated: __________ Signed: ______________________________
- ----------------------------------------------------------
(Sign exactly as name appears on
the other side of this Security)
Signature Guarantee*
- -------------
* NOTICE: The Signature must be guaranteed by an Institution which is a member
of one of the following recognized Signature Guaranty Programs: (i) The
Securities Transfer Agent Medallion Program (STAMP); (ii) The New York Stock
Exchange Medallion Program (MSP); (iii) The Stock Exchange Medallion Program
(SEMP); or (iv) in such other guarantee program acceptable to the Trustee.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.13 or Article X of the Indenture, check the
appropriate box:
[_] Section 4.13 [_] Article X
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.13 or Article X of the Indenture,
as the case may be, state the amount you want to be purchased: $________
Date: ________________ Signature: ____________________________
(Sign exactly as your name
appears on the other side of
this Security)
Signature Guarantee**
- -------------
** NOTICE: The Signature must be guaranteed by an Institution which is a
member of one of the following recognized Signature Guaranty Programs:
(i) The Securities Transfer Agent Medallion Program (STAMP); (ii) The
New York Stock Exchange Medallion Program (MSP); (iii) The Stock
Exchange Medallion Program (SEMP); or (iv) in such other guarantee
program acceptable to the Trustee.
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES(5)
The following exchanges of a part of this Global Security for
Definitive Securities have been made:
<TABLE>
<CAPTION>
Amount of Amount of Principal Amount Signature of
decrease in increase in of this Global authorized signatory of
Date of Principal Amount Principal Amount of Security following Trustee or
Exchange of this Global this Global such decrease (or Securities
Security Security increase) Custodian
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- -------------
(5) This schedule should only be added if the Security is issued in global
form.
<PAGE>
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
SECURITIES(6)
Re: 10-1/4% SENIOR NOTES DUE 2004 OF COMMUNITY DISTRIBUTORS, INC.
This Certificate relates to $______ principal amount of Securities held
in (check applicable box) _____ book-entry or ______ definitive form by _____
(the "Transferor").
The Transferor (check applicable box):
|_| has requested the Trustee by written order to deliver in exchange
for its beneficial interest in the Global Security held by the Depositary a
Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial interest
in such Global Security (or the portion thereof indicated above); or
|_| has requested the Trustee by written order to exchange or register
the transfer of a Security or Securities.
In connection with such request and in respect of each such Security,
the Transferor does hereby certify that Transferor is familiar with the
Indenture relating to the above-captioned Securities and as provided in Section
2.6 of such Indenture, the transfer of this Security does not require
registration under the Securities Act (as defined below) because (check
applicable box):
|_| Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.6(a)(ii)(A) or Section
2.6(d)(i)(A) of the Indenture).
|_| Such Security is being transferred to a "qualified institutional
buyer" (within the meaning of Rule 144A promulgated under the Securities Act),
that is aware that any sale of Securities to it will be made in reliance on Rule
144A under the Securities Act and that is acquiring such Transfer Restricted
Security for its own account, or for the account of another such "qualified
institutional buyer" (in satisfaction of Section 2.06(a)(ii)(B) or Section 2.06
(d)(i)(B) of the Indenture).
|_| Such Security is being transferred pursuant to an exemption from
registration in accordance with Rule 144, or outside the United States in an
Offshore Transaction in compliance with Rule 904 under the Securities Act, or
pursuant to an effective registration statement under the Securities Act (in
satisfaction of Section 2.6(a)(ii)(C) or Section 2.6(d)(i)(C) of the Indenture).
- -------------
(6) This Certificate shall be included only for Transfer Restricted Securities.
<PAGE>
|_| Such Security is being transferred to an institutional "accredited
investor" within the meaning of Rule 501(A)(1), (2), (3) or (7) under the
Securities Act that is acquiring the Security for its own account, or for the
account of such an institutional accredited investor, not with a view to or for
offer or sale in connection with any distribution in violation of the
Securities Act, and a letter in the form of Annex A to this Security accompanies
this Certificate, and, if such transfer is in respect of an aggregate principal
amount of Securities less than $250,000, an Opinion of Counsel to the effect
that such transfer is in compliance with the Securities Act accompanies this
Certificate (in satisfaction of Section 2.6(a)(ii)(D) or Section 2.6(d)(i)(D) of
the Indenture).
|_| Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Securities Act and
in accordance with applicable securities laws of the states of the United
State0s, other than as provided in the three immediately preceding paragraphs.
An Opinion of Counsel to the effect that such transfer does not require
registration under the Securities Act accompanies this Certificate (in
satisfaction of Section 2.6(a)(ii)(E) or Section 2.6(d)(i)(E) of the Indenture).
___________________________________
[INSERT NAME OF TRANSFEROR]
By: ___________________________
Date: ___________________________
<PAGE>
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF
SECURITIES(7)
Re: 10-1/4% SENIOR NOTES DUE 2004 OF COMMUNITY DISTRIBUTORS, INC.
This Certificate relates to $______ principal amount of Securities held in
(check applicable box) _____ book-entry or ______ definitive form by _____ (the
"Transferor").
The Transferor (check applicable box):
|_| has requested the Trustee by written order to deliver in exchange
for its beneficial interest in the Global Security held by the Depositary a
Security or Securities in definitive, registered form of authorized
denominations and an aggregate principal amount equal to its beneficial interest
in such Global Security (or the portion thereof indicated above); or
|_| has requested the Registrar by written order to exchange or
register the transfer of a Security or Securities.
- -------------
(7) This certificate shall be included only for the Exchange Securities.
<PAGE>
ANNEX A TO OFFERING SECURITY(8)
Investor Letter of Representation
Community Distributors, Inc.
The Bank of New York, as Trustee
c/o The Bank of New York
101 Barclay Street, Floor 21W
New York, NY 10286
Attn: Corporate Trust Trustee Administration
Ladies and Gentlemen:
This letter is delivered by the undersigned to request a transfer of
$ principal amount of the 10-1/4% Senior Notes due 2004 (the "Notes")
of Community Distributors, Inc. (the "Company"). The Notes are described in that
certain Offering Memorandum (the "Offering Memorandum") dated October 10, 1997
relating to the offering of the Notes. We acknowledge receipt of the Offering
Memorandum and acknowledge that we have read the Offering Memorandum, including
the information on pages 68-69, have had access to such financial and other
information and have been afforded the opportunity to ask such questions of
representatives of the Company and receive answers thereto, as we deem necessary
in connection with our decision to purchase the Notes.
Upon transfer the Notes would be registered in the name of the
undersigned:
Name: _________________________________
Address: ______________________________
Taxpayer ID Number: ___________________
The undersigned represents and warrants to you that:
(a) We are an institutional "accredited investor" (as defined in Rule
501(a)(1),(2),(3),or (7) under the Securities Act of 1933, as amended (the
"Securities Act")), purchasing Notes for our own account or for the account of
such an institutional "accredited investor," and we are acquiring the Notes for
investment purposes and not with a view to, or for offer or sale in connection
with any distribution in violation of the
- -------------
(8) This Annex shall be included only for Transfer Restricted Securities.
<PAGE>
Securities Act, and we have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risk of our
investment in the Notes and invest in or purchase securities similar to the
Notes in the normal course of our business and we, and any accounts for which we
are acting, are each able to bear the economic risk of our or its investment. We
confirm that neither the Company nor any person acting on its behalf has offered
to sell the Notes by, and that we have not been made aware of the offering of
the Notes by, any form of general solicitation or general advertising,
including, but not limited to, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio.
(b) We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted in
the following sentence. We agree on our own behalf and on behalf of any investor
account for which we are purchasing Notes to offer, sell or otherwise transfer
such Notes within the time period referred to under Rule 144(k) (taking into
account the provisions of Rule 144(d) under the Securities Act, if applicable)
under the Securities Act as in effect on the Note of the transfer, (the "Resale
Restriction Termination Date") only (a) to the Company or the Holding Company,
(b) pursuant to a registration statement that has been declared effective under
the Securities Act, (c) so long as the Notes are eligible for resale pursuant to
Rule 144A under the Securities Act, to a person we reasonably believe is a
qualified institutional buyer under Rule 144A under the Securities Act (a "QIB")
that purchases for its own account or for the account of a QIB and to whom
notice is given that the transfer is being made in reliance on Rule 144A, (d) in
an offshore transaction complying with Rule 903 or 904 of Regulation S under the
Securities Act, (e) to an institutional "accredited investor" within the meaning
of Rule 501(a)(1),(2),(3),or (7) under the Securities Act that is purchasing
for its own account or for the account of an institutional "accredited
investor", in each case, with respect of the Notes, or (f) pursuant to any other
available exemption from the registration requirements of the Securities Act,
subject in each of the foregoing cases to any requirement of law that the
disposition of our property of such investor account or accounts be at all
times within our or their control and in compliance with any applicable state
securities laws. The foregoing restrictions on resale will not apply subsequent
to the Resale Restriction Termination Date. If any resale or other transfer of
the Notes is proposed to be made pursuant to clause (e) above prior to the
Resale Restriction Termination Date, the transferor shall deliver a letter from
the transferee substantially in the from of this letter to the Company and the
trustee (the "Trustee") under the indenture, dated as of October 16, 1997,
between the Company, CDI Group, Inc. and the Trustee relating to the Notes,
which shall provide, among other things, that the transferee is an institutional
"accredited investor" within the meaning of Rule 501(a)(1),(2),(3) or (7) under
the Securities Act and that it is acquiring such Notes for investment purposes
and not for distribution in violation of the Securities Act. Each purchaser
acknowledges that the Company and the Trustee reserve the right prior to any
offer, sale or other transfer, prior to the Resale Restriction Termination Date,
of the Notes (i) pursuant to clause (e) above (if
<PAGE>
such transfer is in respect of an aggregate principal amount of Securities less
than $250,000) or (ii) pursuant to clause (f) above, to require the delivery of
an opinion of counsel satisfactory to the Company and the Trustee.
(c) We understand that the Notes will be in the form of definitive
physical certificates bearing the legend set forth in clause (4) in the "Notice
to Investors" section of the Offering Memorandum.
We acknowledge that you, the Initial Purchasers and others will rely
upon our confirmations acknowledgments and agreements set forth herein, and we
agree to notify you promptly in writing if any of our representations and
warranties herein ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
_____________________________________
By: _________________________________
COMMUNITY DISTRIBUTORS, INC.
10 1/4% SENIOR NOTE
DUE 2004
No. 1 $80,000,000
Community Distributors, Inc., a Delaware corporation (hereinafter called
the "Company," which term includes any successors under the Indenture
hereinafter referred to), for value received, hereby promises to pay to Cede &
Co., or registered assigns, the principal sum of $80,000,000 Dollars, on October
15, 2004.
Interest Payment Dates: April 15 and October 15 commencing October 15,
1998.
Record Dates: April 1 and October 1
Reference is made to the further provisions of this Security on the reverse
side, which will, for all purposes, have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: October 16, 1997
COMMUNITY DISTRIBUTORS, INC., a
Delaware corporation
[Seal]
Name:
Title:
Attest: ______________________________________
Name:
Title:
<PAGE>
FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities described in the within-mentioned Indenture.
Dated: October 16, 1997
THE BANK OF NEW YORK
as Trustee
By: ________________________________
Authorized Signatory
2
<PAGE>
COMMUNITY DISTRIBUTORS, INC.
10 1/4% Senior Note due 2004
Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Security may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"),
to the Company or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT IS
ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT, (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (A) (1), (2), (3) OR (7)
OF REGULATION D UNDER THE SECURITIES ACT (AN "IAI"), OR (D) IT HAS
OTHERWISE ACQUIRED THIS NOTE OR A BENEFICIAL INTEREST HEREIN IN
ACCORDANCE WITH THE TERMS OF THE INDENTURE RELATING TO THIS NOTE AND IN
COMPLIANCE WITH APPLICABLE SECURITIES LAWS, (2) AGREES THAT IT WILL
NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k) (TAKING INTO
ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE SECURITIES ACT, IF
APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF THE
TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT
(A) TO THE COMPANY OR CDI GROUP, INC., (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE
903 OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING OF RULE
144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE
(THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS
THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, THE
TRUSTEE AND THE REGISTRAR THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (F) IN ACCORDANCE WITH
3
<PAGE>
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
THE TRUSTEE AND THE REGISTRAR) OR (G) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3) AGREES THAT
IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST HEREIN
IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTIONS," "U.S. PERSONS" AND
"UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS NOTE IN VIOLATION OF THE FOREGOING.
1. Interest.
Community Distributors, Inc., a Delaware corporation (hereinafter called
the "Company," which term includes any successors under the Indenture
hereinafter referred to), promises to pay interest on the principal amount of
this Security at the rate of 10 1/4% per annum from October 16, 1997 until
maturity. To the extent it is lawful, the Company promises to pay interest on
any interest payment due but unpaid on such principal amount at a rate of 10
1/4% per annum compounded semi-annually.
The Company will pay interest semi-annually on April 15 and October 15 of
each year (each, an "Interest Payment Date"), commencing April 15, 1998.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid on the Securities, from
the date of issuance. Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
4
<PAGE>
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the Persons who are the registered Holders at the close of business
on the April 1 or October 1 immediately preceding the Interest Payment Date.
Holders must surrender Securities to a Paying Agent to collect principal
payments. Except as provided below, the Company shall pay principal and interest
in such coin or currency of the United States of America as at the time of
payment shall be legal tender for payment of public and private debts ("Cash").
The Securities will be payable as to principal, premium, if any, and interest,
and the Securities may be presented for registration of transfer or exchange, at
the office or agency of the Company maintained for such purpose within the
Borough of Manhattan, The City and State of New York or, at the option of the
Company, payment of interest may be made by check mailed to the Holders at their
addresses set forth in the register of Holders, and provided that payment by
wire transfer of immediately available funds will be required with respect to
principal of and interest and premium on all Global Securities, and all other
Securities the Holders of which shall have provided wire transfer instructions
to an account within the United States to the Company or the Paying Agent at
least five days before the relevant Record Date. Until otherwise designated by
the Company, the Company's office or agency will be the corporate trust office
of the Trustee presently located at The Bank of New York, 101 Barclay Street,
Floor 21W, N.Y., NY. 10286, Attn: Corporate Trust Trustee Administration.
3. Paying Agent and Registrar.
Initially, The Bank of New York (the "Trustee," which term includes any
successor Trustee under the Indenture) will act as Paying Agent and Registrar.
The Company may change any Paying Agent, Registrar or co-Registrar without
notice to the Holders. The Company or any of its Subsidiaries may, subject to
certain exceptions, act as Paying Agent, Registrar or co- Registrar.
4. Indenture.
The Company issued the Securities under an Indenture, dated as of October
16, 1997 (the "Indenture"), among the Company, CDI Group, Inc., a Delaware
corporation (the "Holding Company") and the Trustee. Capitalized terms herein
are used as defined in the Indenture unless otherwise defined herein. The terms
of the Securities include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act, as amended. The
Securities are subject to all such terms, and Holders of Securities are referred
to the Indenture and said Act for a statement of them. The Securities are senior
unsecured general obligations of the Company limited in aggregate principal
amount to $80,000,000. The Securities are guaranteed on a senior basis by the
Holding Company and each of the Company's future Subsidiaries (together with the
Holding Company, the "Guarantors").
5
<PAGE>
5. Redemption.
The Securities may be redeemed, at the option of the Company, in whole or
in part, at any time on or after October 15, 2001, at the Redemption Price
(expressed as a percentage of principal amount) set forth below with respect to
the indicated Redemption Date, together with any accrued but unpaid interest to
the Redemption Date (subject to the right of Holders of record on a Record Date
to receive interest due on the Interest Payment Date that is on or prior to such
Redemption Date). The Securities may not be so redeemed prior to October 15,
2001, except as provided in the immediately following paragraph.
If redeemed during
the 12-month period
commencing Redemption Price
2001........................................ 105.125%
2002 ...................................... 102.562%
2003 and thereafter......................... 100.000%
Notwithstanding the foregoing, prior to October 15, 2000, the Company may
redeem from time to time up to 35% of the aggregate principal amount of the
Securities originally outstanding at a redemption price of 110.25% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the redemption date, with the net proceeds of one or more Equity Offerings;
provided, that at least 65% of the aggregate principal amount of the Securities
originally outstanding remain outstanding immediately after the occurrence of
such redemption; provided, further, that such notice of redemption shall be sent
within 30 days after the date of closing of any such Equity Offering, and such
redemption shall occur within 60 days after the date such notice is sent.
Any such redemption will comply with Article III of the Indenture.
6. Notice of Redemption.
Notice of redemption will be sent by first class mail, at least 30 days and
not more than 60 days prior to the Redemption Date to the Holder of each
Security to be redeemed at such Holder's last address as then shown upon the
registry books of the Registrar. Securities may be redeemed in part in multiples
of $1,000 only.
Except as set forth in the Indenture, from and after any Redemption Date,
if monies for the redemption of the Securities called for redemption shall have
been deposited with the Paying Agent on such Redemption Date, the Securities
called for redemption will cease to bear interest and the only right of the
Holders of such Securities will be to receive payment of the Redemption Price,
plus any accrued and unpaid interest on the Redemption Date.
6
<PAGE>
7. Denominations; Transfer; Exchange.
The Securities are in fully registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder may register
the transfer of Securities in accordance with the Indenture. No service charge
will be made for any registration of transfer or exchange of the Securities, but
the Company may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes or other governmental
charge payable in connection therewith. The Registrar need not register the
transfer of or exchange any Securities (a) selected for redemption except the
unredeemed portion of any Security being redeemed in part or (b) for a period
beginning 15 Business Days before the mailing of a notice of an offer to
repurchase or redemption and ending at the close of business on the day of such
mailing.
8. Persons Deemed Owners.
The registered Holder of a Security may be treated as the owner of it for
all purposes.
9. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed for two
years, the Trustee and the Paying Agent(s) will pay the money back to the
Company at its written request. After that, all liability of the Trustee and any
such Paying Agent(s) with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
Except as set forth in the Indenture, if the Company irrevocably deposits
with the Trustee, in trust, for the benefit of the Holders, Cash, U.S.
Government Obligations or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
Securities to redemption or maturity and comply with the other provisions of the
Indenture relating thereto, the Company and the Guarantors will be discharged
from certain provisions of the Indenture and the Securities (including the
restrictive covenants described in paragraph 12 below, but excluding their
obligation to pay the principal of, premium, if any and interest on the
Securities).
7
<PAGE>
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding except that any amendments or
supplements to the provisions relating to the right of Holders to require
repurchase upon a Change of Control, described in paragraph 13 below, in any
manner adverse to the Holders shall require the consent of Holders of not less
than 66 2/3% of the aggregate principal amount of the Securities then
outstanding. Without notice to or consent of any Holder, the parties thereto may
under certain circumstances amend or supplement the Indenture or the Securities
to, among other things, cure any ambiguity, defect or inconsistency, or make any
other change that does not adversely affect the rights of any Holder of a
Security.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the Company and
its Subsidiaries to, among other things, incur additional Indebtedness and
Disqualified Capital Stock, pay dividends or make certain other Restricted
Payments, enter into certain transactions with Affiliates, incur Liens, sell
assets and subsidiary stock, merge or consolidate with any other Person or
transfer (by lease, assignment or otherwise) substantially all of the properties
and assets of the Company. The limitations are subject to a number of important
qualifications and exceptions. The Company must periodically report to the
Trustee on compliance with such limitations.
13. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Company shall be required to offer
to purchase on the Change of Control Purchase Date all outstanding Securities at
a purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the Change of Control Purchase Date. Holders of
Securities will receive a Change of Control Offer from the Company prior to any
related Change of Control Purchase Date and may elect to have such Securities
purchased by completing the form entitled "Option of Holder to Elect Purchase"
appearing below.
(b) The Indenture imposes certain limitations on the ability of the Company
and its Subsidiaries to sell assets and subsidiary stock. In the event the
proceeds from a permitted Asset Sale exceed certain amounts, as specified in the
Indenture, the Company generally will be required either to reinvest the
proceeds of such Asset Sale in a Related Business, use such proceeds to retire
debt, or to make an asset sale offer to purchase a certain amount of each
Holder's Securities at 100% of the principal amount thereof, plus accrued
interest, if any, to the purchase date, as more fully set forth in the Indenture
8
<PAGE>
14. Notation of Guarantee.
As set forth more fully in the Indenture, the Persons constituting
Guarantors from time to time, in accordance with the provisions of the
Indenture, unconditionally and jointly and severally guarantee, in accordance
with Section 11.1 of the Indenture, to the Holder and to the Trustee and its
successors and assigns, that (i) the principal of, premium, if any, and interest
on the Security will be paid, whether at the Maturity Date or Interest Payment
Dates, by acceleration, call for redemption or otherwise, and all other
obligations of the Company to the Holders or the Trustee under the Indenture or
this Security will be promptly paid in full or performed, all in accordance with
the terms of the Indenture and this Security, and (ii) in the case of any
extension of payment or renewal of this Security or any of such other
obligations, they will be paid in full when due or performed in accordance with
the terms of such extension or renewal, whether at the Maturity Date, as so
extended, by acceleration or otherwise. Such guarantees shall cease to apply,
and shall be null and void, with respect to any Guarantor who, pursuant to
Article XI of the Indenture, is released from its guarantees, or whose
guarantees otherwise cease to be applicable pursuant to the terms of the
Indenture.
15. Ranking.
The indebtedness of the Company evidenced by the Notes will rank senior in
right of payment to all existing and future subordinated indebtedness of the
Company and pari passu in right of payment with all other existing or future
unsubordinated indebtedness of the Company.
16. Successors.
When a successor assumes all the obligations of its predecessor under the
Securities and the Indenture, the predecessor will be released from those
obligations.
17. Defaults and Remedies.
If an Event of Default occurs and is continuing (other than an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization),
then in every such case, unless the principal of all of the Securities shall
have already become due and payable, either the Trustee or the Holders of 25% in
aggregate principal amount of Securities then outstanding may declare all the
Securities to be due and payable in the manner and with the effect provided in
the Indenture. Holders of Securities may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Securities.
Subject to certain limitations, Holders of a majority in aggregate principal
amount of the Securities then outstanding may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Holders of Securities
notice of any continuing Default or Event of Default (except a Default in
payment of principal or interest), if it determines that withholding notice is
in their best interest.
9
<PAGE>
18. Trustee or Agent Dealings with Company.
The Trustee and each Agent under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates as if it were not the Trustee and such Agent.
19. No Recourse Against Others.
No direct or indirect stockholder, employee, officer or director, as such,
past, present or future, of the Company, the Guarantors or any successor entity
shall have any personal liability in respect of the obligations of the Company
or the Guarantors under the Securities or the Indenture by reason of his or its
status as such stockholder, employee, officer or director, except to the extent
such Person is the Company or a Guarantor. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
20. Authentication.
This Security shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Security.
21. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a Security
or an assignee, such as: TEN COM (= tenants in common), TENENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
22. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
23. Additional Rights of Holders of Securities.
Certain Holders of the Securities may be entitled to certain registration
rights with respect to such Securities pursuant to, and subject to the terms of,
the Registration Rights Agreement.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
Community Distributors, Inc.
251 Industrial Parkway
Branchburg Township
10
<PAGE>
Somerville, New Jersey 08876
Attn: President
24. Governing Law.
The Indenture and the Securities shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to
principles of conflicts of law.
11
<PAGE>
ASSIGNMENT
I or we assign this Security to
__________________________________________________________
__________________________________________________________
__________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of assignee
_________________________
and irrevocably appoint __________ agent to transfer this Security on the books
of the Company. The agent may substitute another to act for him.
In connection with any transfer of this Security occurring prior to the
date which is the earlier of (i) the date of the declaration by the Securities
and Exchange Commission of the effectiveness of a registration statement under
the Securities act of 1933, as amended (the "Securities Act") covering resales
of this Security (which effectiveness shall not have been suspended or
terminated at the date of the transfer) and (ii) October 16, 1999, the
undersigned confirms that it has not utilized any general solicitation or
general advertising in connection with the transfer and that:
[Check One]
|_| (a) this Security is being transferred in compliance with the exemption
from registration under the Securities Act provided by Rule 144A thereunder.
|_| (b) this Security is being transferred other than in accordance with
(a) above and documents are being furnished which comply with the conditions of
transfer set forth in this Security and the Indenture.
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Security in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer or
registration set forth herein and in Section 2.6 of the Indenture shall have
been satisfied.
Dated: __________ Signed: ______________________________
__________________________________________________________
(Sign exactly as name appears on
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<PAGE>
the other side of this Security)
Signature Guarantee(3)
- --------
(3) NOTICE: The Signature must be guaranteed by an Institution which is a
member of one of the following recognized Signature Guaranty Programs:
(i) The Securities Transfer Agent Medallion Program (STAMP); (ii) The
New York Stock Exchange Medallion Program (MSP); (iii) The Stock
Exchange Medallion Program (SEMP); or (iv) in such other guarantee
program acceptable to the Trustee.
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<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.13 or Article X of the Indenture, check the appropriate
box:
|_| Section 4.13 |_| Article-X
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.13 or Article X of the Indenture, as the case may
be, state the amount you want to be purchased: $________
Date: ________________ Signature: ________________________
(Sign exactly as your name
appears on the other side of
this Security)
Signature Guarantee(4)
- --------
(4) NOTICE: The Signature must be guaranteed by an Institution which is a
member of one of the following recognized Signature Guaranty Programs:
(i) The Securities Transfer Agent Medallion Program (STAMP); (ii) The
New York Stock Exchange Medallion Program (MSP); (iii) The Stock
Exchange Medallion Program (SEMP); or (iv) in such other guarantee
program acceptable to the Trustee.
14
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES
The following exchanges of a part of this Global Security for Definitive
Securities have been made:
<TABLE>
<S> <C> <C> <C> <C>
Amount of Amount of Principal Amount Signature of
decrease in increase in of this Global authorized signatory of
Date of Principal Amount Principal Amount of Security following Trustee or
Exchange of this Global this Global such decrease (or Securities
Security Security increase) Custodian
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF
TRANSFER OF SECURITIES
Re: 10 1/4% SENIOR NOTES DUE 2004 OF COMMUNITY DISTRIBUTORS, INC.
This Certificate relates to $______ principal amount of Securities held in
(check applicable box) _____ book-entry or ______ definitive form by _____ (the
"Transferor").
The Transferor (check applicable box):
|_| has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Security held by the Depositary a Security
or Securities in definitive, registered form of authorized denominations and an
aggregate principal amount equal to its beneficial interest in such Global
Security (or the portion thereof indicated above); or
|_| has requested the Trustee by written order to exchange or register the
transfer of a Security or Securities.
In connection with such request and in respect of each such Security, the
Transferor does hereby certify that Transferor is familiar with the Indenture
relating to the above-captioned Securities and as provided in Section 2.6 of
such Indenture, the transfer of this Security does not require registration
under the Securities Act (as defined below) because (check applicable box):
|_| Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.6(a)(ii)(A) or Section
2.6(d)(i)(A) of the Indenture).
|_| Such Security is being transferred to a "qualified institutional buyer"
(within the meaning of Rule 144A promulgated under the Securities Act), that is
aware that any sale of Securities to it will be made in reliance on Rule 144A
under the Securities Act and that is acquiring such Transfer Restricted Security
for its own account, or for the account of another such "qualified institutional
buyer" (in satisfaction of Section 2.06(a)(ii)(B) or Section 2.06 (d)(i)(B) of
the Indenture).
|_| Such Security is being transferred pursuant to an exemption from
registration in accordance with Rule 144, or outside the United States in an
Offshore Transaction in compliance with Rule 904 under the Securities Act, or
pursuant to an effective registration statement under the Securities Act (in
satisfaction of Section 2.6(a)(ii)(C) or Section 2.6(d)(i)(C) of the Indenture).
|_| Such Security is being transferred to an institutional "accredited
investor" within the meaning of Rule 501(A)(1), (2), (3) or (7) under the
Securities Act that is acquiring the Security for its own account, or for the
account of such an institutional accredited
16
<PAGE>
investor, not with a view to or for offer or sale in connection with any
distribution in violation of the Securities Act, and a letter in the form of
Annex A to this Security accompanies this Certificate, and, if such transfer is
in respect of an aggregate principal amount of Securities less than $250,000, an
Opinion of Counsel to the effect that such transfer is in compliance with the
Securities Act accompanies this Certificate (in satisfaction of Section
2.6(a)(ii)(D) or Section 2.6(d)(i)(D) of the Indenture).
|_| Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Securities Act and
in accordance with applicable securities laws of the states of the United
States, other than as provided in the three immediately preceding paragraphs. An
Opinion of Counsel to the effect that such transfer does not require
registration under the Securities Act accompanies this Certificate (in
satisfaction of Section 2.6(a)(ii)(E) or Section 2.6(d)(i)(E) of the Indenture).
[INSERT NAME OF TRANSFEROR]
By: ________________________________
Date: ____________________________
17
<PAGE>
ANNEX A TO OFFERING SECURITY
Investor Letter of Representation
Community Distributors, Inc.
The Bank of New York, as Trustee
c/o The Bank of New York
101 Barclay Street, Floor 21W
New York, NY 10286
Attn: Corporate Trust Trustee Administration
Ladies and Gentlemen:
This letter is delivered by the undersigned to request a transfer of $
principal amount of the 10 1/4% Senior Notes due 2004 (the "Notes") of Community
Distributors, Inc. (the "Company"). The Notes are described in that certain
Offering Memorandum (the "Offering Memorandum") dated October 10, 1997 relating
to the offering of the Notes. We acknowledge receipt of the Offering Memorandum
and acknowledge that we have read the Offering Memorandum, including the
information on pages 68-69, have had access to such financial and other
information and have been afforded the opportunity to ask such questions of
representatives of the Company and receive answers thereto, as we deem necessary
in connection with our decision to purchase the Notes.
Upon transfer the Notes would be registered in the name of the undersigned:
Name: _______________________
Address: ____________________
Taxpayer ID Number: _________________
The undersigned represents and warrants to you that:
(a) We are an institutional "accredited investor" (as defined in Rule
501(a)(1),(2),(3),or (7) under the Securities Act of 1933, as amended (the
"Securities Act")), purchasing Notes for our own account or for the account of
such an institutional "accredited investor," and we are acquiring the Notes for
investment purposes and not with a view to, or for offer or sale in connection
with any distribution in violation of the Securities Act, and we have such
knowledge and experience in financial and business matters as to be capable of
evaluating
18
<PAGE>
the merits and risk of our investment in the Notes and invest in or
purchase securities similar to the Notes in the normal course of our business
and we, and any accounts for which we are acting, are each able to bear the
economic risk of our or its investment. We confirm that neither the Company nor
any person acting on its behalf has offered to sell the Notes by, and that we
have not been made aware of the offering of the Notes by, any form of general
solicitation or general advertising, including, but not limited to, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio.
(b) We understand that the Notes have not been registered under the
Securities Act and, unless so registered, may not be sold except as permitted in
the following sentence. We agree on our own behalf and on behalf of any investor
account for which we are purchasing Notes to offer, sell or otherwise transfer
such Notes within the time period referred to under Rule 144(k) (taking into
account the provisions of Rule 144(d) under the Securities Act, if applicable)
under the Securities Act as in effect on the Note of the transfer, (the "Resale
Restriction Termination Date") only (a) to the Company or the Holding Company,
(b) pursuant to a registration statement that has been declared effective under
the Securities Act, (c) so long as the Notes are eligible for resale pursuant to
Rule 144A under the Securities Act, to a person we reasonably believe is a
qualified institutional buyer under Rule 144A under the Securities Act (a "QIB")
that purchases for its own account or for the account of a QIB and to whom
notice is given that the transfer is being made in reliance on Rule 144A, (d) in
an offshore transaction complying with Rule 903 or 904 of Regulation S under the
Securities Act, (e) to an institutional "accredited investor" within the meaning
of Rule 501(a)(1),(2),(3),or (7) under the Securities Act that is purchasing for
its own account or for the account of an institutional "accredited investor", in
each case, with respect of the Notes, or (f) pursuant to any other available
exemption from the registration requirements of the Securities Act, subject in
each of the foregoing cases to any requirement of law that the disposition of
our property of such investor account or accounts be at all times within our or
their control and in compliance with any applicable state securities laws. The
foregoing restrictions on resale will not apply subsequent to the Resale
Restriction Termination Date. If any resale or other transfer of the Notes is
proposed to be made pursuant to clause (e) above prior to the Resale Restriction
Termination Date, the transferor shall deliver a letter from the transferee
substantially in the from of this letter to the Company and the trustee (the
"Trustee") under the indenture, dated as of October 16, 1997, between the
Company, CDI Group, Inc. and the Trustee relating to the Notes, which shall
provide, among other things, that the transferee is an institutional "accredited
investor" within the meaning of Rule 501(a)(1),(2),(3) or (7) under the
Securities Act and that it is acquiring such Notes for investment purposes and
not for distribution in violation of the Securities Act. Each purchaser
acknowledges that the Company and the Trustee reserve the right prior to any
offer, sale or other transfer, prior to the Resale Restriction Termination Date,
of the Notes (i) pursuant to clause (e) above (if such transfer is in respect of
an aggregate principal amount of Securities less than $250,000) or (ii) pursuant
to clause (f) above, to require the delivery of an opinion of counsel
satisfactory to the Company and the Trustee.
19
<PAGE>
(c) We understand that the Notes will be in the form of definitive physical
certificates bearing the legend set forth in clause (4) in the "Notice to
Investors" section of the Offering Memorandum.
We acknowledge that you, the Initial Purchasers and others will rely upon
our confirmations acknowledgments and agreements set forth herein, and we agree
to notify you promptly in writing if any of our representations and warranties
herein ceases to be accurate and complete.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
_______________________________
By: ___________________________
20
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of October 16, 1997
by and among
Community Distributors, Inc.
CDI Group, Inc.
and
Donaldson, Lufkin & Jenrette Securities Corporation
Bear, Stearns & Co. Inc.
================================================================================
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and entered
into as of October 16, 1997, by and among Community Distributors, Inc., a
Delaware corporation (the "Company"), CDI Group, Inc., a Delaware corporation
(the "Guarantor"), and Donaldson, Lufkin & Jenrette Securities Corporation and
Bear, Stearns & Co. Inc. (each an "Initial Purchaser" and, collectively, the
"Initial Purchasers"), each of whom has agreed to purchase the Company's 10 1/4%
Senior Notes due 2004 (the "Series A Notes") pursuant to the Purchase Agreement
(as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated October
10, 1997 (the "Purchase Agreement"), by and among the Company, the Guarantor and
the Initial Purchasers. In order to induce the Initial Purchasers to purchase
the Series A Notes, the Company has agreed to provide the registration rights
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Initial Purchasers set forth in Section 2 of
the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
Act: The Securities Act of 1933, as amended.
Business Day: Any day except a Saturday, Sunday or other day in the City of
New York, or in the city of the corporate trust office of the Trustee (as
defined below), on which banks are authorized to close.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Broker-Dealer Transfer Restricted Securities: Series B Notes that are
acquired by a Broker-Dealer in the Exchange Offer in exchange for Series A
Notes that such Broker-Dealer acquired for its own account as a result of market
making activities or other trading activities (other than Series A Notes
acquired directly from the Company or any of its affiliates).
Certificated Securities: As defined in the Indenture.
Closing Date: The date hereof.
Commission: The Securities and Exchange Commission.
Consummate: An Exchange Offer shall be deemed "Consummated" for purposes of
this Agreement upon the occurrence of (a) the filing and effectiveness under the
Act of the Exchange Offer Registration Statement relating to the Series B Notes
to be issued in the Exchange Offer, (b) the maintenance of such Registration
Statement continuously effective and the keeping of the Exchange Offer open for
a period not less than the minimum period required pursuant to Section 3(b)
hereof and (c) the delivery by the Company to the Registrar under the Indenture
of Series B Notes in the same aggregate principal amount as the aggregate
principal amount of Series A Notes tendered by Holders thereof pursuant to the
Exchange Offer.
Damages Payment Date: With respect to the Series A Notes, each Interest
Payment Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
1
<PAGE>
Exchange Offer: The registration by the Company under the Act of the Series
B Notes pursuant to the Exchange Offer Registration Statement pursuant to which
the Company shall offer the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities for Series B Notes in an aggregate principal amount equal to the
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement relating
to the Exchange Offer, including the related Prospectus.
Global Noteholder: As defined in the Indenture.
Holders: As defined in Section 2 hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated the Closing Date, among the Company, the
Guarantor and The Bank of New York, as trustee (the "Trustee"), pursuant to
which the Notes are to be issued, as such Indenture is amended or supplemented
from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
Notes: The Series A Notes and the Series B Notes.
Person: An individual, partnership, corporation, limited liability company,
trust, unincorporated organization, or a government or agency or political
subdivision thereof.
Prospectus: The prospectus included in a Registration Statement at the time
such Registration Statement is declared effective, as amended or supplemented by
any prospectus supplement and by all other amendments thereto, including
post-effective amendments, and all material incorporated by reference into such
Prospectus.
Record Holder: With respect to any Damages Payment Date, each Person who is
a Holder of Notes on the record date with respect to the Interest Payment Date
on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company and the
Guarantor relating to (a) an offering of Series B Notes pursuant to an Exchange
Offer or (b) the registration for resale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement, in each case, (i) which is filed
pursuant to the provisions of this Agreement and (ii) including the Prospectus
included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
Restricted Broker-Dealer: Any Broker-Dealer which holds Broker-Dealer
Transfer Restricted Securities.
2
<PAGE>
Series B Notes: The Company's 10-1/4% Senior Notes due 2004 to be issued
pursuant to the Indenture (i) in the Exchange Offer or (ii) upon the request of
any Holder of Series A Notes covered by a Shelf Registration Statement, in
exchange for such Series A Notes.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in
effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to occur of
(a) the date on which such Note is exchanged in the Exchange Offer and entitled
to be resold to the public by the Holder thereof without complying with the
prospectus delivery requirements of the Act, (b) the date on which such Note has
been disposed of in accordance with a Shelf Registration Statement, (c) the date
on which such Note is disposed of by a Broker-Dealer pursuant to the "Plan of
Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (d) the date on
which such Note is distributed to the public pursuant to Rule 144 under the Act.
Underwritten Registration or Underwritten Offering: A registration in which
securities of the Company are sold to an underwriter for reoffering to the
public.
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities (each,
a "Holder") whenever such Person owns Transfer Restricted Securities. A Person
shall be deemed to be a "selling Holder" when such Person has Transfer
Restricted Securities registered for resale pursuant to a Shelf Registration
Statement.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable federal
law (after the procedures set forth in Section 6(a)(i) below have been complied
with), the Company and the Guarantor shall (i) use their reasonable best efforts
to cause to be filed with the Commission as soon as practicable after the
Closing Date, but in no event later than 45 days after the Closing Date, the
Exchange Offer Registration Statement, (ii) use their reasonable best efforts to
cause such Exchange Offer Registration Statement to become effective at the
earliest possible time, but in no event later than 120 days after the Closing
Date, (iii) in connection with the foregoing, (A) use their reasonable best
efforts to file all pre-effective amendments to such Exchange Offer Registration
Statement as may be necessary in order to cause such Exchange Offer Registration
Statement to become effective, (B) use their respective reasonable best efforts
to file, if applicable, a post-effective amendment to such Exchange Offer
Registration Statement pursuant to Rule 430A under the Act and (C) use their
reasonable best efforts to cause all necessary filings, if any, in connection
with the registration and qualification of the Series B Notes to be made under
the Blue Sky laws of such jurisdictions as are necessary to permit Consummation
of the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer
Registration Statement, use their reasonable best efforts to commence and
Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate
form permitting registration of the Series B Notes to be offered in exchange for
the Series A Notes that are Transfer Restricted Securities and to permit
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sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company and the Guarantor shall use their respective reasonable
best efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event shall
such period be less than 20 Business Days. The Company and the Guarantor shall
cause the Exchange Offer to comply with all applicable federal and state
securities laws. Unless required by pre-existing contractual obligations of the
Company or the Guarantor, no securities other than the Notes shall be included
in the Exchange Offer Registration Statement. The Company and the Guarantor
shall use their respective best efforts to cause the Exchange Offer to be
Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
Business Days thereafter.
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Restricted Broker-Dealer who holds Series A Notes that are
Transfer Restricted Securities and that were acquired for the account of such
Broker-Dealer as a result of market-making activities or other trading
activities, may exchange such Series A Notes (other than Transfer Restricted
Securities acquired directly from the Company or any Affiliate of the Company)
pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be
an "underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of each Series B Note received by such Broker-Dealer in the Exchange
Offer, which prospectus delivery requirement may be satisfied by the delivery by
such Broker-Dealer of the Prospectus contained in the Exchange Offer
Registration Statement. Such "Plan of Distribution" section shall also contain
all other information with respect to such sales of Broker-Dealer Transfer
Restricted Securities by Restricted Broker-Dealers that the Commission may
require in order to permit such sales pursuant thereto, but such "Plan of
Distribution" shall not name any such Broker-Dealer or disclose the amount of
Notes held by any such Broker-Dealer, except to the extent required by the
Commission.
Subject to Section 6(d), the Company and the Guarantor shall use their
respective reasonable best efforts to keep the Exchange Offer Registration
Statement continuously effective, supplemented and amended as required by the
provisions of Section 6(c) below to the extent necessary to ensure that it is
available for sales of Broker-Dealer Transfer Restricted Securities by
Restricted Broker-Dealers, and to ensure that such Registration Statement
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of 180 days from the date on which the Exchange Offer is Consummated.
The Company and the Guarantor shall promptly provide sufficient copies of
the latest version of such Prospectus to such Restricted Broker-Dealers promptly
upon request, and in no event later than two Business Days after such request,
at any time during such 180 day period in order to facilitate such sales.
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SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file an
Exchange Offer Registration Statement with respect to the Series B Notes because
the Exchange Offer is not permitted by applicable law (after the procedures set
forth in Section 6(a)(i) below have been complied with) or (ii) if any Holder of
Transfer Restricted Securities shall notify the Company within 20 Business Days
following the Consummation of the Exchange Offer that (A) such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder may not resell the Series B Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the Prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales by such Holder or (C) such Holder is a Broker-Dealer
and holds Series A Notes acquired directly from the Company or one of its
affiliates, then the Company and the Guarantor shall (x) use their respective
reasonable best efforts to cause to be filed on or prior to 30 days after the
date on which the Company determines that it is not required to file the
Exchange Offer Registration Statement pursuant to clause (i) above or 30 days
after the date on which the Company receives the notice specified in clause (ii)
above a shelf registration statement pursuant to Rule 415 under the Act (which
may be an amendment to the Exchange Offer Registration Statement (in either
event, the "Shelf Registration Statement")), relating to all Transfer Restricted
Securities the Holders of which shall have provided the information required
pursuant to Section 4(b) hereof, provided that the Company shall not be required
to file a Shelf Registration Statement prior to the 45th day after the Closing
Date, and shall (y) use their respective reasonable best efforts to cause such
Shelf Registration Statement to become effective on or prior to 90 days after
the date on which the Company becomes obligated to file such Shelf Registration
Statement. If, after the Company has filed an Exchange Offer Registration
Statement which satisfies the requirements of Section 3(a) above, the Company is
required to use its reasonable best efforts to file and make effective a Shelf
Registration Statement solely because the Exchange Offer shall not be permitted
under applicable federal law, then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above. Such
an event shall have no effect on the requirements of clause (y) above. The
Company and the Guarantor shall use their respective reasonable best efforts to
keep the Shelf Registration Statement discussed in this Section 4(a)
continuously effective, supplemented and amended as required by and subject to
the provisions of Sections 6(b), (c) and (d) hereof to the extent necessary to
ensure that it is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a), and to ensure that
it conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, until
the earlier two years (as extended pursuant to Section 6(c)(i)) following the
date on which such Shelf Registration Statement first becomes effective under
the Act, or such date on which all Transfer Restricted Securities registered
under such Shelf Registration Statement have been sold in the manner set forth
in and as contemplated by the Shelf Registration Statement.
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(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, such
information specified in item 507 and, if applicable, item 508 of Regulation S-K
under the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to Liquidated Damages pursuant to
Section 5 hereof unless and until such Holder shall have used its best efforts
to provide all such information. Each Holder as to which any Shelf Registration
Statement is being effected agrees to furnish promptly to the Company all
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
Notwithstanding the foregoing provisions of this subsection (a), in no event
shall the Company and the Guarantor be required to file an additional Shelf
Registration Statement solely for the purpose of registering Securities held by
Holders who failed to provide such information within such 20 day period after
receipt of a request therefor (provided, however, that the Company and the
Guarantor may be required to amend or supplement an effective Shelf Registration
Statement for the purpose of including such Securities therein).
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not filed
with the Commission on or prior to the date specified for such filing in this
Agreement, (ii) any such Registration Statement has not been declared effective
by the Commission on or prior to the date specified for such effectiveness in
this Agreement, (iii) the Exchange Offer has not been Consummated within 30
Business Days after the Exchange Offer Registration Statement is first declared
effective by the Commission or (iv) any Registration Statement required by this
Agreement is filed and declared effective but shall thereafter, subject to
Section 6(d), cease to be effective or fail to be usable for its intended
purpose without being succeeded immediately by a post-effective amendment to
such Registration Statement that cures such failure and that is itself declared
effective immediately (each such event referred to in clauses (i) through (iv),
a "Registration Default"), then the Company and the Guarantor hereby jointly and
severally agree to pay liquidated damages to each Holder of Transfer Restricted
Securities with respect to the first 90-day period immediately following the
occurrence of such Registration Default, in an amount equal to $.05 per week per
$1,000 principal amount of Transfer Restricted Securities held by such Holder
for each week or portion thereof that the Registration Default continues. The
amount of the liquidated damages shall increase by an additional $.05 per week
per $1,000 in principal amount of Transfer Restricted Securities with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum amount of liquidated damages of $.50 per week per $1,000
principal amount of Transfer Restricted Securities. Notwithstanding anything to
the contrary set forth herein, (1) upon filing of the Exchange Offer
Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange
Offer Registration Statement (and/or, if applicable, the Shelf Registration
Statement), in the case of (ii) above, (3) upon Consummation of the Exchange
Offer, in the case of (iii) above, or (4) upon the filing of a post-effective
amendment to the Registration Statement or an additional Registration Statement
that causes the Exchange Offer Registration Statement (and/or, if applicable,
the Shelf Registration Statement) to again be declared effective or made usable
in the case of (iv) above, the liquidated damages payable with respect to the
Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or
(iv), as applicable, shall immediately cease.
All accrued liquidated damages shall be paid to the Global Note Holder by
wire transfer of immediately available funds or by federal funds check and to
Holders of Certificated Securities at the office
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or agency of the Company maintained for such purpose in the Borough of
Manhattan, The City of New York, or by mailing checks to their registered
addresses on each Damages Payment Date. All obligations of the Company and the
Guarantor set forth in the preceding paragraph to pay liquidated damages that
have become payable with respect to any Transfer Restricted Security and have
not been paid at the time such security ceases to be a Transfer Restricted
Security shall survive until such time as all such payment obligations with
respect to such security have been satisfied in full, provided, however, that
the Company and the Guarantor shall not be required to pay liquidated damages
pursuant to the preceding paragraph on any Transfer Restricted Security with
respect to liquidated damages relating to any period after such security ceases
to be a Transfer Restricted Security.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the Exchange
Offer, the Company and the Guarantor shall comply with all applicable provisions
of Section 6(c) below, shall use their respective reasonable best efforts to
effect such exchange and to permit the sale of Broker-Dealer Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof, and shall comply with all of the following provisions:
(i) If, following the date hereof there has been published a change in
Commission policy with respect to exchange offers such as the Exchange
Offer, such that in the reasonable opinion of counsel to the Company there
is a substantial question as to whether the Exchange Offer is permitted by
applicable federal law, the Company and the Guarantor hereby agree to seek
a no-action letter or other favorable decision from the Commission allowing
the Company and the Guarantor to Consummate an Exchange Offer for such
Series A Notes. The Company and the Guarantor hereby agree to pursue the
issuance of such a decision to the Commission staff level, if necessary. In
connection with the foregoing, the Company and the Guarantor hereby agree
to take all such other actions as are reasonably requested by the
Commission or otherwise reasonably required in connection with the issuance
of such decision, including without limitation (A) participating in
telephonic conferences with the Commission, (B) delivering to the
Commission staff an analysis prepared by counsel to the Company setting
forth the legal bases, if any, upon which such counsel has concluded that
such an Exchange Offer should be permitted and (C) reasonably diligently
pursuing a resolution (which need not be favorable) by the Commission staff
of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall furnish, upon the request of the Company, prior to the
Consummation of the Exchange Offer, a written representation to the Company
and the Guarantor (which may be contained in the letter of transmittal
contemplated by the Exchange Offer Registration Statement) to the effect
that (A) it is not an affiliate of the Company (as defined pursuant to the
Act), (B) it is not engaged in, and does not intend to engage in, and has
no arrangement or understanding with any person to participate in, a
distribution of the Series B Notes to be issued in the Exchange Offer and
(C) it is acquiring the Series B Notes in its ordinary course of business.
Each Holder hereby acknowledges and agrees that any Broker-Dealer and any
such Holder using the Exchange Offer to participate in a distribution of
the securities to be acquired in the Exchange Offer (1) could not under
Commission policy as in effect on the date of this Agreement rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc.
(available June 5, 1991) and Exxon Capital Holdings Corporation (available
May 13, 1988), as interpreted in the Commission's letter to Shearman &
Sterling dated July 2, 1993, and similar no-action letters (including, if
applicable, any no-action letter obtained
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pursuant to clause (i) above), and (2) must comply with the registration
and prospectus delivery requirements of the Act in connection with a
secondary resale transaction and that such a secondary resale transaction
must be covered by an effective registration statement containing the
selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K if the resales are of Series B Notes obtained
by such Holder in exchange for Series A Notes acquired by such Holder
directly from the Company or an affiliate thereof.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantor shall provide a supplemental
letter to the Commission (A) stating that the Company and the Guarantor are
registering the Exchange Offer in reliance on the position of the
Commission enunciated in Exxon Capital Holdings Corporation (available May
13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) and, if
applicable, any no-action letter obtained pursuant to clause (i) above, (B)
including a representation that neither the Company nor the Guarantor has
entered into any arrangement or understanding with any Person to distribute
the Series B Notes to be received in the Exchange Offer and that, to the
best of the Company's and each Guarantor's information and belief, each
Holder participating in the Exchange Offer is acquiring the Series B Notes
in its ordinary course of business and has no arrangement or understanding
with any Person to participate in the distribution of the Series B Notes
received in the Exchange Offer and (C) any other undertaking or
representation reasonably required by the Commission as set forth in any
no-action letter obtained pursuant to clause (i) above.
(b) Shelf Registration Statement. In connection with the Shelf Registration
Statement, the Company and the Guarantor shall comply with all the provisions of
Section 6(c) below and shall use their respective reasonable best efforts to
effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), if permitted pursuant to the Shelf
Registration Statement, and pursuant thereto the Company and the Guarantor will
prepare and file with the Commission a Registration Statement relating to the
registration on any appropriate form under the Act, which form shall be
available for the sale of the Transfer Restricted Securities in accordance with
the intended and permitted method or methods of distribution thereof within the
time periods and otherwise in accordance with the provisions hereof.
(c) General Provisions. Subject to the provisions of Section 6(d), in
connection with any Registration Statement and any related Prospectus required
by this Agreement to permit the sale or resale of Transfer Restricted Securities
(including, without limitation, any Exchange Offer Registration Statement and
the related Prospectus, to the extent that the same are required to be available
to permit sales of Broker-Dealer Transfer Restricted Securities by Restricted
Broker-Dealers), the Company and the Guarantor shall:
(i) use their respective reasonable best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or 4 of this
Agreement, as applicable. Upon the occurrence of any event that would cause
any such Registration Statement or the Prospectus contained therein (A) to
contain a material misstatement or omission or (B) not to be effective and
usable for resale of Transfer Restricted Securities during the period
required by this Agreement, the Company and the Guarantor shall file
promptly an appropriate amendment to such Registration Statement, (1) in
the case of clause (A), correcting any such misstatement or omission, and
(2) in the case of clauses (A) and (B), use their respective reasonable
best efforts to cause such amendment to be declared effective and such
Registration Statement and the related Prospectus to become usable for
their intended purpose(s) as soon as practicable thereafter, provided that
in no event shall the Company or the Guarantor be required to file an
amendment to such Registration Statement until the
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expiration of one Business Day from the expiration of the five day
period set forth in paragraph (iv) below;
(ii) use their respective reasonable best efforts to prepare and file
with the Commission such amendments and post-effective amendments to the
Registration Statement as may be necessary to keep the Registration
Statement effective for the applicable period set forth in Section 3 or 4
hereof, or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Registration Statement have been
sold; use their respective reasonable best efforts to cause the Prospectus
to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act, and to comply
fully with Rules 424, 430A and 462, as applicable, under the Act in a
timely manner; and comply with the provisions of the Act with respect to
the disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders promptly
and, if requested by such Persons, confirm such advice in writing, (A) when
the Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to any Registration Statement or any
post-effective amendment thereto, when the same has become effective, (B)
of any request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for additional
information relating thereto, (C) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement under
the Act or of the suspension by any state securities commission of the
qualification of the Transfer Restricted Securities for offering or sale in
any jurisdiction, or the initiation of any proceeding for any of the
preceding purposes, (D) of the existence of any fact or the happening of
any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement thereto
or any document incorporated by reference therein untrue, or that requires
the making of any additions to or changes in the Registration Statement in
order to make the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. If at any time the Commission shall issue any
stop order suspending the effectiveness of the Registration Statement, or
any state securities commission or other regulatory authority shall issue
an order suspending the qualification or exemption from qualification of
the Transfer Restricted Securities under state securities or Blue Sky laws,
the Company and the Guarantor shall use their respective reasonable best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time;
(iv) furnish to the Initial Purchasers, each selling Holder named in
any Registration Statement or Prospectus and each of the underwriter(s) in
connection with such sale, if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included therein or
any amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such Holders and underwriter(s) in
connection with such sale, if any, for a period of at least five Business
Days, and the Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such Registration
Statement or Prospectus (including all such documents incorporated by
reference) to which the selling Holders of the Transfer Restricted
Securities covered by such Registration Statement or the underwriter(s) in
connection with such sale, if any, shall reasonably object within five
Business Days after the receipt thereof. A selling Holder or underwriter,
if any, shall be deemed to have reasonably objected to such filing if such
objection is based
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on the fact that such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains a material
misstatement or omission or fails to comply with the applicable
requirements of the Act;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders and to the
underwriter(s) in connection with such sale, if any, make the Company's and
the Guarantor's representatives available for discussion of such document
and other customary due diligence matters, and include such information in
such document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) subject to the receipt of confidentiality agreements reasonably
acceptable in form and substance to the Company, make available at
reasonable times for inspection by the selling Holders, any managing
underwriter participating in any disposition pursuant to such Registration
Statement and any attorney or accountant retained by such selling Holders
or any of such underwriter(s), all financial and other records, pertinent
corporate documents and properties of the Company and the Guarantor and
cause the Company's and the Guarantor's officers, directors and employees
to supply all information reasonably requested by any such Holder,
underwriter, attorney or accountant in connection with such Registration
Statement or any post-effective amendment thereto subsequent to the filing
thereof and prior to its effectiveness;
(vii) if requested by any selling Holders or the underwriter(s) in
connection with such sale, if any, promptly include in any Registration
Statement or Prospectus, pursuant to a supplement or post-effective
amendment if necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included therein,
including, without limitation, information relating to the "Plan of
Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being
sold to such underwriter(s), the purchase price being paid therefor and any
other terms of the offering of the Transfer Restricted Securities to be
sold in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the
Company is notified of the matters to be included in such Prospectus
supplement or post-effective amendment;
(viii) furnish to each selling Holder and each of the underwriter(s)
in connection with such sale, if any, without charge, at least one copy of
the Registration Statement, as first filed with the Commission, and of each
amendment thereto, including all documents incorporated by reference
therein and all exhibits (including exhibits incorporated therein by
reference);
(ix) deliver to each selling Holder and each of the underwriter(s), if
any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto as such
Persons reasonably may request; the Company and the Guarantor hereby
consent to the use (in accordance with law) of the Prospectus and any
amendment or supplement thereto by each of the selling Holders and each of
the underwriter(s), if any, in connection with the offering and the sale of
the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto;
(x) enter into such agreements (including an underwriting agreement)
and make such reasonable and customary representations and warranties and
take all such other actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities pursuant
to any Registration Statement contemplated by this Agreement as may be
reasonably requested by any
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Holder of Transfer Restricted Securities or underwriter in connection with
any sale or resale pursuant to any Registration Statement contemplated by
this Agreement, and in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an
Underwritten Registration, the Company and the Guarantor shall:
(A) furnish (or in the case of paragraphs (2) and (3), use its
reasonable best efforts to furnish) to each selling Holder and each
underwriter, if any, upon the effectiveness of the Shelf Registration
Statement and to each Restricted Broker-Dealer upon Consummation of
the Exchange Offer:
(1) a certificate, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, signed on behalf of
the Company and the Guarantor by (x) the President or any Vice
President and (y) a principal financial or accounting officer of
the Company and the Guarantor, confirming, as of the date
thereof, the matters set forth in paragraphs (a) through (d) of
Section 9 of the Purchase Agreement and such other similar
matters as the Holders, underwriter(s) and/or Restricted Broker
Dealers may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company and the Guarantor covering customary matters relating to
the Shelf Registration Statement or the Exchange Offer, as
applicable, including but not limited to a customary Rule 10b-5
opinion under the Exchange Act; and
(3) if permitted pursuant to FAS 72 and FAS 76, a customary
comfort letter, dated as of the date of effectiveness of the
Shelf Registration Statement or the date of Consummation of the
Exchange Offer, as the case may be, from the Company's
independent accountants, in the customary form and covering
matters of the type customarily covered in comfort letters to
underwriters in connection with primary underwritten offerings,
and affirming the matters set forth in the comfort letters
delivered pursuant to Section 9 of the Purchase Agreement,
without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, in connection with any sale or resale
pursuant to any Shelf Registration Statement the indemnification
provisions and procedures of Section 8 hereof with respect to all
parties to be indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by the selling Holders, the underwriter(s), if
any, and Restricted Broker Dealers, if any, to evidence compliance
with clause (A) above and with any reasonable and customary conditions
contained in the underwriting agreement or other agreement entered
into by the Company and the Guarantor pursuant to this clause (x).
The above shall be done at each closing under such underwriting or
similar agreement, as and to the extent required thereunder, and if at any
time the representations and warranties of the Company and the Guarantor
contemplated in (A)(1) above cease to be true and correct, the Company and
the Guarantor shall so advise the underwriter(s), if any, the selling
Holders and each Restricted Broker-Dealer promptly and if requested by such
Persons, shall confirm such advice in writing;
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(xi) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders, the underwriter(s), if any, and their
respective counsel in connection with the registration and qualification of
the Transfer Restricted Securities under the securities or Blue Sky laws of
such jurisdictions as the selling Holders or underwriter(s), if any, may
request and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Transfer Restricted
Securities covered by the applicable Registration Statement; provided,
however, that neither the Company nor the Guarantor shall be required to
register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to the service of
process in suits or to taxation, other than as to matters and transactions
relating to the Registration Statement, in any jurisdiction where it is not
now so subject;
(xii) where not prohibited by the Securities Act, issue, upon the
request of any Holder of Series A Notes covered by any Shelf Registration
Statement contemplated by this Agreement, Series B Notes having an
aggregate principal amount equal to the aggregate principal amount of
Series A Notes surrendered to the Company by such Holder in exchange
therefor or being sold by such Holder; such Series B Notes to be registered
in the name of such Holder or in the name of the purchaser(s) of such
Notes, as the case may be; in return, the Series A Notes held by such
Holder shall be surrendered to the Company for cancellation;
(xiii) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the selling Holders and the underwriter(s), if
any, to facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and to register such Transfer Restricted Securities in
such denominations and such names as the Holders or the underwriter(s), if
any, may request at least two Business Days prior to such sale of Transfer
Restricted Securities;
(xiv) use their respective reasonable best efforts to cause the
disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriter(s), if any, to consummate the
disposition of such Transfer Restricted Securities, subject to the proviso
contained in clause (xi) above;
(xv) subject to Section 6(c)(i), if any fact or event contemplated by
Section 6(c)(iii)(D) above shall exist or have occurred, prepare a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(xvi) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture
with printed certificates for the Transfer Restricted Securities which are
in a form eligible for deposit with the Depository Trust Company;
(xvii) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD,
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and use their respective reasonable best efforts to cause such
Registration Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to enable the
Holders selling Transfer Restricted Securities to consummate the
disposition of such Transfer Restricted Securities;
(xviii) otherwise use their respective best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable
Registration Statement, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
covering a twelve-month period beginning after the effective date of the
Registration Statement (as such term is defined in paragraph (c) of Rule
158 under the Act);
(xix) cause the Indenture to be qualified under the TIA not later than
the effective date of the first Registration Statement required by this
Agreement and, in connection therewith, cooperate with the Trustee and the
Holders of Notes to effect such changes to the Indenture as may be required
for such Indenture to be so qualified in accordance with the terms of the
TIA; and execute and use its reasonable best efforts to cause the Trustee
to execute, all documents that may be required to effect such changes and
all other forms and documents required to be filed with the Commission to
enable such Indenture to be so qualified in a timely manner; and
(xx) provide promptly to each Holder upon request each document filed
with the Commission pursuant to the requirements of Section 13 or Section
15(d) of the Exchange Act.
(d) Suspension of Use of Prospectus. Notwithstanding anything to the
contrary in this Agreement, the Company or the Guarantor may suspend the use of
any Prospectus under a Shelf Registration Statement or under an Exchange Offer
Registration Statement (during the 180-day period set forth in the second
paragraph of Section 3(c) hereof) for one or more periods not to exceed an
aggregate of 75 days in any 12-month period if the Board of Directors of the
Company or the Guarantor shall determine that they are required by applicable
law to amend or supplement such Prospectus but, because of valid business
reasons (not including avoidance of the obligations of the Company or the
Guarantor hereunder), including the acquisition or divestiture of material
assets, pending material corporate developments and similar events, it is in the
best interests of the Company or the Guarantor, as applicable, at such time not
to so amend or supplement such Prospectus but instead to suspend such use, and
prior to suspending such use the Company provides the Holders with written
notice (including a certificate of an authorized officer of the Company as to
compliance with the terms of this subsection (d)) of such suspension, which
notice need not specify the nature of the event giving rise to such suspension;
provided that, notwithstanding the time period set forth above, such suspension
period shall not continue beyond the minimum period required to achieve such
valid business reasons; and provided further, that if such suspension period
exceeds an aggregate of 15 days in any 12-month period, the full period of such
suspension (beginning from the first day of such suspension) shall be deemed for
all purposes under this Agreement to be a Registration Default under Section 5
hereof and each Holder of Transfer Restricted Securities shall be entitled to
liquidated damages pursuant to the provisions of Section 5 for the entire
suspension period (provided that such liquidated damages shall be the sole
remedy of the Holders of Transfer Restricted Securities for the first 75 days of
such suspension period).
(e) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of any of the notices referred
to in Section 6(c)(i) or Section 6(d) or any notice from the Company of the
existence of any fact of the kind described in Section 6(c)(iii)(D) hereof, such
Holder will forthwith discontinue disposition of Transfer Restricted Securities
pursuant to the applicable Registration
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Statement until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 6(c)(xv) hereof, or until it is
advised in writing by the Company that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (the "Advice"). If so directed by
the Company, each Holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Transfer Restricted Securities that was current
at the time of receipt of either such notice. In the event the Company shall
give any such notice, the time period regarding the effectiveness of such
Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall
be extended by the number of days during the period from and including the date
of the giving of such notice pursuant to Section 6(c)(i) or Section 6(c)(iii)(D)
hereof to and including the date when each selling Holder covered by such
Registration Statement shall have received the copies of the supplemented or
amended Prospectus contemplated by Section 6(c)(xv) hereof or shall have
received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantor's performance
of or compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees (including filings made by any
Purchaser or Holder with the NASD with respect to one underwritten registration
(and, if applicable, the fees and expenses of any "qualified independent
underwriter") that may be required by the rules and regulations of the NASD);
(ii) all fees and expenses of compliance by the Company with federal securities
and state Blue Sky or securities laws; (iii) all expenses of printing (including
printing certificates for the Series B Notes to be issued in the Exchange Offer
and printing of Prospectuses), messenger and delivery services and telephone
incurred by the Company, the Guarantor or their counsel; (iv) all fees and
disbursements of counsel for the Company and the Guarantor; (v) all application
and filing fees in connection with listing the Notes on a national securities
exchange or automated quotation system pursuant to the requirements hereof; and
(vi) all fees and disbursements of independent certified public accountants of
the Company and the Guarantor (including the expenses of any special audit and
comfort letters required by or incident to such performance).
The Company will, in any event, bear its and the Guarantor's internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantor.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the first Shelf Registration Statement), the Company and the
Guarantor will reimburse the Purchasers and the Holders of Transfer Restricted
Securities being tendered in the Exchange Offer and/or resold pursuant to the
"Plan of Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable invoiced fees and disbursements of not more than one counsel, who
shall be chosen by the Holders of a majority in principal amount of the Transfer
Restricted Securities for whose benefit such Registration Statement is being
prepared.
SECTION 8. INDEMNIFICATION
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(a) The Company and the Guarantor, jointly and severally, agree to
indemnify and hold harmless (i) each Holder and (ii) each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) any Holder (any of the persons referred to in this clause (ii)
being hereinafter referred to as a "controlling person") and (iii) the
respective officers, directors, partners, employees, representatives and agents
of any Holder or any controlling person (any person referred to in clause (i),
(ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"), to the
fullest extent lawful, from and against any and all losses, claims, damages,
judgments, actions and expenses (including without limitation and as incurred,
reimbursement of all reasonable costs actually incurred in investigating,
preparing, pursuing or defending any claim or action, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
including the reasonable fees and expenses of counsel to any Indemnified Holder)
directly or indirectly caused by, related to, based upon, arising out of or in
connection with any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement, preliminary prospectus or
Prospectus (or any amendment or supplement thereto), or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by an untrue
statement or omission or alleged untrue statement or omission that is made in
reliance upon and in conformity with information relating to any of the Holders
furnished in writing to the Company by any of the Holders expressly for use
therein.
In case any action or proceeding (including any governmental or regulatory
investigation or proceeding) shall be brought or asserted against any of the
Indemnified Holders with respect to which in demnity may be sought against the
Company or the Guarantor, such Indemnified Holder (or the Indemnified Holder
controlled by such controlling person) shall promptly notify the Company and the
Guarantor in writing (provided, that the failure to give such notice shall not
relieve the Company or the Guarantor of their obligations pursuant to this
Agreement except to the extent directly prejudiced thereby). Such Indemnified
Holder shall have the right to employ its own counsel in any such action and the
reasonable fees and expenses of such counsel shall be paid, as actually
incurred, by the Company and the Guarantor (regardless of whether it is
ultimately determined that an Indemnified Holder is not entitled to
indemnification hereunder). The Company and the Guarantor shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for any fees and
expenses (which fees shall in any event be reasonable) of more than one separate
firm of attorneys (in addition to any local counsel) at any time for such
Indemnified Holders, which firm shall be designated by the Holders. The Company
and the Guarantor shall be liable for any settlement of any such action or
proceeding effected with the Company's prior written consent, which consent
shall not be withheld unreasonably, and the Company and the Guarantor agree to
indemnify and hold harmless each Indemnified Holder from and against any loss,
claim, damage, or expense by reason of any settlement of any action effected
with the written consent of the Company. Neither the Company nor the Guarantor
shall, without the prior written consent of each Indemnified Holder, settle or
compromise or consent to the entry of judgment in or otherwise seek to terminate
any pending or threatened action, claim, litigation or proceeding in respect of
which indemnification or contribution may be sought hereunder (whether or not
any Indemnified Holder is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Holder from all liability arising out of such action, claim, litigation or
proceeding.
(b) Each Holder of Transfer Restricted Securities agrees, severally and not
jointly, to indemnify and hold harmless the Company and the Guarantor, and their
respective directors, officers, and any person controlling (within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act) the Company, and the
respective officers, directors, partners, employees, representatives and agents
of each such person, to
15
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the same extent as the foregoing indemnity from the Company and the Guarantor to
each of the Indemnified Holders, but only with respect to claims and actions
based on information relating to such Holder furnished in writing by such Holder
expressly for use in any Registration Statement. In case any action or
proceeding shall be brought against the Company, the Guarantor or its directors
or officers or any such controlling person in respect of which indemnity may be
sought against a Holder of Transfer Restricted Securities, such Holder shall
have the rights and duties given the Company and the Guarantor, and the Company,
such Guarantor, such directors or officers or such controlling person shall have
the rights and duties given to each Holder by the preceding paragraph. In no
event shall any Holder be liable or responsible for any amount in excess of the
amount by which the total received by such Holder with respect to its sale of
Transfer Restricted Securities pursuant to a Registration Statement exceeds (i)
the amount paid by such Holder for such Transfer Restricted Securities and (ii)
the amount of any damages which such Holder has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission.
(c) If the indemnification provided for in this Section 8 is unavailable to
an indemnified party under Section 8(a) or Section 8(b) hereof (other than by
reason of exceptions provided in those Sections or in Section 8(d) below) in
respect of any losses, claims, damages, or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, or expenses in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Guarantor, on the one hand, and the Holders, on the other hand, from their sale
of Transfer Restricted Securities or if such allocation is not permitted by
applicable law, the relative fault of the Company and the Guarantor, on the one
hand, and of the Indemnified Holder, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative fault of the Company and the Guarantor, on the one hand, and of the
Indemnified Holder, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or such Guarantor or by the Indemnified
Holder and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages, and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in the second paragraph of Section 8(a), any legal or other fees or
expenses reasonably and actually incurred by such party in connection with
investigating or defending any action or claim.
The Company, the Guarantor and each Holder of Transfer Restricted
Securities agree that it would not be just and equitable if contribution
pursuant to this Section 8(c) were determined by pro rata allocation (even if
the Holders were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or expenses referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably and actually incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Holder or its related
Indemnified Holders shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the total received by such Holder with
respect to the sale of its Transfer Restricted Securities pursuant to a
Registration Statement exceeds the sum of (A) the amount paid by such Holder for
such Transfer Restricted Securities plus (B) the amount of any damages which
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The
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Holders' obligations to contribute pursuant to this Section 8(c) are several in
proportion to the respective principal amount of Series A Notes held by each of
the Holders hereunder and not joint.
(d) Notwithstanding anything to the contrary in this Section 8, the Company
and the Guarantor shall not be required to indemnify or hold harmless any
Indemnified Holder with respect to any loss, claim, damage, judgment, action or
expenses to the extent actually arising out of (x) the use of a Prospectus
during any period when its use has been suspended pursuant to Section 6(d) after
the Company or the Guarantor has provided actual written notice, pursuant to
Section 12(e), hereof of such suspension to the applicable Holder, or (y) the
use of an outdated Prospectus after the Company or the Guarantor has actually
provided to such Holder written notice of the fact that such Prospectus is out
of date or an updated Prospectus correcting the untrue statement or alleged
untrue statement or omission or alleged omission giving rise to the loss, claim,
damage, judgment, action or expense. Any amounts paid by the Company or the
Guarantor to an Indemnified Holder pursuant to this Agreement as a result of
such losses, claims, damages, judgments, actions or expenses referred to in this
subsection (d) shall be returned to the Company or the Guarantor, as applicable,
if it shall be finally determined by a court in a judgment not subject to appeal
or further review that such Indemnified Holder was not entitled to
indemnification by the Company or the Guarantor as a result of this subsection
(d).
SECTION 9. RULE 144A
The Company and the Guarantor hereby agree with each Holder, for so long as
any Transfer Restricted Securities remain outstanding and during any period in
which the Company or the Guarantor is not subject to Section 13 or 15(d) of the
Securities Exchange Act, to make available, upon request of any Holder of
Transfer Restricted Securities, to any Holder or beneficial owner of Transfer
Restricted Securities in connection with any sale thereof and any prospective
purchaser of such Transfer Restricted Securities designated by such Holder or
beneficial owner, the information required by Rule 144A(d)(4) under the Act in
order to permit resales of such Transfer Restricted Securities pursuant to Rule
144A.
SECTION 10. UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder unless
such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on
the basis provided in customary underwriting arrangements entered into in
connection therewith and (b) completes and executes all reasonable
questionnaires, powers of attorney, and other documents required under the terms
of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
For any Underwritten Offering, the investment banker or investment bankers
and manager or managers for any Underwritten Offering that will administer such
offering will be selected by the Holders of a majority in aggregate principal
amount of the Transfer Restricted Securities included in such offering, subject
to the approval of the Company, which approval shall not be unreasonably
withheld. Such investment bankers and managers are referred to herein as the
"underwriters."
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SECTION 12. MISCELLANEOUS
(a) Remedies. Except as otherwise set forth in Section 6(d) hereof, each
Holder, in addition to being entitled to exercise all rights provided herein, in
the Indenture, the Purchase Agreement or granted by law, including recovery of
liquidated or other damages, will be entitled to specific performance of its
rights under this Agreement. The Company and the Guarantor agree that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by them of the provisions of this Agreement and hereby agree to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. Neither the Company nor the Guarantor will,
on or after the date of this Agreement, enter into any agreement with respect to
its securities that is inconsistent with the rights granted to the Holders in
this Agreement or otherwise conflicts with the provisions hereof. Neither the
Company nor the Guarantor has previously entered into any agreement granting any
registration rights with respect to its securities to any Person, except for the
Registration Rights Agreement, dated as of January 30, 1995, among the
Guarantor, BancBoston Ventures Inc., Harvest Partners International, LP, Harvest
Technology Partners, LP, European Development Capital Corporation N.V., Deutsche
Beteiligungsgesellschaft mbH, Banque Paribas, Paribas Principal, Inc., TA
Holding, Inc., Jon Tietbohl, each of the Managers listed on the signature pages
thereto and each other person who has become a party thereto by executing an
Instrument of Accession thereto. The rights granted to the Holders hereunder do
not in any way conflict with and are not inconsistent with the rights granted to
the holders of the Company's and the Guarantor's securities under any agreement
in effect on the date hereof.
(c) Adjustments Affecting the Notes. Neither the Company nor the Guarantor
will take any action, or voluntarily permit any change to occur, with respect to
the Notes that would materially and adversely affect the ability of the Holders
to Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to or departures from
the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 12(d)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities. Notwithstanding the foregoing, a waiver or consent to
departure from the provisions hereof that relates exclusively to the rights of
Holders whose securities are being tendered pursuant to the Exchange Offer and
that does not affect directly or indirectly the rights of other Holders whose
securities are not being tendered pursuant to such Exchange Offer may be given
by the Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities subject to such Exchange Offer.
(e) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
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(ii) if to the Company or the Guarantor:
Community Distributors, Inc.
251 Industrial Parkway
Branchburg Township
Somerville, NJ 08876
Telecopier No.: 908-722-2902
Attention: President
With a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110-1726
Telecopier No.: 617-951-8736
Attention: John Utzschneider, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Transfer Restricted Securities; provided, however, that this
Agreement shall not inure to the benefit of or be binding upon a successor or
assign of a Holder unless and to the extent such successor or assign acquired
Transfer Restricted Securities directly from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
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(k) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Community Distributors, Inc.
By: ________________________
Name:
Title:
CDI Group, Inc.
By: ________________________
Name:
Title:
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
BY: DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
By: ____________________________________
Name:
Title:
INVESTOR SECURITIES PURCHASE AGREEMENT
CDI GROUP, INC.
251 Industrial Parkway
Somerville, New Jersey 08876
As of January 30, 1995
To the Investors Set Forth
on Schedule 2.1 hereto
Ladies and Gentlemen:
The undersigned, CDI Group, Inc., a Delaware corporation (the
"Company"), hereby agrees with you as follows:
1. DEFINITIONS.
For all purposes of this Agreement, the following terms shall have the
meanings set forth herein or elsewhere in the provisions hereof:
"Acquisition" shall mean the acquisition by Newrxco of all of the
issued and outstanding capital stock of CDI pursuant to the Acquisition
Documents.
"Acquisition Documents" shall mean, collectively, (i) the Stock
Purchase Agreement, dated as of August 26, 1994, among Newrxco, Jules Siegel,
Arlene Siegel and Martin Daffner and (ii) all agreements and documents required
to be entered into or delivered pursuant thereto or in connection with the
Acquisition.
"Affiliate" shall mean any Person directly or indirectly controlling,
controlled by or under direct or indirect common control with the Company (or
other specified Person) and shall include (a) any Person who is an officer or a
member of the Board of Directors or a beneficial holder of at least five percent
(5%) of the then outstanding capital stock (or other shares of beneficial
interest) of the Company (or other specified Person) and Family Members of any
such Person, (b) any Person of which the Company (or other specified Person) or
any Affiliate (as defined in clause (a) above) of the Company (or other
specified Person) directly or
<PAGE>
-2-
indirectly, either beneficially owns at least five percent (5%) of the then
outstanding capital stock (or other shares of beneficial interest) or
constitutes at least a five percent (5%) equity participant, and (c) in the case
of a specified Person who is an individual, Family Members of such Person.
"BBV" shall mean BancBoston Ventures Inc., a Massachusetts corporation.
"CDI" shall mean Community Distributors, Inc., a Delaware corporation.
"Charter" shall include the articles or certificate of incorporation,
statute, constitution, joint venture or partnership agreement or articles or
other charter of any Person other than an individual, each as from time to time
amended and in effect.
"Class A Common Stock" shall have the meaning specified in Section
3.5(a) hereof.
"Class B Common Stock" shall have the meaning specified in Section
3.5(a) hereof.
"Closing" shall have the meaning specified in Section 2.2 hereof.
"Closing Date" shall have the meaning specified in Section 2.2 hereof.
"Commission" shall mean the Securities and Exchange Commission.
"Common Shares" shall mean (a) the shares of Common Stock issued to the
Investors hereunder, (b) any shares of Common Stock into which such shares of
Common Stock have been converted, (c) any capital stock or other securities into
which or for which such Common Stock shall have been converted or exchanged
pursuant to any recapitalization, reorganization or merger of the Company and
(d) any shares of capital stock issued with respect to the foregoing pursuant to
a stock split or stock dividend; provided that no Common Shares which have been
sold pursuant to a Public Sale shall be considered to be outstanding Common
Shares or Securities hereunder.
"Common Stock" shall mean, collectively, the Class A Common Stock and
the Class B Common Stock, each having the rights and privileges set forth in
Exhibit A hereto, and any capital stock or other securities into which or for
which such Class A Common Stock or Class B
<PAGE>
-3-
Common Stock shall have been converted or exchanged pursuant to any
recapitalization, reorganization or merger of the Company.
"Credit Agreement" shall mean the Credit Agreement, of even date
herewith, among CDI, the lenders named therein, and Banque Paribas as agent, as
the same may be amended, renewed or extended from time to time.
"Disposition Event" shall mean the occurrence of any of the merger,
consolidation, or sale of all or substantially all of the assets of the Company
or any Subsidiary comprising a majority of the Company or the sale or other
transfer of a majority of the capital stock of the Company or any such
Subsidiary.
"Distribution" shall mean (a) the declaration or payment of any
dividend on or in respect of any shares of any class of capital stock of the
Company or other specified Person or the repayment of any of the principal or
accrued interest on the Notes, (b) the purchase, redemption or other retirement
of any of the Notes or any shares of any class of capital stock of the Company
or other specified Person, directly or indirectly or otherwise, or (c) any other
distribution on or in respect of any of the Notes or any shares of any class of
capital stock of the Company or other specified Person.
"Employment Agreements" shall mean, collectively, the Employment and
Non-Competition Agreements, each dated as of the date hereof, entered into by
Newrxco and each of Frank Marfino, Todd Pluymers, Lynn Shallcross and William
Gilligan, as such Employment Agreements may be amended, restated, modified or
supplemented from time to time.
"Family Members" shall mean, as applied to any individual, any parent,
spouse, child, spouse of a child, brother or sister of such individual, and any
trust created for the benefit of any of such Persons and each custodian of any
property of any of such Persons.
"Harvest Stockholders" shall mean, collectively, HPI, HTP, European
Development Capital Corporation N.V. and Deutsche Beteiligungsgesellschaft mbH.
"HPI" shall mean Harvest Partners International, LP.
"HTP" shall mean Harvest Technology Partners, LP.
<PAGE>
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"Investor Stockholder" shall mean (a) each Investor for so long as such
Investor holds Securities and any other Person to whom such Investor transfers
Securities in accordance with the Stockholder Agreement (other than pursuant to
the Management Option Agreement) and (b) Banque Paribas for so long as Banque
Paribas holds Paribas Warrant Securities and any other Person to whom Banque
Paribas transfers Paribas Warrant Securities in accordance with the Stockholder
Agreement.
"Investors" shall mean, BBV and the Harvest Stockholders.
"Major Holder" shall mean the Harvest Stockholders and any other
Investor Stockholder, who together with its Affiliates, holds at the relevant
time of determination (i) in the case of Common Shares and Warrant Shares, at
least five percent (5%) of the then outstanding number of Common Shares and
Warrant Shares, (ii) in the case of Preferred Shares, at least five percent (5%)
of the then outstanding number of Preferred Shares or (iii) in the case of the
Notes, at least five percent (5%) of the then outstanding principal amount of
the Notes.
"Majority Holders of the Common Shares" shall mean the holder or
holders at the relevant time of determination (excluding the Company) of
fifty-one percent (51%) or more of the number of then issued and outstanding
Common Shares.
"Majority Holders of the Notes" shall mean the holder or holders at the
relevant time of determination (excluding the Company) of fifty-one percent
(51%) or more of the then outstanding principal amount of the Notes.
"Majority Holders of the Preferred Shares" shall mean the holder or
holders at the relevant time of determination (excluding the Company) of
fifty-one percent (51%) or more of the then outstanding number of Preferred
Shares.
"Management Fee Agreement" shall mean (a) the Management Fee Agreement
of even date herewith between Newrxco and BBV and (b) the Management Fee
Agreement of even date herewith between Newrxco and Harvest Partners, Inc., each
as amended and in effect from time to time.
"Management Option Agreement" shall mean the Option Agreement of even
date herewith among BBV, the Harvest Stockholders and Frank Marfino, on behalf
of the executive officers of the Company, pursuant to which each of BBV and the
Harvest Stockholders have granted certain options to such officers to purchase
the number of shares of Common
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Stock and Preferred Stock specified therein during the period from the date
hereof until July 31, 1995.
"Management Options" shall mean the options for the purchase of shares
of Class A Common Stock issued pursuant to the Stock Option Agreements.
"Management Purchase Agreements" shall mean the Management Securities
Purchase Agreement pursuant to which Frank Marfino purchases Common Stock and
Preferred Stock.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, properties, condition (financial or otherwise), performance,
results of operations, or prospects of the Company, (b) the ability of the
Company to perform its obligations under this Agreement and the Related
Agreements, or (c) the validity or enforceability of this Agreement or any of
the Related Agreements or the rights or remedies thereunder.
"Merger" shall have the meaning specified in Section
5.7 hereof.
"Merger Documents" shall mean (a) the Certificate of Ownership and
Merger, of even date herewith, filed with the Delaware Secretary of State and
(b) all other related documents with respect to the Merger.
"Newrxco" shall mean Newrxco, Inc., a Delaware
corporation.
"Notes" shall mean the Company's Senior Subordinated Notes, in the
aggregate principal amount of $12,907,780, in the form of Exhibit B hereto,
issued pursuant to Section 2.1 hereof, and any other Notes transferred to any
other holders pursuant to Section 10 hereof.
"Paribas" shall mean Paribas Principal, Inc.
"Paribas Option Agreement" shall mean the Option Agreement of even date
herewith among BBV, the Harvest Stockholders and Paribas pursuant to which BBV
and the Harvest Stockholders have granted an option to Paribas to purchase the
shares of Common Stock and Notes specified therein.
"Paribas Warrant" shall mean the Warrants of the Company issued
pursuant to the Paribas Warrant Agreement, as amended and in effect from time to
time.
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"Paribas Warrant Agreement" shall mean the Warrant Agreement of even
date herewith between the Company and Banque Paribas, as amended, renewed or
extended from time to time.
"Paribas Warrant Securities" shall mean the Paribas Warrant and the
Warrant Shares.
"Person" shall mean an individual, partnership, corporation,
association, trust, joint venture, unincorporated organization, or any
government, governmental department or agency or political subdivision thereof.
"Preferred Shares" shall mean (a) the shares of Preferred Stock issued
to the Investors pursuant to this Agreement, and (b) any capital stock or other
securities into which or for which any such shares of Preferred Stock shall have
been converted or exchanged pursuant to any recapitalization, reorganization or
merger of the Company, provided that the foregoing capital stock shall be
Preferred Shares only so long as such capital stock has not been sold pursuant
to a Public Sale.
"Preferred Stock" shall have the meaning specified in Section 3.5(a)
hereof.
"Principal Holder" shall mean any Person, who together with its
Affiliates, holds at the relevant time of determination (i) in the case of
Common Shares and Warrant Shares, at least ten percent (10%) of the then
outstanding number of Common Shares and Warrant Shares, (ii) in the case of the
Notes, at least ten percent (10%) of the then outstanding principal amount of
the Notes, or (iii) in the case of Preferred Shares, at least ten percent (10%)
of the then outstanding number of Preferred Shares. For purposes of this
definition, the Harvest Stockholders shall be deemed to be Affiliates of each
other.
"Public Sale" shall mean any sale of Common Stock or Preferred Stock to
the public pursuant to a public offering registered under the Securities Act, or
to the public through a broker or market-maker pursuant to the provisions of
Rule 144 (or any successor rule) adopted under the Act.
"Purchase Price" shall have the meaning set forth in Section 2.1
hereof.
"Purchased Securities" shall have the meaning set forth in Section 2.1
hereof.
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"Qualified Public Offering" shall mean the Company's underwritten
public offering pursuant to an effective registration statement under the
Securities Act covering the offer and sale of shares of Common Stock in which
not less than $20,000,000 of gross proceeds from such public offering are
received by the Company for the account of the Company.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated as of the date hereof, among the Company, the Investors,
Paribas Principal, Inc., Banque Paribas, TA Holding, Inc., Jon Tietbohl and
Frank Marfino in the form of Exhibit C hereto, as the same may be amended,
restated, modified or supplemented from time to time.
"Related Agreements" shall mean, collectively, the Notes, the
Stockholder Agreement, the Registration Rights Agreement, the Charters of the
Company and each of its Subsidiaries, the Management Purchase Agreement, the
Employment Agreements, the Stock Option Agreements, the Management Option
Agreement, the Acquisition Documents, the Merger Documents, the Credit
Agreement, the Senior Loan Documents, the Paribas Option Agreement, the Paribas
Warrant, the Paribas Warrant Agreement, the Management Fee Agreement, the
Subscription Agreement between the Company and the Subscription Agreement
between the Company and Jon Tietbohl.
"Restricted Payment" shall mean any payment (whether in cash,
securities or other property, and including any management, consulting or
investment banking fees) to or for the benefit of any Affiliate of the Company
or any of its Subsidiaries, other than Distributions.
"Securities" shall mean the Preferred Shares, the Common Shares and the
Notes; provided, that no Securities which have been sold pursuant to the terms
of the Management Option Agreement shall be considered to be outstanding
Securities hereunder.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Senior Loan Documents" shall mean the "Credit Documents" as such term
is defined in the Credit Agreement, as the same may be amended, restated,
modified or supplemented from time to time.
"Small Business Act" shall mean the Small Business Investment Act of
1958, as amended, or any successor federal statute, and the rules and
regulations of the Small Business Administration thereunder, all as the same
shall be in effect from time to time.
<PAGE>
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"Stock Option Agreements" shall mean (i) the Incentive Stock Option
Agreement of even date herewith between the Company and Frank Marfino and (ii)
the Disposition Event Stock Option Agreement between the Company and Frank
Marfino.
"Stockholder Agreement" shall mean the Stockholder Agreement, among the
Company, the Investors, Banque Paribas, Paribas Principal Inc., TA Holding,
Inc., Jon Tietbohl and Frank Marfino, in the form of Exhibit D hereto.
"Subsidiary" shall mean any corporation, association, trust, or other
business entity, of which the designated parent shall at any time own or control
directly or indirectly through a Subsidiary or Subsidiaries at least a majority
(by number of votes) of the outstanding shares of capital stock (or other shares
of beneficial interest) entitled ordinarily to vote for the election of such
business entity's directors (or in the case of a business entity that is not a
corporation, for those Persons exercising functions similar to directors of a
corporation).
"Transfer Notice" shall have the meaning specified in Section 10.2
hereof.
"Warrant Shares" shall mean (a) all shares of Common Stock issued or
issuable upon exercise of the Paribas Warrants in accordance with their terms,
(b) any shares of Common Stock into which such shares of Common Stock have been
converted, (c) any capital stock or other securities into which or for which
such Common Stock shall have been converted or exchanged pursuant to any
recapitalization, reorganization or merger of the Company and (d) any shares of
capital stock issued with respect to the foregoing pursuant to a stock split or
stock dividend; provided that no Warrant Shares which have been sold pursuant to
a Public Sale shall be considered to be outstanding Warrant Shares or Securities
hereunder.
2. SALE AND PURCHASE OF PURCHASED SECURITIES.
2.1. Sale and Purchase of Purchased Securities. The Company agrees to
issue and sell to the Investors, and, subject to all of the terms and conditions
hereof and in reliance on the representations and warranties set forth or
referred to herein, each of the Investors severally agrees to purchase, the
Securities set forth opposite such Investor's name on Schedule 2.1 hereto (the
"Purchased Securities"), in consideration for the purchase price designated for
such Purchased Securities on Schedule 2.1 (the "Purchase Price"). The
obligations of the Investors hereunder are
<PAGE>
-9-
several and not joint and none of the Investors shall have any obligation or
liability for the obligations of any of the other Investors hereunder.
2.2. Closing. The closing of the purchase and sale of the Purchased
Securities (the "Closing") will take place at the offices of White & Case, 1155
Avenue of the Americas, New York, New York on January 30, 1995 or such other
date as the parties hereto may agree upon (the "Closing Date"). At the Closing,
the Company will deliver to each Investor the Purchased Securities purchased by
such Investor against payment by such Investor of the Purchase Price set forth
on Schedule 2.1 opposite such Investor's name in immediately available funds.
The Purchased Securities purchased by each Investor will be issued to such
Investor on or before the Closing Date and registered in such Investor's name in
the Company's records.
2.3. Use of Proceeds. The Company agrees that it will use the proceeds
from the sale of the Purchased Securities hereunder solely to finance part of
the Acquisition. The Company further agrees that it will not use any part of the
proceeds from the sale of the Purchased Securities to purchase or carry any
"margin security" or "margin stock", as such terms are defined in any
regulation, rule or interpretation of the Board of Governors of the Federal
Reserve System.
3. REPRESENTATIONS AND WARRANTIES.
In order to induce each of the Investors to enter into this Agreement
and to purchase the Purchased Securities to be purchased by such Investor, the
Company hereby represents and warrants that, both before and immediately after
giving effect to the Closing, the Acquisition and the Merger:
3.1. Organization and Good Standing. The Company and each of its
Subsidiaries is duly organized and existing in good standing in its jurisdiction
of incorporation, is duly qualified as a foreign corporation and authorized to
do business in all other jurisdictions in which the nature of its business or
property makes such qualification necessary, and has the corporate power to own
its properties and to carry on its business as now conducted and as proposed to
be conducted.
3.2. Authorization. The execution, delivery and performance by the
Company of this Agreement and the execution and delivery by the Company and each
of its Subsidiaries of each Related Agreement to which it is a party, and the
issuance and sale by the Company of the Securities hereunder, (a) are within the
Company's or such Subsidiary's corporate power and authority, (b) have been duly
authorized by all necessary
<PAGE>
-10-
corporate proceedings, and (c) do not conflict with or result in any breach of
any provision of or the creation of any lien upon any of the property of the
Company or any of its Subsidiaries or require any consent or approval pursuant
to the Charter or bylaws of the Company or any of its Subsidiaries or any law,
regulation, order, judgment, writ, injunction, license, permit, agreement or
instrument.
3.3. Enforceability. The execution and delivery by the Company of this
Agreement and the execution and delivery by the Company and each of its
Subsidiaries of each Related Agreement to which it is a party, and the issuance
and sale by the Company of the Securities hereunder, will result in legally
binding obligations of the Company or such Subsidiary, enforceable against it in
accordance with the respective terms and provisions hereof and thereof, except
to the extent that (a) such enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights, (b) the availability of the remedy of specific
performance or injunctive or other equitable relief will be subject to the
discretion of the court before which any proceeding therefor may be brought, and
(c) the enforceability of the indemnities contained in the Registration Rights
Agreement may be limited under federal securities laws.
3.4. Governmental Approvals. Except as set forth in Schedule 3.4
hereto, the execution, delivery and performance by the Company of this Agreement
and the execution and delivery by the Company and each of its Subsidiaries of
each Related Agreement to which it is a party, and the issuance and sale by the
Company of the Securities hereunder, do not require the approval or consent of,
or any filing with, any governmental authority or agency prior to the Closing
other than those already obtained or filed.
3.5. Capitalization.
(a) Capital Stock. The authorized capital stock of the Company consists
solely of (i) 7,500 shares of Preferred Stock, $1.00 par value per share (the
"Preferred Stock"), (ii) 600,000 shares of Class A Voting Common Stock, $.00001
par value per share (the "Class A Common Stock") and (iii) 600,000 shares of
Class B Non-Voting Common Stock, $.00001 par value per share ("Class B Common
Stock"). On the Closing Date, after giving effect to the transactions
contemplated hereby and by the Related Agreements, the Company will have no
outstanding capital stock other than 7,500 shares of Preferred Stock, 311,285
shares of Class A Common Stock and 88,715 shares of Class B Common Stock, all of
which will be owned as set forth in Schedule 3.5(a) hereto, and all of
<PAGE>
-11-
which will be duly authorized, validly issued, fully paid and nonassessable.
(b) Options, Etc. Except for the Management Options and the Paribas
Warrant, the Company has no outstanding rights (either preemptive or other) or
options to subscribe for or purchase from the Company and no warrants or other
agreements providing for or requiring the issuance by the Company, of any of its
capital stock or any securities convertible into or exchangeable for its capital
stock.
(c) Reservation, Etc. Sufficient shares of authorized but unissued
Class A Common Stock and Class B Common Stock have been reserved by appropriate
corporate action in connection with the conversion of shares of Class A Common
Stock into shares of Class B Common Stock and the conversion of shares of Class
B Common Stock into shares of Class A Common Stock, as provided in the Charter
of the Company. Neither the conversion of shares of Class A Common Stock into
shares of Class B Common Stock, nor the conversion of shares of Class B Common
Stock into shares of Class A Common Stock, as provided in the Charter of the
Company, will (i) require any further corporate action by the stockholders or
directors of the Company, (ii) be subject to any preemptive rights of any
present or future stockholders of the Company, or (iii) conflict with any
provision of any agreement to which the Company is a party or by which it is
bound.
3.6. Subsidiaries. Immediately prior to the Closing, other than
Newrxco, the Company does not have any Subsidiaries and does not own or hold of
record and/or beneficially any shares of any class in the capital of any other
corporation. Immediately prior to the Merger, the authorized capital stock of
Newrxco consists solely of 1,000 shares of Common Stock, $.01 par value per
share of which 1,000 shares are issued and outstanding, all of which are owned
by the Company and are validly issued, fully paid and nonassessable. At the
Closing, after giving effect to the Acquisition and the Merger, other than CDI,
the Company does not have any Subsidiaries and does not own or hold of record
and/or beneficially any shares of any class in the capital of any other
corporation. After giving effect to the Merger, the authorized capital stock of
CDI consists solely of 1,000 shares of Common Stock, $.01 par value per share of
which 1,000 shares are issued and outstanding, all of which are owned by the
Company, free and clear of any lien other than liens permitted by the Credit
Agreement, and are validly issued and outstanding, fully paid and nonassessable.
Neither the Company nor any of its Subsidiaries owns any legal and/or beneficial
interests in any partnerships, business trusts
<PAGE>
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or joint ventures or in any other unincorporated trade or business enterprises.
3.7. Small Business Concern. The Company meets the criteria established
under the Small Business Act for classification as a "small business concern"
within the meaning of the Small Business Act.
3.8. Governmental Regulations. Neither the Company nor any of its
Subsidiaries is a "holding company", or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company", as such terms are defined in
the Public Utility Holding Company Act of 1935; nor is the Company or any of its
Subsidiaries a "registered investment company", or an "affiliated person" or a
"principal underwriter" of a "registered investment company", as such terms are
defined in the Investment Company Act of 1940, as amended.
3.9. Disclosure. No representation, warranty or statement made by the
Company or any of its Subsidiaries in this Agreement, any Related Agreement or
any agreement, certificate, statement or document furnished by or on behalf of
the Company or any of its Subsidiaries in connection herewith or therewith
contains any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances in which they were made, not misleading.
4. INVESTMENT REPRESENTATION.
Each of the Investors represents and warrants to the Company that (a)
such Investor is an "accredited investor" as such term is defined in Rule 501
promulgated under the Securities Act and (b) such Investor is acquiring the
Purchased Securities for investment, and not with a view to selling or otherwise
distributing the Purchased Securities; provided, however, that the disposition
of such Investor's property shall at all times be and remain in such Investor's
control, subject to the provisions of Section 10 hereof. Each of HPI and HTP
represents and warrants that its principal place of business is in the State of
New York and that it is an "institutional investor" for purposes of Section
359(e)(i)(a) of the New York General Business Law.
5. CONDITIONS TO PURCHASE.
The obligation of each Investor to purchase the Purchased Securities to
be purchased by such Investor pursuant to this Agreement is subject to
compliance by the Company with its agreements contained
<PAGE>
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herein, and to the satisfaction, on or prior to the Closing Date, of the
following conditions:
5.1. This Agreement; Related Agreements. This Agreement and each of the
Related Agreements shall have been executed and delivered in a form reasonably
satisfactory to you, shall be in full force and effect and no term or condition
hereof or thereof shall have been amended, modified or waived except with your
prior written consent. All covenants, agreements and conditions contained herein
or in the Related Agreements which are to be performed or complied with on or
prior to the Closing Date shall have been performed or complied with (or waived
with your prior written consent) in all material respects.
5.2. Charter Documents; Good Standing Certificates. You shall have
received from the Company and each of its Subsidiaries a copy, certified by a
duly authorized officer of the Company to be true and complete as of the Closing
Date, of the Charter and the bylaws of the Company and each of its Subsidiaries
and a certificate, dated not more than ten (10) days prior to the Closing Date,
of the Secretary of State or other appropriate official of each state in which
the Company or any of its Subsidiaries is incorporated, organized or qualified
to do business, as to the Company's good standing or qualification to do
business in such state.
5.3. Proof of Corporate Action; Approvals. You shall have received from
the Company and each of its Subsidiaries copies, certified by a duly authorized
officer thereof to be true and complete as of the Closing Date, of the records
of all corporate action taken to authorize the execution, delivery and
performance of this Agreement or any of the Related Agreements to which the
Company or such Subsidiary is or is to become a party.
5.4. Incumbency Certificate. You shall have received from the Company
and each of its Subsidiaries an incumbency certificate, dated the Closing Date,
signed by a duly authorized officer of the Company or such Subsidiary, as
applicable, and giving the name and bearing a specimen signature of each
individual who shall be authorized to sign, in the name and on behalf of the
Company or such Subsidiary, as applicable, this Agreement and each of the
Related Agreements to which the Company or such Subsidiary is or is to become a
party, and to give notices and to take other action on such Person's behalf
under each of such documents.
5.5. Representations and Warranties; Officers' Certificates. The
representations and warranties of the Company or any of its Subsidiaries
contained or incorporated by reference herein shall be true and correct after
completion of the Acquisition and the Merger on and as of the
<PAGE>
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Closing Date; and the Company and each of its Subsidiaries shall have performed
and complied with all conditions and agreements required to be performed or
complied with by it hereunder and under the Related Agreements prior to the
Closing; and each of you shall have received on the Closing Date a certificate
to these effects signed by the President and the Chief Financial Officer of the
Company.
5.6. Legality; Governmental Authorization. The purchase of the
Purchased Securities shall not be prohibited by any law, governmental order or
regulation, and shall not subject any of you to any penalty, special tax, or
other onerous condition. All necessary consents, approvals, licenses, permits,
orders and authorizations of, or registrations, declarations and filings with,
any governmental or administrative agency or other Person, with respect to any
of the transactions contemplated by this Agreement or any of the Related
Agreements, shall have been duly obtained or made and shall be in full force and
effect.
5.7. Completion of Acquisition and Merger. On the Closing Date,
simultaneously with the purchase and sale of the Purchased Securities hereunder,
(i) Newrxco shall have completed the Acquisition pursuant to the Acquisition
Documents, and (ii) Newrxco and CDI shall have completed the merger (the
"Merger") of Newrxco with and into CDI pursuant to the Merger Documents, with
CDI as the survivor of the Merger, each on terms satisfactory to you in all
respects.
5.8. SBIC Documentation. The Company shall have executed and delivered
to BBV and any other Investor which is a "small business investment company" all
documents required by such Investor in connection with the investment
contemplated hereby under the rules and regulations applicable to such Investor
by virtue of its status as a "small business investment company".
5.9. Debt Financing. Simultaneously with the purchase and sale of the
Purchased Securities hereunder, CDI shall have obtained financing on terms
satisfactory to you from one or more senior lenders pursuant to the Credit
Agreement, providing total credit of not less than $58,000,000.
5.10. No Material Change. Since July 31, 1994, no event or change
(other than the Acquisition and the Merger) shall have occurred that would cause
or evidence a Material Adverse Effect.
5.11. Expenses. Bingham, Dana & Gould, special counsel to the Investors
and the Company, shall have received from the Company payment in full for all
legal fees charged and all costs and expenses incurred by such counsel through
the Closing Date in connection with the
<PAGE>
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transactions contemplated by this Agreement and the Related Agreements. All of
the other fees, expenses and disbursements incurred by you or your accountants
and other consultants in connection with your due diligence investigation of the
Company and its Subsidiaries shall have been paid in full by the Company.
5.12. Legal Opinion. Each of the Investors shall have received from
special counsel their favorable opinion, substantially in the form of Exhibit E
hereto.
5.13. No Litigation. No restraining order or injunction shall prevent
the transactions contemplated by this Agreement and no action, suit or
proceeding shall be pending or threatened before any court or administrative
body in which it will be, or is, sought to restrain or prohibit or to obtain
damages or other relief in connection with this Agreement or the consummation of
the transactions contemplated hereby.
5.14. Amendment of Charter. The Company shall have amended its Charter
to read as set forth in Exhibit A hereto.
5.15. Subscription Agreements. Simultaneously with the purchase and
sale of the Purchased Securities hereunder, the Company and each of TA Holding,
Inc. and Jon Tietbohl shall have executed and delivered Subscription Agreements
providing total capital to the Company of not less than $420,000.
5.16. Closing Fees. The Company shall have paid to (i) First Capital
Corporation a closing fee in the amount of $500,000 and (ii) Harvest Partners,
Inc. a closing fee in the amount of $500,000.
5.17. Simultaneous Purchase of Purchased Securities. It shall be a
condition concurrent to each Investor's obligation to purchase the Purchased
Securities to be purchased by such Investor that the other Investors purchase
the Purchased Securities to be purchased by such Investors.
5.18. General. All instruments and legal, governmental, administrative
and corporate proceedings in connection with the transactions contemplated by
this Agreement and the Related Agreements shall be satisfactory in form and
substance to you, and you shall have received copies of all documents,
including, without limitation, records of corporate or other proceedings,
opinions of counsel, consents, licenses, approvals, permits and orders, which
you may have requested in connection therewith.
<PAGE>
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6. INFORMATION RIGHTS AND OTHER COVENANTS.
The Company hereby agrees that so long as any Securities or Paribas
Warrant Securities are outstanding, it will comply and will cause its
Subsidiaries to comply with the following provisions unless otherwise consented
to by each of the Investor Stockholders:
6.1. Delivery of Financial Information. The Company will deliver to
each Investor Stockholder copies of all financial reports, notices and all other
documents or reports which the Company or any of its Subsidiaries furnishes to
any lender to the Company or any of its Subsidiaries promptly upon providing
such notices, reports or documents to such lenders; provided, that, in any
event, the Company shall deliver to each Investor Stockholder the notices,
financial reports and other information described in Section 8.01 of the Credit
Agreement as in effect on the date hereof, without giving any effect to any
amendment or modification of the terms of such provisions, any payment on or
discharge of the indebtedness outstanding thereunder, any termination thereof,
or any approval, consent, or waiver given pursuant thereto.
6.2. Rights to Attend Meetings.
(a) Board Meetings. The Company will give each Major Holder at least
five (5) business days' prior written notice (unless exigent circumstances
require a shorter time period) of the time, place and subject matter of any
proposed meeting (or action by written consent) of the board of directors or
executive committee of the Company or any of its Subsidiaries, such notice to
include true and complete copies of all documents furnished to any director in
connection with such meeting or consent. Any two (2) of such Major Holder's
officers and authorized representatives (in addition to any of such Major
Holder's officers or representatives who have been elected to the board of
directors) will be entitled to attend as an observer at any such meeting or, if
a meeting is held by telephone conference, to participate therein for the
purpose of listening thereto. The Company will, and will cause its Subsidiaries
to, call and hold a meeting of its board of directors or executive committee at
least once each fiscal quarter.
(b) Annual Meetings. Within sixty (60) days after the Company's annual
audited financial statements are furnished and on not less than thirty (30)
days' and not more than sixty (60) days' prior written notice, each of the
Company and its Subsidiaries will hold an annual meeting of its stockholders at
which the principal executive, financial and operations officers of the Company
or such Subsidiary, as applicable, will present a review of, and will discuss
with those in attendance, in reasonable detail,
<PAGE>
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the general affairs, management, financial condition, results of operations and
business prospects of the Company or such Subsidiary, as applicable. The Company
will give each holder of Securities at least thirty (30) days' advance written
notice of each such meeting and will allow each holder of Securities to attend
each such meeting.
6.3. Other Information. From time to time upon the request of any
representative designated by any Investor Stockholder who holds at least three
percent (3%) of the then outstanding (i) number of Common Shares and Warrant
Shares, (ii) number of Preferred Shares or (iii) principal amount of the Notes,
the Company will furnish to any authorized officer or representative of such
Person such information regarding the business, affairs, prospects and financial
condition of the Company and its Subsidiaries as such officer or representative
may reasonably request. Each such officer or representative shall have the right
during normal business hours to examine the books and records of the Company, to
make copies, notes and abstracts therefrom, and to make an independent
examination of the books and records of the Company and its Subsidiaries and to
inspect the properties of the Company and its Subsidiaries.
6.4. Confidentiality. Each Investor Stockholder (other than Paribas and
Banque Paribas) and its officers and representatives will hold, and use its best
efforts to require others to hold, in confidence all proprietary or confidential
information of the Company and its Subsidiaries provided or made available to
such Investor Stockholder pursuant to this Section 6 until such time as such
information has been publicly disclosed other than as a consequence of any
breach by an Investor Stockholder of its confidentiality obligations hereunder.
Upon exercise of its option under the Paribas Option Agreement, Paribas and
Banque Paribas agree to comply with the provisions of Section 14.18 of the
Credit Agreement as in effect on the Closing Date, as if such provisions are
incorporated herein by reference, with respect to all proprietary and
confidential information of the Company and its Subsidiaries provided or made
available to Paribas and Banque Paribas hereunder.
6.5. Post-Closing Review. Within 90 days following the Closing Date,
the Company shall deliver to BBV and any other Investor Stockholder which is a
"small business investment company" a certificate of the President of the
Company stating that the proceeds from the sale of the Purchased Securities were
used for the purposes specified in Section 2.3 hereof.
<PAGE>
-18-
6.6. Distributions. Except for (a) the repayment of all of the Notes
and the redemption of all of the outstanding shares of Preferred Stock (i) on
January 31, 2005, or (ii) in connection with the closing of a Disposition Event,
(b) the prepayment of all of the Notes and the redemption of all of the
Preferred Stock prior to January 31, 2005, or (c) repurchases of Common Stock
and Preferred Stock held by executive employees of the Company and its
Subsidiaries pursuant to management securities purchase agreements entered into
pursuant to the Management Option Agreement, the Company will not make any
Distribution to any Principal Holder unless each Investor Stockholder is given
the option to receive concurrently therewith a pro rata portion (based upon the
respective number of Common Shares and Warrant Shares or the principal amount of
the Notes or Preferred Stock then held by such Investor Stockholders) of the
amount of such Distribution on the same terms and conditions as such Principal
Holder.
6.7. Transactions with Affiliates. Neither the Company nor any of its
Subsidiaries will (a) engage in any transaction with any Affiliate on terms more
favorable to such Affiliate than would have been obtainable on an arms-length
basis in the ordinary course of business, (b) engage in any merger,
consolidation or other similar transaction with, or sale of a material amount of
assets to, any Affiliate or (c) make any Restricted Payment other than (i)
compensation payable to Frank Marfino, Todd Pluymers, Lynn Shallcross, and
William Gilligan pursuant to the terms of the Employment Agreements, (ii)
payments of base salary to each other executive employee of the Company as
currently in effect and any increases thereto or bonuses approved by Company's
Board of Directors, (iii) the reasonable compensation for and reimbursement of
out-of-pocket expenses of any member of the Board of Directors of the Company or
any of its Subsidiaries who is not an employee, officer or shareholder of the
Company or any of its Subsidiaries, (iv) the reasonable costs and expenses
associated with any rights of board or executive committee attendance or
observation or inspection and lodging expenses related thereto, (v) any payments
to BBV and Harvest Partners, Inc. or their Affiliates pursuant to the Management
Fee Agreement not to exceed $500,000 in aggregate amount in any year, (vi)
Distributions permitted pursuant to Section 6.6 hereof or (vii) any Restricted
Payment permitted pursuant to the Credit Agreement as in effect on the Closing
Date.
7. SALE OR TRANSFER OF PREFERRED SHARES, COMMON SHARES AND NOTES; REGISTRATION
RIGHTS.
You shall have certain rights with respect to the sale of the Preferred
Shares, Common Shares and Notes as set forth in the
<PAGE>
-19-
Stockholder Agreement. You also shall have certain registration rights with
respect to the Common Shares as set forth in the Registration Rights Agreement.
8. SUBSEQUENT HOLDERS OF SECURITIES.
Whether or not any express assignment has been made in this Agreement,
the provisions of this Agreement and the Related Agreements that are for your
benefit as the holder of any Securities or Paribas Warrant Securities are also
for the benefit of, and enforceable by, all subsequent holders of Securities or
Paribas Warrant Securities, except any holder of Securities or Paribas Warrant
Securities which have been sold pursuant to a Public Sale, and except as
otherwise expressly provided herein. Furthermore, no Securities or Paribas
Warrant Securities which have been sold pursuant to a Public Sale shall be
deemed to be outstanding Preferred Shares, Common Shares or Notes, as
applicable, Securities or Paribas Warrant Securities for any purposes of this
Agreement.
9. REGISTRATION AND TRANSFER OF SECURITIES.
9.1. Registration, Transfer and Exchange of Notes.
(a) The Company shall keep at its principal office a register in which
shall be entered the names and addresses of the registered holders of the Notes
issued by it and particulars of the respective Notes held by them and of all
transfers of such Notes. References to the "holder" or "holder of record" of any
Note shall mean the payee thereof unless the payee shall have presented such
Note to the Company for transfer and the transferee shall have been entered in
said register as a subsequent holder, in which case the terms shall mean such
subsequent holder. The ownership of any of the Notes shall be proven by such
register and the Company may conclusively rely upon such register.
(b) The holder of any of the Notes may at any time and from time to
time prior to maturity or redemption thereof surrender any Note held by it for
exchange or (subject to compliance with the applicable provisions of Section 10
hereof) transfer at said office of the Company. Within a reasonable time
thereafter and without expense (other than transfer taxes, if any) to such
holder, the Company shall issue, at its expense, in exchange therefor another
Note or Notes, dated the date to which interest has been paid on the surrendered
Note, for the same aggregate principal amount as the unpaid principal amount of
the Note or Notes so surrendered, having the same maturity and rate of interest,
containing the same provisions and subject to the same terms and conditions as
the
<PAGE>
-20-
Note or Notes so surrendered. Each such new Note shall be in the denominations
and registered in the name of such person or persons as the holder of such
surrendered Note or Notes may designate in writing, and such exchange shall be
made in a manner such that no additional or lesser amount of principal or
interest shall result. The Company will pay shipping and insurance charges, from
and to each holder's principal office, involved in the exchange or transfer of
any Note.
(c) Each Note issued hereunder, whether originally or in substitution
for, or upon transfer or exchange of, any Note shall be registered on the date
of execution thereof by the Company. The registered holder of record shall be
deemed to be the owner of the Note for all purposes of this Agreement. All
notices given hereunder to the holder of record shall be deemed validly given if
given in the manner specified in Section 12 hereof.
9.2. Transfer and Exchange of Common Stock and Preferred Stock.
(a) The Company shall keep at its principal office a register in which
shall be entered the names and addresses of the holders of the Common Stock and
the Preferred Stock and the particulars (including, without limitation, the
class thereof) of the respective shares of Common Stock and the Preferred Stock
held by them and of all transfers or conversions of shares of Common Stock from
one class to another. References to the "holder" or "holder of record" of any
Common Stock or Preferred Stock shall mean the holder thereof unless the holder
shall have presented stock certificates evidencing same to the Company for
transfer and the transferee shall have been entered in said register as a
subsequent holder, in which case the terms shall mean such subsequent holder.
The ownership of any of the Common Stock and Preferred Stock shall be proven by
such register and the Company may conclusively rely upon such register.
(b) Upon surrender at such office of any certificate representing
shares of Common Stock or Preferred Stock for registration of exchange or
(subject to compliance with the applicable provisions of this Agreement,
including, without limitation, the conditions set forth in Section 10 hereof or
the Stockholder Agreement) transfer or, in the case of Common Stock, conversion,
the Company shall issue, at its expense, one or more new certificates, in such
denomination or denominations as may be requested, for shares of Preferred Stock
or of such class or series of Common Stock as may be requested, and registered
as such holder may request. Any certificate representing shares of Common Stock
or Preferred Stock
<PAGE>
-21-
surrendered for registration of transfer shall be duly endorsed, or accompanied
by a written instrument of transfer duly executed by the holder of such
certificate or such holder's attorney duly authorized in writing. The Company
will pay shipping and insurance charges, from and to each holder's principal
office, upon any transfer, exchange or conversion provided for in this Section
9.2.
(c) Each stock certificate evidencing Common Stock and Preferred Stock,
whether originally or in substitution for, or upon transfer or exchange of, any
Common Stock or Preferred Stock shall be registered on the date of execution
thereof by the Company. The registered holder of record shall be deemed to be
the owner of the Common Stock and Preferred Stock for all purposes of this
Agreement. All notices given hereunder to the holder of record shall be deemed
validly given if given in the manner specified in Section 12 hereof.
9.3. Replacement of Securities. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Security and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity bond in such reasonable amount as the Company may determine (or,
in the case of any Security held by you or another institutional holder, of an
unsecured indemnity agreement from you or such other holder reasonably
satisfactory to the Company), or, in the case of any such mutilation, upon the
surrender of such Security for cancellation to the Company at its principal
office, the Company, at its own expense, will execute and deliver, in lieu
thereof, a new Security of like tenor, dated in the case of a Note so that there
will be no loss of interest. Any Security in lieu of which any such new Security
has been so executed and delivered by the Company shall not be deemed to be
outstanding for any purpose of this Agreement.
10. RESTRICTIONS ON TRANSFER.
10.1. General Restriction. The Securities shall be transferable only
upon satisfaction of the conditions set forth in this Section 10 and any
applicable provisions of the Stockholder Agreement.
10.2. Notice of Transfer. Prior to any transfer of any Securities, the
holder thereof shall be required to give written notice to the Company
describing in reasonable detail the manner and terms of the proposed transfer
and the identity of the proposed transferee (the "Transfer Notice"), accompanied
by (a) if reasonably determined by the Company to be necessary with respect to
such transfer, an opinion of Bingham, Dana & Gould addressed to the Company, or
other counsel reasonably acceptable to the Company, that such transfer may be
effected without
<PAGE>
-22-
registration of such Securities under the Securities Act, and (b) the written
agreement of the proposed transferee to be bound by all of the provisions hereof
and, where required by the terms thereof, the Stockholder Agreement and the
Registration Rights Agreement.
10.3. Restrictive Legends. Except as otherwise permitted by this
Section 10, each Security shall bear the legend specified for such Security in
Schedule 10.3 hereto.
10.4. Termination of Restrictions. The restrictions imposed by this
Section 10 upon the transferability of any Securities shall terminate as to such
Securities upon the sale of such Securities pursuant to a Public Sale. Whenever
any of such restrictions shall terminate as to any Securities, the holder
thereof shall be entitled to receive from the Company, at the Company's expense,
new securities without such legends.
10.5. Paribas Warrant Securities. The Paribas Warrant Securities shall
be transferable only upon satisfaction of the conditions set forth in Section 5
of the Paribas Warrant Agreement and any applicable provisions of the
Stockholder Agreement.
11. EXPENSES; INDEMNITY.
(a) The Company hereby agrees to pay on demand (i) all reasonable out-
of-pocket expenses incurred by the Investors in connection with the transactions
contemplated by this Agreement and the Related Agreements, (ii) all reasonable
out- of-pocket expenses incurred by the Investors in connection with any rights
of board or executive committee attendance or inspection and travel and lodging
expenses related thereto, (iii) the reasonable fees and expenses of one counsel
representing the Investors in connection with (A) any amendments or waivers
(whether or not the same become effective) to this Agreement and the Related
Agreements and (B) the exercise or enforcement of any rights hereunder or under
or with respect to any Related Agreement and (iv) the reasonable expenses of
publicizing the investment contemplated by this Agreement, in accordance with
Section 15 hereof, by means of a customary advertisement in newspapers and other
periodicals.
(b) The obligations of the Company under this Section 11 shall survive
payment or transfer of the Securities and the termination of this Agreement.
<PAGE>
-23-
12. NOTICES.
Any notice provided for in this Agreement or the Securities will be in
writing and will be deemed properly delivered if either personally delivered or
sent by telecopier, overnight courier or mailed certified or registered mail,
return receipt requested, postage prepaid, to the recipient at the address
specified below:
If to the Company, to it at the address set forth on page 1 hereof, to
the attention of the President, or at such other address as such person
shall have specified by notice actually received by the addressor.
If to any of the Investors, then to such Investor at the address and to
the attention of the Person set forth on Schedule 2.1 hereto, or at
such other address as such Investor shall have specified by notice
actually received by the addressor.
If to any other holder of record of any Security, to it at its address
set forth in the applicable register referred to in Section 9 hereof.
Any such notice shall be effective (a) if delivered personally or by telecopier,
when received, (b) if sent by overnight courier, when receipted for, and (c) if
mailed, three (3) days after being mailed as described above.
13. TERMINATION; SURVIVAL AND TERMINATION OF COVENANTS.
This Agreement shall terminate on that date which is the earlier of (i)
the date on which there are no longer any Securities issued and outstanding or
(ii) the date on which the Company shall complete and close a Qualified Public
Offering. All covenants, agreements, representations and warranties made herein
or in any other document referred to herein or delivered to you pursuant hereto
shall be deemed to have been relied on by you, notwithstanding any investigation
made by you or on your behalf, and shall survive the execution and delivery to
you of this Agreement and of the Securities.
14. AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only with the written
consent of the Company and the Majority Holders of the Preferred Shares, the
Majority Holders of the Common Shares and the Majority
<PAGE>
-24-
Holders of the Notes, respectively, with respect to any provision of this
Agreement which by its terms operates for the benefit of such respective
holders. Any term of the Notes may be amended and the observance of any term of
the Notes may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the Majority Holders of the Notes with respect to whom such amendment or waiver
is made. Notwithstanding the foregoing, (a) without the prior written consent of
each holder of Notes with respect to whom such amendment or waiver is made, no
such amendment or waiver shall extend the fixed maturity or reduce the principal
amount of, or reduce the rate or extend the time of payment of interest on, or
reduce the amount or extend the time of payment of any principal payable on any
prepayment of, any Note with respect to whom such amendment or waiver is made,
(b) without the prior written consent of each Investor Stockholder, no such
amendment or waiver may amend or waive any provision of Sections 6 and 13
(including any definitions used in such sections) so as to affect such Investor
Stockholder's rights thereunder, or (c) without the prior written consent of the
Investor Stockholders, no such amendment or waiver shall reduce the aforesaid
percentage of Securities the holders of which are required to consent to any
such amendment or waiver pursuant to the foregoing clause (b). Any amendment or
waiver effected in accordance with this Section 14 shall be binding upon each
holder of any Security sold pursuant to this Agreement and the Company.
15. RIGHT TO PUBLICIZE.
Each of the Investors hereby agrees that it will not publicize its
investment in the Company as contemplated hereby without the prior consent of
BBV and the Harvest Stockholders.
16. CONSTRUCTION.
The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rule of strict
construction will be applied against any party.
17. MISCELLANEOUS.
This Agreement (including Exhibits and Schedules) and the Related
Agreements set forth the entire understanding of the parties hereto with respect
to the transactions contemplated hereby and supersede any prior written or oral
understandings with respect thereto. The invalidity or unenforceability of any
term or provision hereof shall not affect the validity or enforceability of any
other term or provision hereof. The
<PAGE>
-25-
headings in this Agreement are for convenience of reference only and shall not
alter or otherwise affect the meaning hereof. THIS AGREEMENT MAY BE EXECUTED IN
ANY NUMBER OF COUNTERPARTS WHICH TOGETHER SHALL CONSTITUTE ONE INSTRUMENT, SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC SUBSTANTIVE LAWS OF
THE COMMONWEALTH OF MASSACHUSETTS WITHOUT GIVING EFFECT TO ANY CHOICE OR
CONFLICT OF LAW PROVISION OR RULE THAT WOULD CAUSE THE APPLICATION OF THE
DOMESTIC SUBSTANTIVE LAWS OF ANY OTHER STATE, AND SHALL BIND AND INURE TO THE
BENEFIT OF THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
<PAGE>
-26-
If the foregoing corresponds with your understanding of our agreement,
kindly sign this letter and the accompanying copies thereof in the appropriate
space below and return one counterpart of the same to the Company at the address
first listed above.
Very truly yours,
CDI GROUP, INC.
By: __________________________________
Title:__________________________
Accepted and agreed to:
BANCBOSTON VENTURES INC.
By: __________________________________
Title: __________________________________
HARVEST PARTNERS INTERNATIONAL, LP
By: __________________________________
Title: __________________________________
HARVEST TECHNOLOGY PARTNERS, LP
By: __________________________________
Title: __________________________________
EUROPEAN DEVELOPMENT CAPITAL CORPORATION N.V.
By: __________________________________
Title: __________________________________
DEUTSCHE BETEILIGUNGSGESELLSCHAFT
By: __________________________________
Title: __________________________________
<PAGE>
-27-
List of Schedules
-----------------
Schedule 2.1 Investors
Schedule 3.4 Governmental Approvals
Schedule 3.5(a) Ownership of Capital Stock
Schedule 10.3 Restrictive Legend
List of Exhibits
----------------
Exhibit A Description of Capital Stock
Exhibit B Form of Senior Subordinated Note
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Stockholder Agreement
Exhibit E Form of Legal Opinion
<PAGE>
FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT
This FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT, dated as of
October 16, 1997, is made by and among CDI Group, Inc., a corporation organized
and existing under the laws of the State of Delaware (the "Company"), and the
Investors set forth on the signature pages hereto (each, an "Investor", and
collectively, the "Investors").
BACKGROUND
WHEREAS, the Company and the Investors entered into an Investor
Securities Purchase Agreement, dated as of January 30, 1995 (the "Purchase
Agreement"), in connection with the acquisition by the Company of Community
Distributors, Inc., a corporation organized and existing under the laws of the
State of Delaware ("CDI");
WHEREAS, the Company and CDI entered into a Credit Agreement, dated as
of January 30, 1995, with the various banks named therein and Banque Paribas as
Agent (the "Old Credit Facility");
WHEREAS, CDI intends to issue approximately $80,000,000 in Senior Notes
due 2004, (the "Notes") and use the proceeds thereof to (i) repay the amounts
outstanding under the Old Credit Facility, and (ii) pay a dividend of
approximately $45,000,000 to the Company, its sole stockholder;
WHEREAS, in connection with the repayment of the Old Credit Facility,
CDI intends to enter into a new Loan and Security Agreement with PNC Bank,
National Association, which Loan and Security Agreement shall provide for a
revolving line of credit in the maximum principal amount of $20,000,000 (the
"New Credit Facility"); and
WHEREAS, the Company and the Investors desire to amend the Purchase
Agreement to change the reference to the Old Credit Facility to a reference to
the New Credit Facility and to add references to the Indenture under which the
Company will guarantee CDI's obligations under the Notes.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Investors do
hereby agree as follows:
<PAGE>
2
1. Amendment of Purchase Agreement.
The Purchase Agreement is hereby amended, conditional upon the
repayment and termination of the Old Credit Facility and entrance by CDI into
the New Credit Facility, as follows:
(a) The definition of the "Credit Agreement" appearing on the second
page thereof is hereby deleted in its entirety and the following paragraph is
substituted therefor:
"Credit Agreement" shall mean the Loan and Security Agreement, dated as
of October 16, 1997, by and between CDI and PNC Bank, National Associaton, as
the same may be amended, renewed or extended from time to time."
(b) Section 1 of the Purchase Agreement is hereby amending by including
the following definition therein:
"Indenture" shall mean the Indenture dated as of October 16, 1997, of
the Company and CDI, and the Bank of New York as Trustee for the Senior Notes
due 2004.
(c) Section 6.1 of the Purchase Agreement is hereby deleted in its
entirety and the following paragraph is substituted therefor:
"6.1. Delivery of Financial Information. The Company will
deliver to each Investor Stockholder copies of all financial reports,
notices and all other documents or reports which the Company or any of
its Subsidiaries furnishes to any lender to the Company or any of its
Subsidiaries promptly upon providing such notices, reports or documents
to such lenders; provided, that, in any event, the Company shall
deliver to each Investor Stockholder the notices, financial reports and
other information described in Section 5.5(a) and (b) of the Credit
Agreement as in effect on October 16, 1997 without giving any effect to
any amendment or modification of the terms of such provisions, any
payment on or discharge of the indebtedness outstanding thereunder, any
termination thereof, or any approval, consent, or waiver given pursuant
thereto."
(d) Section 6.4 of the Purchase Agreement is hereby deleted in its
entirety and the following paragraph is inserted therefor:
"6.4. Confidentiality. Each Investor Stockholder (other than
Paribas and Banque Paribas) and its officers and representatives
<PAGE>
3
will hold, and use its best efforts to require others to hold,
in confidence all proprietary or confidential information of the
Company and its Subsidiaries provided or made available to such
Investor Stockholder pursuant to this Section 6 until such time as such
information has been publicly disclosed other than as a consequence of
any breach by an Investor Stockholder of its confidentiality
obligations hereunder. Upon exercise of its option under the Paribas
Option Agreement, Paribas and Banque Paribas agree to comply with the
provisions of Section 14.18 of the Credit Agreement, dated as of
January 30, 1995, by and among the Company, Community Distributors,
Inc., the banks named therein and Banque Paribas as agent as in effect
on the Closing Date, regardless of whether or not such agreement
remains in force, as if such provisions are incorporated herein by
reference, with respect to all proprietary and confidential information
of the Company and its Subsidiaries provided or made available to
Paribas and Banque Paribas hereunder."
(e) Section 6.7 of the Purchase Agreement is hereby deleted in its
entirety and the following paragraph is substituted therefor:
"6.7. Transactions with Affiliates. Neither the Company nor
any of its Subsidiaries will (a) engage in any transaction with any
Affiliate on terms more favorable to such Affiliate than would have
been obtainable on an arms- length basis in the ordinary course of
business, (b) engage in any merger, consolidation or other similar
transaction with, or sale of a material amount of assets to, any
Affiliate or (c) make any Restricted Payment other than (i)
compensation payable to Frank Marfino, Todd Pluymers, Lynn Shallcross,
and William Gilligan pursuant to the terms of the Employment
Agreements, (ii) payments of base salary to each other executive
employee of the Company as currently in effect and any increases
thereto or bonuses approved by Company's Board of Directors, (iii) the
reasonable compensation for and reimbursement of out-of-pocket expenses
of any member of the Board of Directors of the Company or any of its
Subsidiaries who is not an employee, officer or shareholder of the
Company or any of its Subsidiaries, (iv) the reasonable costs and
expenses associated with any rights of board or executive committee
attendance or observation or inspection and lodging expenses related
thereto, (v) any payments to BBV and Harvest Partners, Inc. or their
Affiliates pursuant to the Management Fee Agreement not to exceed
$500,000 in aggregate amount in any year, (vi) Distributions permitted
<PAGE>
4
pursuant to Section 6.6 hereof or (vii) any "Permitted Payments" or
"Exempted Affiliate Transaction," each as defined in the Indenture."
2. No Other Amendment.
Except as specifically provided herein, the Purchase Agreement shall
remain in full force and effect in the form in which it existed on the date
hereof prior to giving effect to the terms of this First Amendment to Investor
Securities Purchase Agreement and the Company and the Investors ratify and
reaffirm the Purchase Agreement in its entirety, as modified hereby.
[Signature pages follow.]
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have cause this First Amendment
to Securities Purchase Agreement to be duly executed as an instrument under seal
as of the date first above written.
COMPANY:
CDI GROUP, INC.
By: _____________________________________
Title: ____________________________
INVESTORS:
BANCBOSTON VENTURES INC.
By: ______________________________________
Title: _____________________________
HARVEST PARTNERS INTERNATIONAL, LP
By: ______________________________________
Title: _____________________________
HARVEST TECHNOLOGY PARTNERS, LP
By: ______________________________________
Title: _____________________________
EUROPEAN DEVELOPMENT CAPITAL
CORPORATION N.V.
By: ______________________________________
Title: _____________________________
<PAGE>
6
DBG AUSLANDS-HOLDING GMBH
By: ______________________________________
Title: _____________________________
PARIBAS PRINCIPAL, INCORPORATED
By: ______________________________________
Title: _____________________________
COMMUNITY DISTRIBUTORS, INC.
(Payment of Principal and Interest Guaranteed
by CDI Group, Inc.)
$80,000,000
10.25% Senior Notes due 2004
PURCHASE AGREEMENT
October 10, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
<PAGE>
$80,000,000
10.25% Senior Notes due 2004
of COMMUNITY DISTRIBUTORS, INC.
(Payment of Principal and Interest Guaranteed by
CDI Group, Inc.)
PURCHASE AGREEMENT
October 10, 1997
Donaldson, Lufkin & Jenrette Securities Corporation
Bear, Stearns & Co. Inc.
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10005
Ladies and Gentlemen:
Community Distributors, Inc. (the "Company"), a Delaware corporation,
proposes to issue and sell to Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") and Bear, Stearns & Co. Inc. (each an "Initial Purchaser"
and, collectively, the "Initial Purchasers") an aggregate of $80,000,000 in
principal amount of its 10.25% Senior Notes due 2004 (the "Series A Notes"),
subject to the terms and conditions set forth herein. The Series A Notes are to
be issued pursuant to the provisions of an indenture (the "Indenture"), to be
dated as of the Closing Date (as defined below), among the Company, CDI Group,
Inc. (the "Holding Company") and The Bank of New York, as trustee (the
"Trustee"). The Series A Notes and the Series B Notes (as defined below)
issuable in exchange therefor are collectively referred to herein as the
"Notes." The Notes will be guaranteed (the Guarantee") by the Holding Company.
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Indenture.
1. Offering Memorandum. The Series A Notes will be offered and sold to the
Initial Purchasers pursuant to one or more exemptions from the
<PAGE>
registration requirements under the Securities Act of 1933, as amended (the
"Act"). The Company and the Holding Company have prepared a preliminary offering
memorandum, dated September 26 1997 (the "Preliminary Offering Memorandum") and
a final offering memorandum, dated October 10, 1997 (the "Offering Memorandum"),
relating to the Series A Notes and the Guarantee.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Series A Notes (and all
securities (other than the Series B Notes) issued in exchange therefor, in
substitution thereof or upon conversion thereof) shall bear the following
legend:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF, U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT)(A "QIB"), (B) IT IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, OR (C) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT (AN "IAI"), OR (D) IT HAS OTHERWISE ACQUIRED THIS NOTE OR A
BENEFICIAL INTEREST HEREIN IN ACCORDANCE WITH THE TERMS OF THE INDENTURE
RELATING TO THIS NOTE AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS,
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE
144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF RULE 144(d) UNDER THE
SECURITIES ACT, IF APPLICABLE) UNDER THE SECURITIES ACT AS IN EFFECT ON THE
DATE OF THE TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE
EXCEPT (A) TO THE COMPANY OR THE HOLDING COMPANY, (B) TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903
OR 904 OF THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE
FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN
OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT
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SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM
THIS NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "U.S. PERSONS" AND "UNITED STATES" HAVE THE MEANINGS GIVEN TO
THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE
CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING."
2. Agreements to Sell and Purchase. On the basis of the representations,
warranties and covenants contained in this Agreement, and subject to the terms
and conditions contained herein, the Company agrees to issue and sell to the
Initial Purchasers, and the Initial Purchasers agree, severally and not jointly,
to purchase from the Company, the principal amount of Series A Notes set forth
opposite the name of such Initial Purchaser on Schedule A hereto at a purchase
price equal to 97% of the principal amount thereof (the "Purchase Price").
3. Terms of Offering. The Initial Purchasers have advised the Company that
the Initial Purchasers will make offers (the "Exempt Resales") of the Series A
Notes purchased hereunder on the terms set forth in the Offering Memorandum,
as amended or supplemented, solely to (i) persons whom the Initial Purchasers
reasonably believe to be "qualified institutional buyers" as defined in Rule
144A under the Act ("QIBs") or (ii) persons permitted to purchase the Series A
Notes in offshore transactions in reliance upon Regulation S under the Act
(each, a "Regulation S Purchaser") (such persons specified in clauses (i) and
(ii) being referred to herein as the "Eligible Purchasers"). The Initial
Purchasers will offer the Series A Notes to Eligible Purchasers initially at a
price equal to 100% of the principal amount thereof. Such price may be changed
at any time without notice.
Holders (including subsequent transferees) of the Series A Notes will have
registration rights set forth in the registration rights agreement (the
"Registration Rights Agreement"), to be dated the Closing Date, in
substantially the form of Exhibit A hereto, for so long as such Series A Notes
constitute "Transfer Restricted Securities" (as defined in the Registration
Rights Agreement). Pursuant to the Registration Rights Agreement, the Company
and the Holding Company will agree to
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use their respective reasonable best efforts to file with the Securities and
Exchange Commission (the "Commission"), under the circumstances set forth
therein, (i) a registration statement under the Act (the "Exchange Offer
Registration Statement") relating to the Company's 10.25% Senior Notes due 2004
(the "Series B Notes"), to be offered in exchange for the Series A Notes (such
offer to exchange being referred to as the "Exchange Offer") and the Guarantee
thereof and (ii) if necessary pursuant to the terms thereof, a shelf
registration statement pursuant to Rule 415 under the Act (the "Shelf
Registration Statement" and, together with the Exchange Offer Registration
Statement, the "Registration Statements") relating to the resale by certain
holders of the Series A Notes, and use their respective reasonable best efforts
to cause such Registration Statements to be declared and remain effective and
usable for the periods specified in the Registration Rights Agreement and to
consummate the Exchange Offer. This Agreement, the Indenture, the Notes, the
Guarantee, and the Registration Rights Agreement are hereinafter sometimes
referred to collectively as the "Operative Documents."
4. Delivery and Payment.
(a) Delivery of, and payment of the Purchase Price for, the Series A
Notes shall be made at the office of Skadden, Arps, Slate, Meagher & Flom LLP at
919 Third Avenue, New York, New York, 10022-3897, or such other location as may
be mutually acceptable. Such delivery and payment shall be made at 9:00 a.m.,
New York City time, on October 16, 1997, or at such other time as shall be
agreed upon by the Initial Purchasers and the Company. The time and date of such
delivery and the payment are herein called the "Closing Date."
(b) One or more of the Series A Notes in definitive global form,
registered in the name of Cede & Co., as nominee of the Depository Trust Company
("DTC"), having an aggregate principal amount corresponding to the aggregate
principal amount of the Series A Notes (collectively, the "Global Notes") shall
be delivered by the Company to the Initial Purchasers (or as the Initial
Purchasers direct) in each case with any transfer taxes thereon duly paid by the
Company against payment by the Initial Purchasers of the Purchase Price thereof
by wire transfer in same day funds to the order of the Company. The Global Notes
shall be made available to the Initial Purchasers for inspection not later than
9:30 a.m., New York City time, on the business day immediately preceding the
Closing Date.
5. Agreements of the Company and the Holding Company. Each of the Company
and the Holding Company hereby agrees with each Initial Purchaser as follows:
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(a) To advise the Initial Purchasers promptly and, if requested by an
Initial Purchaser, confirm such advice in writing, (i) of the issuance by any
state securities commission of any stop order suspending the qualification or
exemption from qualification of any Series A Notes for offering or sale in any
jurisdiction designated by an Initial Purchaser pursuant to Section 5(e) hereof,
or the initiation of any proceeding by any state securities commission or any
other federal or state regulatory authority for such purpose and (ii) of the
happening of any event during the period referred to in Section 5(d) hereof that
makes any statement of a material fact made in the Preliminary Offering
Memorandum or the Offering Memorandum untrue or that requires any additions to
or changes in the Preliminary Offering Memorandum or the Offering Memorandum in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Company shall use its reasonable best efforts
to prevent the issuance of any stop order or order suspending the qualification
or exemption of any Series A Notes under any state securities or Blue Sky laws
and, if at any time any state securities commission or other federal or state
regulatory authority shall issue an order suspending the qualification or
exemption of any Series A Notes under any state securities or Blue Sky laws, the
Company shall use its reasonable best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time.
(b) To furnish the Initial Purchasers and those persons identified by
the Initial Purchasers to the Company, without charge, as many copies of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
or supplements thereto, as the Initial Purchasers may reasonably request.
Subject to the Initial Purchasers' compliance with their representations and
warranties and agreements set forth in Section 7 hereof, the Company consents to
the use of the Preliminary Offering Memorandum and the Offering Memorandum, and
any amendments and supplements thereto required pursuant hereto, by the Initial
Purchasers in connection with Exempt Resales.
(c) During the period referred to in Section 5(d) hereof, (i) not to
make any amendment or supplement to the Offering Memorandum of which the Initial
Purchasers shall not previously have been advised or to which the Initial
Purchasers shall reasonably object after being so advised and (ii) to prepare
promptly upon the Initial Purchasers' reasonable request, any amendment or
supplement to the Offering Memorandum which may be reasonably necessary or
advisable in connection with Exempt Resales.
(d) If, after the date hereof during such period as in the
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opinion of counsel for the Initial Purchasers an Offering Memorandum is required
by law to be delivered in connection with Exempt Resales by the Initial
Purchasers, any event shall occur as a result of which, in the opinion of
counsel to the Initial Purchasers, it becomes necessary to amend or supplement
the Offering Memorandum in order to make the statements therein, in the light of
the circumstances when such Offering Memorandum is delivered to an Eligible
Purchaser, not misleading, or if it is necessary to amend or supplement the
Offering Memorandum to comply with any applicable law, forthwith to prepare an
appropriate amendment or supplement to such Offering Memorandum so that the
statements therein, as so amended or supplemented, will not, in the light of the
circumstances when it is so delivered, be misleading, or so that such Offering
Memorandum will comply with applicable law, and to furnish to the Initial
Purchasers and such other persons as the Initial Purchasers may designate such
number of copies thereof as the Initial Purchasers may reasonably request.
(e) Prior to the sale of the Series A Notes pursuant to Exempt Resales
as contemplated hereby, to cooperate with the Initial Purchasers and counsel to
the Initial Purchasers in connection with the registration or qualification of
the Series A Notes for offer and sale to the Initial Purchasers and pursuant to
Exempt Resales under the securities or Blue Sky laws of such jurisdictions as
the Initial Purchasers may request and to continue such qualification in effect
so long as required for Exempt Resales and to file such consents to service of
process or other documents as may be necessary in order to effect such
registration or qualification; provided, however, that neither the Company nor
the Holding Company shall be required in connection therewith to register or
qualify as a foreign corporation in any jurisdiction in which it is not now so
qualified or to take any action that would subject it to general consent to
service of process or taxation other than as to matters and transactions
relating to the Preliminary Offering Memorandum, the Offering Memorandum or
Exempt Resales, in any jurisdiction in which it is not now so subject.
(f) So long as the Notes are outstanding, (i) to mail and make
generally available as soon as practicable after the end of each fiscal year to
the record holders of the Notes a financial report of the Company and its
subsidiaries, if any on a consolidated basis (and a similar financial report
of all unconsolidated subsidiaries, if any), all such financial reports to
include a consolidated balance sheet, a consolidated statement of operations, a
consolidated statement of cash flows and a consolidated statement of
shareholder's equity as of the end of and for such fiscal year, together with
comparable information as of the end of and for the preceding year, certified by
the Company's independent certified public accountants and (ii) to mail and make
generally available as soon as practicable after the end of
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<PAGE>
each quarterly period (except for the last quarterly period of each fiscal year)
to such holders, a consolidated balance sheet, a consolidated statement of
operations and a consolidated statement of cash flows (and similar financial
reports of all unconsolidated subsidiaries, if any) as of the end of and for
such period, and for the period from the beginning of such year to the close of
such quarterly period, together with comparable information for the
corresponding periods of the preceding year; provided, however, that the above
requirements shall be deemed satisfied upon delivery by the Company of an Annual
Report on Form 10-K (in the case of clause (i) above) or a Quarterly Report on
Form 10-Q (in the case of clause (ii) above) which complies with the
requirements of the Commission.
(g) So long as the Notes are outstanding, to furnish to the Initial
Purchasers as soon as available copies of all reports or other communications
(other than publicly disseminated press releases) furnished by either the
Company or the Holding Company to its security holders or furnished to or filed
with the Commission or any national securities exchange on which any class of
securities of either the Company or the Holding Company is listed and such other
publicly available information concerning the Company, the Holding Company
and/or their respective subsidiaries, if any, as the Initial Purchasers may
reasonably request.
(h) For so long as any of the Series A Notes remain outstanding and
during any period in which the Company and the Holding Company, and their
respective subsidiaries, if any, are not subject to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to make
available to any holder of Series A Notes in connection with any sale thereof
and any prospective purchaser of such Series A Notes from such holder, the
information ("Rule 144A Information") required by Rule 144A(d)(4) under the Act.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to performance of the obligations of the Company and the
Holding Company under this Agreement including: (i) the fees, disbursements and
expenses of counsel to the Company and the Holding Company and accountants of
the Company and the Holding Company in connection with the sale and delivery of
the Series A Notes to the Initial Purchasers and pursuant to Exempt Resales, and
all other fees or expenses in connection with the preparation, printing, filing
and distribution of the Preliminary Offering Memorandum, the Offering Memorandum
and all amendments and supplements to any of the foregoing (including financial
statements) prior to or during the period specified in Section 5(d) hereof,
including the mailing and delivering of copies thereof to the Initial Purchasers
and persons
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designated by them as specified herein, (ii) all costs and expenses related to
the transfer and delivery of the Series A Notes to the Initial Purchasers,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement, the other Operative Documents and any
other agreements or documents in connection with the offering, purchase, sale or
delivery of the Series A Notes, (iv) all expenses in connection with the
registration or qualification of the Series A Notes and the Guarantee for offer
and sale under the securities or Blue Sky laws of the several states and all
costs of printing or producing any preliminary and supplemental Blue Sky
memoranda in connection therewith (including the filing fees and reasonable fees
and disbursements of counsel for the Initial Purchasers in connection with such
registration or qualification and memoranda relating thereto), (v) the cost of
printing certificates representing the Series A Notes and the Guarantee, (vi)
all expenses and listing fees in connection with the application for quotation
of the Series A Notes in the National Association of Securities Dealers, Inc.
("NASD") Automated Quotation System - PORTAL ("PORTAL"), (vii) the fees and
expenses of the Trustee and Trustee's counsel in connection with the Indenture,
the Notes and the Guarantee, (viii) the costs and charges of any transfer agent,
registrar and/or depositary (including DTC) for the Notes, (ix) any fees charged
by rating agencies for the rating of the Notes, (x) all costs and expenses of
the Exchange Offer and any Registration Statement, as set forth in the
Registration Rights Agreement, and (xii) all other costs and expenses incident
to the performance of the obligations of the Company and the Holding Company
hereunder for which provision is not otherwise made in this Section 5.
(j) To use its reasonable best efforts to permit the inclusion of the
Series A Notes in PORTAL and to permit the listing of the Series A Notes on
PORTAL for so long as the Series A Notes are outstanding.
(k) To obtain the approval of DTC for "book-entry" transfer of the
Notes, and to comply with all of its agreements set forth in the representation
letters of the Company and the Holding Company to DTC relating to the approval
of the Notes by DTC for "book entry" transfer.
(l) During the period beginning on the date hereof and continuing to
and including the Closing Date, not to offer, sell, contract to sell or
otherwise transfer or dispose of any debt securities of the Company or the
Holding Company or any warrants, rights or options to purchase or otherwise
acquire debt securities of the Company or the Holding Company substantially
similar to the Notes and the Guarantee (other than (i) the Notes and the
Guarantee and (ii) commercial paper issued in the ordinary course of business),
without the prior written consent of the Initial Purchasers.
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(m) Not to sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the Act) that would be
integrated with the sale of the Series A Notes to the Initial Purchasers or
pursuant to Exempt Resales in a manner that would require the registration of
any such sale of the Series A Notes under the Act.
(n) Not to voluntarily claim, and to actively resist any attempts to
claim, the benefit of any usury laws against the holders of any Notes.
(o) To cause the Exchange Offer to be made in the appropriate form to
permit Series B Notes and the Guarantee thereof by the Holding Company
registered pursuant to the Act to be offered in exchange for the Series A Notes
and the Guarantee, to comply with all of its other agreements set forth in the
Registration Rights Agreement and to comply with all applicable federal and
state securities laws in connection with the Exchange Offer.
(p) To use its reasonable best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by it prior
to the Closing Date and to satisfy all conditions precedent to the delivery of
the Series A Notes and the Guarantee.
6. Representations and Warranties of the Company and the Holding Company.
As of the date hereof, each of the Company and the Holding Company represents
and warrants to each Initial Purchaser that:
(a) The Preliminary Offering Memorandum and the Offering Memorandum do
not, and any supplement or amendment to them will not, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not apply
to statements in or omissions from the Preliminary Offering Memorandum or the
Offering Memorandum (or any supplement or amendment thereto) based upon
information relating to the Initial Purchasers furnished to the Company in
writing by the Initial Purchasers expressly for use therein. The Company
acknowledges for all purposes under this Agreement that the statements with
respect to price and discount and the last paragraph on the cover page of the
Offering Memorandum, the information contained in the first, third, fourth,
ninth and tenth paragraphs under the caption "Plan of Distribution" in the
Preliminary Offering Memorandum and the
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Offering Memorandum, and the information regarding stabilization on the inside
front cover of the Preliminary Offering Memorandum and the Offering Memorandum
(or any amendment or supplement thereto) constitute the only written information
furnished to the Company by or on behalf of any Initial Purchaser expressly for
use in the Preliminary Offering Memorandum or the Offering Memorandum (or any
amendment or supplement thereto) and that the Initial Purchasers shall not be
deemed to have provided any other information (and therefore are not responsible
for any such statement or omission) pertaining to any arrangement or agreement
with respect to any party other than the Initial Purchasers. No stop order
preventing the use of the Preliminary Offering Memorandum or the Offering
Memorandum, or any amendment or supplement thereto, or any order asserting that
any of the transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.
(b) Each of the Company and the Holding Company has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the power and authority to
carry on its business as described in the Preliminary Offering Memorandum and
the Offering Memorandum and to own, lease and operate its properties, and each
is duly qualified and is in good standing as a foreign corporation authorized to
do business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be so qualified would not (i) have a material adverse effect on the
business, business prospects, financial condition or results of operations of
the Company and the Holding Company, taken as a whole, (ii) materially interfere
with or materially adversely affect the issuance or marketability of the Series
A Notes pursuant hereto or (iii) in any manner draw into question the validity
of this Agreement or the other Operative Documents (the events referred to in
clauses (i) through (iii), a "Material Adverse Effect").
(c) All outstanding shares of capital stock of the Company and the
Holding Company have been duly authorized and validly issued and are fully paid
and non-assessable, and were not issued in violation of any preemptive or
similar rights of securityholders of the Company or the Holding Company, as
applicable.
(d) All of the outstanding shares of capital stock of the Company are
owned by the Holding Company, free and clear of any security interest, claim,
lien encumbrances or adverse interest of any nature (each, a "Lien") and, except
for the ownership by the Holding Company of the capital stock of the Company,
neither the Holding Company nor the Company has any equity or other ownership
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interest in any other entity.
(e) This Agreement has been duly authorized, executed and delivered by
the Company and the Holding Company.
(f) The Indenture has been duly authorized by the Company and the
Holding Company and, on the Closing Date, will have been validly executed and
delivered by the Company and the Holding Company. When the Indenture has been
duly executed and delivered by the Company and the Holding Company, the
Indenture will be a valid and binding agreement of the Company and the Holding
Company, enforceable against the Company and the Holding Company in accordance
with its terms (assuming the due execution and delivery of the Indenture by the
Trustee) except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. On the Closing Date, the
Indenture will conform in all material respects to the requirements of the Trust
Indenture Act of 1939, as amended (the "TIA"), and the rules and regulations of
the Commission applicable to an indenture which is qualified thereunder.
(g) The Series A Notes have been duly authorized and, on the Closing
Date, will have been validly executed and delivered by the Company. When the
Series A Notes have been issued, executed and authenticated in accordance with
the provisions of the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the Series A Notes
will be entitled to the benefits of the Indenture and will be valid and binding
obligations of the Company, enforceable in accordance with their terms except as
(i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability. On the Closing Date, the Series A
Notes will conform as to legal matters to the description thereof contained in
the Offering Memorandum.
(h) On the Closing Date, the Series B Notes will have been duly
authorized by the Company. When the Series B Notes are issued, executed and
authenticated in accordance with the terms of the Exchange Offer and the
Indenture, the Series B Notes will be entitled to the benefits of the Indenture
and will be valid and binding obligations of the Company, enforceable against
the Company in accordance with their terms, except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of
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acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(i) The Guarantee to be endorsed on the Series A Notes by the Holding
Company has been duly authorized by the Holding Company and, on the Closing
Date, will have been duly executed and delivered by the Holding Company. When
the Series A Notes have been issued, executed and authenticated in accordance
with the Indenture and delivered to and paid for by the Initial Purchasers in
accordance with the terms of this Agreement, the Guarantee of the Holding
Company endorsed thereon will be entitled to the benefits of the Indenture and
will be the valid and binding obligation of the Holding Company, enforceable
against the Holding Company in accordance with its terms, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. On the Closing Date, the Guarantee to be endorsed on the
Series A Notes will conform as to legal matters to the description thereof
contained in the Offering Memorandum.
(j) The Guarantee to be endorsed on the Series B Notes by the Holding
Company has been duly authorized by the Holding Company and, when issued, will
have been duly executed and delivered by the Holding Company. When the Series B
Notes have been issued, executed and authenticated in accordance with the terms
of the Exchange Offer and the Indenture, the Guarantee of the Holding Company
endorsed thereon will be entitled to the benefits of the Indenture and will be
the valid and binding obligation of the Holding Company, enforceable against the
Holding Company in accordance with its terms, except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the availability
of equitable remedies may be limited by equitable principles of general
applicability. When the Series B Notes are issued, authenticated and delivered,
the Guarantee to be endorsed on the Series B Notes will conform as to legal
matters to the description thereof contained in the Offering Memorandum.
(k) The Registration Rights Agreement has been duly authorized by the
Company and the Holding Company and, on the Closing Date, will have been duly
executed and delivered by the Company and the Holding Company. When the
Registration Rights Agreement has been duly executed and delivered, the
Registration Rights Agreement will be a valid and binding agreement of the
Company and the Holding Company, enforceable against the Company and the Holding
Company in accordance with its terms, except as (i) the enforceability thereof
may be
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limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally, (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability or
(iii) as to any indemnification or contribution provision thereof,
enforceability thereof may be limited by any applicable securities laws, rules
or regulations or by public policy. On the Closing Date, the Registration Rights
Agreement will conform as to legal matters to the description thereof contained
in the Offering Memorandum.
(l) Neither the Company nor the Holding Company is (i) in violation of
its respective charter or by-laws or (ii) in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company and the Holding Company, taken as a whole, to which the Company or
the Holding Company is a party or by which the Company or the Holding Company or
their respective property is bound, except for such defaults under clause (ii)
that would not have a Material Adverse Effect.
(m) The execution, delivery and performance of this Agreement, the
Indenture, the Series A Notes, the Series B Notes, the Guarantee and the
Registration Rights Agreement by the Company and the Holding Company and
compliance by the Company and the Holding Company with all provisions hereof and
thereof and the consummation of the transactions contemplated hereby and thereby
will not require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such as may
be required under the securities or Blue Sky laws of the various states) and
will not conflict with or constitute a breach of any of the terms or provisions
of, or a default under, (i) the charter or by-laws of the Company or the Holding
Company or (ii) any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and the Holding Company,
taken as a whole, to which the Company or the Holding Company is a party or by
which the Company or the Holding Company or their respective property is bound
(except for, in the case of clause (ii), any such conflicts, breaches or
defaults as would not have a Material Adverse Effect), or violate or conflict
with any material applicable law or any material rule, regulation, judgment,
order or decree of any court or any governmental body or agency having
jurisdiction over the Company, the Holding Company or their respective property
or result in the imposition or creation of (or the obligation to create or
impose) a material Lien under, any agreement or instrument to which the Company
or the Holding Company is a party or by which either of them is bound, or to
which any property of the Company or the Holding Company is or may be subject,
or result in the termination or revocation of any material Authorization (as
defined below) of the Company or the Holding Company
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or result in any other material impairment of the rights of the holder of any
such Authorization.
(n) Except as described in the Offering Memorandum or as would not
have a Material Adverse Effect, any real property and buildings held under lease
by the Company are held by it under valid, subsisting and enforceable leases
with such exceptions as do not interfere with the use made and proposed to be
made of such property and buildings by the Company.
(o) There are no legal or governmental proceedings pending or
threatened to which the Company or the Holding Company is bound or could be a
party or to which any of their respective property is or could be subject, which
might result, singly or in the aggregate, in a Material Adverse Effect.
(p) No action has been taken and no law, statute, rule or regulation
or order has been enacted, adopted or issued by any governmental agency or body
which prevents the execution, delivery and performance of any of the Operative
Documents, the issuance of the Series A Notes or the Guarantee, or suspends the
sale of the Series A Notes or the Guarantee in any jurisdiction referred to in
Section 5(e) hereof; and no injunction, restraining order or other or relief of
any nature by a federal or state court or other tribunal of competent
jurisdiction has been issued with respect to the Company or the Holding Company
which would prevent or suspend the issuance or sale of the Series A Notes or
the Guarantee in any jurisdiction referred to in Section 5(e) hereof.
(q) Neither the Company nor the Holding Company has violated any
federal, state or local law or regulation relating to the protection of human
health and safety, the environment or hazardous or toxic substances or waste,
pollutants or contaminants ("Environmental Laws") or any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or the rules and
regulations promulgated thereunder, except for such violations which, singly or
in the aggregate, would not have a Material Adverse Effect.
(r) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) which would, singly
or in the aggregate, have a Material Adverse Effect.
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(s) Each of the Company and the Holding Company has such permits,
licenses, consents, exemptions, franchises, authorizations and other approvals
("Authorizations") of, and has made all filings with and notice to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such permit or to make any such filing or notice would not, singly or
in the aggregate, have a Material Adverse Effect. Each such Authorization is
valid and in full force and effect and each of the Company and the Holding
Company is in compliance with all the terms and conditions thereof and with the
rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred (including the
receipt of any notice from any authority or governing body) which allows or,
after notice or elapse of time or both, would allow revocation, suspension or
termination of any such Authorization or results or, after notice or lapse of
time or both, would result in any other impairment of the rights of the holder
of any such Authorization and such Authorizations contain no restrictions that
are burdensome to the Company or the Holding Company, except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, have a Material Adverse Effect.
(t) The accountants, Coopers & Lybrand LLP and Arthur Andersen LLP,
that have certified the financial statements and supporting schedules included
in the Preliminary Offering Memorandum and the Offering Memorandum are
independent public accountants with respect to the Company and the Holding
Company, as required by the Act and the Exchange Act. The historical financial
statements, together with related schedules and notes, set forth in the
Preliminary Offering Memorandum and the Offering Memorandum comply as to form in
all material respects with the requirements applicable to registration
statements on Form S-1 under the Act.
(u) The historical financial statements, together with related
schedules and notes forming part of the Offering Memorandum (and any amendment
or supplement thereto), present fairly the consolidated financial position,
results of operations and changes in financial position of the Company and the
Holding Company on the basis stated in the Offering Memorandum at the respective
dates or for the respective periods to which they apply; such statements and
related schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except
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as disclosed therein; and the other financial and statistical information and
data set forth in the Offering Memorandum (and any amendment or supplement
thereto) is, in all material respects, accurately presented and, if applicable
(to the exclusion of such general information and data relating to the
industry), prepared on a basis consistent with such financial statements and the
books and records of the Company.
(v) The pro forma financial data included in the Preliminary Offering
Memorandum and the Offering Memorandum have been prepared on a basis consistent
with the historical financial statements of the Company and the Holding Company
and give effect to assumptions made on a reasonable basis and in good faith and
present fairly the historical and proposed transactions contemplated by the
Preliminary Offering Memorandum and the Offering Memorandum, and such pro forma
financial data has been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial information. The other pro forma
financial and statistical information included in the Offering Memorandum are,
in all material respects, accurately presented and prepared on a basis
consistent with the pro forma financial data.
(w) Each of the Company and the Holding Company is not and, after
giving effect to the offering and sale of the Series A Notes and the application
of the net proceeds thereof as described in the Offering Memorandum, will not
be, an "investment company," as such term is defined in the Investment Company
Act of 1940, as amended.
(x) There are no contracts, agreements or understandings between the
Company or the Holding Company and any person granting such person the right to
require the Company or the Holding Company to include securities held by such
person in any Registration Statement other than any that have been waived.
(y) Neither the Company nor the Holding Company nor any agent thereof
acting on the behalf of them has taken, and none of them will take, any action
that might cause this Agreement or the issuance or sale of the Series A Notes to
violate Regulation G (12 C.F.R. Part 207), Regulation T (12 C.R.F. Part 220),
Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the
Board of Governors of the Federal Reserve System.
(z) No "nationally recognized statistical rating organization" as such
term is defined for purposes of Rule 436(g)(2) under the Act (i) has imposed (or
has informed the Company or the Holding Company that it is considering imposing)
any condition (financial or otherwise) on the Company's or the
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Holding Company's retaining any rating assigned to the Company, the Holding
Company, or any securities of the Company or the Holding Company or (ii) has
indicated to the Company or the Holding Company that it is considering (a) the
downgrading, suspension or withdrawal of, or any review for a possible change
that does not indicate the direction of the possible change in, any rating so
assigned or (b) any change in the outlook for any rating of the Company or the
Holding Company or any securities of the Company of the Holding Company.
(aa) Since the respective dates as of which the information is given
in the Offering Memorandum, other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement), (i) there has not occurred any material adverse change or any
development involving a reasonably foreseeable prospective material adverse
change in the condition, financial or otherwise, or the earnings, business,
management or operations of the Company and the Holding Company, taken as a
whole, (ii) there has not been any material adverse change or any development
involving a prospective material adverse change in the capital stock or in the
long-term debt of the Company or the Holding Company and (iii) neither the
Company nor the Holding Company has incurred any material liability or
obligation, direct or contingent.
(bb) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its date, contains all the information specified in, and
meeting the requirements of, Rule 144A(d)(4) under the Act.
(cc) When the Series A Notes and the Guarantee are issued and
delivered pursuant to this Agreement, neither the Series A Notes nor the
Guarantee will be of the same class (within the meaning of Rule 144A under the
Act) as any security of the Company or the Holding Company that is listed on a
national securities exchange registered under Section 6 of the Exchange Act or
that is quoted in a United States automated inter-dealer quotation system.
(dd) No form of general solicitation or general advertising (as
defined in Regulation D under the Act) was used by the Company, the Holding
Company or any of their respective representatives (other than the Initial
Purchasers and their representatives, as to whom the Company and the Holding
Company make no representation) in connection with the offer and sale of the
Series A Notes contemplated hereby, including, but not limited to, articles,
notices or other communications published in any newspaper, magazine, or similar
medium or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
No securities of the
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same class as the Series A Notes have been issued and sold by the Company within
the six-month period immediately prior to the date hereof.
(ee) Prior to the effectiveness of any Registration Statement, the
Indenture is not required to be qualified under the TIA.
(ff) None of the Company, the Holding Company nor any of their
respective affiliates (as such term is defined in Rule 501(b) under the Act) or
any person acting on behalf of any of them (other than the Initial Purchasers,
as to whom the Company and the Holding Company make no representation) has
engaged or will engage in any directed selling efforts within the meaning of
Regulation S under the Act ("Regulation S") with respect to the Series A Notes
or the Guarantee.
(gg) The sale of the Series A Notes pursuant to Regulation S is not
part of a plan or scheme on the part of the Company, the Holding Company or any
of their respective representatives (other than the Initial Purchasers, as to
whom the Company and the Holding Company makes no representations) to evade the
registration provisions of the Act.
(hh) No registration under the Act of the Series A Notes or the
Guarantee is required for the sale of the Series A Notes and the Guarantee to
the Initial Purchasers as contemplated hereby or for the Exempt Resales,
assuming the accuracy of the Initial Purchasers' representations and warranties
and agreements set forth in Section 7 hereof and, in the case of Exempt Resales,
compliance with the terms of the Notes.
(ii) All indebtedness of the Company and the Holding Company that will
be repaid with the proceeds of the issuance and sale of the Series A Notes was
incurred, and the indebtedness represented by the Series A Notes is being
incurred, for proper purposes and in good faith and each of the Company and the
Holding Company was, at the time of the incurrence of such indebtedness that
will be repaid with the proceeds of the issuance and sale of the Series A Notes,
and will be on the Closing Date (after giving effect to the application of the
proceeds from the issuance of the Series A Notes) solvent, and had at the time
of the incurrence of such indebtedness that will be repaid with the proceeds of
the issuance and sale of the Series A Notes and will have on the Closing Date
(after giving effect to the application of the proceeds from the issuance of the
Series A Notes) sufficient capital for carrying on its business and was, at the
time of the incurrence of such indebtedness that will be repaid with the
proceeds of the issuance and sale of the Series A Notes, and will be on the
Closing Date (after giving effect to the application of the proceeds from the
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<PAGE>
issuance of the Series A Notes) able to pay its debts as they mature.
(jj) Each certificate signed by any officer of the Company or the
Holding Company and delivered to the Initial Purchasers or counsel for the
Initial Purchasers pursuant to the terms of this Agreement shall be deemed to be
a representation and warranty of the Company or the Holding Company, as
applicable, to the Initial Purchasers as to the matters covered thereby.
The Company acknowledges that the Initial Purchasers and, for purposes of
the opinions to be delivered to the Initial Purchasers pursuant to Section 9
hereof, counsel to the Company and the Holding Company and counsel to the
Initial Purchasers, will rely upon the accuracy and truth of the foregoing
representations and hereby consent to such reliance.
7. Initial Purchasers' Representations and Warranties. Each of the Initial
Purchasers, severally and not jointly, represents and warrants to the Company
and the Holding Company, and agrees that:
(a) Such Initial Purchaser is a QIB, with such knowledge and
experience in financial and business matters as is necessary in order to
evaluate the merits and risks of an investment in the Series A Notes.
(b) Such Initial Purchaser (A) is not acquiring the Series A Notes
with a view to any distribution thereof or with any present intention of
offering or selling any of the Series A Notes in a transaction that would
violate the Act or the securities laws of any state of the United States or any
other applicable jurisdiction and (B) will be reoffering and reselling the
Series A Notes only to (x) QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A and (y) in offshore
transactions in reliance upon Regulation S under the Act.
(c) No form of general solicitation or general advertising (within the
meaning of Regulation D under the Act) has been or will be used by such Initial
Purchaser or any of its representatives in connection with the offer and sale of
the Series A Notes pursuant hereto, including, but not limited to, articles,
notices or other communications published in any newspaper, magazine or similar
medium or broadcast over television or radio, or any seminar or meeting whose
attendees have been invited by any general solicitation or general advertising.
(d) In connection with Exempt Resales, such Initial Purchaser will
solicit offers to buy the Series A Notes only from, and will offer to sell
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the Series A Notes only to, Eligible Purchasers. Each Initial Purchaser further
agrees that it will offer to sell the Series A Notes only to, and will solicit
offers to buy the Series A Notes only from (1)(A) QIBs who, in purchasing the
Series A Notes will be deemed to have represented and agreed that (x) they are
purchasing the Series A Notes for their own accounts or accounts with respect to
which they exercise sole investment discretion and that they or such accounts
are QIBs and (y) they acknowledge that the seller of such Series A Notes may be
relying on the exemption from the provisions of Section 5 of the Act provided by
Rule 144A thereunder and that such Series A Notes will not have been registered
under the Act and (B) Regulation S Purchasers who, in purchasing the Series A
Notes, will be deemed to have represented and agreed that their purchase of
Series A Notes pursuant to Regulation S is not part of a plan or a scheme to
evade the registration provisions of the Act and (2) without expanding the
foregoing, Eligible Purchasers that agree that (x) Series A Notes purchased by
them may be resold, pledged or otherwise transferred within the time period
referred to under Rule 144(k) (taking into account the provisions of Rule 144(d)
under the Act, if applicable) under the Act, as in effect on the date of the
transfer of such Series A Notes, only (I) to the Company or the Holding Company,
(II) to a person whom the seller reasonably believes is a QIB purchasing for its
own account or for the account of a QIB in a transaction meeting the
requirements of Rule 144A under the Act, (III) in an offshore transaction (as
defined in Rule 902 under the Act) meeting the requirements of Rule 903 or 904
of the Act, (IV) in a transaction meeting the requirements of Rule 144 under the
Act, (V) to an institutional "accredited investor," as defined in Rule
501(a)(1), (2), (3) or (7) under the Act that, prior to such transfer, furnishes
the Trustee a signed letter containing certain representations and agreements
relating to the registration of transfer of such Series A Note (the form of
which can be obtained from the Trustee) and, if such transfer is in respect of
an aggregate principal amount of Series A Notes less than $250,000, an opinion
of counsel acceptable to the Company that such transfer is in compliance with
the Act, (VI) in accordance with another exemption from the registration
requirements of the Act (and based upon an opinion of counsel acceptable to the
Company) or (VII) pursuant to an effective registration statement under the Act
and, in each case, in accordance with the applicable securities laws of any
state of the United States or any other acceptable jurisdiction and (y) they
will deliver to each person to whom such Series A Notes or an interest therein
is transferred a notice substantially to the effect of the foregoing.
(e) Neither such Initial Purchaser nor any of its affiliates or any
person acting on its behalf has engaged in any directed selling efforts within
the meaning of Regulation S with respect to the Series A Notes or the Guarantee.
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(f) The Series A Notes offered and sold by such Initial Purchaser
pursuant hereto in reliance on Regulation S have been and will be offered and
sold only in offshore transactions.
(g) The sale of the Series A Notes offered and sold by such Initial
Purchaser pursuant hereto in reliance on Regulation S is not part of a plan or
scheme to evade the registration provisions of the Act.
(h) Such Initial Purchaser (1) has not offered or sold and will not
offer or sell any Series A Notes to persons in the United Kingdom prior to the
expiry of the period of six months from the issue date of the Series A Notes,
except to persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their business or otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995, (ii) has complied and will
comply with all applicable provisions of the Financial Services Act 1986 with
respect to anything done by it in relation to the Series A Notes in, from or
otherwise involving the United Kingdom and (iii) has only issued or passed on
and will only issue or pass on in the United Kingdom any document received by it
in connection with the issuance or the Series A Notes to a person who is of a
kind described in Article 11(3) of the Financial Services Act of 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the
document may otherwise lawfully be issued or passed on.
(i) Such Initial Purchaser will not offer, sell or deliver any of the
Series A Notes in any jurisdiction outside the United States except under
circumstances that will result in compliance with the applicable laws thereof,
and will take at its owns expense whatever action is required to permit its
purchase and resale of the Series A Notes in such jurisdictions. Such Initial
Purchaser understands that no action has been taken to permit a public offering
in any jurisdiction outside the United States where action would be required for
such purpose.
The Initial Purchasers acknowledge that the Company and the Holding Company
and, for purposes of the opinions to be delivered to each Initial Purchaser
pursuant to Section 9 hereof, counsel to the Company and the Holding Company and
counsel to the Initial Purchasers will rely upon the accuracy and truth of the
foregoing representations and the Initial Purchasers hereby consent to such
reliance.
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8. Indemnification.
(a) The Company and the Holding Company agree, jointly and severally,
to indemnify and hold harmless the Initial Purchasers, their directors, their
officers and each person, if any, who controls an Initial Purchaser within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any reasonable legal or other expenses actually
incurred in connection with defending and investigating any matter, including
any action that could give rise to any such losses, claims, damages, liabilities
or judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Offering Memorandum (or any amendment or
supplement thereto), the Preliminary Offering Memorandum or any Rule 144A
Information provided by the Company or the Holding Company to any holder or
prospective purchaser of Series A Notes pursuant to Section 5(h) hereof or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to an Initial Purchaser
furnished in writing to the Company by such Initial Purchaser and except that
the Company and the Holding Company shall not be liable to any such Initial
Purchaser with respect to any untrue statement or alleged untrue state- ment or
omission or alleged omission in the Preliminary Offering Memorandum to the
extent that any such loss, liability, claim, damage or expense of such Initial
Purchaser results from the fact that such Initial Purchaser sold Series A Notes
to a person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Offering Memorandum as then amended or
supplemented if the Company and the Holding Company had previously furnished
copies thereof to such Initial Purchaser and the loss, liability, claim, damage
or expense of such Initial Purchaser results from an untrue statement or
omission of a material fact contained in the Preliminary Offering Memorandum
which was corrected in the Offering Memorandum.
(b) Each Initial Purchaser agrees, severally and not jointly, to
indemnify and hold harmless the Company and the Holding Company, and their
respective directors and officers and each person who controls (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company
or the Holding Company, to the same extent as the foregoing indemnity from the
Company and the Holding Company but only with reference to information relating
to such Initial Purchaser furnished in writing to the Company by such Initial
Purchaser expressly for
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use in the Preliminary Offering Memorandum or the Offering Memorandum.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) hereof
(the "indemnified party"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "indemnifying party") in
writing (provided, however, that the failure to give such notice shall not
relieve the indemnifying party of its obligations under this Section 8 except to
the extent the indemnifying party is actually prejudiced) and the indemnifying
party shall assume the defense of such action, including the employment of
counsel reasonably satisfactory to the indemnified party and the payment of all
fees and expenses of such counsel, as incurred (except that in the case of any
action in respect of which indemnity may be sought pursuant to both Sections
8(a) and 8(b) hereof, an Initial Purchaser shall not be required to assume the
defense of such action pursuant to this Section 8(c), but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of such Initial
Purchaser). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
reasonably advised by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for more than the reasonable fees and expenses of one separate firm of
attorneys (in addition to any local counsel) actually incurred for all
indemnified parties and all such fees and expenses shall be reimbursed as they
are incurred. Such firm shall be designated in writing by DLJ, in the case of
the parties indemnified pursuant to Section 8(a) and by the Company, in the case
of parties indemnified pursuant to Section 8(b). The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into
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more than twenty business days after the indemnifying party shall have received
a request from the indemnified party for reimbursement for the fees and expenses
of counsel (in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request (provided
that any reimbursement in response to such a request shall be without prejudice
to the other rights and obligations of the indemnifying party under this Section
8). No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any pending or threatened action in respect
of which the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or fault,
culpability or failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 8
is unavailable to an indemnified party, or is insufficient in respect of any
losses, claims, damages, liabilities or judgments referred to herein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Holding Company, on the one hand, and the Initial Purchasers, on
the other hand, from the offering of the Series A Notes or (ii) if the
allocation provided by clause 8(d)(i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause 8(d)(i) above but also the relative fault of the Company
and the Holding Company, and each Initial Purchaser in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Holding
Company, on the one hand, and the Initial Purchasers, on the other hand, shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Series A Notes (before deducting expenses other than discounts
and commissions) received by the Company, and the total discounts and commission
received by the Initial Purchasers bear to the total price to investors of the
Series A Notes, in each case as set forth in the table on the cover page of the
Offering Memorandum. The relative fault of the Company and the Holding Company,
on the one hand, and each Initial Purchaser, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
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untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company and the Holding
Company, or an Initial Purchaser and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company, the Holding Company and the Initial Purchasers agree that
it would not be just and equitable if contribution pursuant to this Section 8(d)
were determined by pro rata allocation (even if the Initial Purchasers were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding sentence. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any reasonable legal or other
expenses actually incurred by such indemnified party in connection with
investigating or defending any matter that could have given rise to such losses,
claims, damages, liabilities or judgments. Notwithstanding the provisions of
this Section 8, no party indemnified pursuant to Section 8(a) shall be required
to contribute any amount pursuant to this paragraph (d) in excess of the amount
by which the total underwriting discount applicable to the Series A Notes
purchased by the relevant Initial Purchaser exceeds the amount of any damages
which such party has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Initial Purchasers' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective
principal amount of Series A Notes purchased by each of the Initial Purchasers
hereunder, and not joint.
(e) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
9. Conditions of Initial Purchasers' Obligations. The obligations of the
Initial Purchasers to purchase the Series A Notes under this Agreement are
subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company and the
Holding Company contained in this Agreement shall be true and correct in all
material respects on the Closing Date with the same force and effect as if made
on and as of the Closing Date.
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(b) On or after the date hereof, (i) there shall not have occurred any
downgrading, suspension or withdrawal of, nor shall any notice have been given
of any intended or potential downgrading, suspension or withdrawal of, or of any
review (or of any potential or intended review) for a possible change that does
not indicate the direction of the possible change, in any rating of the Company
or the Holding Company or any securities of the Company or the Holding Company
(including, without limitation, the placing of any of the foregoing ratings on
credit watch with negative or developing implications or under review with an
uncertain direction) by any "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act, (ii) there shall not have occurred any change, nor shall any notice have
been given of any potential or intended change, in the outlook for any rating of
the Company or the Holding Company or any securities of the Company or the
Holding Company by any such rating organization and (iii) no such rating
organization shall have given notice that it has assigned (or is considering
assigning) a lower rating to the Notes than that on which the Notes were
marketed.
(c) The Initial Purchasers shall have received on the Closing Date a
certificate dated the Closing Date, signed by the President and the Chief
Financial Officer of the Company, confirming the matters set forth in Sections
9(a), 9(b) and 9(d) hereof.
(d) Since the respective dates as of which information is given in the
Offering Memorandum, other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto subsequent to the date of
this Agreement) (i) there shall not have occurred any change or any development
involving a prospective change in the condition, financial or otherwise, or the
earnings, business, management or operations of the Company and the Holding
Company, taken as a whole, (ii) there shall not have been any change or any
development involving a prospective change in the capital stock or in the long-
term debt of the Company or the Holding Company and (iii) neither the Company
nor the Holding Company shall have incurred any liability or obligation, direct
or contingent, the effect of which, in any such case described in clause (i),
(ii) or (iii) of this Section 9(d), in the judgment of the Initial Purchasers,
may be material and adverse or, in the judgment of the Initial Purchasers, makes
it impracticable to market the Series A Notes on the terms and in the manner
contemplated in the Offering Memorandum.
(e) No action shall have been taken (including the issuance of any
stop order) and no statute, rule, regulation or order shall have been enacted,
adopted or issued by any governmental agency which would, as of the Closing
Date,
27
<PAGE>
have a Material Adverse Effect.
(f) The Initial Purchasers shall have received on the Closing Date an
opinion, dated the Closing Date, of Bingham Dana LLP, counsel for the Company
and the Holding Company, substantially in the form of Exhibit A.
(g) The Initial Purchasers shall have received an opinion, dated the
Closing Date, of Reed Smith Shaw & McClay, special regulatory counsel for the
Company and the Holding Company, substantially in the form of Exhibit B.
(h) The Initial Purchasers shall have received on the Closing Date an
opinion, dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel for the Initial Purchasers, in form and substance reasonably
satisfactory to the Initial Purchasers.
(i) The Initial Purchasers shall have received, at the time this
Agreement is executed and at the Closing Date, letters dated the date hereof or
the Closing Date, as the case may be, in form and substance satisfactory to the
Initial Purchasers from Coopers & Lybrand LLP and Arthur Andersen LLP, inde-
pendent public accountants, containing the information and statements of the
type ordinarily included in accountants' "comfort letters" to the Initial
Purchasers with respect to the financial statements and certain financial
information contained in the Offering Memorandum.
(j) The Series A Notes shall have been approved by the NASD for
trading and duly listed in PORTAL, provided that the Initial Purchasers shall
have reasonably cooperated in obtaining such approval.
(k) The Company, the Holding Company and the Trustee shall have
entered into the Indenture and the Initial Purchasers shall have received a
counterpart, conformed as executed, thereof.
(l) The Company and the Holding Company shall have executed the
Registration Rights Agreement and the Initial Purchasers shall have received
an original copy thereof, duly executed by the Company and the Holding Company.
(m) The Company shall not have failed at or prior to the Closing Date
to perform or comply with any of the agreements herein contained and required to
be performed or complied with by the Company at or prior to the Closing
28
<PAGE>
Date.
(n) The Initial Purchasers shall have received an opinion from Murray,
Devine & Co., Inc. in form and substance reasonably satisfactory to the Initial
Purchasers that the Offering and the application of the net proceeds therefrom
will not render the Company or the Holding Company insolvent, leave the Company
or the Holding Company with inadequate or unreasonably small capital or result
in the Company or the Holding Company incurring indebtedness beyond its ability
to repay as such indebtedness matures.
10. Effectiveness of Agreement and Termination. This Agreement shall become
effective upon the delivery of this Agreement by the parties hereto.
This Agreement may be terminated at any time prior to the Closing Date by
the Initial Purchasers by written notice to the Company if any of the following
has occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in the Initial
Purchasers' judgment, is material and adverse and would, in the Initial
Purchasers' judgment, make it impracticable to market the Series A Notes on the
terms and in the manner contemplated in the Offering Memorandum, (ii) the
suspension or material limitation of trading in securities generally on the New
York Stock Exchange, the American Stock Exchange, the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade or the
Nasdaq National Market, (iii) the suspension of trading of any securities of the
Company or the Holding Company on any exchange or in the over-the-counter
market, (iv) the enactment, publication, decree or other promulgation of any
federal or state statute, regulation, rule or order of any court or other
governmental authority which in the Initial Purchasers' opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and the
Holding Company, taken as a whole, (v) the declaration of a banking moratorium
by either federal or New York State authorities or (vi) the taking of any action
by any federal, state or local government or agency in respect of its monetary
or fiscal affairs which in the Initial Purchasers' opinion has a material
adverse affect on the financial markets in the United States.
If on the Closing Date any one or more of the Initial Purchasers shall fail
or refuse to purchase the Series A Notes which it or they have agreed to
purchase hereunder on such date and the aggregate principal amount of the Series
A Notes which such defaulting Initial Purchaser or Initial Purchasers, as the
case may be,
29
<PAGE>
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate principal amount of the Series A Notes to be purchased on such date by
all Initial Purchasers, each non-defaulting Initial Purchaser shall be obligated
severally, in the proportion which the principal amount of the Series A Notes
set forth opposite its name in Schedule A bears to the aggregate principal
amount of the Series A Notes which all the non-defaulting Initial Purchasers, as
the case may be, have agreed to purchase, or in such other proportion as the
Initial Purchasers may specify, to purchase the Series A Notes which such
defaulting Initial Purchaser or Initial Purchasers, as the case may be, agreed
but failed or refused to purchase on such date; provided that in no event shall
the aggregate principal amount of the Series A Notes which any Initial Purchaser
has agreed to purchase pursuant to Section 2 hereof be increased pursuant to
this Section 10 by an amount in excess of one-ninth of such principal amount of
the Series A Notes without the written consent of such Initial Purchaser. If on
the Closing Date any Initial Purchaser or Initial Purchasers shall fail or
refuse to purchase the Series A Notes and the aggregate principal amount of the
Series A Notes with respect to which such default occurs is more than one-tenth
of the aggregate principal amount of the Series A Notes to be purchased by all
Initial Purchasers and arrangements satisfactory to the Initial Purchasers and
the Company for purchase of such Series A Notes are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Initial Purchaser and the Company. In any such case which
does result in termination of this Agreement, either the Initial Purchasers or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Offering Memorandum or any other documents or arrangements may be effected. Any
action taken under this paragraph shall not relieve any defaulting Initial
Purchaser from liability in respect of any default of any such Initial Purchaser
under this Agreement.
11. Miscellaneous. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (i) if to the Company or the Holding
Company, to Community Distributors, Inc., 251 Industrial Parkway, Branchburg
Township, Somerville, New Jersey 08876, Attention: President, with a copy to
Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts 02110, Attention:
John R. Utzschneider, Esq., (ii) if to either Initial Purchaser, c/o Donaldson,
Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York
10172, Attention: Patrick Fallon, with a copy to Skadden, Arps, Slate, Meagher &
Flom LLP at 919 Third Avenue, New York, NY 10022, Attention: Mark C. Smith, Esq.
or (iii) in any case to such other address as the person to be notified may have
requested in writing.
The respective indemnities, contribution agreements, representa-
30
<PAGE>
tions, warranties and other statements of the Company, the Holding Company and
the Initial Purchasers set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Series A Notes, regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of an Initial
Purchaser, the officers or directors of an Initial Purchaser, any person
controlling an Initial Purchaser, the Company, the Holding Company, the officers
or directors of the Company or the Holding Company, or any person controlling
the Company or the Holding Company, (ii) acceptance of the Series A Notes and
payment for them hereunder and (iii) termination of this Agreement.
If for any reason the Series A Notes are not delivered by or on behalf of
the Company as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 10 hereof), the Company agrees to reimburse
the Initial Purchasers for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably and actually incurred by them.
Notwithstanding any termination of this Agreement, the Company shall be liable
for all expenses which it has agreed to pay pursuant to Section 5(i) hereof.
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Holding Company,
the Initial Purchasers, the Initial Purchasers' directors and officers, any
controlling persons referred to herein, the directors of the Company and the
Holding Company, and their respective successors and assigns, all as and to the
extent provided in this Agreement, and no other person shall acquire or have any
right under or by virtue of this Agreement. The term "successors and assigns"
shall not include a purchaser of any of the Series A Notes from the Initial
Purchasers merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
31
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Holding Company and the several Initial Purchasers.
Very truly yours,
COMMUNITY DISTRIBUTORS, INC.
By: _________________________
Name:
Title:
CDI GROUP, INC.
By: _________________________
Name:
Title:
The foregoing Purchase Agreement
is hereby confirmed and accepted
as of the date first above written.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: _______________________________
Name:
Title:
<PAGE>
SCHEDULE A
Principal Amount
Initial Purchaser of Notes
----------------- ---------
Donaldson, Lufkin & Jenrette
Securities Corporation............................... $ 60,000,000
Bear, Stearns & Co. Inc....................................... 20,000,000
............................................. ============
Total........................................ $ 80,000,000
No. [__]
Amended and Restated
Senior Subordinated Note due 2005
This Note has not been registered under the Securities Act of 1933, as
amended, and may not be sold or otherwise transferred in the absence of
such registration or an exemption therefrom under such Act. This Note
may be sold or otherwise transferred only in compliance with the
conditions specified in the Subscription Agreement (as hereinafter
defined), a complete and correct copy of which is available for
inspection at the principal office of the Company (as hereinafter
defined) and will be furnished without charge to the holder of this
Note upon written request.
This Note is subject to the terms of a certain Stockholder Agreement,
dated as of January 30, 1995, among the issuer of this Note and certain
investors. The Stockholder Agreement contains certain restrictive
provisions relating to the transfer of this Note. A copy of the
Stockholder Agreement is on file at the Company's principal offices.
Upon written request to the Company's Secretary, a copy of the
Stockholder Agreement will be provided without charge to appropriately
interested persons.
$[______] October 16, 1997
CDI GROUP, INC., a Delaware corporation (the "Company"), for value
received, hereby promises to pay to [_______], (the "Purchaser"), or its
registered assigns, on January 31, 2005 the entire principal amount of [_______]
DOLLARS ($[_______]), together with interest on the unpaid principal amount
outstanding from time to time hereunder (or under the Predecessor Note, as
defined below), beginning on January 30, 1995, at a rate equal to 10% per annum
compounded annually (computed on the basis of
<PAGE>
ANNEX A
actual number of days elapsed and a 360-day year). The Company further promises
to pay on demand, interest at the rate of 18% per annum compounded monthly on
any overdue principal and, to the extent permitted by applicable law, any
overdue interest, until the obligation of the Company with respect to the
payment thereof shall be discharged.
All payments of principal and interest hereof shall be made in lawful
money of the United States of America to the account of the holder hereof upon
presentation hereof at the principal office of the Purchaser at
[_______________], or at such other place as the holder hereof shall have
designated to the Company in writing. All payments by the Company to the
Purchaser shall be made without setoff or counterclaim, and free and clear of
and without deduction for any taxes, levies, imposts, duties, charges, fees,
deductions, withholdings, compulsory loans, restrictions or conditions of any
nature now or hereafter imposed or levied by any country or any political
subdivision thereof or taxing or other authority unless the Company is compelled
by law to make such deduction or withholding.
This Note constitutes the amendment and restatement in its entirety of
one of the Note of the Company (the "Predecessor Note") in the original
principal amount of $[_______] issued pursuant to the Subscription Agreement,
dated as of January 30, 1995 (the "Subscription Agreement"), between the Company
and the Purchaser. Nothing herein or in any other document shall be construed to
constitute the payment or discharge of the Predecessor Note. The holder of this
Note is entitled to enforce the provisions of the Subscription Agreement and to
enjoy the benefits thereof and is subject to the obligations thereunder as a
holder of a Note.
Subject to the subordination provisions contained in Annex A hereto,
the Company may from time to time at its election prepay this Note, in whole or
in part, without premium or penalty, with all accrued interest to the date of
prepayment on the principal amount prepaid.
Any permitted transfer of this Note is registrable on the note register
of the Company upon presentation at the principal office of the Company
accompanied by a written instrument of transfer in form satisfactory to the
Company duly executed by, or on behalf of, the holder hereof. This Note may also
be exchanged at such office for one or more Notes in any authorized
denominations, as requested by the holder, of a like aggregate unpaid principal
amount.
Prior to due presentment for registration of transfer, the Company and
any agent of the Company may treat the person in whose name this Note is
registered as the owner hereof for the purpose of receiving payment of principal
and interest as herein provided and for all other purposes.
Subject to the subordination provisions contained in Annex A hereto,
the Company shall pay on demand all collection costs and expenses, including
reasonable legal fees and disbursements, incurred by the holder of this Note in
enforcing payment hereof.
<PAGE>
ANNEX A
The holder of this Note, by acceptance hereof, agrees with the Company
that this Note shall be subordinate and junior in right of payment to all Senior
Indebtedness (as defined in Annex A hereto) to the extent and in the manner
provided in Annex A attached hereto and agrees to be bound by the other terms
and conditions set forth therein.
This Note shall be deemed to take effect as a sealed instrument under
the laws of the Commonwealth of Massachusetts and for all purposes shall be
construed in accordance with such laws.
CDI GROUP, INC.
By: ___________________________________
Title: ________________________________
<PAGE>
ANNEX A
TO PROMISSORY NOTE
SUBORDINATION PROVISIONS
Section 1.01. Subordination of Liabilities. CDI Group, Inc. (the
"Company"), for itself, its successors and assigns, covenants and agrees and
each holder of the promissory note to which this Annex A is attached (the
"Note") by its acceptance thereof likewise covenants and agrees that the payment
of the principal of. and interest on, and all other amounts owing in respect of.
the Note is hereby expressly subordinated, to the extent and in the manner
hereinafter set forth, to the prior payment in full of Senior Indebtedness (as
defined in Section 1.07) in cash. The provisions of this Annex A shall
constitute a continuing offer to all persons who, in reliance upon such
provisions, become holders of, or continue to hold, Senior Indebtedness, and
such provisions are made for the benefit of the holders of Senior Indebtedness,
and such holders are hereby made obligees hereunder the same as if their names
were written herein as such, and they and/or each of them may proceed to enforce
such provisions.
Section 1.02. Company Not to Make Payments with Respect to
Notes in Certain Circumstances. (a) Upon the maturity of any Senior Indebtedness
(including interest thereon or fees or any other amounts owing in respect
thereof), whether at stated maturity, by acceleration or otherwise, all
principal thereof and premium. if any, and interest thereon or fees or any other
amounts owing in respect thereof, in each case to the extent due and owing,
shall first be paid in full in cash, or such payment duly provided for in cash
or in a manner satisfactory to the holder or holders of such Senior
Indebtedness, before any payment is made on account of the principal of
(including installments thereof), or interest on, or any amount otherwise owing
in respect of, the Note.
(b) So long as an Event of Default (as defined below), or
event which with notice or lapse of time or both would constitute an Event of
Default (a "Default"), in respect of any Senior Indebtedness exists (i) all
Senior Indebtedness shall first be finally and indefeasibly paid in full in
cash, or payment shall have been provided for in a manner satisfactory to the
holders of such Senior Indebtedness, before any payment is made with respect to
the Note and (ii) no holder of the Note will take any action (including, without
limitation, the filing of any bankruptcy or similar petition) to obtain any such
payment or to ask, demand, sue for, or otherwise take, accept or receive, any
amounts owing in respect of the Note or to otherwise enforce the provisions of
the Note. As used herein, the term "Event of Default" shall mean any Event of
Default under and as defined in, the relevant documentation governing any Senior
Indebtedness.
(c) Each holder of the Note agrees that it will not at any
time insist upon, plead, or in any manner whatsoever seek the entry of any order
or judgment, or take the benefit or advantage of any substantive consolidation,
piercing of the corporate veil or any other order or judgment that causes an
effective combination of the assets and liabilities of the Company and any other
individual, corporation, partnership or joint venture (including without
limitation, any Subsidiary (as defined in Section 1.07) of the Company) in any
case or proceeding under Title 11 of the United States Code or under any other
similar federal, state or foreign proceeding.
(d) In the event that notwithstanding the provisions of this
Section 1.02, the Company shall make any payment on account of the principal of,
or interest on, or amounts otherwise owing in respect of, the Note, at a time
when payment is not permitted by the provisions of this Annex A, such payment
shall be held by the holder of the Note, in trust for the benefit of, and shall
be paid forthwith over and delivered to, the holders of Senior Indebtedness or
their representative or representatives under the agreements pursuant to which
the Senior Indebtedness may have been issued, as their respective interests
<PAGE>
may appear, for application pro rata to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in cash in accordance with the terms of such Senior Indebtedness, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Indebtedness. Without in any way modifying the provisions of this Annex A or
affecting the subordination effected hereby if such notice is not given, the
Company shall give the holder of the Note prompt written notice of any maturity
of Senior Indebtedness after which such Senior Indebtedness remains unsatisfied
and of any Event of Default or Default.
Section 1.03. Note Subordinated to Prior Payment of all Senior
Indebtedness on Dissolution, Liquidation or Reorganization of Company. In the
event of any execution, sale, receivership, insolvency, bankruptcy, liquidation,
readjustment, reorganization, or other similar proceeding relative to the
Company or its property, or upon any distribution of assets in connection with
any of the foregoing (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise):
(a) the holders of all Senior Indebtedness shall first be paid
in full in cash or in a manner satisfactory to the holder or holders of such
Senior Indebtedness before the holder of the Note is entitled to receive any
payment on account of the principal of or interest on or any other amount owing
in respect of the Note;
(b) any payment or distributions of assets of the Company of
any kind or character, whether in cash, property or securities to which the
holder of the Note would be entitled except for the provisions of this Annex A,
shall be paid by the liquidating trustee or agent or other person making such
payment or distribution. whether a trustee or agent, directly to the holders of
Senior Indebtedness or their representative or representatives under the
agreements pursuant to which the Senior Indebtedness may have been issued, to
the extent necessary to make payment in full of all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or distribution
to the holders of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing
provisions of this Section 1.03, any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, shall
be received by the holder of the Note on account of principal of, or interest or
other amounts due on, the Note before all Senior Indebtedness is paid in full in
cash or in a manner satisfactory to the holder or holders of such Senior
Indebtedness, such payment or distribution shall be received and held in trust
for and shall be paid over to the holders of the Senior Indebtedness remaining
unpaid or unprovided for or their representative or representatives under the
agreements pursuant to which the Senior Indebtedness may have been issued, for
application to the payment of such Senior Indebtedness until all such Senior
Indebtedness shall have been paid in full in cash or in a manner satisfactory to
the holder or holders of such Senior Indebtedness, after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness.
Without in any way modifying the provisions of this Annex A or
affecting the subordination effected hereby, if such notice is not given, the
Company shall give prompt written notice to the holder of the Note of any of the
events described in the first clause of Section 1.03.
Section 1.04. Subrogation. (a) Upon the final and indefeasible
payment in full of all Senior Indebtedness in cash, the holder of the Note shall
be subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of assets of the Company applicable to the Senior
Indebtedness until all amounts owing on the Note shall be paid in full, and for
the purpose of such subrogation, and as between the Company and its creditors
(other than the holders of Senior Indebtedness) and the holders of the Notes, no
payments or distributions to the holders of the Senior Indebtedness by or on
behalf of the Company or by or on behalf of the holder of the Note by virtue of
this Annex A which otherwise would have been made to the holder of the Note,
shall be deemed to be payment by the Company to or on account of the Senior
Indebtedness. The provisions of this Annex A are and are intended solely for
<PAGE>
the purpose of defining the relative rights of the holder of the Note, on the
one hand, and the holders of the Senior Indebtedness, on the other hand.
(b) Each holder of the Note by its acceptance thereof
undertakes and agrees for the benefit of each holder of Senior Indebtedness to
execute, verify, deliver and file any proofs of claim which any holder of Senior
Indebtedness may at any time require in order to prove and realize upon any
right or claims pertaining to the Note and to effectuate the full benefit of the
subordination contained herein; and upon failure of the holder of the Note so to
do, any such holder of Senior Indebtedness shall be deemed to be irrevocably
appointed the agent and attorney-in-fact of the holder of the Note to execute,
verify, deliver and file any such proofs of claim.
(c) To the extent that any holder of Senior Indebtedness
receives payments on, or proceeds of collateral for, Senior Indebtedness which
are subsequently invalidated, declared to be fraudulent or preferential,
set aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law, or equitable cause,
then, to the extent of such payment or proceeds received, Senior Indebtedness,
or part thereof intended to be satisfied, shall be revived and continue in full
force and effect as if such payments or proceeds had not been received by such
holder of Senior Indebtedness.
Section 1.05. Obligation of the Company Unconditional. Nothing
contained in this Annex A or in the Note is intended to or shall impair, as
between the Company and the holder of the Note, the obligation of the Company,
which is absolute and unconditional, to pay to the holder of the Note the
principal of and interest on the Note as and when the same shall become due and
payable in accordance with their terms, or is intended to or shall affect the
relative rights of the holder of the Note and creditors of the Company other
than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the holder of the Note from exercising all remedies otherwise
permitted by applicable law, subject to the rights, under this Annex A of the
holders of Senior Indebtedness.
Section 1.06. Subordination Rights not Impaired by Acts or
Omissions of Company or Holders of Senior Indebtedness. No right of any present
or future holders of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by an act or
failure to act on the part of the Company or by any act or failure to act in
good faith by any such holder, or by any noncompliance by the Company with the
terms and provisions of the Note, regardless of any knowledge thereof which any
such holder may have or be otherwise charged with. The holders of the Senior
Indebtedness may, without in any way affecting the obligations of the holder of
the Note with respect thereto, at any time or from time to time and in their
absolute discretion, change the manner, rate or terms of payment of, change or
extend the time of payment of, or renew or alter, any Senior Indebtedness, or
amend, modify or supplement any agreement or instrument governing or evidencing
such Senior Indebtedness or any other document referred to therein, or exercise
or refrain from exercising any other of their rights under the Senior
Indebtedness including, without limitation, the waiver of a default thereunder
and the release of any collateral securing such Senior Indebtedness, all without
notice to or assent from the holder of the Note.
Section 1.07. Senior Indebtedness. (a) The term "Senior
Indebtedness" shall mean all Obligations (as defined below) of the Company under
the Indenture (as defined below).
(b) As used in this Agreement, the terms set forth below shall
have the respective meanings provided below:
"Indenture" shall mean the Indenture, dated October 16, 1997,
between the Company and Community Distributors, Inc. and The Bank of New York as
trustee relating to the Senior Notes due 2004 of Community Distributors, Inc.
<PAGE>
"Obligations" shall mean any principal, interest, premium,
penalties, fees and other liabilities and obligations payable under the
documentation governing any Senior Indebtedness (including, without limitation,
all interest accruing after the commencement of any bankruptcy, insolvency,
receivership or similar proceeding at the rate provided in the governing
documentation, whether or not such interest is an allowed claim in such
proceeding).
Registration Rights Agreement
-----------------------------
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of January
30, 1995, is among (a) CDI Group, Inc., a Delaware corporation (the "Company"),
(b) BancBoston Ventures Inc., a Massachusetts corporation ("BBV"), (c) Harvest
Partners International, LP, Harvest Technology Partners, LP, European
Development Capital Corporation N.V. and Deutsche Beteiligungsgesellschaft mbH
(collectively, the "Harvest Investors"), (d) Banque Paribas ("Paribas"), (e)
Paribas Principal, Inc. ("PPI"), (f) TA Holding, Inc. ("TA"), (g) Jon Tietbohl,
(h) each of the Persons listed under the caption "Managers" on the signature
pages hereof and any other officer, employer or director of the Company who
becomes a party to this Agreement by executing an Instrument of Accession (an
"Instrument of Accession") in the form of Schedule 1 hereto (collectively, the
"Managers") and (i) each other Person who becomes a party to this Agreement by
executing an Instrument of Accession. The Purchasers and the Managers are
referred to collectively herein as the "Holders" and each individually as a
"Holder".
This Agreement is made in connection with (i) an Investor Securities
Purchase Agreement of even date herewith among the Company, BBV and the Harvest
Investors (the "Investor Purchase Agreement"), (ii) the Subscription Agreement
of even date herewith between the Company and TA (the "TA Subscription
Agreement"), (iii) the Subscription Agreement of even date herewith between the
Company and Jon Tietbohl (the "Tietbohl Subscription Agreement"), (iv) the
Option Agreement, of even date herewith, between BBV, the Harvest Investors and
Frank Marfino (the "Management Option Agreement"), (v) the Warrant Agreement, of
even date herewith, between the Company and Paribas (the "Warrant Agreement"),
(vi) the Option Agreement of even date herewith among BBV, the Harvest Investors
and PPI (the "Paribas Option Agreement"), (vii) the Management Securities
Purchase Agreement of even date herewith between the Company and Frank Marfino
(the "Management Purchase Agreement"), and (viii) the Stockholder Agreement of
even date herewith among the Company, BBV, the Harvest Investors, Paribas, PPI,
TA, Jon Tietbohl and the Managers (the "Stockholder Agreement"). In order to
induce (a) BBV and the Harvest Investors to enter into the Securities Purchase
Agreement and the Stockholder Agreement, (b) TA to enter into the TA
Subscription Agreement and the Stockholder Agreement, (c) Frank Marfino to enter
<PAGE>
-2-
into the Management Option Agreement and the Stockholder Agreement, (d) Paribas
to enter into the Warrant Agreement, and (e) PPI to enter into the Paribas
Option Agreement, the Company has agreed to provide the registration rights set
forth in this Agreement.
The parties hereby agree as follows:
1. Definitions. As used herein, the following terms have the following
meanings:
"BBV" has the meaning specified in the preamble hereto.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means collectively, the Company's Class A Voting Common
Stock, $0.00001 par value per share, and Class B Non-Voting Common Stock,
$0.00001 par value per share.
"Demand Registration" has the meaning specified in Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Harvest Investors" has the meaning specified in the preamble hereto.
"Holder" means one of the Holders identified in the introductory paragraph
to this Agreement or such other Person to whom such Holder shall have assigned
or transferred such Holder's Registrable Securities in accordance with the
Stockholder Agreement and Section 12(g) of this Agreement.
"Indemnified Party" has the meaning specified in Section 8(b) hereof.
"Indemnifying Party" has the meaning specified in Section 8(b) hereof.
"Instrument of Accession" has the meaning specified in the preamble hereto.
"Investor Purchase Agreement" has the meaning specified in the preamble
hereto.
"Investor Registrable Securities" means, at any time, all of the then
issued and outstanding (a) shares of Common Stock issued to the BBV and the
<PAGE>
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Harvest Investors pursuant to the Investor Purchase Agreement, (b) shares of
Common Stock issued to TA pursuant to the TA Subscription Agreement, (c) shares
of Common Stock issued to Frank Marfino pursuant to the Management Purchase
Agreement, (d) shares of Common Stock issued to the Managers pursuant to the
exercise of the options under the Management Option Agreement, (e) shares of
Common Stock sold to Jon Tietbohl pursuant to the Tietbohl Subscription
Agreement, (f) Paribas Registrable Securities, (g) shares of any class of Common
Stock into which such shares of Common Stock have been converted, (h) capital
stock or other securities into which or for which any such shares of Common
Stock shall have been converted or exchanged pursuant to any recapitalization,
reorganization or merger of the Company, and (i) shares of capital stock issued
with respect to the foregoing pursuant to a stock split or stock dividend,
provided that the foregoing capital stock shall be Investor Registrable
Securities only so long as such capital stock has not been sold pursuant to a
Public Sale.
Management Option Agreement" has the meaning specified in the preamble
hereto.
"Management Options" means (a) options for the purchase of Common Stock
granted by the Company to Frank Marfino pursuant to (i) the Incentive Stock
Option Agreement of even date herewith between the Company and Frank Marfino and
(ii) the Disposition Event Stock Option Agreement of even date herewith between
the Company and Frank Marfino and (b) all other options for the purchase of
Common Stock granted by the Company pursuant to the 1995 Stock Option Plan
adopted by the Board of Directors of the Company on January 30, 1995.
"Management Purchase Agreement" has the meaning specified in the preamble
hereto.
"Managers" has the meaning specified in the preamble hereto.
"NASDAQ" has the meaning specified in Section 5(a)(vi).
"Other Registrable Securities" means, at any time, all of the then issued
and outstanding (a) shares of Common Stock issuable to the Managers upon
exercise of the Management Options, (b) shares of any class of Common Stock into
which such shares of Common Stock have been converted, (c) capital stock or
other securities into which or for which any such shares of Common Stock shall
have been converted or exchanged pursuant to any recapitalization,
reorganization or merger of the Company, and (d) shares of capital stock issued
with respect to the foregoing pursuant to a stock split or stock dividend,
provided that the
<PAGE>
-4-
foregoing capital stock shall be Other Registrable Securities
only so long as such capital stock has not been sold pursuant to a Public Sale.
"Paribas" has the meaning specified in the preamble hereto.
"Paribas IPO Demand Registration" has the meaning specified in Section 2(f)
hereof.
"Paribas Option Agreement" has the meaning specified in the preamble
hereto.
"Paribas Priority Demand Registration" means a Demand Registration
designated by the Holders of a majority of the Paribas Warrant Registrable
Securities as a registration in which such holders are entitled to priority over
the other Holders of Investor Registrable Securities.
"Paribas Registrable Securities" means, at any time, all of the then issued
and outstanding (a) Paribas Warrant Registrable Securities and (b) (i) shares of
Common Stock issued to PPI pursuant to the exercise of the option under the
Paribas Option Agreement, (ii) shares of any class of Common Stock into which
such shares of Common Stock have been converted, (iii) capital stock or other
securities into which or for which any such shares of Common Stock shall have
been converted or exchanged pursuant to any recapitalization, reorganization or
merger of the Company, and (iv) shares of capital stock issued with respect to
the foregoing pursuant to a stock split or stock dividend, provided that the
foregoing capital stock shall be Paribas Registrable Securities only so long as
such capital stock has not been sold pursuant to a Public Sale.
"Paribas Warrant Registrable Securities" means, at any time, all of the
then issued and outstanding (a) shares of Common Stock issued or issuable upon
exercise of the Paribas Warrants in accordance with their terms, (b) shares of
any class of Common Stock into which such shares of Common Stock have been
converted, (c) capital stock or other securities into which or for which any
such shares of Common Stock shall have been converted or exchanged pursuant to
any recapitalization, reorganization or merger of the Company, and (d) shares of
capital stock issued with respect to the foregoing pursuant to a stock split or
stock dividend, provided that the foregoing capital stock shall be Paribas
Warrant Registrable Securities only so long as such capital stock has not been
sold pursuant to a Public Sale.
<PAGE>
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"Paribas Warrants" means the Warrants of the Company issued to Paribas
pursuant to the Warrant Agreement and any other warrants transferred to any
holder pursuant to the Warrant Agreement.
"Person" means any individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Piggyback Registration" has the meaning specified in Section 3(a).
"PPI" has the meaning specified in the preamble hereto.
"Prospectus" means the prospectus included in any Registration Statement,
as amended or supplemented by any Prospectus supplement with respect to the
terms of the offering of any portion of the Registrable Securities covered by
such Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference in such Prospectus.
"Public Sale" means any sale of Common Stock to the public pursuant to a
public offering registered under the Securities Act, or to the public through a
broker or market-maker pursuant to the provisions of Rule 144 (or any successor
rule) adopted under the Securities Act.
"registered" and "registration" means a registration effected by preparing
and filing a Registration Statement in compliance with the Securities Act and
the declaration or ordering by the Commission of effectiveness of such
Registration Statement.
"Registrable Securities" means all Investor Registrable Securities and all
Other Registrable Securities.
"Registration Expenses" has the meaning specified in Section 7.
"Registration Statement" means any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholder Agreement" has the meaning specified in the preamble hereto.
<PAGE>
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"TA" has the meaning specified in the preamble hereto.
"TA Subscription Agreement" has the meaning specified in the preamble
hereto.
"Tietbohl Subscription Agreement" has the meaning specified in the preamble
hereto.
"Underwriters' Maximum Number" means, for any Piggyback Registration,
Demand Registration or other registration which is an underwritten registration,
that number of securities to which such registration should, in the opinion of
the managing underwriters of such registration in the light of marketing
factors, be limited.
"Warrant Agreement" has the meaning specified in the preamble hereto.
2. Demand Registration.
(a) Request for Demand Registration.
(i) Subject to the limitations contained in the following
paragraphs of this Section 2, any Holder of the Investor Registrable
Securities may, at any time and from time to time give to the Company,
pursuant to this subparagraph (i), a written request for the
registration by the Company under the Securities Act of all or any
part of the Investor Registrable Securities of such Holder (such
registration being herein called a "Demand Registration"). Within ten
(10) days after the receipt by the Company of any such written
request, the Company will give written notice of such registration
request to all Holders of Registrable Securities.
(ii) Subject to the limitations contained in the following
paragraphs of this Section 2, after the receipt of such written
request for a Demand Registration, (A) the Company will be obligated
and required to include in such Demand Registration all Registrable
Securities with respect to which the Company shall receive from
Holders of Registrable Securities, within thirty (30) days after the
date on which the Company shall have given to all Holders a written
notice of registration request pursuant to Section 2(a)(i) hereof, the
written requests of such Holders for inclusion in such Demand
Registration, and (B) the Company will use its best efforts in good
faith to effect promptly the registration of all such Registrable
Securities. All written requests made by Holders of Registrable
Securities pursuant to this subparagraph (ii) will
<PAGE>
-7-
specify the number of shares of Registrable Securities to be
registered and will also specify the intended method of disposition
thereof.
(b) Limitations on Demand Registration.
(i) The Holders of Investor Registrable Securities will not be
entitled to require the Company to effect (A) more than one (1) Demand
Registration on Form S-1 (or other comparable form adopted by the
Commission) during any twelve-month period, (B) any Demand Registration on
Form S-1 (or other comparable form adopted by the Commission) unless Form
S-3 (or any comparable form adopted by the Commission) is not available for
such Demand Registration, (C) any Demand Registration if the aggregate
number of Investor Registrable Securities requested to be registered
pursuant to such Demand Registration is less than five percent (5%) of the
number of shares of Common Stock then outstanding (on a fully-diluted
basis), or (D) any Demand Registration prior to the closing of the
Company's initial public offering of its Common Stock except as otherwise
provided in Section 2(f) hereof.
(ii) Any registration initiated by Holders of Investor Registrable
Securities as a Demand Registration pursuant to Section 2(a) hereof shall
not count as a Demand Registration for purposes of Section 2(b)(i) hereof
(A) unless and until such registration shall have become effective and all
Investor Registrable Securities requested to be included in such
registration shall have been actually sold and (B) if such Holders withdraw
their request for a Demand Registration at any time because such Holders
(1) reasonably believed that the Registration Statement or Prospectus
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements made therein (in the case of Prospectus, in the light of the
circumstances under which they were made) not misleading, (2) notified the
Company of such fact and requested that the Company correct such alleged
misstatement or omission and (3) the Company has refused to correct such
alleged misstatement or omission.
(iii) The Company shall not be obligated or required to effect the
Demand Registration of any Investor Registrable Securities pursuant to
Section 2(a) hereof during the period commencing on the date falling thirty
(30) days prior to the Company's estimated date of filing of, and ending on
the date 180
<PAGE>
-8-
days following the effective date of, any Registration Statement pertaining
to any underwritten registration initiated by the Company, for the account
of the Company, if the written request of Holders for such Demand
Registration pursuant to Section 2(a)(i) hereof shall have been received by
the Company after the Company shall have given to all Holders of
Registrable Securities a written notice stating that the Company is
commencing an underwritten registration initiated by the Company; provided,
however, that the Company will use its best efforts in good faith to cause
any such Registration Statement to be filed and to become effective as
expeditiously as shall be reasonably possible.
(c) Priority on Demand Registrations. If the managing underwriters in any
underwritten Demand Registration shall give written advice to the Company and
the Holders of Investor Registrable Securities to be included in such
registration of an Underwriters' Maximum Number, then: (i) the Company will be
obligated and required to include in such registration that number of Investor
Registrable Securities requested by the Holders thereof to be included in such
registration which does not exceed the Underwriters' Maximum Number, and such
number of Investor Registrable Securities shall be allocated pro rata among the
Holders of such Investor Registrable Securities on the basis of the number of
Investor Registrable Securities requested to be included therein by each such
Holder; (ii) if the Underwriters' Maximum Number exceeds the number of Investor
Registrable Securities requested by the Holders thereof to be included in such
registration, then the Company will be obligated and required to include in such
registration that number of Other Registrable Securities requested by the
Holders thereof to be included in such registration and which does not exceed
such excess and such Other Registrable Securities shall be allocated pro rata
among the Holders thereof on the basis of the number of Other Registrable
Securities requested to be included therein by each such Holder; (iii) if the
Underwriters' Maximum Number exceeds the number of Registrable Securities
requested by the Holders thereof to be included in such registration, then the
Company will be entitled to include in such registration that number of
securities which shall have been requested by the Company to be included in such
registration for the account of the Company and which shall not be greater than
such excess; and (iv) if the Underwriters' Maximum Number exceeds the sum of the
number of Registrable Securities which the Company shall be required to include
in such Demand Registration and the number of securities which the Company
proposes to offer and sell for its own account in such registration, then the
Company may include in such registration that number of other securities which
persons (other than the Holders as such)
<PAGE>
-9-
shall have requested be included in such registration and which shall not be
greater than such excess. Neither the Company nor any of its stockholders (other
than Holders of Investor Registrable Securities) shall be entitled to include
any securities in any underwritten Demand Registration unless the Company or
such stockholders (as the case may be) shall have agreed in writing to sell such
securities on the same terms and conditions as shall apply to the Investor
Registrable Securities to be included in such Demand Registration.
(d) Selection of Underwriters. The Holders of a majority of the Investor
Registrable Securities to be included in any Demand Registration shall determine
whether or not such Demand Registration shall be underwritten and shall select
the investment banker(s) and managing underwriter(s) to administer such
offering.
(e) Paribas Priority Demand Registration. The Holders of a majority of the
Paribas Warrant Registrable Securities shall be entitled, with respect to one
(1) Demand Registration, to designate such Demand Registration as a Paribas
Priority Demand Registration by delivering written notice to the Company within
30 days after delivery to such holders of the notice of registration request
pursuant to Section 2(b)(i) hereof. Notwithstanding any provision in Section
2(c) hereof to the contrary, if the Paribas Priority Demand Registration is
subject to an Underwriters Maximum Number, the Company shall include all Paribas
Warrant Registrable Securities requested by the Holders of Paribas Warrant
Registrable Securities to be included therein before any other Registrable
Securities may be included.
(f) Paribas IPO Demand Registration. On one occasion, after January 30,
2003 but prior to the closing of the Company's initial public offering of its
Common Stock, the Holders of a majority of the Paribas Registrable Securities
shall be entitled to effect an initial public offering of the Company's Common
Stock by a written request for a Demand Registration (the "Paribas IPO Demand
Registration"). Such Demand Registration shall be effected in accordance with
the foregoing provisions of this Section 2. Notwithstanding any provision in
2(c) to the contrary, if the Paribas IPO Demand Registration is subject to an
Underwriters Maximum Number, the Company shall include 50% of all then
outstanding Paribas Registrable Securities requested by the holders thereof to
be included therein before any other Registrable Securities may be included.
<PAGE>
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3. Piggyback Registrations.
(a) Rights to Piggyback.
(i) If (and on each occasion that) the Company proposes to register
any of its securities under the Securities Act either for the Company's own
account or for the account of any of its stockholders (other than for
Holders pursuant to Section 2 hereof entitled to participate in a
registration) (each such registration not withdrawn or abandoned prior to
the effective date thereof being herein called a "Piggyback Registration"),
the Company will give written notice to all Holders of Registrable
Securities of such proposal not later than the earlier to occur of (A) the
tenth day following the receipt by the Company of notice of exercise of any
registration rights by any persons, and (B) the thirtieth day prior to the
anticipated filing date of such Piggyback Registration.
(ii) Subject to the provisions contained in paragraph (b) of this
Section 3 and in the last sentence of this subparagraph (ii), (A) the
Company will be obligated and required to include in each Piggyback
Registration all Registrable Securities with respect to which the Company
shall receive from Holders of Registrable Securities, within fifteen (15)
days after the date on which the Company shall have given written notice of
such Piggyback Registration to all Holders of Registrable Securities
pursuant to Section 3(a)(i) hereof, the written requests of such Holders
for inclusion in such Piggyback Registration, and (B) the Company will use
its best efforts in good faith to effect promptly the registration of all
such Registrable Securities. The Holders of Registrable Securities shall be
permitted to withdraw all or any part of the Registrable Securities of such
Holders from any Piggyback Registration at any time prior to the effective
date of such Piggyback Registration unless such Holders of Registrable
Securities shall have entered into a written agreement with the Company's
underwriters establishing the terms and conditions under which such Holders
would be obligated to sell such securities in such Piggyback Registration.
The Company will not be obligated or required to include any Registrable
Securities in any registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 of the Commission is
applicable.
(b) Priority on Piggyback Registrations. If a Piggyback Registration is an
underwritten registration, and the managing underwriters shall give written
advice to the Company of an
<PAGE>
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Underwriters' Maximum Number, then: (i) the Company shall be entitled to include
in such registration that number of securities which the Company proposes to
offer and sell for its own account in such registration and which does not
exceed the Underwriters' Maximum Number; (ii) if the Underwriters' Maximum
Number exceeds the number of securities which the Company proposes to offer and
sell for its own account in such registration, then the Company will be
obligated and required to include in such registration that number of Investor
Registrable Securities requested by the Holders thereof to be included in such
registration and which does not exceed such excess and such Investor Registrable
Securities shall be allocated pro rata among the Holders thereof on the basis of
the number of Investor Registrable Securities requested to be included therein
by each such Holder; (iii) if the Underwriters' maximum number exceeds the sum
of the number of Investor Registrable Securities which the Company shall be
required to include in such registration pursuant to clause (ii) and the number
of securities which the Company proposes to offer and sell for its own account
in such registration, then the Company will be obligated and required to include
in such registration that number of Other Registrable Securities requested by
the Holders thereof to be included in such registration and which does not
exceed such excess and such Other Registrable Securities shall be allocated pro
rata among the Holders thereof on the basis of the number of Other Registrable
Securities requested to be included therein by each such Holder; and (iv) if the
Underwriters' Maximum Number exceeds the sum of the number of Registrable
Securities which the Company shall be required to include in such registration
pursuant to clauses (ii) and (iii) and the number of securities which the
Company proposes to offer and sell for its own account in such registration,
then the Company may include in such registration that number of other
securities which persons shall have requested be included in such registration
and which shall not be greater than such excess.
(c) Selection of Underwriters. In any Piggyback Registration, the Company
shall (unless the Company shall otherwise agree) have the right to select the
investment bankers and managing underwriters in such registration.
4. Lockup Agreements.
(a) Restrictions on Public Sale by Holders of Registrable Securities. Each
Holder of Registrable Securities, if the Company or the managing underwriters so
request in connection with any underwritten registration of the Company'
securities, will not, without the prior written consent of the Company or such
underwriters, effect any public sale or
<PAGE>
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other distribution of any equity securities of the Company, including any sale
pursuant to Rule 144, during the seven (7) days prior to, and (i) with respect
to any Holder of Registrable Securities that is an institutional investor,
during the ninety (90) day period commencing on the effective date of such
underwritten registration and (ii) with respect to all other Holders of
Registrable Securities, during the one hundred eighty (180) day period
commencing on, the effective date of such underwritten registration, except in
connection with such underwritten registration.
(b) Restrictions on Public Sale by the Company. The Company agrees not to
effect any public sale or other distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for such equity
securities, during the period commencing on the seventh day prior to, and ending
on the one hundred eightieth (180th) day following, the effective date of any
underwritten Demand or Piggyback Registration, except in connection with any
such underwritten registration and except for any offering pursuant to an
employee benefit plan and registered on Form S-8 (or any successor form).
5. Registration Procedures.
(a) Whenever the Holders of Registrable Securities have requested that any
Registrable Securities be registered pursuant to this Agreement, the Company
will use its best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible:
(i) prepare and file with the Commission a Registration Statement with
respect to such Registrable Securities and use its best efforts to cause
such Registration Statement to become effective (provided, that before
filing a Registration Statement or Prospectus or any amendments or
supplements thereto, the Company will furnish to counsel selected by the
holders of Registrable Securities covered by such Registration Statement,
copies of all such documents proposed to be filed, which documents will be
subject to the timely review of such counsel and the Company will not file
any Registration Statement or amendment thereto or any Prospectus or any
supplement thereto, including documents incorporated by reference, to which
the Holders of a majority of the Registrable Securities covered by such
Registration Statement shall reasonably object);
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and
<PAGE>
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the Prospectus used in connection therewith as may be necessary to keep
such Registration Statement effective for not more than six (6) months and,
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during
such effective period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration Statement
and cause the Prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Securities Act;
(iii) upon request, furnish to each seller of Registrable Securities
such number of copies of such Registration Statement, each amendment and
supplement thereto, the Prospectus included in such Registration Statement
(including each preliminary Prospectus and each Prospectus filed under Rule
424 of the Securities Act) and such other documents as each such seller may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by each such seller (it being understood that
the Company consents to the use of the Prospectus and any amendment or
supplement thereto by such seller in connection with the offering and sale
of the Registrable Securities covered by the Prospectus or any amendment or
supplement thereto);
(iv) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests, use its best efforts to
keep each such registration or qualification effective, including through
new filings, amendments or renewals, during the period such Registration
Statement is required to be kept effective, and do any and all other acts
and things which may be reasonably necessary or advisable to enable such
seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller; provided that the Company will
not be required (A) to qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this
subparagraph (a)(iv), (B) to subject itself to taxation in any such
jurisdiction or (C) to consent to general service of process in any such
jurisdiction;
(v) notify each seller of such Registrable Securities, at any time
when a Prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result
<PAGE>
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of which the Prospectus included in such Registration Statement contains an
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of any such seller,
the Company will promptly prepare (and, when completed, give notice to each
seller of Registrable Securities) a supplement or amendment to such
Prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such Prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to make
the statements therein not misleading; provided that upon such notification
by the Company, each seller of such Registrable Securities will not offer
or sell such Registrable Securities until the Company has notified such
seller that it has prepared a supplement or amendment to such Prospectus
and delivered copies of such supplement or amendment to such Seller;
(vi) cause all such Registrable Securities to be listed, prior to the
date of the first sale of such Registrable Securities pursuant to such
registration, on each securities exchange on which similar securities
issued by the Company are then listed and, if not so listed, to be listed
with the National Association of Securities Dealers automated quotation
system ("NASDAQ");
(vii) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of such Registration
Statement;
(viii) enter into all such customary agreements (including
underwriting agreements in customary form) and take all such other actions
as the holders of a majority of the Investor Registrable Securities being
sold or the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities (including,
without limitation, effecting a stock split or a combination of shares);
(ix) make available for inspection on a confidential basis by any
seller, any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney, accountant or other agent
retained by any such seller or underwriter (in each case after reasonable
prior notice), all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors, employees and independent accountants to supply on a
confidential basis all information reasonably requested by any such
<PAGE>
-15-
seller, underwriter, attorney, accountant or agent in connection with such
Registration Statement;
(x) permit any holder of Registrable Securities which holder, in its
sole and exclusive judgment, might be deemed to be an underwriter or a
controlling person of the Company within the meaning of Section 15 of the
Securities Act, to participate in the preparation of such registration or
comparable statement and to permit the insertion therein of material,
furnished to the Company in writing, which in the reasonable judgment of
such holder and its counsel should be included, provided that such material
shall be furnished under such circumstances as shall cause it to be subject
to the indemnification provisions provided pursuant to Section 8(b) hereof;
(xi) in the event of the issuance of any stop order suspending the
effectiveness of a Registration Statement, or of any order suspending or
preventing the use of any related Prospectus or suspending the
qualification of any Registrable Securities included in such Registration
Statement for sale in any jurisdiction, the Company will use its best
efforts promptly to obtain the withdrawal of such order;
(xii) if requested by the managing underwriter or underwriters or any
holder of Registrable Securities in connection with any sale pursuant to a
Registration Statement, promptly incorporate in a Prospectus supplement or
post-effective amendment such information relating to such underwriting as
the managing underwriter or underwriters or such holder reasonably requests
to be included therein, and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after being
notified of the matters incorporated in such Prospectus supplement or
post-effective amendment;
(xiii) cooperate with the holders of Registrable Securities and the
managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legends) representing Registrable Securities to be sold under such
registration, and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriter or
underwriters, if any, or such holders may request;
(xiv) use its best efforts to cause the Registrable Securities to be
registered with or approved by such other governmental
<PAGE>
-16-
agencies or authorities within the United States and having jurisdiction
over the Company as may reasonably be necessary to enable the seller or
sellers thereof or the underwriter or underwriters, if any, to consummate
the disposition of such Registrable Securities;
(xv) use its best efforts to obtain:
(A) at the time of effectiveness of each registration, a "comfort
letter" from the Company's independent certified public accountants
covering such matters of the type customarily covered by "cold comfort
letters" as the Holders of a majority of the Registrable Securities
covered by such registration and the underwriters reasonably request;
and
(B) at the time of any underwritten sale pursuant to a
Registration Statement, a "bring-down comfort letter", dated as of the
date of such sale, from the Company's independent certified public
accountants covering such matters of the type customarily covered by
comfort letters as the Holders of a majority of the Registrable
Securities covered by such Registration Statement and the underwriters
reasonably request;
(xvi) use its best efforts to obtain, at the time of effectiveness of
each Piggyback Registration and at the time of any sale pursuant to each
registration, an opinion or opinions, favorable in form and scope to the
Holders of a majority of the Registrable Securities covered by such
registration, from counsel to the Company in customary form; and
(xvii) otherwise comply with all applicable rules and regulations of
the Commission, and make generally available to its securityholders (as
contemplated by Section 11(a) under the Securities Act) an earnings
statement satisfying the provisions of Rule 158 under the Securities Act no
later than ninety (90) days after the end of the twelve month period
beginning with the first month of the Company's first fiscal quarter
commencing after the effective date of the Registration Statement, which
statement shall cover said twelve month period.
6. Cooperation by Prospective Sellers, Etc.
(a) Each prospective seller of Registrable Securities will furnish to the
Company in writing such information as the Company may
<PAGE>
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reasonably require from such seller, and otherwise reasonably cooperate with the
Company in connection with any Registration Statement with respect to such
Registrable Securities.
(b) The failure of any prospective seller of Registrable Securities to
furnish any information or documents in accordance with any provision contained
in this Agreement shall not affect the obligations of the Company under this
Agreement to any remaining sellers who furnish such information and documents
unless in the reasonable opinion of counsel to the Company or the underwriters,
such failure impairs or may impair the viability of the offering or the legality
of the Registration Statement or the underlying offering.
(c) The Holders of Registrable Securities included in any Registration
Statement will not (until further notice) effect sales thereof after receipt of
telegraphic or written notice from the Company to suspend sales to permit the
Company to correct or update such Registration Statement or Prospectus; but the
obligations of the Company with respect to maintaining any Registration
Statement current and effective shall be extended by a period of days equal to
the period such suspension is in effect.
(d) At the end of any period during which the Company is obligated to keep
any Registration Statement current and effective as provided by Section 5 hereof
(and any extensions thereof required by the preceding paragraph (c) of this
Section 6), the Holders of Registrable Securities included in such Registration
Statement shall discontinue sales of shares pursuant to such Registration
Statement upon receipt of notice from the Company of its intention to remove
from registration the shares covered by such Registration Statement which remain
unsold, and such Holders shall notify the Company of the number of shares
registered which remain unsold promptly after receipt of such notice from the
Company.
(e) Notwithstanding any other provision herein to the contrary, no
Holder of Registrable Securities which constitute warrants or options shall be
required to exercise such warrants or options in connection with any
registration until the actual sale of the shares of Common Stock issuable upon
exercise of such warrants or options. The Company shall enter into such
agreements and shall otherwise cooperate with the Holders of Registrable
Securities in order to ensure that such Holders are not required to exercise any
warrants or options prior to the date of the actual sale of the shares of Common
Stock issuable upon exercise of such warrants or options.
<PAGE>
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7. Registration Expenses.
(a) All costs and expenses incurred or sustained in connection with or
arising out of each registration pursuant to Sections 2 and 3 hereof, including,
without limitation, all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws (including reasonable fees and
disbursements of counsel for the underwriters in connection with the blue sky
qualification of Registrable Securities), printing expenses, messenger,
telephone and delivery expenses, fees and disbursements of counsel for the
Company, reasonable fees and disbursements of one counsel representing the
Holders of Registrable Securities, such counsel to be selected by the Holders of
a majority of the Registrable Securities to be included in such registration,
fees and disbursements of all independent certified public accountants
(including the expenses relating to the preparation and delivery of any special
audit or "cold comfort" letters required by or incident to such registration),
and fees and disbursements of underwriters (excluding discounts and
commissions), the reasonable fees and expenses of any special experts retained
by the Company of its own initiative or at the request of the managing
underwriters in connection with such registration, and fees and expenses of all
(if any) other persons retained by the Company (all such costs and expenses
being herein called, collectively, the "Registration Expenses"), will be borne
and paid by the Company. The Company will, in any case, pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, and the fees and expenses incurred in connection with the
listing of the securities to be registered on each securities exchange on which
similar securities of the Company are then listed.
(b) The Company will not bear the cost of nor pay for any stock transfer
taxes imposed in respect of the transfer of any Registrable Securities to any
purchaser thereof by any Holder of Registrable Securities in connection with any
registration of Registrable Securities pursuant to this Agreement.
(c) To the extent that Registration Expenses incident to any registration
are, under the terms of this Agreement, not required to be paid by the Company,
each Holder of Registrable Securities included in such registration will pay all
Registration Expenses which are clearly solely attributable to the registration
of such Holder's Registrable Securities so included in such registration, and
all other Registration Expenses not so attributable to one Holder will be borne
and paid by all
<PAGE>
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sellers of securities included in such registration in proportion to the number
of securities so included by each such seller.
8. Indemnification.
(a) Indemnification by the Company. The Company will indemnify each Holder
requesting or joining in a registration and each underwriter of the securities
so registered, the officers, directors and partners of each such Person and each
Person who controls any thereof (within the meaning of the Securities Act)
against any and all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of any material fact contained in any Prospectus, offering
circular or other document incident to any registration, qualification or
compliance (or in any related Registration Statement, notification or the like)
or any omission (or alleged omission) to state therein any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company and relating to
any action or inaction required of the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, underwriter, officer, director, partner and controlling person for
any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage or liability arises out of or is based
on any untrue statement or omission based upon written information furnished to
the Company in an instrument duly executed by such Holder, underwriter, officer,
director, partner or controlling person and stated to be specifically for use in
such Prospectus, offering circular or other document.
(b) Indemnification by Each Holder. Each Holder requesting or joining in a
registration will indemnify each underwriter of the securities so registered,
the Company and its officers and directors and each person, if any, who controls
any thereof (within the meaning of the Securities Act) and their respective
successors in title and assigns against any and all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of any material fact contained in
any Prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related Registration
Statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statement
<PAGE>
-20-
therein not misleading, and such Holder will reimburse each underwriter, the
Company and each other person indemnified pursuant to this paragraph (b) for any
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that this paragraph (b) shall apply only if (and only to the
extent that) such statement or omission was made in reliance upon written
information furnished to such underwriter or the Company in an instrument duly
executed by such Holder and stated to be specifically for use in such
Prospectus, offering circular or other document (or related Registration
Statement, notification or the like) or any amendment or supplement thereto;
and, provided further, that each Holder's liability hereunder with respect to
any particular registration shall be limited to an amount equal to the net
proceeds received by such Holder from the Registrable Securities sold by such
Holder in such registration.
(c) Indemnification Proceedings. Each party entitled to indemnification
pursuant to this Section 8 (the "Indemnified Party") shall give notice to the
party required to provide indemnification pursuant to this Section 8 (the
"Indemnifying Party") promptly after such Indemnified Party acquires actual
knowledge of any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party (at its expense) to assume the defense of any claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
acceptable to the Indemnified Party, and the Indemnified Party may participate
in such defense at such party's expense; and provided, further, that the failure
by any Indemnified Party to give notice as provided in this paragraph (c) shall
not relieve the Indemnifying Party of its obligations under this Section 8
except to the extent that the failure results in a failure of actual notice to
the Indemnifying Party and such Indemnifying Party is damaged solely as a result
of the failure to give notice. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. The reimbursement required by this Section 8 shall be made
by periodic payments during the course of the investigation or defense, as and
when bills are received or expenses incurred.
9. Contribution in Lieu of Indemnification. If the indemnification provided
for in Section 8 hereof is unavailable to a party that would have been an
Indemnified Party under any such section in
<PAGE>
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respect of any losses, claims, damages or liabilities (or actions in respect
thereof) referred to therein, then each party that would have been an
Indemnifying Party thereunder shall, in lieu of indemnifying such Indemnified
Party, contribute to the amount paid or payable by such Indemnified Party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and such Indemnified Party on the other
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Indemnifying Party or such Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and each Holder of Registrable Securities
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro-rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 9. The amount paid or payable by an Indemnified Party
as a result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 9 shall include any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding any
provision of this Section 9 to the contrary, (a) no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation and (b) each Holder's liability hereunder with
respect to any particular registration shall be limited to an amount equal to
the net proceeds received by such Holder from the Registrable Securities sold by
such Holder in such registration.
10. Rule 144 Requirements; Form S-3. From time to time after the earlier to
occur of (a) the ninetieth day following the date on which there shall first
become effective a Registration Statement filed by the Company under the
Securities Act, or (b) the date on which the Company shall register a class of
securities under Section 12 of the Exchange Act, the Company will make every
effort in good faith to take all steps necessary to ensure that the Company will
be eligible to register securities on Form S-3 (or any comparable form adopted
by the Commission) as soon thereafter as possible, and to make publicly
available and available to the Holders of Registrable Securities, pursuant to
Rule 144 or Rule 144A of the Commission under the Securities Act,
<PAGE>
-22-
such information as shall be necessary to enable the Holders of Registrable
Securities to make sales of Registrable Securities pursuant to such Rules. The
Company will furnish to any Holder of Registrable Securities, upon request made
by such Holder at any time after the undertaking of the Company in the preceding
sentence shall have first become effective, a written statement signed by the
Company, addressed to such Holder, describing briefly the action the Company has
taken or proposes to take to comply with the current public information
requirements of Rule 144 and Rule 144A. The Company will, at the request of any
Holder of Registrable Securities, upon receipt from such Holder of a certificate
certifying (i) that such Holder has held such Registrable Securities for a
period of not less than three (3) consecutive years, (ii) that such Holder has
not been an affiliate (as defined in Rule 144) of the Company for more than the
ninety (90) preceding days, and (iii) as to such other matters as may be
appropriate in accordance with such Rule, remove from the stock certificates
representing such Registrable Securities that portion of any restrictive legend
which relates to the registration provisions of the Securities Act.
11. Participation in Underwritten Registrations. No Person may participate
in any underwritten registration pursuant to this Agreement unless such Person
(a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the persons entitled, under the provisions
hereof, to approve such arrangements, and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required by the terms of such underwriting
arrangements. Any Holder of Registrable Securities to be included in any
underwritten registration shall be entitled at any time to withdraw such
Registrable Securities from such registration prior to its effective date in the
event that such Holder shall disapprove of any of the terms of the related
underwriting agreement.
12. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not previously entered into
any agreement with respect to its Common Stock granting any registration rights
to any Person, and will not on or after the date of this Agreement enter into
any agreement with respect to its securities which grants demand registration
rights to anyone or which is inconsistent with the rights granted to the Holders
of Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof.
<PAGE>
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(b) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless such amendment, modification, supplement, waiver or consent is approved
in writing by the Holders of at least a majority of the Registrable Securities;
provided, however, that no amendment, modification or waiver of any provision of
this Agreement that materially adversely affects the rights of one particular
Party (as hereinafter defined) to this Agreement (whether or not such amendment,
modification or waiver materially adversely affects such Party in a manner
different from the rights of the other Parties) shall be effective against such
adversely affected Party unless approved in writing by the holders of at least a
majority of the Registrable Securities then held by all members of such Party.
As used in this Section 12(b), "Party" means any one of the following entities
or groups: (i) the Company, (ii) the Holders of Investor Registrable Securities,
(iii) the Holders of Other Registrable Securities, (iv) the holders of the
Paribas Warrant Registrable Securities and (v) the holder of Paribas Registrable
Securities.
(c) Registrable Securities Held by the Company. Whenever the consent or
approval of Holders of Registrable Securities is required pursuant to this
Agreement, Registrable Securities held by the Company shall not be counted in
determining whether such consent or approval was duly and properly given by such
Holders.
(d) Term. The agreements of the Company contained in this Agreement shall
continue in full force and effect so long as any Holder holds any Registrable
Securities.
(e) Remedies. In the event of a breach by the Company of its obligations
under this Agreement, each Holder, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of any of the provisions of this Agreement and hereby
agrees to waive the defense in any action for specific performance that a remedy
at law would be adequate.
(f) Notices. Any notice provided for in this Agreement will be in writing
and will be deemed properly delivered if either personally delivered or sent by
overnight courier or telecopier or mailed certified or registered mail, return
receipt requested, postage prepaid, to the recipient at the address specified
below:
<PAGE>
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(i) if to a Holder, at such Holder's address on the stock transfer
books of the Company; and
(ii) if to the Company, at:
251 Industrial Parkway
Somerville, New Jersey 08876
and thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 12(f). Any such notice shall be effective
(A) if delivered personally or by telecopy, when received, (B) if sent by
overnight courier, when receipted for, and (C) if mailed, three (3) days after
being mailed as described above.
(g) Successors and Assigns. This Agreement and the rights of any Holder
hereunder may be assigned to, and shall inure to the benefit of, any Person to
whom such Holder transfers Registrable Securities, provided that such transfer
is made in compliance with the provisions of the Stockholder Agreement and the
transferee agrees to be bound by all of the terms and conditions of this
Agreement by executing and delivering to the Company an Instrument of Accession.
(h) Counterparts. This Agreement may be executed in two or more
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument.
(i) Headings. The headings in this Agreement are for convenience of
reference only and shall not constitute a part of this Agreement, nor shall they
affect their meaning, construction or effect.
(j) Governing Law. The validity, performance, construction and effect of
this Agreement shall be governed by and construed in accordance with the
internal laws of the State of Delaware, without giving effect to principles of
conflicts of law.
(k) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(l) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and
<PAGE>
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exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to the registration rights granted by the Company with
respect to the Registrable Securities. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
<PAGE>
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
THE COMPANY: CDI GROUP, INC.
By:___________________________________________
Title:
THE INVESTORS: BANCBOSTON VENTURES INC.
By:___________________________________________
Title:
HARVEST PARTNERS INTERNATIONAL, LP
By:___________________________________________
Title:
HARVEST TECHNOLOGY PARTNERS, LP
By:___________________________________________
Title:
EUROPEAN DEVELOPMENT CAPITAL CORPORATION N.V.
By:___________________________________________
Title:
DEUTSCHE BETEILIGUNGSGESELLSCHAFT mbH
By:___________________________________________
Title:
<PAGE>
-27-
BANQUE PARIBAS
By:__________________________________________
Title:
PARIBAS PRINCIPAL, INC.
By:__________________________________________
Title:
TA HOLDING, INC.
By:__________________________________________
Title:
_____________________________________________
Jon Tietbohl
THE MANAGERS: ______________________________________________
Frank Marfino
<PAGE>
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SCHEDULE 1
TO REGISTRATION
RIGHTS AGREEMENT
Instrument of Accession
-----------------------
Reference is made to that certain Registration Rights Agreement dated as of
January 30, 1995, a copy of which is attached hereto (as amended and in effect
from time to time, the "Registration Rights Agreement"), among CDI Group, Inc.,
a Delaware corporation (the "Company"), and the Holders (as defined therein).
The undersigned, _____________________, in order to become the owner or
holder of ______ shares of the [Class A Voting Common Stock, $0.00001 par value
per share] [Class B Non-Voting Common Stock, $0.00001 par value per share] (the
"Shares") of the Company hereby agrees that by his execution hereof the
undersigned is a Holder party to the Registration Rights Agreement subject to
all of the restrictions and conditions applicable to Holders set forth in such
Registration Rights Agreement, and all of the Shares purchased by the
undersigned in connection herewith (and any and all shares of stock of the
Company issued in respect thereof) are subject to all the restrictions and
conditions applicable to Registrable Securities as set forth in the Registration
Rights Agreement. This Instrument of Accession shall take effect and shall
become a part of said Registration Rights Agreement immediately upon execution.
Executed as of the date set forth below under the laws of the State of
Delaware.
Signature: __________________________________________
Address: __________________________________________
Date: __________________________________________
Accepted:
CDI GROUP, INC.
By:__________________________________________________
Date:________________________________________________
STOCKHOLDER AGREEMENT
This STOCKHOLDER AGREEMENT (the "Agreement"), dated as of January 30,
1995, is among (a) CDI GROUP, INC., a Delaware corporation (the "Company"), (b)
BANCBOSTON VENTURES INC. ("BBV"), a Massachusetts corporation, (c) HARVEST
PARTNERS INTERNATIONAL, LP, HARVEST TECHNOLOGY PARTNERS, LP, EUROPEAN
DEVELOPMENT CAPITAL CORPORATION N.V. and DEUTSCHE BETEILIGUNGSGESELLSCHAFT MBH
(collectively, the "Initial Harvest Stockholders"), (d) BANQUE PARIBAS
("Paribas"), (e) PARIBAS PRINCIPAL, INC. ("PPI"), (f) TA HOLDING, INC. ("TA"),
(g) Jon Tietbohl, (h) Frank Marfino and any other officer, employee or director
of the Company who becomes a party to this Agreement by executing an Instrument
of Accession ("Instrument of Accession") in the form of Schedule 1 hereto
(collectively, the "Managers") and (i) each other Person who becomes a party to
this Agreement by executing an Instrument of Accession.
WHEREAS, the parties hereto wish to set forth their relative rights
with regard to the transfer and issuance of the Company's securities, election
of the Company's Board of Directors and certain other matters concerning the
Company's capital stock;
NOW, THEREFORE, the parties to this Agreement hereby agree as follows:
ss.1. DEFINITIONS. For all purposes of this Agreement, the following
terms shall have the meanings set forth below:
Acquisition Offer. See Section 3.2(a).
Affiliate. Affiliate shall mean, with respect to any Stockholder, any
Person directly or indirectly controlling, controlled by or under direct or
indirect common control with such Stockholder and shall include (a) any Person
who is a director or beneficial holder of at least 5% of the then outstanding
capital stock (or partnership interests or other shares of beneficial interest)
of such Stockholder and Family Members of any such Person, (b) any Person of
which such Stockholder or an Affiliate (as defined in clause (a) above) of such
Stockholder directly or indirectly, either beneficially owns at least 5% of the
then outstanding capital stock (or partnership
<PAGE>
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interests or other shares of beneficial interest) or constitutes at least a 5%
equity participant, (c) any Person of which an Affiliate (as defined in clause
(a) above) of such Stockholder is a partner, director, officer or executive
employee, and (d) in the case of a specified Person who is an individual, the
Family Members of such Person.
Approved Sale. See Section 3.3.
BBV. See preamble.
BBV Securities. BBV Securities shall mean (a) the shares of Common
Stock and Preferred Stock purchased by BBV pursuant to the Investor Purchase
Agreement, (b) all other shares of the Company's capital stock purchased by or
issued from time to time to BBV, (c) all shares of the Company's capital stock
issued with respect to such shares by way of stock dividend or stock split or in
connection with any merger, consolidation, recapitalization or other
reorganization affecting the Company's capital stock and (d) the Notes purchased
by BBV pursuant to the Investor Purchase Agreement. BBV Securities will continue
to be BBV Securities in the hands of any holder and each transferee thereof will
succeed to the rights and obligations of a holder of BBV Securities hereunder,
provided that BBV Securities will cease to be BBV Securities when transferred
(i) to the Company, or (ii) pursuant to a Public Sale.
BBV Stockholder. BBV Stockholder shall mean BBV for so long as BBV
holds BBV Securities and any other Person to whom BBV Securities are transferred
in accordance with the provisions hereof for so long as such Person holds any
BBV Securities.
Charter. Charter shall mean the Company's Certificate of Incorporation
and all amendments thereto.
Class A Common Stock. See definition of "Common Stock."
Class B Common Stock. See definition of "Common Stock."
Common Stock. Common Stock shall mean (a) the Company's Class A Voting
Common Stock $.00001 par value per share, (the "Class A Common Stock"), (b) the
Company's Class B Non-Voting Common Stock $.00001 par value per share, (the
"Class B Common Stock"), and (c) any shares of any other class of capital stock
of the Company hereafter issued which is (i) not preferred as to dividends or
assets over any class of stock of the Company, (ii) not subject to redemption
pursuant to the terms thereof, or (iii) issued to the holders of shares of
Common Stock upon any reclassification thereof.
<PAGE>
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Company. See preamble.
Family Members. Family Members shall mean, as applied to any
individual, any parent, spouse, child, grandchildren, spouse of a child, and
each trust created for the benefit of one or more of such Persons and each
custodian of a property of one or more such Persons.
Harvest Securities. Harvest Securities shall mean (a) all shares of
Common Stock and Preferred Stock purchased by the Initial Harvest Stockholders
pursuant to the Investor Purchase Agreement, (b) all other shares of the
Company's capital stock purchased by or issued from time to time to the Initial
Harvest Stockholders, (c) all shares of the Company's capital stock issued with
respect to such shares by way of stock dividend or stock split or in connection
with any merger, consolidation, recapitalization or other reorganization
affecting the Company's capital stock and (d) the Notes purchased by the Initial
Harvest Stockholders pursuant to the Investor Purchase Agreement. Harvest
Securities will continue to be Harvest Securities in the hands of any holder and
each transferee thereof will succeed to the rights and obligations of a holder
of Harvest Securities hereunder, provided that Harvest Securities will cease to
be Harvest Securities when transferred (i) to the Company, or (ii) pursuant to a
Public Sale.
Harvest Stockholder. Harvest Stockholder shall mean each of the Initial
Harvest Stockholders for so long as such Initial Harvest Stockholder holds
Harvest Securities and any other Person to whom Harvest Securities are
transferred in accordance with the provisions hereof for so long as such Person
holds any Harvest Securities.
Initial Harvest Stockholders. See preamble.
Initiating Stockholder. See Section 3.1.
Instrument of Accession. Instrument of Accession shall mean an
Instrument of Accession in the form of Schedule 1 hereto.
Investor Purchase Agreement. Investor Purchase Agreement shall mean the
Investor Securities Purchase Agreement of even date herewith among the Company,
BBV and the Initial Harvest Stockholders.
Investor Stockholders. Investor Stockholders shall mean, collectively,
the BBV Stockholders, the Harvest Stockholders, the Paribas Stockholders and the
TA Stockholders.
Liquidation Value. Liquidation Value shall have the meaning assigned to
such term in the Charter.
<PAGE>
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Major Holder. Major Holder shall mean the holder or holders, together
with such holder's Affiliates, at the relevant time of determination (excluding
the Company) of at least three percent (3%) of the then outstanding shares of
Common Stock on a fully-diluted basis (assuming exercise of all outstanding
warrants, options and convertible securities, including those held by the holder
with respect to which the determination is being made); provided that in any
event each of the Initial Harvest Stockholders shall be deemed to be a Major
Holder hereunder at any time of determination if at such time the Initial
Harvest Stockholders collectively hold at least three percent (3%) of the then
outstanding shares of Common Stock on a fully-diluted basis (assuming exercise
of all outstanding warrants, options and convertible securities, including those
held by the holder with respect to which the determination is being made).
Management Option Agreement. Management Option Agreement shall mean the
Option Agreement of even date herewith among BBV, the Initial Harvest
Stockholders and Frank Marfino, on behalf of the other Managers, pursuant to
which each of BBV and the Initial Harvest Stockholders have granted certain
options to such Managers to purchase the number of shares of Common Stock and
Preferred Stock specified therein during the period from the date hereof until
July 31, 1995.
Management Purchase Agreement. Management Purchase Agreement shall mean
the Management Securities Purchase Agreement between the Company and Frank
Marfino.
Management Securities. Management Securities shall mean (a) the shares
of Common Stock and Preferred Stock purchased by Frank Marfino pursuant to the
Management Purchase Agreement, (b) the shares of Common Stock and Preferred
Stock sold to the Managers pursuant to the exercise of the option under the
Management Option Agreement, (c) the shares of Common Stock issued or issuable
upon exercise of options granted by the Company to the Managers, (d) all other
shares of the Company's capital stock purchased by or issued from time to time
to the Managers and (e) all shares of the Company's capital stock issued with
respect to such shares by way of stock dividend or stock split or in connection
with any merger, consolidation, recapitalization or other reorganization
affecting the Company's capital stock. Management Securities will continue to be
Management Securities in the hands of any holder and each transferee thereof
will succeed to the rights and obligations of a holder of Management Securities
hereunder, provided that shares of Management Securities will cease to be
Management Securities when transferred (i) to the Company, or (ii) pursuant to a
Public Sale.
<PAGE>
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Management Stockholder. Management Stockholder shall mean each Manager
for so long as such Manager holds Management Securities and any other Person to
whom Management Securities are transferred in accordance with the provisions
hereof for so long as such Person holds any Management Securities.
Manager. See preamble.
Non-Initiating Stockholder. See Section 3.2(a).
Non-Transferring Stockholder. See Section 2.2.
Notes. Notes shall mean the Company's Senior Subordinated Notes in the
aggregate principal amount of $13,250,000, issued to the Investor Stockholders
pursuant to the Investor Purchase Agreement, the TA Subscription Agreement, the
Tietbohl Subscription Agreement, and upon exercise by PPI of the option under
the Paribas Option Agreement.
Offer Notice. See Section 2.2.
Offer Price Per Security. The Offer Price Per Security shall mean, (a)
in the case of each share of Common Stock, the quotient obtained by dividing (i)
the amount of the Acquisition Offer, by (ii) the sum of the number of shares of
Common Stock then outstanding, plus the number of shares of Common Stock then
issuable upon exercise of then outstanding and exercisable warrants, options or
convertible securities, (b) in the case of each share of Preferred Stock, the
Liquidation Value of such share and (c) in the case of each Note, the
outstanding principal amount of such Note plus all accrued and unpaid interest
thereon.
Paribas. See preamble.
Paribas Option Agreement. Paribas Option Agreement shall mean the
Option Agreement of even date herewith among BBV, the Initial Harvest
Stockholders and PPI.
Paribas Securities. Paribas Securities shall mean (a) all shares of
Common Stock purchased by PPI pursuant to the exercise by PPI of its option
under the Paribas Option Agreement, (b) the Paribas Warrants, (c) the Paribas
Warrant Shares, (d) all other shares of the Company's capital stock purchased by
or issued from time to time to Paribas or PPI, (e) all shares of the Company's
capital stock issued with respect to such shares by way of stock dividend or
stock split or in connection with any merger, consolidation, recapitalization or
other reorganization affecting the Company's capital stock and (f) the Notes
purchased by Paribas pursuant to the exercise by PPI of its
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option under the Paribas Option Agreement. Paribas Securities will continue to
be Paribas Securities in the hands of any holder and each transferee thereof
will succeed to the rights and obligations of a holder of Paribas Securities
hereunder, provided that Paribas Securities will cease to be Paribas Securities
when transferred (i) to the Company, or (ii) pursuant to a Public Sale.
Paribas Stockholder. Paribas Stockholder shall mean Paribas and PPI for
so long as Paribas or PPI holds Paribas Securities and any other Person to whom
Paribas Securities are transferred in accordance with the provisions hereof for
so long as such Person holds any Paribas Securities.
Paribas Warrant Agreement. Paribas Warrant Agreement shall mean the
Warrant Agreement of even date herewith between the Company and Paribas.
Paribas Warrant Shares. Paribas Warrant Shares shall mean all shares of
Common Stock issued or issuable upon exercise of the Paribas Warrants in
accordance with their terms.
Paribas Warrants. Paribas Warrants shall mean the warrants of the
Company issued to Paribas pursuant to the Paribas Warrant Agreement as in effect
on the date hereof and any warrants issued upon transfer, exchange or
replacement thereof.
Person. Person shall mean an individual, partnership, corporation,
association, trust, joint venture, unincorporated organization, or any
government, governmental department or agency or political subdivision thereof.
PPI. See preamble.
Preferred Stock. Preferred Stock shall mean the Preferred Stock, $1.00
par value per share, of the Company.
Principal Stockholders. Principal Stockholders shall mean the BBV
Stockholders and the Harvest Stockholders.
Public Sale. Public Sale shall mean any sale of Common Stock to the
public pursuant to a public offering registered under the Securities Act of
1933, as amended, or to the public through a broker or market-maker pursuant to
the provisions of Rule 144 (or any successor rule) adopted under the Securities
Act of 1933, as amended.
Put Notice. See Section 3.2(a).
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Qualified Public Offering. Qualified Public Offering shall mean the
Company's underwritten public offering pursuant to an effective registration
statement under the Securities Act covering the offer and sale of shares of
Common Stock in which not less than $20,000,000 of gross proceeds from such
public offering are received by the Company for the account of the Company.
Sale Notice. See Section 3.1.
Securities. Securities shall mean the BBV Securities, the Harvest
Securities, the Paribas Securities, the Management Securities and the TA
Securities.
Stockholder Election Period. See Section 2.2.
Stockholders. Stockholders shall mean, collectively, the Investor
Stockholders and the Management Stockholders.
Subsidiary. Subsidiary shall mean any corporation, association, trust,
or other business entity, of which the designated parent shall at any time own
or control directly or indirectly through a Subsidiary or Subsidiaries at least
a majority (by number of votes) of the outstanding shares of capital stock (or
other shares of beneficial interest) entitled ordinarily to vote for the
election of such business entity's directors (or in the case of a business
entity that is not a corporation, for those Persons exercising functions similar
to directors of a corporation).
TA. See preamble.
TA Securities. TA Securities shall mean (a) all shares of Common Stock
purchased by TA pursuant to the TA Subscription Agreement, (b) the shares of
Common Stock purchased by Jon Tietbohl pursuant to the Subscription Agreement of
even date herewith between the Company and Jon Tietbohl, (c) all shares of the
Company's capital stock issued with respect to such shares by way of stock
dividend or stock split or in connection with any merger, consolidation,
recapitalization or other reorganization affecting the Company's capital stock,
(d) the Notes purchased by Jon Tietbohl pursuant to the Tietbohl Subscription
Agreement and (e) the Notes purchased by TA pursuant to the TA Subscription
Agreement. TA Securities will continue to be TA Securities in the hands of any
holder and each transferee thereof will succeed to the rights and obligations of
a holder of TA Securities hereunder, provided that TA Securities will cease to
be TA Securities when transferred (i) to the Company or (ii) pursuant to a
Public Sale.
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TA Stockholders. TA Stockholder shall mean each of TA and Jon Tietbohl
for so long as such Persons hold TA Securities and any other Person to whom TA
Securities are transferred in accordance with the provisions hereof for so long
as such Person holds any TA Securities.
TA Subscription Agreement. TA Subscription Agreement shall mean the
Subscription Agreement of even date herewith between the Company and TA.
Tietbohl Subscription Agreement. Tietbohl Subscription Agreement shall
mean the Subscription Agreement of even date herewith between the Company and
Jon Tietbohl.
Transferring Stockholder. See Section 2.3. Transfer. See Section 2.1.
ss.2. RESTRICTIONS ON TRANSFER OF SECURITIES.
2.1. Transfer. No Stockholder may sell, assign, pledge or otherwise
transfer (a "Transfer") any interest in any Securities, either voluntarily or
involuntarily, by operation of law or otherwise, except (a) in the case of any
Management Stockholder in a sale or transfer that is permitted or required
pursuant to the Management Purchase Agreement, (b) in the case of any Investor
Stockholder, to (i) its Affiliates, (ii) the Company to the extent such Transfer
is approved in accordance with the provisions of Section 4 hereof and is
permitted under Section 6.6 of the Investor Purchase Agreement or (iii) pursuant
to Section 2.4 hereof, (c) in the case of any Principal Stockholder, (i) up to
26,571 shares of Common Stock and 6,643 shares of Preferred Stock to the
Managers pursuant to the Management Option Agreement, (ii) pursuant to Section
3.2 hereof, or (iii) up to 40,000 shares of Common Stock and Notes in an
aggregate principal amount not to exceed $1,400,000 to PPI pursuant to the
Paribas Option Agreement, (d) at any time after the fifth anniversary hereof, to
any other Person so long as such Stockholder has complied with the provisions of
Sections 2.2 and, except in the case of the Paribas Stockholders, 2.3 hereof for
such Transfer, (e) pursuant to a Public Sale or an Approved Sale pursuant to
Section 3.3 hereof, (f) in the case of any Paribas Stockholder, (i) to any
member of the consolidated group of Compagnie Financiere de Paribas or any
officer or employee of any member of the consolidated group of Compagnie
Financiere de Paribas or (ii) pursuant to Section 3.2 hereof, or (g) in the case
of any Paribas Stockholder holding Paribas Warrants or Paribas Warrant Shares,
the Paribas Warrants and the Paribas Warrant Shares in accordance with Section
5 of the Paribas Warrants; provided that (x) the restrictions contained in this
Section 2 will continue to be applicable to the Securities
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after any Transfer pursuant to clauses (a) (other than a Transfer to the
Company), (b)(i), (b)(iii), (c), (d), (f) or (g) above, and (y) the transferee
of such Securities pursuant to clause (x) above shall have executed and
delivered an Instrument of Accession.
2.2. First Right of Purchase. Any Stockholder making any Transfer of
Securities pursuant to clause (d) of Section 2.1 shall comply with the
provisions of this Section 2.2 and 2.3 hereof. At least 45 days prior to any
such Transfer, the transferring Stockholder (the "Transferring Stockholder")
will deliver a written notice (the "Offer Notice") to the Company and to each of
the other Stockholders (the "Non-Transferring Stockholders"). The Offer Notice
will disclose in reasonable detail the proposed number of Securities to be
transferred, the class or classes of such Securities and the type of such
Securities, the proposed price, terms and conditions of the Transfer and the
identity of the transferee. The Non-Transferring Stockholders may elect to
purchase all (but not less than all) of the Securities specified in the Offer
Notice at the price and on the terms specified therein by delivering written
notice of such election to the Transferring Stockholder within 30 days after the
delivery of such Offer Notice (the "Stockholder Election Period"). If any
Non-Transferring Stockholders elect to purchase all of such Securities, the
Transfer of the Securities will be consummated within 15 days after the
expiration of the Stockholder Election Period. If more than one Non-Transferring
Stockholder elects to purchase all of the Securities of any type or class to be
transferred, each Non-Transferring Stockholder electing to purchase such
Securities will be entitled to purchase from the Transferring Stockholder a pro
rata portion (based upon the respective numbers of shares of Common Stock then
held by such Non-Transferring Stockholders (on a fully-diluted basis treating
all classes of Common Stock as a single class) of the Securities of such type or
class (treating all classes of Common Stock as a single class) proposed to be
transferred. If none of the Non-Transferring Stockholders elects to purchase all
of the Securities being offered, the Transferring Stockholder may, within 90
days after the expiration of the Stockholder Election Period, complete the
Transfer of the Securities specified in the Offer Notice at a price and on terms
no more favorable to the transferees than the price and terms offered to the
Non-Transferring Stockholders in the Offer Notice, provided that no such
Transfer may be completed except in compliance with Section 2.3 and unless each
of such transferees shall have executed and delivered an Instrument of Accession
as a condition precedent to the transfer thereof. If the Transferring
Stockholder fails to consummate such Transfer within the 90 day period after the
expiration of the Stockholder Election Period, any subsequent proposed Transfer
of the Securities shall be once again subject to the provisions of this Section
2.2.
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2.3. Participation Rights. In the event that the Non-Transferring
Stockholders fail to purchase the Securities specified in the Offer Notice, each
of the Non-Transferring Stockholders may elect to participate in any such
contemplated sale by any Transferring Stockholder other than the Paribas
Stockholders by delivering written notice to the Transferring Stockholder within
15 days after expiration of the Stockholder Election Period. If any of the
Non-Transferring Stockholders elects to participate in such sale, each of the
Transferring Stockholder and such participating Non-Transferring Stockholders
will be entitled to sell in the contemplated sale a number of Securities equal
to the product of (i) the fraction, the numerator of which is the number of
Securities of the type or class to be transferred (on a fully-diluted basis
treating all classes of Common Stock as a single class) held by such Person, and
the denominator of which is the aggregate number of Securities of the same type
or class (on a fully-diluted basis, treating all classes of Common Stock as a
single class) owned by the Transferring Stockholder and such participating
Non-Transferring Stockholders, multiplied by (ii) the number of Securities of
the same type or class (on a fully-diluted basis treating all classes of Common
Stock as a single class) to be sold in the contemplated sale.
For example, if the notice from the Transferring Stockholder
contemplated a sale of 100 shares of Common Stock by the Transferring
Stockholder and the Transferring Stockholder at such time owns 300
shares of Common Stock, and if one Non-Transferring Stockholder elects
to participate in such sale and such Non-Transferring Stockholder owns
200 shares of Common Stock (on a fully-diluted basis), such
Transferring Stockholder would be entitled to sell 60 shares (300/500 x
100 shares) and such Non-Transferring Stockholder would be entitled to
sell 40 shares (200/500 x 100 shares).
The Transferring Stockholder will use its best efforts to obtain the agreement
of the prospective transferee(s) to the participation of the Non-Transferring
Stockholders in any contemplated sale and will not transfer any of its
Securities to the prospective transferee(s) if the prospective transferee(s)
declines to allow the participation of the Non-Transferring Stockholders on the
terms specified herein. In addition, in any sale pursuant to this Section 2.3,
the Transferring Stockholder and any participating Non-Transferring Stockholder
shall receive the same form and amount of consideration per Security as is given
the other Non-Transferring Stockholders and the Transferring Stockholders, or if
any such Person is given an option as to the form and amount of consideration to
be received, all of such Persons will be given the same option, and no
Stockholder will be entitled to receive any economic benefits which are not made
available on a pro rata basis to all of
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the other Stockholders. In determining the amount of consideration per Security
payable to any Stockholder in connection with any sale pursuant to this Section
2.3, all consulting, noncompetition, investment banking or other fees payable to
such Stockholder in connection with such sale shall be deemed to be part of the
consideration to be paid to such Stockholder in connection with such sale (other
than any bona fide investment banking fees paid to the TA Stockholders in
connection with any investment banking or advisory services rendered by them in
connection with such sale).
2.4. Exempted Transfers. Notwithstanding any provision herein to the
contrary, any Investor Stockholder may Transfer Securities to the extent
required by governmental rule, law or regulation, or any directive or order of
any governmental authority.
2.5. Transfers of Securities in Breach of this Agreement. In the event
of any Transfer of Securities in breach of this Agreement, commencing
immediately upon the date of such attempted Transfer (a) such Transfer shall be
void and of no effect, (b) no dividend of any kind or any distribution pursuant
to any liquidation, redemption or otherwise shall be paid by the Company to the
purported transferee in respect of such Securities (all such rights to payment
by the transferring Stockholder and/or the purported transferee being deemed
waived), (c) the voting rights of such Securities, if any, shall terminate, and
(d) neither the transferring Stockholder nor the purported transferee shall be
entitled to exercise any rights with respect to such Securities until such
Transfer in breach of this Agreement has been rescinded.
ss.3. SALE OF THE COMPANY.
3.1. Initiation of Sale. At any time after January 30, 2000, the
holders of a majority of the shares of Common Stock included in BBV Securities
or the holders of a majority of the shares of Common Stock included in Harvest
Securities (the "Initiating Stockholders") shall have the right to initiate the
sale of the Company (whether by merger, consolidation, sale of all or
substantially all of its assets or sale of all of the outstanding Common Stock)
by giving written notice to the Company and the other Stockholders of their
desire to sell the Company (the "Sale Notice"). After receipt of the Sale
Notice, the Company's Board of Directors shall appoint an investment banking
firm of nationally recognized standing to deliver a written evaluation of the
Company's value and its prospects for sale, to give advice as to structuring the
sale as a sale of stock or assets and to assist the Company's Board of Directors
in conducting and negotiating the sale. All fees and expenses of such investment
banking firm shall be for the account of the Company. The investment banking
firm shall prepare a confidential information memorandum for presentation to
prospective purchasers and
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shall solicit offers for the acquisition of the Company. The Company and the
Stockholders hereby agree to cooperate fully in any sale initiated pursuant to
this Section 3.1 and not to take any action prejudicial to or inconsistent with
such sale. All offers to acquire the Company which are received by the
investment banking firm referred to above shall be submitted to the Company's
Board of Directors for consideration and shall be subject to the approval of the
Company's Board of Directors. The Initiating Stockholders shall not accept any
such offer received by the investment banking firm referred to above until it
has been approved by the Company's Board of Directors.
3.2. Sale of Initiating Stockholder's Securities. (a) If (i) the
investment banking firm retained by the Company's Board of Directors pursuant to
Section 3.1 shall have received a bona fide written offer from a third party who
is not an Affiliate of the Company (the "Acquisition Offer") to acquire the
Company, (ii) the directors designated by the Initiating Stockholders on the
Company's Board of Directors shall have voted to approve the Acquisition Offer
and (iii) the Board of Directors shall have failed to approve the Acquisition
Offer, then the Initiating Stockholders and the Paribas Stockholders shall be
entitled to sell to the other Principal Stockholders (the "Non-Initiating
Stockholders"), and the Non-Initiating Stockholders shall be obligated to
purchase, all of the Initiating Stockholder's and the Paribas Stockholder's
Securities at the Offer Price Per Security by delivering written notice
requiring such purchase (the "Put Notice") to the Non-Initiating Stockholders
and the Company within 60 days from the date on which the Company's Board of
Directors declined to approve such Acquisition Offer. Each Non-Initiating
Stockholder shall be irrevocably obligated to purchase, at the Offer Price Per
Security, at a closing to be held pursuant to Section 3.2(b) hereof, a pro rata
portion (based on the respective numbers of shares of Common Stock then held by
such Non-Initiating Stockholder (on a fully-diluted basis)) of the Securities
being offered by the Initiating Stockholder and the Paribas Stockholders.
(b) The closing of any sale pursuant to this Section 3.2 shall take
place at the offices of the Company at 10:00 a.m. local time on a date not more
than 60 days after the Put Notice is received by the Company, or at such other
time and place as the Non-Initiating Stockholders, the Initiating Stockholders
and the Paribas Stockholders may agree upon. At the closing, the Initiating
Stockholders and the Paribas Stockholders will deliver to the Non-Initiating
Stockholders a certificate or certificates or instruments evidencing all of the
Securities held by such Initiating Stockholders and the Paribas Stockholders
(properly endorsed or accompanied by stock powers or assignments with
signature(s)
<PAGE>
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guaranteed or similar appropriate documentation of authority to transfer and
free and clear of any mortgage, lien, pledge, charge, security interest,
encumbrance, or other adverse claim thereto), and the Non-Initiating
Stockholders shall pay to the Initiating Stockholders and the Paribas
Stockholders the purchase price therefor in cash or in immediately available
funds.
3.3. Consent of Stockholders. If at any time the Company's Board of
Directors approves the sale of the Company to any Person who is not an Affiliate
of the Company (whether by merger, consolidation, sale of all or substantially
all of the Company's assets or sale of all of the outstanding shares of Common
Stock and Preferred Stock in which all of the Stockholders are entitled to
participate) (an "Approved Sale"), each Stockholder hereby waives, to the extent
permitted by applicable law, all rights to object to or dissent from such
Approved Sale and hereby agrees that it will consent to and raise no objections
against such Approved Sale. Each Stockholder agrees to vote such Stockholder's
Securities entitled to vote to approve the terms of any such Approved Sale and
any matters ancillary thereto as may be necessary in the judgment of the
Company's Board of Directors to effect such Approved Sale. If the Approved Sale
is structured as a sale of Securities, each Stockholder agrees to sell all of
such Stockholder's Securities on the terms and conditions approved by the
Company's Board of Directors. Notwithstanding the foregoing the Paribas
Stockholders shall not be required to make any representations and warranties to
the purchaser in any Approved Sale other than with respect to such Paribas
Stockholder's title to its Securities, provided that the Paribas Stockholders
shall nonetheless be liable for any indemnification obligations in connection
with any Approved Sale on the same terms as the other Stockholders, but only to
the extent of the proceeds received by the Paribas Stockholders in such Approved
Sale.
3.4. Received Consideration. The obligations of each Stockholder with
respect to any Approved Sale are subject to the satisfaction of the conditions
that (a) upon the consummation of the Approved Sale, each Stockholder will
receive the same form and amount of consideration per share of outstanding
Common Stock and Preferred Stock and per Note as is given to each other
Stockholder, or if any holders are given an option as to the form and amount of
consideration to be received, all holders will be given the same option, and no
Stockholder will be entitled to receive any economic benefits which are not made
on a pro rata basis to all of the other Stockholders; provided, that (i) no
Stockholder shall be required to accept any consideration which it is prohibited
by law from receiving and (b) in such event, such Stockholder shall be entitled
to receive cash or the economic equivalent of such consideration in other
property, and (ii) receipt by the holders of Securities of a written fairness
opinion from an investment
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banking firm of national prominence which is not an Affiliate of the Company or
of any Stockholder and which is selected by the Company's Board of Directors
that the consideration per share of Common Stock and Preferred Stock and per
Note to be received by each holder of Securities is not less than the fair value
thereof. In determining the amount of consideration per share payable to any
Stockholder in connection with an Approved Sale, all consulting, noncompetition,
investment banking or other fees payable to such Stockholder in connection with
such Approved Sale shall be deemed to be part of the consideration payable to
such Stockholder in such Approved Sale (other than any bona fide investment
banking fees paid to the TA Stockholders in connection with any investment
banking or advisory services rendered by them in connection with such Approved
Sale).
3.5. Proxy. Each Stockholder hereby appoints the Company in any
Approved Sale as such Stockholder's true and lawful proxy and attorney, with
full power of substitution, to vote all of such Stockholder's Securities
entitled to vote to effectuate the agreements set forth in this Section 3 in the
event of any breach by such Stockholder of its obligations under this Section 3.
The proxies and powers granted by each Stockholder pursuant to this Section 3.5
are coupled with an interest and are given to secure the performance of such
Stockholder's duties under this Section 3. Such proxies are irrevocable for so
long as this Section 3 remains in effect and will survive the death,
incompetency or disability of any Stockholder who is an individual and the
merger, liquidation or dissolution of any Stockholder that is a corporation,
partnership or other entity.
ss.4. BOARD OF DIRECTORS.
4.1. Boards of Directors; Voting Agreements. (a) Subject to adjustment
as provided below, in any and all elections of directors of the Company and its
Subsidiaries (whether at a meeting or by written consent in lieu of a meeting),
each Stockholder shall vote, or cause to be voted, or cause such Stockholder's
designees as directors to vote, all shares of Class A Common Stock owned by such
Stockholder or over which such Stockholder has voting control so as to fix the
number of directors of each of the Company and its Subsidiaries at five, and to
nominate and elect such five directors of the Company and its Subsidiaries as
follows:
(i) Two individuals designated by the holders of a majority of
the outstanding shares of Common Stock included in BBV Securities;
(ii) Two individuals designated by the holders of a majority
of the outstanding shares of Class A Common Stock included in Harvest
Securities; and
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(iii) Frank Marfino, so long as he continues to be employed by
the Company as President and Chief Executive Officer, and thereafter,
his successor as President and Chief Executive Officer of the Company.
(b) If any vacancy shall occur in the Board of Directors of the Company
or any of its Subsidiaries as a result of death, disability, resignation or any
other termination of a director, the replacement for such vacating director
shall be designated by the Person who, pursuant to ss.4.1(a) above, originally
designated such vacating director. Each Person entitled to designate a director
pursuant to this ss.4 shall also be entitled to designate the removal of such
director with or without cause and a replacement for any director so removed.
Each Stockholder hereby agrees to vote or cause to be voted or cause such
Stockholder's designees as directors to vote all shares of Class A Common Stock
owned by such Stockholder so as to comply with this ss.4.1(b).
4.2. Consent to Certain Actions. The Company hereby agrees that it will
not take, and will not permit any of its Subsidiaries to take any of the actions
set forth in Schedule 2 attached hereto and incorporated herein by reference,
and each of the Stockholders hereby agrees that it shall not vote for or cause
any of the directors designated by it to vote for or approve any of the actions
set forth on Schedule 2, unless such action has been approved by (i) the
affirmative vote of the directors designated by the BBV Stockholders pursuant to
Section 4.1(a)(i) hereof at any time while any director so designated is serving
on the Company's Board of Directors or such BBV Stockholders holding a majority
of the then outstanding shares of Common Stock included in BBV Securities at any
time when such Persons have not designated any directors pursuant to Section
4.1(a)(i) hereof and (ii) the affirmative vote of the directors designated by
the Harvest Stockholders pursuant to Section 4.1(a)(ii) hereof at any time while
any director so designated is serving on the Company's Board of Directors or
such Harvest Stockholders holding a majority of the then outstanding shares of
Class A Common Stock included in Harvest Securities at any time when such
Persons have not designated any directors pursuant to Section 4.1(a)(ii) hereof.
4.3. PROXY. EACH STOCKHOLDER HEREBY GRANTS TO THE COMPANY AN
IRREVOCABLE PROXY, COUPLED WITH AN INTEREST, TO VOTE ALL OF SUCH STOCKHOLDER'S
VOTING SECURITIES TO THE EXTENT NECESSARY TO CARRY OUT THE PROVISIONS OF THIS
SECTION 4 IN THE EVENT OF ANY BREACH BY SUCH STOCKHOLDER OF HIS, HER OR ITS
OBLIGATIONS UNDER THE VOTING AGREEMENT CONTAINED HEREIN.
4.4. Action by Stockholders. Each Stockholder further agrees that such
Stockholder will not vote any voting securities owned by such
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Stockholder or over which such Stockholder has voting control, or take any
action by written consent, or take any other action as a stockholder of the
Company, to circumvent the voting arrangements required by this ss.4. Without
limiting the generality of the foregoing, each Stockholder agrees not to (a)
vote any voting securities owned by such Stockholder or over which such
Stockholder has voting control, or take any other action as a stockholder of the
Company, to approve any corporate action or transaction by the Company not
previously approved by the Board of Directors of the Company elected in
accordance with this ss.4 or (b) commence or maintain any shareholder's
derivative suit challenging any action or transaction approved by the Company's
Board of Directors.
ss.5. LIMITED FIRST REFUSAL RIGHTS.
5.1. Anti-Dilution Provision. Except for the issuance of Common Stock
(or securities convertible into or containing options or rights to acquire
shares of Common Stock) (a) pursuant to a Public Sale, (b) pursuant to the
Company's 1995 Stock Option Plan, (c) the proceeds of which are used solely to
finance any acquisition of all or substantially all of the assets or stock of
any Person which is approved in accordance with Section 4.2 hereof, (d) upon
conversion of Common Stock of another class, or (e) pursuant to the exercise of
the Paribas Warrants, if the Company authorizes the issuance and sale of any
shares of capital stock or any securities convertible into or containing options
or rights to acquire any shares of capital stock (other than as a dividend on
the outstanding Common Stock), the Company will first offer to sell to each
Major Holder a portion of such securities equal to the percentage determined by
dividing (i) the sum of (A) the number of shares of Common Stock held by such
Major Holder plus (B) the number of shares of Common Stock then purchasable by
such Major Holder upon the exercise of all outstanding options and the
conversion of all outstanding convertible securities held by such Major Holder,
by (ii) the sum of (A) the number of shares of Common Stock then outstanding
plus (B) the number of shares of Common Stock then purchasable upon exercise of
all outstanding options and the conversion of all outstanding convertible
securities. Each Major Holder will be entitled to purchase all or part of such
stock or securities at the same price and on the same terms as such stock or
securities are to be offered to any other Persons.
5.2. Major Holders' Exercise of Right. Each Major Holder must exercise
such Major Holder's purchase rights hereunder within 30 days after receipt of
written notice from the Company describing in reasonable detail the stock or
securities being offered, the purchase price thereof, the payment terms and such
Major Holder's percentage allotment. If all of the stock or securities offered
to the Major Holders are not fully subscribed by the Major
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Holders, the stock or securities which are not so subscribed for will be
reoffered to the Major Holders purchasing their full allotment upon the terms
set forth in this ss.5, except that such Major Holders must exercise their
purchase rights within 10 days after receipt of such reoffer.
5.3. Company's Exercise of Right. Upon the expiration of the offering
periods described above, the Company will be free to sell such stock or
securities which the Major Holders have not elected to purchase during the 60
days following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to the Major Holders. Any stock or
securities offered or sold by the Company after such 60-day period must be
reoffered to the Major Holders pursuant to the terms of this ss.5.
ss.6. PARIBAS PARTICIPATION RIGHTS. No Principal Stockholder may, at
any time after the completion of a Qualified Public Offering, Transfer to the
Company or any other Person any Common Stock constituting Securities without
complying with the provisions of this Section 6, except (i) pursuant to a Public
Sale or (ii) to an Affiliate of such Principal Stockholder. The Principal
Stockholder will deliver a notice to the Paribas Stockholders at least 15 days
prior to such Transfer. Such notice will disclose in reasonable detail the
number of shares of Common Stock to be transferred, the class or classes of such
Common Stock, the proposed price, terms and conditions of the Transfer and the
identity of the transferee. Each of the Paribas Stockholders may elect to
participate in the contemplated Transfer by delivering written notice to the
Principal Stockholders within 15 days after delivery of the notice from the
Principal Stockholder. Each of the Principal Stockholder and the Paribas
Stockholders will be entitled to sell in the contemplated sale, at the same
price and on the same terms, a number of shares of Common Stock constituting
Securities equal to the product of (i) the fraction, the numerator of which is
the number of shares of Common Stock constituting Securities (on a fully-diluted
basis, treating all classes of Common Stock as a single class) held by such
Person, and the denominator of which is the aggregate number of shares of Common
Stock constituting Securities (on a fully-diluted basis, treating all classes of
Common Stock as a single class) owned by the Principal Stockholder and such
participating Paribas Stockholders, multiplied by (ii) the number of shares of
Common Stock constituting Securities (on a fully-diluted basis, treating all
classes of Common Stock as a single class) to be sold in the contemplated sale.
The transferring Principal Stockholder will use its best efforts to obtain the
agreement of the prospective transferee(s) to the participation of the Paribas
Stockholders in any contemplated sale and will not transfer any of its Common
Stock constituting Securities to the prospective transferee(s) if the
prospective transferee(s) declines to allow the participation of the Paribas
Stockholders on the terms specified herein. In addition, in any sale pursuant to
<PAGE>
-18-
this Section 6, each Principal Stockholder and Paribas Stockholder shall receive
the same form and amount of consideration per Security as is given the other
Principal Stockholders and the Paribas Stockholders, or if any such Person is
given an option as to the form and amount of consideration to be received, all
of such Persons will be given the same option, and no Stockholder will be
entitled to receive any economic benefits which are not made available on a pro
rata basis to all of the other Stockholders. In determining the amount of
consideration per share of Common Stock payable to any Stockholder in connection
with any sale pursuant to this Section 6, all consulting, noncompetition,
investment banking or other fees payable to such Stockholder in connection with
such sale shall be deemed to be part of the consideration to be paid to such
Stockholder in connection with such sale (other than any bona fide investment
banking fees paid to the TA Stockholders in connection with any investment
banking or advisory services rendered by them in connection with such sale).
ss.7. ADDITIONAL LEGEND. So long as any Securities are subject to the
provisions hereof, (a) all certificates representing shares of Common Stock and
Preferred Stock constituting Securities will have imprinted on them the
following legend:
The shares represented by this certificate are subject to the terms of
a certain Stockholder Agreement, dated as of January 30, 1995, among
the issuer of this certificate and certain investors. The Stockholder
Agreement contains certain restrictive provisions relating to the
voting and transfer of shares of the stock represented hereby. A copy
of the Stockholder Agreement is on file at the Company's principal
offices. Upon written request to the Company's Secretary, a copy of the
Stockholder Agreement will be provided without charge to appropriately
interested persons.
and (b) all Notes which constitute Securities will bear the following legend:
This Note is subject to the terms of a certain Stockholder Agreement,
dated as of January 30, 1995, among the issuer of this Note and certain
investors. The Stockholder Agreement contains certain restrictive
provisions relating to the transfer of this Note. A copy of the
Stockholder Agreement is on file at the Company's principal offices.
Upon written request to the Company's Secretary, a copy of the
Stockholder Agreement will be provided without charge to appropriately
interested persons.
ss.8. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be
<PAGE>
-19-
invalid, illegal or unenforceable in any respect under any applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability will
not affect any other provision or any other jurisdiction, but this Agreement
will be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
ss.9. ENTIRE AGREEMENT. Except as otherwise expressly set forth herein,
this document embodies the complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and thereof and
supersedes and preempts any prior understandings, agreements or representations
by or among the parties, written or oral, which may have related to the subject
matter hereof in any way.
ss.10. SUCCESSORS AND ASSIGNS. This Agreement will bind and inure to
the benefit of and be enforceable by the Company and the Stockholders and their
respective successors and assigns.
ss.11. COUNTERPARTS. This Agreement may be executed in separate
counterparts each of which will be an original and all of which taken together
will constitute one and the same agreement.
ss.12. REMEDIES. The Stockholders will be entitled to enforce their
rights under this Agreement specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights existing in their favor. The parties
hereto agree and acknowledge that money damages may not be an adequate remedy
for any breach of the provisions of this Agreement and that any Stockholder may
in its sole discretion apply to any court of law or equity of competent
jurisdiction for specific performance and/or injunctive relief in order to
enforce or prevent any violation of the provisions of this Agreement. In the
event of any dispute involving the terms of this Agreement, the prevailing party
shall be entitled to collect reasonable fees and expenses incurred by the
prevailing party in connection with such dispute from the other parties to such
dispute.
ss.13. NOTICES. Any notice provided for in this Agreement will be in
writing and will be deemed properly delivered if either personally delivered or
sent by overnight courier or mailed certified or registered mail, return receipt
requested, postage prepaid to the recipient at the address listed for such
Stockholder in the stock records of the Company. Any such notice shall be
effective (i) if delivered personally, when received, (ii) if sent by overnight
courier, when receipted for, and (iii) if mailed, 3 days after being mailed as
described above. The Company agrees to make available to each Stockholder upon
request an address list of all Stockholders to ensure correct delivery of all
notices hereunder.
<PAGE>
-20-
ss.14. AMENDMENT AND WAIVER. No modification, amendment or waiver of
any provision of this Agreement will be effective against the Company or the
Investor Stockholders unless such modification, amendment or waiver is approved
in writing by the holders of at least 70% of the total number of then
outstanding shares of Common Stock constituting Securities hereunder; provided,
however, that no amendment, modification or waiver of any provision of this
Agreement that materially adversely affects the rights of one particular Party
(as hereinafter defined) to this Agreement (whether or not such amendment,
modification or waiver materially adversely affects such Party in a manner
different from the rights of the other Parties) shall be effective against such
adversely affected Party unless approved in writing by the holders of at least
fifty-one (51%) of the total number of outstanding shares of Common Stock then
held by all members of such Party. As used in this Section 13, "Party" means any
one of the following entities or groups: (i) the Company, (ii) BBV, (iii) the
BBV Stockholders, (iv) the Harvest Stockholders, (v) the Paribas Stockholders,
(vi) the Management Stockholders, (vii) the TA Stockholders and (viii) in the
case of Section 4.1(a), Frank Marfino. The failure of any party to enforce any
of the provisions of this Agreement will in no way be construed as a waiver of
such provisions and will not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its terms.
ss.15. EMPLOYMENT. Nothing contained in this Agreement is intended to
create for any Stockholder who is a Manager a right to continued employment with
the Company or employment in the same position or on the same terms as those
currently in effect. Any such right to employment shall be pursuant to a
separate employment agreement between the Company and such Stockholder.
ss.16. TERMINATION. This Agreement (other than Section 6) will
terminate upon the earliest to occur of (i) the completion of any voluntary or
involuntary liquidation or dissolution of the Company, (ii) the completion of a
Qualified Public Offering or (iii) the completion of any Approved Sale.
ss.17. GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF
THE STATE OF DELAWARE.
ss.18. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
<PAGE>
-21-
IN WITNESS WHEREOF, the parties hereto have executed this Stockholder
Agreement on the day and year first above written.
CDI GROUP, INC.
By: ______________________________
Title: ___________________________
BANCBOSTON VENTURES INC.
By: ______________________________
Title: ___________________________
HARVEST PARTNERS
INTERNATIONAL, LP
By: ______________________________
Title: ___________________________
HARVEST TECHNOLOGY
PARTNERS, LP
By: ______________________________
Title: ___________________________
EUROPEAN DEVELOPMENT
CAPITAL CORPORATION N.V.
By: ______________________________
Title: ___________________________
DEUTSCHE
BETEILIGUNGSGESELLSCHAFT
MBH
<PAGE>
-22-
By: ______________________________
Title: ___________________________
BANQUE PARIBAS
By: ______________________________
Title: ___________________________
PARIBAS PRINCIPAL, INC.
By: ______________________________
Title: ___________________________
TA HOLDING, INC.
By: ______________________________
Title: ___________________________
__________________________________
Jon Tietbohl
__________________________________
Frank Marfino
<PAGE>
-23-
SCHEDULE 1
TO STOCKHOLDER
AGREEMENT
Instrument of Accession
The undersigned, ____________________, in order to become the owner or
holder of [________ shares of [Preferred Stock] [[Class A Voting] [Class B
Non-Voting] Common Stock, $.00001 par value per share] [a Senior Subordinated
Note in the principal amount of $__________] of CDI Group, Inc., a Delaware
corporation, hereby agrees to become a Stockholder party to that certain
Stockholder Agreement, dated as of January 30, 1995 (the "Stockholder
Agreement"), a copy of which is attached hereto. This Instrument of Accession
shall become a part of such Stockholder Agreement.
Executed as of the date set forth below under the laws of the State of
Delaware.
Signature: ___________________________
Address: ___________________________
___________________________
___________________________
Date: ___________________________
Accepted:
CDI GROUP, INC.
By: _______________________________
Date: _____________________________
<PAGE>
-24-
SCHEDULE 2
TO STOCKHOLDER
AGREEMENT
I. Consent to Certain Actions
(a) the establishment and modification of the annual budget and
forecasts with respect to operating income, cash flow, and capital expenditures
of the Company and its Subsidiaries;
(b) the establishment of any pension, insurance or benefit plan for any
employee of the Company and its Subsidiaries (including, without limitation,
officers and directors liability insurance);
(c) except as provided in the annual budget approved pursuant to clause
(a) above, (i) the entering into by the Company or any of its Subsidiaries of
any operating lease which requires total payments of more than $100,000 over the
term of such lease, (ii) the making of any capital expenditure in excess of
$20,000 for any single expenditure or project or such expenditures or projects
which individually have a value of less than $20,000 but which aggregate more
than $75,000 in any fiscal year and (iii) the sale or any commitment for the
sale by the Company or any of its Subsidiaries of any assets or property which
individually have a value of more than $25,000 or such assets or property which
individually have a value of less than $25,000 but which aggregate more than
$100,000 in any fiscal year;
(d) the issuance, purchase, redemption or repurchase, or determination
whether to exercise repurchase rights, of any Common Stock or other securities
of the Company and its Subsidiaries including, without limitation, options and
warrants, and the selection of an appraiser in connection with any repurchase
pursuant to the Management Purchase Agreement;
(e) the declaration or payment of any dividends or other distribution in
respect of the capital of the Company and its Subsidiaries;
(f) the making of an initial public offering of the securities of the
Company or its Subsidiaries;
(g) the borrowing of any money by the Company or any of its Subsidiaries
including, without limitation, the establishment of a line of credit at any bank
or other financial institution except for the borrowings contemplated by the
Credit Agreement as in effect on the Closing Date;
<PAGE>
-25-
(h) the giving by the Company or any of its Subsidiaries of any
guaranties or indemnities in connection with the debt or other obligations of
any Person, other than endorsements of negotiable instruments in the ordinary
course of business;
(i) the institution or settlement of any lawsuit or other legal
proceeding involving a claim by the Company or any of its Subsidiaries of more
than $100,000;
(j) any action to effect the voluntary, or which would precipitate an
involuntary, dissolution or winding-up of the Company or any of its
Subsidiaries;
(k) the entering into by the Company or any of its Subsidiaries of any
partnership, joint venture or other similar joint business undertaking;
(l) the creation, modification, amendment or repeal of the Charter or
by-laws of the Company or any of its Subsidiaries;
(m) the establishment of any new business or change in the business of
the Company and its Subsidiaries;
(n) the entering into or consummating of any merger or consolidation, or
sale, lease, sublease or other transfer or disposition of any assets of the
Company or any of its Subsidiaries or the voting stock of any Subsidiary of the
Company (other than sales of assets in the ordinary course of business
consistent with past practice or any sales of assets provided in the annual
budget approved pursuant to clause (a) above or permitted pursuant to clause (c)
above);
(o) the acquisition or making by the Company or any of its Subsidiaries
of any Investment (as defined in the Credit Agreement) except for the
Investments permitted pursuant to the Credit Agreement as in effect on the
Closing Date;
(p) (i) the entering into by the Company or any of its Subsidiaries of
any transaction with any Affiliate on terms more favorable to such Affiliate
than would have been obtainable on an arms-length basis in the ordinary course
of business, or (ii) the making of any payment (whether in cash, securities or
other property) to or for the benefit of any Affiliate of the Company or any of
its Subsidiaries in respect of any indebtedness owed by, or other obligation of,
the Company or any of its Subsidiaries to such Affiliate, other than (A)
compensation (other than any bonuses or any increases in base
<PAGE>
-26-
salary from the level specified for the Initial Term (as such term is defined in
the Employment Agreements)) payable to each of Frank Marfino and Todd Pluymers
pursuant to the terms of the Employment Agreements as in effect on the Closing
Date, (B) payments made pursuant to the Management Fee Agreement, (C) the
reasonable compensation and reimbursement for out-of-pocket expenses of any
member of the Board of Directors of the Company or any of its Subsidiaries who
is not an employee, officer or shareholder of the Company or its Subsidiaries,
not to exceed $5,000 per meeting of the Board of Directors, and (D) the
reasonable costs and expenses associated with any rights of board or executive
committee attendance or observation or inspection and lodging expenses related
thereto;
(q) any amendment or modification of, or the granting of any waiver, or
the failure to enforce any of the rights of the Company pursuant to, any of the
Related Agreements;
(r) the appointment and termination of the President, Chief Executive
Officer, Chief Operating Officer or Chief Financial Officer of the Company and
its Subsidiaries, any President of any division of the Company and its
Subsidiaries or any Vice President of the Company and its Subsidiaries (or
Persons holding equivalent positions to any of the foregoing), and the
establishment of any bonus plan or incentive compensation payable to any of such
officers of the Company or its Subsidiaries;
(s) the appointment and retention of auditors and legal counsel for the
Company and its Subsidiaries;
(t) retaining and compensating by the Company or any of its Subsidiaries
any consultant, advertising agency, public relations firm, investment banker or
other advisor or professional whose annual remuneration exceeds $50,000; and
(u) the prepayment of any of the Company's Senior Subordinated Notes
issued pursuant to the Investor Purchase Agreement.
II. Definitions
Capitalized terms defined in the Investor Purchase Agreement and not
otherwise defined herein are used herein with the meanings so defined.
<PAGE>
FIRST AMENDMENT TO STOCKHOLDER AGREEMENT
This FIRST AMENDMENT TO STOCKHOLDER AGREEMENT, dated as of October 16,
1997, is made by and among CDI Group, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Company"), and the stockholders of
the Company set forth on the signature pages hereto (each, a "Stockholder", and
collectively, the "Stockholders").
BACKGROUND
WHEREAS, the Company, the Stockholders and certain other holders of
capital stock of the Company entered into a Stockholder Agreement, dated as of
January 30, 1995 (the "Stockholder Agreement"), in connection with the
acquisition by the Company of Community Distributors, Inc., a corporation
organized and existing under the laws of the State of Delaware ("CDI");
WHEREAS, the Company and CDI entered into a Credit Agreement, dated as
of January 30, 1995, with the various banks named therein and Banque Paribas as
Agent (the "Old Credit Facility");
WHEREAS, CDI intends to issue approximately $80,000,000 in Senior Notes
due 2004, and use the proceeds thereof to (i) repay the amounts outstanding
under the Old Credit Facility, and (ii) pay a dividend of approximately
$45,000,000 to the Company, its sole stockholder;
WHEREAS, in connection with the repayment of the Old Credit Facility,
CDI intends to enter into a new Loan and Security Agreement with PNC Bank,
National Association, which Loan and Security Agreement shall provide for a
revolving line of credit in the maximum principal amount of $20,000,000 (the
"New Credit Facility");
WHEREAS, under the terms of the Stockholder Agreement, the Company
requires the consent of certain of the Stockholders to take certain actions,
including borrowing money other than under the Old Credit Facility; and
WHEREAS, the Stockholders are holders of at least 70% of the total
number of outstanding shares of common stock of the Company constituting
"Securities" under the Stockholder Agreement.
WHEREAS, the Company and the Investors desire to amend the Stockholder
Agreement, primarily to change the reference to the Old Credit Facility to a
reference to the New Credit Facility.
<PAGE>
-2-
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Stockholders do
hereby agree as follows:
1. Amendment of Stockholder Agreement.
The Stockholder Agreement is hereby amended as follows:
(a) Section 1 of the Stockholder Agreement is amended by deleting the
definition of "Investor Purchase Agreement" appearing in such Section in its
entirety and replacing it with the following:
"Investor Purchase Agreement. Investor Purchase Agreement
shall mean the Investor Securities Purchase Agreement, dated as of
January 30, 1995, among the Company, BBV and the Initial Harvest
Stockholders, as the same may be amended from time to time."
(b) Section 4.1(a) of the Stockholder Agreement is amended by deleting
the existing Section 4.1(a) in its entirety and inserting the following in
substitution thereof:
"4.1. Boards of Directors; Voting Agreements. (a) Subject to
adjustment as provided below, in any and all elections of directors of
the Company and its Subsidiaries (whether at a meeting or by written
consent in lieu of a meeting), each Stockholder shall vote, or cause to
be voted, or cause such Stockholder's designees as directors to vote,
all shares of Class A Common Stock owned by such Stockholder or over
which such Stockholder has voting control so as to fix the number of
directors of each of the Company and its Subsidiaries at five, and to
nominate and elect up to five directors of the Company and its
Subsidiaries to comprise such boards of directors as follows:
(i) Up to two individuals designated by the holders of a
majority of the outstanding shares of Common Stock included in the BBV
Securities;
(ii) Up to two individuals designated by the holders of a
majority of the outstanding shares of Class A Common Stock included in
the Harvest Securities; and
(iii) Frank Marfino, so long as he continues to be employed by
the Company as President and Chief Executive Officer, and thereafter,
his successor as President and Chief Executive Officer of the Company."
<PAGE>
-3-
(c) Schedule 2 to the Stockholder Agreement is amended by deleting the
existing paragraph I(g) of such Schedule 2 in its entirety and inserting the
following in substitution thereof:
"(g) the borrowing of any money by the Company or any of its
Subsidiaries including, without limitation, the establishment of a line
of credit at any bank or other financial institution except for the
borrowings contemplated by the Credit Agreement as in effect on October
16, 1997."
2. No Other Amendment.
Except as specifically provided herein, the Stockholder Agreement shall
remain in full force and effect in the form in which it existed on the date
hereof prior to giving effect to the terms of this First Amendment to
Stockholder Agreement and the Company and the Stockholders ratify and reaffirm
the Stockholder Agreement in its entirety, as modified hereby.
[signature pages follow]
<PAGE>
-4-
IN WITNESS WHEREOF, the parties hereto have cause this First Amendment
to Stockholder Agreement to be duly executed as an instrument under seal as of
the date first above written.
COMPANY:
CDI GROUP, INC.
By: _____________________________________
Title: ________________________________
STOCKHOLDERS:
BANCBOSTON VENTURES INC.
By: _____________________________________
Title: ________________________________
HARVEST PARTNERS
INTERNATIONAL, LP
By: _____________________________________
Title: ________________________________
HARVEST TECHNOLOGY PARTNERS, LP
By: _____________________________________
Title: ________________________________
EUROPEAN DEVELOPMENT CAPITAL
CORPORATION N.V.
By: _____________________________________
Title: ________________________________
<PAGE>
-5-
DEUTSCHE
BETEILIGUNGSGESELLSCHAFT MBH &
CO. FONDS I KG
By: _____________________________________
Title: ________________________________
DBG AUSLANDS-HOLDING GMBH
By: _____________________________________
Title: ________________________________
BANQUE PARIBAS
By: _____________________________________
Title: ________________________________
PARIBAS PRINCIPAL, INC.
By: _____________________________________
Title: ________________________________
TA HOLDING, INC.
By: _____________________________________
Title: ________________________________
_________________________________________
Jon Tietbohl
_________________________________________
Frank Marfino
WARRANT PURCHASE AGREEMENT
WARRANT PURCHASE AGREEMENT (the "Agreements"), dated as of January 30,
1995, between CDI Group, Inc. (the "Company") and the Holder (as defined below)
listed on the signature pages hereof.
W I T N E S S E T H:
WHEREAS, the Company, Community Distributors, Inc. (as surviving
corporation of the merger of Newrxco, Inc. with and into Community Distributors,
Inc., the "Borrowers"), the financial institutions from time to time party
thereto (the "Banks") and Banque Paribas, as agent for such Banks (the "Agent"),
are parties to a Credit Agreement of even date herewith (as the same shall be
amended, modified and supplemented and in effect from time to time, the "Credit
Agreements");
WHEREAS, in order to induce Banque Paribas, individually and as Agent, to
enter into the Credit Agreement, the Company has authorized the issuance of the
Warrants (as defined below) which are exercisable, pursuant to the terms and
conditions thereof, for Class A Common Stock (as defined below) of the Company;
and
WHEREAS, the Holder desires to subscribe for, and the Company desires to
issue to the Holder, upon the terms and conditions set forth herein, the
Warrants substantially in the form of Exhibit A hereto (the "Warrants");
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Definitions.
1.01 Definitions. The following terms, as used herein, shall have the
following respective meanings:
"Class A Common Stock" shall mean the Company's authorized Class A Voting
Common Stock, $.00001 par value per share.
"Class B Common Stock" shall mean the Company's authorized Class B
Non-Voting Common Stock, $.00001 par value per share.
<PAGE>
"Common Stock" shall mean and include the Company's Class A Common Stock
and Class B Common Stock as constituted on the date hereof.
"Exercise Period" shall mean the period of time from January 30, 1995 until
5:30 P.M., local time in New York City, on the tenth anniversary thereof.
"Holder" shall mean the holder of any Warrant or Warrant Share.
"Investors" shall mean BancBoston Ventures Inc. and Harvest Partners, Inc.
"Investor Securities Purchase Agreement" shall mean the Investor Securities
Purchase Agreement, dated as of January 30, 1995 among the Company, the
Investors and the other parties signatory thereto, as such agreement shall be
amended, modified and supplemented from time to time in accordance with the
provisions thereof.
"Paribas" shall mean Banque Paribas, acting through its Cayman Islands
Branch.
"Person" shall mean an individual, a corporation, a company, a voluntary
association, a partnership, a trust, an unincorporated organization or a
government or any agency, instrumentality or political subdivision thereof.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated as of January 30, 1995 among the Company, the Investors and the
other parties signatory thereto, as such agreement shall be amended, modified
and supplemented from time to time in accordance with the provisions thereof.
"Required Holders" shall mean the holders of more than 50% of all Warrant
Shares (assuming the full exercise of all Warrants).
"Stockholder" shall mean each of the Company's stockholders.
"Stockholders' Agreement" shall mean the Stockholders' Agreement, dated as
of January 30, 1995, among the Company, the Investors and the other parties
signatory thereto, as such agreement shall be amended, modified and supplemented
from time to time in accordance with the provisions thereof.
"Warrant" shall mean a Warrant substantially in the form of Exhibit A
hereto, and any Warrant or Warrants issued upon transfer of, or in substitution
therefor.
"Warrantholder" shall mean the holder of any Warrant.
-2-
<PAGE>
"Warrant Share" shall mean any share of Common Stock issued or issuable
upon exercise of any Warrant. For purposes of this Agreement, a Warrant Share
shall be "outstanding" from and after the date hereof until the redemption or
cancellation of such Warrant Share (or, if the related Warrant has not been
exercised, the expiration, repurchase or cancellation of such Warrant) by the
Company.
Section 2. Terms and Conditions of Issuance of Warrant.
2.01 Issuance of the Warrant. In consideration of the premises and other
good and valuable consideration, the Company hereby agrees to (i) issue on the
date hereof to the Holder listed on the signature pages hereto a Warrant to
purchase 16,667 shares of Common Stock (as such number may be adjusted as
provided in the Warrant) and (ii) deliver to the Holder a legal opinion dated
the date hereof and addressed to the Holder, in form and substance satisfactory
to the Holder, in connection with the issuance of the Warrant from counsel
satisfactory to the Holder.
2.02 Warrant Shares. The Warrant to be issued on the date hereof under this
Agreement shall entitle the Holder to exercise such Warrant for 16,667 shares of
Common Stock (as such number may be adjusted as provided in the Warrant)
representing as of the date hereof the right to receive shares of Common Stock
equal to 4% of the total Common Stock (determined on a fully diluted basis after
giving effect only to the issuance of all Warrant Shares).
Section 3. Representations and Warranties of the Company. The Company
represents and warrants to the Holder as follows:
3.01 Incorporation of Representations and Warranties. The representations
and warranties of the Company contained in the Credit Agreement and in the
Investor Securities Purchase Agreement are each incorporated herein by reference
and made a part hereof as if set forth herein and such representations and
warranties are true and correct in all material respects on the date hereof.
3.02 Authorization. The Company has all necessary power and authority to
execute, deliver and perform its obligations under this Agreement, the
Stockholders' Agreement, the Investor Securities Purchase Agreement and the
Registration Rights Agreement and the Warrant and to issue and deliver the
Warrant and Warrant Shares; the execution, delivery and performance by the
Company of this Agreement, the Stockholders' Agreement, the Investor Securities
Purchase Agreement and the Registration Rights Agreement and the Warrant have
been duly authorized by all necessary action; each of this Agreement, the
Stockholders' Agreement, the Investor Securities Purchase Agreement and the
Registration Rights Agreement and the Warrant has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company
-3-
<PAGE>
enforceable in accordance with its terms, subject, as to enforceability, to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws relating to creditors' rights generally or by
general equitable principles.
3.03 Valid Issuances. The Warrant, when issued and delivered pursuant
hereto, and the Warrant Shares when issued and delivered pursuant to the
Warrants, will be validly issued, fully paid and non-assessable and are not
subject to any preemptive rights, rights of first refusal or rights of first
offer except as set forth in the Stockholders' Agreement. Sufficient shares of
authorized but unissued Class A Common Stock have been reserved by all necessary
corporate action in connection with the exercise of the Warrant and the issuance
of the Warrant Shares upon exercise thereof. Except for the registration rights
as set forth in the Registration Rights Agreement, the Company is not under any
obligation to cause the registration of any of its presently outstanding
securities or any of its securities which hereafter may be issued.
3.04 No Breach. Except for securities law filings required pursuant to the
Registration Rights Agreement, none of the execution, delivery or performance of
this Agreement, the Stockholders' Agreement, the Investor Securities Purchase
Agreement, the Registration Rights Agreement and the Warrants, the consummation
of the transactions herein or therein contemplated, including the issuance and
delivery of the Warrant and, upon the exercise of the Warrant, the Warrant
Shares, or compliance with the terms and provisions hereof or thereof will
conflict with or result in a breach of, or require any consent under, the
Certificate of Incorporation or By-Laws of the Company, or any applicable law or
regulation, or any order, writ, injunction or decree of any court or
governmental authority or agency, or any agreement or instrument to which the
Company or any of its subsidiaries is a party or by which it is bound or to
which any of its properties or assets is subject, or constitute a default under
any such agreement or instrument or result in the creation or imposition of any
lien upon any of the revenues or assets of the Company or any of its
subsidiaries pursuant to the terms of any such agreement or instrument.
3.05 Approvals. Except for securities law filings required pursuant to the
Registration Rights Agreement, no authorizations, approvals or consents of, and
no filings or registrations with, any governmental or regulatory authority or
agency, which have not already been made or obtained, are necessary for the
execution, delivery or performance by the Company of this Agreement, the
Stockholders' Agreement, the Investor Securities Purchase Agreement, the
Registration Rights Agreement or the Warrants, the consummation of the
transactions contemplated herein and therein or the validity or enforceability
hereof or thereof.
3.06 Capitalization. The authorized capital of the Company on the date
hereof consists of (i) 7,500 shares of Preferred Stock, $1.00 par value per
share, (ii) 600,000 shares of Class A Common Stock and (iii) 600,000 shares of
Class B Common
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<PAGE>
Stock. Schedule I hereto lists each of the Stockholders on the date hereof, the
number and class of shares of Common Stock owned by each such Stockholder and
the percentage of the total issued and outstanding shares of Common Stock owned
by each such Stockholder. Except as set forth in Schedule I hereto, there are no
other authorized, issued or outstanding shares of capital stock of the Company
and there are not any outstanding or authorized options, warrants, rights,
subscriptions, claims of any character, agreements, obligations, convertible or
exchangeable securities, or other commitments, contingent or otherwise, relating
to capital stock of the Company pursuant to which the Company is or may become
obligated to issue shares of capital stock or any securities convertible into,
exchangeable for, or evidencing the right to subscribe for, any shares of the
capital stock of the Company.
3.07 Offer of Warrants. Neither the Company nor any Person acting on its
behalf has directly or indirectly offered the Warrant or any part thereof or any
similar securities for sale to, or solicited any offer to buy any of the same
from, or otherwise approached or negotiated in respect thereof with, any Person
other than the Holder. Neither the Company nor any Person acting on its behalf
has taken or will take any action which would subject the issuance and sale of
the Warrant to the provisions of Section 5 of the Securities Act, or to the
provisions of any state securities law requiring registration of securities,
notification of the issuance or sale thereof or confirmation of the availability
of any exemption from such registration except pursuant to the Stockholders'
Agreement.
Section 4. Miscellaneous.
4.01 Expenses. The Company agrees to pay or cause to be paid all fees and
disbursements of the Holder (including reasonable fees and expenses of one
counsel selected by the Required Holders) in connection with the purchase and
sale of the Warrant as contemplated by this Agreement or any amendments thereto
and the fees and disbursements of the Holder (including reasonable fees and
expenses of one counsel selected by the Required Holders) in connection with the
negotiation, execution, delivery and enforcement of this Agreement, the
Stockholders' Agreement, the Investor Securities Purchase Agreement, the
Registration Rights Agreement or the Warrant or any waiver or consent hereunder
or thereunder or any amendment hereof or thereof. In addition, the Company
agrees to pay any and all stamp, transfer and other similar taxes payable or
determined to be payable in connection with the execution and delivery of this
Agreement, the Stockholders' Agreement, any Warrant or the issuance or transfer
of the Warrant.
4.02 Notices. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made by telex, telegraph, telecopy,
cable or other writing and telexed, telecopied, telegraphed, cabled, mailed or
delivered to the intended recipient at the
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<PAGE>
"Address for Notices" specified below its name on the signature pages hereof;
or, as to any party, at such other address as shall be designated by such party
in a notice to the Company given in accordance with this Section 4.02. All such
communications shall be deemed to have been duly given when transmitted by telex
or telecopier, delivered to the telegraph or cable office or personally
delivered or, in the case of a mailed notice, upon receipt, in each case given
or addressed as aforesaid.
4.03 Exclusion. This Agreement and the Warrants shall be binding upon, and
inure solely to the benefit of the Company and the Holder, and no other Person
shall acquire or have any right under or by virtue of this Agreement or the
Warrants (other than any such Person to whom the Holder has transferred an
interest in the Warrants pursuant to the terms thereof and hereof). Any Person
who acquires any Warrant or Warrant Shares shall be subject to the terms and
provisions of the Stockholders' Agreement as if it were an original signatory
thereto.
4.04 Specific Performance. The Company acknowledges and agrees that in the
event of any breach of this Agreement or the Warrants by the Company, the Holder
would be irreparably harmed and could not be made whole by monetary damages. The
Company accordingly agrees (i) to waive the defense in any action for specific
performance that a remedy at law would be adequate, and (ii) that the Holder, in
addition to any other remedy to which they may be entitled at law or in equity,
shall be entitled to compel specific performance of this Agreement or the
Warrants in any action instituted in the United States District Court for the
Southern District of New York, or, in the event such Court would not have
jurisdiction for such action, in any court of the United States or any state
thereof having subject matter jurisdiction for such action.
4.05 Warrantholder Not a Shareholder. Prior to the exercise of any of its
Warrants, the Warrantholder shall not, except as specifically provided herein
and in the Stockholders' Agreement, be entitled to any of the rights of, or be
deemed to be, a stockholder in the Company.
4.06 No Waivers. No failure or delay by any party in exercising any rights,
power or privilege hereunder or under the Warrants shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies provided herein shall be cumulative and not exclusive of
any rights or remedies provided by law.
4.07 Amendments and Waivers. Any provision of this Agreement or the
Warrants may be amended or waived if, but only if, such amendment or waiver is
in writing and signed by the Company and the Required Holders.
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<PAGE>
4.08 GOVERNING LAW. THIS AGREEMENT AND THE WARRANTS SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
4.09 Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be an original, with the same effect as if the
signatories hereto and hereto were upon the same instrument.
* * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
CDI GROUP, INC.
By /s/ Frank Marfino
-----------------------------------------
Title: President
Address for Notices:
251 Industrial Parkway
Somerville, NJ 08876
Attention: Frank Marfino
Telephone No.: (908) 722-8700
Facsimile No.: (908) 722-2902
HOLDER
------
BANQUE PARIBAS, acting by and through its
Cayman Island Branch
By /s/ Stephen Eisenstein
-----------------------------------------
Title: VP
By /s/ [ILLEGIBLE]
-----------------------------------------
Title:
Address for Notices
787 Seventh Avenue
New York, New York 10019
Attention: Stephen Eisenstein
Telephone No.: (212) 841-2000
Facsimile No.: (212) 841-2333
<PAGE>
SCHEDULE I
----------
Capitalization
--------------
Capital Percentage of
Stockholders Stock Owned Total Capital Stock
------------ ----------- -------------------
<PAGE>
EXHIBIT A
TO
WARRANT PURCHASE
AGREEMENT
----------------
THIS WARRANT, AND THE WARRANT SHARES ISSUABLE UPON
EXERCISE HEREOF, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE TRANS-
FERRED ONLY IN ACCORDANCE WITH SECTION 5 OF THIS WARRANT.
THIS WARRANT, AND THE WARRANT SHARES ISSUABLE UPON EXER-
CISE HEREOF, ARE ALSO SUBJECT TO THE STOCKHOLDER
AGREEMENT, DATED AS OF JANUARY 30, 1995, AMONG CDI GROUP,
INC., BANCBOSTON VENTURES INC., HARVEST TECHNOLOGY
PARTNERS, L. P. AND THE OTHER PARTIES SIGNATORY THERETO. A
COPY OF SUCH STOCKHOLDER AGREEMENT WILL BE FURNISHED
WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON
WRITTEN REQUEST.
COMMON STOCK PURCHASE WARRANT
Representing Rights To Purchase 16,667 Warrant Shares of Class A Common
Stock of CDI Group Inc.
WARRANT NO. 1
This certifies that, for value received, Banque Paribas, acting through its
Cayman Islands Branch ("Paribas") and its successors or assigns (the "Holders)
is entitled, subject to the terms and conditions hereinafter set forth at any
time and from time to time until January 30, 2005 or, in the event that on such
date the Holder shall not have received 30 days prior written notice of the
expiration of the Exercise Period of the Warrants pursuant to Section 8(g), such
later date on which the Holder shall have had such notice of the expiration of
the Exercise Period for at least 30 consecutive days (the "Expiration Date") to
purchase up to a total of 16,667 shares (as such number of shares may be
adjusted pursuant to Section 7, the "Warrant Shares") of Class A Common Stock,
at a price per share equal to the Exercise Price in lawful funds of the United
States of America. This Warrant is issued to the Holder (together with such
other warrants as may be issued in exchange, transfer or replacement of this
Warrant, the "Warrants") and entitles the Holder to purchase the Warrant Shares.
<PAGE>
This Warrant is subject to the following further terms and conditions:
1. DEFINITIONS
"Affiliate" shall have the meaning given such term in the Credit Agreement.
"Bank" shall mean any financial institution constituting a "Bank" pursuant
to the terms of the Credit Agreement.
"Borrower" shall mean Community Distributors, Inc., as surviving
corporation of the merger of NewRxCo, Inc. with and into Community Distributors,
Inc., a Delaware corporation.
"Class A Common Stock" shall mean the Company's authorized Class A Voting
Common Stock, $.00001 par value per share.
"Class B Common Stock" shall mean the Company's authorized Class B
Non-Voting Common Stock, $.00001 par value per share.
"Commission" shall mean the Securities and Exchange Commission and any
other similar or successor agency of the federal government of the United States
of America then administering the Securities Act or the Exchange Act.
"Common Stock" shall mean and include each of the Company's authorized
Class A Common Stock and Class B Common Stock as constituted at the Date of
Issuance.
"Company" shall mean CDI Group, Inc., a Delaware corporation, together with
any corporation which shall succeed to or assume the obligations hereunder of
the Company.
"Credit Agreement" shall mean the Credit Agreement, dated as of January 30,
1995, among the Company, the Borrower, the Banks and Banque Paribas, as Agent,
as such agreement may be amended, modified or supplemented from time to time.
"Credit Agreement Debt" shall have the meaning given to such term in
Section 8.1(i).
"Date of Issuance" shall have the meaning given to such term in Section 11.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar or successor federal statute, and the rules and regulations
thereunder of the Commission or any other federal agency then administering the
Exchange Act, all as the same shall be in effect at the time.
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<PAGE>
"Exercise Agreement" shall have the meaning given to such term in Section
4.3.
"Exercise Event" shall have the meaning given to such term in Section 4.1.
"Exercise Period" shall have the meaning given to such term in Section 4.1.
"Exercise Price" shall mean $.001 per Warrant Share as adjusted as provided
for herein.
"Exercise Time" shall have the meaning given to such term in Section
4.2(a).
"Expiration Date" shall have the meaning given to such term in the preamble
hereto.
"Holder" shall have the meaning given to such term in the preamble hereto.
"Investor Securities Purchase Agreement" shall mean the Investor Securities
Purchase Agreement, dated as of January 30, 1995, among the Company, the
Investors and the other parties signatory thereto, as such Agreement shall be
amended, modified, and supplemented from time to time in accordance with the
provisions thereof.
"Investors" shall mean BancBoston Ventures Inc. and Harvest Technology
Partners, L.P.
"Majority of the Warrant Interests" shall mean the Holders of a majority of
all Warrant Shares (assuming the exercise of all Warrants).
"Offering Price" shall have the meaning given to such term in Section 7.
l(b).
"OID" shall have the meaning given to such term in Section 8.1(f).
"Paribas" shall have the meaning given to such term in the preamble hereto.
"Person" shall mean a corporation, an association, a partnership, an
organization, a business, an individual or a government or political subdivision
thereof or any governmental agency.
-3-
<PAGE>
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated as of January 30, 1995, among the Company, the Investors and
the other parties signatory thereto, as such agreement shall be amended,
modified and supplemented from time to time in accordance with the provisions
thereof.
"Regulation Y" shall mean Regulation Y of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof.
"Rights" shall have the meaning given to such term in Section 7.1(b).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations thereunder of the
Commission or any other federal agency then administering the Securities Act,
all as the same shall be in effect at the time.
"Shareholders Agreement" shall mean the Stockholder Agreement, dated as of
January 30, 1995 among the Company, the Investors and the other parties
signatory thereto, as the same may be modified, supplemented or amended from
time to time pursuant to the terms thereof.
"Transfer" shall include any sale, transfer, assignment or other
disposition of this Warrant or Warrant Shares, or of any interest in either
thereof, which would constitute a sale thereof within the meaning of the
Securities Act.
"Warrant" shall have the meaning given such term in the preamble hereto.
"Warrant Shares" shall have the meaning given to such term in the preamble
hereto.
All terms used in this Warrant which are not defined in this Section 1 have
the meanings respectively set forth therefor elsewhere in this Warrant.
2. OWNERSHIP OF THIS WARRANT
The Company may deem and treat the Person in whose name this Warrant is
registered as the Holder and owner hereof for all purposes, notwithstanding any
notations of ownership or writing made hereon by anyone other than the Company,
and shall not be affected by any notice to the contrary, until presentation of
this Warrant for registration or transfer as provided in Section 3. The Company
shall maintain at its chief executive office, a register for the Warrants, in
which the Company shall record the name and address of the
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<PAGE>
Person in whose name each Warrant has been issued, as well as the name and
address of each transferee and each prior owner of such Warrant. Within five
days after the Holder shall by written notice to the Company request the same,
the Company will deliver to such Holder a certificate signed by one of its
officers, listing the names and addresses of every other Holder, as such
information appears in said register and in the stock transfer books of the
Company at the close of business on the day before such certificate is signed.
3. EXCHANGE, TRANSFER AND REPLACEMENT
This Warrant is exchangeable, upon the surrender hereof by the registered
Holder to the Company at its office provided for in Section 2, for new Warrants
of same tenor, representing in the aggregate the right to purchase the number of
Warrant Shares purchasable hereunder, each of such new Warrants to represent the
right to purchase such number of Warrant Shares as shall be designated by said
registered Holder at the time of such surrender. Subject to Section 5 hereof,
this Warrant and all rights hereunder are transferable, in whole or in part,
only upon the register of this Warrant provided for in Section 2, by the
registered Holder hereof in person or by duly authorized attorney, and a new
Warrant shall be made and delivered by the Company, of the same tenor as this
Warrant but registered in the name of the transferee, upon surrender of this
Warrant together with a duly completed assignment, in the form attached hereto
as Exhibit A, at the office of the Company where the register provided for in
Section 2 is maintained. Upon receipt by the Company at its office provided for
in Section 2 of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender of this Warrant, if mutilated, the Company will make and deliver a new
Warrant of same tenor in replacement of this Warrant; provided, if a Person
having net assets in excess of $10,000,000 (as disclosed in its last audited
financial statement) shall be the registered Holder, an agreement of indemnity
by it shall be sufficient for all purposes of this Section 3. This Warrant shall
be promptly cancelled by the Company upon the surrender thereof in connection
with any exchange, transfer or replacement. The Company shall pay all taxes
(other than securities transfer taxes which shall be paid by Holder) and all
other expenses and charges payable in connection with the preparation, execution
and delivery of Warrants pursuant to this Section 3.
4. EXERCISE RIGHTS
4.1. Exercise Period. The Holder may in its sole discretion exercise (an
"Exercise Event"), in whole or in part, the purchase rights represented by this
Warrant at any time and from time to time on or after the date hereof and until
the Expiration Date (the "Exercise Period").
-5-
<PAGE>
4.2. Exercise Procedure. (a) An Exercise Event shall have been deemed to
have occurred as of the time during the Exercise Period when the Company has
received all of the following items (the "Exercise Time"):
(i) a completed Exercise Agreement, as described in Section 4.3 below,
executed by the registered Holder;
(ii) this Warrant; and
(iii) payment in an amount equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised in cash, or by a certified
or official bank check, or by any combination thereof.
(b) Certificates for Warrant Shares purchased upon exercise of this Warrant
will be delivered by the Company to the registered Holder within three business
days after the date of the Exercise Time. Unless this Warrant has expired or all
of the purchase rights represented hereby have been exercised, the Company will
prepare a new Warrant, substantially identical hereto, representing the rights
formerly represented by this Warrant which have not expired or been exercised
and will, within such three-day period, deliver such new Warrant to the
registered Holder.
(c) The Warrant Shares issuable upon exercise of this Warrant, shall, when
issued, and after payment therefor pursuant to Section 4.2(a)(iii), be duly
authorized, validly issued, fully paid, and nonassessable and will be free from
all liens and encumbrances with respect thereto.
(d) The Warrant Shares issuable upon the exercise of this Warrant will be
deemed to have been issued at the Exercise Time, and the Person or Persons in
whose name or names such Warrant Shares are registered will be deemed for all
purposes to have become the record holder of such Warrant Shares at the Exercise
Time.
(e) The issuance of certificates for Warrant Shares upon exercise of this
Warrant will be made without charge to the Holder for any issuance tax in
respect thereof or other cost incurred by the Company in connection with such
exercise and the related issuance of Warrant Shares; provided, however, in the
event that Warrant Shares are to be issued to a person other than the person in
whose name the Warrant being exercised is registered, then the person requesting
such exercise shall pay any transfer or other taxes required by reason of the
issuance of Warrant Shares to a person other than the registered holder of the
Warrant surrendered thereby unless it is established to the satisfaction of the
Company that such tax has been paid or is not applicable.
-6-
<PAGE>
(f) The Company will not close its books against the transfer of this
Warrant or of any of the Warrant Shares in any manner which interferes with the
timely exercise of this Warrant. The Company will from time to time take all
such action as may be necessary to assure that the par value per share of the
unissued Warrant Shares acquirable upon exercise of this Warrant is at all times
equal to or less than the Exercise Price then in effect.
4.3. Exercise Agreement. Upon any exercise of this Warrant, the Exercise
Agreement will be substantially in the form set forth in Exhibit B hereto (the
"Exercise Agreements"), except that if the Warrant Shares are not to be issued
in the name of the registered Holder, the Exercise Agreement will also state the
name or names of the Person or Persons to whom the certificates for the Warrant
Shares are to be issued, and the registered Holder shall comply with Sections
5.1 and 5.2 hereof in connection therewith. Such Exercise Agreement will be
dated the actual date of execution thereof.
5. TRANSFER
5.1. Restrictions on Transfer Generally. Notwithstanding any provisions
contained in this Warrant to the contrary, this Warrant shall not be Transferred
other than to an Affiliate of the Holder, to any Bank (or an Affiliate of any
Bank) or to any member of the consolidated group of Compagnie Financiere de
Paribas or any officer or employee of any member of the consolidated group of
Compagnie Financiere de Paribas and the related Warrant Shares shall not either
be issuable to any Person other than the registered Holder, an Affiliate of such
Holder, any Bank (or an Affiliate of any Bank), any member of the consolidated
group of Compagnie Financiere de Paribas, or any officer or employee of any
member of the consolidated group of Compagnie Financiere de Paribas, or
Transferable by the registered owner thereof other than to an Affiliate of the
Holder, to any Bank (or an Affiliate of any Bank) or to any member of the
consolidated group of Compagnie Financiere de Paribas or any officer or employee
of any member of the consolidated group of Compagnie Financiere de Paribas,
except upon satisfaction of the conditions specified in this Section 5.1. Such
condition is intended to insure compliance with the provisions of the Securities
Act in respect of the exercise of this Warrant or Transfer of this Warrant or
any Warrant Shares. The registered Holder of this Warrant, and each registered
owner of Warrant Shares, agrees that it will not, in each case, prior to
delivery to the Company of the opinion of the counsel referred to in, and to the
effect described in, Section 5.2, to the extent such opinion has been requested
by the Company, or until registration under the Securities Act of this Warrant
and all related Warrant Shares has become effective: (i) Transfer this Warrant
other than to an Affiliate of the Holder, to any Bank (or an Affiliate of any
Bank) or to any member of the consolidated group of Compagnie Financiere de
Paribas or any officer or employee of any member of the consolidated group of
Compagnie Financiere de Paribas; (ii) request the issuance to any
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<PAGE>
Person, other than the registered Holder, an Affiliate of such Holder, any Bank
(or an Affiliate of any Bank) any member of the consolidated group of Compagnie
Financiere de Paribas, or any of officer or employee of any member of the
consolidated group of Compagnie Financiere de Paribas, of Warrant Shares
issuable upon exercise of this Warrant; or (iii) Transfer other than to an
Affiliate of the Holder, to any Bank (or an Affiliate of any Bank) or to any
member of the consolidated group of Compagnie Financiere de Paribas or any
officer or employee of any member of the consolidated group of Compagnie
Financiere de Paribas any Warrant Shares.
5.2. Opinions of Counsel. So long as this Warrant, or any certificate for
Warrant Shares issued upon exercise of this Warrant, bears the legend required
by Section 5.4 hereof, the registered Holder of this Warrant and each registered
owner of any Warrant Shares agrees, by the acceptance thereof, that prior to any
Transfer other than to an Affiliate of the Holder, to any Bank (or an Affiliate
of any Bank) or to any member of the consolidated group of Compagnie Financiere
de Paribas or any officer or employee of any member of the consolidated group of
Compagnie Financiere de Paribas or attempted Transfer other than to an Affiliate
of the Holder, to any Bank (or an Affiliate of any Bank) or to any member of the
consolidated group of Compagnie Financiere de Paribas or any officer or employee
of any member of the consolidated group of Compagnie Financiere de Paribas
thereof it shall give written notice to the Company of such Person's intention
to effect such Transfer. Each such notice shall describe the manner and
circumstances of the proposed Transfer, and if in the Company's reasonable
opinion an exemption from registration under the Securities Act is not available
in connection with such Transfer, at the request of the Company, shall be
accompanied by an opinion of counsel, reasonably acceptable to the Company and
any transfer agent therefore, to the effect that such proposed Transfer may be
effected without registration under the Securities Act. If the proposed Transfer
may be effected without registration under the Securities Act, the Person giving
notice shall thereupon be entitled to consummate such Transfer in accordance
with the terms of the notice delivered by such Person to the Company upon
delivery to the Company of the written agreement of the proposed transferee to
become bound by the provisions of Sections 5.1 and 5.2 hereof and by the terms
of the Shareholders Agreement. Each Warrant or certificate evidencing Warrant
Shares, as the case may be, issued to a transferee in such Transfer shall bear
the legend set forth in Section 5.4 if required by such clause, unless such
legend is not required or appropriate in order to insure compliance with the
Securities Act.
5.3. Registration Rights and Other Rights. Each registered Holder of this
Warrant and each registered owner of Warrant Shares shall be entitled to the
benefits of and shall be subject to the obligations under the Shareholders
Agreement, the Registration Rights Agreement and the Investor Securities
Purchase Agreement (including, without limitation, information and access
rights, board observation rights, covenants and
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<PAGE>
representations and warranties, demand registration rights, piggy-back
registration rights and tag-along rights).
5.4. Legends. (a) Each Warrant issued in exchange, transfer, or replacement
of this Warrant shall (unless otherwise permitted by Section 5.2 hereof or
unless at such time as the Warrant shall have been transferred under an
effective registration statement under the Securities Act or pursuant to Rule
144 or 144A or any successor rules) be stamped or otherwise imprinted with a
legend substantially in the form of the legend appearing at the top of the first
page of this Warrant.
(b) Each certificate for Warrant Shares shall (unless otherwise permitted
by Section 5.2 or unless such Warrant Shares shall have been transferred under
an effective registration statement under the Securities Act or pursuant to Rule
144 or 144A or any successor rules) be stamped or otherwise imprinted with a
legend in substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND THE TRANSFER OF SAID SECURITIES IS SUBJECT
TO THE RESTRICTIONS SET FORTH IN SECTION 5 OF WARRANT NO. 1, DATED AS
OF JANUARY 30, 1995, OF CDI GROUP, INC. AND DELIVERED TO THE
REGISTERED HOLDER THEREOF, A COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT THE HEAD OFFICE OF CDI GROUP, INC., AND NO TRANSFER OF SAID
SECURITIES SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL THE TERMS AND
CONDITIONS OF SAID SECTION 5 SHALL HAVE BEEN COMPLIED WITH. THIS
WARRANT, AND THE WARRANT SHARES ISSUABLE UPON EXERCISE HEREOF, ARE
ALSO SUBJECT TO THE STOCKHOLDER AGREEMENT DATED AS OF JANUARY 30,
1995, AMONG CDI GROUP, INC., BANCBOSTON VENTURES INC., HARVEST
TECHNOLOGY PARTNERS, L.P. AND THE OTHER PARTIES SIGNATORY THERETO. A
COPY OF SUCH STOCKHOLDER AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY
THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST."
(c) The provisions of Sections 5.1, 5.2 and this Section 5.4 shall be
binding upon all Holders and all subsequent holders of certificates for Warrant
Shares bearing the legend set forth in subsection (b) above.
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<PAGE>
5.5. Exchange of Certificates. As soon as possible after the effective date
of any registration statement under the Securities Act pursuant to the terms and
conditions contained in the Registration Rights Agreement, the Company will
deliver to the Holder of any Warrant or any Warrant Shares so registered, upon
demand of such holder and its delivery to the Company of a certificate or
certificates representing such Warrant or Warrant Shares bearing the legend set
forth in Section 5.4, a new certificate or certificates representing such
Warrant Shares but not bearing such legend.
5.6. Regulatory Sale or Disposition. Anything herein or in the Shareholders
Agreement to the contrary notwithstanding, in the event that any Holder or any
of the Holders' Affiliates shall deliver to the Company an opinion of counsel to
such Holder or such Affiliate, as the case may be, to the effect that if such
Holder or such Affiliate, as the case may be, shall continue to hold some or all
of the Warrants or its Warrant Shares or any other securities of the Company
held by it, there is a material risk that such ownership will result in the
violation of any statute, regulation or rule of any governmental authority
(including, without limitation, Regulation Y), such Holder or such Affiliate, as
the case may be, may sell or otherwise dispose of its Warrants or Warrant
Shares, as the case may be, in as prompt and orderly a manner as is reasonably
necessary. The Company shall cooperate with such Holder or such Affiliate, as
the case may be, in disposing of its Warrants or Warrant Shares, and (without
limiting the foregoing) at the request of such Holder or such Affiliate, as the
case may be, the Company shall provide (and authorize such Holder or such
Affiliate, as the case may be, to provide) financial and other information
concerning the Company to any prospective purchaser of the Warrants or Warrant
Shares owned by such Holder or such Affiliate, as the case may be, subject to
appropriate confidentiality arrangements satisfactory to the Company. The
provisions of this Section 5.6 shall inure solely to the benefit of the Holders
and their Affiliates which are subject to the provisions of the Bank Holding
Company Act of 1956, as amended (including Regulation Y promulgated thereunder).
Any sale or transfer of any Warrants or Warrant Interest pursuant to this
Section 5.6 shall be subject to the other provisions of this Section 5.
6. COMPANY'S ACKNOWLEDGMENT OF OBLIGATIONS
The Company will, at the time of any exercise of this Warrant, upon the
request of the Holder, acknowledge in writing its continuing obligation to
afford to any Holder of Warrant Shares all rights (including, without
limitation, all rights contained in the Shareholders Agreement, the Registration
Rights Agreement and the Investor Securities Purchase Agreement) to which such
holder shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant; provided, however, that if the Holder shall fail to
make any such request, such failure shall not affect the continuing obligation
of the Company to afford to the Holder any such rights.
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7. ADJUSTMENTS TO NUMBER OF WARRANT SHARES
7.1. Adjustment of Number of Warrant Shares. The number of Warrant Shares
purchasable pursuant hereto shall be subject to adjustment from time to time on
and after the Date of Issuance as hereinafter provided in this Section 7.1.
(a) In case the Company shall at any time after the Date of Issuance (i)
declare or pay a dividend in shares of Common Stock or make a distribution in
shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue any shares of its capital stock or other
assets in a reclassification or reorganization of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing entity), the securities purchasable pursuant
hereto shall be adjusted to the number of Warrant Shares and amount of any other
securities, cash or other property of the Company which such Holder would have
owned or have been entitled to receive after the happening of any of the events
described above, had this Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. An adjustment
made pursuant to this paragraph (a) shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event. Any Warrant Shares purchasable as a result of such adjustment shall not
be issued prior to the effective date of such event.
(b) In case the Company shall issue shares of its Common Stock or issue
rights, options (including options issued to employees under the Company's 1995
Stock Option Plan on or after the date hereof) or warrants to subscribe for or
purchase, or other securities exchangeable for or convertible into, shares of
its Common Stock (any such rights, options, warrants or other securities being
herein called "Rights") (excluding (i) shares issued in a transaction covered by
Section 7.1(a), (ii) shares issued upon conversion, exercise, or exchange of
Rights issued after the date hereof (provided that appropriate adjustments were
made hereunder upon the issuance of such Rights) and (iii) the Warrants and any
Warrant Shares issued on exercise thereof at an issuance, subscription,
offering, exercise or conversion price (the "Offering Price") per share which is
lower than the current market price per share of Common Stock (as defined in
paragraph (d) below) on the date of issuance or grant, whether or not such
Rights are immediately exercisable or convertible, the number of Warrant Shares
issuable hereunder after such issuance or grant shall be determined by
multiplying the number of Warrant Shares issuable hereunder immediately prior to
any adjustment in connection with such issuance or grant by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
(exclusive of any treasury shares) immediately prior to the date of issuance or
grant of such shares of Common Stock or Rights (assuming that all Common Stock
into which all outstanding rights, options, warrants and convertible securities
excluding such Rights are
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exercisable or convertible is outstanding) plus the number of additional shares
of Common Stock issued and the number of shares of Common Stock that would be
issued upon exercise of such Rights, and of which the denominator shall be the
number of shares of Common Stock outstanding (exclusive of any treasury shares)
immediately prior to the date of issuance or grant of such Common Stock or
Rights (assuming that all Common Stock into which all outstanding rights,
options, warrants and convertible securities excluding such Rights are
exercisable or convertible is outstanding) plus the number of shares which the
aggregate Offering Price of the total number of shares of Common Stock so
offered would purchase at the current market price per share of Common Stock on
the date of issuance; provided that to the extent any such Rights, so issued
expire or are cancelled or redeemed without having been exercised or converted,
the number of Warrant Shares issuable hereunder shall again be adjusted to
reflect such expiration, cancellation or redemption of such Rights. Such
adjustment shall be made whenever such shares of Common Stock or Rights are
issued or granted. For purposes of this paragraph (b), the "Offering Price" per
share of Common Stock shall in the case of Rights be determined by dividing (x)
the total amount received or receivable by the Company in consideration of the
issuance of such Rights plus the total consideration payable to the Company upon
exercise thereof, by (y) the total number of shares of Common Stock covered by
such Rights.
(c) In case the Company shall distribute to any holder of its shares of
Common Stock or Rights, evidences of its indebtedness or assets (including
securities and cash dividends other than regular quarterly cash dividends paid
in the ordinary course of business out of the Company's consolidated earnings),
but excluding dividends or distributions referred to in paragraph (a) above or
Rights, referred to in paragraph (b) above (collectively, "Distributions"), then
in each case the number of Warrant Shares issuable hereunder after any such
Distribution shall be determined by multiplying the number of Warrant Shares
issuable hereunder prior to such Distribution by a fraction, the numerator of
which shall be the current market price per share of Common Stock (as defined in
paragraph (d) below) on the record date for such distribution, and of which the
denominator shall be such current market price per share of Common Stock, less
the then fair market value (as reasonably determined in good faith by the Board
of Directors of the Company) of the portion of the assets or evidences of
indebtedness so distributed applicable to one share of Common Stock. Such
adjustments shall be made successively whenever any such Distribution is made
and shall become effective on the date of distribution retroactive to the record
date for the determination of stockholders entitled to receive such
Distribution. In the event that the Holders of a Majority of Warrant Interests
disagree with the Company's determination of the fair market value of any assets
or evidences of indebtedness pursuant to this subsection 7.1(c), then such fair
market value shall be determined by an independent appraisal firm (which may be
an investment banking firm of national recognition) selected by such Holders and
the Company (the "Appraisal Firm"). If the Appraisal Firm determines such fair
market value to be greater than 105% of the Company's determination, then the
Company shall bear the costs of the Appraisal Firm. If the Appraisal Firm
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determines the current market value to be less than 105% of the Company's
determination, the Holders of the Warrant Interests shall reimburse the Company
for the cost of the Appraisal Firm.
(d) For the purpose of any computation under paragraphs (b) and (c) of this
Section, the current market price per share of Common Stock at any date shall be
the average of the daily closing prices for the 10 consecutive trading day prior
to the earlier to occur of (i) the date as of which the market price is to be
computed or (ii) the last full trading day before the commencement of
"ex-dividend" trading in the Common Stock relating to the event giving rise to
the adjustment required by paragraph (b) or (c). The closing price for each day
shall be the last such reported sales price regular way or, in case no such
reported sale takes place on such day, the average of the closing bid and asked
prices regular way for such day, in each case on the principal national
securities exchange or in the NASDAQ-National Market System on which the shares
of Common Stock are listed or to which such shares are admitted to trading, or,
if not listed or admitted to trading, the average of the closing bid and asked
prices of the Common Stock in the over-the-counter market as reported by NASDAQ
or any comparable system, or if the Common Stock is not listed on NASDAQ or a
comparable system, the average of the closing bid and asked prices as furnished
by two members of the National Association of Securities Dealers, Inc. selected
from time to time by the a Majority of the Warrant Interests for that purpose.
In the event the Company's Common Stock is not then publicly traded or if for
any other reason the current market price per share cannot be determined
pursuant to the foregoing provisions of this paragraph (d), the appropriate
current market price per share shall be the fair market value thereof (without
regard to any transfer restrictions imposed by law or contract thereon or lack
of liquidity thereof) as determined by the Board of Directors of the Company. In
the event that the Holders of Majority of Warrant Interests disagree with the
Company's determination of the current market price per share of Common Stock
made pursuant to the immediately preceding sentence, then such current market
price or fair market value, as the case may be, shall be determined by an
independent appraisal firm (which may be an investment banking firm of national
recognition) selected by such Holders and the Company (the "Appraisal Firm"). If
the Appraisal Firm determines such fair market value to be greater than 105% of
the Company's determination, then the Company shall bear the costs of the
Appraisal Firm. If the Appraisal Firm determines the current market value to be
less than 105% of the Company's determination, the Holders of the Warrant
Interests shall reimburse the Company for the cost of the Appraisal Firm.
(e) Whenever the numbers of Warrant Shares are adjusted as herein provided,
the Exercise Price payable upon exercise of this Warrant shall be adjusted by
multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
immediately prior to such adjustment, and of which the denominator shall be the
number of Warrant Shares immediately thereafter.
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(f) No adjustment in the number of Warrant Shares shall be required
hereunder unless such adjustment would result in an increase or decrease of at
least one percent (1%) of the Exercise Price; provided, however, that any
adjustments which by reason of this paragraph (f) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest one-hundredth of a cent or to the
nearest one-thousandth of a share, as the case may be.
(g) For the purpose of this subsection 7.1, the term "shares of Common
Stock" shall mean (i) the classes of stock designated as the Common Stock of the
Company at the date of this Agreement, (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely of
changes in par value, or from par value to no par value, or from no par value to
par value or (iii) any other class of capital stock of the Company which is not
by its terms restricted in amount or timing to the entitlement to dividends or
in the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company. In the event that at any time, as a
result of an adjustment made pursuant to this subsection 7.1, the Holders shall
become entitled to receive any securities of the Company other than shares of
Common Stock, thereafter the number of such other securities so receivable upon
exercise of this Warrant and the Exercise Price of such shares shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
this Section 7.
7.2. Reorganization, Merger, etc. If any capital reorganization,
reclassification or similar transaction involving the capital stock of the
Company (other than as specified in Section 7.1(a)), any consolidation, merger
or business combination of the Company with another corporation, or the sale or
conveyance of all or any substantial part of the assets of the Company to
another corporation, shall be effected in such a way that holders of the Common
Stock shall be entitled to receive stock, securities or assets (including,
without limitation, cash) with respect to or in exchange for shares of the
Common Stock, then, prior to and as a condition of such reorganization,
reclassification, similar transaction, consolidation, merger, business
combination, sale or conveyance, lawful and adequate provision shall be made
whereby the Holder shall thereafter have the right to purchase upon exercise of
this Warrant and upon payment of the Exercise Price in effect immediately prior
to such action, the kind and amount of shares of stock, securities or assets
which he would have owned or been entitled to receive after the happening of
such reorganization, reclassification, similar transaction, consolidation,
merger, business combination, sale or conveyance had this Warrant been exercised
immediately prior to such transaction. The Company shall not effect any such
consolidation, merger, business combination, sale or conveyance unless prior to
or simultaneously with the consummation thereof the survivor or successor
corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing such assets shall assume by written
instrument executed and sent to each registered Holder, the obligation to
deliver to
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such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to receive. Nothing
contained in this Section, shall limit the Holder's obligation to participate in
an Approved Sale (as defined in the Shareholders Agreement) in accordance with
the provisions of the Shareholders Agreement.
7.3. Voluntary Adjustment by the Company. The Company may at its option, at
any time during the term of this Warrant, reduce the then current Exercise Price
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company, including such reductions in the Exercise Price as the
Company considers to be advisable in order that any event treated for Federal
income tax purposes as a dividend of stock or stock rights shall not be taxable
to the recipients; provided, however, that no such adjustment in Exercise Price
shall affect the number of Warrant Shares.
7.4. Notice of Adjustment. Whenever the number of Warrant Shares or the
Exercise Price is required to be adjusted, as herein provided, the Company
promptly shall deliver to each Holder, notice of such adjustment or adjustments
and a certificate of a firm of independent public accountants selected by the
Board of Directors of the Company (who may be the regular accountants employed
by the Company) setting forth the number of Warrant Shares and the Exercise
Price after such adjustment, setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which such
adjustment was made.
7.5. Other Events. If any event occurs as to which the foregoing provisions
of this Section 7 are not strictly applicable or, if strictly applicable, would
not, fairly and adequately protect the purchase rights represented by the
Warrants in accordance with the essential intent and principles of such
provisions, then the Company shall make such adjustments in the application of
such provisions, in accordance with such essential intent and principles, as
shall be necessary to protect such purchase rights as aforesaid.
7.6. Statement on Warrant Certificates. Irrespective of any adjustments in
the Exercise Price or the number or kind of Warrant Shares, this Warrant may
continue to express the same price and number and kind of shares as are stated
on the front page hereof.
7.7. Exceptions to Adjustment. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of the
number of Warrant Shares issuable hereunder in the case of the issuance of the
Warrants or the issuance of shares of the Common Stock upon exercise of the
Warrants.
7.8. Treasury Warrant Shares. The number of shares of the Common Stock
outstanding at any time shall not include shares owned or held by or for the
account
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of the Company or any of its subsidiaries, and the disposition of any such
shares shall be considered an issue or sale of the Common Stock for the purposes
of this Section 7.
7.9. Company to Prevent Dilution. In case at any time or from time to time
conditions arise by reason of action taken by the Company or any of its
subsidiaries which are not adequately covered by the provisions of this Section
7, or which might adversely affect the exercise rights of the registered
Holders, the Board of Directors of the Company shall appoint a firm of
independent certified public accountants of recognized national standing, which
may be the firm regularly retained by the Company, which shall give their
opinion upon the adjustment, if any, necessary with respect to the number of
Warrant Shares into which this Warrant is exercisable, on a basis consistent
with the standards established in the other provisions of this Section 7, so as
to preserve, without dilution, the exercise rights of the registered Holders.
Upon receipt of such opinion, the Board of Directors of the Company shall
forthwith make the adjustments described therein.
8. SPECIAL COVENANTS OF THE COMPANY
The Company covenants and agrees that until the Expiration Date:
(a) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, directly or indirectly avoid or seek to avoid the
of servance or performance of any of the terms of this Warrant, or the
Shareholders Agreement, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holders
against impairment. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of stock
receivable upon the exercise of the Warrants above the Exercise Price
payable therefor upon such exercise, and (ii) will take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and non-assessable shares of stock upon the
exercise of all Warrants from time to time outstanding (including as a
result of a reduction in the purchase price pursuant to the terms hereof).
(b) If any Warrant Shares required to be reserved for the purposes of
exercise of this Warrant require registration with or approval of any
governmental authority under any federal law (other than the Securities
Act) or under any state law before such Warrant Shares may be issued upon
exercise of this Warrant, the Company will, at its expense, as
expeditiously as possible use its best efforts to cause such Warrant Shares
to be duly registered or approved, as the case may be.
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(c) If at any time Common Stock is listed on any national securities
exchange (as defined in the Exchange Act), the Company will, at its
expense, obtain and maintain the approval for listing on each such exchange
upon official notice of issuance of all Warrant Shares receivable upon the
exercise of the Warrants at the time outstanding and maintain the listing
of such Warrant Shares after their issuance; and the Company will so list
on such national securities exchange, will register under the Exchange Act
(and any similar state statute then in effect), and will maintain such
listing of, any other securities that at any time are issuable upon
exercise of the Warrants, if and at the time that any securities of the
same class shall be listed on such national securities exchange by the
Company.
(d) The Company covenants and agrees to give each Holder, as reflected
in books and records of the Company, prior written notice of the expiration
of the Exercise Period of the Warrants. Such notice shall be delivered not
less than thirty (30) days but not more than sixty (60) days prior to such
expiration; provided, that if the Company fails to give such notice, the
expiration of such Exercise Period shall not occur, until thirty (30) days
after such notice is delivered.
(e) The Company covenants that, following an initial public offering
of the Common Stock it will file any reports required to be filed by it
under the Securities Act and the Exchange Act and, whether or not the
Company has effected an initial public offering, it will take such further
action as any Holder may reasonably request, all to the extent required
from time to time to enable such Holder to sell Warrant Shares without
registration under the Securities Act within the limitation of the
exemptions provided by (a) Rules 144 and 144A under the Securities Act, as
such Rules may be amended from time to time, or (b) any similar rules or
regulations or regulations hereafter adopted by the Commission; provided,
that any such sale shall also be made in accordance with the terms and
provisions of the Stockholders Agreement. Upon the request of any Holder,
the Company will deliver to such Holder a written statement as to whether
it has complied with such requirements.
(f) The Company agrees that the fair market value of the Warrants,
when taken together with the terms of the Indebtedness arising under the
Credit Agreement (the "Credit Agreement Debt"), will not result in any
original issue discount ("OID") for federal income tax purposes with
respect to the Credit Agreement Debt and the Company agrees not to claim
any OID with respect to the Credit Agreement Debt.
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9. NOTIFICATION BY THE COMPANY
In case at any time:
(i) the Company shall declare any dividend or make any distribution
upon its Common Stock; or
(ii) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or any
other securities convertible into or exchangeable for shares of stock or
any rights or options to subscribe thereto; or
(iii) the Board of Directors of the Company shall authorize any
capital reorganization, reclassification or similar transaction involving
the capital stock of the Company, or a sale or conveyance of all or a
substantial part of the assets of the Company, or a consolidation, merger
or business combination of the Company with another Person; or
(iv) actions or proceedings shall be authorized or commenced for a
voluntary or involuntary dissolution, liquidation or winding-up of the
Company;
then, in any one or more of such cases, the Company shall give written notice to
the Holder, at the earliest time legally practicable (and not less than 30 days
before any record date or other date set for definitive action) of the date on
which (A) the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights or options or (B) such
reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
stockholders of the Company, as the case may be. Such notice shall also specify
the date as of which the holders of the Common Stock of record shall participate
in said dividend, distribution, subscription rights or options or shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, sale, conveyance,
consolidation, merger, dissolution, liquidation or winding-up, as the case may
be. If the action in question or the record date is subject to the effectiveness
of a registration statement under the Securities Act or to a favorable vote of
stockholders, the notice required by this Section 9 shall so state.
10. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY
Prior to exercise, this Warrant will not entitle the Holder to any voting
rights or other rights as a stockholder of the Company. No provision hereof, in
the absence of affirmative action by the Holder to purchase Common Stock, and no
enumeration herein
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of the rights or privileges of the Holder shall give rise to any liability of
such Holder for the purchase price of Common Stock acquirable by exercise hereof
or as a stockholder of the Company.
11. DATE OF ISSUANCE
The date the Company initially issues this Warrant will be deemed to be the
Date of Issuances hereof and of each new Warrant issued in exchange, transfer or
replacement hereof, regardless of the number of times new certificates
representing the unexpired and unexercised rights formerly represented by this
Warrant shall be issued.
12. AMENDMENT AND WAIVER
(a) No failure or delay of the Holder in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of such right or power, or any abandonment or discontinuance of steps
to enforce such a right or power, preclude any other or further exercise thereof
or the exercise of any other right or power. The rights and remedies of the
Holder are cumulative and not exclusive of any rights or remedies which it would
otherwise have. The provisions of this Warrant may be amended, modified or
waived with (and only with) the written consent of the Company and the Majority
of the Warrant Interests.
(b) Any such amendment, modification or waiver effected pursuant to this
Section 12 shall be binding upon the Holders of all Warrants and Warrant Shares,
upon each future holder thereof, upon the Company and its shareholders. In the
event of any such amendment, modification or waiver, the Company shall give
prompt written notice thereof to all Holders and, if appropriate, notation
thereof shall be made on all Warrants thereafter surrendered for registration of
transfer or exchange.
(c) No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
13. NO FRACTIONAL WARRANT SHARES
The Company shall not be required to issue stock certificates representing
fractions of Warrant Shares, but may at its option in respect of any final
fraction of a Warrant Share make a payment in cash based on the then current
market price of the Common Stock (as determined in accordance with Section
7.l(d)) after giving effect to the full exercise or conversion of the Warrants.
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14. RESERVATION OF WARRANT SHARES
The Company will authorize, reserve and keep available at all times, free
from preemptive rights, a sufficient number of Warrant Shares to satisfy the
requirements of this Warrant and any other outstanding Warrants.
15. NOTICES
All notices, requests, consents and other communications hereunder shall be
in writing (including, telegraphic, telex, facsimiled or cable communication)
and delivered, mailed telegraphed, telexed, telecopied or cabled:
(i) if to the Holder, at 787 Seventh Avenue, New York, New York 10019,
Attention: Stephen Eisenstein or at such other address as may have been
furnished to the Company in writing by the Holder; and
(ii) if to the Company, at 251 Industrial Parkway, Somerville, New
Jersey 08876, Attention: President, or at such other address as may have
been furnished to the Holder in writing by the Company.
All such notices and communications shall, when mailed, telegraphed,
telexed, facsimiled, or cabled or sent by overnight courier, be effective 3
Business Days after deposited in the mails, certified, return receipt requested,
when delivered to the telegraph company, cable company or one day following
delivery to an overnight courier, as the case may be, or sent by telex or
facsimilar device.
16. HEADINGS
The headings of the Sections and subsections of this Warrant are inserted
for convenience only and shall not be deemed to constitute a part of this
Warrant.
17. GOVERNING LAW; CONSENT TO JURISDICTION
THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF DELAWARE. If any action or proceeding shall be brought by
any Holder in order to enforce any right or obligation in respect of this
Warrant, the Company hereby consents and will submit to the jurisdiction of any
state or federal court of competent jurisdiction sitting within the area
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comprising the Southern District of New York on the date of this Warrant, and
agrees that venue will be proper in any such court.
18. BINDING EFFECT
The terms and provisions of this Warrant shall inure to the benefit of the
original Holder and its successors and assigns and shall be binding upon the
Company and its successors and assigns, including, without limitation, any
Person succeeding to the Company by merger, consolidation or acquisition of all
or substantially all of the Company's assets.
IN WITNESS WHEREOF, the seal of the Company and the signatures of its duly
authorized officers have been affixed hereto as of the date first written above.
CDI GROUP, INC.
By
-------------------------------
Title:
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EXHIBIT A
---------
ASSIGNMENT
To Be Executed by the Registered Holder
Desiring to Transfer the Within Warrant of
CDI GROUP, INC.
FOR VALUE RECEIVED, the undersigned registered holder hereby sells, assigns and
transfers unto ___________________________ the right to purchase ______ shares
of the Class A Common Stock covered by the within Warrant, and does hereby
irrevocably constitute and appoint _________________ Attorney to transfer the
said Warrant on the books of the Company (as defined in said Warrant), with full
power of substitution.
Name of
Registered Holder_________________________
Signature ________________________________
Title:
Address:
Dated:______________________
In the presence of
____________________________
NOTICE:
The signature to the foregoing Assignment must correspond to the name
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT B
---------
EXERCISE AGREEMENT
To Be Executed by the Registered Holder
Desiring to Exercise the Within Warrant of
CDI GROUP, INC.
The undersigned registered holder hereby exercises the right to purchase
________ shares of the Class A Common Stock covered by the within Warrant,
according to the conditions thereof, and herewith make payment in full of the
Exercise Price of such shares, $ _________________.
Name of
Registered Holder_________________________
Signature ________________________________
Title:
Address:
Dated:_________________, ____
THIS WARRANT, AND THE WARRANT SHARES ISSUABLE UPON
EXERCISE HEREOF, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE TRANS-
FERRED ONLY IN ACCORDANCE WITH SECTION 5 OF THIS WARRANT.
THIS WARRANT, AND THE WARRANT SHARES ISSUABLE UPON EXER-
CISE HEREOF, ARE ALSO SUBJECT TO THE STOCKHOLDER
AGREEMENT, DATED AS OF JANUARY 30, 1995, AMONG CDI GROUP,
INC., BANCBOSTON VENTURES INC., HARVEST TECHNOLOGY
PARTNERS, L.P. AND THE OTHER PARTIES SIGNATORY THERETO. A
COPY OF SUCH STOCKHOLDER AGREEMENT WILL BE FURNISHED
WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON
WRITTEN REQUEST.
COMMON STOCK PURCHASE WARRANT
Representing Rights To Purchase 16,667 Warrant Shares of Class A Common
Stock of CDI Group, Inc.
WARRANT NO. 1
This certifies that, for value received, Banque Paribas, acting through its
Cayman Islands Branch, ("Paribas") and its successors or assigns (the "Holder")
is entitled, subject to the terms and conditions hereinafter set forth at any
time and from time to time until January 30, 2005 or, in the event that on such
date the holder shall not have received 30 days prior written notice of the
expiration of the Period of the Warrants pursuant to Section 8(g), such later
date on which the Holder shall have had such notice of the expiration of the
Exercise Period for at least 3 consecutive days (the "Expiration Date") to
purchase up to a total of 16,667 shares (as such number of shares may be
adjusted pursuant to Section 7, the "Warrant Shares") of Class A Common Stock,
at a price per share equal to the Exercise Price in lawful funds of the United
States of America. This Warrant is issued to the Holder (together with such
other warrants as may be issued in exchange, transfer or replacement of this
Warrant, the "Warrants") and entitles the Holder to purchase the Warrant Shares.
This Warrant is subject to the following further terms and conditions:
1. DEFINITIONS
"Affiliate" shall have the meaning given such term in the Credit Agreement.
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"Bank" shall mean any financial institution constituting a "Bank" pursuant
to the terms of the Credit Agreement.
"Borrower" shall mean Community Distributors, Inc., as surviving
corporation of the merger of NewRxCo. Inc. with and into Community Distributors.
Inc., a Delaware corporation.
"Class A Common Stock" shall mean the Company's authorized Class A Voting
Common Stock, $.00001 par value per share.
"Class B Common Stock" shall mean the Company's authorized Class B
Non-Voting Common Stock, $.00001 par value per share.
"Commission" shall mean the Securities and Exchange Commission and any
other similar or successor agency of the federal government of the United States
of America then administering the Securities Act or the Exchange Act.
"Common Stock" shall mean and include each of the Company's authorized
Class A Common Stock and Class B Common Stock as constituted at the Date of
Issuance.
"Company" shall mean CDI Group, Inc., a Delaware corporation, together with
any corporation which shall succeed tore the obligations hereunder of the
Company.
"Credit Agreement" shall mean the Credit Agreement, dated as of January 30,
1995, among the Company, the Borrower, the Banks and Banque Paribas, as Agent,
as such agreement may be amended, modified or supplemented from time to time.
"Credit Agreement Debt" shall have the meaning given to such term in
Section 8.1(i). "Date of Issuance" shall have the meaning given to such term in
Section 11.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar or successor federal statute, and the rules and regulations
thereunder of the Commission or any other federal agency then administering the
Exchange Act, all as the same shall be in effect at the time.
"Exercise Agreement" shall have the meaning given to such term in Section
4.3
"Exercise Event" shall have the meaning given to such term in Section 4.1.
"Exercise Period" shall have the meaning given to such term in Section 4.1.
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"Exercise Price" shall mean $.001 per Warrant Share as adjusted as provided
for herein.
"Exercise Time" shall have the meaning given to such term in Section
4.2(a).
"Expiration Date" shall have the meaning given to such term in the preamble
hereto.
"Holder" shall have the meaning given to such term in the preamble hereto.
"Investor Securities Purchase Agreement" shall mean the Investor Securities
Purchase Agreement, dated as of January 30, 1995, among the Company, the
Investors and the other parties signatory thereto, as such Agreement shall be
amended, modified, and supplemented from time to time in accordance with the
provisions thereof.
"Investors" shall mean BancBoston Ventures Inc. and Harvest Technology
Partners, L.P.
"Majority of the Warrant Interests" shall mean the Holders of a majority of
all Warrant Shares (assuming the exercise of all Warrants).
"Offering Price" shall have the meaning given to such term in Section
7.1(b).
"OID" shall have the meaning given to such term in Section 8.l(f)
"Paribas" shall have the meaning given to such term in the preamble hereto.
"Persons" shall mean a corporation, an association, a partnership, an
organization, a business, an individual or a government or political subdivision
thereof or any governmental agency.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated as of January 30, 1995, among the Company, the Investors and
the other parties signatory thereto, as such agreement shall be amended,
modified and supplemented from time to time in accordance with the provisions
thereof.
"Regulation Y" shall mean Regulation Y of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof.
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"Rights" shall have the meaning given to such term in Section 7.1(b).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations thereunder of the
Commission or any other federal agency then administering the Securities Act,
all as the same shall be in effect at the time.
"Shareholders Agreement" shall mean the Stockholder Agreement, dated as of
January 30, 1995 among the Company, the Investors and the other parties
signatory thereto, as the same may be modified, supplemented or amended from
time to time pursuant to the terms thereof.
"Transfers shall include any sale, transfer, assignment or other
disposition of this Warrant or Warrant Shares, or of any interest in either
thereof, which would constitute a sale thereof within the meaning of the
Securities Act.
"Warrant" shall have the meaning given such term in the preamble hereto.
"Warrant Shares" shall have the meaning given to such term in the preamble
hereto.
All terms used in this Warrant which are not defined in this Section 1 have
the meanings respectively set forth therefor elsewhere in this Warrant.
2. OWNERSHIP OF THIS WARRANT
The Company may deem and treat the Person in whose name this Warrant is
registered as the Holder and owner hereof for all purposes, notwithstanding any
notations of ownership or writing made hereon by anyone other than the Company,
and shall not be affected by any notice to the contrary, until presentation of
this Warrant for registration or transfer as provided in Section 3. The Company
shall maintain at its chief executive office, a register for the Warrants, in
which the Company shall record the name and address of the Person in whose name
each Warrant has been issued, as well as the name and address of each transferee
and each prior owner of such Warrant. Within five days after the Holder shall by
written notice to the Company request the same, the Company will deliver to such
Holder a certificate signed by one of its officers, listing the names and
addresses of every other Holder, as such information appears in said register
and in the stock transfer books of the Company at the close of business on the
day before such certificate is signed.
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3. EXCHANGE, TRANSFER AND REPLACEMENT
This Warrant is exchangeable, upon the surrender hereof by the registered
Holder to the Company at its office provided for in Section 2, for new Warrants
of same tenor, representing in the aggregate the right to purchase the number of
Warrant Shares purchasable hereunder, each of such new Warrants to represent the
right to purchase such number of Warrant Shares as shall be designated by said
registered Holder at the time of such surrender. Subject to Section 5 hereof,
this Warrant and all rights hereunder are transferable, in whole or in part,
only upon the register of this Warrant provided for in Section 2, by the
registered Holder hereof in person or by duly authorized attorney, and a new
Warrant shall be made and delivered by the Company, of the same tenor as this
Warrant but registered in the name of the transferee, upon surrender of this
Warrant together with a duly completed assignment, in the form attached hereto
as Exhibit A, at the office of the Company where the register provided for in
Section 2 is maintained. Upon receipt by the Company at its office provided for
in Section 2 of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
surrender of this Warrant, if mutilated, the Company will make and deliver a new
Warrant of same tenor in replacement of this Warrant, provided, if a Person
having net assets in excess of $10,000,000 (as disclosed in its last audited
financial statement) shall be the registered Holder, an agreement of indemnity
by it shall be sufficient for all purposes of this Section 3. This Warrant shall
be promptly cancelled by the Company upon the surrender thereof in connection
with any exchange, transfer or replacement. The Company shall pay all taxes
(other than securities transfer taxes which shall be paid by Holder) and all
other expenses and charges payable in connection with the preparation, execution
and delivery of Warrants pursuant to this Section 3.
4. EXERCISE RIGHTS
4.1. Exercise Period. The Holder may in its sole discretion exercise (an
"Exercise Event"), in whole or in part, the purchase rights represented by this
Warrant at any time and from time to time on or after the date hereof and until
the Expiration Date (the "Exercise Period").
4.2. Exercise Procedure. (a) An Exercise Event shall have been deemed to
have occurred as of the time during the Exercise Period when the Company has
received all of the following items (the "Exercise Times"):
(i) a completed Exercise Agreement, as described in Section 4.3 below,
executed by the registered Holder;
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(ii) this Warrant; and
(iii) payment in an amount equal to the Exercise Price for the Warrant
Shares for which this Warrant is being exercised in cash, or by a certified or
official bank check, or by any combination thereof.
(b) Certificates for Warrant Shares purchased upon exercise of this Warrant
will be delivered by the Company to the registered Holder within three business
days after the date of the Exercise Time. Unless this Warrant has expired or all
of the purchase rights represented hereby have been exercised, the Company will
prepare a new Warrant, substantially identical hereto, representing the rights
formerly represented by this Warrant which have not expired or been exercised
and will, within such three-day period, deliver such new Warrant to the
registered Holder.
(c) The Warrant Shares issuable upon exercise of this Warrant, shall, when
issued, and after payment therefor pursuant to Section 4.2(a)(iii), be duly
authorized, validly issued, fully paid, and nonassessable and will be free from
all liens and encumbrances with respect thereto.
(d) The Warrant Shares issuable upon the exercise of this Warrant will be
deemed to have been issued at the Exercise Time, and the Person or Persons in
whose name or names such Warrant Shares are registered will be deemed for all
purposes to have become the record holder of such Warrant Shares at the Exercise
Time.
(e) The issuance of certificates for Warrant Shares upon exercise of this
Warrant will be made without charge to the Holder for any issuance tax in
respect thereof or other cost incurred by the Company in connection with such
exercise and the related issuance of Warrant Shares; provided, however, in the
event that Warrant Shares are to be issued to a person other than the person in
whose name the Warrant being exercised is registered, then the person requesting
such exercise shall pay any transfer or other taxes required by reason of the
issuance of Warrant Shares to a person other than the registered holder of the
Warrant surrendered thereby unless it is established to the satisfaction of the
Company that such tax has been paid or is not applicable.
(f) The Company will not close its books against the transfer of this
Warrant or of any of the Warrant Shares in any manner which interferes with the
timely exercise of this Warrant. The Company will from time to time take all
such action as may be necessary to assure that the par value per share of the
unissued Warrant Shares acquirable upon exercise of this Warrant is at all times
equal to or less than the Exercise Price then in effect.
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4.3. Exercise Agreement. Upon any exercise of this Warrant, the Exercise
Agreement will be substantially in the form set forth in Exhibit B hereto (the
"Exercise Agreements), except that if the Warrant Shares are not to be issued in
the name of the registered Holder, the Exercise Agreement will also state the
name or names of the Person or Persons to whom the certificates for the Warrant
Shares are to be issued, and the registered Holder shall comply with Sections
5.1 and 5.2 hereof in connection therewith. Such Exercise Agreement will be
dated the actual date of execution thereof.
5. TRANSFER
5.1. Restrictions on Transfer Generally. Notwithstanding any provisions
contained in this Warrant to the contrary, this Warrant shall not be Transferred
other than to an Affiliate of the Holder, to any Bank (or an Affiliate of any
Bank) or to any member of the consolidated group of Compagnie Financiere de
Paribas or any officer or employee of any member of the consolidated group of
Compagnie Financiere de Paribas and the related Warrant Shares shall not either
be issuable to any Person other than the registered Holder, an Affiliate of such
Holder, any Bank (or an Affiliate of any Bank), any member of the consolidated
group of Compagnie Financiere de Paribas, or any officer or employee of any
member of the consolidated group of Compagnie Financiere de Paribas, or
Transferable by the registered owner thereof other to an Affiliate of the
Holder, to any Bank (or an Affiliate of any Bank) or to the consolidated group
of Compagnie Financiere de Paribas or any officer or employee of any member of
the consolidated group of Compagnie Financiere Paribas, except upon satisfaction
of the conditions specified in this Section 5.1. Such condition is intended to
insure compliance with the provisions of the Securities Act in respect of the
exercise of this Warrant or Transfer of this Warrant or any Warrant Shares. The
registered Holder of this Warrant, and each registered owner of Warrant Shares,
agrees that it will not, in each case, prior to delivery to the Company of the
opinion of the counsel referred to in, and to the effect described in, Section
5.2, to the extent such opinion has been requested by the Company, or until
registration under the Securities Act of this Warrant and all related Warrant
Shares has become effective: (i) Transfer this Warrant other than to an
Affiliate of the Holder, to any Bank (or an Affiliate of any Bank) or to any
member of the consolidated group of Compagnie Financiere de Paribas or any
officer or employee of any member of the consolidated group of Compagnie
Financiere de Paribas; (ii) request the issuance to any Person, other than the
registered Holder, an Affiliate of such Holder, any Bank (or an Affiliate of any
Bank) any member of the consolidated group of Compagnie Financiere de Paribas,
or any officer or employee of any member of the consolidated group of Compagnie
Financiere de Paribas, of Warrant Shares issuable upon exercise of this Warrant;
or (iii) Transfer other than to an Affiliate of the Holder, to any Bank (or an
Affiliate of any Bank) or to any member of the consolidated group of Compagnie
Financiere de Paribas or any
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<PAGE>
officer or employee of any member of the consolidated group of Compagnie
Financiere de Paribas any Warrant Shares.
5.2. Opinions of Counsel. So long as this Warrant, or any certificate for
Warrant Shares issued upon exercise of this Warrant, bears the legend required
by Section 5.4 hereof, the registered Holder of this Warrant and each registered
owner of any Warrant Shares agrees, by the acceptance thereof, that prior to any
Transfer other than to an Affiliate of the Holder, to any Bank (or an Affiliate
of any Bank) or to any member of the consolidated group of Compagnie Financiere
de Paribas or any officer or employee of any member of the consolidated group of
Compagnie Financiere de Paribas or attempted Transfer other than to an Affiliate
of the Holder, to any Bank (or an Affiliate of any Bank) or to any member of the
consolidated group of Compagnie Financiere de Paribas or any officer or employee
of any member of the consolidated group of Compagnie Financiere de Paribas
thereof it shall give written notice to the Company of such Person's intention
to effect such Transfer. Each such notice shall describe the manner and
circumstances of the proposed Transfer, and if in the Company's reasonable
opinion an exemption from registration under the Securities Act is not available
in connection with such Transfer, at the request of the Company, shall be
accompanied by an opinion of counsel, reasonably acceptable to the Company and
any transfer agent therefore, to the effect that such proposed Transfer may be
effected without registration under the Securities Act. If the proposed Transfer
may be effected without registration under the Securities Act, the Person giving
notice shall thereupon be entitled to consummate such Transfer in accordance
with the terms of the notice delivered by such Person to the Company upon
delivery to the Company of the written agreement of the proposed transferee to
become bound by the provisions of Sections 5.1 and 5.2 hereof and by the terms
of the Shareholders Agreement. Each Warrant or certificate evidencing Warrant
Shares, as the case may be, issued to a transferee in such Transfer shall bear
the legend set forth in Section 5.4 if required by such clause, unless such
legend is not required or appropriate in order to insure compliance with the
Securities Act.
5.3. Registration Rights and Other Rights. Each registered Holder of this
Warrant and each registered owner of Warrant Shares shall be entitled to the
benefits of and shall be subject to the obligations under the Shareholders
Agreement, the Registration Rights Agreement and the Investor Securities
Purchase Agreement (including, without limitation, information and access
rights, board observation rights, covenants and representations and warranties,
demand registration rights, piggy-back registration rights and tag-along
rights).
5.4. Legends. (a) Each Warrant issued in exchange, transfer, or replacement
of this Warrant shall (unless otherwise permitted by Section 5.2 hereof or
unless at such time as the Warrant shall have been transferred under an
effective registration statement under the Securities Act or pursuant to Rule
144 or 144A or any successor rules) be
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stamped or otherwise imprinted with a legend substantially in the form of the
legend appearing at the top of the first page of this Warrant.
(b) Each certificate for Warrant Shares shall (unless otherwise permitted
by Section 5.2 or unless such Warrant Shares shall have been transferred under
an effective registration statement under the Securities Act or pursuant to Rule
144 or 144A or any successor rules) be stamped or otherwise imprinted with a
legend in substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND THE
TRANSFER OF SAID SECURITIES IS SUBJECT TO THE
RESTRICTIONS SET FORTH IN SECTION 5 OF WARRANT NO. 1,
DATED AS OF JANUARY 30, 1995, OF CDI GROUP, INC. AND
DELIVERED TO THE REGISTERED HOLDER THEREOF, A COPY OF
WHICH IS AVAILABLE FOR INSPECTION AT THE HEAD OFFICE OF
CDI GROUP, INC., AND NO TRANSFER OF SAID SECURITIES
SHALL BE VALID OR EFFECTIVE UNLESS THE TERMS AND
CONDITIONS OF SAID SECTION 5 SHALL HAVE BEEN COMPLIED
WITH. THIS WARRANT, AND THE WARRANT SHARES ISSUABLE
UPON EXERCISE HEREOF, ARE ALSO SUBJECT TO THE
STOCKHOLDER AGREEMENT DATED AS OF JANUARY 30, 1995,
AMONG CDI GROUP, INC., BANCBOSTON VENTURES INC.,
HARVEST TECHNOLOGY PARTNERS, L.P. AND THE OTHER PARTIES
SIGNATORY THERETO. A COPY OF SUCH STOCKHOLDER AGREEMENT
WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE
HOLDER HEREOF UPON WRITTEN REQUEST.
(c) The provisions of Sections 5.1, 5.2 and this Section 5.4 shall be
binding upon all Holders and all subsequent holders of certificates for Warrant
Shares bearing the legend set forth in subsection (b) above.
5.5. Exchange of Certificates. As soon as possible after the effective date
of any registration statement under the Securities Act pursuant to the terms and
conditions contained in the Registration Rights Agreement, the Company will
deliver to the Holder of any Warrant or any Warrant Shares so registered, upon
demand of such holder and its delivery to the Company of a certificate or
certificates representing such Warrant or Warrant Shares bearing the legend set
forth in Section 5.4, a new certificate or certificates representing such
Warrant Shares but not bearing such legend.
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5.6. Regulatory Sale or Disposition. Anything herein or in the Shareholders
Agreement to the contrary notwithstanding, in the event that any Holder or any
of the Holders' Affiliates shall deliver to the Company an opinion of counsel to
such Holder or such Affiliate, as the case may be, to the effect that if such
Holder or such Affiliate, as the case may be, shall continue to hold some or all
of the Warrants or its Warrant Shares or any other securities of the Company
held by it, there is a material risk that such ownership will result in the
violation of any statute, regulation or rule of any governmental authority
(including, without limitation, Regulation Y), such Holder or such Affiliate, as
the case may be, may sell or otherwise dispose of its Warrants or Warrant
Shares, as the case may be, in as prompt and orderly a manner as is reasonably
necessary. The Company shall cooperate with such Holder or such Affiliate, as
the case may be, in disposing of its Warrants or Warrant Shares, and (without
limiting the foregoing) at the request of such Holder or such Affiliate, as the
case may be, the Company shall provide (and authorize such Holder or such
Affiliate, as the case may be, to provide) financial and other information
concerning the Company to any prospective purchaser of the Warrants or Warrant
Shares owned by such Holder or such Affiliate, as the case may be, subject to
appropriate confidentiality arrangements satisfactory to the Company. The
provisions of this Section 5.6 shall inure solely to the benefit of the Holders
and their Affiliates which are subject to the provisions of the Bank Holding
Company Act of 1956, as amended (including Regulation Y promulgated thereunder).
Any sale or transfer of any Warrants or Warrant Interest pursuant to this
Section 5.6 shall be subject to the other provisions of this Section 5.
6. COMPANY'S ACKNOWLEDGMENT OF OBLIGATIONS
The Company will, at the time of any exercise of this Warrant, upon the
request of the Holder, acknowledge in writing its continuing obligation to
afford to any Holder of Warrant Shares all rights (including, without
limitation, all rights contained in the Shareholders Agreement, the Registration
Rights Agreement and the Investor Securities Purchase Agreement) to which such
holder shall continue to be entitled after such exercise in accordance with the
provisions of this Warrant; provided, however, that if the Holder shall fail to
make any such request, such failure shall not affect the continuing obligation
of the Company to afford to the Holder any such rights.
7. ADJUSTMENTS TO NUMBER OF WARRANT SHARES
7.1. Adjustment of Number of Warrant Shares. The number of Warrant Shares
purchasable pursuant hereto shall be subject to adjustment from time to time on
and after the Date of Issuance as hereinafter provided in this Section 7.1.
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(a) In case the Company shall at any time after the Date of Issuance (i)
declare or pay a dividend in shares of Common Stock or make a distribution in
shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock,
(iii) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock or (iv) issue any shares of its capital stock or other
assets in a reclassification or reorganization of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing entity), the securities purchasable pursuant
hereto shall be adjusted to the number of Warrant Shares and amount of any other
securities, cash or other property of the Company which such Holder would have
owned or have been entitled to receive after the happening of any of the events
described above, had this Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. An adjustment
made pursuant to this paragraph (a) shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event. Any Warrant Shares purchasable as a result of such adjustment shall not
be issued prior to the effective date of such event.
(b) In case the Company shall issue shares of its Common Stock or issue
rights, options (including options issued to employees under the Company's 1995
Stock Option Plan on or after the date hereof) or warrants to subscribe for or
purchase, or other securities exchangeable for or convertible into, shares of
its Common Stock (any such rights, options, warrants or other securities being
herein called "Rights") (excluding (i) shares issued in a transaction covered by
Section 7.1 ((ii),) shares issued upon conversion, exercise, or exchange of
Rights issued after the date hereof (provided that appropriate adjustments were
made hereunder upon the issuance of such Rights) and (iii) the Warrants and any
Warrant Shares issued on exercise thereof at an issuance, subscription,
offering, exercise or conversion price (the "Offering Prices) per share which is
lower than the current market price per share of Common Stock (as defined in
paragraph (d) below) on the date of issuance or grant, whether or not such
Rights are immediately exercisable or convertible, the number of Warrant Shares
issuable hereunder after such issuance or grant shall be determined by
multiplying the number of Warrant Shares issuable hereunder immediately prior to
any adjustment in connection with such issuance or grant by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
(exclusive of any treasury shares) immediately prior to the date of issuance or
grant of such shares of Common Stock or Rights (assuming that all Common Stock
into which all outstanding rights, options, warrants and convertible securities
excluding such Rights are exercisable or convertible is outstanding) plus the
number of additional shares of Common Stock issued and the number of shares of
Common Stock that would be issued upon exercise of such Rights, and of which the
denominator shall be the number of shares of Common Stock outstanding (exclusive
of any treasury shares) immediately prior to the date of issuance or grant of
such Common Stock or Rights (assuming that all Common Stock into which all
outstanding rights, options, warrants and convertible securities excluding such
Rights are exercisable or convertible is outstanding) plus the number of shares
which the
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aggregate Offering Price of the total number of shares of Common Stock so
offered would purchase at the current market price per share of Common Stock on
the date of issuance; provided that to the extent any such Rights, so issued
expire or are cancelled or redeemed without having been exercised or converted,
the number of Warrant Shares issuable hereunder shall again be adjusted to
reflect such expiration, cancellation or redemption of such Rights. Such
adjustment shall be made whenever such shares of Common Stock or Rights are
issued or granted. For purposes of this paragraph (b), the "Offering Price" per
share of Common Stock shall in the case of Rights be determined by dividing (x)
the total amount received or receivable by the Company in consideration of the
issuance of such Rights plus the total consideration payable to the Company upon
exercise thereof, by (y) the total number of shares of Common Stock covered by
such Rights.
(c) In case the Company shall distribute to any holder of its shares of
Common Stock or Rights, evidences of its indebtedness or assets (including
securities and cash dividends other than regular quarterly cash dividends paid
in the ordinary course of business out of the Company's consolidated earnings),
but excluding dividends or distributions referred to in paragraph (a) above or
Rights, referred to in paragraph (b) above (collectively, "Distributions"), then
in each case the number of Warrant Shares issuable hereunder after any such
Distribution shall be determined by multiplying the number of Warrant Shares
issuable hereunder prior to such Distribution by a fraction, the numerator of
which shall be the current market per share of Common Stock (as defined in
paragraph (d) below) on the record date for such distribution, and of which the
denominator shall be such current market price per share of Common Stock, less
the then fair market value (as reasonably determined in good faith by the Board
of Directors of the Company) of the portion of the assets or evidences of
indebtedness so distributed applicable to one share of Common Stock. Such
adjustments shall be made successively whenever any such Distribution is made
and shall become effective on the date of distribution retroactive to the record
date for the determination of stockholders entitled to receive such
Distribution. In the event that the Holders of a Majority of Warrant Interests
disagree with the Company's determination of the fair market value of any assets
or evidences of indebtedness pursuant to this subsection 7. l(c), then such fair
market value shall be determined by an independent appraisal firm (which may be
an investment banking firm of national recognition) selected by such Holders and
the Company (the "Appraisal Firm"). If the Appraisal Firm determines such fair
market value to be greater than 105% of the Company's determination, then the
Company shall bear the costs of the Appraisal Firm. If the Appraisal Firm
determines the current market value to be less than 105% of the Company's
determination, the Holders of the Warrant Interests shall reimburse the Company
for the cost of the Appraisal Firm.
(d) For the purpose of any computation under paragraphs (b) and (c) of this
Section, the current market price per share of Common Stock at any date shall be
the average of the daily closing prices for the 10 consecutive trading day prior
to the earlier
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to occur of (i) the date as of which the market price is to be computed or (ii)
the last full trading day before the commencement of "ex-dividend" trading in
the Common Stock relating to the event giving rise to the adjustment required by
paragraph (b) or (c). The closing price for each day shall be the last such
reported sales price regular way or, in case no such reported sale takes place
on such day, the average of the closing bid and asked prices regular way for
such day, in each case on the principal national securities exchange or in the
NASDAQ-National Market System on which the shares of Common Stock are listed or
to which such shares are admitted to trading, or, if not listed or admitted to
trading, the average of the closing bid and asked prices of the Common Stock in
the over-the-counter market as reported by NASDAQ or any comparable system, or
if the Common Stock is not listed on NASDAQ or a comparable system, the average
of the closing bid and asked prices as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time by the a
Majority of the Warrant Interests for that purpose. In the event the Company's
Common Stock is not then publicly traded or if for any other reason the current
market price per share cannot be determined pursuant to the foregoing provisions
of this paragraph (d), the appropriate current market price per share shall be
the fair market value thereof (without regard to any transfer restrictions
imposed by law or contract thereon or lack of liquidity thereof) as determined
by the Board of Directors of the Company. In the event that the Holders of
Majority of Warrant Interests disagree with the Company's determination of the
current market price per share of Common Stock made pursuant to the immediately
preceding sentence, then such current market price or fair market value, as the
case may be, shall be determined by an independent appraisal firm (which may be
an investment banking firm of national recognition) selected by such Holders and
the Company (the "Appraisal Firm"). If the Appraisal Firm determines such fair
market value to be greater than 105% of the Company's determination, then the
Company shall bear the costs of the Appraisal Firm. If the Appraisal Firm
determines the current market value to be less than 105% of the Company's
determination, the Holders of the Warrant Interests shall reimburse the Company
for the cost of the Appraisal Firm.
(e) Whenever the numbers of Warrant Shares are adjusted as herein provided,
the Exercise Price payable upon exercise of this Warrant shall be adjusted by
multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
immediately prior to such adjustment, and of which the denominator shall be the
number of Warrant Shares immediately thereafter.
(f) No adjustment in the number of Warrant Shares shall be required
hereunder unless such adjustment would result in an increase or decrease of at
least one percent (1%) of the Exercise Price; provided, however, that any
adjustments which by reason of this paragraph (f) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest one-hundredth of a cent or to the
nearest one-thousandth of a share, as the case may be.
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<PAGE>
(g) For the purpose of this subsection 7.1, the term "shares of Common
Stock" shall mean (i) the classes of stock designated as the Common Stock of the
Company at the date of this Agreement, (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely of
changes in par value, or from par value to no par value, or from no par value to
par value or (iii) any other class of capital stock of the Company which is not
by its terms restricted in amount or timing to the entitlement to dividends or
in the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company. In the event that at any time, as a
result of an adjustment made pursuant to this subsection 7.1, the Holders shall
become entitled to receive any securities of the Company other than shares of
Common Stock, thereafter the number of such other securities so receivable upon
exercise of this Warrant and the Exercise Price of such shares shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
this Section 7.
7.2. Reorganization, Merger, etc. If any capital reorganization,
reclassification or similar transaction involving the capital stock of the
Company (other than as specified in Section 7.1(a)), any consolidation, merger
or business combination of the Company with another corporation, or the sale or
conveyance of all or any substantial part of the assets of the Company to
another corporation, shall be effected in such a way that holders of the Common
Stock shall be entitled to receive stock, securities or assets (including,
without limitation, cash) with respect to or in exchange for shares of the
Common Stock, then, prior to and as a condition of such reorganization,
reclassification, similar transaction, consolidation, merger, business
combination, sale or conveyance, lawful and adequate provision shall be made
whereby the Holder shall thereafter have the right to purchase upon exercise of
this Warrant and payment of the Exercise Price in effect immediately prior to
such action, the kind and amount of shares of stock, securities or assets which
he would have owned or been entitled to receive after the happening of such
reorganization, reclassification, similar transaction, consolidation, merger,
business combination, sale or conveyance had this Warrant been exercised
immediately prior to such transaction. The Company shall not effect any such
consolidation, merger, business combination, sale or conveyance unless prior to
or simultaneously with the consummation thereof the survivor or successor
corporation (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing such assets shall assume by written
instrument executed and sent to each registered Holder, the obligation to
deliver to such Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such Holder may be entitled to
receive. Nothing contained in this Section, shall limit the Holder's obligation
to participate in an Approved Sale (as defined in the Shareholders Agreement) in
accordance with the provisions of the Shareholders Agreement.
7.3. Voluntary Adjustment by the Company. The Company may at its option, at
any time during the term of this Warrant, reduce the then current Exercise Price
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<PAGE>
to any amount and for any period of time deemed appropriate by the Board of
Directors of the Company, including such reductions in the Exercise Price as the
Company considers to be advisable in order that any event treated for Federal
income tax purposes as a dividend of stock or stock rights shall not be taxable
to the recipients; provided, however, that no such adjustment in Exercise Price
shall affect the number of Warrant Shares.
7.4. Notice of Adjustment. Whenever the number of Warrant Shares or the
Exercise Price is required to be adjusted, as herein provided, the Company
promptly shall deliver to each Holder, notice of such adjustment or adjustments
and a certificate of a firm of independent public accountants selected by the
Board of Directors of the Company (who may be the regular accountants employed
by the Company) setting forth the number of Warrant Shares and the Exercise
Price after such adjustment, setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which such
adjustment was made.
7.5. Other Events. If any event occurs as to which the foregoing provisions
of this Section 7 are not strictly applicable or, if strictly applicable, would
not, fairly and adequately protect the purchase rights represented by the
Warrants in accordance with the essential intent and principles of such
provisions, then the Company shall make such adjustments in the application of
such provisions, in accordance with such essential intent and principles, as
shall be necessary to protect such purchase rights as aforesaid.
7.6. Statement on Warrant Certificates. Irrespective of any adjustments in
the Exercise Price or the number or kind of Warrant Shares, this Warrant may
continue to express the same price and number and kind of shares as are stated
on the front page hereof.
7.7. Exceptions to Adjustment. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of the
number of Warrant Shares issuable hereunder in the case of the issuance of the
Warrants or the issuance of shares of the Common Stock upon exercise of the
Warrants.
7.8. Treasury Warrant Shares. The number of shares of the Common Stock
outstanding at any time shall not include shares owned or held by or for the
account of the Company or any of its subsidiaries, and the disposition of any
such shares shall be considered an issue or sale of the Common Stock for the
purposes of this Section 7.
7.9. Company to Prevent Dilution. In case at any time or from time to time
conditions arise by reason of action taken by the Company or any of its
subsidiaries which are not adequately covered by the provisions of this Section
7, or which might adversely affect the exercise rights of the registered
Holders, the Board of Directors of the Company shall appoint a firm of
independent certified public accountants of recognized
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<PAGE>
national standing, which may be the firm regularly retained by the Company,
which shall give their opinion upon the adjustment, if any, necessary with
respect to the number of Warrant Shares into which this Warrant is exercisable,
on a basis consistent with the standards established in the other provisions of
this Section 7, so as to preserve, without dilution, the exercise rights of the
registered Holders. Upon receipt of such opinion, the Board of Directors of the
Company shall forthwith make the adjustments described therein.
8. SPECIAL COVENANTS OF THE COMPANY
The Company covenants and agrees that until the Expiration Date:
(a) The Company will not, by amendment of its Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, directly
or indirectly avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, or the Shareholders Agreement, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holders against impairment. Without limiting the generality of the
foregoing, the Company (i) will not increase the par value of any share of stock
receivable upon the exercise of the Warrants above the Exercise Price payable
therefor upon such exercise, and (ii) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares of stock upon the exercise of all Warrants
from time to time outstanding (including as a result of a reduction in the
purchase price pursuant to the terms hereof).
(b) If any Warrant Shares required to be reserved for the purposes of
exercise of this Warrant require registration with or approval of any
governmental authority under any federal law (other than the Securities Act) or
under any state law before such Warrant Shares may be issued upon exercise of
this Warrant, the Company will, at its expense, as expeditiously as possible use
its best efforts to cause such Warrant Shares to be duly registered or approved,
as the case may be.
(c) If at any time Common Stock is listed on any national securities
exchange (as defined in the Exchange Act), the Company will, at its expense,
obtain and maintain the approval for listing on each such exchange upon official
notice of issuance of all Warrant Shares receivable upon the exercise of the
Warrants at the time outstanding and maintain the listing of such Warrant Shares
after their issuance; and the Company will so list on such national securities
exchange, will register under the Exchange Act (and any similar state statute
then in effect), and will maintain such listing of, any other securities that at
any time are issuable upon
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<PAGE>
exercise of the Warrants, if and at the time that any securities of the same
class shall be listed on such national securities exchange by the Company.
(d) The Company covenants and agrees to give each Holder, as reflected in
books and records of the Company, prior written notice of the expiration of the
Exercise Period of the Warrants. Such notice shall be delivered not less than
thirty (30) days but not more than sixty (60) days prior to such expiration;
provided, that if the Company fails to give such notice, the expiration of such
Exercise Period shall not occur, until thirty (30) days after such notice is
delivered.
(e) The Company covenants that, following an initial public offering of the
Common Stock it will file any reports required to be filed by it under the
Securities Act and the Exchange Act and, whether or not the Company has effected
an initial public offering, it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Warrant Shares without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rules 144 and 144A under
the Securities Act, as such Rules may be amended from time to time, or (b) any
similar rules or regulations or regulations hereafter adopted by the Commission;
provided, that any such sale shall also be made in accordance with the terms and
provisions of the Stockholders Agreement. Upon the request of any Holder, the
Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
(f) The Company agrees that the fair market value of the Warrants, when
taken together with the terms of the Indebtedness arising under the Credit
Agreement (the "Credit Agreement Debts"), will not result in any original issue
discount ("OID") for federal income tax purposes with respect to the Credit
Agreement Debt and the Company agrees not to claim any OID with respect to the
Credit Agreement Debt.
9. NOTIFICATION BY THE COMPANY
In case at any time:
(i) the Company shall declare any dividend or make any distribution upon
its Common Stock; or
(ii) the Company shall offer for subscription pro-rata to the holders of
its Common Stock any additional shares of stock of any class or any other
securities
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<PAGE>
convertible into or exchangeable for shares of stock or any rights or options to
subscribe thereto; or
(iii) the Board of Directors of the Company shall authorize any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company, or a sale or conveyance of all or a substantial part of
the assets of the Company, or a consolidation, merger or business combination of
the Company with another Person; or
(iv) actions or proceedings shall be authorized or commenced for a
voluntary or involuntary dissolution, liquidation or winding-up of the Company;
then, in any one or more of such cases, the Company shall give written notice to
the Holder, at the earliest time legally practicable (and not less than 30 days
before any record date or other date set for definitive action) of the date on
which (A) the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights or options or (B) such
reorganization, reclassification, sale, conveyance, consolidation, merger,
dissolution, liquidation or winding-up shall take place or be voted on by
stockholders of the Company, as the case may be. Such notice shall also specify
the date as of which the holders of the Common Stock of record shall participate
in said dividend, distribution, subscription rights or options or shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, sale, conveyance,
consolidation, merger, dissolution, liquidation or winding-up, as the case may
be. If the action in question or the record date is subject to the effectiveness
of a registration statement under the Securities Act or to a favorable vote of
stockholders, the notice required by this Section 9 shall so state.
10. NO VOTING RIGHTS; LIMITATIONS OF LIABILITY
Prior tO exercise, this Warrant will not entitle the Holder to any voting
rights or other rights as a stockholder of the Company. No provision hereof, in
the absence of affirmative action by the Holder to purchase Common Stock, and no
enumeration herein of the rights or privileges of the Holder shall give rise to
any liability of such Holder for the purchase price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
11. DATE OF ISSUANCE
The date the Company initially issues this Warrant will be deemed to be the
"Date of Issuance" hereof and of each new Warrant issued in exchange, transfer
or
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<PAGE>
replacement hereof, regardless of the number of times new certificates
representing the unexpired and unexercised rights formerly represented by this
Warrant shall be issued.
12. AMENDMENT AND WAIVER
(a) No failure or delay of the Holder in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of such right or power, or any abandonment or discontinuance of steps
to enforce such a right or power, preclude any other or further exercise thereof
or the exercise of any other right or power. The rights and remedies of the
Holder are cumulative and not exclusive of any rights or remedies which it would
otherwise have. The provisions of this Warrant may be amended, modified or
waived with (and only with) the written consent of the Company and the Majority
of the Warrant Interests.
(b) Any such amendment, modification or waiver effected pursuant to this
Section 12 shall be binding upon the Holders of all Warrants and Warrant Shares,
upon each future holder thereof, upon the Company and its shareholders. In the
event of any such amendment, modification or waiver, the Company shall give
prompt written notice thereof to all Holders and, if appropriate, notation
thereof shall be made on all Warrants thereafter surrendered for registration of
transfer or exchange.
(c) No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
13. NO FRACTIONAL WARRANT SHARES
The Company shall not be required to issue stock certificates representing
fractions of Warrant Shares, but may at its option in respect of any final
fraction of a Warrant Share make a payment in cash based on the then current
market price of the Common Stock (as determined in accordance with Section 7.1
(d)) after giving effect to the full exercise or conversion of the Warrants.
14. RESERVATION OF WARRANT SHARES
The Company will authorize, reserve and keep available at all times, free
from preemptive rights, a sufficient number of Warrant Shares to satisfy the
requirements of this Warrant and any other outstanding Warrants.
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<PAGE>
15. NOTICES
All notices, requests, consents and other communications hereunder shall be
in writing (including, telegraphic, telex, facsimilar or cable communication)
and delivered, mailed telegraphed, telexed, telecopied or cabled:
(i) if to the Holder, at 787 Seventh Avenue, New York, New York 10019,
Attention: Stephen Eisenstein or at such other address as may have been
furnished to the Company in writing by the Holder; and
(ii) if to the Company, at 251 Industrial Parkway, Somerville, New Jersey
08876, Attention: President, or at such other address as may have been furnished
to the Holder in writing by the Company.
All such notices and communications when mailed, telegraphed, telexed,
facsimiled, or cabled or sent by overnight courier, be effective 3 Business Days
after deposited in the mails, certified return receipt requested, when delivered
to the telegraph company, cable company or one day following delivery to an
overnight courier, as the case may be, or sent by telex or facsimilar device.
16. HEADINGS
The headings of the Sections and subsections of this Warrant are inserted
for convenience only and shall not be deemed to constitute a part of this
Warrant.
17. GOVERNING LAW; CONSENT TO JURISDICTION
THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF DELAWARE. If any action or proceeding shall be brought by
any Holder in order to enforce any right or obligation in respect of this
Warrant, the Company hereby consents and will submit to the jurisdiction of any
state or federal court of competent jurisdiction sitting within the area
comprising the Southern District of New York on the date of this Warrant, and
agrees that venue will be proper in any such court.
18. BINDING EFFECT
The terms and provisions of this Warrant shall inure to the benefit of the
original Holder and its successors and assigns and shall be binding upon the
Company and
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<PAGE>
its successors and assigns, including, without limitation, any Person succeeding
to the Company by merger, consolidation or acquisition of all or substantially
all of the Company's assets.
IN WITNESS WHEREOF, the seal of the Company and the signatures of its duly
authorized officers have been affixed hereto as of the date first written above.
CDI GROUP, INC
By /s/ [illegible]
-------------------------
Title:
<PAGE>
EXHIBIT A
ASSIGNMENT
To Be Executed by the Registered Holder
Desiring to Transfer the Within Warrant of
CDI GROUP, INC.
FOR VALUE RECEIVED, the undersigned registered holder hereby sells, assigns and
transfers unto _______ the right to purchase ___ shares of the Class A Common
Stock covered by the within Warrant, and does hereby irrevocably constitute and
appoint_________________________ Attorney to transfer the said Warrant on the
books of the Company (as defined in said Warrant), with full power of
substitution.
Name of
Registered Holder __________
Signature:____________________
Title:
Address:
Dated:____________
In the presence of
___________________
NOTICE:
The signature to the foregoing Assignment must correspond to the name
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT B
EXERCISE AGREEMENT
To Be Executed by the Registered Holder
Desiring to Exercise the Within Warrant of
CDI GROUP, INC.
The undersigned registered holder hereby exercises the right to purchase
_____shares of the Class A Common Stock covered by the within Warrant, according
to the conditions thereof, and herewith make payment in full of the Exercise
Price of such shares, $ ____.
Name of
Registered Holder ______________
Signature: _____________________
Title:
Address:
Dated:____________
<PAGE>
AMENDMENT OF COMMON STOCK PURCHASE WARRANT,
ACKNOWLEDGMENT AND WAIVER
This AMENDMENT OF COMMON STOCK PURCHASE WARRANT, ACKNOWLEDGMENT AND
WAIVER, dated as of September 30, 1997, is made by and between CDI Group, Inc.,
a corporation organized and existing under the laws of the State of Delaware
(the "Company"), and Banque Paribas, acting by and through its Cayman Island
Branch ("Paribas").
BACKGROUND
WHEREAS, in connection with the acquisition by the Company of Community
Distributors, Inc., a corporation organized and existing under the laws of the
State of Delaware ("CDI"), on January 30, 1995, which was partially financed
through a term loan pursuant to a Credit Agreement under which Paribas served as
Agent, the Company issued Paribas a Common Stock Purchase Warrant (the
"Warrant"), pursuant to a Common Stock Purchase Warrant, dated as of January 30,
1995 (the "Warrant Agreement"), to purchase 16,667 shares (the "Warrant
Shares"), of the Company's Class A Common Stock, $.00001 par value per share;
WHEREAS, the Warrant Agreement provides for the adjustment of the
number of Warrant Shares upon the occurrence of certain events, including the
payment of certain distributions on the capital stock of the Company;
WHEREAS, CDI intends to issue approximately $80,000,000 in Senior Notes
due 2004 (the "Offering"), and use the proceeds thereof to (i) repay
substantially all of CDI's existing indebtedness, and (ii) pay a dividend of
approximately $45,000,000 to the Company, its sole stockholder, which in turn
intends to use such funds to make a similar distribution (the "Dividend") to its
shareholders;
WHEREAS, pursuant to an Investor Securities Purchase Agreement, dated
as of January 30, 1995 and entered into between the Company and the Investors
named therein (the "Purchase Agreement"), Paribas and certain other of such
Investors were given the option to elect to receive their pro rata potions of
certain distributions made by the Company, including with respect to any shares
issuable upon the exercise of the Warrant; and
WHEREAS, the Company and Paribas understand and agree that the anti-
dilution provisions in the Warrant Agreement are not intended to operate with
respect to distributions by the Company with respect to which Paribas desires to
elect to receive its pro rata portion with respect to the Warrant Shares and,
correspondingly, the Company and Paribas have agreed to amend the Warrant to
permit Paribas to elect to receive its pro rata portion of the Dividend without
triggering the anti-dilution provision of the Warrant Agreement;
<PAGE>
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NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and Paribas hereby
agree as follows:
1. Amendment of Warrant Agreement.
The Warrant Agreement is hereby amended by inserting the following
sentence at the end of Section 7.1(c):
"Notwithstanding anything in the contrary in this Agreement, in no
event shall the number of Warrant Shares issuable hereunder be adjusted
in connection with, or as a direct or indirect result of, any
distribution to any holder of Common Stock or Rights of evidence of
indebtedness or assets (including cash) to the extent that any Holders
receive their proportionate share of such distribution in accordance
with the Investor Securities Purchase Agreement in connection with, or
as a direct or indirect result of, its ownership of the Warrant or the
right to receive Warrant Shares upon exercise hereof."
2. Payment of Dividend.
The Company hereby acknowledges that Paribas has exercised its option
pursuant to Section 6.6 of the Purchase Agreement to receive its pro rata share
of the Dividend, if paid, with respect to the Warrant Shares.
3. Waiver of Notice.
Paribas hereby irrevocably waives its right to receive notice of the
record date for determining the shareholders of the Company entitled to
participate in the Dividend, whether such right may arise pursuant to Section 9
of the Warrant Agreement or otherwise.
4. No Other Amendment or Waiver.
Except as specifically provided herein, the Warrant Agreement shall
remain in full force and effect in the form in which it existed on the date
hereof prior to giving
effect to the terms of this Amendment to Common Stock Warrant Agreement,
Acknowledgment and Waiver and the Company and Paribas ratify and reaffirm the
Warrant Agreement in its entirety, as modified hereby. Except as specifically
provided herein, this Amendment to Common Stock Warrant Agreement,
Acknowledgment and Waiver shall not constitute an acceptance or waiver of any
other provision of the Warrant Agreement.
5. Governing Law.
<PAGE>
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This Amendment of Common Stock Warrant Agreement, Acknowledgment and
Waiver and the rights and obligations of the parties hereunder shall be
construed in accordance with and governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have cause this Amendment of
Common Stock Purchase Warrant, Acknowledgment and Waiver to be duly executed as
an instrument under seal as of the date first above written.
CDI GROUP, INC.
By: _______________________________
Title: ______________________
BANQUE PARIBAS, acting by and
through its
Cayman Island Branch
By: _______________________________
Title: ______________________
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT made the 16 day of October, 1997 between
PNC BANK, NATIONAL ASSOCIATION ("Lender"), having offices at 1600 Market Street,
Philadelphia, Pennsylvania 19103 and COMMUNITY DISTRIBUTORS, INC., a Delaware
corporation ("Borrower"), having its principal place of business at 251
Industrial Parkway, Branchburg Township, Somerville, New Jersey 08876.
BACKGROUND
A. Borrower desires to establish certain financing arrangements with and
borrow funds from Lender and Lender is willing to establish such arrangements
for and make loans and advances to Borrower under the terms and provisions
hereinafter set forth.
B. The parties desire to define the terms and conditions of their
relationship and to reduce their agreements to writing.
NOW, THEREFORE, with the foregoing Background deemed incorporated by
reference, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged and intending to be legally bound hereby, the
parties hereto agree as follows:
1. DEFINITIONS
"Agreement" - this Agreement, together with all Exhibits, amendments,
modifications and supplements hereto, as may be in effect from time to time.
"Accounts" - as defined in Section 2.1(c).
"Affiliate" - any person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Borrower. For purposes of
this definition, the term "control" means the power to direct the management and
policies of a person, directly or through one or more intermediaries, whether
through the ownership of voting securities, by contract or otherwise.
"Availability" - as of any date, the amount by which the Revolving Loan
Limit on such date exceeds the Outstanding Amount on such date.
"Banking Day" - any day other than a Saturday, Sunday or legal holiday for
banks under the laws of the Commonwealth of Pennsylvania.
"Bankruptcy Code" - shall mean Title 11 of the United States Code, 11
U.S.C. ss. 101 et seq. in effect as of the date hereof.
<PAGE>
"Base Rate Option" - as defined in Section 2.2(c).
"Borrowing Base Certificate" - full and complete certificate showing all
calculations for the then Borrowing Base, certified to be true and correct by
Borrower's chief financial officer and otherwise in form and substance
reasonably satisfactory to Lender.
"Cash Flow" - Pre Tax Earnings plus (a) the sum of depreciation,
amortization, interest expense and all other non-cash charges, minus (b) the sum
of Permitted Distributions and Tax Expense or Tax Expense Distributions, as
applicable, plus (c) net cash proceeds received by Borrower after the date
hereof as a capital contribution in the form of common equity from CDI plus (d)
Tax Expense Refunds; all as determined for the Consolidated Group in accordance
with GAAP.
"CDI" - CDI Group, Inc., a Delaware corporation.
"Change of Control" - as defined in the Indenture.
"Collateral" - as defined in Section 3.2(b).
"Consolidated Group" - Borrower and its consolidated Subsidiaries.
"Current Maturities" - principal maturities of all Indebtedness for
borrowed money (included but not limited to amortization of capitalized lease
obligations but not including the principal of the Revolving Loans) having an
original term of one year or more, and including, without duplication and
regardless of the original term thereof, all principal payments on Subordinated
Indebtedness, as well as any prepayments of any such indebtedness prior to
scheduled maturity.
"Default Rate" - a rate of interest two (2) percentage points in excess of
the rate otherwise applicable under the Base Rate Option.
"Dominion Account" - a special account of Lender established by Borrower
pursuant to Section 2.5 hereof at a bank or banks selected by Borrower, but
acceptable to Lender in its reasonable discretion, and over which Lender shall
have sole and exclusive access and control for withdrawal purposes.
"Environmental Clean-up Site" - any location which is listed or proposed
for listing on the National Priority's List or CERCLIS or any similar state list
or sites requiring investigation or clean-up or which is the subject of any
pending or threatened action, suit, proceeding or investigation related to or
arising from any alleged violation of any Environmental Requirements.
"Environmental Requirements" - any and all applicable federal, state or
local laws, statutes, ordinances, regulations or standards, administrative or
court orders, or decrees, common law doctrines or private agreements relating to
(i) pollution or protection of the environment and natural resources; (ii)
exposure of employees or other persons to Hazardous Substances; and (iii) for
protection of the public health and welfare from the effects of Hazardous
Substances and their
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<PAGE>
products, by-products, waste, emissions, discharges or releases; and (iv)
regulations, licensing, approval or authorization of the manufactured generation
use, formulation, packaging, labeling, transporting, distributing, handling,
storing or disposing of any Hazardous Substances.
"Equipment" - as defined in Section 3.2(c).
"ERISA" - as defined in Section 4.17.
"Euro-Rate Option" - as defined in Section 2.2(d).
"Event of Default" - as defined in Section 9.
"Fixed Charges" - the sum of (i) Current Maturities and (ii) interest
expense on Indebtedness for borrowed money (including capitalized lease
obligations), all as determined for the Consolidated Group in accordance with
GAAP.
"Fixed Charge Coverage Ratio" - as of the end of any fiscal quarter, the
ratio of (a) Cash Flow of Borrower for the four consecutive fiscal quarters
ending on such date to (b) the Fixed Charges of Borrower for the four
consecutive fiscal quarters ending on such date, provided, that for all fiscal
quarters ending prior to January 31, 1999, Fixed Charges shall be annualized on
the basis of the number of whole fiscal quarters then elapsed since the date of
this Agreement.
"Generally Accepted Accounting Principles" or "GAAP" - with respect to any
Person, such accounting practice as conforms at the time to generally accepted
accounting principles, consistently applied. Generally accepted accounting
principles means those principles and practices which are (a) recognized as such
by the Financial Accounting Standards Board; (b) applied for all periods after
the date hereof in a manner consistent with the manner in which such principles
and practices were applied to the most recent financial statements of the
relevant Person furnished to Lender, and (c) consistently applied for all
periods after the date hereof so as to reflect properly the financial condition,
and results of operations and cash flows, of such Person. If any change in any
accounting principle or practice is required by the Financial Accounting
Standards Board in order for such principle or practice to continue as a
generally accepted accounting principle or practice, all reports and financial
statements required hereunder shall be prepared in accordance with such change.
Solely for purposes of this Agreement, if any such material change is made, then
either (i) the financial covenants shall be appropriately modified by agreement
of the parties to reflect such change or (ii) the financial covenant compliance
computations shall be computed without regard to such change.
"General Intangibles"- as defined in Section 3.2(d).
"Hazardous Substances" - any and all materials which under Environmental
Requirements require special handling in use, generation, collection, storage,
treatment, or disposal or payment of costs associated with responding to the
lawful directives of any court or agency of competent jurisdiction. Hazardous
Substances shall include, without limitation, (i) any flammable substance,
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explosive, radioactive material, hazardous material, hazardous waste, toxic
substance, solid waste, pollutant, contaminant or any related material, raw
material, substance, product or by-product of any substance specified in or
regulated or otherwise affected by any Environmental Requirements (including,
but not limited to, any "Hazardous Substance" as defined in the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, or
any similar state or local law), (ii) any toxic chemical or other substance from
or related to industrial, commercial or institutional activities, and (iii)
asbestos, gasoline, diesel fuel, motor oil, waste and used oil, heating oil and
other petroleum products or compounds, polychlorinated biphenyls, radon, urea
formaldehyde and lead-containing materials.
"Indebtedness" - all items of indebtedness, obligation or liability, due or
to become due, liquidated or unliquidated, direct or contingent, joint or
several, of any nature whatsoever and out of whatever transaction arising,
including, without limitation:
(A) All indebtedness guaranteed, directly or indirectly, in any
manner, or endorsed (other than for collection or deposit in the ordinary course
of business) or discounted with recourse;
(B) All indebtedness in effect guaranteed, directly or indirectly,
through agreements, contingent or otherwise to (l) purchase such indebtedness,
(2) purchase, sell or lease (as lessee or lessor) property, products, materials
or supplies, or to purchase or sell services, primarily for the purpose of
enabling any debtor to make payment of such indebtedness or to assure the owner
of the indebtedness against loss, or (3) supply funds to or in any other manner
invest in any debtor;
(C) All indebtedness secured by (or for which the holder of such
indebtedness has an existing right, contingent or otherwise, to be secured by)
any mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance upon property owned or acquired subject to such mortgage, deed of
trust, pledge, lien, security interest, charge or encumbrance, whether or not
the liabilities secured thereby have been assumed; and
(D) All indebtedness incurred as the lessee of goods or services under
leases that, in accordance with generally accepted accounting principles,
consistently applied, should be reflected on the lessee's balance sheet.
"Indenture" - that certain Indenture dated as of October 16, 1997
between Borrower, CDI and The Bank of New York, as trustee as the same may from
time to time be modified or amended.
"Inventory" - as defined in Section 2.1(c).
"Inventory Sublimit"- 65% of the Net Value of Qualified Inventory.
"Letter of Credit" - as defined in Section 2.9.
"Letter of Credit Disbursement"- any payment or disbursement by Lender
under any Letter of Credit.
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"Letter of Credit Disbursement Date" - the date on which any Letter of
Credit Disbursement is made.
"Letter of Credit Sublimit" - $5,000,000.
"Loans" - the Revolving Loans.
"Loan Documents"- this Agreement, the Note and the Relevant Documents.
"Net Amount of Qualified Accounts" - as defined in Section 2.1(c).
"Net Value of Qualified Inventory" - as defined in Section 2.1(c).
"Note" - the Revolving Note.
"Obligations" - as defined in Section 3.2(a).
"Outstanding Amount" - as of any date, the principal balance of all
advances under the Revolving Loan (including the undrawn, available amount of
all outstanding Letters of Credit) plus the principal amount of all outstanding
Reimbursement Obligations.
"Overadvance" - as defined in Section 2.1.
"Permitted Distributions" - (a) payments to CDI in an amount not to exceed
$250,000 in the aggregate in any fiscal year sufficient to permit CDI to pay
reasonable and necessary operating expenses and other general corporate expenses
(including any reasonable professional fees and expenses) and (b) cash dividends
to CDI to the extent necessary to permit CDI to repurchase common stock, stock
options and stock equivalents or other equity securities of CDI held by
departing or deceased directors, officers or employees of CDI or the Borrower,
provided that the aggregate amount of all such repurchases shall not exceed
$500,000 during any fiscal year or $2,000,000 during the period from the date
hereof through October 16, 2002.
"Permitted Investments" - (a) direct obligations of, or obligations fully
and unconditionally guaranteed by, the United States of America, (b) deposit
accounts in, or certificates of deposit issued by, any commercial bank in the
United States of America having total capital and surplus in excess of Five
Hundred Five Million Dollars ($500,000,000) or certificates of deposit which are
fully insured by the Federal Deposit Insurance Corporation, (c) investment grade
(rated AA or better) commercial paper, bankers' acceptances or similar financial
instruments, (d) investment grade bonds (rated AA or better), and/or (e) mutual
funds having at least eighty percent (80%) of their assets in cash and/or
investments included in (a), (b), (c) or (d) above.
"Permitted Liens" -
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(a) liens imposed by governmental authorities for taxes, assessments
or other charges not yet subject to penalty or which are being contested in good
faith and by appro
, if adequate reserves with respect thereto
are maintained on the books of the Borrower in accordance with GAAP;
(b) statutory liens of carriers, warehousemen, mechanics, materialmen,
landlords, repairmen or other like liens arising by operation of law in the
ordinary course of business provided that (i) the underlying obligations are not
overdue for a period of more than 30 days, or (ii) such liens are being
contested in good faith and by appropriate proceedings and adequate reserves
with respect thereto are maintained on the books of the Borrower in accordance
with GAAP;
(c) liens securing the performance of bids, trade contracts (other
than borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(d) easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or title defects which, singly or in the aggregate, do not
in any case materially detract from the value of the property subject thereto
(as such property is used by the Borrower) or interfere with the ordinary
conduct of the business of the Borrower;
(e) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security legislation;
(f) liens consisting of customary restrictions on assignment or
transfer in any lease or other agreement not relating to Indebtedness for
borrowed money;
(g) liens on the applicable accounts receivables, proceeds and
contract rights securing the Borrower's obligations with respect to a customary
factoring arrangement of Third Party Plan Receivables;
(h) purchase money security interests (including capitalized lease
obligations) covering Equipment or Inventory in favor of the vendor or financier
thereof, provided that the principal amount secured by each such security
interest does not exceed the unpaid purchase price for such property and
provided that no such lien shall cover non-cash proceeds of Inventory; and
(i) liens in favor of Lender.
"Person" - any individual, corporation, participation, association,
joint-stock company, trust, unincorporated organization, joint venture, court or
government division or agency thereof.
"Pre-Tax Earnings" - gross revenues and other proper income credits, less
all proper income charges other than taxes on income, all as determined for the
Consolidated Group in accordance with GAAP; provided that there shall not be
included in such revenues or charges (a) any gains resulting from the write-up
of assets; or (b) any gain or loss which is classified as "extraordinary" in
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accordance with Generally Accepted Accounting Principles. Pre-Tax Earnings can
be less than zero for all purposes of this Agreement.
"Prime Rate" - the rate of interest in effect from time to time at Lender
as its "prime rate" or "prime lending rate," which rate is determined from time
to time by Lender as a means of pricing some loans to its customers and is
neither tied to any external rate of interest or index nor necessarily reflects
the lowest rate of interest actually charged by Lender to any particular class
or category of customers.
"Purchase Money Indebtedness" - purchase money Indebtedness incurred for
the acquisition of Equipment (including capitalized lease obligations) or
Inventory.
"Qualified Account" - as defined in Section 2.1(c).
"Qualified Inventory" - as defined in Section 2.1(c).
"Rates" - the respective rates of interest set forth in Section 2.2.
"Reimbursement Obligations" - as defined in Section 2.9(b).
"Related Entity" - any corporate subsidiary of Borrower, and any
unincorporated association or other entity through which Borrower conducts any
part of its business.
"Relevant Documents" - any and all documents and instruments delivered to
or required by Lender pursuant or incident to this Agreement or any of the Loans
(a) by Borrower or any Related Entity, (b) by any pledgor or grantor of a lien,
security interest or other right, or (c) by any guarantor of any of the
Obligations.
"Revolving Loan" or "Revolving Loans" - as defined in Section 2.1(a).
"Revolving Loan Limit" - as defined in Section 2.1(b).
"Revolving Loan Termination Date" - the earlier of (a) the payment in full
by Borrower of all Obligations and the termination of all lending commitments of
Lender hereunder; or (b) October 16, 2002.
"Revolving Note" - as defined in Section 2.1(a).
"Senior Unsecured Debt" - Indebtedness evidenced by the 10.25% Senior Notes
issued pursuant to the Indenture.
"Subordinated Debt" - shall mean unsecured indebtedness of Borrower, the
repayment of which is subordinated to all Obligations pursuant to a written
subordination agreement in form and substance reasonably acceptable to Lender.
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"Subsidiary" - a corporation 50% or more of the Voting Stock of which is
owned directly or indirectly through another Subsidiary by Borrower.
"Tax Expense" - for any period, cash expenditures of the Borrower for
local, state and federal income taxes.
"Tax Expense Distribution" - cash distributions by Borrower to CDI for use
by CDI for the payment of local, state and federal income taxes attributable to
the income of Borrower.
"Tax Expense Refunds" - cash refunds on account of Tax Expense previously
paid by Borrower or cash payments to Borrower by CDI on account of tax refunds
received by CDI attributable to taxes for which Tax Expense Distributions were
previously made by Borrower to CDI, as the case may be.
"Third Party Plan Receivable" - a right to receive payment from a managed
health care provider or other third party payer (a "Third Party Plan") resulting
from a sale to customers associated with a Third Party Plan of pharmacy goods or
services by a person pursuant to an arrangement with such Third Party Plan under
which such Third Party Plan is obligated to pay for such goods or services under
terms that permit the purchase of such goods or services on credit.
"UCC" - the Uniform Commercial Code as in effect from time to time in the
State of New Jersey.
"Voting Stock" - capital stock having ordinary power to vote for the
election of directors.
2. REVOLVING LOANS
2.1 Amount and Certain Definitions.
(a) Facility. Until the Revolving Loan Termination Date, Lender shall,
upon the request of Borrower, make loans hereunder to (including issuance of
Letters of Credit for the account of) Borrower (a "Revolving Loan" or the
"Revolving Loans") from time to time on a revolving loan basis in an aggregate
principal amount not in excess, at any time outstanding, of the Revolving Loan
Limit; provided that, if the Outstanding Amount should exceed the Revolving Loan
Limit at any time (herein, an "Overadvance"), such Overadvance (i) shall
nevertheless be secured by the Collateral and be subject to the terms of this
Agreement, and (ii) shall be payable immediately upon demand by Lender. The
Revolving Loans shall be paid in accordance with Section 10, Section 12 or as
otherwise provided elsewhere in this Agreement. The Revolving Loans may, but
need not, be evidenced by one or more promissory notes (referred to collectively
as the "Revolving Note"). Proceeds of Revolving Loans shall be used by Borrower
exclusively for general corporate purposes, including for capital expenditures
and payment of Permitted Distributions.
(b) Definition of Revolving Loan Limit. Borrower's Revolving Loan
Limit shall be the lesser of $ 20,000,000.00 or the sum of the following:
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(i) 85% of the Net Amount of Qualified Accounts; plus
(ii) the Inventory Sublimit.
Lender shall have the right to establish reserves in such amounts, and with
respect to such matters, as Lender shall deem necessary or appropriate in its
reasonable credit judgment, against the amount of Revolving Credit Loans which
Borrower may otherwise request under this Section 2.1, including, without
limitation, with respect to (i) price adjustments, damages, unearned discounts,
returned products or other matters for which credit memoranda are issued in the
ordinary course of Borrower's business; (ii) shrinkage, spoilage and
obsolescence of Inventory; (iii) slow moving Inventory; (iv) amounts owing by
Borrower to any Person to the extent secured by a lien on (including a
landlord's lien which is neither subordinated nor waived on terms reasonably
satisfactory to Lender, but reserves, if any, with respect thereto are agreed by
Lender to be limited to 3 months rent expense for each location without a
landlord's waiver or subordination reasonably satisfactory to Lender provided
that no default by Borrower exists under the applicable lease) any property of
Borrower included in the Borrowing Base; and (v) such other matters, events,
conditions or contingencies as to which Lender, in its reasonable credit
judgment, determines reserves should be established from time to time hereunder.
(c) Definitions of Account; Qualified Account; Net Amount of Qualified
Accounts; Inventory; Qualified Inventory; Net Value of Qualified Inventory.
(i) The term "Account" shall mean all items described in the UCC
definition thereof and all of the following, whether or not so described (in all
cases whether now existing or hereafter created): all obligations of any kind at
any time due or owing to Borrower and all rights of Borrower to receive payment
or any other consideration (whether classified under the UCC or the law of any
other state as accounts, accounts receivable, contract rights, chattel paper,
general intangibles, or otherwise) including without limitation invoices,
contract rights, accounts receivable, general intangibles, choses-in-action,
notes, drafts, acceptances, instruments and all other debts, obligations and
liabilities in whatever form owing to Borrower from any person, firm,
corporation, governmental authority or other entity, together with all security
for any thereof, and all of Borrower's rights to goods sold (whether delivered,
undelivered, in transit or returns), represented by any thereof, together with
all proceeds and products of any of the foregoing.
(ii) The term "Qualified Account" shall mean an Account which is
represented by Borrower (by its acceptance of Revolving Loans thereon) as
meeting all of the following criteria on its origination date and thereafter
until collected:
(A) Borrower is the sole owner of the Account and has not
sold, assigned or otherwise transferred it, and the Account is not subject to
any claim, lien or security interest other than in favor of Lender;
(B) The Account is bona fide and legally enforceable and
owing to Borrower for the sale of goods or performance of services to an account
debtor with its executive
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offices, principal place of business and the majority of its assets located in
the United States or Puerto Rico or Canada except to the extent that the
Borrower has been issued a letter of credit securing such Account (an "LC Backed
Account") in form and substance and issued by a financial institution reasonably
acceptable to Lender and, at Lender's request, such letter of credit has been
delivered to Lender and notice of Lender's interest therein has been provided to
the issuer thereof; and the Accounts arise in the ordinary course of business
and the Account does not require any further act on the part of Borrower to make
it owing by the Account debtor;
(C) The Account does not represent a conditional sale,
consignment or other sale on a basis other than that of absolute sale, and does
not arise out of a contract with the United States or any of its departments,
agencies or instrumentalities unless all requirements to effectively assign the
same to Lender under the Federal Assignment of Claims Act have first been met;
(D) The Account is invoiced on the date Inventory or other
goods represented thereby are shipped to the Account debtor, and the invoice has
not been outstanding for more than ninety (90) days;
(E) The amount of the Account together with all other
Qualified Accounts of the Account debtor receiving the goods represented by the
Account does not exceed forty percent (40%) of Borrower's total Qualified
Accounts at the time outstanding;
(F) The Account debtor has not returned the goods or any
portion thereof or indicated any dispute or complaint concerning them;
(G) No more than fifty (50%) percent of all Accounts of the
Account debtor are unpaid more than 90 days after the invoice date;
(H) The Account debtor is not a Related Entity or Affiliate
of Borrower nor a director or officer of Borrower nor an Affiliate of any
director or officer;
(I) No case, proceeding or action with respect to the
bankruptcy, receivership, reorganization, liquidation, dissolution has been
commenced by or against the Account debtor;
(J) The Account is not a vendor rebate; and
(K) The Account debtor is not, in Lender's good faith
reasonable business judgement, uncreditworthy.
(iii) The term "Net Amount of Qualified Accounts" shall mean the
face amount of a Qualified Account less the aggregate amount of all accounts
payable and other obligations and indebtedness of Borrower to the relevant
Account debtor, whether or not then due
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and less all rebates, discounts, credits, allowances or excise taxes of any
nature at any time issued, owing, claimed by Account debtors, granted,
outstanding or payable.
(iv) The term "Inventory" shall mean all items described in the
UCC definition thereof and all of the following, whether or not so described (in
all cases whether now owned or hereafter acquired by Borrower and wherever
located): all goods, merchandise or other personal property held by Borrower for
sale or lease or to be furnished under labels and other devices, names or marks
affixed thereto for purposes of selling or identifying the same or the seller or
manufacturer thereof, and all right, title and interest of Borrower therein and
thereto; all raw materials, work or goods in process; and all materials and
supplies of any kind or description used or usable in connection with the
manufacture, packaging, shipping, advertisement, sale or finishing of any of the
foregoing, together with all proceeds and products of any of the foregoing.
(v) The term "Qualified Inventory" shall mean the raw material
and finished goods Inventory of Borrower which is represented by Borrower (by
its acceptance of Revolving Loans thereon) as meeting all of the following
criteria on the date of any Revolving Loan based thereon and thereafter while
any of the Obligations are outstanding:
(A) Borrower is the sole owner of the Inventory; none of the
Inventory is being held by Borrower on a consignment basis; all of the Inventory
is located at one or more of the addresses shown on Schedule 1; Borrower has not
sold, assigned or otherwise transferred all or any portion thereof; and none
thereof is subject to any claim, lien or security interest other than in favor
of Lender and other than the lien, if any, of the applicable landlord (subject
to Lender's right to reserve therefor as set forth in Section 2.1(b) hereof);
(B) If any of the Inventory is represented or covered by any
document of title, instrument or chattel paper, Borrower is the sole owner of
all such documents, instruments and paper, all thereof (if reasonably determined
by Lender as necessary for the perfection and priority of Lender's lien thereon)
are in the possession of Lender and none thereof has been sold, assigned or
otherwise transferred;
(C) None of the Inventory is in Lender's good faith
reasonable judgment obsolete or unsaleable or is out of season, with out of
season Inventory determined with semi-annual inventory counts and to include all
Christmas Inventory during the period January 31 - July 31 of each year; and
(D) Only 50% of Borrower's prescription drug Inventory shall
constitute Qualified Inventory as of any date.
(vi) The term "Net Value of Qualified Inventory" shall mean, at
any time, the value thereof as carried on Borrower's books consistent with
Borrower's present practice.
2.2 Interest Rate.
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(a) Applicable Margin. As used in this Section 2.2, "Applicable
Margin" means with respect to principal of the Revolving Loan for which a
Euro-Rate Option election is being made, 175 basis points.
(b) Interest Rate Options. Principal outstanding under the Revolving
Loan shall bear interest at a rate per annum selected by Borrower from the
interest rate options set forth below (each, an "Option"), it being understood
that Borrower may select different Options to apply simultaneously to different
portions of principal outstanding under the Revolving Loan but may have only
five (5) Euro-Rate Interest Periods applicable to principal of the Revolving
Loan outstanding at any one time. Principal for which a Euro-Rate Option is
selected shall not be less than $250,000 per election and, if in excess thereof,
shall be in integral multiples of $100,000. There are no required interest
periods for principal bearing interest under the Base Rate Option.
(c) Base Rate Option. A per annum rate of interest (computed on the
basis of a year of 360 days and the actual number of days elapsed) equal to the
Prime Rate. If and when the Prime Rate changes, the rate of interest on
principal bearing interest under the Base Rate Option will change automatically
without notice to Borrower, effective on the date of any such change.
(d) Euro-Rate Option. A per annum rate of interest per annum (computed
on the basis of a year of 360 days and the actual number of days elapsed) equal
to the sum of (i) the Euro-Rate plus (ii) the Applicable Margin, for the
Euro-Rate Interest Period in an amount equal to the principal of the Revolving
Loan bearing interest under the Euro-Rate Option and having a comparable
maturity as determined at or about 11 a.m. (eastern time) two (2) Banking Days
prior to the commencement of the Euro-Rate Interest Period. For the purpose
hereof, the following terms shall have the following meanings:
"Euro-Rate" shall mean, with respect to any principal bearing interest
under the Euro-Rate Option for any Euro-Rate Interest Period, the
interest rate per annum determined by Lender by dividing (the
resulting quotient rounded upward to the nearest 1/16th of 1% per
annum) (i) the "ask" eurodollar rate as quoted by Exco Group - North
America as found on page 4756 in the Telerate System two (2) Banking
Days prior to the first day of such Euro-Rate Interest Period for an
amount comparable to such principal and having a borrowing date and a
maturity comparable to such Euro-Rate Interest Period by (ii) a number
equal to 1.00 minus the Euro-Rate Reserve Percentage. If the "ask"
eurodollar rate as aforesaid is at any time hereafter no longer quoted
as aforesaid, then the eurodollar rate for purposes of subpart (i)
above will be the rate of interest otherwise determined by Lender in
accordance with its then usual procedure to be the eurodollar rate.
"Euro-Rate Interest Period" shall mean the period of one, two, three
or six months selected by Borrower commencing on the date on which the
Euro-Rate Option becomes applicable to principal and each successive
period selected by Borrower thereafter; provided, that if a Euro-Rate
Interest Period would end on a day which is not a Banking Day, it
shall end on the next succeeding Banking Day, unless such day
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falls in the succeeding calendar month in which case the Euro-Rate
Interest Period shall end on the next preceding Banking Day. In no
event shall any Euro-Rate Interest Period end on a day after the
Revolving Loan Termination Date.
"Euro-Rate Reserve Percentage" shall mean the maximum effective
percentage in effect on such day as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for
determining the reserve requirements (including, without limitation,
supplemental, marginal and emergency reserve requirements) with
respect to eurocurrency funding (currently referred to as
"Eurocurrency liabilities").
If Lender determines (which determination shall be final and conclusive)
that, by reason of circumstances affecting the interbank Eurodollar market
generally, deposits in dollars (in the applicable amounts) are not being offered
to banks in the interbank Eurodollar market for the selected term, or adequate
means do not exist for ascertaining the Euro-Rate, then Lender shall give notice
thereof to Borrower. Thereafter, until Lender notifies Borrower that the
circumstances giving rise to such suspension no longer exist, (a) the
availability of the Euro-Rate Option shall be suspended, and (b) the interest
rate for principal then bearing interest under the Euro-Rate Option shall be
converted to the Base Rate Option at the expiration of the then current
Euro-Rate Interest Period(s).
In addition, if, after the date hereof, Lender shall determine (which
determination shall be final and conclusive) that any enactment, promulgation or
adoption of or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by a governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Lender with any guideline, request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for
Lender to make or maintain or fund loans under the Euro-Rate Option, Lender
shall notify Borrower. Upon receipt of such notice, until Lender notifies
Borrower that the circumstances giving rise to such determination no longer
apply, (a) the availability of the Euro-Rate Option shall be suspended, and (b)
the interest rate on principal then bearing interest under the Euro-Rate Option
shall be converted to the Base Rate Option either (i) on the last day of the
then current Euro-Rate Interest Period(s) if Lender may lawfully continue to
maintain principal under the Euro-Rate Option to such day, or (ii) immediately
if Lender may not lawfully continue to maintain principal under the Euro-Rate
Option.
(e) Interest Rate Election. Subject to the terms and conditions of
this Agreement and the Note, at the end of each interest period applicable to a
portion of principal of the Revolving Loan Borrower may renew the Option
applicable to such principal or convert such principal to a different Option. If
no notice of conversion or renewal is received by Lender, Borrower shall be
deemed to have converted such principal to the Base Rate Option. Borrower shall
notify Lender of each election of an interest rate Option, each conversion from
one interest rate Option to another, the amount of the principal then
outstanding to be allocated to each interest Option and where relevant the
interest periods. Any such election shall be promptly confirmed in
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writing by such method as Lender may reasonably require. Borrower shall
indemnify Lender against all liabilities, losses or expenses (including loss of
margin, any loss or expense incurred in liquidating or employing deposits from
third parties and any loss or expense incurred in connection with funds acquired
by Lender to fund or maintain advances bearing interest under the Euro-Rate
Option which Lender sustains or incurs as a consequence of any attempt by
Borrower to revoke (expressly, by later inconsistent notices or otherwise) in
whole or in part any notice given to Lender to request, convert or renew any
such Loan or as a consequence of any prepayment thereof prior to the expiration
of the applicable Interest Period unless and to the extent that such prepayment
was required to be made by Borrower pursuant to the final two paragraphs of
Section 2.2(d) hereof. If Lender sustains or incurs any such loss, it shall
notify Borrower of the amount determined by Lender to be necessary to indemnify
Lender for such loss or expense (which determination may include such
assumptions, allocations of costs and expenses and averaging or attribution
methods as Lender reasonably deems appropriate). Such amount shall be due and
payable by Borrower to Lender ten (10) days after such notice is given.
(f) Legal Rate. If, at any time, any of the Rates shall be finally
determined by any court of competent jurisdiction, governmental agency or
tribunal to exceed the maximum rate of interest permitted by any applicable
laws, then, for such time as such Rate would be deemed excessive, application
thereof shall be suspended and there shall be charged in lieu thereof the
maximum rate of interest permissible under such laws.
(g) Default Rate. Should Borrower fail to pay Lender any principal or
interest when due, such principal and interest shall automatically without
notice or demand bear interest at the Default Rate. Interest at the Default Rate
shall continue to accrue notwithstanding the entry of any judgment hereon or on
the Note, and all such judgments shall bear interest at the Default Rate
provided for herein.
2.3 Payment of Interest. Borrower shall pay accrued interest on the unpaid
principal balance in arrears: (a) for the portion of Loans bearing interest
under the Base Rate Option, on the first Banking Day of each calendar month
during the term hereof, (b) for the portion of Loans bearing interest under the
Euro-Rate Option, on the last day of each Euro-Rate Interest Period, (c) if any
Euro-Rate Interest Period is longer than ninety (90) days, then also on the
ninetieth day of such period and every ninety days thereafter, and (d) for all
Loans, at maturity, whether by acceleration of the Obligations or otherwise, and
after maturity, on demand until paid in full. Lender shall present a monthly
invoice to Borrower reflecting the interest payment due, but any failure or
delay by Lender in presenting invoices for interest payments shall not discharge
or relieve Borrower of the obligation to make such interest payments when due.
At Lender's option, Lender may charge any loan or deposit account of Borrower
for the interest payments and fees due hereunder and, upon not less than 5 days
notice (unless an Event of Default is outstanding, in which case without
notice), any other amounts due hereunder if not paid by Borrower on the due date
thereof and Lender may deduct such amount from any future Revolving Loan to
Borrower or apply any Collateral proceeds or other funds hereunder by Lender
against payment of such amount. Borrower hereby consents to such automatic
charge by Lender. Interest on any Overadvance shall accrue at the Default Rate.
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2.4 Additional Provisions Regarding Interest.
(a) Non-Banking Days. If any payment pursuant to this Agreement or any
of the Relevant Documents shall be stated to be due on a day other than a
Banking Day, such payment may be made on the next succeeding Banking Day and
such extension of time shall be included in computation of the interest or other
payment due.
(b) Reimbursement of Increased Cost to Lender. If any law, regulation
or guideline adopted after the date hereof, or change after the date hereof in
any law, regulation or guideline or in the interpretation thereof, or any order
or ruling after the date hereof by any regulatory body, court or other
governmental authority, or compliance by Lender with any request or directive
(whether or not having the force of law) after the date hereof of any such
regulatory body, court or authority, shall impose, modify, or deem applicable to
Lender any reserve, capital, special deposit or other requirement or condition
in respect of this Agreement or any of the Loans, which results in an increased
cost or reduced benefit to Lender in maintaining any of the Loans (as determined
by reasonable allocation of the aggregate of such increased costs or reduced
benefits to Lender resulting from such event), then Borrower shall, provided
that such additional amounts are also being assessed by Lender in a similar
manner to similarly situated borrowers, pay to Lender from time to time upon
demand additional amounts sufficient to compensate Lender for such increased
costs or reduced benefits, together with interest on each such amount from the
date of demand therefor. A certificate setting forth in reasonable detail such
increased cost incurred or reduced benefit realized by Lender as a result of any
such event shall be conclusive as to the amount thereof, absent manifest error.
2.5 Dominion Account; Collection and Remittance. Borrower shall maintain a
Dominion Account pursuant to an arrangement reasonably acceptable to Lender with
such banks as may be selected by Borrower and be reasonably acceptable to
Lender. Borrower shall issue to any such banks an irrevocable letter of
instruction directing such banks to transfer all payments or other remittances
received by it in the Dominion Account to an account specified by Lender for
application by Lender on account of the Obligations. Borrower shall obtain the
agreement by such banks in favor of Lender to waive any offset rights against
the funds so deposited. Lender assumes no responsibility for such arrangement,
including, without limitation, any claim of accord and satisfaction or release
with respect to deposits accepted by any bank thereunder. Borrower covenants and
agrees (a) to receive in trust for Lender all payments on Accounts and all
payments on Inventory, in each case whether cash, checks, drafts, notes,
acceptances or other forms of payment, and (b) to deposit such payments in a
Dominion Account forthwith in the identical form in which received.
2.6 Determination of Balance of Revolving Loans.
(a) In determining the outstanding balance of the Revolving Loans, (i)
domestic checks received by Lender's Business Credit Department before 1:00 p.m.
(Philadelphia time) of a Banking Day will be credited on that Banking Day, and
thereafter on the following Banking Day; (ii) any other form of funds received
by Lender's Business Credit Department, other than immediately available funds
received via electronic transfer, will be credited on the Banking Day when that
Department has received notification of collection if before 1:00 p.m.
(Philadelphia time),
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and thereafter on the following Banking Day; (iii) immediately available funds
received via electronic transfer will be credited on the Banking Day received by
Lender; and (iv) all credits shall be conditional upon final payment to Lender
in cash or solvent credits of the items giving rise to them and, if any item is
not so paid, the amount of any credit given for it shall be charged to the
balance of the Revolving Loans whether or not the item is returned.
(b) For the purpose of computing interest on the Revolving Loans and
other Obligations, interest shall continue to accrue on the amount of any
payment received by Lender's Business Credit Department for a period of one (1)
Banking Day after it is credited.
2.7 Monthly and Interim Statements. Once each month Lender shall render a
statement of account to Borrower showing the current status of principal,
interest and service charges with respect to the Revolving Loans. The statement
of account rendered by Lender shall be considered correct, accepted by Borrower
and conclusively binding upon Borrower, unless Borrower gives Lender written
notice to the contrary within thirty (30) Banking Days after the sending of the
statement by Lender. If Borrower disputes the correctness of Lender's statement,
Borrower's notice shall specify in detail the particulars of its basis for
contending that Lender's statement is incorrect.
2.8 Fees.
(a) Administrative Fees. Borrower shall pay a monthly administrative
fee in the amount of $1,000.00 which shall be due and payable on the first
Banking Day of each month commencing immediately, until all Obligations are paid
in full.
(b) Commitment Fee. Borrower shall concurrently herewith pay to Lender
the $35,000 balance of a $75,000 Commitment Fee, Lender hereby acknowledging
prior receipt of $40,000.
(c) Facility Fee. Borrower will pay to Lender a facility fee for the
Revolving Loan in an amount equal to .25% of excess of (a) $20,000,000 over (b)
the daily average Outstanding Amount, payable quarterly in arrears.
(d) Audit Fee. Borrower will pay to Lender, for audits conducted by
Lender as permitted in Section 5.6 hereof, an audit fee for each such audit in
the amount of $600 per person per day, plus reasonable out-of-pocket expenses.
2.9 Letters of Credit.
(a) Agreement to Issue; Termination; Cash Collateral.
(i) Upon the request of Borrower, Lender shall under and subject
to the terms and conditions hereof and within the Letter of Credit Sublimit
issue documentary and commercial letters of credit for the account of Borrower
from time to time through but not including the Revolving Loan Termination Date
(a "Letter of Credit" and, collectively, the "Letters of Credit").
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Letters of Credit issued hereunder shall be under such terms as shall be
acceptable to Lender in its discretion, and shall in no event have an expiry
date exceeding twelve (12) months from the date of issue.
(ii) In the event that any Letter of Credit remains outstanding
on the Revolving Loan Termination Date, Borrower shall on the Revolving Loan
Termination Date provide Lender with cash or cash equivalents acceptable to
Lender in an amount equal to the undrawn, available amount of all Letters of
Credit so outstanding, to be held by Lender as security for the Obligations.
(b) Letters of Credit Generally.
(i) Reimbursement of Letters of Credit Disbursements. Borrower
agrees to reimburse Lender for the amount of each Letter of Credit Disbursement
made by Lender on the corresponding Letter of Credit Disbursement Date. Such
obligation of Borrower to reimburse Lender for any such Letter of Credit
Disbursement is herein referred to as a "Reimbursement Obligation." If any
Reimbursement Obligation is not paid in full by Borrower to Lender on the
corresponding Letter of Credit Disbursement Date (for this purpose payments
received by Lender after 1:30 p.m., EST on any Banking Day shall be deemed to
have been made on the next succeeding Banking Day, with Lender acknowledging
that payments received via direct charge to Borrower's deposit or other accounts
with Lender are deemed for this purpose to have been received prior to 1:30 p.m.
on the Banking Day so charged), the unpaid amount of such Reimbursement
Obligation shall bear interest for each day from the corresponding Letter of
Credit Disbursement Date until payment in full thereof (after, as well as
before, judgment), payable on demand, at the rate from time to time in effect
under the Base Rate Option, subject to Lender's right to charge interest at the
Default Rate with respect to any Overadvance.
(ii) Letter of Credit Charges and Fees. In addition to the
specific fees payable as set forth in Section 2.9(c) hereof, Borrower agrees to
pay on demand to Lender, as well as to any confirming bank of any Letter of
Credit required by the beneficiary thereof to be confirmed as a condition to
such beneficiary's acceptance thereof, with respect to the issuance, amendment
or transfer of any Letter of Credit and each drawing made under any Letter of
Credit, issuance, documentary and processing fees and charges in accordance with
Lender's and such confirming bank's general fees and charges in effect at the
time of such issuance, amendment, transfer or drawing, as the case may be.
(iii) Obligations Absolute. All Reimbursement Obligations of
Borrower arising from Letter of Credit Disbursements shall be unconditional and
absolute and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances whatsoever including, without limitation, the
following circumstances: (i) any lack of validity or enforceability of any
Letter of Credit; (ii) the existence of any claim, set-off, defense or other
right which Borrower may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any Person for whom any such beneficiary
or transferee may be acting), or any other Person, whether in connection with
this Agreement, the transactions contemplated herein or any unrelated
transaction
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(including any underlying transaction between any Borrower or any of its
subsidiaries or affiliates and the beneficiary for which any Letter of Credit
was procured); (iii) any draft, demand, certificate or any other document
presented under any 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; or (iv) payment by Lender under any Letter of Credit
against presentation of a demand, draft, certificate or other document which
does not comply with the terms of the Letter of Credit, except to the extent
that such payment was gross negligence or willful misconduct on the part of
Lender; (v) the failure or delay on the part of Lender in giving any notice
hereunder; (vi) any draw thereunder being a consequence of Lender's non-renewal
of any Letter of Credit; or (vii) any other circumstance or happening whatsoever
similar to any of the foregoing.
(iv) Indemnification; Nature of Duties.
(A) In addition to amounts payable as elsewhere provided in
this Agreement, Borrower hereby indemnifies and holds harmless Lender from and
against any and all claims, damages, losses, liabilities, costs or expenses
whatsoever which it may incur (or which may be claimed against it by any Person)
by reason of or in connection with the issuance or transfer of, or payment or
failure to pay under, any Letter of Credit, or the involvement by Lender in any
suit, proceeding or action as a consequence, direct or indirect, of Lender's
issuance of any Letter of Credit, except for any such claims, damages, losses,
liabilities, costs or expenses to the extent, but only to the extent, which were
caused by the gross negligence or willful misconduct of Lender in determining
whether a certificate, draft, statement or document presented under any Letter
of Credit complied with the terms of the Letter of Credit.
(B) As between Borrower and Lender, Borrower assumes all
risks of the acts or omissions of the beneficiary or any transferee of any
Letter of Credit with respect to such beneficiary's or transferee's use of the
Letter of Credit. Lender shall not be liable or responsible for: (A) the use
which may be made of any Letter of Credit or the proceeds of any drawing
thereunder or for any acts or omissions of the beneficiary or any transferee in
connection therewith; (B) the validity, sufficiency or genuineness of
certificates, drafts or documents presented under any Letter of Credit that
appear on their face to be in order, or of any endorsement thereon, even if any
of the same should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; (C) payment by Lender under any Letter of
Credit against presentation of drafts, certificates or documents which do not
comply with the terms of the Letter of Credit, including failure of any such
drafts, certificates or documents to bear any reference or adequate reference to
the Letter of Credit, or for any failure of the beneficiary of any Letter of
Credit otherwise to comply fully with the conditions required in order to draw
under the Letter of Credit; (D) 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 the proceeds thereof, in whole or
in part, which may prove to be invalid or ineffective for any reason; or (E) any
other circumstances whatsoever in making or failing to make payment under any
Letter of Credit, except only that Lender shall be liable to Borrower to the
extent, but only to the extent, of any direct, as opposed to consequential,
damages suffered by Borrower which Borrower proves were caused by Lender's gross
negligence or willful misconduct in connection with the matters referred to in
clauses (B) through (E) above. In furtherance and not
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in limitation of the foregoing, Lender may accept drafts, certificates or
documents under any Letter of Credit that appear on their face to be in order,
without responsibility for further investigation, and any action taken or
omitted by Lender under or in connection with any Letter of Credit, if taken or
omitted in good faith and without willful misconduct or gross negligence, shall
not put Lender to any resulting liability to any Borrower.
(v) Payments to Lender. All payments to be made by Borrower to
Lender hereunder in respect of Reimbursement Obligations due from Borrower shall
be payable on the day when due without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived, and an action therefor shall
immediately accrue.
(vi) Application. Borrower shall, as a condition to the issuance
by Lender of any Letter of Credit, execute and deliver to Lender Lender's then
standard Letter of Credit Application and Security Agreement. In the event of
any inconsistencies between the Letter of Credit Application and Security
Agreement and this Agreement, the terms of this Agreement shall control.
(c) Specific Letter of Credit Fees. Borrower will pay to Lender the
following fees:
(i) a letter of credit fee for each standby Letter of Credit
issued hereunder in an amount equal to two and three quarters percent (2.75%) of
the undrawn, available amount of such Letter of Credit, payable quarterly in
arrears; and
(ii) a letter of credit draw fee for each draw under any
commercial Letter of Credit issued hereunder in the amount of one-quarter of one
percent (.25%) of the amount of such draw, payable at the time of such draw.
2.10 Breakage Fee. In the event Borrower repays all Obligations on or
before October 16, 1998 with the intent of terminating the Revolving Loan
facility created hereby, including by reason of Borrower's choice to obtain
replacement financing from an alternative lender, Borrower shall, except as
noted, pay to Lender together therewith a breakage fee in the amount of
$200,000. No breakage fee shall, however, be payable if repayment of the
Obligations (i) is made in connection with and by reason of a Change of Control
or a sale of substantially all of Borrower's assets or (ii) is effected solely
from the proceeds of any equity offering hereafter made or (iii) is at Lender's
request.
3. SECURITY INTEREST; ADDITIONAL DEFINITIONS
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3.1 Grant of Security Interests. As security for the due and punctual
payment and performance of all of the Obligations, whether pursuant to this
Agreement or otherwise, Borrower hereby grants, pledges, transfers and assigns
to Lender, liens on and security interests in, (a) all of the Collateral
wherever located and whether now existing or hereafter created and whether now
owned or hereafter acquired or arising, and (b) all accessions and additions
thereto, replacements and substitutions therefor, and proceeds and products
thereof. The security interests granted hereby, and all remedies and other
rights stated or referred to in this Agreement or any of the Relevant Documents,
shall continue in full force and effect until full and final payment and
performance of the Loans and all other Obligations under this Agreement and the
Relevant Documents.
3.2 Definitions of "Obligations," "Collateral" and "Equipment".
(a) The term "Obligations" shall mean
(i) all principal of and interest on the Revolving Loans, all
Reimbursement Obligations and all charges, commitment fees, audit fees and all
other sums payable by Borrower or any Related Entity under the terms of this
Agreement or any of the Relevant Documents,
(ii) all other indebtedness, liabilities, obligations and
agreements of every kind and nature of Borrower or any Related Entity to or with
Lender or any affiliate of Lender, whether hereunder or otherwise, whether now
existing or hereafter incurred, whether or not evidenced by any note or other
instrument, whether matured or unmatured, direct, absolute, or contingent,
liquidated or unliquidated, whether arising by contract or by operation of law,
whether joint or several, including any extensions, modifications, renewals
thereof, any substitutions therefore,
(iii) all guaranties of any of Borrower's Obligations, and
(iv) all reasonable costs and expenses of Lender, including
reasonable fees and expenses of counsel in connection with any amendment,
modification, interpretation or enforcement of this Agreement and any of the
Relevant Documents.
(b) The term "Collateral" shall mean the following, wherever located
and whether now existing or hereafter created and whether now owned or hereafter
acquired or arising: (i) the Accounts; (ii) the Inventory; (iii) the Equipment;
(iv) the General Intangibles; (v) all deposit accounts of every nature, wherever
located and all documents and records associated therewith, and all general or
special deposits, balances, sums, proceeds and credits of Borrower, including
all Dominion Accounts; (vi) chattel paper, documents, investment property and
instruments; (vii) all property of Borrower now or hereafter in Lender's
possession; (viii) all other property of Borrower; (ix) all rights and remedies
which Borrower might exercise with respect to any of the foregoing but for the
execution of this Agreement; and (x) all accessions and additions to,
replacements and substitutions for, and proceeds and products of, the items
described in the preceding clauses (i) through (ix).
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(c) The term "Equipment" shall mean all items described in the UCC
definition thereof and all of the following, whether or not so described (in all
cases whether now owned or hereafter acquired by Borrower and wherever located):
all of Borrower's equipment, machinery, furniture, fixtures, motor vehicles,
parts, supplies and tools, and all other tangible personal property similar to
any of the foregoing, and all repairs, modifications, alterations, replacements,
additions, controls and operating accessories therefor.
(d) The term "General Intangibles" shall mean all of Borrower's now
owned and hereafter acquired, created or arising general intangibles of every
kind and description, including, but not limited to, all existing and future
customer lists, choses in action, claims, books, records, patents and patent
applications, trademarks, tradenames, tradestyles, trademark applications,
blueprints, drawings, designs and plans, copyrights, trade secrets, contracts,
contract rights, leases, licenses, license agreements, tax and other type of
refunds, returned or unearned insurance premiums, insurance proceeds, rights and
claims under insurance policies including without limitation, credit insurance
and key man life insurance policies, and computer information, software, records
and data.
3.3 Further Assurances. Borrower shall execute and deliver such financing
statements and other documents (in form and substance reasonably satisfactory to
Lender) and take such other actions as Lender may reasonably request from time
to time in order to create, perfect or continue the security interests and other
liens provided for by this Agreement under the UCC or other laws of the
Commonwealth of Pennsylvania or under any other state or federal law.
4. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender, knowing and intending that
Lender will rely thereon in making the Loans contemplated hereby, that the
following statements are, except as set forth in Schedule 2 hereto, true and
accurate:
4.1 Organization and Qualification.
(a) Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction stated at the beginning of this
Agreement.
(b) Borrower has the power and authority, and all necessary licenses
or other authorizations, to own its properties and to carry on its business as
now conducted, and is duly qualified and in good standing in each jurisdiction
wherein the failure to so qualify would have a material adverse effect on
Borrower's financial condition.
(c) All of Borrower's outstanding capital stock is owned beneficially
and of record by CDI, and all of CDI's outstanding capital stock is owned, as of
the date hereof, of record and, to Borrower's knowledge, beneficially by the
Persons listed on Schedule 2. Borrower has no Subsidiaries.
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4.2 Due Authorization; No Default.
(a) The execution, delivery and performance by Borrower of this
Agreement, the Notes and the Relevant Documents are within Borrower's corporate
powers, have been duly authorized by all necessary action on the part of
Borrower, and do not and will not (i) violate Borrower's Certificate or Articles
of Incorporation or Bylaws, or any applicable law or regulation, or any
judgment, order or decree of any judicial or other governmental body, (ii)
constitute a breach of, or default under, any agreement, undertaking or
instrument to which Borrower is a party or by which it or any of its assets are
bound, or (iii) result in the imposition of any lien, encumbrance or restriction
on any assets of Borrower other than in favor of Lender.
(b) Borrower has delivered to Lender true and complete copies of
Borrower's resolutions necessary to authorize the transactions contemplated by
this Agreement, and of Borrower's Certificate or Articles of Incorporation and
Bylaws, all as in effect on the date hereof and certified by a duly authorized
officer of Borrower.
(c) This Agreement and the Relevant Documents upon their execution and
delivery, and the Notes upon their issuance, will be legal, valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms.
4.3 No Governmental Consent Necessary. No authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
Borrower of this Agreement, any of the Notes or any of the Relevant Documents,
except for filings of UCC financing statements and as required to comply with
the Federal Assignment of Claims Act.
4.4 No Proceedings. There are no pending or, to Borrower's knowledge,
threatened claims, actions, proceedings or investigations against the Borrower
before any court, arbitrator, or governmental body or agency as of the date
hereof.
4.5 Financial Statements.
(a) Subject to any limitation stated therein, all balance sheets,
income statements and other financial data which have been or shall hereafter be
furnished to Lender do and will truly and fairly present the financial condition
of Borrower as at the respective dates thereof and the results of its operations
for the periods ended on such dates, in accordance with GAAP during all periods
except as otherwise stated therein. All other information, reports and other
papers and data furnished to Lender are, or will be at the time the same are so
furnished, true, accurate and complete in all material respects.
(b) Borrower has no liabilities as of the date hereof which would have
an adverse effect on the Collateral or on the financial condition, operations or
other properties of Borrower.
4.6 No Change in Financial Condition; Solvency.
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(a) There has been no material adverse change in Borrower's financial
condition since the date of the interim quarterly financial statements for the
fiscal quarter ending April 30, 1997 provided by Borrower to Lender (herein, the
"Historical Financial Statements").
(b) Borrower's assets, at a fair valuation, exceed Borrower's
liabilities (including, without limitation, contingent liabilities), Borrower is
paying its debts as they become due, and Borrower has capital and assets
sufficient to carry on its business.
4.7 Compliance With Laws. Borrower is in material compliance with all
federal, state and local statutes, rules, regulations, orders and other
provisions of law applicable to its ownership or use of properties or the
conduct of its business; Borrower has not received any notice of material
violation of any of the foregoing; and Borrower is not in violation in any
material respect of any judgment, order or decree of any judicial or other
governmental body.
4.8 No Other Violations. Borrower is not as of the date hereof in violation
of any term of its Certificate or Articles of Incorporation or Bylaws, and as of
the date hereof no event or condition has occurred and is continuing which
constitutes or results in (or would constitute or result in, with the giving of
notice, lapse of time or other condition) breach of, or a default under, any
material agreement, undertaking or instrument to which Borrower is a party or by
which it or its property is bound.
4.9 Taxes and Assessments. Borrower has filed all federal, state and local
tax returns and other reports it is required to file to the date hereof (or has
obtained valid, written extensions as to any not so filed), has paid all taxes,
assessments and other governmental charges due and payable to the date hereof,
and has made adequate provision for the payment of such taxes, assessments and
charges accrued but not yet payable. Borrower has no knowledge on the date
hereof of any deficiency or additional assessment in connection with any taxes,
assessments or other governmental charges not provided for or disclosed in the
Historical Financial Statements.
4.10 Accounts. The list of Accounts delivered to Lender is complete and
contains an accurate aging thereof and, except as otherwise specified by
Borrower to Lender in writing, and except as respects criteria based on Lender's
judgment, each of the Accounts included in any Borrowing Base Certificate as a
Qualified Account meets the criteria for a Qualified Account stated in
Subsection 2.1(c)(ii) of this Agreement.
4.11 Inventory. Borrower's Qualified Inventory consists of items of a
quality and quantity usable or saleable in the ordinary course of its business;
the values of obsolete items, items below standard quality and items in the
process of repair have been written down to realizable market value, or adequate
reserves have been provided therefor; and the values carried on said balance
sheet are set at the lower of cost or market, in accordance with generally
accepted accounting principles consistently applied.
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4.12 Books and Records. Borrower maintains its books and records relative
to its Accounts and its Inventory at 251 Industrial Parkway, Branchburg
Township, Somerville, New Jersey 08876.
4.13 Location of Collateral. None of the Inventory, Equipment or other
tangible property constituting part of the Collateral is or will be, or has been
during the six months preceding execution of this Agreement, in each case while
owned by Borrower, located in or on any premises other than those identified in
Schedule 1 to this Agreement. Schedule 1 contains an accurate record of all
landlords of premises leased by Borrower and of all mortgagees of premises owned
by Borrower.
4.14 Places of Business. The principal place of business and chief
executive office of Borrower is located at 251 Industrial Parkway, Branchburg
Township, Somerville, New Jersey 08876. Schedule 1 to this Agreement lists all
of the other offices or locations in or from which Borrower conducts any of its
business or operations or maintains any Collateral.
4.15 Other Name or Entities. None of Borrower's business is conducted
through any corporate subsidiary, unincorporated association or other entity and
Borrower has not, within six months preceding the date of this Agreement, to its
knowledge, (a) changed its name, (b) used any corporate, trade or fictitious
name other than the name stated at the beginning of this Agreement except as may
otherwise be set forth in Schedule 2 hereto, or (c) merged or consolidated with,
or acquired the assets of, any corporation or other business.
4.16 Title and Liens. Borrower has good and marketable title to all of the
Collateral as sole owner thereof, free and clear of any mortgage, security
interest, assignment, pledge, hypothecation, or other lien or encumbrance,
except Permitted Liens. None of the Collateral is subject to any prohibition
against encumbering, pledging, hypothecating or assigning the same or requires
notice or consent in connection therewith, except Collateral subject to purchase
money liens on capital leases.
4.17 ERISA. Borrower is in compliance in all material respects with the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the related provisions of the Internal Revenue Code, and with all
regulations and published interpretations issued thereunder by the United States
Treasury Department, the United States Department of Labor and the Pension
Benefit Guaranty Corporation ("PBGC"). Neither a reportable event as defined in
Section 4043 of ERISA, nor a prohibited transaction as defined in Section 406 of
ERISA or Section 4975 of the Internal Revenue Code, has occurred and is
continuing with respect to any employee benefit plan subject to ERISA
established or maintained, or to which contributions have been or may be made,
by Borrower or by any trade or business (whether or not incorporated) which
together with Borrower would be treated as a single employer under Section 4001
of ERISA (any such trade or business being referred to hereinafter as an "ERISA
Affiliate," and any such employee benefit plan being referred to hereinafter as
a "Benefit Plan"), if such event or transaction would have a material adverse
effect on Borrower's financial condition. No notice of intention to terminate a
Benefit Plan has been filed nor has any Benefit Plan been terminated; the PBGC
has not instituted proceedings
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to terminate, or to appoint a trustee to administer, any Benefit Plan, nor to
Borrower's knowledge do circumstances exist that constitute grounds for any such
proceedings; and neither Borrower nor any ERISA Affiliate has completely or
partially withdrawn from any multiemployer Benefit Plan described in Section
4001(a) (3) of ERISA; where in any such event the same would have a material
adverse effect on Borrower's financial condition. Borrower and each ERISA
Affiliate has met the minimum funding standards under ERISA with respect to each
of its Benefit Plans; no Benefit Plan of Borrower or of any ERISA Affiliate has
an accumulated funding deficiency or waived funding deficiency within the
meaning of ERISA; and no material liability to the PBGC under ERISA has been
incurred by Borrower or any ERISA Affiliate; where in any such event the same
would have a material adverse effect on Borrower's financial condition.
4.18 O.S.H.A. Borrower has duly complied in all material respects with, and
its facilities, business, leaseholds, equipment and other property are in
compliance in all material respects with, the provisions of the federal
Occupational Safety and Health Act and all rules and regulations thereunder and
all similar state and local laws, rules and regulations; and there are no
outstanding citations, notices or orders of non-compliance issued to Borrower or
relating to its facilities, business, leaseholds, equipment or other property
under any such law, rule or regulation the Borrower's non compliance with which
would have a material adverse effect on its financial condition.
4.19 Environmental Matters. Borrower represents and warrants to Lender
that, to Borrower's knowledge and to the extent that any of the following would
have a material adverse effect on Borrower's financial condition:
(a) Borrower is in compliance with all Environmental Requirements in
all material respects;
(b) Borrower has all licenses, permits, approvals and authorizations
required under applicable Environmental Requirements;
(c) There are no pending or threatened claims against Borrower or its
assets related to the failure to comply with any Environmental Requirements, or
any facts or circumstances known to Borrower which could give rise to such
claim;
(d) No facility or property now or previously owned, leased or
operated by Borrower is an Environmental Clean-up Site;
(e) Borrower only stores, transports, handles or disposes of Hazardous
Substances in compliance with all Environmental Requirements in all material
respects;
(f) There are no liens or claims for costs or reimbursement
outstanding or threatened against Borrower or any of its assets or any facts or
circumstances which could give rise to a lien or claim; and
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(g) There are no facts or circumstances known to Borrower which under
the provisions of any Environmental Requirements could restrict the use,
occupancy or transferability of any of the Collateral or any of the facilities
owned, leased or operated by Borrower.
4.20 Margin Stock. No part of the proceeds of any Revolving Loan will be
used, directly or indirectly, to purchase or carry any "margin stock" (as
defined in Regulation U issued by the Board of Governors of the Federal Reserve
System), to extend credit to others for the purpose of purchasing or carrying
any such margin stock, or for any purpose that violates any provision of
Regulations G, T, U or X issued by the Board of Governors of the Federal Reserve
System.
4.21 Representations and Warranties True, Accurate and Complete. None of
the representations, warranties or statements to Lender contained in this
Agreement, in any of the Relevant Documents or in any other writing delivered to
Lender in connection with the Collateral, this Agreement or any of the
transactions contemplated thereby, contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary not
misleading to make such representation, warranty or statement in light of the
circumstances under which it is made. All of such representations, warranties
and statements shall survive until full and final payment and performance of the
Loans and all other Obligations under this Agreement and the Relevant Documents.
5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until full and final payment and
performance of the Loans and all other Obligations under this Agreement and the
Relevant Documents and termination of all lending commitments of Lender
hereunder, Borrower shall, unless Lender shall otherwise consent in writing:
5.1 Maintenance of existence and Qualification to do business. Maintain and
preserve in full force and effect its existence and good standing and all other
rights, powers, franchises, licenses and qualifications necessary or desirable
for its ownership or use of properties or the conduct of its business where the
failure to do so would have a material adverse effect on Borrower's financial
condition.
5.2 Payment of Taxes and Other Obligations. Pay (a) before they become
delinquent, all taxes, assessments and governmental charges imposed upon it or
any of its property or required to be collected by it, and (b) when due, all
other indebtedness and liabilities of any kind now or hereafter owing by it;
where in either case the failure to do so would have a material adverse effect
on Borrower's financial condition.
5.3 Maintenance of Properties. Maintain its properties in good working
order and condition.
5.4 Notice of Adverse Events. Promptly notify Lender in writing of the
occurrence or existence of any of the following: (a) any Event of Default as
defined in this Agreement or any event
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which, with the giving of notice, lapse of time or other condition, would become
such an Event of Default; (b) any matter or event which has resulted in, or may
result in, a material adverse change in the financial condition or any property
or operations of Borrower; (c) any claim, action, proceeding or investigation
filed or instituted against Borrower in excess of $500,000, or any adverse
determination in any pending action, proceeding or investigation affecting it in
excess of $500,000; (d) any loss from casualty or theft in excess of $500,000,
whether or not insured, affecting property of Borrower; (e) whether or not
otherwise reportable under this Section 5.4, any complaint, citation, order or
other notice of a violation or a claim involving any Environmental Requirement,
if the liability or penalty therefor may exceed $500,000 singly or in the
aggregate; (f) any event or condition described in Section 10.15 of this
Agreement relating to ERISA; or (g) if any of the representations and warranties
contained in this Agreement, or in any of the Relevant Documents or any other
writing delivered to Lender by Borrower in connection with this Agreement or any
of the transactions contemplated thereby, ceases to be true, correct and
complete.
5.5 Information and Documents to be Furnished to Lender. Furnish to Lender
in form and substance satisfactory to it:
(a) Annual Financial Statements. As soon as available but in no event
later than one hundred twenty (120) days after the end of each fiscal year of
Borrower, a balance sheet of Borrower as of the end of such year and statements
of income, cash flows and changes in stockholders' equity for such year (all in
reasonable detail and with all notes and supporting schedules), prepared on a
consolidated and consolidating basis for the Consolidated Group with such
consolidated statements audited by an independent certified public accountant
satisfactory to Lender, as presenting fairly the financial condition of Borrower
as of the dates and for the periods indicated and as having been prepared in
accordance with GAAP, together with any management letters issued by the
accountants which performed such audit.
(b) Monthly Financial Statements. As soon as available but in no event
later than thirty (30) days after the end of each month, a balance sheet of
Borrower as of the end of such month and statements of income and changes in
stockholders' equity for such month and for the period commencing at the end of
the previous fiscal year and ending with the end of such month (all in
reasonable detail and with all notes and supporting schedules), prepared on a
consolidated basis for the Consolidated Group and certified by the chief
financial officer of Borrower as presenting fairly the financial condition of
Borrower as of the dates and for the periods indicated and as having been
prepared in accordance with GAAP.
(c) Compliance Certificate. Concurrently with each annual financial
statement and within thirty (30) days after each fiscal quarter (other than the
year-end quarter), a compliance certificate ("Compliance Certificate")
reflecting Borrower's compliance or non-compliance with the financial covenants
set forth in Sections 6.18 and 6.19 hereof as of the end of such quarter or
fiscal year, as the case may be, certified by Borrower's chief financial officer
or president;
(d) Accounts, Inventory and Accounts Payable Reports. On or before the
20th day of each month as at the close of the preceding month, and from time to
time as Lender may
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require: certificates and assignment schedules describing the Qualified Account
and Inventory in detail and total, aging reports of Accounts, Accounts Payable
aging reports, and Collateral and Loan Reconciliation reports, all in such form
as Lender may require.
(e) Borrowing Base Certificate. Upon Lender's request from time to
time, but in any event within 20 days after the end of each month, a Borrowing
Base Certificate.
(f) Change in Status. Immediately, notice identifying any Inventory or
Account that has ceased to be Qualified if the amount thereof exceeds $100,000
in the aggregate, except if due solely to the passage of time.
(g) ERISA Documents. At Lenders request, all ERISA reports, notices,
returns and other documents filed as required by or in compliance with ERISA,
whether to the Internal Revenue Service, the Department of Labor, the Pension
Benefit Guaranty Corporation or any other appropriate agency.
(h) Violations. Immediately, a copy of any complaint, citation, order
or other notice of a violation or claim required to be reported pursuant to
Subsection 5.4(e) of this Agreement.
(i) Other Documents. Immediately upon demand, such other documents or
information as Lender may reasonably request, including financial projections,
such financial projections limited, however, to once per yearly period (measured
from the date hereof).
5.6 Access to Records and Property. At any time and from time to time, upon
reasonable request by Lender, but not more often than twice per yearly period
unless an Event of Default shall be outstanding, give any representative of
Lender access during normal business hours to inspect any of Borrower's
properties and to examine, copy and make extracts from any and all books,
records and documents in the possession of Borrower or any independent
contractor relating to Borrower's affairs or the Collateral (including without
limitation returns for federal income tax and other taxes).
5.7 Insurance At Borrower's Expense.
(a) Liability and Property Insurance. Maintain at Borrower's expense
(with such insurers, in such amounts and with such deductibles as are
satisfactory to Lender) public liability and third party property damage
insurance and insurance on the Collateral (including without limitation
insurance against fire, explosion, boiler damage, theft, burglary, spoilage,
pilferage, loss in transit and all other hazards and risks ordinarily insured
against by other owners or users of such properties in similar businesses),
which insurance shall be evidenced by policies (i) in form and substance
satisfactory according to industry standards, (ii) designating Lender and its
assigns as additional co-insureds or loss payees as their interests may appear
from time to time, (iii) containing a "breach of warranty clause" whereby the
insurer agrees that a breach of the insuring conditions or any negligence of
Borrower or any other person shall not invalidate the insurance as
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to Lender and its assigns, and (iv) requiring at least thirty (30) days' prior
written notice to Lender and its assigns before cancellation or any material
change shall be effective.
(b) Copies of Policies. Upon demand, deliver to Lender the original of
each policy evidencing insurance required by this Section 5.7, together with
evidence of payment of all premiums therefor.
(c) Notice and Proof of Loss. In the event of loss or damage,
forthwith notify Lender and file proofs of loss satisfactory to Lender with the
appropriate insurer, but without limiting the rights of Lender pursuant to
Subsection 7.1(k).
(d) Proceeds. Forthwith upon receipt, endorse and deliver insurance
proceeds to Lender, but without limiting the rights of Lender pursuant to
Subsection 7.1(k); provided however, that Borrower may retain any insurance
proceeds from loss or damage to Inventory or Equipment which are less than or
equal to $500,000, provided proceeds paid for such damage (not for this purpose
including proceeds payable for interruption of business and the like) are used
solely to repair or replace such collateral and so long as there is no Event of
Default under this Agreement; provided further however, if the proceeds exceed
the cost of replacement or repair for such collateral, the excess monies must be
remitted to Lender. If such collateral proceeds exceed $500,000, Lender, at its
option, may apply such proceeds to the Obligations.
In no event shall Lender be required either to (i) ascertain the existence
of or examine any insurance policy, or (ii) advise Borrower in the event such
insurance coverage shall not comply with the requirements of this Agreement.
5.8 Condition of Collateral; No Liens. Maintain the Collateral in good
condition and repair at all times, preserve the Collateral from loss, damage, or
destruction of any nature whatsoever, and keep the Collateral free and clear of
any mortgage, security interest, assignment, pledge, hypothecation, or other
lien or encumbrance, except Permitted Liens.
5.9 Proceeds of Collateral. Forthwith upon receipt, pay to Lender all
proceeds of Collateral, whereupon such proceeds shall be applied by Lender to
the Obligations.
5.10 Records. Maintain complete and accurate books and records of all its
operations and properties, including records of the Collateral and the status of
each of the Accounts.
5.11 United States Contracts. If any of the Accounts arises out of a
contract with the United States or any of its departments, agencies or
instrumentalities, immediately notify Lender and execute any necessary
instruments in order that all money due or to become due under such contract
shall be assigned to Lender and proper notice of the assignment given under the
Federal Assignment of Claims Act.
5.12 Further Assurances. From time to time, execute and deliver such
further documents and take such further actions as Lender may reasonably request
in order to carry out the purposes of
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this Agreement, the Relevant Documents and any other instruments, documents and
agreements which shall be executed concurrently herewith or thereafter with
regard to the transactions contemplated by this Agreement.
5.13 Related Entities. Cause each Related Entity to comply with the
covenants stated in this Section 5, to the extent relevant to such Entity, as if
stated with reference to such Entity.
5.14 Environmental Matters.
(a) Shall take all actions as may be necessary to comply in all
material respects with all Environmental Requirements. In the event Borrower
becomes aware of any past, present or future facts or circumstances which have
given rise or could give rise to a claim against Borrower related to a failure
to comply with any Environmental Requirements, Borrower will promptly give
Lender notice thereof, together with a written statement of an officer of
Borrower, setting forth the details thereof and the action with respect thereto
taken or proposed to be taken by Borrower;
(b) Agrees to indemnify, defend and hold harmless Lender, its parents,
subsidiaries, successors and assigns and any officer, director, shareholder,
employee, Affiliate or agent of Lender for all loss, liability, damage, cost and
expenses including, without limitation, attorneys' fees and disbursements
(including the reasonable allocated cost of in-house counsel and staff) arising
from and related to (a) the release of any Hazardous Substances in any facility
at any time owned, leased or operated by Borrower, (b) the release of any
Hazardous Substance is treated, stored, transported, handled, generated or
disposed by or on behalf of Borrower at any third party owned site, (c) any
breach by Borrower of any representation or covenant contained in this
Agreement. The representations contained in Section 4 and the covenants
contained in Section 5 shall survive the occurrence of any event whatsoever,
including the payment of all Obligations or any investigation by or knowledge of
Lender.
6. NEGATIVE COVENANTS
Borrower covenants and agrees that, until full and final payment and
performance of the Loans and all other Obligations under this Agreement and the
Relevant Documents and termination of all lending commitments by Lender
hereunder, Borrower shall not, unless Lender shall have provided its prior
written consent:
6.1 No Consolidation, Merger, Acquisition, Liquidation; No Subsidiaries.
Enter into any merger, consolidation, reorganization or recapitalization; take
any steps in contemplation of dissolution or liquidation; conduct any part of
Borrower's business through or hereafter create any corporate Subsidiary,
unincorporated association; partnership or joint venture; or acquire the stock
or substantially all of the business or assets of any Person.
6.2 Disposition of Assets or Collateral. Sell, lease, or otherwise transfer
or dispose of any or all of the Collateral or other assets of Borrower, other
than (i) the sale of Inventory in the ordinary course of business, (ii) the sale
or other disposition of assets (other than Accounts and
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Inventory) in an amount not to exceed $1,000,000 in the aggregate per fiscal
year and (iii) the sale, transfer, conveyance or other disposition in the
ordinary course of business of Third Party Plan Receivables in customary
factoring arrangements.
6.3 Other Liens. Incur, create or permit to exist, any mortgage, security
interest, assignment, pledge, hypothecation, lien, encumbrance, conditional sale
or other title retention agreement, financing lease having substantially the
same effect as any of the foregoing, or other preferential arrangement of any
type, in each case upon or with respect to any assets of Borrower, whether now
owned or hereafter acquired or arising, except for Permitted Liens.
6.4 Other Liabilities. Incur, create, assume or permit to exist any
Indebtedness on account of borrowed money except (a) Obligations to Lender, (b)
Subordinated Indebtedness, (c) $5,000,000 of other Indebtedness at any time
outstanding, including Purchase Money Indebtedness, (d) the Senior Unsecured
Debt and (e) those liabilities existing on the date of this Agreement and shown
by the Historical Financial Statements.
6.5 Loans. Make loans to or investments in any Person other than trade
credit extended in the ordinary course of business and Permitted Investments.
6.6 Guaranties; Contingent Liabilities. (a) Assume, guarantee, endorse,
contingently agree to purchase or otherwise become liable upon the obligation of
any Person, except by the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business, or (b)
agree to maintain the working capital or net worth of any Person.
6.7 Dividends and Other Distributions. Declare or pay any cash dividend or
make any distribution on, or redeem, retire or otherwise acquire directly or
indirectly, any share of its stock, or make any distribution of assets to its
stockholders, other than Permitted Distributions and Tax Expense Distributions.
6.8 Sale of Inventory. Sell any of the Inventory on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval or consignment basis, or any
other basis subject to a repurchase obligation or return right.
6.9 Removal of Collateral. Remove, or cause or permit to be removed, any of
the Collateral or other assets from the premises identified on Schedule 1 to
this Agreement (as supplemented from time to time by Borrower), except for sales
of Inventory in the ordinary course of business.
6.10 Transfer of Notes or Accounts. Sell, assign, transfer, discount or
otherwise dispose of any Accounts or any promissory note or other instrument
payable to it with or without recourse, except for collection without recourse
in the ordinary course of business and except for the sale of Third Party Plan
Receivables in customary factoring arrangements.
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6.11 Modification of Governing Documents. Change, alter or modify, or
permit any change, alteration or modification of, its Certificate of
Incorporation or by-laws or other governing documents; provided however, that
Borrower may change its Certificate of Incorporation or by-laws so long as such
change in no way affects or impairs Borrower's Obligations or security hereunder
or results in the occurrence of an Event of Default or event which with the
passage of time, giving of notice, or both would constitute an Event of Default
hereunder.
6.12 Change Business. Cause or permit a material change in the nature of
its business as conducted on the date of this Agreement.
6.13 Change of Location or Name. Change any of the following: (a) the
location stated in Section 4.12 of this Agreement for the maintenance of the
books and records relative to the Accounts and Inventory, (b) the location of
the principal place of business or chief executive office of Borrower as stated
in Section 4.14 of this Agreement, or (c) the name under which Borrower conducts
any of its business or operations.
6.14 Change of Accounting Practices. Change its present accounting
principles or practices in any material respect, except as may be required by
changes in generally accepted accounting principles, or change its fiscal year.
6.15 Inconsistent Agreement. Enter into any agreement containing any
provision that would be violated by the performance of Borrower's obligations
under this Agreement or any of the Relevant Documents.
6.16 Fixed Change Coverage Ratio. Cause or permit the Consolidated Group's
Fixed Charge Coverage Ratio to be less than 1.0 to 1.0 as if the end of any
fiscal quarter commencing with fiscal quarter ending January 31, 1998.
6.17 Capital Expenditures. Make capital expenditures in an amount
aggregating in excess of $3,500,000.00 during fiscal year 1998, $4,500,000
during fiscal year 1999 and $5,500,000 during each fiscal year thereafter. Up to
$1,000,000 permitted (other than by reason of this sentence) to have been but
which was not used in any fiscal year may be used in the immediately succeeding
fiscal year.
6.18 Redemption of Senior Unsecured Debt; Modification of Indenture.
Redeem, repurchase or make any payments of principal on account of the Senior
Unsecured Debt unless concurrently therewith all Obligations are repaid in full
and Lender's lending commitment hereunder is terminated, or modify or amend the
Indenture in any material respect without Lender's prior written consent, which
consent Lender agrees not to unreasonably withhold.
7. ADDITIONAL POWERS OF LENDER
7.1 Powers of Attorney. Borrower hereby constitutes and appoints Lender
(and any employee or agent of Lender, with full power of substitution) its true
and lawful attorney and agent
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in fact to take any or all of the actions described below in Lender's or
Borrower's name and at Borrower's expense:
(a) Charges Against Credit Balances. Lender, without demand, may
charge and withdraw from any credit balance that Borrower may then have with
Lender, or with any affiliate of Lender, any amount of principal, interest or
fees which are not paid by Borrower to Lender when due under this Agreement or
any of the Relevant Documents.
(b) Evidence of Liens. Lender may execute such financing statements
and other documents and take such other actions as Lender deems necessary or
proper in order to perfect or continue the security interests and other liens
provided for by this Agreement or any of the Relevant Documents, and Lender may
file the same (or a photocopy of this Agreement or of any financing statement
signed by Borrower) in any appropriate governmental office.
(c) Preservation of Collateral. Lender may take any and all action
that it reasonably deems necessary or proper to preserve its interest in the
Collateral, including without limitation the payment of debts of Borrower that
are reasonably likely to impair the Collateral or Lender's security interest
therein, the purchase of insurance on Collateral, the repair or safeguarding of
Collateral, or the payment of taxes, assessments or other liens thereon. All
sums so expended by Lender shall be added to the Obligations, shall be secured
by the Collateral, and shall be payable on demand with interest at the Default
Rate from the respective dates such sums are expended.
(d) Lender's Right to Cure. In the event Borrower fails to perform any
of its Obligations, then Lender may, with written notice thereof to Borrower,
perform the same but shall not be obligated to do so. All sums so expended by
Lender shall be added to the Obligations, shall be secured by the Collateral,
and shall be payable on demand with interest at the Default Rate from the
respective dates such sums are expended.
(e) Verification of Accounts. Lender may make test verifications of
any and all Accounts in any reasonable manner and through any medium Lender
considers advisable, and Borrower shall render any necessary assistance.
(f) Collections; Modification of Terms. Upon the occurrence and
continuance of any Event of Default, Lender may demand, sue for, collect and
give receipts for any money, instruments or property payable or receivable on
account of or in exchange for any of the Collateral, or make any compromises it
deems necessary or proper, including without limitation extending the time of
payment, permitting payment in installments, or otherwise modifying the terms or
rights relating to any of the Collateral, all of which may be effected without
notice to or consent by Borrower and without otherwise discharging or affecting
the Obligations, the Collateral or the security interest granted under this
Agreement or any of the Relevant Documents.
(g) Notification of Account Debtors. Borrower, at the request of
Lender upon the occurrence and continuation of an Event of Default, shall notify
the Account debtors of Lender's security interest in its Accounts. Upon the
occurrence and continuance of any Event of Default,
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Lender may notify the Account debtors on any of the Accounts to make payment
directly to Lender, and Lender may endorse all items of payment received by it
that are payable to Borrower.
(h) Notification as to Inventory. Lender may notify the bailee of any
Inventory of Lender's security interest therein.
(i) Endorsements. Lender may endorse Borrower's name on checks, notes,
acceptances, drafts, invoices, bills of lading and any other documents or
instruments requiring Borrower's endorsement.
(j) Mails. Upon the occurrence and continuance of any Event of
Default, Lender may notify the postal authorities to deliver all mail, parcels,
and other material addressed to Borrower to Lender at such address as Lender may
direct, and Lender may open and deal with same as it deems necessary or proper.
(k) Insurance. Lender may file proofs of loss and claim with respect
to any of the Collateral with the appropriate insurer, and may endorse in its
own and Borrower's name any checks or drafts constituting insurance proceeds and
apply such proceeds in any order to the Obligations.
7.2 Irrevocability; Lender's Discretion. Borrower covenants and agrees that
any action described in Section 7.1 may be taken at Lender's reasonable
discretion, at any time and from time to time, and (unless stated specifically
to the contrary in Section 7.1 with respect to any power) whether prior or
subsequent to an Event of Default, and Borrower hereby ratifies and confirms all
actions so taken. Borrower further covenants and agrees that the powers of
attorney granted by Section 7.1 are coupled with an interest and shall be
irrevocable until full and final payment of the Loans and all other Obligations
under this Agreement and the Relevant Documents and termination of Lender's
lending commitment hereunder; that said powers are granted solely for the
protection of Lender's interest and Lender shall have no duty to exercise any
thereof; that the decision whether to exercise any of such powers, and the
manner of exercise, shall be solely within Lender's discretion; and that neither
Lender nor any of its directors, officers, employees or agents shall be liable
for any act of omission or commission, or for any mistake or error of judgment,
in connection with any such powers.
8. CERTAIN CONDITIONS TO ADVANCES
Advances of the Loans shall be conditioned upon the following conditions
and each request by Borrower for an advance shall constitute a representation by
Borrower to Lender that each condition has been met or satisfied:
8.1 Conditions to Initial Advance. Contemporaneously with the execution
hereof and as a condition to the initial advance of the Revolving Loans:
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(a) All transactions contemplated by the Indenture, including issuance
of the Senior Unsecured Debt, shall be consummated in accordance with the terms
thereof; and
(b) Borrower will have on the date hereof after giving effect to the
payment by Borrower of all costs and expenses payable by Borrower in connection
with closing hereunder and under the Indenture, Availability of not less than
$5,000,000.
8.2 Representations and Warranties. All representations and warranties of
Borrower contained herein or in the other Relevant Documents shall be true at
and as of the date of such advance, except to the extent such representation
relates solely to a given date, as if made on such date and each request for an
advance shall constitute reaffirmation by Borrower that such representations and
warranties are then true. If requested by Lender, Borrower shall further confirm
such matters by delivery of a certificate dated the day of the Revolving Loan
and signed by a duly authorized officer of Borrower satisfactory to Lender.
8.3 No Default. No condition or event shall exist or have occurred at or as
of the date of such advance which would constitute an Event of Default hereunder
or an event which with the passage of time and/or the giving of notice would
constitute an Event of Default.
8.4 Other Requirements. Lender shall have received all certificates,
authorizations, affidavits, schedules and other documents which are provided for
hereunder or under the other Relevant Documents or which Lender may reasonably
request.
9. EVENTS OF DEFAULT
The occurrence of any of the following shall constitute an Event of
Default:
9.1 Failure to Pay. Borrower fails to pay when due any principal, interest
or fees payable hereunder or fails to pay any other Obligations owing to Lender
under this Agreement or any of the Relevant Documents within 10 days when due;
9.2 Failure to Perform. Borrower fails to perform or observe (a) any
covenant, term or condition of this Agreement or any of the Relevant Documents
and, if such failure relates to the covenants set forth in Sections 5.1, 5.2,
5.3, 5.7, 5.8, 5.10, 5.13, 5.14 or 5.15, the same is not cured within 30 days
after the first to occur of Borrower's actual knowledge thereof or receipt by
Borrower of written notice thereof from Lender, or (b) any of the other
Obligations;
9.3 Cross Default; Default on Other Debt. (a) Any other default on any of
the Obligations or under any of the Relevant Documents occurs, or (b) default
occurs under any material Indebtedness of Borrower, or of any guarantor of any
of the Obligations, to any Person that entitles such Person to declare such
Indebtedness due prior to its date of maturity, including without limitation,
the occurrence of any Event of Default under and as defined in the Indenture,
"material" meaning for this purpose Indebtedness in the aggregate amount of
$1,000,000 or more;
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9.4 False Representation or Warranty. Any representation, warranty or
statement contained in this Agreement, in any of the Relevant Documents or in
any other writing delivered to Lender in connection with the Collateral, this
Agreement or any of the transactions contemplated thereby, proves to have been
incorrect in any material respect when made or deemed made;
9.5 Cessation of Business. Borrower ceases to do business as a going
concern;
9.6 Intentionally Omitted
9.7 Change of Control. The occurrence of any Change of Control;
9.8 Liquidation or Dissolution. Borrower takes any action to commence or
authorize its liquidation or dissolution;
9.9 Inability to Pay Debts. Borrower (a) becomes unable or fails to pay its
debts generally as they become due, (b) admits in writing its inability to pay
its debts, or (c) proposes or makes a composition agreement with creditors, a
general assignment for the benefit of creditors, or a bulk sale;
9.10 Bankruptcy; Insolvency. Any proceeding is instituted by or against
(and if brought against Borrower the same is not dismissed within 60 days of the
commencement thereof) Borrower (a) seeking liquidation, reorganization,
arrangement, adjustment or composition of it or its debts under any law relating
to bankruptcy, insolvency or reorganization or relief of debtors, or (b) seeking
appointment of a receiver, trustee, or other similar official for it or for any
substantial part of its property, or Borrower takes any action to authorize or
consent to any action described in this Section 9.10;
9.11 Judgments. One or more judgments or orders for the payment of money
exceeding $1,000,000 in the aggregate (to the extent not covered by insurance)
are rendered against Borrower, and such judgment(s) or order continues
unsatisfied and not effectively stayed for a period of thirty (30) consecutive
days;
9.12 Attachment. Any of the Collateral becomes subject to attachment,
execution, levy or like process which shall not have been effectively stayed;
9.13 Condemnation. Any governmental agency, or other entity with power to
do so, commences proceedings to condemn, seizes or expropriates assets of
Borrower necessary for the conduct of Borrower's business as conducted on the
date of this Agreement, without material change, or Borrower abandons such
assets or suspends operations of substantially all of its assets;
9.14 ERISA. With respect to any Benefit Plan (as defined in Section 4.17 of
this Agreement), there occurs or exists any of the events or conditions
described in the following clauses (a) through (h) and such event or condition,
together with all like events or conditions, subjects Borrower to any tax,
penalty or other liability that, singly or in the aggregate, exceeds $1,000,000:
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(a) a reportable event as defined in Section 4043 of ERISA, (b) a prohibited
transaction as defined in Section 406 of ERISA or Section 4975 of the Internal
Revenue Code, (c) termination of the Benefit Plan or filing of notice of
intention to terminate, (d) institution by the Pension Benefit Guaranty
Corporation of proceedings to terminate, or to appoint a trustee to administer,
the Benefit Plan, or circumstances that constitute grounds for any such
proceedings, (e) complete or partial withdrawal from a multiemployer Benefit
Plan, or the reorganization, insolvency or termination of a multiemployer
Benefit Plan, (f) an accumulated funding deficiency within the meaning of ERISA,
(g) violation of the reporting, disclosure or fiduciary responsibility
requirements of ERISA or the Internal Revenue Code, or (h) any act or condition
which could result in direct, indirect or contingent liability to any Benefit
Plan or the Pension Benefit Guaranty Corporation;
9.15 Guaranty. Any guaranty of any of the Obligations ceases to be
effective or any guarantor denies liability thereunder; or .
9.16 Investigations. Borrower is indicted for any criminal activity which
would result in the forfeiture of any Collateral to any governmental entity,
federal, state or local.
10. REMEDIES
10.1 Rights in General. Automatically upon the occurrence of an Event of
Default described in Section 9.10(a), and at the option of Lender, upon written
notice to Borrower, upon the occurrence of any other Event of Default, (a) any
and all obligations of Lender for additional Loans under this Agreement shall
terminate, (b) the principal and interest of the Revolving Loans, all other
amounts payable under this Agreement and all other Obligations shall become and
be immediately due and payable, without presentment, demand, protest, or further
notice of any kind, all of which are hereby expressly waived by Borrower, and
(c) Lender shall be entitled to exercise forthwith (to the extent and in such
order as Lender may elect, in its sole and absolute discretion) any or all
rights and remedies provided for in this Agreement, any Revolving Note or any
Relevant Documents, all rights and remedies of a secured party under the UCC,
and all other rights and remedies that may otherwise be available to Lender by
agreement or at law or in equity.
10.2 Specific Rights Regarding Collateral. In addition to the rights as
stated generally in Section 10.1, Borrower agrees that, upon the occurrence of
an Event of Default, Lender shall be entitled to the rights and remedies, and
Borrower shall have the obligations, set forth below:
(a) Lender may enter upon the premises where any of the Collateral is
located and take possession thereof and, at Lender's option, remove or sell in
place any or all thereof.
(b) Upon notice from Lender, Borrower shall promptly at its expense
assemble any or all of the Collateral and make it available at a reasonably
convenient place designated by Lender.
(c) Lender may, with or without judicial process, sell, lease or
otherwise dispose of any or all of the Collateral at public or private sale or
proceedings, by one or more contracts, in one or more parcels, at the same or
different times and places, with or without having the Collateral
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at the place of sale or other disposition, to such persons or entities, for cash
or credit or for future delivery and upon such other terms, as Lender may in its
discretion deem best in each such matter. The purchaser of any of the Collateral
at any such sale shall hold the same free of any equity or redemption or other
right or claim of Borrower, all of which - together with all rights of stay,
exemption or appraisal under any statute or other law now or hereafter in effect
- - Borrower hereby unconditionally waives to the fullest extent permitted by law.
If any of the Collateral is sold on credit or for future delivery, Lender shall
not be liable for the failure of the purchaser to pay for same and, in the event
of such failure, Lender may resell such Collateral.
(d) Borrower hereby further agrees that notice of the time and place
of any public sale, or of the time after which any private sale or other
intended disposition or action relating to any of the Collateral is to be made
or taken, shall be deemed commercially reasonable notice thereof, and shall
satisfy the requirements of any applicable statute or other law, if such notice
is given not less than five (5) business days prior to the date of the sale,
disposition or other action to which the notice relates prior thereto. Lender
shall not be obligated to make any sale or other disposition or take other
action pursuant to such notice and may, without other notice or publication,
adjourn or postpone any public or private sale or other disposition or action by
announcement at the time and place previously fixed therefor, and such sale,
disposition or action may be held or accomplished at any times or places to
which the same may be so adjourned or postponed.
(e) Lender may purchase any or all of the Collateral at any public
sale and may purchase at private sale any of the Collateral that is of a type
customarily sold in a recognized market or the subject of widely distributed
price quotations or as may be further permitted by law. Lender may make payment
of the purchase price for any Collateral by credit against the then outstanding
amount of the Obligations.
(f) Lender may retain any or all of the Collateral and apply the same
in satisfaction of part or all of the Obligations.
(g) Any cash proceeds of sale, lease or other disposition of
Collateral shall be applied as follows:
First: To the expenses of collecting, enforcing, safeguarding,
holding and disposing of Collateral, and to other expenses of Lender in
connection with the enforcement of this Agreement, any of the Notes, any of the
Relevant Documents, or any other agreement relating to any of the Obligations
(including without limitation court costs and the fees and expenses of
attorneys, accountants and appraisers);
Second: Any surplus then remaining to the payment of interest and
principal of the Loans and other sums payable as part of the Obligations, in
such order as Bank elects; and
Third: Any surplus then remaining to Borrower or whoever may be
lawfully entitled thereto.
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10.3 Set-Off. Borrower further agrees that:
(a) Lender is hereby authorized at any time from time to time, without
notice to Borrower (any such notice being expressly waived by Borrower), to set
off and apply (or cause any affiliate of Lender to set off and apply) any and
all deposits (general or special, time or demand, provisional or final) at any
time held and other indebtedness at any time owing by Lender or such affiliate
to or for the credit or the account of Borrower, against any or all of the
Obligations then due and payable of Borrower now or hereafter existing under
this Agreement, any of the Notes or otherwise, irrespective of whether or not
Lender shall have made any demand.
(b) If any other lender has participated with Lender with respect to
any of the Loans, Borrower hereby authorizes such participating lender, upon the
occurrence of any Event of Default, immediately and without notice or other
action, at request of Lender, to set off against any of Borrower's Obligations
to Lender any deposits held or money owed by such participating lender in any
capacity to Borrower, whether or not due, and to remit the money set off to
Lender.
(c) The rights stated in this Section 10.3 are in addition to other
rights and remedies (including, without limitation, other rights of set-off or
lien) that Lender or any participating lender may have.
10.4 Cumulative Remedies; No Waiver by Lender. No remedy referred to in
this Agreement is intended to be exclusive, but each shall be cumulative and in
addition to any other remedy referred to in this Agreement or otherwise
available to Lender by agreement or at law or in equity. No express or implied
waiver by Lender of any default or Event of Default shall in any way be, or be
construed to be, a waiver of any future or subsequent default or Event of
Default. The failure or delay of Lender in exercising any rights granted it
hereunder upon any occurrence of any of the contingencies set forth herein shall
not constitute a waiver of any such right upon the continuation or recurrence of
any such contingency or similar contingencies, and any single or partial
exercise of any particular right by Lender shall not exhaust the same or
constitute a waiver of any other right.
10.5 Waivers and Consents Relating to Remedies. In connection with any
action or proceeding arising out of or relating in any way to this Agreement,
any of the Notes, any of the Loans, any of the Relevant Documents, any other
agreement relating to any of the Obligations, any of the Collateral, or any act
or mission relating to any of the foregoing:
(a) BORROWER AND LENDER WAIVE THE RIGHT TO TRIAL BY JURY;
(b) Borrower and Lender consent to the jurisdiction of any court of
the State of New Jersey and of any federal court located in New Jersey, and
waive any right to object to such court as an inconvenient forum;
(c) Borrower waives personal service of any summons, complaint or
other process in connection with any such action or proceeding and agrees that
service thereof may be made, as
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Lender may elect, by certified mail return receipt requested or via overnight
courier directed to Borrower at the location provided for notices to Borrower
under this Agreement or, in the alternative, in any other form or manner
permitted by law;
(d) Borrower agrees that all of the Collateral constitutes equal
security for all of the Obligations, and agrees that Lender shall be entitled to
sell, retain or otherwise deal with any or all of the Collateral, in any order
or simultaneously as Lender shall determine in its sole and absolute discretion,
free of any requirement for the marshaling of assets or other restriction upon
Lender in dealing with the Collateral; and
(e) Borrower agrees that Lender may proceed directly against Borrower
for collection of any or all of the Obligations without first selling, retaining
or otherwise dealing with any of the Collateral.
11. ADDITIONAL WAIVERS AND CONSENTS OF BORROWER
11.1 Waivers. Borrower waives demand, presentment, notice of dishonor or
protest of any instruments either of Borrower or others which may be included in
the Collateral.
11.2 Consents. Borrower consents to (a) any extension, postponement of time
of payment or other indulgence, (b) any substitution, exchange or release of
Collateral, (c) any addition to, or release of, any party or person primarily or
secondarily liable, and (d) any acceptance of partial payments on any Accounts
or instruments and the settlement, compromising or adjustment thereof.
12. TERMINATION
12.1 Termination By Lender. On the Revolving Loan Termination Date, all
obligations of Lender for the making of Revolving Loans under this Agreement,
including the issuance of Letters of Credit, shall terminate, (b) the principal
and interest of the Revolving Loans, and all other Obligations under this
Agreement and the Relevant Documents related to the Revolving Loans, shall
become and be immediately due and payable, without presentment, demand, protest,
or further notice of any kind, all of which are hereby expressly waived by
Borrower, and (c) Lender shall be entitled to exercise forthwith (to the extent
and in such order as Lender may elect, in its sole and absolute discretion) any
or all of the rights and remedies referred to in Section 10 of this Agreement
for the collection of such amounts.
12.2 Mutual Release. Upon full and final payment and performance of the
Loans and all other Obligations under this Agreement and the Relevant Documents
and termination of Lender's lending commitment hereunder, Borrower and Lender
shall thereupon automatically each be fully, finally and forever released and
discharged from any and all claims, liabilities and obligations, whether in
contract or tort, arising out of or relating in any way to this Agreement, any
of the Notes or Loans, or any act or omission relating to any of the foregoing
or to any of the Collateral or
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Relevant Documents except for certain covenants and provisions in this Agreement
which survive for the benefit of Lender after repayment of the Obligations.
13. COSTS, EXPENSES AND TAXES
Borrower agrees to pay:
(a) all reasonable costs and expenses in connection with the
preparation, negotiation, execution, and delivery of this Agreement, the Notes,
the Relevant Documents, and the other documents to be delivered in connection
with this Agreement (including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel for Lender and the reasonable cost of
appraisals and reappraisals of Collateral, searches, etc.).
(b) on demand, all reasonable costs and expenses incurred after the
date hereof in connection with the administration of this Agreement, the Notes,
the Relevant Documents, and the other documents to be delivered in connection
with this Agreement, and any amendments to or termination of any of the
foregoing (including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for Lender and the reasonable costs of appraisals and
reappraisals of Collateral, searches, etc.)
(c) on demand all losses, costs and reasonable expenses incurred by
Lender in connection with the enforcement of this Agreement, any of the Notes,
any of the Relevant Documents, or in the preservation, protection and defense of
any rights of Lender under any thereof, or in connection with legal advice
relating to the rights or responsibilities of Lender under any thereof
(including without limitation court costs and the reasonable fees and expenses
of attorneys, accountants and appraisers), and any expenditure made by Lender in
accordance with Subsection 7.1(c) or (d) of this Agreement; and
(d) on demand any and all stamp and other taxes payable or determined
to be payable in connection with the execution and delivery of this Agreement,
any of the Notes, or any of the Relevant Documents, and all liabilities to which
Lender may become subject as the result of delay in paying or omission to pay
such taxes.
With respect to any amount advanced by Lender and required to be reimbursed by
Borrower pursuant to the foregoing provisions of this Section 13, Borrower shall
also pay Lender interest on such amount at the Default Rate. Borrower's
obligations under this Section 13 shall survive termination of the other
provisions of this Agreement.
14. INDEMNIFICATION BY BORROWER
Borrower hereby covenants and agrees to indemnify, defend and hold harmless
Lender and its officers, directors, employees and agents from and against any
and all claims, damages, liabilities, costs and expenses (including without
limitation, the reasonable fees and out-of-pocket expenses of
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counsel) which may be incurred by or asserted against Lender or any such other
individual or entity in connection with:
(a) any investigation, action or proceeding arising out of or in any
way relating to this Agreement, any of the Notes, any of the Loans, any of the
Relevant Documents, any other agreement relating to any of the Obligations, any
of the Collateral, or any act or omission relating to any of the foregoing,
including without limitation Borrower's breach of any covenant or undertaking
contained herein or therein;
(b) any taxes, liabilities, claims or damages relating to the
Collateral or Lender's liens thereon; or
(c) the correctness, validity or genuineness of any instruments or
documents that may be released or endorsed to Borrower by Lender (which shall
automatically be deemed to be without recourse to Lender in any event), or the
existence, character, quantity, quality, condition, value or delivery of any
goods purporting to be represented by any such documents.
15. MISCELLANEOUS
15.1 Entire Agreement; Amendments; Lender's Consent. This Agreement
(including the Exhibits and Schedules thereto), the Revolving Note and the
Relevant Documents supersede, with respect to their subject matter, all prior
and contemporaneous agreements, understandings, inducements or conditions
between the respective parties, whether express or implied, oral or written. No
amendment or waiver of any provision of this Agreement, any of the Notes or any
of the Relevant Documents, nor consent to any departure by Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
15.2 Notices. All notices or consents required or permitted by this
Agreement and other communications relating to this Agreement or any of the
Notes (or to any of the Relevant Documents, unless otherwise specified therein)
shall be in writing and shall be deemed given if delivered in person or sent by
telecopy or by nationally recognized overnight courier, as follows, unless such
address is changed by written notice hereunder:
If to Lender: PNC Bank, National Association
1600 Market Street
Philadelphia, PA 19103
Attention: Jeanne Hanson
Telecopy No. 215-585-4771
If to Borrower: Community Distributors, Inc.
251 Industrial Parkway
Somerville, New Jersey 08876
Attention: Todd Pluymers
Telecopy No. 908-722-2902
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<PAGE>
(b) Any notice sent by Lender or Borrower by any of the above methods
shall be deemed to be given when so received.
15.3 Gender. Throughout this Agreement, the masculine shall include the
feminine and vice versa and the singular shall include the plural and vice
versa, unless the context of this Agreement indicates otherwise.
15.4 Joint Borrowers. If more than one party executes this Agreement as
Borrower, then for the purpose of this Agreement the term Borrower shall mean
each such party and each party shall be jointly and severally liable as Borrower
for the Obligations as defined herein without regard to which party receives the
proceeds of any of the Loans. Each such party hereby acknowledges that it
expects to derive economic advantage from each of the Loans.
15.5 Cross Default; Cross Collateral. Borrower hereby agrees that (a) all
other agreements between Borrower and Lender or any of its affiliates are hereby
amended so that an Event of Default under this Agreement is a default under all
other agreements and a default under any one of the other agreements is an Event
of Default under this Agreement, and (b) the Collateral under this Agreement
secures the Obligations now or hereafter outstanding under all other agreements
between Borrower and Lender or any of its affiliates and the collateral pledged
under any other agreement with Lender or any of its affiliates secures the
Obligations under this Agreement.
15.6 Binding Effect; Governing Law. This Agreement shall be binding upon
and inure to the benefit of Borrower and Lender and their respective successors
and assigns, except that Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of Lender.
This Agreement, the Notes, the Relevant Documents and the other documents
delivered in connection with this Agreement shall be governed by, and construed
in accordance with, the laws of the State of New Jersey.
15.7 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement.
15.8 Severability of Provisions. Any provision of this Agreement, any of
the Notes or any of the Relevant Documents that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement, such Note or such Documents or affecting the
validity or enforceability of such provision in any other jurisdiction.
15.9 Table of Contents; Headings. The table of contents and headings
preceding the text of this Agreement are inserted solely for convenience of
reference and shall not constitute a part of this Agreement nor affect its
meaning, construction or effect.
15.10 Exhibits and Schedules. All of the Exhibits and Schedules to this
Agreement are hereby incorporated by reference herein and made a part hereof.
15.11 Further Acknowledgments and Agreements of Borrower and the Lender.
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(a) General Acknowledgments.
(1) Borrower and the Lender acknowledge and agree that they (1)
have independently reviewed and approved each and every provision of this
Agreement, including the Exhibits attached hereto and any and all other
documents and items as they or their counsel have deemed appropriate, and (ii)
have entered into this Agreement and have executed the closing documents
voluntarily, without duress or coercion, and have done all of the above with the
advice of their legal counsel.
(2) Borrower and the Lender acknowledge and agree that, to the
extent deemed necessary by them or their counsel, they and their counsel have
independently reviewed, investigated and/or have full knowledge of all aspects
of the transaction and the basis for the transaction contemplated by this
Agreement and/or have chosen not to so review and investigate (in which case,
Borrower acknowledges and agrees that it has knowingly and upon the advice of
counsel waived any claim or defense based on any fact or any aspect of the
transaction that any investigation would have disclosed), including without
limitation:
(i) the risks and benefits of the various waivers of rights
contained in this Agreement, including but not limited to, the waiver of the
right to a jury trial;
(ii) the adequacy of the consideration being transferred
under this Agreement, including the adequacy of the consideration for the Mutual
Release as set forth in Section 12.3 hereof;
(3) Borrower has made its own investigation or elected not to
make such investigation as to all matters it deems material to this transaction
and has not relied on any statement of fact or opinion, disclosure or
non-disclosure of the Lender, and has not been induced by the Lender in any way,
except for the consideration recited herein, in entering into this Agreement and
executing the closing documents contemplated hereby, and further acknowledges
that the Lender has not made any warranties or representations of any kind in
connection with this transaction except as specifically set forth herein or in
the documents executed in conjunction with this Agreement, and Borrower is not
relying on any such representations or warranties.
(4) Borrower acknowledges and agrees that, after careful
consideration, it does not deem any matter not reviewed or investigated by it to
be material to this Agreement and the transaction contemplated hereby.
15.12 Publicity. Borrower hereby authorizes Lender to make appropriate
announcements of the financial arrangement entered into between Borrower and
Lender, including, without limitation, announcements which are commonly known as
tombstones, in such publications and to such selected parties as Lender shall in
its reasonable discretion deem appropriate.
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IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed by their proper corporate officers the day and year first above
written.
COMMUNITY DISTRIBUTORS, INC.
By: ________________________________
PNC BANK, NATIONAL ASSOCIATION
By: ________________________________
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Revolving Loan Note [logo of PNC BANK]
$20,000,000 October ___, 1997
FOR VALUE RECEIVED, COMMUNITY DISTRIBUTORS, INC., (the "Borrower"), with an
address at 251 Industrial Parkway, Somerville, NJ 08876, promises to pay to the
order of PNC BANK, NATIONAL ASSOCIATION (the "Bank"), in lawful money of the
United States of America in immediately available funds at its offices located
at 1600 Market Street, Philadelphia, Pennsylvania 19103, or at such other
location as the Bank may designate from time to time, the principal sum of
TWENTY MILLION DOLLARS ($20,000,000) or such lesser amount as may be advanced to
or for the benefit of the Borrower under the Revolving Loan facility established
pursuant to the Loan Agreement referred to below, together with interest
accruing on the outstanding principal balance from the date hereof, as provided
below:
1. Rate of Interest. Amounts outstanding under this Note will bear interest at
the rate or rates and calculated in the manner and payable all as set forth in
the Loan Agreement (as defined below).
2. Payment Terms. Interest shall be payable as set forth in the Loan Agreement.
The outstanding principal balance and any accrued but unpaid interest shall be
due and payable on the Revolving Loan Termination Date, as defined in the Loan
Agreement.
3. Default Rate. This Note shall bear interest at the Default Rate as defined in
and to the extent set forth in the Loan Agareement. The Default Rate shall
continue to apply whether or not judgment shall be entered on this Note.
4. Prepayment. The indebtedness evidenced by this Note may be prepaid in whole
or in part at any time, subject to the terms of the Loan Agreement.
5. Other Loan Documents. This Note is issued in connection with a Loan and
Security Agreement of even date between Bank and Borrower, the terms of which
are incorporated herein by reference (as amended from time to time, the "Loan
Agreement"), and is secured by the property described in the Loan Agreement and
by such other collateral as previously may have been or may in the future be
granted to the Bank to secure this Note.
6. Events of Default. The occurrence of any Event of Default under the Loan
Agreement will be deemed to be an "Event of Default" under this Note. Upon the
occurrence of any Event of Default, the Bank may exercise from time to time any
of the rights and remedies available to the Bank under the Loan Agreement or
under applicable law.
7. Right of Setoff. In addition to all liens upon and rights of setoff against
the money, securities or other property of the Borrower given to the Bank by
law, the Bank shall have, with respect to the Borrower's obligations to the Bank
under this Note and to the extent permitted by law, a contractual possessory
security interest in and a contractual right of setoff against, and the Borrower
hereby assigns, conveys, delivers, pledges and transfers to the Bank all of the
Borrower's right, title and interest in and to, all deposits, moneys, securities
and other property of the Borrower now or hereafter in the possession of or on
deposit with, or in transit to, the Bank whether held in a general or special
account or deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to the Borrower. Every such right of setoff shall
be deemed to have been exercised immediately upon the occurrence of an Event of
Default hereunder without any action of the Bank, although the Bank may enter
such setoff on its books and records at a later time.
8. Miscellaneous. No delay or omission of the Bank to exercise any right or
power arising hereunder shall impair any such right or power or be considered to
be a waiver of any such right or power, nor shall the Bank's action or inaction
impair any such right or power. The Borrower agrees to pay on demand, to the
extent permitted by law, all reasonable costs and expenses incurred by the Bank
in the enforcement of its rights in this Note and in any security therefor,
including without limitation reasonable fees and expenses of the Bank's counsel.
If any provision of this Note is found to be invalid by a court, all the other
provisions of this Note will remain in full force and effect. The Borrower and
all other makers and indorsers of this Note hereby forever waive presentment,
protest, notice of dishonor and notice of non-payment. The Borrower also waives
all defenses based on suretyship or impairment of collateral. If this Note is
executed by more than one Borrower, the obligations of such persons or entities
hereunder will be joint and several. This Note shall bind the Borrower and its
heirs, executors, administrators, successors and assigns, and the benefits
hereof shall inure to the benefit of the Bank and its successors and assigns.
This Note has been delivered to and accepted by the Bank and will be deemed to
be made in the State where the Bank's office indicated above is located. THIS
NOTE WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE BANK AND THE
BORROWER DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE BANK'S
OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES. The
Borrower and the Bank hereby irrevocably consents to the non-exclusive
jurisdiction of any state or federal court for the county or judicial district
where the Bank's office indicated above is located, and consents that all
service of process be sent by nationally recognized overnight courier service
directed to the Borrower at the Borrower's address set forth in the Loan
Agreement and service so made will be deemed to be completed on the business day
after deposit with such courier; provided that nothing contained in this Note
will prevent the Bank from bringing any action, enforcing any award or judgment
or exercising any rights against the Borrower individually, against any security
or against any property of the Borrower within any other county, state or other
foreign or domestic jurisdiction. The Borrower acknowledges and agrees that the
venue provided above is the most convenient forum for both the Bank and the
Borrower. The Borrower waives any objection to venue and any objection based on
a more convenient forum in any action instituted under this Note.
9. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK IRREVOCABLY WAIVE ANY AND ALL
RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY
NATURE RELATING TO THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS
NOTE OR ANY TRANSACTION
<PAGE>
CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER ACKNOWLEDGES THAT THE
FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
The Borrower acknowledges that it has read and understood all the provisions of
this Note, including the waiver of jury trial, and has been advised by counsel
as necessary or appropriate.
WITNESS the due execution hereof as of the date first written above, with the
intent to be legally bound hereby.
COMMUNITY DISTRIBUTORS, INC.
By: _____________________________________________
Print Name: _____________________________________
Title: __________________________________________
LEASE AGREEMENT
AGREEMENT OF LEASE made as of the ________ day of May, 1995 between 105
SYLVANIA PLACE, L.L.C., a New Jersey limited liability company, having its
offices at c/o Silverline Building Products, Inc., 207 Pond Avenue, P.O. Box
3010, Middlesex, NJ 08846 ("Landlord") and COMMUNITY DISTRIBUTORS, INCORPORATED,
a Delaware Corporation, having its offices at 251 Industrial Parkway,
Somerville, NJ 08876 ("Tenant").
R E C I T A L S:
A. Landlord is the owner of the land (the "Land") and the combined office
and warehouse building containing 95,000+/- square feet of space (the
"Building"), located at 105 Sylvania Place, South Plainfield, New Jersey
(collectively called the "Property"), more fully described on Exhibit A annexed
hereto.
B. Tenant wishes to use and occupy a 53,554+/- square foot portion of the
Building and all the improvements and fixtures thereon (collectively called the
"Premises"), and Landlord desires to lease the Premises to Tenant.
NOW, THEREFORE, in consideration of the foregoing and the conditions and
terms set forth herein, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, it is agreed as follows:
ARTICLE 1. Premises
Landlord does hereby demise to Tenant, and Tenant does hereby lease from
Landlord, the Premises, together with the non-exclusive right to use the
driveways, parking area and walkways on the Property, subject to the covenants,
easements and restrictions that do not interfere in the permitted use of the
Premises. The parties shall have the right to verify the square footage of the
Premises and the Building.
ARTICLE 2. Term
The term of the Lease shall be for a period of three (3) years and seven
(7) months beginning June 1, 1995 (the "Commencement Date") and ending on
December 31, 1998 (the "Expiration Date"). Any reference herein to the "third
year of the Lease" shall mean the period commencing on June 1, 1997 through the
Expiration Date. After the first Lease year, Landlord shall have the right, in
its sole and absolute discretion, to terminate this Lease prior to the
Expiration Date by giving Tenant six (6) months advance written notice of
termination, provided that such notice is given during the months of June
through December of the second or third Lease years.
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ARTICLE 3. Use
Tenant shall use the Premises only for offices and warehousing of general
merchandise and distribution of same, subject to any restrictions imposed by
federal, state, county and municipal statutes, ordinances and regulations.
ARTICLE 4. Net Lease
It is the purpose and intent of Landlord and Tenant, that the fixed rent
shall be absolutely net to Landlord, except as may be specifically set forth
herein, and shall be payable to Landlord free of any charges and without
abatement or set-off by Tenant. From and after the Commencement Date, Landlord
shall not be expected or required to pay any charge or imposition relating to
the maintenance, preservation, care, repair and operation of the Premises,
except as set forth herein, and all such expenses shall be paid by Tenant.
ARTICLE 5. Rent
5.1 Tenant shall pay Landlord fixed annual rent beginning on the
Commencement Date at the rate of $3.00 per square foot which equals $160,662 per
year. In the event that the square footage of the Premises is adjusted, the
fixed annual rent shall be adjusted accordingly.
5.2 The fixed rent shall be paid in equal monthly installments of
$13,388.50 in advance on the first day of each month during the term of the
Lease commencing on the Commencement Date.
5.3 All other amounts payable by Tenant under the Lease shall be deemed to
be additional rent.
5.4 Upon the execution of this Lease, Tenant shall pay the first month's
rent of $13,388.50.
ARTICLE 6. Taxes and Utilities; Pro Rata Share
6.1 Landlord shall pay all real estate taxes on the Premises for the first
year of the Lease (i.e., June 1, 1995 through May 31, 1996), herein referred to
as "Base Taxes". In the second and third years of the Lease, Landlord shall be
responsible for Base Taxes only. In the event of any increase in real estate
taxes on the Property over and above such taxes in effect on the Commencement
Date, then Tenant shall be responsible, after presentation of tax bills
reflecting such increase, for the payment of Tenant's Pro Rata Share (as defined
below) of such increase or increases applicable to second and third years of the
Lease. Conversely, in the event of any decrease in real estate taxes on the
Property below such taxes in effect on the Commencement Date, then Tenant
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shall be entitled to a credit, in the amount of Tenant's Pro Rata Share, of such
decrease or decreases applicable to the second and third years of the Lease. Any
such increase or decrease shall be prorated in twelve equal payments over the
applicable Lease year. As used herein, "Tenant's Pro Rata Share" shall be a
fraction, the numerator of which shall be the square footage of the Premises and
the denominator of which shall be the square footage of the Building, which
equals 56.37%. Tenant's Pro Rata Share shall be subject to adjustment if the
square footage of the Building or the Premises is changed.
6.2 Tenant shall pay all sewer charges, and any interest or costs with
respect thereto imposed upon the Premises or Tenant's use thereof, and charges
for public and private utilities which at any time during or otherwise
attributable to any period falling within the term of this Lease may be
assessed, levied or become due and payable in respect of the Premises. (All such
charges are referred to collectively as "Impositions").
6.3 Tenant shall be responsible for obtaining and paying for all water,
heat, electricity, pest control, security systems, and all other utilities for
the Premises, except as specifically set forth herein.
ARTICLE 7. Condition of Premises
7.1 Tenant accepts the Premises in "as is", "where is" condition, and
acknowledges that Landlord has no obligation of any kind whatsoever to alter,
decorate or otherwise adapt the Premises for Tenant's use.
7.2 Tenant represents and warrants that (a) Tenant's use of the Premises
will be in compliance with all applicable governmental, legal and insurance
requirements, (b) Tenant will obtain all permits, licenses or the like as
required to operate Tenant's business at the Premises, and (c) Tenant covenants
that it shall not manufacture, store or discharge any hazardous substance,
material or waste at or from the Premises.
ARTICLE 8. Repairs and Maintenance
8.1 During the term of this Lease, Tenant shall at its sole expense comply
with all laws and regulations whether now in force or enacted during the term of
the Lease, relating to Tenant's use and occupancy of the Premises.
8.2 Subject to Section 8.3 below, Tenant shall, at its sole cost and
expense, take good care of the Premises, including the maintenance, repair and
replacement as necessary of all building systems (including but not limited to
heating, ventilation, air conditioning, plumbing and electrical), and shall make
all repairs therein and thereon, interior and exterior, ordinary and
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extraordinary, unforeseen and foreseen, necessary to keep the same (a) in good
and safe order and condition, and (b) in substantially the same condition as of
the date of this Lease, reasonable wear and tear excepted. Tenant shall not
commit or suffer, and shall use all reasonable precaution to prevent, waste,
damage, or injury to the Premises.
8.3 Landlord, at its cost and expense, shall be responsible for the
maintenance and repair of the structural elements of the Premises, such as
foundation, the walls and the roof and any other such of the Premises, except
any repairs required as a result of the acts or omissions of the Tenant, its
agents, servants, employees, licensees, invitees or independent contractors.
8.4 Tenant shall, at its own cost and expense, keep clean and free from
dirt, rubbish, obstructions, encumbrances, snow and ice, the sidewalks,
driveways, parking lots and curbs used in connection with the Premises.
8.5 Tenant shall pay Tenant's Pro Rata Share of the fire insurance premium
for the Building (approximately $3,200 per year), sprinkler system cost
(approximately $2,400 per year), and the lawn maintenance costs for the Property
(approximately $2,400 per year), as additional rent in monthly increments equal
to one-twelfth of the annual cost of same.
8.6 At all times, Tenant shall:
a. Use all electric, plumbing, heating, cooling and other facilities
in the Premises in a safe and reasonable way;
b. Replace all broken glass in the Premises;
c. Permit no load to be placed upon the floors of the Premises in
excess of such floor's weight-bearing capacity;
d. do nothing to destroy, deface, damage or remove any part of the
Premises or the Property;
e. Keep no inflammable or dangerous substances or object in or about
the Premises; and
f. Do nothing to impair the peace and quiet of the Landlord, other
tenants, or persons in the neighborhood.
8.7 Landlord represents that the weight-bearing capacity of the floors of
the Premises is not less than 450 lbs. per square foot.
ARTICLE 9. [INTENTIONALLY DELETED]
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ARTICLE 10. Inspection by Landlord
Tenant shall permit Landlord and its authorized representatives to enter
the Premises during Tenant's normal business hours upon reasonable advance
notice to Tenant (except in emergencies) for the purpose of inspecting the
Premises.
ARTICLE 11. Alterations and Improvements
Tenant shall have the right, at its own cost and expense, to make
alterations, replacements, changes, additions and improvements in and to the
Premises, subject to the following:
(a) that the same shall be performed in a good workmanlike manner, shall
not materially reduce the amount of office space of the Building and shall not
impair the structural integrity of the Building or of any structure now or
hereafter forming part of the Premises;
(b) that Tenant shall have obtained all required permits and authorizations
of all governmental agencies and departments having jurisdiction over such work;
(c) that all alterations, repairs and replacements, additions and
improvements commenced shall be completed and paid for, by Tenant;
(d) that prior to doing any structural alteration, repair, replacement,
addition, or improvement costing more than $10,000, Tenant shall submit plans
and specifications for such work to Landlord for its review and approval;
(e) that Tenant shall assure that all contractors, prior to commencing
work, have appropriate insurance coverage including Workmen's Compensation
Insurance and general liability insurance for the mutual benefit of Tenant and
Landlord;
(f) that if as a result of any alterations or repairs to the Premises
performed by or at the direction of Tenant, any mechanic's or other lien, charge
or order for the payment of money shall be filed against the Premises, or the
Building or land or against Landlord, Tenant shall, at its own cost and expense,
cause the same to be canceled and discharged of record or bonded within thirty
(30) days after the date of filing thereof;
(g) that all such alterations and repairs on or in the Premises that are
erected, installed, or affixed by Tenant shall be deemed to be part of the
realty and the sole property of Landlord;
(h) that all alterations and repairs in and to the Premises shall be
constructed and completed in accordance with applicable legal requirements,
approvals of governmental entities
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having jurisdiction over the work and the rules and regulations of the National
Board of Fire Underwriters as they may relate to the work; and
(i) that Landlord's consent to any work performed by Tenant shall not
render Landlord responsible for the cost of such work or constitute a
determination by Landlord that (a) the proposed work complies with applicable
laws and regulations or (b) that the proposed work reflects good architectural
and engineering practices.
ARTICLE 12. Indemnity and Insurance
12.1 (a) Tenant shall defend, indemnify and hold harmless Landlord from all
losses, costs, damages, liability, claims, causes of action, judgments and
expenses, including reasonable attorneys' fees and court costs, arising from the
use and occupancy of the Premises by Tenant and Tenant's agents, servants,
employees, guests or contractors.
(b) Tenant, as a material part of the consideration to be rendered to
Landlord, hereby waives all claims against Landlord for damages to goods,
equipment, improvements, wares and merchandise in, upon or about the Premises
and the Property and for injuries to Tenant, its servants, agents, customers,
employees and invitees in or about the Premises or Property from any cause
arising at any time, except to the extent occasioned by Landlord's wilful
misconduct or gross negligence, provided always, that any insurance proceeds
received by Tenant with respect to same shall be credited against any amounts
payable to Landlord to Tenant under such circumstances.
12.2 Tenant shall maintain the following insurance coverage at Tenant's
sole cost and expense:
(a) General liability insurance against claims for bodily injury,
death, or property damage occurring in, on, or about the Premises, such
insurance to afford minimum comprehensive, combined single limit protection
of not less than $2,000,000 with a maximum $25,000 deductible;
(b) Boiler and machinery insurance (if applicable);
(c) Elevator insurance (if applicable);
(d) Tenant shall insure its trade fixtures, personal property,
removable business fixtures and equipment.
12.3 All insurance required to be obtained by Tenant pursuant to this
Article shall be carried in favor of Landlord, its mortgagee (if applicable) and
Tenant as their respective interests
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may appear, and shall name Arthur Silverman and Kenneth Silverman as additional
insureds.
12.4 Tenant and Landlord shall cooperate in connection with the collection
of any insurance proceeds that may be due in the event of loss and shall execute
and deliver such proofs of loss and other instruments that may be reasonably
required for such purpose.
12.5 All premiums on insurance required to be obtained by Tenant under this
Article shall be paid for by Tenant.
12.6 Prior to taking occupancy of the Premises, and on each anniversary of
the Commencement Date, Tenant shall furnish to Landlord certificates evidencing
that the required insurance coverage is in effect with respect to the Premises
for the next twelve (12) months, and that all premiums therefor have been paid
in full.
12.7 Tenant's insurance policies in respect of the Premises shall include a
waiver by the insurers of all rights of subrogation against the Landlord, in
connection with any loss or damage covered by such insurance.
12.8 The insurance policies procured by Tenant pursuant to its obligations
under this Lease shall (a) be issued by insurers of recognized responsibility
and qualified to do business in the State of New Jersey and approved by Landlord
and its mortgagee, and (b) include a provision that such policy or policies
shall not be canceled without at least thirty (30) days notice to Landlord and
Tenant and any mortgagee named therein.
12.9 All insurance required to be maintained by Tenant pursuant to this
Article 12, shall be evidenced by valid and enforceable policies, in form and
substance satisfactory to Landlord, and issued by insurers of recognized
responsibility having a Best's rating of A or better and a financial size
category of Class VII or above.
ARTICLE 13. Damage or Destruction
13.1 Except as provided in the next sentence, if any portion of the
Premises shall be destroyed or damaged in whole or in part by fire or other
casualty, Tenant shall give Landlord notice of such occurrence and Landlord
shall repair, alter, restore, replace and rebuild such improvements, at least to
substantially the same condition as existed immediately prior to such
occurrence. If the Premises are substantially damaged or destroyed during the
term of this Lease, Landlord may, in lieu of repairing the damage, within sixty
(60) days from the date of the damage or destruction, cancel the Lease by (i)
sending Tenant a notice of cancellation which shall be effective on the date of
such notice, and (ii) Tenant shall assign to Landlord Tenant's right to
insurance proceeds in
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respect of the damage, except for the proceeds relating to Tenant's personal
property, inventory, business fixtures and equipment. Tenant shall also have the
right to terminate the Lease in the event the Premises is substantially damaged
or destroyed, by giving notice of termination to Landlord within thirty (30)
days of such damage, and the Lease shall be terminated ten (10) days thereafter.
Upon the effective date of the termination, the Landlord and Tenant shall have
no further obligations to the other under this Lease, except obligations
accruing prior to the date of termination. For the purposes of this paragraph,
"substantially damaged or destroyed" shall be deemed to mean that at least
twenty-five (25%) percent of the Premises is damaged, destroyed or rendered
unusable.
13.2 The Landlord shall be relieved of its duty to repair, restore, rebuild
or replace the Premises following damage or destruction by fire and other
casualty in the event that no or inadequate proceeds of insurance to be provided
by Tenant pursuant to Article 12 are available to defray the cost of such
repairing, restoring, rebuilding or replacement.
13.3 In the event of damage or destruction to the Premises, Tenant shall be
entitled to an equitable abatement of fixed rent for the Premises based on the
remaining useful portion of the Premises after such damage.
ARTICLE 14. Condemnation
14.1 In the event of any taking by condemnation or eminent domain, the
entire award shall be and remain the property of Landlord subject only to the
provisions of paragraph 14.4 hereof.
14.2 If the entire Premises shall be taken in condemnation proceedings or
by exercise of any right of eminent domain, then in such event this Lease and
the term hereof shall cease and terminate as of the date of such taking;
provided that rent and additional rent shall be apportioned and paid up to such
date.
14.3 If less than 25% of the Premises shall be so taken or condemned, this
Lease shall not terminate, but the rent payable hereunder after the date of the
partial taking shall be reduced pro rata based on the square footage taken.
14.4 In the event that more than 25% of the Premises is taken or condemned,
then either party shall have the right to cancel the Lease by giving written
notification to the other, and such cancellation shall be effective on the date
of taking.
14.5 In the event of a taking or condemnation, Tenant shall be entitled to
assert a claim to the condemning authority for the unamortized cost of Tenant's
leasehold improvements and trade fixtures and Tenant's reasonable moving
expenses, to the extent such claim does not reduce Landlord's award.
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ARTICLE 15. Subletting and Assignment
15.1 Except as set forth herein to the contrary, Tenant shall not assign
this Lease nor sublet the Premises or any portion thereof without providing 60
days written notice to landlord of the proposed assignment or sublet, stating
terms and commencement date, and not without Landlord's prior written consent,
which shall not be unreasonably withheld. Notwithstanding the foregoing, in the
event that Tenant proposes to assign this Lease or to sublet any portion of the
Premises, Landlord shall have a right of first refusal to recapture such space,
by notifying Tenant of Landlord's recapture within fourteen (14) days of
Tenant's notice of proposed assignment or sublet, which recapture shall be
effective as of the commencement date of the proposed assignment or sublet. No
such consent by Landlord to any proposed assignment or subletting shall relieve
Tenant of its obligations hereunder. If in connection with any assignment or
subletting of this Lease any consideration is received in excess of the rent
payable to Landlord hereunder, such consideration or excess rent shall be paid
to the Landlord.
ARTICLE 16. Default
16.1 Each of the following events shall be an "Event of Default" hereunder:
(a) if Tenant shall file a petition in bankruptcy or insolvency for
reorganization or arrangement or shall make an assignment for the benefit
of creditors;
(b) if involuntary proceedings under any bankruptcy law or insolvency
act or for the dissolution of Tenant shall be instituted against Tenant or
if a receiver or trustee shall be appointed of all or substantially all of
the property of Tenant and such proceedings shall not be dismissed, bonded
or vacated within thirty (30) days after such institution or appointment;
(c) if Tenant shall fail to pay any installment of rent or additional
rent when due hereunder, and fails to cure such default for a period of
five (5) days after the due date;
(d) if Tenant shall fail to perform any of the other agreements,
terms, covenants, or conditions of this Lease on Tenant's part to be
performed and such non-performance shall continue for a period of twenty
(20) days after written notice thereof from Landlord specifying such
default or, if such performance cannot reasonably be accomplished within
such twenty (20) day period, Tenant shall not have promptly commenced such
performance and diligently proceeded therewith to completion; and
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16.2 If Tenant does not pay rent when due and fails to pay within five (5)
days of the due date, Tenant shall pay to Landlord a fee of five (5%) percent of
the amount due Landlord in addition to the unpaid rent. In addition, Tenant
shall pay Landlord interest on the unpaid rent at the rate of ten (10%) percent
per annum accruing from the day that such unpaid rent fell due.
16.3 If an Event of Default occurs hereunder, Landlord at any time
thereafter may give written notice to Tenant terminating this Lease and all
rights of Tenant under this Lease shall expire and terminate and Tenant shall
remain liable as hereinafter provided.
16.4 Upon any termination of this Lease pursuant to paragraph 16.3, or any
termination resulting from summary proceedings or otherwise, Tenant shall
immediately quit and peaceably surrender the Premises to Landlord, without any
payment therefor by Landlord. Landlord, in addition to all other remedies herein
reserved to it, upon or at any time after such termination, may, without further
notice, enter upon and re-enter the Premises and possess and repossess itself
thereof by summary proceedings, ejectment or otherwise, and may dispossess
Tenant and remove Tenant and all other persons and property from the Premises,
and may have, hold and enjoy the Premises and the right to receive all rental
income of and from the same.
16.5 At any time after any such termination pursuant to paragraph 16.3 or
any termination by or resulting from summary proceedings or otherwise, Landlord
may relet the Premises or any part thereof, in the name of Landlord or
otherwise, for such term or terms (which may be greater or less than the period
which would otherwise have constituted the balance of the term of this Lease)
and on such conditions (which may include concessions or free rent) as Landlord,
in its sole discretion, may determine, and may collect and receive the rent
therefor.
16.6 No termination of this Lease pursuant to paragraph 16.3 or resulting
from summary proceedings or otherwise, shall relieve Tenant of its liability and
obligations under this Lease, and such liability and obligations shall survive
any such termination. In the event of any such termination, whether or not the
Premises or any part thereof shall have been relet, Tenant shall pay to Landlord
the fixed rent and additional rent and other sums and charges to be paid by
Tenant up to the time of such termination of this Lease, and thereafter Tenant,
until the end of what would have been the term of this Lease in the absence of
such termination, shall be liable to Landlord, for and shall pay to Landlord, as
and for liquidated and agreed current damages for Tenant's default, the
equivalent of the amount of the fixed rent and additional rent and such other
sums and charges which would be payable under this Lease by Tenant if this Lease
were still in effect, less the net proceeds, if any, of any reletting effected
pursuant to the provisions of paragraph 16.5, after deducting all of Landlord's
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expenses in connection with such reletting, including, without limitation, all
repossession costs, brokerage and management commissions, operating expenses,
legal expenses, reasonable attorneys' fees and disbursements, alteration costs,
and expenses of preparation for such reletting. Tenant shall pay such current
damages (herein called "deficiency") to Landlord monthly on the days on which
the fixed rent would have been payable under this Lease if the Lease were still
in effect, and Landlord shall be entitled to recover from Tenant each monthly
deficiency as the same shall arise. At any time after such termination, whether
or not Landlord shall have collected any monthly deficiencies as aforesaid,
Landlord shall be entitled, at Landlord's sole option, to recover from Tenant,
and Tenant shall pay to Landlord, on demand, as and for liquidated and agreed
final damages for Tenant's default, an amount equal to the then present worth of
the excess of the fixed rent reserved under this Lease and any additional rent
that would be payable under this Lease by Tenant if the Lease were still in
effect calculated from the date of such termination for what would be the then
unexpired term of this Lease if the same had remained in effect, over the then
fair rental value of the Premises for the same period.
16.7 Tenant hereby expressly waives, any right of redemption or
repossession in case Tenant shall be dispossessed by a judgment or by warrant of
any court of competent jurisdiction.
16.8 Each right and remedy of Landlord provided for in this Lease shall be
cumulative and shall be in addition to every other right or remedy provided for
in this Lease or now or hereafter existing at law or in equity or by statute or
otherwise, and the exercise or beginning of the exercise by Landlord of any one
or more of such rights or remedies shall not operate as an election of remedies
or foreclose the exercise of any other such remedy.
16.9 LANDLORD AND TENANT WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDINGS OR
COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER ON ANY
MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE.
16.10 Tenant shall pay to Landlord all reasonable costs and expenses,
including reasonable attorneys' fees, incurred by Landlord in any action or
proceeding to which Landlord may be made a party by reason of Tenant's use and
occupancy of the Premises or otherwise related to Tenant's interest in this
Lease. Landlord shall pay to Tenant all reasonable costs and expenses, including
reasonable attorneys' fees, incurred by Tenant in any action or proceeding to
which Tenant may be made a party by reason of Landlord's interest in the
Premises and this Lease. In addition, each party shall pay to the other all
reasonable costs and expenses, including reasonable attorneys fees, incurred by
the other in enforcing the covenants and provisions of this Lease.
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ARTICLE 17. Right to Cure Defaults
If either party fails to perform any of its obligations under this Lease,
the other may, after giving ten (10) days written notice (or without notice in
the event of any emergency), perform such obligation, and may enter upon the
Premises for such purpose. All sums paid and all expenses reasonably incurred by
either party in connection with such performance shall be due and payable by the
non-performing party within five days of presentation of a statement of such
charges, and any such unpaid amounts shall accrue interest at 10% per annum from
the due date.
ARTICLE 18. No Waiver
No failure by either party to insist upon strict performance of any
agreement, term, covenant or condition hereof, or to exercise any right or
remedy consequent upon a breach thereof, and no acceptance of full or partial
rental during the continuance of any such breach, shall constitute a present or
future waiver of any such breach, agreement, term, covenant or condition. No
waiver by either party of any breach by the other under this Lease shall affect
or alter this Lease in any way whatsoever, nor shall constitute a waiver of any
future breach of any provision hereof.
ARTICLE 19. End of Term
The Tenant shall surrender and deliver up the Premises at the expiration of
the term of this Lease or sooner termination of the term, in good repair and
condition, reasonable wear and tear thereof excepted, free and clear of all
liens and encumbrances, other than those, if any, existing as of the date of
this Lease or consented to or created by Landlord.
ARTICLE 20. Holdover Rent
20.1 If Tenant shall be in possession of the Premises at the end of the
term with the prior written consent of Landlord, the tenancy under this Lease
shall become month-to-month, terminable by either party on thirty (30) days'
written notice.
20.2 During and for any holdover period in which Tenant occupies the
Premises after expiration or Termination of the Lease, without the prior written
consent of Landlord, the monthly rental of fixed and additional rent shall be
double the monthly rental for the month immediately preceding the holdover
period. Tenant shall be .answerable in damages for any and all losses incurred
by Landlord as a result of a holdover tenancy.
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ARTICLE 21. Exhibiting Premises
Throughout the term of the Lease, upon reasonable advance oral notice to
Tenant, Landlord shall have access to the Premises for the purpose of showing
the premises to prospective Tenants and/or Purchasers, and Landlord may place
signs at the Premises advertising for sale or rent.
ARTICLE 22. [INTENTIONALLY DELETED]
ARTICLE 23. Real Estate Broker
Landlord and Tenant each warrant and represent to the other that they dealt
with no real estate brokers or other intermediary, in connection with any aspect
of this transaction or the consummation of this Lease except for Bill Sitar,
whose fees shall be paid by Landlord. Landlord and Tenant each agree to
indemnify and hold the other harmless from all costs, expenses, claims, and
judgments incurred by the other including, but not limited to, attorneys fees
resulting from breach by the other of the foregoing warranty and representation.
ARTICLE 24. Estoppel Certificates
Landlord and Tenant each agree for the convenience of the other that upon
not less than twenty (20) days notice to execute, acknowledge and deliver to the
requesting party a written statement certifying (i) that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the Lease is in full force and effect as modified and specifying the
modifications), (ii) whether or not there are then existing any off-sets or
defenses against the enforcement of any of terms, covenants, or conditions
hereof to be performed by either Landlord or Tenant (and if so, specifying the
same), (iii) the dates to which the rent and additional rent have been paid in
advance, if any, (iv) whether or not Landlord or Tenant, as the case may be, is
in default in performance of any covenant, agreement or condition contained in
this Lease (and, if so, specifying each such default, (v) the amount of rent
currently payable under the Lease, (vi) the Commencement Date and Expiration
Dates of the term of the Lease; and (vii) such other information as Landlord or
Tenant or Landlord's mortgagee may reasonably request with respect to the Lease.
ARTICLE 25. Notices
Any notice, approval, consent or other communication required to be given
in writing under this Lease shall be delivered as follows:
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(a) If to Landlord, to:
105 Sylvania Place, L.L.C.
c/o Silverline Building Products, Inc.
207 Pond Avenue
P.O. Box 3010
Middlesex, NJ 08856
Tel: (908) 752-8600
Fax: (908) 752-5348
With a copy to:
Alan R. Hammer, Esq.
Brach, Eichler, Rosenberg, Silver,
Bernstein, Hammer & Gladstone
101 Eisenhower Parkway
Roseland, NJ 07068-1067
Tel.: (201) 228-5700
Fax: (201) 228-7852
(b) If to Tenant, to:
Community Distributors, Incorporated
251 Industrial Parkway
Somerville, NJ 08876
Tel.: 908/722-8701
Fax.: 908/722-2902
With a copy to:
Jack Goldstein, Esq.
233 Broadway
New York, NY
Tel.: 212/267-0700
Fax.: 212/227-6534
Any such notice, approval, consent or other communication shall be deemed given
(i) when delivered personally, or (ii) two (2) days after deposited in a
regularly maintained postal service receptacle and mailed by certified mail,
return receipt requested, or (iii) when transmitted by telecopier to the
respective number specified above and written confirmation of receipt has been
received. A party may change its notice address or fax numbers by giving notice
as provided herein to the other parties hereto.
ARTICLE 26. Quiet Enjoyment
Landlord covenants that so long as this Lease is in full force and effect
and Tenant is not in default hereunder beyond any applicable cure period, Tenant
shall and may peaceably and quietly
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have, hold, and enjoy the Premises for the term hereby granted without
disturbance by or from Landlord.
ARTICLE 27. Subordination and Attornment
27.1 The Lease shall be subject and subordinate to any ground lease or
mortgage which at any time may be placed on the Premises by Landlord and any
renewal, replacement, extension or consolidation thereof, and the Tenant shall
promptly execute and deliver such further instruments confirming such
subordination of this Lease as may be desired by the holder of any such ground
lease or mortgage, and Tenant hereby appoints Landlord its attorney-in-fact for
the purpose of executing such instruments, provided however, that such ground
lease, mortgage, or subordination agreement shall provide that Tenant shall not
be disturbed in its tenancy under the Lease, as long as Tenant is not in default
thereunder. Neither this Lease nor any memorandum thereof may be recorded by
Tenant and any such recording shall be deemed an Event of Default hereunder.
27.2 Tenant shall attorn to any successor or assignee of Landlord,
including Landlord's Mortgagee or to a purchaser at foreclosure, in the event
the Mortgagee, by foreclosure or otherwise, terminates Landlord's interest in
the Premises.
ARTICLE 28. Miscellaneous
28.1 The construction and enforcement of this Lease shall be governed by
the laws of the State of New Jersey.
28.2 This Lease contains the entire agreement between the parties and
cannot be changed or terminated orally, but only by instrument in writing signed
by the parties hereto.
28.3 Any prior agreement of the parties is superseded by this Lease.
28.4 The agreements, terms, covenants, and conditions herein shall bind and
inure to the benefit of Landlord and Tenant and their respective heirs, personal
representatives, successors, mortgagees and their assigns.
28.5 This Lease shall be construed as an instrument jointly drafted by
parties, having comparable bargaining power, with no presumption in favor of or
against either party.
-15-
<PAGE>
ARTICLE 29. Limitation of Liability
Landlord, and in case Landlord shall be a joint venture, partnership,
tenancy-in-common, association or other form of joint ownership, the members of
any such joint venture, partnership, tenancy-in-common, association or other
such form of joint ownership, shall have absolutely no personal liability with
respect to any provision of this Lease or any obligation or liability arising
from this Lease or in connection with this Lease in the event of a breach or
default by Landlord of any of its obligations. Tenant shall look solely to the
equity of the Landlord in the Premises at the time of the breach or default (or
if the interest of the Landlord is a leasehold interest at that time, Tenant
shall look solely to such leasehold interest) for the satisfaction of any
remedies of Tenant.
ARTICLE 30. Interruption in Utilities
The stoppage or reduction of any utilities or services shall not excuse the
Tenant from paying fixed rent and additional rent and the Landlord shall not be
liable for any loss or expense resulting from such stoppage or reduction.
ARTICLE 31. Environmental Law Compliance
Tenant does hereby covenant for itself, its successors and assigns, that it
shall, at its own cost and expense, do everything necessary so that its use and
occupancy of the Premises complies with every law, statute, rule, ordinance,
regulation, directive, order and notice of any municipal, county, state, federal
or other authority, concerning the protection of the environment. Tenant agrees
to indemnify and hold harmless the Landlord, its successors and assigns from any
and all costs, charges, fines and penalties imposed on the Landlord, its
successors and assigns, by reason of the failure, neglect or refusal of the
Tenant to comply with the foregoing sentence. Tenant shall not be responsible
for any cost, claim or expense arising from a suspected or actual violation of
an Environmental Law, if such violation was not committed by Tenant, its
employees, licensees, agents and invitees, or does not otherwise result from
Tenant's use and occupancy of the Premises.
ARTICLE 32. No Option
The submission of this Lease for execution does not constitute a
reservation, offer or option for the Premises and this Lease becomes effective
as a Lease only upon execution and delivery thereof by Landlord and Tenant.
-16-
<PAGE>
ARTICLE 34. Authority to Enter This Lease
Landlord warrants and represents to the Tenant that it is the fee owner of
the Premises. Landlord and Tenant warrant and represent to each other that each
has the authority to enter into this Lease. Upon the execution of this Lease,
Landlord and Tenant shall deliver to the other a true copy of an resolution or
authorization, of the Tenant and Landlord, certified by a duly authorized
officer or representative of Tenant and Landlord, authorizing execution,
delivery and performance of this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease of the day
and year first above written.
ATTEST: COMMUNITY DISTRIBUTORS, INCORPORATED
Tenant
/s/ William Gilligan By: /s/ Frank Marfino
- ------------------------------ -----------------------------
WITNESS: 105 SYLVANIA PLACE, L.L.C.
Landlord
/s/ Frank J. Agolio By: /s/ ILLEGIBLE
- ------------------------------ -----------------------------
-17-
<PAGE>
EXHIBIT A
DESCRIPTION
<PAGE>
[FLOORPLAN]
This Lease Agreement, made the 5th day of May 1983,
Between JAM REALTY COMPANY, a partnership consisting of Jules J. Siegel,
Arlene Siegel and Martin D. Daffner,
Landlord
located at 251 Industrial Parkway in the Township of Branchburg in the County of
Somerset and State of New Jersey, herein designated as the Landlord,
And COMMUNITY DISTRIBUTORS, INC., a New Jersey corporation,
Tenant
located at 251 Industrial Parkway in the Township of Branchburg in the County of
Somerset and the State of New Jersey, herein designated as the Tenant;
Witnesseth that, the Landlord does hereby lease to the Tenant and the
Tenant does hereby rent from the Landlord, the following premises:
Premises
All of the buildings, improvements and realty commonly known as 251 Industrial
Parkway, Branchburg Township (Somerville), New Jersey (a/k/a Block 17, Lot 1-A
on the Branchburg Township Tax Map), and more particularly described or shown on
"Schedule A" annexed hereto.
Term
for a term of fifteen (15) years commencing and terminating on the dates set
forth in the annexed Rider,
Use
to be used and occupied only and for no other purpose than as a distribution
center, warehouse and administrative offices for retail drug and variety stores,
and as offices for affiliated and related companies.
Upon the following Conditions and Covenants:
Payment of Rent
1st: The Tenant covenants and agrees to pay to the Landlord, as rent for
and during the term hereof, the sum of $3,032,100.00 (Three Million Thirty-Two
Thousand One Hundred and No/100 Dollars) in the following manner: Said rental is
payable in equal monthly installments of $16,845.00 (Sixteen Thousand Eight
Hundred Forty-Five and No/100 Dollars) on or before the first day of each month
during the term of the lease.
Repairs and Care
2nd: The Tenant has examined the premises and has entered into this lease
without any representation on the part of the Landlord as to the condition
thereof. The Tenant shall take good care of the premises and shall at the
Tenant's own cost and expense, make all repairs, including painting and
decorating, and shall maintain the premises in good condition and state of
repair, and at the end or other expiration of the term hereof, shall deliver up
the rented premises in good order and condition, wear and tear from a reasonable
use thereof, and damage by the elements not resulting from the neglect or fault
of the Tenant, excepted. The Tenant shall neither encumber nor obstruct the
sidewalks, driveways, yards, entrances, hallways and stairs, but shall keep and
maintain the same in a clean condition, free from debris, trash, refuse, snow
and ice.
Glass, Etc.
Damage Repairs
3rd: In case of the destruction of or any damage to the glass in the leased
premises, or the destruction of or damage of any kind whatsoever to the said
premises, caused by the carelessness, negligence or improper conduct on the part
of the Tenant or the Tenant's agents, employees, guests, licensees, invitees,
subtenants, assignees or successors, the Tenant shall repair the said damage or
replace or restore any destroyed parts of the premises, as speedily as possible,
at the Tenant's own cost and expense.
Alterations
Improvements
4th: No alterations, additions or improvements shall be made, and no
climate regulating, air conditioning, cooling, heating or sprinkler systems,
television or radio antennas, heavy equipment, apparatus and fixtures, shall be
installed in or attached to the leased premises, without the written consent of
the Landlord. Unless otherwise provided herein, all such alterations, additions
or improvements and systems, when made, installed in or attached to the said
premises, shall belong to and become the property of the Landlord and shall be
surrendered with the premises and as part thereof upon the expiration or sooner
termination of this lease, without hindrance, molestation or injury.
Signs
5th: The Tenant shall not place nor allow to be placed any signs of any
kind whatsoever, upon, in or about the said premises or any part thereof, except
of a design and structure and in or at such places as may be indicated and
consented to by the Landlord in writing. In case the Landlord or the Landlord's
agents, employees or representatives shall deem it necessary to remove any such
signs in order to paint or make any repairs, alterations or improvements in or
upon said premises or any part thereof, they may be so removed, but shall be
replaced at the Landlord's expense when the said repairs, alterations or
improvements shall have been completed. Any signs permitted by the Landlord
shall at all times conform with all municipal ordinances or other laws and
regulations applicable thereto.
Utilities
6th: The Tenant shall pay when due all the rents or charges for water or
other utilities used by the Tenant, which are or may be assessed or imposed upon
the leased premises or which are or may be charged to the Landlord by the
suppliers thereof during the term hereof, and if not paid, such rents or charges
shall be added to and become payable as additional rent with the installment of
rent next due or within 30 days of demand therefor, whichever occurs sooner.
Compliance with Laws etc.
7th: The Tenant shall promptly comply with all laws, ordinances, rules,
regulations, requirements and directives of the Federal, State and Municipal
Governments or Public Authorities and of all their departments, bureaus and
subdivisions, applicable to and affecting the said premises, their use and
occupancy, for the correction, prevention and abatement of nuisances, violations
or other grievances in, upon or connected with the said premises, during the
term hereof; and shall promptly comply with all orders, regulations,
requirements and directives of the Board of Fire Underwriters or similar
authority and of any insurance companies which have issued or are about to issue
policies of insurance covering the said premises and its contents, for the
prevention of fire or other casualty, damage or injury, at the Tenant's own cost
and expense.
Liability Insurance
Indemnification
8th: The Tenant, at Tenant's own cost and expense, shall obtain or provide
and keep in full force for the benefit of the Landlord, during the term hereof,
general public liability insurance, insuring the Landlord against any and all
liability or claims of liability arising out of, occasioned by or resulting from
any accident or otherwise in or about the leased premises, for injuries to any
person or persons, for limits of not less than $5,000,000.00 for injuries to one
person and $25,000,000.00 for injuries to more than one person, in any one
accident or occurrence, and for loss or damage to the property of any person or
persons, for not less than $500,000.00. The policy or policies of insurance
shall be of a company or companies authorized to do business in this State and
shall be delivered to the Landlord, together with evidence of the payment of the
premiums therefor, not less than fifteen days prior to the commencement of the
term hereof or of the date when the Tenant shall enter into possession,
whichever occurs sooner. At least fifteen days prior to the expiration or
termination date of any policy, the Tenant shall deliver a renewal or
replacement policy with proof of the payment of the premium therefor. The Tenant
also agrees to and shall save, hold and keep harmless and indemnify the Landlord
from and for any and all payments, expenses, costs, attorney fees and from and
for any and all claims and liability for losses or damage to property or
injuries to persons occasioned wholly or in part by or resulting from any acts
or omissions by the Tenant or the Tenant's agents, employee's, guests,
licensees, invitees, subtenants, assignees or successors, or for any cause
[ILLEGIBLE]
<PAGE>
Assignment
9th: The Tenant shall not, without the written consent of the Landlord,
assign, mortgage or hypothecate this lease, Assignment nor sublet or sublease
the premises or any part thereof.
Restriction of use
10th: The Tenant shall not occupy or use the leased premises or any part
thereof, nor permit or suffer the same to be occupied or used for any purposes
other than as herein limited, nor for any purpose deemed unlawful, disreputable,
or extra hazardous, on account of fire or other casualty.
Mortgage Priority
11th: This lease shall not be a lien against the said premises in respect
to any mortgages that may hereafter be placed upon said premises. The recording
of such mortgage or mortgages shall have preference and precedence and be
superior and prior in lien to this lease, irrespective of the date of recording
and the Tenant agrees to execute any instruments, without cost, which may be
deemed necessary or desirable, to further effect the subordination of this lease
to any such mortgage or mortgages. A refusal by the Tenant to execute such
instruments shall entitle the Landlord to the option of cancelling this lease,
and the term hereof is hereby expressly limited accordingly.
Condemnation
Eminent Domain
12th: If the land and premises leased herein, or of which the leased
premises are a part, or any portion thereof, shall be taken under eminent domain
or condemnation proceedings, or if suit or other action shall be instituted for
the taking or condemnation thereof, or if in lieu of any formal condemnation
proceedings or actions, the Landlord shall grant an option to purchase and or
shall sell and convey the said premises or any portion thereof, to the
governmental or other public authority, agency, body or public utility, seeking
to take said land and premises or any portion thereof, then this lease, at the
option of the Landlord, shall terminate, and the term hereof shall end as of
such date as the Landlord shall fix by notice in writing; and the Tenant shall
have no claim or right to claim or be entitled to any portion of any amount
which may be awarded as damages or paid as the result of such condemnation
proceedings or paid as the purchase price for such option, sale or conveyance in
lieu of formal condemnation proceedings; and all rights of the Tenant to
damages, if any, are hereby assigned to the Landlord. The Tenant agrees to
execute and deliver any instruments, at the expense of the Landlord, as may be
deemed necessary or required to expedite any condemnation proceedings or to
effectuate a proper transfer of title to such governmental or other public
authority, agency, body or public utility seeking to take or acquire the said
lands and premises or any portion thereof. The Tenant covenants and agrees to
vacate the said premises, remove all the Tenant's personal property therefrom
and deliver up peaceable possession thereof to the Landlord or to such other
party designated by the Landlord in the aforementioned notice. Failure by the
Tenant to comply with any provisions in this clause shall subject the Tenant to
such costs, expenses, damages and losses as the Landlord may incur by reason of
the Tenant's breach hereof.
Fire and other Casualty
13th: In case of fire or other casualty, the Tenant shall give immediate
notice to the Landlord. If the premises shall be partially damaged by fire, the
elements or other casualty, the Landlord shall repair the same as speedily as
practicable, but the Tenant's obligation to pay the rent hereunder shall not
cease. If, in the opinion of the Landlord, the premises be so extensively and
substantially damaged as to render them untenantable, then the rent shall cease
until such time as the premises shall be made tenantable by the Landlord.
However, if, in the opinion of the Landlord, the premises be totally destroyed
or so extensively and substantially damaged as to require practically a
rebuilding thereof, then the rent shall be paid up to the time of such
destruction and then and from thenceforth this lease shall come to an end. In no
event however, shall the provisions of this clause become effective or be
applicable, if the fire or other casualty and damage shall be the result of the
carelessness, negligence or improper conduct of the Tenant or the Tenant's
agents, employees, guests, licensees, invitees, subtenants, assignees or
successors. In such case, the Tenant's liability for the payment of the rent and
the performance of all the covenants, conditions and terms hereof on the
Tenant's part to be performed shall continue and the Tenant shall be liable to
the Landlord for the damage and loss suffered by the Landlord. If the Tenant
shall have been insured against any of the risks herein covered, then the
proceeds of such insurance shall be paid over to the Landlord to the extent of
the Landlord's costs and expenses to make the repairs hereunder, and such
insurance carriers shall have no recourse against the Landlord for
reimbursement.
Reimbursement of Landlord
14th: If the Tenant shall fail or refuse to comply with and perform any
conditions and covenants of the within lease, the Landlord may, if the Landlord
so elects, carry out and perform such conditions and covenants, at the cost and
expense of the Tenant, and the said cost and expense shall be payable on demand,
or at the option of the Landlord shall be added to the installment of rent due
immediately thereafter but in no case later than one month after such demand,
whichever occurs sooner, and shall be due and payable as such. This remedy shall
be in addition to such other remedies as the Landlord may have hereunder by
reason of the breach by the Tenant of any of the covenants and conditions in
this lease contained.
Inspection and Repair
15th: The Tenant agrees that the Landlord and the Landlord's agents,
employees or other representatives, shall have the right to enter into and upon
the said premises or any part thereof, at all reasonable hours, for the purpose
of examining the same or making such repairs or alterations therein as may be
necessary for the safety and preservation thereof. This clause shall not be
deemed to be a covenant by the Landlord nor be construed to create an obligation
on the part of the Landlord to make such inspection or repairs.
Right to Exhibit
16th: The Tenant agrees to permit the Landlord and the Landlord's agents,
employees or other representatives to show the premises to persons wishing to
rent or purchase the same, and Tenant agrees that on and after one (1) year next
preceding the expiration of the term hereof, the Landlord or the Landlord's
agents, employees or other representatives shall have the right to place notices
on the front of said premises or any part thereof, offering the premises for
rent or for sale; and the Tenant hereby agrees to permit the same to remain
thereon without hindrance or molestation.
Increase of Insurance Rates
17th: If for any reason it shall be impossible to obtain fire and other
hazard insurance on the buildings and improvements on the leased premises, in an
amount and in the form and in insurance companies acceptable to the Landlord,
the Landlord may, if the Landlord so elects at any time thereafter, terminate
this lease and the term hereof, upon giving to the Tenant fifteen days notice in
writing of the Landlord's intention so to do, and upon the giving of such
notice, this lease and the term thereof shall terminate. If by reason of the use
to which the premises are put by the Tenant or character of or the manner in
which the Tenant's business is carried on, the insurance rates for fire and
other hazards shall be increased, the Tenant shall upon demand, pay to the
Landlord, as rent, the amounts by which the premiums for such insurance are
increased. Such payment shall be paid with the next installment of rent but in
no case later than one month after such demand, whichever occurs sooner.
Removal of Tenant's Property
18th: Any equipment, fixtures, goods or other property of the Tenant, not
removed by the Tenant upon the termination of this lease, or upon any quitting,
vacating or abandonment of the premises by the Tenant, or upon the Tenant's
eviction, shall be considered as abandoned and the Landlord shall have the
right, without any notice to the Tenant, to sell or otherwise dispose of the
same, at the expense of the Tenant, and shall not be accountable to the Tenant
for any part of the proceeds of such sale, if any.
Remedies upon Tenant's Default
19th: If there should occur any default on the part of the Tenant in the
performance of any conditions and covenants herein contained, or if during the
term hereof the premises or any part thereof shall be or become abandoned or
deserted, vacated or vacant, or should the Tenant be evicted by summary
proceedings or otherwise, the Landlord, in addition to any other remedies herein
contained or as may be permitted by law, may either by force or otherwise,
without being liable for prosecution therefor, or for damages, re-enter the said
premises and the same have and again possess and enjoy; and as agent for the
Tenant or otherwise, re-let the premises and receive the rents therefor and
apply the same, first to the payment of such expenses, reasonable attorney fees
and costs, as the Landlord may have been put to in re-entering and repossessing
the same and in making such repairs and alterations as may be necessary; and
second to the payment of the rents due hereunder. The Tenant shall remain liable
for such rents as may be in arrears and also the rents as may accrue subsequent
to the re-entry by the Landlord, to the extent of the difference between the
rents reserved hereunder and the rents, if any, received by the Landlord during
the remainder of the unexpired term hereof, after deducting the aforementioned
expenses, fees and costs; the same to be paid as such deficiencies arise and are
ascertained each month.
Termination on Default
20th: Upon the occurrence of any of the contingencies set forth in the
preceding clause, or should the Tenant be adjudicated a bankrupt, insolvent or
placed in receivership, or should proceedings be instituted by or against the
Tenant for bankruptcy, insolvency, receivership, agreement of composition or
assignment for the benefit of creditors, or if this lease or the estate of the
Tenant hereunder shall pass to another by virtue of any court proceedings, writ
of execution, levy, sale, or by operation of law, the Landlord may, if the
Landlord so elects, at any time thereafter, terminate this lease and the term
hereof, upon giving to the Tenant or to any trustee, receiver, assignee or other
person in charge of or acting as custodian of the assets or property of the
Tenant, five days notice in writing, of the Landlord's intention so to do. Upon
the giving of such notice, this lease and the term hereof shall end on the date
fixed in such notice as if the said date was the date originally fixed in this
lease for the expiration hereof; and the Landlord shall have the right to remove
all persons, goods, fixtures and chattels therefrom, by force or otherwise,
without liability for damages.
Non-Liability of Landlord
21st: The Landlord shall not be liable for any damage or injury which may
be sustained by the Tenant or any other person, as a consequence of the failure,
breakage, leakage or obstruction of the water, plumbing, steam, sewer, waste or
soil pipes, roof, drains, leaders, gutters, valleys, downspouts or the like or
of the electrical, gas, power, conveyor, refrigeration, sprinkler,
airconditioning or heating systems, elevators or hoisting equipment; or by
reason of the elements; or resulting from the carelessness, negligence or
improper conduct on the part of any other Tenant or of the Landlord or the
Landlord's or this or any other Tenant's agents, employees, guests, licensees,
invitees, subtenants, assignees or successors; or attributable to any
interference with, interruption of or failure, beyond the control of the
landlord, of any services to be furnished or supplied by the Landlord.
Non-Waiver by Landlord
22nd: The various rights, remedies, options and elections of the Landlord,
expressed herein, are cumulative, and the failure of the Landlord to enforce
strict performance by the Tenant of the conditions and covenants of this lease
or to exercise any election or option or to resort or have recourse to any
remedy herein conferred or the acceptance by the Landlord of any installment of
rent after any breach by the Tenant, in any one or more instances, shall not be
construed or deemed to be a waiver or a relinquishment for the future by the
Landlord of any such conditions and covenants, options, elections or remedies,
but the same shall continue in full force and effect.
<PAGE>
Non-Performance by Landlord
23rd: This lease and the obligation of the Tenant to pay the rent hereunder
and to comply with the covenants and conditions hereof, shall not be affected,
curtailed, impaired or excused because of the Landlord's inability to supply any
service or material called for herein, by reason of any rule, order, regulation
or preemption by any governmental entity, authority, department, agency or
subdivision or for any delay which may arise by reason of negotiations for the
adjustment of any fire or other casualty loss or because of strikes or other
labor trouble or for any cause beyond the control of the Landlord.
Validity of Lease
24th: The terms, conditions, covenants and provisions of this lease shall
be deemed to be severable. If any clause or provision herein contained shall be
adjudged to be invalid or unenforceable by a court of competent jurisdiction or
by operation of any applicable law, it shall not affect the validity of any
other clause or provision herein, but such other clauses or provisions shall
remain in full force and effect.
Notices
25th: All notices required under the terms of this lease shall be given and
shall be complete by personal delivery or by mailing such notices by certified
or registered mail, return receipt requested, to the address of the parties as
shown at the head of this lease, or to such other address as may be designated
in writing, which notice of change of address shall be given in the same manner.
Title and Quiet Enjoyment
26th: The Landlord covenants and represents that the Landlord is the owner
of the premises herein leased and has the right and authority to enter into,
execute and deliver this lease; and does further covenant that the Tenant on
paying the rent and performing the conditions and covenants herein contained,
shall and may peaceably and quietly have, hold and enjoy the leased premises for
the term aforementioned.
Entire Contract
27th: This lease contains the entire contract between the parties. No
representative, agent or employee of the Landlord has been authorized to make
any representations or promises with reference to the within letting or to vary,
alter or modify the terms hereof. No additions, changes or modifications,
renewals or extensions hereof, shall be binding unless reduced to writing and
signed by the Landlord and the Tenant.
Recapture upon Sale
28th: If the premises leased hereunder or of which the leased premises are
a part, shall be sold during the term hereof, then if the Landlord so elects the
Tenant agrees to vacate the premises, remove all the Tenant's property and
deliver up peaceable possession thereof to the Landlord, within thirty (30) days
of written demand therefor, and the term hereof and this lease shall terminate
upon the date fixed in said demand.
Tax Increase
[This Clause "29th" stricken from Agreement]
Mechanics' Liens
30th: If any mechanics' or other liens shall be created or filed against
the leased premises by reason of labor performed or materials furnished for the
Tenant in the erection, construction, completion, alteration, repair or addition
to any building or improvement, the Tenant shall within ten (l0) days
thereafter, at the Tenant's own cost and expense, cause such lien or liens to be
satisfied and discharged of record together with any Notices of Intention that
may have been filed. Failure so to do, shall entitle the Landlord to resort to
such remedies as are provided herein in the case of any default of this lease,
in addition to such as are permitted by law.
Waiver of Subrogation Rights
31st: The Tenant waives all rights of recovery against the Landlord or
Landlord's agents, employees or other representatives, for any loss, damages or
injury of any nature whatsoever to property or persons for which the Tenant is
insured. The Tenant shall obtain from the Tenant's insurance carriers and will
deliver to the Landlord, waivers of the subrogation rights under the respective
policies.
Security
[This Clause "32nd" stricken from Agreement]
SEE RIDER ANNEXED HERETO AND INCORPORATED HEREIN.
Conformation with Laws and Regulations
The Landlord may pursue the relief or remedy sought in any invalid clause,
by conforming the said clause with the provisions of the statutes or the
regulations of any governmental agency in such case made and provided as if the
particular provisions of the applicable statutes or regulations were set forth
herein at length.
In all references herein to any parties, persons, entities or corporations
the use of any particular gender or the plural or singular number is intended to
include the appropriate gender or number as the text of the within instrument
may require. All the terms, covenants and conditions herein contained shall be
for and shall inure to the benefit of and shall bind the respective parties
hereto, and their heirs, executors, administrators, personal or legal
representatives, successors and assigns.
In Witness Whereof, the parties hereto have hereunto set their hands and
seals, or caused these presents to be signed by their proper corporate officers
and their proper corporate seal to be hereto affixed, the day and year first
above written.
Signed, Sealed and Delivered JAM REALTY COMPANY
in the presence of by: /s/ Arlene L. Siegel
or Attested by ---------------------------------
ARLENE SIEGEL, Partner (Landlord)
/s/ Beulah P. Burke
- -------------------------------
COMMUNITY DISTRIBUTORS, INC.
Witness as to Landlord
ATTEST:
/s/ Jules J. Siegel
/s/ Martin G. Daffner -------------------------------------
- ------------------------------- JULES J. SIEGEL President
MARTIN G. DAFFNER, Secretary (Tenant)
<PAGE>
State of New Jersey, County of ss.: Be it Remembered,
that on 19 , before me, subscriber,
personally appeared
who, I am satisfied, the person named in and who executed the within
Instrument,and thereupon acknowledged that signed, sealed and delivered the same
as act and deed, for the uses and purposes therein expressed.
------------------------------------------------------------
State of New Jersey, County of ss.: Be it Remembered,
that on 19 , before me, subscriber,
personally appeared
who, being by me duly sworn on h oath, deposes and makes proof to my
satisfaction, that he is the Secretary of
the Corporation named in the within Instrument;
that is the President of said Corporation; that the execution, as well as the
making of this Instrument, has been duly authorized by a proper resolution of
the Board of Directors of the said Corporation; that deponent well knows the
corporate seal of said Corporation; and that the seal affixed to said Instrument
is the proper corporate seal and was thereto affixed and said Instrument signed
and delivered by said President as and for the voluntary act and deed of said
Corporation, in presence of deponent, who thereupon subscribed h name thereto as
attesting witness.
Sworn to and subscribed before me, the date aforesaid.
================================================================================
Lease.
JAM REALTY COMPANY, a partnership
consisting of Jules J. Siegel,
Arlene Siegel
and Martin G. Daffner
TO
COMMUNITY DISTRIBUTOR, INC.,
a New Jersey Corporation
================================================================================
Dated, May 5, 1983
================================================================================
Term: Fifteen (15) years
Expires: As set forth in Lease and Rider
Rent, $16,845 per month
Prepared by:
BERNSTEIN, HOFFMAN & CLARK, ESQS.
336 Park Avenue
Scotch Plains, New Jersey 07076
ASSIGNMENT OF LEASE
For one dollar and other good and valuable consideration, the Tenant as
Assignor, assigns this Lease and all the Assignor's rights and privileges
therein, including any and all monies deposited with the Landlord as security,
subject to all the terms, covenants and conditions contained therein; and the
Assignee accepts this Assignment of Lease and assumes and agrees to comply with
and be bound by the terms, covenants and conditions in said Lease contained. The
signature of the Landlord hereto is evidence of the Landlord's consent to and
acceptance of this Assignment of Lease.
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Assignee Assignor
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Landlord
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RIDER ANNEXED TO AND INCORPORATED WITHIN
LEASE AGREEMENT DATED May 5, 1983 BETWEEN
JAM REALTY COMPANY, LANDLORD, AND
COMMUNITY DISTRIBUTORS, INC., TENANT.
The Landlord and the Tenant in the annexed Lease Agreement do further
agree, on this 5th day of May, 1983, by and between themselves, as follows:
1. The Lease Agreement shall commence as of the date that Landlord acquires
title to the demised premises referred to in said Lease Agreement; and,
providing that same is the first day of a month, the term of the Lease Agreement
shall run for a period of fifteen (15) years from the commencement date. In the
event that the commencement date is a date other than the first day of a month,
the term of the Lease Agreement shall run for a period consisting of (a) the
balance of the month in which the commencement date occurs, plus (b) a period of
fifteen (15) years beginning as of the first day of the following month. If the
provisions of the immediately preceding sentence shall apply, then the Landlord
and the Tenant shall pro-rate the first fractional month's rental based upon the
number of days in that month. The parties agree to confirm in writing the exact
commencement and termination dates of the Lease Agreement as soon as same are
known.
2. In addition to its insurance obligations set forth in the Lease
Agreement, the Tenant, at its sole cost and expense, shall keep the demised
premises insured for the mutual benefit of Landlord, any mortgagee requested by
Landlord and Tenant during the term of this Lease Agreement, for the following:
(a) Against loss or damage by fire and against loss or damage by other
risks now or hereafter embraced by "Extended Coverage", so-called, with
replacement cost (depreciation) endorsement, in amounts sufficient to prevent
Landlord or Tenant from becoming a co-insurer under the terms of the applicable
policies, but in any event in an amount not less than the then "full replacement
cost" without any deduction for physical depreciation of the Improvements. Such
"full replacement cost" shall be determined at Tenant's sole cost and expense
from time to time (but not more frequently than once in any twenty-four (24)
calendar months) at the request of Landlord, by an appraiser, engineer,
architect or contractor designated by Tenant and approved in writing by Landlord
(such approval not to be unreasonably withheld). No omission on the part of
Landlord to request any such determination shall relieve Tenant of any of its
obligations under this paragraph; and
(b) Against such other risks, and for such amounts and on such terms, as
the Landlord may reasonably designate from time to time.
The policy or policies of insurance for the foregoing shall be of a company
or companies authorized to do business in this State and shall be delivered to
the Landlord, together with evidence of the payment of the premiums therefor,
not less than fifteen days prior to the commencement of the term hereof or of
the date when the Tenant shall enter into possession, whichever occurs sooner.
At least fifteen days prior to the expiration or termination date of any policy,
the Tenant shall deliver a renewal or replacement policy with proof of the
payment of the premium therefor.
3. The Tenant shall pay fully, and on or before the dates when same are
due, directly to the governmental authority or authorities or agency or agencies
involved, all real estate taxes, duties, assessments (special or otherwise),
water and sewer rents, whether ordinary or extraordinary, general or special,
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foreseen or unforeseen, of any kind and nature whatsoever, which at any time
during the term of this Lease Agreement shall be assessed, levied, confirmed,
imposed upon or grow out of, or become due and payable in respect of, or become
a lien on or be attributable in any manner to the demised premises, or the rents
receivable therefrom, or any part thereof or any use thereon or any facility
located therein or used in connection therewith or any charge or other payment
required to be paid to any governmental authority, whether or not any of the
foregoing shall be a so-called "real estate tax" (all of which are hereinafter
referred to as "Impositions"). All Impositions or installments thereof payable
with respect to the tax year in which this Lease Agreement shall commence, and
all Impositions or installments thereof with respect to the tax year in which
this Lease Agreement shall terminate, shall be apportioned, except any
Imposition which becomes a lien during the term, which Landlord shall elect to
pay in installments as may be provided by law, shall, to the extent otherwise
payable pursuant to this Lease, be paid in full prior to the expiration of the
Term of this Lease as if the Landlord had not elected to pay the same in
installments. The Tenant shall, promptly following its payment of all of the
foregoing Impositions, furnish the Landlord with proof of payment of same.
4. It is the intention of the Landlord and the Tenant that the rent herein
specified shall be net to the Landlord in each year during the term of this
Lease Agreement, that all costs, expenses and obligations of every kind relating
to the demised premises which may arise or become due during the term of this
Lease Agreement, shall be paid by the Tenant, and that the Landlord shall be
indemnified by the Tenant against all such costs, expenses and obligations. The
net rent shall be paid to the Landlord without notice or demand and without any
abatement, deduction, or setoff.
5. This Lease Agreement shall be interpreted and construed in accordance
with the laws of the State of New Jersey.
6. In the event of any inconsistencies between the provisions of this Lease
Agreement and the provisions of this Rider, the provisions of the Rider shall
govern.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seals, or caused these presents to be signed by their proper corporate officers
and their proper corporate seal to be hereto affixed, the day and year first
above written.
Signed, Sealed and Delivered JAM REALTY COMPANY
in the presence of or
attested by By: /s/ Arlene L. Siegel
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Arlene Siegel, Partner (Landlord)
/s/ Beulah P. Burke
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Witness as to Landlord COMMUNITY DISTRIBUTORS, INC.
Attest: By: /s/ Jules J. Siegel
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Jules J. Siegel, President (Tenant)
/s/ Martin G. Daffner
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Martin G. Daffner, Secretary
EMPLOYMENT AND NON-COMPETITION AGREEMENT
Frank Marfino
This EMPLOYMENT AND NON-COMPETITION AGREEMENT (this "Agreement"), dated
as of January 30, 1995, is between Newrxco, Inc., a Delaware corporation (the
"Employer"), and Frank Marfino (the "Employee").
WHEREAS, the Employer intends to purchase all of the stock (the
"Stock") of Community Distributors, Inc., a Delaware corporation (the
"Company"), pursuant to a Stock Purchase Agreement, dated as of August 26, 1994
(the "Stock Purchase Agreement"), among the Employer, Jules Siegel, Arlene
Siegel and Martin Daffner;
WHEREAS, the Employee is currently employed as an executive officer of
the Company and the Employer desires that the Employee continue to work as an
executive officer of the Company;
WHEREAS, immediately after the purchase of the Stock, the Employer will
merge with and into the Company with the Company as the surviving corporation,
and after such merger the term "Employer" shall be deemed to mean and refer to
the Company; and
WHEREAS, in connection with the foregoing, the Employer wishes to
employ the Employee as an executive officer of the Employer, and the Employee
wishes to work as an executive officer of the Employer, on the terms set forth
below.
NOW, THEREFORE, it is hereby agreed as follows:
ss.1. EMPLOYMENT. The Employer hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and subject to the conditions
hereinafter set forth.
ss.2. DUTIES. The Employee shall be employed as the President and Chief
Executive Officer of the Employer. In such capacity, the Employee shall have
such executive responsibilities and duties as are assigned by the Employer's
Board of Directors (the "Board") and are consistent with the position of
President and Chief Executive Officer of the Employer. The Employee agrees to
devote his full time and best efforts to the performance of his duties to the
Employer.
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ss.3. TERM. The initial term of employment of the Employee hereunder
shall commence on the closing date of the acquisition under the Stock Purchase
Agreement (the "Commencement Date") and shall continue until the fifth
anniversary of the Commencement Date (the "Initial Term"), unless earlier
terminated pursuant to ss.6, and shall be renewed automatically for additional
one (1) year terms thereafter unless terminated by either party by written
notice to the other given at least ninety (90) days prior to the expiration of
the then current term.
ss.4. COMPENSATION AND BENEFITS. Until the termination of the
Employee's employment hereunder, in consideration for the services of the
Employee hereunder, the Employer shall compensate the Employee as follows:
(a) Base Salary. The Employer shall pay the Employee, in accordance
with the Employer's then current payroll practices, a base salary (the "Base
Salary"). The Base Salary will be paid at an annual rate of $400,000, and shall
be increased annually during the term of the Employee's employment hereunder by
the percentage increase in the consumer price index for urban wage earners for
the New York and Northeastern New Jersey area for the preceding four (4)
calendar quarters for which information has been published by the U.S.
Department of Labor over the consumer price index for the comparable prior four
(4) calendar quarters.
(b) Minimum Bonus. The Employee shall be eligible to receive from the
Employer, for each of the fiscal years of the Employer ended after the date
hereof, a minimum bonus (the "Minimum Bonus") equal to $50,000; provided, that
the Minimum Bonus payable for the fiscal year of the Employer ended July 31,
1995 shall be prorated based on the number of days elapsed from the Commencement
Date until the end of such fiscal year. The Minimum Bonus for each fiscal year
shall be paid within 30 days after the completion of the Employer's audited
financial statements for such fiscal year; provided, that the Minimum Bonus
shall not be payable for any fiscal year of the Employer ending after July 31,
1996 if Actual EBITA (as defined in Section 4(c)) for each of the previous two
consecutive fiscal years of the Employer was less than 90% of Budgeted EBITA (as
defined in Section 4(c)) for such fiscal year (it being understood that if the
Minimum Bonus is not paid for any such fiscal year as a result thereof, and
subsequent thereto Actual EBITA of the Employer exceeds 90% of Budgeted EBITA
for such fiscal year, the Minimum Bonus shall be payable for such succeeding
fiscal year).
(c) Management Incentive Bonus. The Employee shall also be eligible to
receive from the Employer, for each of the fiscal years of the
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Employer ended after the date hereof, a management incentive bonus (the
"Incentive Bonus") equal to the amount, if any, by which the Annual Bonus
Calculation (as defined below) for such fiscal year exceeds the Minimum Bonus
for such fiscal year; provided, that the Incentive Bonus payable for the fiscal
year of the Employer ended July 31, 1995 shall be prorated based on the number
of days elapsed from the Commencement Date until the end of such fiscal year.
The Incentive Bonus for each fiscal year shall be paid within thirty (30) days
after the completion of the Employer's audited financial statements for such
fiscal year. As used in this Agreement, (a) "Actual EBITA" means, with respect
to any fiscal year of the Employer, EBITA for such fiscal year calculated on the
basis of the Employer's audited financial statements for such fiscal year; (b)
"Actual EBITA Percentage" means the percentage obtained by multiplying (i) the
quotient of Actual EBITA divided by Budgeted EBITA by (ii) 100; (c) "Annual
Bonus Calculation" means, (i) with respect to each fiscal year of the Employer
in which the Actual EBITA Percentage for such fiscal year exceeds 90% but does
not exceed 100%, an amount equal to the product of (A) 50% of the Employee's
Base Salary for such fiscal year multiplied by (B) a fraction, the numerator of
which is the amount by which the Actual EBITA Percentage for such fiscal year
exceeds 90% and the denominator of which is 10%, and (ii) with respect to each
fiscal of the Employer in which the Actual EBITA Percentage for such fiscal year
exceeds 100%, an amount equal to the sum of (A) 50% of the Employee's Base
Salary for such fiscal year plus (B) 2% of the amount by which Actual EBITA for
such fiscal year exceeds Budgeted EBITA for such fiscal year; (d) "Budgeted
EBITA" means, with respect to any fiscal year of the Employer, the EBITA
projected in the Employer's business plan for such fiscal year as approved by
the Board; and (e) "EBITA" means, with respect to any fiscal year, the sum of
the consolidated net income (or loss) of the Employer for such fiscal year,
calculated in accordance with generally accepted accounting principles
consistently applied but excluding therefrom any extraordinary items of income
or loss, plus all amounts deducted in the computation thereof on account of (i)
income taxes, (ii) interest expense, (iii) amortization, (iv) the amount of the
Minimum Bonus and any Incentive Bonus paid to the Employee hereunder and (v)
management fees paid to any shareholder of CDI Group, Inc. or any affiliates of
such shareholders during such year.
(d) Vacation. The Employee shall be entitled to three (3) weeks
vacation each calendar year. Any vacation shall be taken at the reasonable and
mutual convenience of the Employer and the Employee. Accrued vacation not taken
in any calendar year will not be carried forward or used in any subsequent
calendar year.
(e) Insurance; Other Benefits. Accident, disability, life and health
insurance for the Employee shall be provided by the Employer under
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group accident, life and health insurance plans maintained by the Employer for
its full-time, salaried employees as such employment benefits may be modified
from time to time by the Board for all full-time, salaried employees. In
addition, the Employer shall either continue the Employee's current individual
disability policy or arrange for coverage under an alternative disability
insurance policy which is no less favorable. The amount and extent of such
coverage shall be subject to the discretion of the Board, provided, that the
amount and extent of such coverage shall be no less favorable than such coverage
provided by the Employer to the Employee immediately prior to the date hereof.
(f) Car Allowance. In connection with the Employee's employment, the
Employee shall from time to time be required to travel by automobile on the
Employer's business. Accordingly, the Employer will lease for the Employee every
three years a new Lexus 400S or other suitable automobile which is substantially
equivalent in value thereto and will pay all maintenance and insurance costs
with respect thereto until the termination of the Employee's employment with the
Employer.
(g) Stock Options. The Employee shall be entitled to purchase
additional shares of the common stock of the Employer's parent subject to the
terms and conditions set forth in the Incentive Stock Option Agreement attached
hereto as Exhibit A and the Disposition Event Stock Option Agreement attached
hereto as Exhibit B.
ss.5. EXPENSES. The Employee shall be entitled to incur, and receive
reimbursement from the Employer of, discretionary expenses in an amount up to
$20,000 per annum in connection with the performance by the Employee of his
duties hereunder. The Employee shall comply with such reporting requirements
with respect to expenses as the Employer may establish from time to time. In
addition to the foregoing, the Employer shall pay or reimburse the Employee for
all other reasonable out-of-pocket expenses incurred by the Employee in the
performance of his duties hereunder, including without limitation, the
attendance by the Employee and his spouse of one trade conference each year
which is related to the industry of the Employer.
ss.6. TERMINATION. The Employee's employment hereunder shall commence
on the Commencement Date and continue until the expiration of the Initial Term,
and any extension of such term pursuant to ss.3, except that the employment of
the Employee hereunder shall earlier terminate:
(a) Death or Disability. Upon the death of the Employee during the term
of his employment hereunder or, at the option of the Employer, in the event of
the Employee's disability, upon thirty (30) days' written notice
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from the Employer. The Employee shall be deemed disabled if he meets the
criteria for disability under the Employer's disability insurance policy for 180
days, consecutive or non-consecutive, in any twelve (12) month period. Any
refusal by the Employee to submit to a medical examination for the purpose of
certifying disability under this ss.6(a) shall be deemed to constitute
conclusive evidence of the Employee's disability.
(b) For Cause. For "Cause" immediately upon written notice by the
Employer to the Employee; provided, that the Employer may not terminate the
Employee for Cause unless (i) such termination has been approved by the
affirmative vote or consent of a majority of the directors on the Board
(excluding the Employee) at the time of such termination and (ii) not later than
30 days following the date of such termination, the Employee shall be given the
opportunity to appear before the Board, represented by counsel, to address the
grounds for such termination. For purposes of this Agreement, a termination
shall be for Cause if the Board shall determine that any one or more of the
following has occurred:
(i) the Employee shall have committed an act of fraud,
embezzlement, misappropriation or breach of fiduciary duty against the
Employer, including, but not limited to, the offer, payment,
solicitation or acceptance of any unlawful bribe or kickback with
respect to the Employer's business; or
(ii) the Employee shall have been convicted by a court of
competent jurisdiction of, or pleaded guilty or nolo contendere to, any
felony which the Board determines in its discretion would detrimentally
affect or impair in any way (A) the Employee's ability to perform his
duties hereunder or (B) the reputation or operation of the Employer's
business or (C) the relationship between the Employer and its
suppliers, customers or employees; or
(iii) the Employee shall have committed a breach of any of the
covenants, terms and provisions of ss.9 hereof or material breach of
any of the covenants, terms and provisions of ss.8 hereof; or
(iv) the Employee shall have breached any one or more of the
provisions of this Agreement (excluding ss.ss.8 and 9 hereof) or any
one or more of the provisions of the Stockholder Agreement of even date
herewith among CDI Group, Inc. and its stockholders, and such breach
shall have continued for a period of twenty (20) days after written
notice to the Employee specifying such breach in reasonable detail; or
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(v) the Employee shall have refused, after explicit written
notice, to obey any lawful resolution of or direction by the Board
which is consistent with his duties hereunder.
(c) Resignation or Termination Without Cause. Upon ninety (90) days'
written notice by either the Employee or the Employer to the other party hereto.
For purposes of this Agreement, the Employee shall be deemed to have been
terminated without Cause if the Employee terminates his employment hereunder for
Good Reason upon ninety (90) days' written notice to the Employer. The Employee
shall be entitled to terminate his employment for Good Reason if any of the
following occur:
(i) the Employee is assigned duties which are materially
inconsistent with the position or responsibilities associated with his
position as President and Chief Executive Officer of the Employer; or
(ii) the Employer requires the Employee to perform his duties
hereunder principally at any location outside the State of New Jersey
and he notifies the Employer within 30 days after such relocation that
he is unwilling to continue his employment hereunder at such location.
(d) Rights and Remedies on Termination. (i) If the Employer shall
terminate the Employee's employment hereunder pursuant to ss.6(c) hereof, then
(A) the Employee shall be entitled to receive, as severance pay, payment, in
accordance with the Employer's then current payroll practices, of his Base
Salary in effect at the time of his termination for (1) the remainder of the
Initial Term or (2) if such termination occurs subsequent to the Initial Term,
the remainder of the then current one-year extension thereof; provided, however
that the Employee shall be required to mitigate his damages during such period
by using his best efforts to search for alternative employment of similar status
with an employer of comparable or better financial resources to the Employer and
to accept such employment if offered and the Employer shall be entitled to
reduce the amount payable by the Employer under this ss.6(d)(i) by an amount
equal to the income received by the Employee pursuant to such new employment,
and (B) the Employee shall be entitled to receive, within 30 days following the
completion of the Employer's audited financial statements for the fiscal year
during which such termination occurs, a prorated portion of the Minimum Bonus
and the Incentive Bonus (if any) for the fiscal year in which his termination
occurs
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determined by multiplying (1) the full amount of the Minimum Bonus and the
Incentive Bonus (if any) that would have been payable to the Employee pursuant
to ss.4(c) hereof if his employment hereunder had not been terminated by (2) a
fraction, the numerator of which is the number of days elapsed during such
fiscal year prior to the Employee's termination and the denominator of which is
365.
(ii) If the Employee's employment hereunder is terminated pursuant to
ss.6(a) hereof, then the Employee (or his estate, as applicable) shall be
entitled to receive (A) payment, in accordance with the Employer's then current
payroll practices, of the Employee's Base Salary in effect at the time of such
termination for one year following such termination and (B) within 30 days
following the completion of the Employer's audited financial statements for the
fiscal year during which such termination occurs, a prorated portion of the
Minimum Bonus and the Incentive Bonus (if any) for the fiscal year in which his
termination occurs determined by multiplying (1) the full amount of the Minimum
Bonus and the Incentive Bonus (if any) that would have been payable to the
Employee pursuant to ss.4(c) hereof if his employment hereunder had not been
terminated by (2) a fraction, the numerator of which is the number of days
elapsed during such fiscal year prior to the Employee's termination and the
denominator of which is 365.
(iii) If the Employee's employment hereunder is terminated by the
Company pursuant to Section 3 without Cause at the end of the Initial Term or at
the end of any one-year term thereafter, the Employee shall be entitled to
receive, within 30 days following the completion of the Employer's audited
financial statements for the fiscal year during which such termination occurs, a
prorated portion of the Minimum Bonus and the Incentive Bonus (if any) for the
fiscal year in which his termination occurs determined by multiplying (1) the
full amount of the Minimum Bonus and the Incentive Bonus (if any) that would
have been payable to the Employee pursuant to ss.4(c) hereof if his employment
hereunder had not been terminated by (2) a fraction, the numerator of which is
the number of days elapsed during such fiscal year prior to the Employee's
termination and the denominator of which is 365.
(iv) Except as otherwise set forth in this ss.6(d), the Employee shall
not be entitled to any severance or other compensation after termination other
than payment of any portion of his Base Salary through the date of his
termination and any expense reimbursements under ss.5 hereof for expenses
incurred in the performance of his duties prior to termination.
ss.7. INVENTIONS; ASSIGNMENT. All rights to discoveries, inventions,
improvements and innovations (including all data and records pertaining thereto)
related to the Employer's business, whether or not patentable, copyrightable,
registrable as a trademark, or reduced to writing,
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that the Employee may discover, invent or originate during the term of his
employment hereunder, and for a period of twelve (12) months thereafter, either
alone or with others and whether or not during working hours or by the use of
the facilities of the Employer ("Inventions"), shall be the exclusive property
of the Employer. The Employee shall promptly disclose all Inventions to the
Employer, shall execute at the request of the Employer any assignments or other
documents the Employer may deem necessary to protect or perfect its rights
therein, and shall assist the Employer, at the Employer's expense, in obtaining,
defending and enforcing the Employer's rights therein. The Employee hereby
appoints the Employer as his attorney-in-fact to execute on his behalf any
assignments or other documents deemed necessary by the Employer to protect or
perfect its rights to any Inventions.
ss.8. CONFIDENTIAL INFORMATION. The Employee recognizes and
acknowledges that certain assets of the Employer, including without limitation
information regarding customers, pricing policies, methods of operation,
proprietary computer programs, sales, products, profits, costs, markets, key
personnel, formulae, product applications, technical processes, and trade
secrets (hereinafter called "Confidential Information") are valuable, special,
and unique assets of the Employer and its affiliates. The Employee shall not,
during or after his term of employment, disclose any or any part of the
Confidential Information to any person, firm, corporation, association, or any
other entity for any reason or purpose whatsoever, directly or indirectly,
except as may be required pursuant to his employment hereunder, provided, that
Confidential Information shall in no event include (a) Confidential Information
which was generally available to the public at the time of disclosure by the
Employer or (b) Confidential Information which becomes publicly available other
than as a consequence of the breach by the Employee of his confidentiality
obligations hereunder. In the event of the termination of his employment,
whether voluntary or involuntary and whether by the Employer or the Employee,
the Employee shall deliver to the Employer all documents and data pertaining to
the Confidential Information and shall not take with him any documents or data
of any kind or any reproductions (in whole or in part) or extracts of any items
relating to the Confidential Information.
ss.9. NON-COMPETITION. During the term of the Employee's employment
hereunder and until two (2) years after termination of the Employee's employment
hereunder, the Employee will not (a) anywhere within New Jersey, New York or
Pennsylvania or anywhere within 100 miles of any store operated by the Employer
at the time of the Employee's termination, engage, directly or indirectly, alone
or as a shareholder (other than as a holder of less than five percent (5%) of
the common stock of any
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publicly traded corporation), partner, officer, director, employee or consultant
of any other business organization that is engaged or becomes engaged in the
operation of retail drug stores or in any other business activity that the
Employer is conducting at the time of the Employee's termination or has notified
the Employee that it proposes to conduct and for which the Employer has, prior
to the time of such termination, expended substantial resources (the "Designated
Industry"), (b) divert to any competitor of the Employer any customer of the
Employer, or (c) solicit or encourage any officer, key employee or consultant of
the Employer to leave its employ for alternative employment or hire or offer
employment to, any person to whom the Employer has offered employment. The
Employee will continue to be bound by the provisions of this ss.9 until their
expiration and shall not be entitled to any compensation from the Employer with
respect thereto except as provided in ss.6(d) hereof. If at any time the
provisions of this ss.9 shall be determined to be invalid or unenforceable, by
reason of being vague or unreasonable as to area, duration or scope of activity,
this ss.9 shall be considered divisible and shall become and be immediately
amended to only such area, duration and scope of activity as shall be determined
to be reasonable and enforceable by the court or other body having jurisdiction
over the matter; and the Employee agrees that this ss.9 as so amended shall be
valid and binding as though any invalid or unenforceable provision had not been
included herein.
ss.10. GENERAL.
(a) Notices. All notices and other communications hereunder shall be in
writing or by written telecommunication, and shall be deemed to have been duly
given if delivered personally or if mailed by certified mail, return receipt
requested, postage prepaid or sent by written telecommunication or telecopy, to
the relevant address set forth below, or to such other address as the recipient
of such notice or communication shall have specified to the other party hereto
in accordance with this ss.10(a):
If to the Employer, to:
Community Distributors, Inc.
251 Industrial Parkway
Somerville, New Jersey 08876
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With a copy to:
Robert M. Wolf, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110-1726
If to the Employee, to:
Mr. Frank Marfino
McKay Drive
Bridgewater, New Jersey 08807
(b) Equitable Remedies. Each of the parties hereto acknowledges and
agrees that upon any breach by the Employee of his obligations under ss.ss.7, 8
and 9 hereof, the Employer will have no adequate remedy at law, and accordingly
will be entitled to specific performance and other appropriate injunctive and
equitable relief.
(c) Severability. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any law, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired.
(d) Waivers. No delay or omission by either party hereto in exercising
any right, power or privilege hereunder shall impair such right, power or
privilege, nor shall any single or partial exercise of any such right, power or
privilege preclude any further exercise thereof or the exercise of any other
right, power or privilege.
(e) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) Assigns. This Agreement shall be binding upon and inure to the
benefit of the heirs and successors of each of the parties hereto, including any
entity which acquires substantially all of the assets or stock of the Employer.
(g) Entire Agreement. This Agreement contains the entire understanding
of the parties, supersedes all prior agreements and understandings relating to
the subject matter hereof and shall not be amended except by a written
instrument hereafter signed by each of the parties hereto.
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(h) Governing Law. This Agreement and the performance hereof shall be
construed and governed in accordance with the laws of the State of New Jersey.
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IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have caused this Agreement to be duly executed as of the date and
year first above written.
NEWRXCO, INC.
By: _______________________________
Title:
___________________________________
Frank Marfino
COMMUNITY DISTRIBUTORS, INC.
251 Industrial Parkway
Somerville, New Jersey 08876
October 16, 1997
Mr. Frank Marfino
Community Distributors, Inc.
251 Industrial Parkway
Somerville, NJ 08876
Re: Performance Bonus
-----------------
Dear Frank:
Based upon your performance as President and Chief Executive Officer of
Community Distributors, Inc. (the "Company"), the Company will pay you a bonus
(the "Bonus") within twelve months of the date hereof in the aggregate amount of
$1,200,000. The Company will withhold an amount equal to $[ ] from the
Bonus in respect of federal, state, Social Security and Medicare withholding tax
requirements and the balance of $[ ] will be paid to you.
Very truly yours,
COMMUNITY DISTRIBUTORS, INC.
By:_________________________________
Title:______________________________
Accepted and agreed:
/s/ Frank Marfino
- ---------------------
Frank Marfino
EMPLOYMENT AND NON-COMPETITION AGREEMENT
Todd H. Pluymers
This EMPLOYMENT AND NON-COMPETITION AGREEMENT (this "Agreement"), dated
as of January 30, 1995, is between Newrxco, Inc., a Delaware corporation (the
"Employer"), and Todd H. Pluymers (the "Employee").
WHEREAS, the Employer intends to purchase all of the stock (the
"Stock") of Community Distributors, Inc., a Delaware corporation (the
"Company"), pursuant to a Stock Purchase Agreement, dated as of August 26, 1994
(the "Stock Purchase Agreement"), among the Employer, Jules Siegel, Arlene
Siegel and Martin Daffner;
WHEREAS, the Employee is currently employed as an executive officer of
the Company and the Employer desires that the Employee continue to work as an
executive officer of the Company;
WHEREAS, immediately after the purchase of the Stock, the Employer will
merge with and into the Company with the Company as the surviving corporation,
and after such merger the term "Employer" shall be deemed to mean and refer to
the Company; and
WHEREAS, in connection with the foregoing, the Employer wishes to
employ the Employee as an executive officer of the Employer, and the Employee
wishes to work as an executive officer of the Employer, on the terms set forth
below.
NOW, THEREFORE, it is hereby agreed as follows:
ss.1. EMPLOYMENT. The Employer hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and subject to the conditions
hereinafter set forth.
ss.2. DUTIES. The Employee shall be employed as the Chief Financial
Officer of the Employer. In such capacity, the Employee shall have such
executive responsibilities and duties as are assigned by the Employer's Board of
Directors (the "Board") or the President of the Employer. The Employee agrees to
devote his full time and best efforts to the performance of his duties to the
Employer.
<PAGE>
-2-
ss.3. TERM. The initial term of employment of the Employee hereunder
shall commence on the closing date of the acquisition under the Stock Purchase
Agreement (the "Commencement Date") and shall continue until the third
anniversary of the Commencement Date (the "Initial Term"), unless earlier
terminated pursuant to ss.6, and shall be renewed automatically for additional
one (1) year terms thereafter unless terminated by either party by written
notice to the other given at least ninety (90) days prior to the expiration of
the then current term.
ss.4. COMPENSATION AND BENEFITS. Until the termination of the
Employee's employment hereunder, in consideration for the services of the
Employee hereunder, the Employer shall compensate the Employee as follows:
(a) Base Salary. The Employer shall pay the Employee, in accordance
with the Employer's then current payroll practices, a base salary (the "Base
Salary"). The Base Salary will be paid at an annual rate of $125,000. Such Base
Salary may be increased from time to time at the sole discretion of the Board
and is in addition to the other benefits set forth herein.
(b) Vacation. The Employee shall be entitled to three (3) weeks
vacation each calendar year. Any vacation shall be taken at the reasonable and
mutual convenience of the Employer and the Employee. Accrued vacation not taken
in any calendar year will not be carried forward or used in any subsequent
calendar year.
(c) Insurance; Other Benefits. Accident, disability, life and health
insurance for the Employee shall be provided by the Employer under group
accident, life and health insurance plans maintained by the Employer for its
full-time, salaried employees as such employment benefits may be modified from
time to time by the Board for all full-time, salaried employees. In addition,
the Employer shall either continue the Employee's current individual disability
insurance policy or arrange for coverage under an alternative disability
insurance policy which is no less favorable. The amount and extent of such
coverage shall be subject to the discretion of the Board; provided that the
amount and extent of such coverage shall be no less favorable than such coverage
provided by the Employer to the Employee immediately prior to the date hereof.
ss.5. EXPENSES. The Employer shall reimburse the Employee for all
reasonable expenses of types authorized by the Employer and incurred by the
Employee in the performance of his duties hereunder. The Employee shall comply
with such budget limitations and approval and reporting
<PAGE>
-3-
requirements with respect to expenses as the Employer may establish from time to
time.
ss.6. TERMINATION. The Employee's employment hereunder shall commence
on the Commencement Date and continue until the expiration of the Initial Term,
and any extension of such term pursuant to ss.3, except that the employment of
the Employee hereunder shall earlier terminate:
(a) Death or Disability. Upon the death of the Employee during the term
of his employment hereunder or, at the option of the Employer, in the event of
the Employee's disability, upon thirty (30) days' written notice from the
Employer. The Employee shall be deemed disabled if an independent medical doctor
(selected by the Employer's health or disability insurer) certifies that the
Employee has for 180 days, consecutive or non-consecutive, in any twelve (12)
month period been disabled in a manner which seriously interferes with his
ability to perform his responsibilities under this Agreement. Any refusal by the
Employee to submit to a medical examination for the purpose of certifying
disability under this ss.6(a) shall be deemed to constitute conclusive evidence
of the Employee's disability.
(b) For Cause. For "Cause" immediately upon written notice by the
Employer to the Employee. For purposes of this Agreement, a termination shall be
for Cause if the Board shall determine that any one or more of the following has
occurred:
(i) the Employee shall have committed an act of fraud,
embezzlement, misappropriation or breach of fiduciary duty against the
Employer, including, but not limited to, the offer, payment,
solicitation or acceptance of any unlawful bribe or kickback with
respect to the Employer's business; or
(ii) the Employee shall have been convicted by a court of
competent jurisdiction of, or pleaded guilty or nolo contendere to,
any felony; or
(iii) the Employee shall have committed a breach of any of
the covenants, terms and provisions of ss.ss.8 or 9 hereof; or
(iv) the Employee shall have breached any one or more of the
provisions of this Agreement (excluding ss.ss.8 and 9 hereof) or any
one or more of the provisions of the Stockholder Agreement of even date
herewith among CDI Group, Inc. and its stockholders, and such breach
shall have continued for a period of ten (10) days after written notice
to the Employee specifying such breach in reasonable detail; or
<PAGE>
-4-
(v) the Employee shall have refused, after explicit written
notice, to obey any lawful resolution of or direction by the Board
which is consistent with his duties hereunder.
(c) Resignation or Termination Without Cause. Upon ninety (90) days'
written notice by either the Employee or the Employer to the other party hereto.
(d) Rights and Remedies on Termination. (i) If the Employee's
employment hereunder is terminated pursuant to ss.6(a) or by the Employer
pursuant to ss.6(c), then the Employee (or his estate, as applicable) shall be
entitled to receive payment, in accordance with the Employer's then current
payroll practices, of the Employee's Base Salary in effect at the time of such
termination for one year following such termination; provided, however, that in
the case of a termination by the Employer pursuant to ss.6(c), the Employee
shall be required to mitigate his damages by accepting other suitable employment
during such period and the Employer shall be entitled to reduce the amount
payable by the Employer under this ss.6(d)(i) by an amount equal to the income
received by the Employee pursuant to such new employment.
(ii) Except as otherwise set forth in this ss.6(d), the Employee shall
not be entitled to any severance or other compensation after termination other
than payment of any portion of his Base Salary through the date of his
termination and any expense reimbursements under ss.5 hereof for expenses
incurred in the performance of his duties prior to termination.
ss.7. INVENTIONS; ASSIGNMENT. All rights to discoveries, inventions,
improvements and innovations (including all data and records pertaining thereto)
related to the Employer's business, whether or not patentable, copyrightable,
registrable as a trademark, or reduced to writing, that the Employee may
discover, invent or originate during the term of his employment hereunder, and
for a period of twelve (12) months thereafter, either alone or with others and
whether or not during working hours or by the use of the facilities of the
Employer ("Inventions"), shall be the exclusive property of the Employer. The
Employee shall promptly disclose all Inventions to the Employer, shall execute
at the request of the Employer any assignments or other documents the Employer
may deem necessary to protect or perfect its rights therein, and shall assist
the Employer, at the Employer's expense, in obtaining, defending and enforcing
the Employer's rights therein. The Employee hereby appoints the Employer as his
attorney-in-fact to execute on his behalf any assignments or other documents
deemed necessary by the Employer to protect or perfect its rights to any
Inventions.
<PAGE>
-5-
ss.8. CONFIDENTIAL INFORMATION. The Employee recognizes and
acknowledges that certain assets of the Employer, including without limitation
information regarding customers, pricing policies, methods of operation,
proprietary computer programs, sales, products, profits, costs, markets, key
personnel, formulae, product applications, technical processes, and trade
secrets (hereinafter called "Confidential Information") are valuable, special,
and unique assets of the Employer and its affiliates. The Employee shall not,
during or after his term of employment, disclose any or any part of the
Confidential Information to any person, firm, corporation, association, or any
other entity for any reason or purpose whatsoever, directly or indirectly,
except as may be required pursuant to his employment hereunder; provided that
Confidential Information shall in no event include (a) Confidential Information
which was generally available to the public at the time of disclosure by the
Employer or (b) Confidential Information which becomes publicly available other
than as a consequence of the breach by the Employee of his confidentiality
obligations hereunder. In the event of the termination of his employment,
whether voluntary or involuntary and whether by the Employer or the Employee,
the Employee shall deliver to the Employer all documents and data pertaining to
the Confidential Information and shall not take with him any documents or data
of any kind or any reproductions (in whole or in part) or extracts of any items
relating to the Confidential Information.
ss.9. NON-COMPETITION. During the term of the Employee's employment
hereunder and until one year after termination of the Employee's employment
hereunder, the Employee will not (a) anywhere within New Jersey, New York or
Pennsylvania or anywhere within 100 miles of any store operated by the Employer
at the time of the Employee's termination, engage, directly or indirectly, alone
or as a shareholder (other than as a holder of less than five percent (5%) of
the common stock of any publicly traded corporation), partner, officer,
director, employee or consultant of any other business organization that is
engaged or becomes engaged in a business involving or relating to the operation
of retail drug stores or in any other business activity that the Employer is
conducting at the time of the Employee's termination or has notified the
Employee that it proposes to conduct and for which the Employer has, prior to
the time of such termination, expended substantial resources (the "Designated
Industry"), (b) divert to any competitor of the Employer any customer of the
Employer, or (c) solicit or encourage any officer, key employee or consultant of
the Employer to leave its employ for alternative employment or hire or offer
employment to, any person to whom the Employer has offered employment. The
Employee will continue to be bound by the provisions of this ss.9 until their
expiration and shall not be entitled to any compensation from the Employer with
respect thereto except as provided in ss.6(d) hereof. If at any time the
provisions of
<PAGE>
-6-
this ss.9 shall be determined to be invalid or unenforceable, by reason of being
vague or unreasonable as to area, duration or scope of activity, this ss.9 shall
be considered divisible and shall become and be immediately amended to only such
area, duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter; and
the Employee agrees that this ss.9 as so amended shall be valid and binding as
though any invalid or unenforceable provision had not been included herein.
ss.10. GENERAL.
(a) Notices. All notices and other communications hereunder shall be in
writing or by written telecommunication, and shall be deemed to have been duly
given if delivered personally or if mailed by certified mail, return receipt
requested, postage prepaid or sent by written telecommunication or telecopy, to
the relevant address set forth below, or to such other address as the recipient
of such notice or communication shall have specified to the other party hereto
in accordance with this ss.10(a):
If to the Employer, to:
Community Distributors, Inc.
251 Industrial Parkway
Somerville, New Jersey 08876
Attention: President
With a copy to:
Robert M. Wolf, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110-1726
If to the Employee, to:
Mr. Todd H. Pluymers
c/o Community Distributors, Inc.
251 Industrial Parkway
Somerville, New Jersey 08876
(b) Equitable Remedies. Each of the parties hereto acknowledges and
agrees that upon any breach by the Employee of his obligations under ss.ss.7, 8
and 9 hereof, the Employer will have no adequate remedy at law, and accordingly
will be entitled to specific performance and other appropriate injunctive and
equitable relief.
<PAGE>
-7-
(c) Severability. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any law, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired.
(d) Waivers. No delay or omission by either party hereto in exercising
any right, power or privilege hereunder shall impair such right, power or
privilege, nor shall any single or partial exercise of any such right, power or
privilege preclude any further exercise thereof or the exercise of any other
right, power or privilege.
(e) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) Assigns. This Agreement shall be binding upon and inure to the
benefit of the heirs and successors of each of the parties hereto, including any
entity which acquires substantially all of the assets or stock of the Employer.
(g) Entire Agreement. This Agreement contains the entire understanding
of the parties, supersedes all prior agreements and understandings relating to
the subject matter hereof and shall not be amended except by a written
instrument hereafter signed by each of the parties hereto.
(h) Governing Law. This Agreement and the performance hereof shall be
construed and governed in accordance with the laws of the State of New Jersey.
<PAGE>
-8-
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have caused this Agreement to be duly executed as of the date and
year first above written.
NEWRXCO, INC.
By: ______________________________
Title:
__________________________________
Todd H. Pluymers
COMMUNITY DISTRIBUTORS, INC.
251 Industrial Parkway
Somerville, New Jersey 08876
October 16, 1997
Mr. Todd Pluymers
Community Distributors, Inc.
251 Industrial Parkway
Somerville, NJ 08876
Re: Performance Bonus
-----------------
Dear Todd:
Based upon your performance as Chief Financial Officer of Community
Distributors, Inc. (the "Company"), the Company will pay you a bonus (the
"Bonus") on the date hereof in the aggregate amount of $200,000. The Company
will withhold an amount equal to $[ ] from the Bonus in respect of federal,
state, Social Security and Medicare withholding tax requirements and the balance
of $[ ] will be paid to you.
Very truly yours,
COMMUNITY DISTRIBUTORS, INC.
By:_________________________________
Title:______________________________
Accepted and agreed:
- --------------------------------------
Todd Pluymers
EMPLOYMENT AND NON-COMPETITION AGREEMENT
Lynn L. Shallcross
This EMPLOYMENT AND NON-COMPETITION AGREEMENT (this "Agreement"), dated
as of January 30, 1995, is between Newrxco, Inc., a Delaware corporation (the
"Employer"), and Lynn L. Shallcross (the "Employee").
WHEREAS, the Employer intends to purchase all of the stock (the
"Stock") of Community Distributors, Inc., a Delaware corporation (the
"Company"), pursuant to a Stock Purchase Agreement, dated as of August 26, 1994
(the "Stock Purchase Agreement"), among the Employer, Jules Siegel, Arlene
Siegel and Martin Daffner;
WHEREAS, the Employee is currently employed as an executive officer of
the Company and the Employer desires that the Employee continue to work as an
executive officer of the Company;
WHEREAS, immediately after the purchase of the Stock, the Employer will
merge with and into the Company with the Company as the surviving corporation,
and after such merger the term "Employer" shall be deemed to mean and refer to
the Company; and
WHEREAS, in connection with the foregoing, the Employer wishes to
employ the Employee as an executive officer of the Employer, and the Employee
wishes to work as an executive officer of the Employer, on the terms set forth
below.
NOW, THEREFORE, it is hereby agreed as follows:
ss.1. EMPLOYMENT. The Employer hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and subject to the conditions
hereinafter set forth.
ss.2. DUTIES. The Employee shall be employed as the President of the
Cost Cutters division of the Employer. In such capacity, the Employee shall have
such executive responsibilities and duties as are assigned by the Employer's
Board of Directors (the "Board") or the President of the Employer. The Employee
agrees to devote his full time and best efforts to the performance of his duties
to the Employer.
<PAGE>
-2-
ss.3. TERM. The initial term of employment of the Employee hereunder
shall commence on the closing date of the acquisition under the Stock Purchase
Agreement (the "Commencement Date") and shall continue until the third
anniversary of the Commencement Date (the "Initial Term"), unless earlier
terminated pursuant to ss.6, and shall be renewed automatically for additional
one (1) year terms thereafter unless terminated by either party by written
notice to the other given at least ninety (90) days prior to the expiration of
the then current term.
ss.4. COMPENSATION AND BENEFITS. Until the termination of the
Employee's employment hereunder, in consideration for the services of the
Employee hereunder, the Employer shall compensate the Employee as follows:
(a) Base Salary. The Employer shall pay the Employee, in accordance
with the Employer's then current payroll practices, a base salary (the "Base
Salary"). The Base Salary will be paid at an annual rate of $157,500. Such Base
Salary may be increased from time to time at the sole discretion of the Board
and is in addition to the other benefits set forth herein.
(b) Vacation. The Employee shall be entitled to three (3) weeks
vacation each calendar year. Any vacation shall be taken at the reasonable and
mutual convenience of the Employer and the Employee. Accrued vacation not taken
in any calendar year will not be carried forward or used in any subsequent
calendar year.
(c) Insurance; Other Benefits. Accident, disability, life and health
insurance for the Employee shall be provided by the Employer under group
accident, life and health insurance plans maintained by the Employer for its
full-time, salaried employees as such employment benefits may be modified from
time to time by the Board for all full-time, salaried employees. In addition,
the Employer shall either continue the Employee's current individual disability
insurance policy or arrange for coverage under an alternative disability
insurance policy which is no less favorable. The amount and extent of such
coverage shall be subject to the discretion of the Board; provided, that the
amount and extent of such coverage shall be no less favorable than such coverage
provided by the Employer to the Employee immediately prior to the date hereof.
ss.5. EXPENSES. The Employer shall reimburse the Employee for all
reasonable expenses of types authorized by the Employer and incurred by the
Employee in the performance of his duties hereunder. The Employee shall comply
with such budget limitations and approval and reporting
<PAGE>
-3-
requirements with respect to expenses as the Employer may establish from time to
time.
ss.6. TERMINATION. The Employee's employment hereunder shall commence
on the Commencement Date and continue until the expiration of the Initial Term,
and any extension of such term pursuant to ss.3, except that the employment of
the Employee hereunder shall earlier terminate:
(a) Death or Disability. Upon the death of the Employee during the term
of his employment hereunder or, at the option of the Employer, in the event of
the Employee's disability, upon thirty (30) days' written notice from the
Employer. The Employee shall be deemed disabled if an independent medical doctor
(selected by the Employer's health or disability insurer) certifies that the
Employee has for 180 days, consecutive or non-consecutive, in any twelve (12)
month period been disabled in a manner which seriously interferes with his
ability to perform his responsibilities under this Agreement. Any refusal by the
Employee to submit to a medical examination for the purpose of certifying
disability under this ss.6(a) shall be deemed to constitute conclusive evidence
of the Employee's disability.
(b) For Cause. For "Cause" immediately upon written notice by the
Employer to the Employee. For purposes of this Agreement, a termination shall be
for Cause if the Board shall determine that any one or more of the following has
occurred:
(i) the Employee shall have committed an act of fraud,
embezzlement, misappropriation or breach of fiduciary duty against the
Employer, including, but not limited to, the offer, payment,
solicitation or acceptance of any unlawful bribe or kickback with
respect to the Employer's business; or
(ii) the Employee shall have been convicted by a court of
competent jurisdiction of, or pleaded guilty or nolo contendere to,
any felony; or
(iii) the Employee shall have committed a breach of any of
the covenants, terms and provisions of ss.ss.8 or 9 hereof; or
(iv) the Employee shall have breached any one or more of the
provisions of this Agreement (excluding ss.ss.8 and 9 hereof) or any
one or more of the provisions of the Stockholder Agreement of even date
herewith among CDI Group, Inc. and its stockholders, and such breach
shall have continued for a period of ten (10) days after written notice
to the Employee specifying such breach in reasonable detail; or
<PAGE>
-4-
(v) the Employee shall have refused, after explicit written
notice, to obey any lawful resolution of or direction by the Board
which is consistent with his duties hereunder.
(c) Resignation or Termination Without Cause. Upon ninety (90) days'
written notice by either the Employee or the Employer to the other party hereto.
(d) Rights and Remedies on Termination. (i) If the Employee's
employment hereunder is terminated pursuant to ss.6(a) or by the Employer
pursuant to ss.6(c), then the Employee (or his estate, as applicable) shall be
entitled to receive payment, in accordance with the Employer's then current
payroll practices, of the Employee's Base Salary in effect at the time of such
termination for one year following such termination; provided, however, that in
the case of a termination by the Employer pursuant to ss.6(c), the Employee
shall be required to mitigate his damages by accepting other suitable employment
during such period and the Employer shall be entitled to reduce the amount
payable by the Employer under this ss.6(d)(i) by an amount equal to the income
received by the Employee pursuant to such new employment.
(ii) Except as otherwise set forth in this ss.6(d), the Employee shall
not be entitled to any severance or other compensation after termination other
than payment of any portion of his Base Salary through the date of his
termination and any expense reimbursements under ss.5 hereof for expenses
incurred in the performance of his duties prior to termination.
ss.7. INVENTIONS; ASSIGNMENT. All rights to discoveries, inventions,
improvements and innovations (including all data and records pertaining thereto)
related to the Employer's business, whether or not patentable, copyrightable,
registrable as a trademark, or reduced to writing, that the Employee may
discover, invent or originate during the term of his employment hereunder, and
for a period of twelve (12) months thereafter, either alone or with others and
whether or not during working hours or by the use of the facilities of the
Employer ("Inventions"), shall be the exclusive property of the Employer. The
Employee shall promptly disclose all Inventions to the Employer, shall execute
at the request of the Employer any assignments or other documents the Employer
may deem necessary to protect or perfect its rights therein, and shall assist
the Employer, at the Employer's expense, in obtaining, defending and enforcing
the Employer's rights therein. The Employee hereby appoints the Employer as his
attorney-in-fact to execute on his behalf any assignments or other documents
deemed necessary by the Employer to protect or perfect its rights to any
Inventions.
<PAGE>
-5-
ss.8. CONFIDENTIAL INFORMATION. The Employee recognizes and
acknowledges that certain assets of the Employer, including without limitation
information regarding customers, pricing policies, methods of operation,
proprietary computer programs, sales, products, profits, costs, markets, key
personnel, formulae, product applications, technical processes, and trade
secrets (hereinafter called "Confidential Information") are valuable, special,
and unique assets of the Employer and its affiliates. The Employee shall not,
during or after his term of employment, disclose any or any part of the
Confidential Information to any person, firm, corporation, association, or any
other entity for any reason or purpose whatsoever, directly or indirectly,
except as may be required pursuant to his employment hereunder; provided, that
Confidential Information shall in no event include (a) Confidential Information
which was generally available to the public at the time of disclosure by the
Employer or (b) Confidential Information which becomes publicly available other
than as a consequence of the breach by the Employee of his confidentiality
obligations hereunder. In the event of the termination of his employment,
whether voluntary or involuntary and whether by the Employer or the Employee,
the Employee shall deliver to the Employer all documents and data pertaining to
the Confidential Information and shall not take with him any documents or data
of any kind or any reproductions (in whole or in part) or extracts of any items
relating to the Confidential Information.
ss.9. NON-COMPETITION. During the term of the Employee's employment
hereunder and until one year after termination of the Employee's employment
hereunder, the Employee will not (a) anywhere within New Jersey, New York or
Pennsylvania or anywhere within 100 miles of any store operated by the Employer
at the time of the Employee's termination, engage, directly or indirectly, alone
or as a shareholder (other than as a holder of less than five percent (5%) of
the common stock of any publicly traded corporation), partner, officer,
director, employee or consultant of any other business organization that is
engaged or becomes engaged in a business involving or relating to the operation
of retail drug stores or in any other business activity that the Employer is
conducting at the time of the Employee's termination or has notified the
Employee that it proposes to conduct and for which the Employer has, prior to
the time of such termination, expended substantial resources (the "Designated
Industry"), (b) divert to any competitor of the Employer any customer of the
Employer, or (c) solicit or encourage any officer, key employee or consultant of
the Employer to leave its employ for alternative employment or hire or offer
employment to, any person to whom the Employer has offered employment. The
Employee will continue to be bound by the provisions of this ss.9 until their
expiration and shall not be entitled to any compensation from the Employer with
respect thereto except as provided in ss.6(d) hereof. If at any time the
<PAGE>
-6-
provisions of this ss.9 shall be determined to be invalid or unenforceable, by
reason of being vague or unreasonable as to area, duration or scope of activity,
this ss.9 shall be considered divisible and shall become and be immediately
amended to only such area, duration and scope of activity as shall be determined
to be reasonable and enforceable by the court or other body having jurisdiction
over the matter; and the Employee agrees that this ss.9 as so amended shall be
valid and binding as though any invalid or unenforceable provision had not been
included herein.
ss.10. GENERAL.
(a) Notices. All notices and other communications hereunder shall be in
writing or by written telecommunication, and shall be deemed to have been duly
given if delivered personally or if mailed by certified mail, return receipt
requested, postage prepaid or sent by written telecommunication or telecopy, to
the relevant address set forth below, or to such other address as the recipient
of such notice or communication shall have specified to the other party hereto
in accordance with this ss.10(a):
If to the Employer, to:
Community Distributors, Inc.
251 Industrial Parkway
Somerville, New Jersey 08876
Attention: Mr. Frank Marfino, President
With a copy to:
Robert M. Wolf, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110-1726
If to the Employee, to:
Mr. Lynn L. Shallcross
c/o Community Distributors, Inc.
251 Industrial Parkway
Somerville, New Jersey 08876
(b) Equitable Remedies. Each of the parties hereto acknowledges and
agrees that upon any breach by the Employee of his obligations under ss.ss.7, 8
and 9 hereof, the Employer will have no adequate remedy at law, and accordingly
will be entitled to specific performance and other appropriate injunctive and
equitable relief.
<PAGE>
-7-
(c) Severability. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any law, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired.
(d) Waivers. No delay or omission by either party hereto in exercising
any right, power or privilege hereunder shall impair such right, power or
privilege, nor shall any single or partial exercise of any such right, power or
privilege preclude any further exercise thereof or the exercise of any other
right, power or privilege.
(e) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) Assigns. This Agreement shall be binding upon and inure to the
benefit of the heirs and successors of each of the parties hereto, including any
entity which acquires substantially all of the assets or stock of the Employer.
(g) Entire Agreement. This Agreement contains the entire understanding
of the parties, supersedes all prior agreements and understandings relating to
the
<PAGE>
-8-
subject matter hereof and shall not be amended except by a written instrument
hereafter signed by each of the parties hereto.
(h) Governing Law. This Agreement and the performance hereof shall be
construed and governed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have caused this Agreement to be duly executed as of the date and
year first above written.
NEWRXCO, INC.
By: _____________________________
Title:
_________________________________
Lynn L. Shallcross
EMPLOYMENT AND NON-COMPETITION AGREEMENT
William F. Gilligan
This EMPLOYMENT AND NON-COMPETITION AGREEMENT (this "Agreement"), dated
as of January 30, 1995, is between Newrxco, Inc., a Delaware corporation (the
"Employer"), and William F. Gilligan (the "Employee").
WHEREAS, the Employer intends to purchase all of the stock (the
"Stock") of Community Distributors, Inc., a Delaware corporation (the
"Company"), pursuant to a Stock Purchase Agreement, dated as of August 26, 1994
(the "Stock Purchase Agreement"), among the Employer, Jules Siegel, Arlene
Siegel and Martin Daffner;
WHEREAS, the Employee is currently employed as an executive officer of
the Company and the Employer desires that the Employee continue to work as an
executive officer of the Company;
WHEREAS, immediately after the purchase of the Stock, the Employer will
merge with and into the Company with the Company as the surviving corporation,
and after such merger the term "Employer" shall be deemed to mean and refer to
the Company; and
WHEREAS, in connection with the foregoing, the Employer wishes to
employ the Employee as an executive officer of the Employer, and the Employee
wishes to work as an executive officer of the Employer, on the terms set forth
below.
NOW, THEREFORE, it is hereby agreed as follows:
ss.1. EMPLOYMENT. The Employer hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and subject to the conditions
hereinafter set forth.
ss.2. DUTIES. The Employee shall be employed as the Vice President -
Distribution of the Employer. In such capacity, the Employee shall have such
executive responsibilities and duties as are assigned by the Employer's Board of
Directors (the "Board") or the President of the Employer. The Employee agrees to
devote his full time and best efforts to the performance of his duties to the
Employer.
<PAGE>
-2-
ss.3. TERM. The initial term of employment of the Employee hereunder
shall commence on the closing date of the acquisition under the Stock Purchase
Agreement (the "Commencement Date") and shall continue until the third
anniversary of the Commencement Date (the "Initial Term"), unless earlier
terminated pursuant to ss.6, and shall be renewed automatically for additional
one (1) year terms thereafter unless terminated by either party by written
notice to the other given at least ninety (90) days prior to the expiration of
the then current term.
ss.4. COMPENSATION AND BENEFITS. Until the termination of the
Employee's employment hereunder, in consideration for the services of the
Employee hereunder, the Employer shall compensate the Employee as follows:
(a) Base Salary. The Employer shall pay the Employee, in accordance
with the Employer's then current payroll practices, a base salary (the "Base
Salary"). The Base Salary will be paid at an annual rate of $100,000. Such Base
Salary may be increased from time to time at the sole discretion of the Board
and is in addition to the other benefits set forth herein.
(b) Vacation. The Employee shall be entitled to three (3) weeks
vacation each calendar year. Any vacation shall be taken at the reasonable and
mutual convenience of the Employer and the Employee. Accrued vacation not taken
in any calendar year will not be carried forward or used in any subsequent
calendar year.
(c) Insurance; Other Benefits. Accident, disability, life and health
insurance for the Employee shall be provided by the Employer under group
accident, life and health insurance plans maintained by the Employer for its
full-time, salaried employees as such employment benefits may be modified from
time to time by the Board for all full-time, salaried employees. In addition,
the Employer shall either continue the Employee's current individual disability
insurance policy or arrange for coverage under an alternative disability
insurance policy which is no less favorable. The amount and extent of such
coverage shall be subject to the discretion of the Board; provided, that the
amount and extent of such coverage shall be no less favorable than such coverage
provided by the Employer to the Employee immediately prior to the date hereof.
ss.5. EXPENSES. The Employer shall reimburse the Employee for all
reasonable expenses of types authorized by the Employer and incurred by the
Employee in the performance of his duties hereunder. The Employee shall comply
with such budget limitations and approval and reporting
<PAGE>
-3-
requirements with respect to expenses as the Employer may establish from time to
time.
ss.6. TERMINATION. The Employee's employment hereunder shall commence
on the Commencement Date and continue until the expiration of the Initial Term,
and any extension of such term pursuant to ss.3, except that the employment of
the Employee hereunder shall earlier terminate:
(a) Death or Disability. Upon the death of the Employee during the term
of his employment hereunder or, at the option of the Employer, in the event of
the Employee's disability, upon thirty (30) days' written notice from the
Employer. The Employee shall be deemed disabled if an independent medical doctor
(selected by the Employer's health or disability insurer) certifies that the
Employee has for 180 days, consecutive or non-consecutive, in any twelve (12)
month period been disabled in a manner which seriously interferes with his
ability to perform his responsibilities under this Agreement. Any refusal by the
Employee to submit to a medical examination for the purpose of certifying
disability under this ss.6(a) shall be deemed to constitute conclusive evidence
of the Employee's disability.
(b) For Cause. For "Cause" immediately upon written notice by the
Employer to the Employee. For purposes of this Agreement, a termination shall be
for Cause if the Board shall determine that any one or more of the following has
occurred:
(i) the Employee shall have committed an act of fraud,
embezzlement, misappropriation or breach of fiduciary duty against the
Employer, including, but not limited to, the offer, payment,
solicitation or acceptance of any unlawful bribe or kickback with
respect to the Employer's business; or
(ii) the Employee shall have been convicted by a court of
competent jurisdiction of, or pleaded guilty or nolo contendere to,
any felony; or
(iii) the Employee shall have committed a breach of any of
the covenants, terms and provisions of ss.ss.8 or 9 hereof; or
(iv) the Employee shall have breached any one or more of the
provisions of this Agreement (excluding ss.ss.8 and 9 hereof) or any
one or more of the provisions of the Stockholder Agreement of even date
herewith among CDI Group, Inc. and its stockholders, and such breach
shall have continued for a period of ten (10) days after written notice
to the Employee specifying such breach in reasonable detail; or
<PAGE>
-4-
(v) the Employee shall have refused, after explicit written
notice, to obey any lawful resolution of or direction by the Board
which is consistent with his duties hereunder.
(c) Resignation or Termination Without Cause. Upon ninety (90) days'
written notice by either the Employee or the Employer to the other party hereto.
(d) Rights and Remedies on Termination. (i) If the Employee's
employment hereunder is terminated pursuant to ss.6(a) or by the Employer
pursuant to ss.6(c), then the Employee (or his estate, as applicable) shall be
entitled to receive payment, in accordance with the Employer's then current
payroll practices, of the Employee's Base Salary in effect at the time of such
termination for one year following such termination; provided, however, that in
the case of a termination by the Employer pursuant to ss.6(c), the Employee
shall be required to mitigate his damages by accepting other suitable employment
during such period and the Employer shall be entitled to reduce the amount
payable by the Employer under this ss.6(d)(i) by an amount equal to the income
received by the Employee pursuant to such new employment.
(ii) Except as otherwise set forth in this ss.6(d), the Employee shall
not be entitled to any severance or other compensation after termination other
than payment of any portion of his Base Salary through the date of his
termination and any expense reimbursements under ss.5 hereof for expenses
incurred in the performance of his duties prior to termination.
ss.7. INVENTIONS; ASSIGNMENT. All rights to discoveries, inventions,
improvements and innovations (including all data and records pertaining thereto)
related to the Employer's business, whether or not patentable, copyrightable,
registrable as a trademark, or reduced to writing, that the Employee may
discover, invent or originate during the term of his employment hereunder, and
for a period of twelve (12) months thereafter, either alone or with others and
whether or not during working hours or by the use of the facilities of the
Employer ("Inventions"), shall be the exclusive property of the Employer. The
Employee shall promptly disclose all Inventions to the Employer, shall execute
at the request of the Employer any assignments or other documents the Employer
may deem necessary to protect or perfect its rights therein, and shall assist
the Employer, at the Employer's expense, in obtaining, defending and enforcing
the Employer's rights therein. The Employee hereby appoints the Employer as his
attorney-in-fact to execute on his behalf any assignments or other documents
deemed necessary by the Employer to protect or perfect its rights to any
Inventions.
<PAGE>
-5-
ss.8. CONFIDENTIAL INFORMATION. The Employee recognizes and
acknowledges that certain assets of the Employer, including without limitation
information regarding customers, pricing policies, methods of operation,
proprietary computer programs, sales, products, profits, costs, markets, key
personnel, formulae, product applications, technical processes, and trade
secrets (hereinafter called "Confidential Information") are valuable, special,
and unique assets of the Employer and its affiliates. The Employee shall not,
during or after his term of employment, disclose any or any part of the
Confidential Information to any person, firm, corporation, association, or any
other entity for any reason or purpose whatsoever, directly or indirectly,
except as may be required pursuant to his employment hereunder; provided, that
Confidential Information shall in no event include (a) Confidential Information
which was generally available to the public at the time of disclosure by the
Employer or (b) Confidential Information which becomes publicly available other
than as a consequence of the breach by the Employee of his confidentiality
obligations hereunder. In the event of the termination of his employment,
whether voluntary or involuntary and whether by the Employer or the Employee,
the Employee shall deliver to the Employer all documents and data pertaining to
the Confidential Information and shall not take with him any documents or data
of any kind or any reproductions (in whole or in part) or extracts of any items
relating to the Confidential Information.
ss.9. NON-COMPETITION. During the term of the Employee's employment
hereunder and until one year after termination of the Employee's employment
hereunder, the Employee will not (a) anywhere within New Jersey, New York or
Pennsylvania or anywhere within 100 miles of any store operated by the Employer
at the time of the Employee's termination, engage, directly or indirectly, alone
or as a shareholder (other than as a holder of less than five percent (5%) of
the common stock of any publicly traded corporation), partner, officer,
director, employee or consultant of any other business organization that is
engaged or becomes engaged in a business involving or relating to the operation
of retail drug stores or in any other business activity that the Employer is
conducting at the time of the Employee's termination or has notified the
Employee that it proposes to conduct and for which the Employer has, prior to
the time of such termination, expended substantial resources (the "Designated
Industry"), (b) divert to any competitor of the Employer any customer of the
Employer, or (c) solicit or encourage any officer, key employee or consultant of
the Employer to leave its employ for alternative employment or hire or offer
employment to, any person to whom the Employer has offered employment. The
Employee will continue to be bound by the provisions of this ss.9 until their
expiration and shall not be entitled to any compensation from the Employer with
respect thereto except as provided in ss.6(d) hereof. If at any time the
<PAGE>
-6-
provisions of this ss.9 shall be determined to be invalid or unenforceable, by
reason of being vague or unreasonable as to area, duration or scope of activity,
this ss.9 shall be considered divisible and shall become and be immediately
amended to only such area, duration and scope of activity as shall be determined
to be reasonable and enforceable by the court or other body having jurisdiction
over the matter; and the Employee agrees that this ss.9 as so amended shall be
valid and binding as though any invalid or unenforceable provision had not been
included herein.
ss.10. GENERAL.
(a) Notices. All notices and other communications hereunder shall be in
writing or by written telecommunication, and shall be deemed to have been duly
given if delivered personally or if mailed by certified mail, return receipt
requested, postage prepaid or sent by written telecommunication or telecopy, to
the relevant address set forth below, or to such other address as the recipient
of such notice or communication shall have specified to the other party hereto
in accordance with this ss.10(a):
If to the Employer, to:
Community Distributors, Inc.
251 Industrial Parkway
Somerville, New Jersey 08876
Attention: Mr. Frank Marfino, President
With a copy to:
Robert M. Wolf, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110-1726
If to the Employee, to:
Mr. William F. Gilligan
c/o Community Distributors, Inc.
251 Industrial Parkway
Somerville, New Jersey 08876
(b) Equitable Remedies. Each of the parties hereto acknowledges and
agrees that upon any breach by the Employee of his obligations under ss.ss.7, 8
and 9 hereof, the Employer will have no adequate remedy at law, and accordingly
will be entitled to specific performance and other appropriate injunctive and
equitable relief.
<PAGE>
-7-
(c) Severability. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any law, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired.
(d) Waivers. No delay or omission by either party hereto in exercising
any right, power or privilege hereunder shall impair such right, power or
privilege, nor shall any single or partial exercise of any such right, power or
privilege preclude any further exercise thereof or the exercise of any other
right, power or privilege.
(e) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) Assigns. This Agreement shall be binding upon and inure to the
benefit of the heirs and successors of each of the parties hereto, including any
entity which acquires substantially all of the assets or stock of the Employer.
(g) Entire Agreement. This Agreement contains the entire understanding
of the parties, supersedes all prior agreements and understandings relating to
the
<PAGE>
-8-
subject matter hereof and shall not be amended except by a written instrument
hereafter signed by each of the parties hereto.
(h) Governing Law. This Agreement and the performance hereof shall be
construed and governed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have caused this Agreement to be duly executed as of the date and
year first above written.
NEWRXCO, INC.
By: _____________________________
Title:
________________________________
William F. Gilligan
EMPLOYMENT AND NON-COMPETITION AGREEMENT
Barrie Levine
This EMPLOYMENT AND NON-COMPETITION AGREEMENT (this "Agreement"), dated
as of February 17, 1995, is between Community Distributors, Inc., a Delaware
corporation (the "Employer"), and Barrie Levine (the "Employee").
WHEREAS, the Employer wishes to employ the Employee as an executive
officer of the Employer, and the Employee wishes to work as an executive officer
of the Employer, on the terms set forth below.
NOW, THEREFORE, it is hereby agreed as follows:
ss.1. EMPLOYMENT. The Employer hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and subject to the conditions
hereinafter set forth.
ss.2. DUTIES. The Employee shall be employed as the Vice President-
Pharmacy Operations. In such capacity, the Employee shall have such executive
responsibilities and duties as are assigned by the Employer's Board of Directors
(the "Board") or the President of the Employer. The Employee agrees to devote
his full time and best efforts to the performance of his duties to the Employer.
ss.3. TERM. The initial term of employment of the Employee hereunder
shall commence on the date hereof (the "Commencement Date") and shall continue
until the third anniversary of the Commencement Date (the "Initial Term"),
unless earlier terminated pursuant to ss.6, and shall be renewed automatically
for additional one (1) year terms thereafter unless terminated by either party
by written notice to the other given at least ninety (90) days prior to the
expiration of the then current term.
ss.4. COMPENSATION AND BENEFITS. Until the termination of the
Employee's employment hereunder, in consideration for the services of the
Employee hereunder, the Employer shall compensate the Employee as follows:
(a) Base Salary. The Employer shall pay the Employee, in accordance
with the Employer's then current payroll practices, a base salary (the "Base
Salary"). The Base Salary will be paid at an annual rate of
<PAGE>
-2-
$116,000. Such Base Salary may be increased from time to time at the sole
discretion of the Board and is in addition to the other benefits set forth
herein.
(b) Vacation. The Employee shall be entitled to three (3) weeks
vacation each calendar year. Any vacation shall be taken at the reasonable and
mutual convenience of the Employer and the Employee. Accrued vacation not taken
in any calendar year will not be carried forward or used in any subsequent
calendar year.
(c) Insurance; Other Benefits. Accident, disability, life and health
insurance for the Employee shall be provided by the Employer under group
accident, life and health insurance plans maintained by the Employer for its
full-time, salaried employees as such employment benefits may be modified from
time to time by the Board for all full-time, salaried employees. In addition,
the Employer shall either continue the Employee's current individual disability
insurance policy or arrange for coverage under an alternative disability
insurance policy which is no less favorable. The amount and extent of such
coverage shall be subject to the discretion of the Board; provided, that the
amount and extent of such coverage shall be no less favorable than such coverage
provided by the Employer to the Employee immediately prior to the date hereof.
ss.5. EXPENSES. The Employer shall reimburse the Employee for all
reasonable expenses of types authorized by the Employer and incurred by the
Employee in the performance of his duties hereunder. The Employee shall comply
with such budget limitations and approval and reporting requirements with
respect to expenses as the Employer may establish from time to time.
ss.6. TERMINATION. The Employee's employment hereunder shall commence
on the Commencement Date and continue until the expiration of the Initial Term,
and any extension of such term pursuant to ss.3, except that the employment of
the Employee hereunder shall earlier terminate:
(a) Death or Disability. Upon the death of the Employee during the term
of his employment hereunder or, at the option of the Employer, in the event of
the Employee's disability, upon thirty (30) days' written notice from the
Employer. The Employee shall be deemed disabled if an independent medical doctor
(selected by the Employer's health or disability insurer) certifies that the
Employee has for 180 days, consecutive or non-consecutive, in any twelve (12)
month period been disabled in a manner which seriously interferes with his
ability to perform his responsibilities under this Agreement. Any refusal by the
Employee to submit to a medical
<PAGE>
-3-
examination for the purpose of certifying disability under this ss.6(a) shall be
deemed to constitute conclusive evidence of the Employee's disability.
(b) For Cause. For "Cause" immediately upon written notice by the
Employer to the Employee. For purposes of this Agreement, a termination shall be
for Cause if the Board shall determine that any one or more of the following has
occurred:
(i) the Employee shall have committed an act of fraud,
embezzlement, misappropriation or breach of fiduciary duty against the
Employer, including, but not limited to, the offer, payment,
solicitation or acceptance of any unlawful bribe or kickback with
respect to the Employer's business; or
(ii) the Employee shall have been convicted by a court of
competent jurisdiction of, or pleaded guilty or nolo contendere to, any
felony; or
(iii) the Employee shall have committed a breach of any of the
covenants, terms and provisions of ss.ss.8 or 9 hereof; or
(iv) the Employee shall have breached any one or more of the
provisions of this Agreement (excluding ss.ss.8 and 9 hereof) or any
one or more of the provisions of the Stockholder Agreement dated as of
January 30, 1995 among CDI Group, Inc. and its stockholders, and such
breach shall have continued for a period of ten (10) days after written
notice to the Employee specifying such breach in reasonable detail; or
(v) the Employee shall have refused, after explicit written
notice, to obey any lawful resolution of or direction by the Board
which is consistent with his duties hereunder.
(c) Resignation or Termination Without Cause. Upon ninety (90) days'
written notice by either the Employee or the Employer to the other party hereto.
(d) Rights and Remedies on Termination. (i) If the Employee's
employment hereunder is terminated pursuant to ss.6(a) or by the Employer
pursuant to ss.6(c), then the Employee (or his estate, as applicable) shall be
entitled to receive payment, in accordance with the Employer's then current
payroll practices, of the Employee's Base Salary in effect at the time of such
termination for one year following such termination; provided, however, that in
the case of a termination by the Employer pursuant to ss.6(c), the Employee
shall be required to mitigate his damages by accepting other suitable
<PAGE>
-4-
employment during such period and the Employer shall be entitled to reduce the
amount payable by the Employer under this ss.6(d)(i) by an amount equal to the
income received by the Employee pursuant to such new employment.
(ii) Except as otherwise set forth in this ss.6(d), the Employee shall
not be entitled to any severance or other compensation after termination other
than payment of any portion of his Base Salary through the date of his
termination and any expense reimbursements under ss.5 hereof for expenses
incurred in the performance of his duties prior to termination.
ss.7. INVENTIONS; ASSIGNMENT. All rights to discoveries, inventions,
improvements and innovations (including all data and records pertaining thereto)
related to the Employer's business, whether or not patentable, copyrightable,
registrable as a trademark, or reduced to writing, that the Employee may
discover, invent or originate during the term of his employment hereunder, and
for a period of twelve (12) months thereafter, either alone or with others and
whether or not during working hours or by the use of the facilities of the
Employer ("Inventions"), shall be the exclusive property of the Employer. The
Employee shall promptly disclose all Inventions to the Employer, shall execute
at the request of the Employer any assignments or other documents the Employer
may deem necessary to protect or perfect its rights therein, and shall assist
the Employer, at the Employer's expense, in obtaining, defending and enforcing
the Employer's rights therein. The Employee hereby appoints the Employer as his
attorney-in-fact to execute on his behalf any assignments or other documents
deemed necessary by the Employer to protect or perfect its rights to any
Inventions.
ss.8. CONFIDENTIAL INFORMATION. The Employee recognizes and
acknowledges that certain assets of the Employer, including without limitation
information regarding customers, pricing policies, methods of operation,
proprietary computer programs, sales, products, profits, costs, markets, key
personnel, formulae, product applications, technical processes, and trade
secrets (hereinafter called "Confidential Information") are valuable, special,
and unique assets of the Employer and its affiliates. The Employee shall not,
during or after his term of employment, disclose any or any part of the
Confidential Information to any person, firm, corporation, association, or any
other entity for any reason or purpose whatsoever, directly or indirectly,
except as may be required pursuant to his employment hereunder; provided, that
Confidential Information shall in no event include (a) Confidential Information
which was generally available to the public at the time of disclosure by the
Employer or (b) Confidential Information which becomes publicly available other
than as a consequence of the breach by the Employee of his confidentiality
obligations hereunder. In the event of the
<PAGE>
-5-
termination of his employment, whether voluntary or involuntary and whether by
the Employer or the Employee, the Employee shall deliver to the Employer all
documents and data pertaining to the Confidential Information and shall not take
with him any documents or data of any kind or any reproductions (in whole or in
part) or extracts of any items relating to the Confidential Information.
ss.9. NON-COMPETITION. During the term of the Employee's employment
hereunder and until one year after termination of the Employee's employment
hereunder, the Employee will not (a) anywhere within New Jersey, New York or
Pennsylvania or anywhere within 100 miles of any store operated by the Employer
at the time of the Employee's termination, engage, directly or indirectly, alone
or as a shareholder (other than as a holder of less than five percent (5%) of
the common stock of any publicly traded corporation), partner, officer,
director, employee or consultant of any other business organization that is
engaged or becomes engaged in a business involving or relating to the operation
of retail drug stores or in any other business activity that the Employer is
conducting at the time of the Employee's termination or has notified the
Employee that it proposes to conduct and for which the Employer has, prior to
the time of such termination, expended substantial resources (the "Designated
Industry"), (b) divert to any competitor of the Employer any customer of the
Employer, or (c) solicit or encourage any officer, key employee or consultant of
the Employer to leave its employ for alternative employment or hire or offer
employment to, any person to whom the Employer has offered employment. The
Employee will continue to be bound by the provisions of this ss.9 until their
expiration and shall not be entitled to any compensation from the Employer with
respect thereto except as provided in ss.6(d) hereof. If at any time the
provisions of this ss.9 shall be determined to be invalid or unenforceable, by
reason of being vague or unreasonable as to area, duration or scope of activity,
this ss.9 shall be considered divisible and shall become and be immediately
amended to only such area, duration and scope of activity as shall be determined
to be reasonable and enforceable by the court or other body having jurisdiction
over the matter; and the Employee agrees that this ss.9 as so amended shall be
valid and binding as though any invalid or unenforceable provision had not been
included herein.
ss.10. GENERAL.
(a) Notices. All notices and other communications hereunder shall be in
writing or by written telecommunication, and shall be deemed to have been duly
given if delivered personally or if mailed by certified mail, return receipt
requested, postage prepaid or sent by written telecommunication or telecopy, to
the relevant address set forth below, or to such other address as
<PAGE>
-6-
the recipient of such notice or communication shall have specified to the other
party hereto in accordance with this ss.10(a):
If to the Employer, to:
Community Distributors, Inc.
251 Industrial Parkway
Somerville, New Jersey 08876
Attention: Mr. Frank Marfino, President
With a copy to:
Robert M. Wolf, Esq.
Bingham, Dana & Gould
150 Federal Street
Boston, Massachusetts 02110-1726
If to the Employee, to:
Mr. Barrie Levine
c/o Community Distributors, Inc.
251 Industrial Parkway
Somerville, New Jersey 08876
(b) Equitable Remedies. Each of the parties hereto acknowledges and
agrees that upon any breach by the Employee of his obligations under ss.ss.7, 8
and 9 hereof, the Employer will have no adequate remedy at law, and accordingly
will be entitled to specific performance and other appropriate injunctive and
equitable relief.
(c) Severability. If any provision of this Agreement is or becomes
invalid, illegal or unenforceable in any respect under any law, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired.
(d) Waivers. No delay or omission by either party hereto in exercising
any right, power or privilege hereunder shall impair such right, power or
privilege, nor shall any single or partial exercise of any such right, power or
privilege preclude any further exercise thereof or the exercise of any other
right, power or privilege.
(e) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
-7-
(f) Assigns. This Agreement shall be binding upon and inure to the
benefit of the heirs and successors of each of the parties hereto, including any
entity which acquires substantially all of the assets or stock of the Employer.
(g) Entire Agreement. This Agreement contains the entire understanding
of the parties, supersedes all prior agreements and understandings relating to
the subject matter hereof and shall not be amended except by a written
instrument hereafter signed by each of the parties hereto.
(h) Governing Law. This Agreement and the performance hereof shall be
construed and governed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have caused this Agreement to be duly executed as of the date and
year first above written.
COMMUNITY DISTRIBUTORS, INC.
By: ______________________________
Title:
__________________________________
Barrie Levine
CDI Group and Subsidiary, Inc.
(Dollars in thousands, except per share amounts)
Statement of Computation of Per Share Data
Six
Months Ended Fiscal Year Ended
7/30/95 7/28/96 7/26/97
------------ ------- -------
Net Income $638 $2,593 $3,778
Weighted Average number of common
shares outstanding 400,000 413,710 418,280
Shares issuable upon exercise of
outstanding options and warrants 9,283 27,327 41,393
------- ------- -------
Weighted average number of common
shares used in computing per share
data 409,283 441,037 459,673
------- ------- -------
Net Income per share 1.56 5.88 8.22
Community Distributors, Inc.
(Dollars in thousands, exept per share amounts
Computation of Earnaings to Fixed Charges
(UNAUDITED)
Earnings available for fixed Six
charges Months Ended Fiscal Year Ended
7/30/95 7/28/96 7/26/97
------------ ------- -------
Income before income taxes $2,666 $7,363 $9,779
ADD
Interest Expense 2,946 3,998 3,018
Interest component of rent
expense 1,118 2,624 2,811
------ ------- ------
Income as adjusted $6,730 $13,985 $15,608
------ ------- ------
Fixed Charges
Interest Expense 2,946 3,998 3,018
Interest component of rent
expense 1,118 2,624 2,811
------ ------- -------
Total Fixed Charges $4,064 $6,622 $5,829
------ ------- -------
Ratio of earnings to fixed charges 1.66 2.11 2.68
Earnings available for fixed Six
charges Months Ended Fiscal Year Ended
7/30/95 7/28/96 7/26/97
------------ ------- -------
Income before income taxes $2,004 $6,035 $8,211
ADD
Interest Expense 2,946 5,326 4,586
Interest component of rent
expense 1,118 2,624 2,811
------ ------- -------
Income as adjusted $6,068 $13,985 $15,608
------ ------- ------
Fixed Charges
Interest Expense 2,946 5,326 4,586
Interest component of rent
expense 1,118 2,624 2,811
------ ------- -------
Total Fixed Charges $4,064 $7,950 $7,397
------ ------- -------
Ratio of earnings to fixed charges 1.49 1.76 2.11
Exhibit 21.1
List of Subsidiaries
--------------------
Community Distributors, Inc. is a subsidiary of CDI Group, Inc.
CDI Group, Inc. has no other subsidiaries.
Community Distributors, Inc. has no subsidiaries.
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
-------------------------------
ARTHUR ANDERSEN LLP
Roseland, New Jersey
November 26, 1997
Consent of Independent Accountants
We consent to the inclusion in this registration statement on Form S-4 of our
report dated October 9, 1997, except for Note 10 for which the date is
October 16, 1997, on our audits of the financial statements of CDI Group, Inc.
and Subsidiary.
/s/ Coopers & Lybrand L.L.P.
Parsippany, New Jersey
November 25, 1997
Consent of Independent Accountants
We consent to the inclusion in this registration statement on Form S-4 of our
report dated October 9, 1997, except for Note 10 for which the date is
October 16, 1997, on our audits of Community Distributors, Inc.
/s/ Coopers & Lybrand L.L.P.
Parsippany, New Jersey
November 25, 1997
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
--------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
--------------------
COMMUNITY DISTRIBUTORS, INC.
(Exact name of obligor as specified in its charter)
Delaware 22-1833660
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
251 Industrial Parkway
Branchburg Township
Somerville, New Jersey 08876
(Address of principal executive offices) (Zip code)
--------------------
10 1/4% Senior Notes due 2004 of
Community Distributors, Inc. (the "New Notes")
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the 2 Rector Street, New York,
State of New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission,
are incorporated herein by reference as an exhibit hereto, pursuant to
Rule 7a-29 under the Trust Indenture Act of 1939 (the "Act") and 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 19th day of Novmeber, 1997.
THE BANK OF NEW YORK
By: /s/ Walter N. Gitlin
-------------------------
Name: Walter N. Gitlin
Title: Vice President
Exhibit 99.3
___________, 199__
EXCHANGE AGENCY AGREEMENT
-------------------------
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street - 21st Floor
New York, New York 10286
Ladies and Gentlemen:
Community Distributors, Inc. (the "Company") proposes to make an offer (the
"Exchange Offer") to exchange its 10 1/4% Senior Notes due 2004 (the "Old
Securities") for its 10 1/4% Senior Notes due 2004, Series B (the "New
Securities"). The terms and conditions of the Exchange Offer as currently
contemplated are set forth in a prospectus, dated ___________, 199__ (the
"Prospectus"), proposed to be distributed to all record holders of the Old
Securities. The Old Securities and the New Securities are collectively referred
to herein as the "Securities".
The Company hereby appoints The Bank of New York to act as exchange agent
(the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by the Company on or about
_____________, 199_. The Letter of Transmittal accompanying the Prospectus (or
in the case of book entry securities, the ATOP system) is to be used by the
holders of the Old Securities to accept the Exchange Offer and contains
instructions with respect to the delivery of certificates for Old Securities
tendered in connection therewith.
The Exchange Offer shall expire at 5:00 P.M., New York City time, on
_____________, 199__ or on such later date or time to which the Company may
extend the Exchange Offer (the "Expiration Date"). Subject to the terms and
conditions set forth in the Prospectus, the Company expressly reserves the right
to
<PAGE>
-2-
extend the Exchange Offer from time to time and may extend the Exchange Offer
by giving oral (confirmed in writing) or written notice to you before 9:00 A.M.,
New York City time, on the business day following the previously scheduled
Expiration Date.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Securities not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified in the Prospectus under the caption "The Exchange Offer
- -- Certain Conditions to the Exchange Offer." The Company will give oral
(confirmed in writing) or written notice of any amendment, termination or
nonacceptance to you as promptly as practicable.
In carrying out your duties as Exchange Agent, you are to act in accordance
with the following instructions:
1. You will perform such duties and only such duties as are specifically
set forth in the section of the Prospectus captioned "The Exchange Offer" or as
specifically set forth herein; provided, however, that in no way will your
general duty to act in good faith be discharged by the foregoing.
2. You will establish an account with respect to the Old Securities at The
Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of
the Exchange Offer within two business days after the date of the Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of the Old Securities by causing
the Book-Entry Transfer Facility to transfer such Old Securities into your
account in accordance with the Book-Entry Transfer Facility's procedure for such
transfer.
3. You are to examine each of the Letters of Transmittal and certificates
for Old Securities (or confirmation of book-entry transfer into your account at
the Book-Entry Transfer Facility) and any other documents delivered or mailed to
you by or for holders of the Old Securities to ascertain whether: (i) the
Letters of Transmittal and any such other documents are duly executed and
properly completed in accordance with instructions set forth therein and (ii)
the Old Securities have otherwise been properly tendered. In each case where the
Letter of Transmittal or any other document has been improperly completed or
executed or any of the certificates for Old Securities are not in proper form
for transfer or some other irregularity in connection with the acceptance of the
Exchange Offer exists, you will endeavor to inform the presenters of the need
for fulfillment of all requirements and to take any other action as may be
necessary or advisable to cause such irregularity to be corrected.
<PAGE>
-3-
4. With the approval of the Chief Executive Officer or Chief Financial
Officer of the Company (such approval, if given orally, to be confirmed in
writing) or any other party designated by such an officer in writing, you are
authorized to waive any irregularities in connection with any tender of Old
Securities pursuant to the Exchange Offer.
5. Tenders of Old Securities may be made only as set forth in the Letter of
Transmittal and in the section of the Prospectus captioned "The Exchange Offer
- -- Procedures for Tendering Existing Notes", and Old Securities shall be
considered properly tendered to you only when tendered in accordance with the
procedures set forth therein.
Notwithstanding the provisions of this paragraph 5, Old Securities which
the Chief Executive Officer or Chief Financial Officer of the Company shall
approve as having been properly tendered shall be considered to be properly
tendered (such approval, if given orally, shall be confirmed in writing).
6. You shall advise the Company with respect to any Old Securities received
subsequent to the Expiration Date and accept its instructions with respect to
disposition of such Old Securities.
7. You shall accept tenders:
(a) in cases where the Old Securities are registered in two or more names
only if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only when
proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Old Securities
provided that customary transfer requirements (including those imposed by the
Indenture), including any applicable transfer taxes, are fulfilled.
You shall accept partial tenders of Old Securities where so indicated and
as permitted in the Letter of Transmittal and return any untendered Old
Securities to the holder (or such other person as may be designated in the
Letter of Transmittal) as promptly as practicable after expiration or
termination of the Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will notify you (such notice if given orally, to be confirmed
in writing) of its acceptance, promptly after the Expiration Date, of all Old
Securities properly tendered and you, on behalf of the Company, will exchange
<PAGE>
-4-
such Old Securities for New Securities and cause such Old Securities to be
cancelled. Delivery of New Securities will be made on behalf of the Company by
you at the rate of $1,000 principal amount of New Securities for each $1,000
principal amount of the corresponding series of Old Securities tendered promptly
after notice (such notice if given orally, to be confirmed in writing) of
acceptance of said Old Securities by the Company; provided, however, that in all
cases, Old Securities tendered pursuant to the Exchange Offer will be exchanged
only after timely receipt by you of certificates for such Old Securities (or
confirmation of book-entry transfer into your account at the Book-Entry Transfer
Facility), a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) with any required signature guarantees and any other required
documents. You shall issue New Securities only in denominations of $1,000 or any
integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus and the
Letter of Transmittal, Old Securities tendered pursuant to the Exchange Offer
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
business day prior to the Expiration Date.
10. The Company shall not be required to exchange any Old Securities
tendered if any of the conditions set forth in the Exchange Offer are not met.
Notice of any decision by the Company not to exchange any Old Securities
tendered shall be given (and confirmed in writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Old Securities tendered because of an invalid
tender, the occurrence of certain other events set forth in the Prospectus under
the caption "The Exchange Offer -- Certain Conditions to the Exchange Offer" or
otherwise, you shall as soon as practicable after the expiration or termination
of the Exchange Offer return those certificates for unaccepted Old Securities
(or effect appropriate book-entry transfer), together with any related required
documents and the Letters of Transmittal relating thereto that are in your
possession, to the persons who deposited them.
12. All certificates for reissued Old Securities, unaccepted Old Securities
or for New Securities shall be forwarded by first-class mail.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons or
to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
<PAGE>
-5-
(a) shall have no duties or obligations other than those specifically set
forth herein or as may be subsequently agreed to in writing by you and the
Company;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of any of
the certificates or the Old Securities represented thereby deposited with you
pursuant to the Exchange Offer, and will not be required to and will make no
representation as to the validity, value or genuineness of the Exchange Offer;
(c) shall not be obligated to take any legal action hereunder which might
in your reasonable judgment involve any expense or liability, unless you shall
have been furnished with reasonable and customary indemnity;
(d) may reasonably rely on and shall be protected in acting in reliance
upon any certificate, instrument, opinion, notice, letter, telegram or other
document or security delivered to you and reasonably believed by you to be
genuine and to have been signed by the proper party or parties;
(e) may reasonably act upon any tender, statement, request, comment,
agreement or other instrument whatsoever not only as to its due execution and
validity and effectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which you shall in good faith
believe to be genuine or to have been signed or represented by a proper person
or persons;
(f) may rely on and shall be protected in acting upon written or oral
instructions from the Chief Executive Officer and Chief Financial Officer of the
Company;
(g) may consult with your counsel with respect to any questions relating to
your duties and responsibilities and the advice or opinion of such counsel shall
be full and complete authorization and protection in respect of any action
taken, suffered or omitted to be taken by you hereunder in good faith and in
accordance with the advice or opinion of such counsel; and
(h) shall not advise any person tendering Old Securities pursuant to the
Exchange Offer as to the wisdom of making such tender or as to the market value
or decline or appreciation in market value of any Old Securities.
<PAGE>
-6-
15. You shall take such action as may from time to time be requested by the
Company or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of Transmittal and the
Notice of Guaranteed Delivery (as defined in the Prospectus) or such other forms
as may be approved from time to time by the Company, to all persons requesting
such documents and to accept and comply with telephone requests for information
relating to the Exchange Offer, provided that such information shall relate only
to the procedures for accepting (or withdrawing from) the Exchange Offer. The
Company will furnish you with copies of such documents at your request. All
other requests for information relating to the Exchange Offer shall be directed
to the Company, Attention: Chief Financial Officer.
16. You shall advise by facsimile transmission or telephone, and promptly
thereafter confirm in writing to the Chief Financial Officer of the Company, its
counsel Bingham Dana LLP, and such other person or persons as it may request,
daily (and more frequently during the week immediately preceding the Expiration
Date and if otherwise requested) up to and including the Expiration Date, as to
the number of Old Securities which have been tendered pursuant to the Exchange
Offer and the items received by you pursuant to this Agreement, separately
reporting and giving cumulative totals as to items properly received and items
improperly received. In addition, you will also inform, and cooperate in making
available to, the Company, its counsel Bingham Dana LLP, or any such other
person or persons upon oral request made from time to time prior to the
Expiration Date of such other information as it or he or she reasonably
requests. Such cooperation shall include, without limitation, the granting by
you to the Company and such person as the Company may request of access to those
persons on your staff who are responsible for receiving tenders, in order to
ensure that immediately prior to the Expiration Date the Company shall have
received information in sufficient detail to enable it to decide whether to
extend the Exchange Offer. You shall prepare a final list of all persons whose
tenders were accepted, the aggregate principal amount of Old Securities
tendered, the aggregate principal amount of Old Securities accepted and deliver
said list to the Company and Bingham Dana LLP.
17. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Company.
18. You hereby expressly waive any lien, encumbrance or right of set-off
whatsoever that you may have with respect to funds deposited with you for the
payment of transfer taxes by reasons of amounts, if any, borrowed by the
<PAGE>
-7-
Company, or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange Agent,
which shall be controlled by this Agreement.
21. The Company covenants and agrees to indemnify and hold you harmless in
your capacity as Exchange Agent hereunder against any loss, liability, cost or
expense, including attorneys' fees and expenses, arising out of or in connection
with any act, omission, delay or refusal made by you in reliance upon any
signature, endorsement, assignment, certificate, order, request, notice,
instruction or other instrument or document reasonably believed by you to be
valid, genuine and sufficient and in accepting any tender or effecting any
transfer of Old Securities reasonably believed by you in good faith to be
authorized, and in delaying or refusing in good faith to accept any tenders or
effect any transfer of Old Securities; provided, however, that the Company shall
not be liable for indemnification or otherwise for any loss, liability, cost or
expense to the extent arising out of your negligence, bad faith or willful
misconduct. In no case shall the Company be liable under this indemnity with
respect to any claim against you unless the Company shall be notified by you, by
letter or by facsimile confirmed by letter, of the written assertion of a claim
against you or of any other action commenced against you, promptly after you
shall have received any such written assertion or notice of commencement of
action. The Company shall be entitled to participate at its own expense in the
defense of any such claim or other action, and, if the Company so elects, the
Company shall assume the defense of any suit brought to enforce any such claim.
In the event that the Company shall assume the defense of any such suit, the
Company shall not be liable for the fees and expenses of any additional counsel
thereafter retained by you so long as the Company shall retain counsel
satisfactory to you to defend such suit, and so long as you have not determined,
in your reasonable judgment, that a conflict of interest exists between you and
the Company.
22. You shall arrange to comply with all requirements under the tax laws of
the United States, including those relating to missing Tax Identification
<PAGE>
-8-
Numbers, and shall file any appropriate reports with the Internal Revenue
Service. The Company understands that you are required to deduct 31% on payments
to holders who have not supplied their correct Taxpayer Identification Number or
required certification. Such funds will be turned over to the Internal Revenue
Service in accordance with applicable regulations.
23. You shall deliver or cause to be delivered, in a timely manner to each
governmental authority to which any transfer taxes are payable in respect of the
exchange of Old Securities, the Company's check in the amount of all transfer
taxes so payable, and the Company shall reimburse you for the amount of any and
all transfer taxes payable in respect of the exchange of Old Securities;
provided, however, that you shall reimburse the Company for amounts refunded to
you in respect of your payment of any such transfer taxes, at such time as such
refund is received by you.
24. This Agreement and your appointment as Exchange Agent hereunder shall
be construed and enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within such state,
and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
25. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
26. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
27. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, cancelled or waived, in whole or in part, except by a
written instrument signed by a duly authorized representative of the party to be
charged. This Agreement may not be modified orally.
28. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, at its
address or telecopy number set forth below:
<PAGE>
-9-
If to the Company:
Community Distributors, Inc.
251 Industrial Parkway
Branchburg Township
Somerville, New Jersey 08876
Facsimile: (908) 722-8700
Attention: Chief Financial Officer
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Facsimile: (617) 951-8736
Attention: John R. Utzschneider
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile: (212) 815-5915
Attention: Corporate Trust Trustee
Administration
29. Unless terminated earlier by the parties hereto, this Agreement shall
terminate 90 days following the Expiration Date. Notwithstanding the foregoing,
Paragraphs 19, 21 and 23 shall survive the termination of this Agreement. Upon
any termination of this Agreement, you shall promptly deliver to the Company any
certificates for Securities, funds or property then held by you as Exchange
Agent under this Agreement.
30. This Agreement shall be binding and effective as of the date hereof.
Please acknowledge receipt of this Agreement and confirm the arrangements
herein provided by signing and returning the enclosed copy.
<PAGE>
-10-
COMMUNITY DISTRIBUTORS, INC.
By:_________________________
Name:
Title:
Accepted as of the date first above written:
THE BANK OF NEW YORK, as Exchange Agent
By:_____________________
Name:
Title:
<PAGE>
-11-
SCHEDULE I
FEES
Exhibit 99.4
COMMUNITY DISTRIBUTORS, INC.
CDI GROUP, INC.
251 INDUSTRIAL PARKWAY
BRANCHBURG TOWNSHIP
SOMERVILLE, NEW JERSEY 08876
November 28, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form S-4 Registration Statement relating to the offer to
exchange 10 1/4% Senior Notes (the "Exchange Notes") due 2004,
Series B of Community Distributors, Inc., which have been
registered under the Securities Act of 1933, as amended, for
any and all of its outstanding 10 1/4% Senior Notes due 2004
Dear Sir or Madam:
In connection with our above-captioned Registration Statement,
Community Distributors, Inc. and CDI Group, Inc hereby represent that:
1. They are registering the Exchange Notes exchange offer registered
thereby in reliance on the Staff's position set forth in Exxon Capital Holdings
Corp., SEC No-Action Letter (April 13, 1989), Morgan Stanley & Co., Inc., SEC
No-Action Letter (June 2, 1993) and Shearman & Sterling, SEC No-Action Letter
(July 2, 1993).
2. They have not entered into any arrangement or understanding with any
person to distribute the securities to be received in the exchange offer and, to
the best of their information and belief, any person participating in the
exchange offer will be acquiring the securities in its ordinary course of
business and will have no arrangement or understanding with any person to
participate in the distribution of the securities to be received in the exchange
offer; and
3. The preliminary prospectus contains and the final prospectus will
contain disclosures making persons participating in the exchange offer aware of
limitations and obligations applicable to broker-dealers who participate in the
exchange offer.
Very truly yours,
COMMUNITY DISTRIBUTORS, INC. CDI GROUP, INC.
By: /s/ Todd H. Pluymers By: /s/ Todd H. Pluymers
----------------------- -----------------------
Todd H. Pluymers Todd H. Pluymers
Chief Financial Officer Chief Financial Officer
